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EDGAR FILINGS

Year 2004 / March 29

FREESTAR TECHNOLOGY CORPORATION (FSRC.OB)

Quarterly Report

ITEM 2. PLAN OF OPERATION.

Twelve-Month Plan of Operation.

The payments industry is rapidly transforming. The Registrant after its acquisition of the assets ePayLatina S.A. is part of this transformation. It is believed that the Registrant is the first company to provide solutions and services that enable secure, real- time movement of financial transactions incorporating hardware and software to enable credit, debit and ATM with Pin transactions. While payment media such as credit cards have reached maturity, it is still the most frequently used method of online payment. The breathtaking growth in electronic commerce is forcing financial institutions and merchants to offer new secure payment forms to their customers. Internet payment gateways and the increased prospect of fraud from electronic payments are some of the issues that are creating challenges for financial institutions around the world.

The Registrant's solution and services focuses on these areas and enables financial institutions and merchants to formulate coherent strategies based on knowledge, insight and understanding of the transformations taking place in the payments industry. Charting a path through this arena requires a deep understanding of the market and the ability to forecast and predict future trends. The Registrant's acquisition of the assets of ePayLatina S.A., and the formation of its strategic alliances were instigated to help institutions and merchants position themselves to provide superior value added services, and differentiate themselves from competitors in a way that preserves the business line's profitability.

The Registrant's Enhanced Transactional Secure Software ("ETSS"), a proprietary software package that enables consumers to consummate secure e-commerce transactions over the Internet using credit, debit, ATM (with PIN) or smart cards. The ETSS system integrates a consumer- side card-swipe terminal with a back-end host-processing center. It encrypts sensitive financial data at the consumer's personal computer, using powerful DES encryption and algorithms. It sends an authorization number to the e-commerce merchant, rather than the consumer's credit card information, to provide a maximum level of security.

The Registrant's sales forecast numbers have been derived from existing contracts currently in place and also after extensive research and consultations with one of our strategic partners Banco Nacional de Credito, in fact these assumptions were the main factor in the bank placing an order for the first 30,000 units. The Registrant is currently in Phase 1 of deployment of 30,000 units of its ePayPad pursuant to its contract with Banco Nacional de Credito, the first 2000 units are currently been deployed. Banco Nacional de Credito purchased the first 30,000 units at a price of $60 per unit, which will it is anticipated will generate approximately $1.8 million dollars in revenue once all of the units are deployed. The time frame for this deployment is expected to be in approximately twelve months.

During the first quarter of 2002, the Registrant did not receive any new shipments of product due to the fact that it made the decision to enhance the product to USB port compared to the present PS2 port. The enhancement of our product required extensive research and development, hence the deferral of shipments. This was an important decision for the registrant to make especially as it had an adverse effect on revenues for the quarter ended March 31, 2002. However the Registrant believes that this decision will derive long term benefits and is an essential part of the current business plan to have a globally accepted product. The Registrant is expecting to receive the first shipments of the newly enhanced product by the end of June 2002. The Registrant will then recommence redistribution of product to its clients.

The Registrant has a contract with La Nacional de Envious, who will sell and distribute the Registrant's PaySafeNow solution to its existing and new client base throughout North and Latin America. The solution will enable clients to securely transfer money, locally or internationally via the Internet from the comfort of their own home, anytime during the day or night using their ATM, debit, credit or smart card. La Nacional plans to distribute and deploy the system to its branches and agencies throughout the U.S. The Registrant anticipates that it will not only receive revenue from the product sale but will also receive a transactional revenue fee from each transaction that takes place. The first units were deployed in New York in early 2002 at the "La Nacional Cybercafe," located at 566 West 207th Street in the Washington Heights district in New York City, an area that boasts the largest concentration of Dominican Republicans in the Northeast. The La Nacional Cybercafe, features a bank of computer terminals that have been outfitted with the registrants PaySafeNow system. Using the PaySafeNow system's proprietary card reader, the "ePayPad," Cybercafe customers may enjoy virtual one-stop shopping directly from popular retail stores located in the Dominican Republic via the Internet. In addition, the ePayPad will permit customers to use their PIN-authenticated cards to securely and economically transfer money locally or to friends and relatives living in the Dominican Republic or elsewhere around the world. In accordance with its contractual agreement with La Nacional, the Registrant will receive a transactional revenue fee from each PaySafeNow transaction originated at the Cybercafe. La Nacional's first U.S.-based Cybercafe represents a significant opportunity for the Registrant to demonstrate its system's ease-of-use, global capabilities and technical functionality in the United States. However, it also represents an important and progressive business opportunity to stimulate the local economy and provide an entire community with cost-efficient access to the Internet.

