The following discussion and analysis of the Company's financial condition and results of operations is based upon, and should be read in conjunction with, its unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q.

Overview

We are a provider of electronic payment processing services, including credit and debit card transaction processing, point-of-sale related software applications and other value-added services. We currently process on average approximately 1,620,000 transactions per month and serve in excess of 1,100 merchant locations. We provide transaction processing support for all major credit cards, including Visa, MasterCard, American Express, Diners Club and JCB, and all bank-issued Finnish debit cards. We enable merchants and financial institutions to accept, and their consumers to utilize, electronic payments using credit and debit cards to purchase goods and services. Our role is to serve as an intermediary in the exchange of information and funds that must occur between parties so that a payment transaction can be completed. We provide merchants with various transaction processing services, including authorizing card transactions at the merchant's retail location (also known as the point-of-sale), and capturing and transmitting transaction data. Through agreements with Hypercom Corporation, the world's second largest manufacturer of payment terminals , Spectra Technologies, a leading Chinese electronic payment solution provider, and Thyron Systems, we also offer our customers point-of-sale terminals, which are integrated with our software products to provide merchants with a complete solution for credit and debit card transaction processing.

Our role in a transaction is to serve as a link between the merchant and the merchant's bank, known as the acquiring bank, and the bank that issued the consumer's credit or debit card, known as the issuing bank. The electronic authorization process for a credit card transaction begins when the merchant "swipes" or inserts the card into its point-of-sale terminal and enters the amount of the purchase. After capturing the data, the point-of-sale terminal transmits the authorization request through our switching center, where the data is routed to the issuing bank (typically via the Interchange Network, a telecommunication network operated by international card corporations) for authorization. The issuing bank confirms that the credit card is authentic and whether a transaction will cause the cardholder to exceed defined limits. The approval or disapproval of the transaction is transmitted back to our switching center, where it is routed to the appropriate merchant's acquiring bank.

We were originally organized on August 2, 1997, under the laws of the State of Delaware as Interstate Capital Corporation. On November 17, 1999, we merged into a newly formed Nevada corporation, Freedom Surf, Inc., for the purpose of changing the corporate domicile to Nevada. On February 24, 2003, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State changing our name to "FreeStar Technology Corporation". On September 10, 2002, we entered into an agreement with Heroya Investments Limited for the acquisition of Rahaxi Processing Oy through a combination of cash and stock. The agreement with Heroya was subsequently amended three times to increase the stock consideration and decrease the cash component. Rahaxi, our wholly owned subsidiary, is based in Helsinki, Finland.

Management believes that our primary short-term growth opportunities will be derived from the European marketplace and a significant portion of our resources, both financial and personnel, will be directed towards developing those opportunities. We believe that our anticipated growth and ultimate profitability will depend in large part on the ability to promote our services, gain clients and expand our relationship with current clients. Accordingly, we intend to invest in marketing, strategic relationships, and development of our client base.

Our switching and transaction processing platform is operated by our wholly-owned subsidiary, Rahaxi, which is located in Finland. We are one of the leading players in the Finnish transaction processing market, serving approximately 1,100 merchants each day and processing on average approximately 1,620,000 transactions per month.

Until recently, our primary source of revenue was from transaction fees we receive from processing credit and debit card transactions through point-of-sale terminals at a merchant's retail location. In fiscal year 2006, we also began generating revenue from sales of point-of-sale terminals as well as consulting fees, which include customization of software applications for merchants and other customers. Other anticipated revenue streams include additional processing fees from processing dynamic currency conversion through our agreement with Global Refund Group and Monex. In fiscal year 2007, the period from July 1, 2006 through June 30, 2007, transaction fees from point-of-sale terminal transactions were primarily from merchants and customers based in Finland. We also derived revenue from transaction fees from clients in Estonia, Spain and Iceland. In addition, we derived revenue from consulting and development fees from our customers in Finland, Sweden, the United Kingdom, Dominican Republic and in Ireland through our 50% stake in PLC, Project Life Cycle Partners Limited.

