UNITED STATESSECURITIES 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
      March 31, 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 xNoo
  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 filer o, Accelerated filer
o, Non-accelerated
filer o, Smaller
reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2of the Exchange Act. Yes o  No x
  APPLICABLE
ONLY TO CORPORATE ISSUERS
  As of May
13, 2008, there were 329,216,321 shares of Common Stock issued and
outstanding.
   Table of Contents
 
   TABLEOFCONTENTS
 
   PAGEPART
      I
                FINANCIAL
      INFORMATIONITEM
      1.
                FINANCIAL STATEMENTS
      (UNAUDITED)CONDENSED CONSOLIDATED BALANCE
      SHEETS AS OF MARCH 31, 2008 AND JUNE
      30,  2007
                F-1CONDENSED CONSOLIDATED STATEMENTS OF
      OPERATIONS FOR THE THREE  AND NINE MONTHS ENDED MARCH 31, 2008
      AND 2007
                F-2CONDENSED CONSOLIDATED STATEMENTS OF
      CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND
      2007
                F-3NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL STATEMENTS
                F-5 to
      F-18ITEM
      2.
                MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
                1ITEM
      3
                QUANTITATIVE  AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                10ITEM
      4.
                CONTROLS AND
      PROCEDURES
                11PART
      II
                OTHER
      INFORMATIONITEM
      1.
                LEGAL
      PROCEEDINGS
                11ITEM
      1A
                RISK FACTORSITEM
      2.
                UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS
                12ITEM
      3.
                DEFAULTS UPON SENIOR
      SECURITIES
                15ITEM
      4.
                SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS
                15ITEM
      5.
                OTHER
      INFORMATION
                15ITEM
      6.
                EXHIBITS
                15SIGNATURES
                16
 
    Table of Contents
 
  FREESTARTECHNOLOGY CORPORATION
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
  ASSETSMarch
      31,
                
                
                June
      30,2008
                  (Unaudited)
                
                
                2007Current
      assets:Cash
      and cash equivalents
                
                $
                214,150
                
                
                $
                466,408Accounts
      receivable, net of allowance for doubtful accounts of $57,779 and
      $54,903at
      March 31 and June 30, 2007,  respectively (note
    3)
                
                
                795,106
                
                
                
                977,502Other
      current assets (note 4)
                
                
                151,118
                
                
                
                103,988Inventory
      (note 5)
                
                
                695,296
                
                
                
                918,947Total
      current assets
                
                
                1,855,670
                
                
                
                2,466,845Property,
      plant and equipment, net of accumulated depreciation andamortization
      of  $262,110 and $170,804, at March 31, 2008 and June 30,
      2007  respectively  (note 6)
                
                
                177,869
                
                
                
                187,323Software
      license, net of accumulated amortization of  $1,194,422 and
      $1,027,457 at March 31, 2008 and June 30, 2007, respectively (note
      7)
                
                
                1,066,734
                
                
                
                1,233,699Customer
      relationships and contracts, net of accumulated amortization of $1,080,933
      and $848,493 at March 31, 2008 and June 30, 2007,
      respectively  (note 7)
                
                
                1,868,316
                
                
                
                2,100,756Software,
      net of accumulated amortization of  $1,547,647 and $1,175,908 at
      March 31, 2008 and June 30, 2007, respectively (note 7)
                
                
                3,178,263
                
                
                
                2,608,446Other
      long-term assets (note 8)
                
                
                15,750
                
                
                
                19,966Total
      assets
                
                $
                8,162,602
                
                
                $
                8,617,035LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses (note 9)
                
                
                3,276,005
                
                
                
                2,485,629Due
      to related parties (note 10)
                
                
                661,662
                
                
                
                191,984Deferred
      revenue
                
                
                159,615
                
                
                
                87,897Total
      current liabilities
                
                
                4,097,282
                
                
                
                2,765,510Commitments
      and contingenciesMinority
      interest
                
                
                510,131
                
                
                
                184,008Stockholders'
      Equity: (note 11)Convertible
      preferred stock, series A, $0.001 par value,1,000,000
      shares  authorized; 1,000,000 shares issued and
      outstanding
                
                
                1,000
                
                
                
                1,000Convertible
      preferred stock, series B, $0.001 par value,4,000,000
      shares  authorized,  1,500,000 and 2,000,000 shares
      issued and outstanding atMarch  31,
      2008 and June 30, 2007, respectively
                
                
                1,500
                
                
                
                2,000Additional
      paid-in capital - preferred stock
                
                
                2,530,558
                
                
                
                2,890,058Common
      stock, $0.001 par value, 500,000,000 shares authorized; 304,384,343 and
      233,783,452shares
      issued and outstanding at March  31, 2008 and June 30,
      2007,  respectively  (note 11)
                
                
                304,384
                
                
                
                233,783Additional
      paid-in capital - common stock
                
                
                88,702,217
                
                
                
                75,589,649Common
      stock subscrptions receivable
                
                
                (1,635,000
                )
                
                
                (600,000
                )Common
      stock subscribed
                
                
                474,156
                
                
                
                2,600,014Deferred
      compensation (note 11)
                
                
                (86,584
                )
                
                
                (599,770
                )Unearned
      compensation on restricted stock
                
                
                (22,403
                )
                
                
                (121,701
                )Accumulated
      deficit
                
                
                (87,136,832
                )
                
                
                (74,418,911
                )Accumulated
      other comprehensive gain
                
                
                422,193
                
                
                
                91,395Total
      stockholders' equity
                
                
                3,555,189
                
                
                
                5,667,517Total
      liabilities and stockholders' equity
                
                $
                8,162,602
                
                
                $
                8,617,035
  The
accompany notes form an integral part of these unaudited consolidated condensed
financial statements.
 
  F-1
 Table of Contents
 
 
 FREESTARTECHNOLOGY CORPORATION
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
  Three
                  Months
      Ended
                
                
                Three Months
      Ended
                
                
                Nine Months
      Ended
                
                
                Nine Months
      EndedMarch
      31,
                
                
                March
      31,
                
                
                March
      31,
                
                
                March
      31,2008
                
                
                2007
                
                
                2008
                
                
                2007RevenueTransaction
      processing
                
                $
                575,002
                
                
                $
                484,093
                
                
                $
                1,575,507
                
                
                $
                1,443,763Consulting
      services
                
                
                760,119
                
                
                
                474,505
                
                
                
                2,049,958
                
                
                
                738,449Hardware
      and related
                
                
                294,029
                
                
                
                167,036
                
                
                
                806,893
                
                
                
                217,184Total
      revenue
                
                
                1,629,150
                
                
                
                1,125,634
                
                
                
                4,432,358
                
                
                
                2,399,396Cost
      of revenueTransaction
      processing
                
                
                623,110
                
                
                
                616,430
                
                
                
                1,866,738
                
                
                
                1,776,774Consulting
      services
                
                
                487,860
                
                
                
                440,052
                
                
                
                1,483,174
                
                
                
                652,065Hardware
      and related
                
                
                207,402
                
                
                
                162,884
                
                
                
                657,057
                
                
                
                211,814Total
      cost of sales
                
                
                1,318,372
                
                
                
                1,219,366
                
                
                
                4,006,969
                
                
                
                2,640,653Gross
      profit (loss)
                
                
                310,778
                
                
                
                (93,732
                )
                
                
                425,389
                
                
                
                (241,257
                )Selling,
      general and administrative expenses
                
                
                2,774,702
                
                
                
                2,528,718
                
                
                
                12,840,282
                
                
                
                7,980,845Loss
      from operations
                
                
                (2,463,924
                )
                
                
                (2,622,450
                )
                
                
                (12,414,893
                )
                
                
                (8,222,102
                )Other
      income (expenses):Additional
      cost of acquisition (note 7)
                
                
                -
                
                
                
                -
                
                
                
                (192,555
                )
                
                
                -Interest
      income/(expense)
                
                
                (6,660
                )
                
                
                (838
                )
                
                
                (37,071
                )
                
                
                (1,617
                )Loss
      before income taxes and minority interest in subsidiaries
                
                
                (2,470,584
                )
                
                
                (2,623,288
                )
                
                
                (12,644,519
                )
                
                
                (8,223,719
                )Income
      taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,961Minority
      interest in net income (loss) of subsidiaries
                
                
                39,789
                
                
                
                (4,244
                )
                
                
                73,402
                
                
                
                (17,956
                )Net
      Loss
                
                
                (2,510,373
                )
                
                
                (2,619,044
                )
                
                
                (12,717,921
                )
                
                
                (8,213,724
                )Other
      - Comprehensive income (loss):  Gain (Loss) on foreign
      exchange
                
                
                120,198
                
                
                
                162,157
                
                
                
                330,798
                
                
                
                188,185Comprehensive
      loss
                
                $
                (2,390,175
                )
                
                $
                (2,456,887
                )
                
                $
                (12,387,123
                )
                
                $
                (8,025,539
                )Loss
      per share - basic and diluted
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.05
                )
                
                $
                (0.04
                )Weighted
      average shares outstanding - basic
                
                
                301,291,750
                
                
                
                196,712,900
                
                
                
                275,810,098
                
                
                
                189,118,243Weighted
      average shares outstanding - diluted
                
                
                309,006,033
                
                
                
                217,419,006
                
                
                
                283,524,384
                
                
                
                214,926,890
 
 The
accompany notes form an integral part of these unaudited condensed consolidated
financial statements.
   F-2
 Table of Contents
 
 
 FREESTARTECHNOLOGY CORPORATION
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
   Nine
                
                
                NineMonths
      Ended
                
                
                Months
      EndedMarch
      31,
                
                
                March
      31,2008
                
                
                2007Cash
      flows used for operating activities:Net
      loss
                
                $
                (12,717,921
                )
                
                $
                (8,213,724
                )Minority
      interest in income loss of subsidiary
                
                
                73,402
                
                
                
                (17,956
                )Adjustments
      to reconcile net loss to net cashprovided
      by (used for) operating activities:Depreciation
      and amortization
                
                
                707,474
                
                
                
                622,201Increase
      in AR reserve
                
                
                
                
                
                
                33,403Non-cash
      compensation
                
                
                6,837,135
                
                
                
                3,245,625Changes
      in assets and liabilities:(Increase)
      decrease in assetsAccounts
      receivable
                
                
                38,882
                
                
                
                227,452Inventory
                
                
                98,134
                
                
                
                (1,144,814
                )Long
      term deposits and prepaid rent
                
                
                
                
                