The Registrant now has the first fifty merchants on the Enelpunto.net Payment Gateway live with the Registrant's PaySafeNow system. EnelPunto.net has established the Registrant's ETSS as the standard, approved e-commerce payment technology for EnelPunto's online merchants." Now the first fifty merchants are fully operational, it will provide the platform for the Registrant to move forward with the integration of new merchants. The Registrant expects to integrate more than one thousand merchants by the middle or latter part of 2002.

The Registrant has entered into a revenue-sharing contract with Credulus Systems International to market credit analysis systems and services to the financial services industry in Latin America. The credit analysis and automation tools of Credulus Systems complement our proprietary payment systems and will enhance the Registrants product line. They offer synchronous capture and delivery of payment data patterns into the credit profiles used by financial institutions and merchants. Local credit bureaus cannot meet the sophisticated demands of today's online and private financial networks. CRM systems improve customer service but not the financial product offering of the banks. CredAbilityc by Credulus Systems addresses the risk management demands of the market and maximizes profit for credit providers The CredAbilityc Credit Analysis Solution is tailored to the specific requirements of financial services in the emerging economies of the Latin American & Caribbean region. Leverage and analysis of customer data empowers financial institutions through accurate and immediate risk measurement. The consequent mitigation of risk reduces costs to consumers and increases margins for credit providers, which in turn stimulates market activity

The Registrant has entered into a strategic alliance with Fortech that will enhance brand awareness for the Registrant's products. The alliance will enable the Registrant to integrate its PaySafeNow system with Fortech's business software package so as to develop a total business solution for clients. Fortech will also market and distribute and act as a reseller of the Registrant's products. This strategic alliance will open up new markets for the Registrant thus accelerating revenue growth.

The Registrant has entered into a strategic alliance with Caribbean Postal Services ("CPS") that will implement and develop an aggressive sales and marketing program for The Registrant's products. CPS will market and distribute the Registrant's product to their existing and future clients through their own portal and extensive marketing campaigns. CPS will give added value to the Registrant's clients by way of their distribution networks not only in the Dominican Republic but also in the United States. CPS will deliver goods purchased by clients using the ePayPad from the United States directly to the Dominican Republic. The Registrant believes that the CPS distribution network will greatly enhance and accelerate sales growth for the Registrant.

The Registrant has entered into a technical agreement with GS Telekom ("GTKOM"), which will further develop and enhance the Registrant's products. This agreement will enable the Registrant to enter into the rapidly expanding and highly profitable Wireless Application Protocol market. GTKOM and the Registrant will jointly develop and customize solutions for specific clients. This agreement is significant for the Registrant as it will gain the Registrant entry into a potentially lucrative market. The agreement will also provide the Registrant with resources to develop the next generation of its products

The Registrant has made important strides in obtaining a strong market presence in the United States with its strategic partner SSP Solutions. This strategic partnership will bring to the Registrant a strong and broad client portfolio with global scope., which will provide us with a secure platform for future growth. The Registrant will continue to build on new growth horizons, the results of which are anticipated to come to fruition in the latter part of 2002. The Registrant has consistently sought high caliber partners to create a best of breed technology approach for its customers. The Registrant believes that harnessing the strengths of complementary industry partners is a vital part of its growth strategy.

To enhance its presence in the United States, the Registrant opened its new North American headquarters in the heart of New York City to launch the sales and marketing of its PaySafeNow system in the North American market.. This is an important step for the Registrant with regard to the execution of its business plan and the globalization of our PaySafeNow system. New York is the business center of the world and therefore it is a natural choice for the Registrant.

The Registrant also opened its new European Headquarters in Dublin, Ireland to launch its PaySafeNow system in the European market. The Registrant believes that this is an important step for it with regard to the execution of its business plan. Ireland is the largest exporter of software in the world and so it was a natural choice for our European headquarters. Additionally, the country's infrastructure and educated labor force will play a major role in establishing the Registrant in the European marketplace in the forthcoming year

After extensive research and long-term negotiations with numerous manufacturers it was decided to outsource manufacture of the units. The decision to outsource will have many obvious long term benefits for the Registrant, for example, no production payroll, not carrying excess amounts of inventory thus improving its cash flow, immunity from industrial disputes which will ensure an uninterrupted supply of units to our clients, the cost of the units will be put out to tender regularly thus ensuring our product remains at a competitive price in the market place. It is important for the Registrant to have cash on hand to maintain a sufficient supply of inventory to meet consumer demand. The risk of maintaining inadequate stocks of certain key components must be minimized by larger than normal forward purchasing.