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The Company's principal offices are in Dublin, Ireland. The Company also has offices in Helsinki, Finland; Stockholm, Sweden; Geneva, Switzerland; and Santo Domingo, the Dominican Republic. While the Company's offices in Finland, Sweden, and Switzerland will primarily focus on the European market, the Company's office in the Dominican Republic will continue to pursue opportunities in the Caribbean and Latin America. Management believes that these emerging markets could offer favorable opportunities in the longer term. The Company has achieved certification to become a third party services provider for China Union Pay.

Results of Operations

THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2006

Revenue

Transaction processing and related revenue

Transaction processing and related revenue was $487,723 for the three months ended September 30, 2007, compared to $461,860 during the prior year, a decrease of $25,863 or approximately 5.3%. The Company process a total of 5,125,674 transactions during the three months ended September 30, 2007, an increase of $207,721 or approximately 4.2% compared to 4,917,953 transactions processed during the prior year. We expect this trend to continue throughout fiscal 2008 as we continue to expand our customer base. The Company invoices its customers in Euro. The average exchange rate of the Euro to the U.S. Dollar for the three months ended September 30, 2007 has declined by approximately 7.6% compared to the three months ended September 30, 2006, and most of the decline in U.S. dollar sales can be attributed to this exchange rate difference.

Consulting services revenue

Consulting services revenue was $605,977 for the three months ended September 30, 2007, compared to $0 during the prior year. Consulting services revenue is primarily generated by the Company's 50% stake in PLC. The Company did not own PLC during the prior year. We expect to report increased revenue from consulting services in the fiscal year ending June 30, 2008.

Hardware and related revenue

Hardware and related revenue was $260,795 during the three months ended September 30, 2007, compared to $0 during the prior year. The Company began selling processing terminals and related equipment in December 2006. We expect to report increased hardware and related sales in the year ending June 30, 2008 as we not only increase actual hardware sales to our expanding customer base, but began to recognize revenue from annual maintenance fees and service initiation fees, which were not recognized during the comparable period.

For the reasons above, total revenue for the three months ended September 30, 2007 was $1,354,495 compared to $461,860 for the three months ended September 30, 2006, an increase of $892,635 or approximately 193%.

We expect revenue levels to increase throughout the next twelve months as we continue to increase our client base and introduce service offerings, such as EMV transaction processing, dynamic currency conversion, sales of point of sale terminals and consulting fees. However, there can be no guarantee that our products will be accepted in the marketplace or that our sales efforts will be successful.

All of our revenue for the three months ended September 30, 2007 has been derived from a limited number of its customers, primarily Finnish customers for its transaction processing products. Approximately 65% of our total revenue was attributable to our ten largest customers. The future loss of any major customer could have a material adverse effect on our business, financial condition and results of operations. We believe that this customer concentration will continue for much of fiscal 2008. We believe that this customer concentration will be diluted in the latter half of fiscal 2008 as we pursues operations outside of Finland. All of our revenues for the twelve months ended September 30, 2007 have been generated by our operations outside of the United States, and our future growth rate is, in part, dependent on continued growth in international markets. We expect this trend to continue through fiscal year 2008.

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Cost of Revenue

Cost of transaction processing and related revenue

Cost of transaction processing and related revenue was $634,267 for the three months ended September 30, 2007, compared to $533,978 for the prior three months ended September 30, 2006, an increase of $100,289 or 19%. The reason for the increase is our continued investment in our processing infrastructure, as we further build out our processing capabilities and service offerings. Though we capitalize the acquisition and installation costs of certain software components purchased from third party suppliers, we expense all costs associated with maintaining, and many of the costs of improving, our processing and customer support capabilities. These costs do not always change in direct relation to sales, and in fact often increase in advance of any potential increase in sales which they may support. Included in cost of transaction processing and related revenue is depreciation and amortization of $127,371 and $126,936 for the three months ended September 30, 2007 and 2006, respectively.

Cost of consulting services

Cost of consulting services revenue was $389,260 for the three months ended September 30, 2007, compared to $0 for the three months ended September 30, 2006. Consulting services revenue is primarily generated by our 50% owned subsidiary company PLC Partners, Ltd. which we did not own during the prior year.