                
                (19,966
                )Other
      current assets
                
                
                (46,773
                )
                
                
                (2,157
                )Increase
      (decrease) in liabilitiesAccounts
      payable and accrued expenses
                
                
                1,375,406
                
                
                
                818,766Deferred
      revenue
                
                
                71,718
                
                
                
                -Due
      to employees
                
                
                
                
                
                
                182,837Accrual
      of salary to officers
                
                
                469,678
                
                
                
                92,122Total
      adjustments
                
                
                9,625,056
                
                
                
                4,037,513Net
      cash used by operating activities
                
                
                (3,092,865
                )
                
                
                (4,176,211
                )Cash
      flows provided by (used for) investing activities:Purchase
      of fixed assets
                
                
                (37,918
                )
                
                
                (130,392
                )Purchase
      of software and capitalized software cost
                
                
                (355,441
                )
                
                
                (542,447
                )Investment
      in PLC, net of cash acquired
                
                
                -
                
                
                
                (177,737
                )Net
      cash used by investing activities
                
                
                (393,359
                )
                
                
                (850,576
                )Cash
      flows provided by (used for) financing activities:Proceeds
      from sale of common stock
                
                
                965,000
                
                
                
                2,400,000Commissions
      for sale of common stock
                
                
                -
                
                
                
                (240,000
                )Proceeds
      from exercise of stock options/warrants
                
                
                2,280,106
                
                
                
                82,500Cash
      contributed by officer of subsidiary
                
                
                252,721
                
                
                
                -Net
      cash provided by financing activities
                
                
                3,497,827
                
                
                
                2,242,500Net
      increase (decrease) in cash and cash equivalents
                
                
                11,603
                
                
                
                (2,784,287
                )Foreign
      currency translation adjustments
                
                
                (263,861
                )
                
                
                70,832Cash
      and cash equivalents, beginning of period
                
                
                466,408
                
                
                
                2,972,135Cash
      and cash equivalents, end of period
                
                $
                214,150
                
                
                $
                258,680
    F-3
 Table of Contents
  FREESTAR
TECHNOLOGY CORPORATION
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Continued)
 Nine
                  
                  
                  NineMonths
      Ended
                  
                  
                  Months
      EndedMarch
      31,
                  
                  
                  March
      31,2008
                  
                  
                  2007
 Supplemental
      disclosure of cash flow information:Interest
      paid
                
                $
                -
                
                
                $
                -Income
      tax paid
                
                $
                -
                
                
                $
                7,961Shares
      of restricted common stock issued for services
                
                $
                4,071,542
                
                
                $
                985,000Shares
      of common stock issued to employees for services
                
                $
                181,750
                
                
                $
                -Adjustment
      of unearned restricted common stock for the period
                
                $
                99,298
                
                
                $
                -Adjustment
      of deferred compensation for the period
                
                $
                513,186
                
                
                $
                1,657,208Shares
      of common stock issued for subscriptions receivable
                
                $
                1,500,000
                
                
                $
                600,000Fair
      value of options issued to consultants and employees
                
                $
                1,702,359
                
                
                $
                761,417Shares
      of common stock issued for prepaid rent
                
                $
                -
                
                
                $
                75,600Shares
      of common stock issued for subscriptions payable
                
                $
                -
                
                
                $
                352,500Stock
      options exercised, cash not received
                
                $
                -
                
                
                $
                75,000Conversion
      of preferred stock to common stock
                
                $
                360,000
                
                
                $
                13,700Value
      of shares issued to director for services
                
                $
                269,000
                
                
                $
                -Cancellation
      of shares of common stock
                
                $
                -
                
                
                $
                (158,000
                )Shares
      of common stock issued to acquire interest in subsidiary
                
                $
                -
                
                
                $
                800,000Acquisition
      of PLC Partners, LTD:Accounts
      receivable
                
                $
                -
                
                
                $
                273,740Property
      and equipment
                
                
                -
                
                
                
                2,381Customer
      relationships and contracts
                
                
                -
                
                
                
                982,045Current
      liabilities
                
                
                -
                
                
                
                (262,423
                )Minority
      interest
                
                
                -
                
                
                
                (17,956
                )Net
      Assets
                
                $
                -
                
                
                $
                977,787Common
      stock Issued
                
                $
                -
                
                
                
                800,000Cash
      paid
                
                
                -
                
                
                
                200,000Cash
      balance upon acquisition
                
                
                -
                
                
                
                (22,213
                )Net
      Assets
                
                $
                -
                
                
                $
                977,787Fair
      value of additional shares issued  for PLC
      Acquisition:
                
                $
                192,555
                
                
                $
                -
 
 The
accompany notes form an integral part of these unaudited condensed consolidated
financial statements.
 
  F-4
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 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-KSB for the fiscal year ended
June 30, 2007. In the opinion of management, these unaudited condensed
consolidated financial statements reflect all adjustments that are of a normal
recurring nature and which are necessary to present fairly the financial
position of the Company as of March 31, 2008, and the results of operations and
cash flows for the nine months ended March 31, 2008 and 2007. The results of
operations for the three and nine months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
 
 Nature Of Business
Operations
 
 The
Company (formerly Freestar Technologies) was formed on November 17, 1999 as a
Nevada corporation. The Company is a provider of payment services and
processing. Its principal offices are in Dublin, Ireland; the Company also has
offices in Helsinki, Finland; Stockholm, Sweden; Geneva, Switzerland; and Santo
Domingo, the Dominican Republic.
 
 The  Company  derives  revenues  from  its
core  payment  processing products,  which
include:  (1) Authorization / Transaction Fees:  transaction
fees it receives from processing point of sale terminal
transactions;  (2) Hardware Sales / Point of Sale Terminals: sales of
“Point of Sale” terminals and related maintenance and service initiation fees;
(3) Dynamic  Currency  Conversion:  in addition to
transaction authorization, the Company offers certain clients real-time, dynamic
currency conversion, allowing a customer to pay for a product or service with
their credit card in their local currency;  (4) Private
Label Cards:  transaction  management services
provided for a private label card issuer;  and (5) Consulting Fees:
consulting services provided to financial institutions and
merchants.
 
 Going
Concern
  The
accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a
going concern. However, the Company has reported a net loss of $2,510,373 and
$12,717,921 for the three and nine months ended March 31, 2008 and $16,305,197
for the year ended June 30, 2007, and had an accumulated deficit of $87,136,832
as of March 31, 2008.
 
 The
Company believes that anticipated revenues from operations will be insufficient
to satisfy its ongoing capital  requirements for at least the next 12
months.  If
the  Company’s  financial  resources  are
insufficient, the Company will
require  additional  financing in order to execute its
operating plan and continue as a going  concern.  The
Company cannot predict whether this  additional  financing
will be in the form of equity or debt, or be in another form. The Company may
not be able to obtain the necessary  additional capital on a
timely  basis,  on  acceptable  terms,  or
at all.  In any of these events,  the Company may be unable
to implement its current plans for expansion,
repay  its  debt  obligations  as
they  become due,
or  respond  to  competitive
pressures,  any of which  circumstances  would
have a material adverse effect on its business, prospects, financial condition
and results of operations.
 
 Management
plans to take the following steps that it believes will be sufficient
to  provide  the  Company  with
the  ability  to  continue  as a
going  concern. Management  intends to raise
financing  through the sale of its stock in private placements
to  individual  investors.  Management  may
also raise funds in the public markets.  Management believes that with
this financing, the Company will be able to generate additional revenues that
will allow the Company to continue as a
going  concern.  This will be accomplished by hiring
additional  personnel and focusing sales and marketing efforts on the
distribution of product through key marketing  channels currently
being  developed  by
the  Company.  The  Company  may
also  pursue  the acquisition of certain strategic industry
partners where appropriate.
 
  F-5
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 Revenue
Recognition
 
 The
Company recognizes revenues from contracts in which the Company provides only
consulting services as the services are performed. The contractual terms of the
agreements dictate the recognition of revenue by the Company. Payments received
in advance are deferred until the service is provided.
 
 Contract
costs include all direct equipment, material, and labor costs and those indirect
costs related to contract performance, such as indirect labor. Selling, general
and administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in contract performance, contract conditions, and
estimated profitability that may result in revisions to costs and income are
recognized in the period in which the revisions are determined.
 
 For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which
superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB
No.101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectibility of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund will
be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF") No.
00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
accounting for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's consolidated financial position and
results of operations was not significant. This issue addresses determination of
whether an arrangement involving more than one deliverable contains more than
one unit of accounting and how the arrangement consideration should be measured
and allocated to the separate units of accounting. EITF No. 00-21 became
effective for revenue arrangements entered into in periods beginning after June
15, 2003. For revenue arrangements occurring on or after August 1, 2003, the
Company revised its revenue recognition policy to comply with the provisions of
EITF No. 00-21.
 
 For those
contracts which contain multiple  deliverables,  management
must first determine whether each service, or deliverable, meets the separation
criteria of EITF No. 00-21. In general, a deliverable (or a group of
deliverables) meets the separation  criteria if the deliverable has
standalone value to the customer and if there is objective  and
reliable  evidence of the fair value of the remaining
deliverables  in
the  arrangement.  Each  deliverable  that
meets the separation criteria is considered a “separate unit of accounting.”
Management allocates the total arrangement consideration to each separate unit
of accounting based on the
relative  fair  value  of  each  separate  unit
of  accounting.  The  amount  of
arrangement  consideration  that is allocated to a unit
of  accounting  that has already been delivered is limited
to the amount that is not contingent  upon the
delivery  of  another  separate  unit  of  accounting.   After  the  arrangement
consideration has been allocated to each separate unit of accounting, management
applies
the  appropriate  revenue  recognition  method
for each separate unit of accounting as described  previously based on
the nature of the arrangement.  All deliverables  that do
not meet the  separation  criteria  of EITF
No.  00-21 are combined into one unit of accounting,  and
the appropriate  revenue  recognition method is applied
under SAB No. 101. Processing fee revenue is earned based   upon
the actual  number of
transactions  processed  through the
Company’s  processing  system.  Transaction
processing  fees are  recognized  in the period
that the  service is  performed. These fees are
typically  charged on a per
transaction  basis,  depending on the arrangement with the
customer.  Maintenance fees for processing terminals are recognized
over the period for which maintenance is provided.
 