In April 2002 the Registrant retained vFinance Investments, a subsidiary of vFinance, Inc., a New York-based investment banking firm that offers capital raising and related services to small-and middle- market public companies and high growth private companies worldwide. vFinance will be responsible for assisting the Registrant in raising capital, providing management with ongoing financial counsel and identifying prospective opportunities for acquisition and/or joint venture considerations. This strategic relationship is intended to provide the Registrant with an immediate financing package that is a combination of a $270,000 convertible debenture and a $4 million equity line of credit. The access to working capital will allow the Registrant to fully support its immediate goals, promote near term growth and accelerate the implementation of our corporate business plan. It should be noted that the Registrant may never take advantage of the equity line, which is at the Registrant's discretion without penalty. However, in light of the growing demand for our PaySafeNowr solution across a broad spectrum of industry applications, the company believes it is prudent to have immediate access to growth capital in the event it has to accelerate its production efforts.

This financing will not only be used for the purchase of inventory supplies but also for the added expense of additional employees, consultants and for the purchase of capital equipment that will be necessary for the opening of new offices. The costs are projected to increase as sales increase and more capital equipment is purchased to enhance and facilitate growth projections.

As research and development is an integral part of our growth strategy, the Registrant projects this important expense to increase to ensure the quality of its products and satisfy consumer expectations. The Registrant is confident that the projected financing figure is sufficient to allow it to continually improve its product in relation to consumer demand. The Registrant is presently in the process of developing a wireless application for the PaySafeNow system; this development process is set to continue through the next twelve months. Salary and compensation increases are projected to be in line with growth in sales and profits, the personnel plan calls for expanding the workforce in accordance with growth projections.

In March 2002, the Registrant engaged Elite Financial Communications Group to launch an aggressive market awareness campaign to foster appreciation of corporate progress and global growth strategy. Elite Financial is a full service, pro-active financial communications, investor relations and strategic resourcing firm. Elite Financial will work closely with the Registrant's executive management team to develop customized, high-quality, high- impact and fully integrated financial communications programs and platforms designed to increase industry and investor awareness of the Registrant and foster market appreciation for its ongoing corporate progress and global growth strategy. Elite Financial will be playing a key role in helping the Registrant to leverage its vision for a new generation of online financial services.

Risk Factors Connected with Plan of Operation.

(a) Limited Prior Operations, History of Operating Losses, and Accumulated Deficit May Affect Ability of Registrant to Survive.

The Registrant has had limited prior operations to date. Since the Registrant's principal activities to date have been limited to organizational activities, research and development, and prospect development, it has no record of any revenue-producing operations. Consequently, there is only a limited operating history upon which to base an assumption that the Registrant will be able to achieve its business plans. In addition, the Registrant has only limited assets. As a result, there can be no assurance that the Registrant will generate significant revenues in the future; and there can be no assurance that the Registrant will operate at a profitable level. If the Registrant is unable to obtain customers and generate sufficient revenues so that it can profitably operate, the Registrant's business will not succeed. Accordingly, the Registrant's prospects must be considered in light of the risks, expenses and difficulties frequently encountered in connection with the establishment of a new business in a highly competitive industry, characterized by new product introductions.

The Registrant incurred a net loss of $3,050,722 for the period from May 25, 2001 (inception) to March 31, 2002 and $402,205 for the three months ended March 31, 2002. At March 31, 2002, the Registrant had an accumulated deficit of $3,050,722. This raises substantial doubt about the Registrant's ability to continue as a going concern.

(b) Need for Additional Financing May Affect Operations and Plan of Business.

Current funds available to the Registrant will not be adequate for it to be competitive in the areas in which it intends to operate. The Registrant's continued operations, as well as the implementation of its business plan, therefore will depend upon its ability to raise additional funds through bank borrowings, equity or debt financing. The Registrant is in the process of negotiating a financing package with vFinance, Inc., a New York-based investment banking firm, that is a combination of a $270,000 convertible debenture and a $4 million equity line of credit. However, this arrangement is not finalized, and there is no guarantee that this funding source, or any others, will be available in the future, or that they will be available on favorable terms. In addition, this funding amount may be adequate for the Registrant to fully implement its business plan. Thus, the ability of the Registrant to continue as a going concern is dependent on additional sources of capital and the success of the Registrant's business plan. Regardless of whether the Registrant's cash assets prove to be inadequate to meet the Registrant's operational needs, the Registrant might seek to compensate providers of services by issuance of stock in lieu of cash.