 The
Company’s subsidiary Rahaxi charges certain customers for one-time initiation
fees and annual maintenance fees.    These fees are charged
to deferred revenue when billed, and  revenue from these fees is
recognized straight-line over the billing coverage period, typically twelve
months.
   F-6
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 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 March 31, 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 $0.08 as of March 31, 2008, and the exercise price multiplied by the
number of options outstanding.  As of March 31, 2008, total unrecognized
stock-based compensation expense related to non-vested stock options was $0. The
total fair value of options vested was $229,167 and $0 for
the   nin-month periods ended March 31, 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 nine months ended March 31, 2008, the Company placed
into service and began amortizing $0 of software. The total net book value of
software in service at March 31, 2008 is approximately $837,864. During the nine
months ended March 31, 2008, the Company has capitalized software totaling
$355,441. The total net book value of software under development at March 31,
2008 is approximately $2,340,399.  At March 31, 2008, total software
capitalized at under SFAS No. 86 is approximately $3,178,263 net of accumulated
amortization of $1,547,647.
  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
  On
December 4, 2007, the FASB issued SFAS 141R, Business Combinations, which we
will adopt on January 1, 2009. This standard will significantly change the
accounting for business acquisitions both during the period of the acquisition
and in subsequent periods. Among the more significant changes in the accounting
for acquisitions are the following:
  ·
                  Transaction
      costs will generally be expensed. Certain such costs are presently treated
      as costs of the acquisition.
  ·
                  In-process
      research and development (IPR&D) will be accounted for as an asset,
      with the cost recognized as the research and development is realized or
      abandoned. IPR&D is presently expensed at the time of the
      acquisition.
  ·
                  Contingencies,
      including contingent consideration, will generally be recorded at fair
      value with subsequent adjustments recognized in operations. Contingent
      consideration is presently accounted for as an adjustment of purchase
      price.
  ·
                  Decreases
      in valuation allowances on acquired deferred tax assets will be recognized
      in operations. Such changes previously were considered to be subsequent
      changes in consideration and were recorded as decreases in
      goodwill.
   F-7
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 Generally,
the effects of SFAS 141R will depend on future acquisitions.
  On
December 4, 2007, the FASB issued SFAS 160, No controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which we will
adopt on January 1, 2009. This standard will significantly change the accounting
and reporting related to non controlling interests in a consolidated subsidiary.
After adoption, any non controlling interests will be classified as shareowner’s
equity, a change from its current classification between liabilities and
shareowner’s equity. Any earnings attributable to minority interests will be
included in net earnings. Purchases and sales of minority interests will be
reported in equity, deferring, perhaps permanently, recognition of the economic
gain or loss on partial dispositions.
  In March
2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161,
Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133 (SFAS 161).  The SFAS 161 requires companies to provide
enhanced disclosures regarding derivative instruments and hedging activities and
requires companies to better convey the purpose of derivative use in terms of
the risks they intend to manage. Disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect a company’s
financial position, financial  performance and cash flows are
required. This Statement retains the same scope as SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and is effective for fiscal years and
interim periods beginning after November 15, 2008. We do not expect the adoption
of SFAS No. 161 to have a material impact, if any, on our consolidated financial
statements.
  In
February 2008, the FASB issued a FASB Staff Position (FSP) on Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions (FSP FAS 140-3).
This FSP addresses the issue of whether the transfer of financial assets and the
repurchase financing transactions should be viewed as two separate transactions
or as one linked transaction. The FSP includes a rebuttable presumption that the
two transactions are linked unless the presumption can be overcome by meeting
certain criteria. The FSP will be effective for fiscal years beginning after
November 15, 2008 and will apply only to original transfers made after that
date; early adoption will not be allowed. We do not expect the adoption of FSP
FAS 140-3 to have a material impact, if any, on our consolidated financial
statements.
  2.
ACQUISITION OF PROJECT LIFE CYCLE PARTNERS, LTD.
 
 Effective
November 21, 2006, the Company has acquired 50% of the outstanding capital stock
of Project Life Cycle Partners, Ltd. (“PLC Partners”), a technology consulting
firm located in Dublin, Ireland.  PLC Partners is a niche project
consulting firm specializing in the management and implementation of information
systems projects.  PLC Partners has international experience within the
financial services sector.
  The 50%
acquisition of PLC Partners was accounted for using the purchase method in
accordance with SFAS 141, “Business Combinations”. Total consideration for the
transaction was $1,000,000, consisting of $200,000 cash and 2,222,222 shares of
the Company's common stock, valued at $0.36 per share based upon a 30-day
average closing price per share. The Company also assumed 50%, or approximately
$132,000, of PLC's liabilities at the date of acquisition. The Company may be
required to issue additional shares, capped at a maximum of an additional 50%,
if, on the one-year anniversary of the acquisition, the 30-day average closing
price per share of the Company's stock is less than $0.36.
  The 50%
acquisition of  PLC Partners is not a significant acquisition pursuant to
Rule 3-01 of regulation S-X of the Securities and Exchange Commission, and the
Company is not required to submit pro forma financial statements under Item
9.01(b).
 
 The
results of operations for PLC Partners have been included in the Consolidated
Statements of Operations since the date of acquisition. The components of
the purchase price were as follows:
  Common
      stock
                
                $
                800,000Cash
                
                
                200,000Total
                
                $
                1,000,000
   F-8
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 In
accordance with Financial Accounting Standard (SFAS) No. 141, Business
Combinations, the total purchase price was allocated to the estimated fair value
of assets acquired and liabilities assumed. The fair value of the assets
acquired was based on management's best estimates. The purchase price was
allocated to the fair value of assets acquired and liabilities assumed as
follows:
  Cash
      and cash equivalents
                
                $
                22,213Accounts
      receivable
                
                
                273,740Equipment
      and other assets
                
                
                2,381Customer
      relationships and contracts
                
                
                982,045Subtotal
                
                
                1,280,379Current
      liabilities
                
                
                (262,423
                )Minority
      interest
                
                
                (17,956
                )Total
                
                $
                1,000,000
  The
financial information in the unaudited table set forth below summarizes the
combined results of operations of PLC and Freestar, on a pro forma basis, as
though the companies had been combined at the beginning of fiscal year 2007 or
July 1, 2006.
 
 The
unaudited pro forma condensed combined results of operations do not purport to
represent what the companies' combined results of operations would have been if
such transaction had occurred at the beginning of the periods presented, and are
not necessarily indicative of the Company's future results.
  Three
      months ended March 31,
                
                
                Nine
      months ended March 31,2008
                
                
                2007
                
                
                2008
                
                
                2007Actual
                
                
                Proforma
                
                
                Actual
                
                
                ProformaRevenue:Freestar
                
                $
                869,030
                
                
                $
                674,753
                
                
                $
                2,382,400
                
                
                $
                1,735,070PLC
                
                
                760,120
                
                
                
                245,011
                
                
                
                2,049,958
                
                
                
                593,076Combined
                
                $
                1,629,150
                
                
                $
                919,764
                
                
                $
                4,432,358
                
                
                $
                2,328,146Net
      income (loss):
                
                $
                (1,666,288
                )
                
                $
                (2,724,501
                )
                
                $
                (11,356,981
                )
                
                $
                (8,360,479
                )EPS
                
                $
                (0.01
                )
                
                $
                (0.01
                )
                
                $
                (0.05
                )
                
                $
                (0.05
                )
 
 
  Pursuant
to the terms of the 50% acquisition of  PLC, the Company is obligated to
issue to the PLC shareholders  additional shares of Freestar common stock
representing the difference between $800,000 and the value of the FreeStar
Shares, calculated based on the one-year closing price. The number of shares
issuable pursuant to this calculation is capped at
1,111,111.   The one year closing price will be calculated as of
November 21, 2007.  As of November 12, 2007, the Company would owe to
the PLC shareholders an additional 1,111,111 shares of common stock with a fair
value of  $192,555.  The Company has accrued this amount to
operations during the three months ended September 30, 2007.  These
shares were issued during the three months ended December 31, 2007.
   F-9
 Table of Contents
 FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 3.
ACCOUNTS RECEIVABLE
 
 Accounts
receivable consists of the following:
 
 March
      31,
                
                June
      30,2008
                
                2007Amounts
      receivable from customers
                $
                
                852,885
                
                $
                
                1,032,405Less:
      Reserve for doubtful accounts
                
                
                57,779
                
                
                
                54,903Accounts
      receivable, net
                $
                
                795,106
                
                $
                
                977,502
  4.  OTHER
CURRENT ASSETS
 
 Other
current assets consists of the following:
  March
      31,
                
                
                June
      30,2008
                
                
                2007Prepaid
      expenses
                
                $
                97,735
                
                
                $
                79,433Advances
      to employees
                
                
                10,957
                
                
                
                12,830Deposits
                
                
                42,426
                
                
                
                11,725$
                151,118
                
                
                $
                103,988
  5.
INVENTORY
 
 Inventory
consists of the Company's Point of Sale Terminals which have been purchased from
third party manufacturers. Components of inventories are as
follows:
 
 March
      31,
                
                
                June
      30,2008
                
                
                2007Finished
      goods
                
                $
                695,296
                
                
                $
                918,947Total
                
                $
                695,296
                
                
                $
                918,947
  6.
PROPERTY AND EQUIPMENT
 
 A summary
of property and equipment is as follows:
 
 March
      31,
                
                
                June
      30,2008
                
                
                2007Computer
      equipment
                
                $
                210,791
                
                
                $
                171,372Furniture
      and office equipment
                
                
                229,188
                
                
                
                186,755439,979
                
                
                
                358,127Less:
      accumulated depreciation
                
                
                (262,110
                )
                
                
                (170,804
                )Property
      and equipment, net
                
                $
                177,869
                
                
                $
                187,323
 
  F-10
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 Total
depreciation and amortization expense for property and equipment amounted to
$74,732  and $42,457  for the nine months ended March 31, 2008
and 2007, respectively.
 
 7.
ACQUISITION OF INTANGIBLE ASSETS
 
 The costs
to acquire intangible assets have been allocated to the assets acquired
according to the estimated fair values. The Company has adopted SFAS No. 142,
Goodwill and Other Intangible Assets, whereby the Company periodically tests its
intangible assets for impairment. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets are
tested for impairment, and write-downs will be included in results from
operations.
 
 The
identifiable intangible assets acquired and their carrying values at March 31,
2008 are:
 
 Gross
      Carrying Amount
                
                
                Accumulated
      Amortization
                
                
                Net
                
                
                Residual
      Value
                
                Average
      Amortization YearsAmortizable
      Intangible Assets:Software
      and related development costs
                
                $
                4,725,910
                
                
                $
                1,547,647
                
                
                $
                3,178,263
                
                
                $
                -
                
                3.8Customer
      Relationships and Contracts
                
                $
                2,949,249
                
                
                $
                1,080,933
                
                
                $
                1,868,316
                
                
                $
                -
                
                9.2Software
      Licenses
                
                $
                2,261,156
                
                
                $
                1,194,422
                
                
                $
                1,066,734
                
                
                $
                -
                
                9.2
  The
identifiable intangible assets acquired and their carrying values at June 30,
2007 are:
 
 Gross
      Carrying Amount
                
                
                Accumulated
      Amortization
                
                
                Net
                
                
                Residual
      Value
                
                
                Average
      Amortization YearsAmortizable
      Intangible Assets:Software
      and related development costs
                
                $
                3,784,354
                
                
                $
                1,175,908
                
                
                $
                2,608,446
                
                
                $
                -
                
                
                
                4.6Customer
      Relationships and Contracts
                
                $
                2,949,249
                
                
                $
                848,493
                
                
                $
                2,100,756
                
                
                $
                -
                
                
                
                10.0Software
      Licenses
                
                $
                2,261,156
                
                
                $
                1,027,457
                
                
                $
                1,233,699
                
                
                $
                -
                
                
                
                10.0
  Total
amortization expense charged to operations for the nine months ended March 31,
2008 and 2007 was $632,742 and $579,743 , respectively.
 
 8.  OTHER
LONG TERM ASSETS
 
 Other
long-term assets at March 31, 2008 and June 30, 2007consists of prepaid rent of
$15,750  and $19,966, respectively.
  9.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities at March 31, 2008 and June 30, 2007 are as
follows:
 
 March
      31,
                
                June
      30,2008
                
                2007Accounts
      payable and accrued expenses
                
                $
                2,826,542
                
                
                $
                2,312,644Accrued
      payroll and related expenses
                
                
                449,463
                
                
                
                172,985$
                3,276,005
                
                
                $
                2,485,629
   F-11
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 10.  DUE
TO RELATED PARTIES
 
 The
Company’s President and Chief Executive Officer (“CEO”) and  the
Company’s Chief Financial Officer (“CFO”) occasionally forego taking their
salary payments in order to conserve the Company’s cash. The Company’s
CEO  has also advanced funds to the Company.  These advances
accrue interest at the rate of 7% per annum.  The CEO and CFO also each
receive a car allowance in the amount of $2,140 per month.  These car
allowances have not yet been paid.
 
 The
Company owed the following to these executives for accrued salaries,
advances,  accrued interest, and car allowance:
 March
      31,
                
                
                June
      30,2008
                
                
                2007Accrued
      salaries
                
                $
                408,451
                
                
                $
                131,550Advances
                
                
                198,303
                
                
                
                56,126Accrued
      Interest
                
                
                7,538
                
                
                
                264Accrued
      car allowance
                
                
                47,370
                
                
                
                4,044$
                661,662
                
                
                $
                191,984
  11.
EQUITY
 
 Minority
Interest
 
 Minority
interest consists of the minority owned portion of the Company’s 50% owned
subsidiary PLC Partners.
 
 Private Placement of Common
Stock
 
 On
January 27, 2006, the Company signed subscription agreements with a group of
offshore investors for the sale of an aggregate of $9.2 million in Company
common stock, plus warrants (the "January Financing"). Due to the failure of the
investment group to timely fund in full the first payment required for the
purchase of shares and warrants, the Company terminated the January Financing;
all shares and warrants issued thereunder were returned by the escrow holder to
the Company for cancellation, and any funds received pursuant to the January
Financing were returned by the escrow holder to the investors.
 
 In March
2006, a group of European investors , lead by Olympia Holding AS, informed the
Company that they were willing to invest on the same terms and conditions that
were negotiated for the now-terminated January Financing, and the Company agreed
to this financing transaction with these investors (the "March
Financing").
 
 Pursuant
to the March Financing, the Company agreed to issue 46 million shares of
restricted common stock under Regulation S at $0.20 per share, plus warrants to
purchase 50 million shares of common stock with two-year exercise periods and
strike prices ranging from $1.50 to $8.50, as set forth below. The shares
were  held in escrow by Carl Hessel, a director and major stockholder
of the Company based in Geneva, Switzerland, along with the warrants. Pursuant
to the terms of the March Financing, the first payment of $4.6 million was due
immediately, with a second payment of $4.6 million due within three months
thereafter.
 
 As of
June 30, 2007, the Company had received cash in the amount $7,169,924
pursuant to the March Financing, and had issued 22,850,000 shares of common
stock and warrants to purchase an additional 24,836,957 shares.  The
Company also issued to consultants 7,600,000 shares of unregistered common stock
with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of
common stock at a price of $1.00 per share with a fair value of $2,212,684; and
warrants to purchase an additional 1,000,000 shares of common stock at a price
of $1.50 with a fair value of $148,086 as commission to consultants related to
the March Financing. The Company charged the aggregate amount of $5,272,770 to
operations during the twelve months ended June 30, 2006 with regard to the
issuance of these shares and warrants.
 
 F-12
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 During
three months ended September 30, 2007, the Company received an additional
$500,000 pursuant to the March Financing, and the Company issued a total of
23,000,000 shares of common stock and warrants to purchase an additional
25,000,000 shares.   During the three months ended December 31,
2007, the Company received an additional $465,000 pursuant to the March
financing.  At March 31, 2008, there remains a total of $1,035,000 due on
the 23,000,000 shares which were issued . This amount is recorded as
Subscriptions Receivable on the Company’s balance sheet at March 31,
2008.
 
 All
warrants have a two-year exercise period from the date of issuance of the
warrants. No registration rights were granted to the Investors in connection
with the March Financing and the shares and warrants issued in the March
Financing will be restricted securities, subject to the applicable restrictions
set forth in Regulation S promulgated under the Securities Act of 1933, as
amended.
  Sales Of
Securities
  During
the three months ended September 30, 2007, the Company issued the following
shares of common stock:
 
 The
Company issued 11,225,000 shares of common stock with a fair value of $2,103,375
to consultants for services.
 
 The
Company issued 750,000 shares of common stock with a fair value of $163,750 to
employees for services.
 
 The
Company issued 7,000,000 shares of common stock pursuant to the exercise of an
option by a consultant for $700,000 cash.
 
 The
Company issued 857,143 shares of common stock pursuant to the conversion of
500,000 shares of Series B preferred stock by a director.
 
 The
Company issued 13,000,000 shares of common stock in a financing transaction for
cash of $2,600,000 which was received in prior periods.
 
 The
Company issued 2,500,000 shares of common stock in a financing transaction for
cash of $500,000 received during the three months ended September 30,
2007.
 
  F-13
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 The
Company issued 7,500,000 shares of common stock in a financing transaction for
subscriptions receivable in the amount of $1,500,000.
 
 The
Company adjusted the number of shares issuable to an officer for preferred stock
converted to common stock in a prior period.  The number of shares
issuable was reduced from 14,286 to 0, and this transaction was deemed
complete.
 
 During
the three months ended December 31, 2007, the Company issued the following
shares of common stock:
 
 The
Company issued 10,536,000 shares of common stock with a fair value of $1,803,540
to consultants for services.
 
 The
Company issued 100,000 shares of common stock with a fair value of $18,000 to an
employee for services.
 
 The
Company issued 6,196,138 shares of common stock pursuant to the exercise of
options by consultants for $792,000 cash.
 
 The
Company also received cash in the amount of $50,000 as prepayment for options
not yet exercised.
 
 The
Company issued 1,111,110 shares of common stock pursuant to the terms of the PLC
acquisition.
 
 During
the three months ended March 31, 2008, the Company issued the following shares
of common stock:
 
 The
Company issued 6,213,000 shares of common stock pursuant to the exercise of
options by consultants for $313,950  cash.
 
 The
Company also received cash in the amount of $424,150 as a prepayment for options
not yet exercised.
 
 The
Company issued 1,312,500 shares of common stock with a fair value of $164,625 to
consultants for services.
 
 The
Company issued 2,300,000 shares of common stock with a fair value of
$269,000  to a director for services.
 
 12.  STOCK
OPTIONS AND WARRANTS
 
 Non-Employee Stock
Options
 
 The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to the Company
consultants. These options were granted in lieu of cash compensation for
services performed (amounts have been adjusted to reflect the reverse stock
split and other adjustments):
  Range
      of exercise prices
                
                
                Number
      of shares outstanding
                
                
                Weighted average remaining
      contractual life (years)
                
                
                Weighted
      average exercise price of outstanding options
                
                
                Number
      of shares exercisable
                
                
                Weighted
      average exercise price of options$
                0.15
                
                
                
                166,666
                
                
                
                7.5
                
                
                $
                0.15
                
                
                
                166,666
                
                
                $
                0.150.20
                
                
                
                1,350,000
                
                
                
                8.6
                
                
                
                0.20
                
                
                
                1,350,000
                
                
                
                0.200.49
                
                
                
                756,303
                
                
                
                5.0
                
                
                
                0.49
                
                
                
                756,303
                
                
                
                0.490.70
                
                
                
                756,303
                
                
                
                5.0
                
                
                
                0.70
                
                
                
                756,303
                
                
                
                0.703,029,272
                
                
                
                6.7
                
                
                $
                0.39
                
                
                
                3,029,272
                
                
                $
                0.39
  
  F-14
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 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, 2007
                
                
                3,029,272
                
                
                $
                0.39Granted
                
                
                7,000,000
                
                
                
                0.1Exercised
                
                
                (7,000,000
                )
                
                
                (0.1
                )Cancelled
      / Expired
                
                
                -
                
                
                
                -Options
      exercisable at September 30, 2007
                
                
                3,029,272
                
                
                $
                0.39Granted
                
                
                6,196,138
                
                
                
                0.13Exercised
                
                
                (6,196,138
                )
                
                
                (0.13
                )))Cancelled
      / Expired
                
                
                -
                
                
                
                -Options
      exercisable at December 31, 2007
                
                
                3,029,272
                
                
                $
                0.39Granted
                
                
                313,950
                
                
                
                0.05Exercised
                
                
                (313,950
                )
                
                
                (0.05
                )Cancelled
      / Expired
                
                
                -
                
                
                
                -Options
      exercisable at March 31, 2008
                
                
                3,029,272
                
                
                $
                0.39
  The
non-employee stock-based compensation expense recognized in the unaudited
condensed consolidated statements of operations for the nine months ended March
31, 2008 and 2007 was $5,773,901 and $1,513,360 respectively.
 