If funding is insufficient at any time in the future, the Registrant may not be able to take advantage of business opportunities or respond to competitive pressures, any of which could have a negative impact on the business, operating results and financial condition. In addition, if additional shares were issued to obtain financing, current shareholders may suffer a dilutive effect on their percentage of stock ownership in the Registrant.

(c) No Assurance of Protection of Proprietary Rights May Affect Ability to Manufacture Products.

The Registrant'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 Registrant 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 Registrant, that others will not develop a service that are similar or superior to the Registrant's, or that third parties will not copy or otherwise obtain and use the Registrant's proprietary information without authorization. In addition, certain of the Registrant's know- how and proprietary technology may not be patentable.

The Registrant may rely on certain intellectual property licensed from third parties, and may be required to license additional products or services in the future, for use in the general operations of its business plan. The Registrant currently has no licenses for the use of any specific products. There can be no assurance that these third party licenses will be available or will continue to be available to the Registrant on acceptable terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on the Registrant's business, financial condition or operating results.

(d) Dependence on Outsourced Manufacturing May Affect Ability to Bring Products to Market.

The risks of association with outsourced manufacturers are related to aspects of these firms' operations, finances and suppliers. The Registrant may suffer losses if the outside manufacturer fails to perform its obligations to manufacture and ship the product manufactured. These manufacturers' financial affairs may also affect the Registrant's ability to obtain product from these firms in a timely fashion should they fail to continue to obtain sufficient financing during a period of incremental growth. The Registrant intends to maintains a strong relationship with these manufacturers to ensure that any issues they may face are dealt with in a timely manner.

(e) No Assurance of Market Acceptance May Affect Ability to Sell Products.

There can be no assurance that any products successfully developed by the Registrant or its corporate collaborators, if approved for marketing, will ever achieve market acceptance. The Registrant's products, if successfully developed, may compete with a number of traditional products manufactured and marketed by major e- commerce and technology companies, as well as new products currently under development by such companies and others. The degree of market acceptance of any products developed by the Registrant or its corporate collaborators will depend on a number of factors, including the establishment and demonstration of the efficacy of the product candidates, their potential advantage over alternative methods and reimbursement policies of government and third party payors. There can be no assurance that the marketplace in general will accept and utilize any products that may be developed by the Registrant or its corporate collaborators.

(f) Substantial Competition May Affect Ability to Sell Products.

The Registrant may experience substantial competition in its efforts to locate and attract customers for its products. Some competitors in its industry have greater experience, resources, and managerial capabilities than the Registrant and may be in a better position than the Registrant to obtain access to attract customers. There are a number of larger companies that will directly compete with the Registrant. Such competition could have a material adverse effect on the Registrant's profitability or viability.

(g) Other External Factors May Affect Viability of Registrant.

The industry of the Registrant in general is a speculative venture necessarily involving some substantial risk. There is no certainty that the expenditures to be made by the Registrant will result in commercially profitable business. The marketability of its products will be affected by numerous factors beyond the control of the Registrant. These factors include market fluctuations, and the general state of the economy (including the rate of inflation, and local economic conditions), which can affect peoples' spending. Factors that leave less money in the hands of potential customers of the Registrant will likely have an adverse effect on the Registrant. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Registrant not receiving an adequate return on invested capital.

(h) Control by Officers and Directors Over Affairs of the Registrant May Override Wishes of Other Stockholders.

The Registrant's officers and directors beneficially own approximately 52% of the outstanding shares of the Registrant's common stock. As a result, such persons, acting together, have the ability to exercise significant influence over all matters requiring stockholder approval. Accordingly, it could be difficult for the investors hereunder to effectuate control over the affairs of the Registrant. Therefore, it should be assumed that the officers, directors, and principal common shareholders who control these voting rights will be able, by virtue of their stock holdings, to control the affairs and policies of the Registrant.

(i) Loss of Any of Current Management Could Have Adverse Impact on Business and Prospects for Registrant.

The Registrant's success is dependent upon the hiring and retention of key personnel. The Registrant's officers and directors currently have employment and non-competition agreements with the Registrant for a period of three years; however, no other employees have such an agreement. Therefore, there can be no assurance that these other personnel will remain employed by the Registrant. Should any of these individuals cease to be affiliated with the Registrant for any reason before qualified replacements could be found, there could be material adverse effects on the Registrant's business and prospects.