 The
weighted-average fair value of stock options granted to non-employees during the
nine months ended March 31, 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
                
                
                4.75-4.25
                %
                
                
                4.75
                %Expected
      stock price volatility
                
                
                104-99
                %
                
                
                108-111
                %Expected
      dividend payout
                
                
                0
                
                
                
                0Expected
      option life (in years)
                
                
                1.0
                
                
                
                0.5
  Employee Stock
Options
  The
following table summarizes the changes to employee stock options outstanding and
the related prices of the Company's common stock options issued to employees
under a non-qualified stock option plan (amounts have been adjusted to reflect
the reverse stock split and other adjustments):
 
 Range
      of exercise prices
                
                
                Number
      of shares outstanding
                
                
                Weighted
      average remaining contractual life (years)
                
                
                Weighted
      average exercise price of outstanding options
                
                
                Number
      of shares exercisable
                
                
                Weighted
      average exercise price of exercisable options$
                0.14
                
                
                
                500,000
                
                
                
                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
 
 
 F-15
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 Transactions
involving stock options issued to employees are summarized as
follows:
  Number
      of Shares
                
                
                Weighted
      Average Exercise PriceOptions
      outstanding at June 30, 2007
                
                
                1,075,000
                
                
                $
                0.26Granted
                
                
                --
                
                
                
                --Exercised
                
                
                
                
                
                
                --Cancelled
      / Expired
                
                
                --
                
                
                
                --Options
      outstanding at September 30, 2007
                
                
                1,075,000
                
                
                $
                0.26Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Cancelled
      / Expired
                
                
                -
                
                
                
                -Options
      outstanding at December 31, 2007
                
                
                1,075,000
                
                
                $
                0.26Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Cancelled
      / Expired
                
                
                -
                
                
                
                -Options
      outstanding at March 31, 2008
                
                
                1,075,000
                
                
                $
                0.26Non-vested
      at March 31, 2008
                
                
                -
                
                
                
                -Exercisable
      at March 31, 2008
                
                
                1,075,000
                
                
                $
                0.26
  The
employee stock based compensation expense recognized in the unaudited condensed
consolidated statements of operations for the nine months ended March 31, 2008
and 2007 was $33,892 and $0 respectively.
  Warrants
 
 The
following table summarizes the warrants outstanding and the related prices of
the Company's common stock issued to non-employees of the Company. These
warrants were granted instead of cash compensation for services performed and
settlement of legal dispute (amounts have been adjusted to reflect the reverse
stock split and other adjustments).
  Range
      of exercise prices
                
                
                Number
      of shares outstanding
                
                
                Weighted
      average remaining contractual life (years)
                
                
                Weighted
      average exercise price of outstanding warrants
                
                
                Number
      of shares exercisable
                
                
                Weighted
      average exercise price of  exercisable
options$
                0.75
                
                
                
                750,000
                
                
                
                0.1
                
                
                $
                0.75
                
                
                
                750,000
                
                
                $
                0.750.98-1.00
                
                
                
                1,392,857
                
                
                
                1.6
                
                
                
                0.98-1.00
                
                
                
                1,392,857
                
                
                
                0.98-1.001.50
                
                
                
                7,000,000
                
                
                
                0.5
                
                
                
                1.50
                
                
                
                7,000,000
                
                
                
                1.502.50
                
                
                
                5,500,000
                
                
                
                0.8
                
                
                
                2.50
                
                
                
                5,500,000
                
                
                
                2.504.50
                
                
                
                3,500,000
                
                
                
                0.8
                
                
                
                4.50
                
                
                
                3,500,00
                
                
                
                4.505.50
                
                
                
                3,500,000
                
                
                
                0.8
                
                
                
                5.50
                
                
                
                3,500,000
                
                
                
                5.506.50
                
                
                
                3,500,000
                
                
                
                0.8
                
                
                
                6.50
                
                
                
                3,500,000
                
                
                
                6.508.50
                
                
                
                2,000,000
                
                
                
                0.8
                
                
                
                8.50
                
                
                
                2,000,000
                
                
                
                8.50$
                3.72
                
                
                
                27,142,857
                
                
                
                0.6
                
                
                $
                3.72
                
                
                
                27,142,857
                
                
                $
                3.72
  
 F-16
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 Transactions
involving warrants are summarized as follows:
  Number
      of Shares
                
                
                Weighted
      Average
                  Exercise
      PriceWarrants
      exercisable at June 30, 2007
                
                
                41,184,600
                
                
                $
                2.77Granted
                
                
                25,000,000
                
                
                
                3.96Exercised
                
                
                -
                
                
                
                -Cancelled
      / Expired
                
                
                -
                
                
                
                -Warrants
      exercisable at September 30, 2007
                
                
                66,184,600
                
                
                $
                3.22Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Cancelled
      / Expired
                
                
                (1,204,786
                )
                
                
                (0.21
                )Warrants
      exercisable at December 31, 2007
                
                
                64,979,814
                
                
                $
                3.27Granted
                
                
                -Exercised
                
                
                -Cancelled
      / Expired
                
                
                (37,836,957
                )
                
                $
                (2.96
                )Warrants
      exercisable at March 31, 2008
                
                
                27,142,857
                
                
                $
                3.72
  13.
SEGMENT INFORMATION
 
 The
Company currently operates three business segments: (1) the sale of its hardware
terminals and in the Dominican Republic (Dominicana); (2) transaction processing
fees and hardware sales generated through its wholly owned subsidiary, Rahaxi
Processing Oy; and (3) consulting services offered through its 50% owned
subsidiary PLC Partners, LTD.  All intercompany transactions,
including receivables and payables,  are eliminated in consolidation
and from the segment amounts presented below.
    F-17
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 Three
      months ended March 31,
                
                
                Nine
      months ended March 31,2008
                
                
                2007
                
                
                2008
                
                
                2007Sales
      to external customers:Corporate
                
                $
                -
                
                
                $
                23,286
                
                
                $
                -
                
                
                $
                23,286Dominicana
                
                
                17,491
                
                
                
                -
                
                
                
                112,575
                
                
                
                -Rahaxi
                
                
                851,539
                
                
                
                651,467
                
                
                
                2,269,825
                
                
                
                1,711,784PLC
                
                
                760,120
                
                
                
                450,881
                
                
                
                2,049,958
                
                
                
                664,326Total
      sales to external customers:
                
                $
                1,629,150
                
                
                $
                1,125,634
                
                
                $
                4,432,358
                
                
                $
                2,399,396Depreciation
      and amortization:Corporate
                
                $
                81,750
                
                
                $
                4,652
                
                
                $
                243,192
                
                
                $
                7,112Dominicana
                
                
                2,773
                
                
                
                8,818
                
                
                
                11,784
                
                
                
                13,423Rahaxi
                
                
                164,969
                
                
                
                189,928
                
                
                
                452,059
                
                
                
                571,416PLC
                
                
                322
                
                
                
                24,635
                
                
                
                439
                
                
                
                30,250Total
      depreciation and amortization:
                
                $
                249,814
                
                
                $
                228,033
                
                
                $
                707,474
                
                
                $
                622,201General
      and administrative expense:(not
      including depreciation and amortization)Corporate
                
                $
                1,558,252
                
                
                $
                1,900,638
                
                
                $
                9,413,209
                
                
                $
                5,821,111Dominicana
                
                
                85,117
                
                
                
                175,397
                
                
                
                368,013
                
                
                
                449,785Rahaxi
                
                
                834,474
                
                
                
                107,103
                
                
                
                2,332,347
                
                
                
                1,078,396PLC
                
                
                192,359
                
                
                
                117,547
                
                
                
                419,541
                
                
                
                176,316Total
      general and administrative expense
                
                $
                2,670,202
                
                
                $
                2,300,685
                
                
                $
                12,533,110
                
                
                $
                7,525,608Capital
      expenditures:Corporate
                
                $
                -
                
                
                $
                -
                
                
                $
                1,796
                
                
                $
                47,161Dominicana
                
                
                -
                
                
                
                2,240
                
                
                
                -
                
                
                
                26,557Rahaxi
                
                
                148,900
                
                
                
                237,837
                
                
                
                391,563
                
                
                
                594,266PLC
                
                
                -
                
                
                
                4,805
                
                
                
                -
                
                
                
                182,592Total
      capital expenditures
                
                $
                148,900
                
                
                $
                244,882
                
                
                $
                393,359
                
                
                $
                850,576Operating
      income (loss):Corporate
                
                $
                (1,695,657
                )
                
                $
                1,879,503
                )
                
                $
                (9,823,366
                )
                
                $
                (5,804,937
                )Dominicana
                
                
                (79,654
                )
                
                
                (188,820
                )
                
                
                (341,726
                )
                
                
                (463,208
                )Rahaxi
                
                
                (768,193
                )
                
                
                (419,954
                )
                
                
                (2,396,606
                )
                
                
                (1,800,321
                )PLC
                
                
                79,580
                
                
                
                (134,173
                )
                
                
                146,805
                
                
                
                (153,636
                )Total
      operating income (loss)
                
                $
                (2,463,924
                )
                
                $
                (2,622,450
                )
                
                $
                (12,414,893
                )
                
                $
                (8,222,102
                )Interest
      Expense, Net:Corporate
                
                $
                1,357
                
                
                $
                430
                
                
                $
                2,674
                
                
                $
                430Dominicana
                
                
                2,080
                
                
                
                (7
                )
                
                
                3,929
                
                
                
                (51
                )Rahaxi
                
                
                3,223
                
                
                
                415
                
                
                
                30,468
                
                
                
                1,238PLC
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      Interest Expense
                
                $
                6,660
                
                
                $
                838
                
                
                $
                37,071
                
                
                $
                1,617Segment
      assets:Corporate
                
                $
                2,022,822
                
                
                $
                3,593,489
                
                
                $
                2,022,822
                
                
                $
                3,593,489Dominicana
                
                
                183,949
                
                
                
                146,771
                
                
                
                183,949
                
                
                
                146,771Rahaxi
                
                
                4,412,849
                
                
                
                4,193,937
                
                
                
                4,412,849
                
                
                
                4,193,937PLC
                
                
                1,542,982
                
                
                
                223,445
                
                
                
                1,542,982
                
                
                
                223,445Total
      segment assets
                
                $
                8,162,602
                
                
                $
                8,157,642
                
                
                $
                8,162,602
                
                
                $
                8,157,642
  14.
SUBSEQUENT EVENTS
 On April
15, 2008, the Board of Directors of FreeStar Technology Corporation (the
“Company”) adopted an amendment to the Company’s 2007 Stock Incentive Plan (the
“Stock Incentive Plan”) and the 2007 Directors and Consultants Stock Plan (the
“Directors and Consultants Stock Plan”).  The amendments increased the
number of shares available under (i) the Stock Incentive Plan by an additional
35,000,000 shares of Common Stock for a total of 70,000,000 shares authorized
thereunder and (ii) the Directors and Consultants Stock Plan by an additional
35,000,000 shares of Common Stock for a total of 70,000,000 shares authorized
thereunder.
 Subsequent
to March 31, 200, the Company issued a total
of  24,831,978  shares of common stock:
 
 A total
of 11,405,989 shares of common stock were issued to consultants for
services;
 A total
of 1,000,000 shares of common stock were issued to employees as
bonuses;
 A total
of 12,425,989 shares of common stock were issued pursuant to the exercise of
options by consultants.
 F-18
 Table of Contents
  ITEM2. MANAGEMENT'S DISCUSSION 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.
 