In addition, all decisions with respect to the management of the Registrant will be made exclusively by the officers and directors of the Registrant. Investors will only have rights associated with stockholders to make decisions that effect the Registrant. The success of the Registrant, to a large extent, will depend on the quality of the directors and officers of the Registrant. Accordingly, no person should invest in the shares unless he is willing to entrust all aspects of the management of the Registrant to the officers and directors.

(j) Potential Conflicts of Interest May Affect Ability of Officers and Directors to Make Decisions in the Best Interests of Registrant.

The officers and directors have other interests to which they devote time, either individually or through partnerships and corporations in which they have an interest, hold an office, or serve on boards of directors, and each will continue to do so notwithstanding the fact that management time may be necessary to the business of the Registrant. As a result, certain conflicts of interest may exist between the Registrant and its officers and/or directors that may not be susceptible to resolution.

In addition, conflicts of interest may arise in the area of corporate opportunities that cannot be resolved through arm's length negotiations. All of the potential conflicts of interest will be resolved only through exercise by the directors of such judgment as is consistent with their fiduciary duties to the Registrant. It is the intention of management, so as to minimize any potential conflicts of interest, to present first to the Board of Directors to the Registrant, any proposed investments for its evaluation.

(k) Limitations on Liability, and Indemnification, of Directors and Officers May Result in Expenditures by Registrant.

The Registrant's articles of incorporation include provisions to eliminate, to the fullest extent permitted by the Nevada Revised Statutes as in effect from time to time, the personal liability of directors of the Registrant for monetary damages arising from a breach of their fiduciary duties as directors. The By-Laws of the Registrant also include provisions to the effect that the Registrant may indemnify any director, officer, or employee. Any limitation on the liability of any director, or indemnification of directors, officer, or employees, could result in substantial expenditures being made by the Registrant in covering any liability of such persons or in indemnifying them.

(l) Absence of Cash Dividends May Affect Investment Value of Registrant's Stock.

The Board of Directors does not anticipate paying cash dividends on the common stock for the foreseeable future and intends to retain any future earnings to finance the growth of the Registrant's business. Payment of dividends, if any, will depend, among other factors, on earnings, capital requirements and the general operating and financial conditions of the Registrant as well as legal limitations on the payment of dividends out of paid-in capital.

(m) No Cumulative Voting May Affect Ability of Some Shareholders to Influence Mangement of Registrant.

Holders of the shares of common stock of the Registrant are not entitled to accumulate their votes for the election of directors or otherwise. Accordingly, the holders of a majority of the shares present at a meeting of shareholders will be able to elect all of the directors of the Registrant, and the minority shareholders will not be able to elect a representative to the Registrant's board of directors.

(n) No Assurance of Continued Public Trading Market and Risk of Low Priced Securities May Affect Market Value of Registrant's Stock.

There has been only a limited public market for the common stock of the Registrant. The common stock of the Registrant is currently quoted on the Over the Counter Bulletin Board. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of the Registrant's securities. In addition, the common stock is subject to the low-priced security or so called "penny stock" rules that impose additional sales practice requirements on broker-dealers who sell such securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to recent regulations adopted by the U.S. Securities and Exchange Commission, any equity security that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. The regulations governing low-priced or penny stocks sometimes limit the ability of broker- dealers to sell the Registrant's common stock and thus, ultimately, the ability of the investors to sell their securities in the secondary market.

(o) Failure to Maintain Market Makers May Affect Value of Registrant's Stock.

If the Registrant is unable to maintain a National Association of Securities Dealers, Inc. member broker/dealers as market makers, the liquidity of the common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market. There can be no assurance the Registrant will be able to maintain such market makers.

(p) Sale of Shares Eligible For Future Sale Could Adversely Affect the Market Price.

All of the 22,400,000 shares of common stock that are currently held, directly or indirectly, by management have been issued in reliance on the private placement exemption under the Securities Act of 1933. Such shares will not be available for sale in the open market without separate registration except in reliance upon Rule 144 under the Securities Act of 1933. In general, under Rule 144 a person, or persons whose shares are aggregated, who has beneficially owned shares acquired in a non-public transaction for at least one year, including persons who may be deemed affiliates of One Touch, as defined, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock, or the average weekly reported trading volume during the four calendar weeks preceding such sale, provided that current public information is then available. If a substantial number of the shares owned by these shareholders were sold under Rule 144 or a registered offering, the market price of the common stock could be adversely affected.