 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.
 
 1
 Table of Contents
  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.
 
 Results of
Operations
 
 THREE
MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31,
2007
 
 Revenue
 
 For the
reasons below, total revenue for the  three months ended March 31,
2008 was $1,629,150 compared to $1,125,634 for the three months ended March 31,
2007, an increase of $503,516 or approximately 45%.
 
 Transaction processing and
related revenue
 
 Transaction
processing and related revenue was $575,002 for the three months ended March 31,
2008, compared to $484,093 during the prior year, an increase of $90,909 or
approximately 19%. The Company processed a total of
4,047,161  transactions during the three months ended March 31, 2008,
a decrease of 464,875 or approximately 10% compared to 4,512,036 transactions
processed during the prior year.  The slight decrease in the number of
transactions processed was primarily related to the increase in hardware sales,
whereby some clients who purchase a point of sale terminal are charged a flat
recurring monthly fee rather than a per transaction fee
structure.  Transactions processed for these clients are not included
in the transactions total.  The Company also lost one significant
client during the quarter. 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 March 31, 2008 has declined by approximately 13% compared to the
three months ended March 31, 2007, and this exchange rate difference should be
taken into consideration when analyzing our transaction processing
sales.
 
 Consulting
services revenue
 
 Consulting
services revenue was $760,119 for the three months ended March 31, 2008,
compared to $474,505 during the prior year, in increase of $285,614 or
approximately 60%. Consulting services revenue is primarily generated primarily
by the Company’s 50% stake in PLC.
  Hardware and
related  revenue
 
 Hardware
and related revenue was $294,029 during the three months ended March 31, 2008,
compared to $167,036 during the prior year. The Company began selling processing
terminals and related equipment  in December 2006.  We
expect to report increased hardware and related sales in the year ending June
30, 2008 as we not only increase actual hardware sales to our expanding customer
base, but began to recognize revenue from annual  maintenance fees and
service initiation fees, which were not recognized during the comparable
period.
 
 2
 Table of Contents
  FREESTARTECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2008
 (UNAUDITED)
 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 March 31, 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 fiscal 2008. We believe that this customer concentration will be
gradually diluted in the latter half of fiscal 2008 as we continue to pursue
operations outside of Finland. All of our revenues for the nine months ended
March 31, 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 trend to continue through fiscal year
2008.
  Cost
of Revenue
 
 Cost of transaction
processing and related revenue
 
 Cost of
transaction processing and related revenue was $623,110 for the three months
ended March 31, 2008, compared to $616,430 for the prior three months ended
March 31, 2007, an increase of $6,680 or approximately 1%. The reason for
the relatively small increase is an increase in expenditures made for our
processing infrastructure. Though we capitalize the acquisition and installation
costs of certain software components purchased from third party suppliers, we
expense all costs associated with maintaining, and many of the costs of
improving, our processing and customer support capabilities. These costs do not
always change in direct relation to sales, and in fact often increase in advance
of any potential increase in sales which they may support. Included in cost of
transaction processing and related revenue is depreciation and amortization of
$134,856 and $129,584 for the three months ended March 31, 2008 and 2007,
respectively.
  Cost of consulting
services
 
 Cost of
consulting services revenue was $487,860 for the three months ended March 31,
2008, compared to $440,052 for the  three months ended March 31, 2007,
an increase of $47,808 or approximately 11%.  The primary reason for
the increase was an increase in consulting service revenue.
 
 Cost of hardware and
related  revenue
 
 Cost of
hardware and related revenue was $207,402  during the three months
ended March 31, 2008, compared to $162,884  during the prior year, an
increase of $44,518  or approximately  27%.  The
primary reason for the increase was an increase in
volume.
 
 For the
reasons above, total cost of revenue was $1,318,872 for the three months ended
March 31, 2008, compared to $1,219,366 for the three months ended March 31,
2007, an increase of $99,006 or approximately 8%.
 
 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 $2,774,702 for the three months ended
March 31, 2008 compared to $2,528,718 for the three months ended March 31, 2007,
an increase of $245,984  or approximately 10%. The primary components
of selling, general, and administrative expenses for the three months ended
March 31, 2008 were: payroll and related costs of
$1,221,476;  consulting fees of $1,000,503 to service providers for
financial consulting and other professional services; $922,946 of this amount
consisted of non-cash compensation in the form of stock, stock options, and
warrants.  Other components of selling, general, and administrative
expenses for three months ended March 31, 2008 included facilities expense
(rent, telephone, utilities, and maintenance) of $166,187; depreciation and
amortization of $101,896; travel and entertainment costs of $91,681; and other
professional services of $83,779.
  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.
  3
 Table of Contents
 
 Interest Expense
 
 Interest
income (expense) net was ($6,660) for the three months ended March 31, 2008,
compared to ($838)  for the three months ended March 31, 2007, an
increase of ($5,822) or approximately  695%. The increase is due
primarily to cash advances from officers.
  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 $2,510,373 for the three months
ended March 31, 2008 compared to $2,619,044 for the three months ended March 31,
2007, a decrease of $108,671 or approximately 4%.
 
 NINE
MONTHS ENDED MARCH 31, 2008 COMPARED TO NINE MONTHS ENDED MARCH 31,
2007
 
 Revenue
 
 For the
reasons below, total revenue for the  nine months ended March 31, 2008
was $4,432,358 compared to $2,399,396 for the nine months ended March 31, 2007,
an increase of $2,032,962 or approximately 85%.
 
 Transaction processing and
related revenue
 
 Transaction
processing and related revenue was $1,575,507 for the nine months ended March
31, 2008, compared to $1,443,763 during the prior year,  an increase
of $131,744 or approximately 9%. The Company processed a total of
14,233,019 transactions during the nine months ended March 31, 2008, a
decrease of 489,019 or approximately 3% compared to 14,722,038
transactions processed during the prior year. The slight decrease in the
number of transactions processed was primarily related to the increase in
hardware sales, whereby some clients who purchase a point of sale terminal are
charged a flat recurring monthly fee rather than a per transaction fee
structure.  Transactions processed for these clients are not included
in the transactions total.  The Company also lost one significant
client during the quarter. The Company invoices its customers in Euro. The
average exchange rate of the U.S. Dollar compared to the Euro for the nine
months ended March 31, 2008 has declined by approximately 10% compared to the
nine months ended March 31, 2007, and this exchange rate difference should be
taken into consideration when analyzing our transaction processing
sales.
 
 Consulting
services revenue
 
 Consulting
services revenue was $2,049,958 for the nine months ended March 31, 2008,
compared to $738,449 during the prior year, an increase of $1,311,509 or
approximately 178%. Consulting services revenue is primarily generated by
the Company’s 50% stake in PLC.   The Company acquired PLC
in November, 2006.  We expect to report increased revenue from
consulting services in the fiscal year ending June 30, 2008.
  Hardware and
related  revenue
 
 Hardware
and related revenue was $806,893 during the nine months ended March 31, 2008,
compared to $217,184 during the prior year, an increase of $589,709 or
approximately 272%. The Company began selling processing terminals and related
equipment  in December 2006.  We expect to report increased
hardware and related sales in the year ending June 30, 2008 as we not only
increase actual hardware sales to our expanding customer base, but began to
recognize revenue from annual  maintenance fees and service initiation
fees, which were not recognized during the comparable period.
 
 
 We expect
revenue levels to increase throughout the next twelve months as we continue to
increase our client base and introduce service offerings, such as 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.
 
  4
 Table of Contents
 
 All of
our revenue for the nine months ended March 31, 2008 has been derived from a
limited number of its customers, primarily Finnish customers for its transaction
processing products. Approximately 58% of our total revenue was attributable to
our ten largest customers. The future loss of any major customer could have a
material adverse effect on our business, financial condition and results of
operations. We believe that this customer concentration will continue for much
of fiscal 2008. We believe that this customer concentration will be diluted in
the latter half of fiscal 2008 as we pursues operations outside of Finland. All
of our revenues for the nine months ended March 31, 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
trend to continue through fiscal year 2008.
  Cost
of Revenue
 
 Cost of transaction
processing and related revenue
 
 Cost of
transaction processing and related revenue was $1,866,738 for the nine months
ended March 31, 2008, compared to $1,776,774 for the prior nine months ended
March 31, 2007, an increase of $89,964 or approximately 5%. The reason for
the increase is our continued investment in our processing infrastructure, as we
further build out our processing capabilities and service offerings. Though we
capitalize the acquisition and installation costs of certain software components
purchased from third party suppliers, we expense all costs associated with
maintaining, and many of the costs of improving, our processing and customer
support capabilities. These costs do not always change in direct relation to
sales, and in fact often increase in advance of any potential increase in sales
which they may support. Included in cost of transaction processing and related
revenue is depreciation and amortization of $400,303 and $223,984 for the nine
months ended March 31, 2008 and 2007, respectively.
  Cost of consulting
services
 
 Cost of
consulting services revenue was $1,483,174 for the nine months ended March 31,
2008, compared to $652,065 for the  nine months ended March 31, 2007,
an increase of $831,109 or approximately 127%.   The primary
reason for the increase was an increase in consulting service
revenue.
 
 Cost of hardware and
related  revenue
 
 Cost of
hardware and related revenue was $657,057 during the nine months ended March 31,
2008, compared to $211,814 during the prior year, an increase of $445,243 or
approximately 210%. The reason for the increase is an increase in hardware
sales. The Company began selling processing terminals and related equipment in
December 2006.  Included in cost of hardware revenue are terminals
shipped to customers as test and demonstration units, as well as items replaced
or returned.
 
 For the
reasons above, total cost of revenue was $4,006,969 for the nine months ended
March 31, 2008, compared to $2,640,653 for the nine months ended March 31, 2007,
an increase of $1,366,316 or approximately 52%.
 
 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 $12,840,282 for the nine months ended
March 31, 2008 compared to $7,980,845 for the nine months ended March 31, 2007,
an increase of $4,859,437 or approximately 61%. The primary components of
selling, general, and administrative expenses for the nine months ended March
31, 2008 were: consulting fees of $7,296,203 to service providers for financial
consulting and other professional services; $6,287,087 of this amount consisted
of non-cash compensation in the form of stock, stock options, and warrants.
Other components of selling, general, and administrative expenses for nine
months ended March 31, 2008 included payroll and related costs of
$3,668,405;  facilities expense (rent, telephone, utilities, and
maintenance) of $634,352; travel and entertainment costs of $360,187;
depreciation and amortization of $307,172.
   5
 Table of Contents
 
 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.
  Cost
of Acquisition
 
 Pursuant
to the acquisition agreement for the Company’s 50% owned subsidiary PLC
Partners, the Company was obligated to issue additional shares of the Company’s
common stock if the average closing price was under $0.36 for the thirty day
period preceding the one-year anniversary of the transaction, or November 21,
2007.  The number of shares issuable pursuant to this clause was
capped at 1,111,111. The Company calculated this additional payment amount
effective November 12, 2007, and determined that at that date the maximum number
of additional shares, or 1,111,111, would be issuable. The Company accrued the
value of these shares, or $192,555, to operations during the nine months ended
March 31, 2008.  There was no comparable expense during the prior
year.
 
 Interest Expense
 
 Interest
income (expense) net was ($37,071) for the nine months ended March 31, 2008,
compared to ($1,617)  for the nine months ended March 31, 2007, an
increase of $35,454 or approximately 2193%. The increase is due primarily
to vendor financing which the Company utilized during nine months ended March
31, 2008, and to cash advances provides by officers.
  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 $12,717,921 for the nine months
ended March 31, 2008 compared to $8,213,724 for the nine months ended March 31,
2007, an increase of $4,504,197 or approximately 55%.
 
 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 $3,092,865 for the nine months ended March
31, 2008 compared to $4,176,211 for the nine months ended March 31, 2007, a
decrease of $1,083,346 or approximately 26%.  The primary components
of cash used in operating activities during the current period are the net loss
of ($12,717,921), partially offset by the non-cash charges of non-cash
compensation of $6,837,135 and depreciation and amortization of
$707,474.  The total amount of cash used in operating activities was
also reduced by changes in the following components of working
capital:  accounts payable and accrued expenses of $1,375,406; accrued
salary due to officers of $469,687; accounts receivable of $38,882; inventory of
$98,134; and deferred revenue of $71,718.  Cash used in operating
activities was increased by a decrease in other current assets of
($46,773).
  6
 Table of Contents
 
 Investing
Activities
 
 Net cash
used in investing activities was $393,359 during the nine months ended March 31,
2008 compared to $850,576 for the nine months ended March 31, 2007, a decrease
of $457,217 or approximately 54%.  This change was primarily due to
the cash used in the investment in PLC of $177,737 during the prior year, and a
decrease of the amount of capitalized software of $279,480.
 
 Financing
Activities
 
 Net cash
provided by financing activities was $3,497,827 for the nine months ended March
31, 2008, compared to $2,242,500 for the nine months ended March 31, 2007, an
increase of $1,255,327  or approximately 56%.  The reason
for the increase was cash provided from the exercise of stock options and
warrants of $2,280,106, an increase of $2,197,606 from the prior period; this
was partially offset by a decrease in cash provided from the sale of common
stock, which was $965,000 or $1,435,000 less than the  prior
period.  The Company also received cash contributions by an officer of
a subsidiary of $252,721 during the nine months ended March 31,
2008.
  Liquidity and Capital
Resources
  As of
March 31, 2008, we had total current assets of $1,855,670 and total current
liabilities of $4,097,282, resulting in a working capital deficiency of
($2,241,612). We had cash and cash equivalents of $214,150 at March 31, 2008,
and an accumulated deficit of $87,136,832.
 
 On
January 27, 2006, the Company signed subscription agreements with a group of
offshore investors for the sale of an aggregate of $9.2 million in Company
common stock, plus warrants (the "January Financing"). Due to the failure of the
investment group to timely fund in full the first payment required for the
purchase of shares and warrants, the Company terminated the January Financing;
all shares and warrants issued thereunder were returned by the escrow holder to
the Company for cancellation, and any funds received pursuant to the January
Financing were returned by the escrow holder to the investors.
 
 In March
2006, a group of European investors, lead by Olympia Holding AS, informed the
Company that they were willing to invest on the same terms and conditions that
were negotiated for the now-terminated January Financing, and the Company agreed
to this financing transaction with these investors (the "March
Financing").
  Pursuant
to the March Financing, the Company agreed to issue 46 million shares of
restricted common stock under Regulation S at $0.20 per share, plus warrants to
purchase 50 million shares of common stock with two-year exercise periods and
strike prices ranging from $1.50 to $8.50, as set forth below. The shares
were held in escrow by Carl Hessel, a director and major stockholder of the
Company based in Geneva, Switzerland, along with the warrants. Pursuant to the
terms of the March Financing, the first payment of $4.6 million was due
immediately, with a second payment of $4.6 million due within nine months
thereafter.
 
 As of
June 30, 2007, the Company had received cash in the amount $7,169,924
pursuant to the March Financing, and had issued 22,850,000 shares of common
stock and warrants to purchase an additional 24,836,957 shares.  The
Company also issued to consultants 7,600,000 shares of unregistered common stock
with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of
common stock at a price of $1.00 per share with a fair value of $2,212,684; and
warrants to purchase an additional 1,000,000 shares of common stock at a price
of $1.50 with a fair value of $148,086 as commission to consultants related to
the March Financing. The Company charged the aggregate amount of $5,272,770 to
operations during the twelve months ended June 30, 2006 with regard to the
issuance of these shares and warrants.
 
 During
three months ended September 30, 2007, the Company received an additional
$500,000 pursuant to the March Financing, and the Company issued a total of
23,000,000 shares of common stock and warrants to purchase an additional
25,000,000 shares.  During the three months ended December 31, 2007,
the Company received an additional $465,000 pursuant to the March financing.
 At December 31, 2007, there remains a total of $1,035,000 due on the
23,000,000 shares which were issued during the quarter. This amount is recorded
as Subscriptions Receivable on the Company’s balance sheet at March 31,
2008.
 The
independent auditor's report on the Company's June 30, 2007 financial statements
included in our Annual Report states that the Company's recurring losses raise
substantial doubts about the Company's ability to continue as a going
concern. The accompanying financial statements have been prepared assuming
that the Company continues as a going concern that contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
However, the ability of the Company to continue as a going concern on a
longer-term basis will be dependent upon its ability to generate sufficient cash
flow from operations to meet its obligations on a timely basis, to obtain
additional financing, and ultimately, attain profitability.
  7
 Table of Contents
 Management
plans to continue raising additional capital through a variety of fund raising
methods during fiscal 2008 and to pursue all available financing alternatives in
this regard. Management may also consider a variety of potential partnership or
strategic alliances to strengthen its financial position. Although the Company
has been successful in the past in raising capital, no assurance can be given
that these sources of financing will continue to be available to us and/or that
demand for our equity/debt instruments will be sufficient to meet our capital
needs, or that financing will be available on terms favorable to the Company.
The 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.
  Certain
Indebtedness
 
 Paul Egan
and Ciaran Egan have delayed payment of a portion of their salary in order to
conserve our cash. At March 31, 2008, $258,353 and $150,098 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 March 31, 2008, the Company
owned the amount of $179,035 and $19,268 to Paul Egan and Ciaran Egan,
respectively, for advances;  plus $5,792 and $1,746 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 nine
months ended March 31, 2008. At March 31, 2008, the Company has accrued the
amount of $23,685 to Paul Egan and $23,685 to Ciaran Egan for car
allowances.
 
 Exchange
Rates
 
 Our
operations are principally conducted in Finland through our subsidiary Rahaxi,
which operates in its local currency, the Euro. We also have operations in the
Dominican Republic under the name ePayLatina S.A., and Freestar Dominicana, Inc.
operating in its local currency, the Dominican Republic Peso. All assets and
liabilities are translated at exchange rates in effect at the end of the year.
Accounts for consolidated statements of operations are translated at weighted
average rates for the year. Exchange rates had a material, beneficial impact on
our revenue for the nine months ended March 31, 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 $330,798 for the nine months ended March 31, 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.
 
 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.
  8
 Table of Contents
  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.
  Contractual Obligations and
Commercial Commitments
 
 The
following table of contractual obligations sets forth the contractual
obligations of the Company as of March 31, 2008:
  Less
      than
                
                
                1
      - 3
                
                
                3-
      5
                
                More
      thanContractual
      obligation
                
                Total
                
                
                1
      year
                
                
                years
                
                
                years
                
                5
      yearsOperating
      lease obligations
                
                $
                1,054,224
                
                
                $
                311,082
                
                
                $
                578,882
                
                
                $
                164,260
                
                -
 
 Other
 
 We do not
provide post-retirement or post-employment benefits requiring charges under
Statements of Financial Accounting Standards No. 106 and No. 112.
 
 Critical Accounting
Policies
 
 The SEC
has issued Financial Reporting Release No. 60, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies
provide additional disclosure and commentary on their most critical accounting
policies. In FRR 60, the Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
our most critical accounting policies include: (a) use of estimates in the
preparation of financial statements; (b) stock-based compensation arrangements;
(c) revenue recognition; and (d) long-lived assets. The methods, estimates and
judgments we use in applying these most critical accounting policies have a
significant impact on the results we report in our financial
statements.
 
 (a)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
 
 The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates these estimates, including those related
to revenue recognition and concentration of credit risk. The Company bases its
estimates on historical experience and on various other assumptions that is
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
  (b)
STOCK-BASED COMPENSATION ARRANGEMENTS
 
 The
Company intends to issue shares of common stock to various individuals and
entities for management, legal, consulting and marketing services. These
issuances will be valued at the fair market value of the service provided and
the number of shares issued is determined, based upon the open market closing
price of common stock as of the date of each respective transaction. These
transactions will be reflected as a component of selling, general and
administrative expenses in the accompanying statement of
operations.
 
 (c)
REVENUE RECOGNITION
 
 The
Company recognizes revenues from contracts in which the Company provides only
consulting services as the services are performed. The contractual terms of the
agreements dictate the recognition of revenue by the Company. 
 Payments received in advance are deferred until the service is
provided.
 
 Contract
costs include all direct equipment, material, and labor costs and those indirect
costs related to contract performance, such as indirect labor. Selling, general
and administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in contract performance, contract conditions, and
estimated profitability that may result in revisions to costs and income are
recognized in the period in which the revisions are determined.
  9
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  For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which
superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectibility of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund will
be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF") No.
00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
accounting for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's consolidated financial position and
results of operations was not significant. This issue addresses determination of
whether an arrangement involving more than one deliverable contains more than
one unit of accounting and how the arrangement consideration should be measured
and allocated to the separate units of accounting. EITF No. 00-21 became
effective for revenue arrangements entered into in periods beginning after June
15, 2003. For revenue arrangements occurring on or after August 1, 2003, the
Company revised its revenue recognition policy to comply with the provisions of
EITF No. 00-21.
 
 For those
contracts which contain multiple deliverables, management must first determine
whether each service, or deliverable, meets the separation criteria of EITF No.
00-21. In general, a deliverable (or a group of deliverables) meets the
separation criteria if the deliverable has standalone value to the customer and
if there is objective and reliable evidence of the fair value of the remaining
deliverables in the arrangement. Each deliverable that meets the separation
criteria is considered a "separate unit of accounting." Management allocates the
total arrangement consideration to each separate unit of accounting based on the
relative fair value of each separate unit of accounting. The amount of
arrangement consideration that is allocated to a unit of accounting that has
already been delivered is limited to the amount that is not contingent upon the
delivery of another separate unit of accounting. After the arrangement
consideration has been allocated to each separate unit of accounting, management
applies the appropriate revenue recognition method for each separate unit of
accounting as described previously based on the nature of the arrangement. All
deliverables that do not meet the separation criteria of EITF No. 00-21 are
combined into one unit of accounting, and the appropriate revenue recognition
method is applied.
  Processing
fee revenue is earned based upon the actual number of transactions processed
through the Company's processing system. Transaction processing fees are
recognized in the period that the service is performed. These fees are typically
charged on a per transaction basis, depending on the arrangement with the
customer.
 
 (d)
LONG-LIVED ASSETS
 
 Long-lived
assets to be held and used are analyzed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company evaluates at each balance sheet date whether events
and circumstances have occurred that indicate possible impairment. If there are
indications of impairment, the Company uses future undiscounted cash flows of
the related asset or asset grouping over the remaining life in measuring whether
the assets are recoverable. In the event such cash flows are not expected to be
sufficient to recover the recorded asset values, the assets are written down to
their estimated fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value of asset less the cost to
sell.
 
 ITEM3.  QUALITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
  In the
normal course of business, operations of the Company are exposed to risks
associated with fluctuations in foreign currency exchange rates.
  To ensure
the adequacy and effectiveness of the Company's foreign exchange positions, the
Company continually monitors its foreign currency exposures from an accounting
and economic perspective. However, given the inherent limitations of forecasting
and the anticipatory nature of the exposures, there can be no assurance that our
continual monitoring will offset more than a portion of the adverse financial
impact resulting from unfavorable movements in foreign exchange
rates.
  Foreign
Currency Risk
  Overall,
the Company is a net recipient of currencies other than the U.S. dollar and, as
such, benefits from a weaker dollar and is adversely affected by a stronger
dollar relative to major currencies worldwide. Accordingly, changes in exchange
rates, and in particular a strengthening of the U.S. dollar, may negatively
affect the Company's consolidated sales and gross margins as expressed in U.S.
dollars.
   10
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  ITEM4. CONTROLS AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  As of
March 31, 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 on that evaluation, our chief executive officer
and chief financial officer concluded that our disclosure controls and
procedures are  effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
 
 Changes
in internal controls
  There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  PART
II - OTHER INFORMATION
  ITEM1. LEGAL PROCEEDINGS
  The
Company is subject to certain legal proceedings as reported in Part II, Item 1 -
"Legal Proceedings" in the Company's Form 10-KSB filed with the SEC on September
28, 2007.  During the three months ended March 31, 2008, there were no
material changes to the legal proceeding or investigations reported in such
10-KSB; however, one new legal proceeding was initiated against the Company,
described below.
  ACI v.
Rahaxi Processing Oy
  On March
31, 2008, Rahaxi Processing Oy, a subsidary of FreeStar based in Helsinki,
Finland, received a summons detailing legal proceedings to be taken against it
by ACI Worldwide (EMEA) Limited (“ACI”), which is domiciled in Watford, United
Kingdom pursuant to a written complaint filed on the 26th February 2008 in
Helsinki District Court. ACI is claiming payment relating to outstanding
invoices for services provided to the Company such as licence fees, maintenance
fees, support  and software fees and consultancy service fees pursuant
to various agreements between ACI and the Copmpany.
  The
Company has acknowledged that a certain amount of the fees claimed under summons
are due to ACI and in recognition of this fact the Company has paid a
significant portion of the monies due with respect to the uncontested invoices.
The Company will, however, be contesting a significant portion of the fees
claimed by under the summons when the preliminary hearing of the case takes
place in Helsinki District Court, expected to occur towards the end of
2008.
  This
matter remains in the early stages of litigation and there can be no assurance
as to the outcome of the lawsuit. Litigation is subject to inherent
uncertainties, and unfavorable rulings could occur.  Were unfavorable
rulings to occur, there exists the possibility of a material adverse impact of
money damages on the Company’s financial condition.
   11
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  ITEM1A. RISK FACTORS
 
 The
operating results of the Company can vary significantly depending upon a number
of factors, many of which are outside the Company's control. General factors
that may affect the Company's operating results include:
 
 ·
                market
      acceptance of and changes in demand for products and
    services;
 ·
                a
      small number of customers account for, and may in future periods account
      for, substantial portions of the Company's revenue, and revenue could
      decline because of delays of customer orders or the failure to retain
      customers;
 ·
                gain
      or loss of clients or strategic
  relationships;
 ·
                announcement
      or introduction of new services and products by the Company or by its
      competitors;
 ·
                price
      competition;
 ·
                the
      ability to upgrade and develop systems and infrastructure to accommodate
      growth;
 ·
                the
      ability to introduce and market products and services in accordance with
      market demand;
 ·
                changes
      in governmental regulation;
and
 ·
                reduction
      in or delay of capital spending by clients due to the effects of
      terrorism, war and political
instability.
 
 The
Company believes that any future growth and profitability will depend in large
part on the ability to promote its services, gain clients and expand its
relationship with current clients. Accordingly, the Company intends to invest in
marketing, strategic partnerships, and development of its client base. If the
Company is not successful in promoting its services and expanding its client
base, this may have a material adverse effect on its financial condition and the
ability to continue to operate the business.
 
 The
Company is also subject to the following specific factors that may affect the
Company's operating results:
 
 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.
 
 12
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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.
 
 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.
  13
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  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.
 
 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-KSB for the fiscal year ended
June 30, 2007, the Company is subject to one lawsuit. From time to time,
the Company is involved in a variety of claims, suits, investigations and
proceedings arising from the operation of the Company's business. It is possible
that such a matter could arise in the future and be resolved in a manner that
ultimately would have a material adverse impact on the Company's business, and
could negatively impact its revenues, operating margins, and net
income.
 
 IMPLEMENTATION
OF SECTION 404 OF THE SARBANS-OXLEY ACT
 
 We may
not be able to implement Section 404 of the Sarbanes-Oxley Act on a timely
basis. The SEC, as directed by Section 404 of the Sarbanes-Oxley Act,
adopted rules generally requiring each public company to include a report of
management on the company’s internal controls over financial reporting in its
annual report on Form 10-K that contains an assessment by management of the
effectiveness of the company’s internal controls over financial
reporting.  This requirement will first apply to our annual report on
Form 10-K for the fiscal year ending June 30, 2008.  In addition,
commencing with our annual report for the fiscal year ending June 30, 2009 our
independent registered accounting firm must attest to and report on management’s
assessment of the effectiveness of our internal controls over financial
reporting.
 
 We have
not yet developed a Section 404 implementation plan.  We have in the past
discovered, and may in the future discover, areas of our internal controls that
need improvement.  How companies should be implementing these new
requirements including internal control reforms to comply with Section 404’s
requirements and how independent auditors will apply these requirements and test
companies’ internal controls, is still reasonably uncertain.
 
 We expect
that we will need to hire and/or engage additional personnel and incur
incremental costs in order to complete the work required by Section 404. 
We can not assure you that we will be able to complete a Section 404 plan on a
timely basis.  Additionally, upon completion of a Section 404 plan, we may
not be able to conclude that our internal controls are effective, or in the
event that we conclude that our internal controls are effective, our independent
accountants may disagree with our assessment and may issue a report that is
qualified.  Any failure to implement required new or improved controls, or
difficulties encountered in their implementation, could negatively affect our
operating results or cause us to fail to meet our reporting
obligations.
  14
 Table of Contents
  ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES.
 
 The
Company made the following sales of unregistered (restricted) securities during
the quarter ended on March 31, 2008 (not previously reported in a Form
8-K):
 
 In
February 2008, the Company issued 600,000 shares of common stock with a fair
value of $48,000 to a director for services.
 
 No
commissions were paid in connection with any of these sales. We did not
employ any form of general solicitation or advertising in connection with the
offer and sale of the securities described below. Except as otherwise noted
above, the offer and sale of the securities listed below were made in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act or Regulation D or Regulation S promulgated by the Securities and Exchange
Commission as transactions by an issuer not involving any public
offering.
 
 ITEM3. DEFAULTS UPON SENIOR SECURITIES.
  Not
applicable.
  ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
 
 None.
  ITEM5. OTHER INFORMATION.
 
 None.
  SUBSEQUENT
EVENTS
  
 ITEM6. 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).
   15
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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: May
      20, 2008
                By:
                /s/ Paul
      EganChief
      Executive Officer
   Date: May  20,
      2008
                By:
                /s/ Ciaran
      EganSecretary/Treasurer/
                  Chief
      Financial Officer
   
  16
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 EXHIBIT
INDEX
 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).
       17
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