Cost of hardware and related revenue

Cost of hardware and related revenue was $257,343 during the three months ended September 30, 2007, compared to $0 during the prior year. The Company began selling processing terminals and related equipment in December 2006. Included in cost of hardware revenue are terminals shipped to customers as test and demonstration units, as well as items replaced or returned.

For the reasons above, total cost of revenue was $1,280,870 for the three months ended September 30, 2007, compared to $533,978 for the three months ended September 30, 2006, an increase of $746,892 or approximately 140%.

We expect cost of revenue to increase in the coming year as we continue our current trend of increasing sales and expanding our product offering. As our service offerings and business mix changes, gross margin as a percent of sales may not remain constant.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $5,431,549 for the three months ended September 30, 2007 compared to $2,398,115 for the three months ended September 30, 2006, an increase of $3,033,434 or approximately 126%. The primary components of selling, general, and administrative expenses for the three months ended September 30, 2007 were: consulting fees of $3,556,694 to service providers for financial consulting and other professional services; $3,326,012 of this amount consisted of non-cash compensation in the form of stock, stock options, and warrants. Other components of selling, general, and administrative expenses for fiscal year 2007 included payroll and related costs of $1,162,377; facilities expense (rent, telephone, utilities, and maintenance) of $222,145; legal and accounting fees of $212,562; travel and entertainment costs of $103,208; depreciation and amortization of $100,997; other professional services of $66,704; and $18,000 for investor relations.

The amount of future selling, general, and administrative expenses will largely depend on the pace of our growth in the market for payment processing products and upon the cost of outside services and professional fees, including legal fees relating to litigation and acquisitions. We fully expect these costs to increase as we continues our expected rollout of product offerings. We also intend to continue to build out our infrastructure, which may include adding support staff and branch offices. Selling expenses may also continue to increase due to increased focus on obtaining new customers. We intends to focus additional resources in the areas of sales personnel salaries, trade show participation, and other promotional expenses. In addition, we may pursue further acquisitions in order to facilitate our growth and exploit market opportunities, which would further drive up legal and accounting fees, payroll, and travel costs.

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Cost of Acquisition

Pursuant to the acquisition agreement for the Company's 50% owned subsidiary PLC Partners, the Company is obligated to issue additional shares of the Company's common stock should the average closing price be under $0.36 for the thirty day period preceding the one-year anniversary of the transaction, or November 21, 2007. The number of shares issuable pursuant to this clause is capped at 1,111,111. The Company calculated this additional payment amount effective November 12, 2007, and determined that at that date the maximum number of additional shares, or 1,111,111, would be issuable. The Company accrued the value of these shares, or $192,555, to operations during the three months ended September 30, 2007. There was no comparable expense during the prior year.

Interest Expense

Interest income (expense) net was ($19,213) for the three months ended September 30, 2007, compared to $12 for the three months ended September 30, 2006, a decrease of ($19,225) or approximately 160,208%. The decrease is due primarily to the amortization of a discount on a note payable which was in place during the prior year.

Currently, we are utilizing equity financing partly in order to avoid the interest charges associated with debt financing. Accordingly, we do not expect interest expense to materially increase in the coming year. There can be no guarantee that this will be the case, however, as the market for our common stock could change, forcing us to pursue alternative methods of financing our cash needs. In addition, we could receive an offer of attractive debt financing or could undertake additional financing with regard to an acquisition, in which cases interest expense would significantly increase.

Net Loss

For the reasons stated above, we recorded a net loss of $5,639,278 for the three months ended September 30, 2007 compared to $2,470,221 for the three months ended September 30, 2006, an increase of $3,169,057 or approximately 128%.

We may continue to incur losses on both a quarterly and annual basis. In addition, we expect to continue to incur significant costs of services and substantial operating expenses. Therefore, we will need to significantly increase revenues to achieve profitability and a positive cash flow. We may not be able to generate sufficient revenues to achieve profitability. We expect losses to continue for at least the next twelve months.

Operating Activities

The net cash used in operating activities was $1,209,199 for the three months ended September 30, 2007 compared to $1,421,228 for the three months ended September 30, 2006, a decrease of $212,029 or approximately 15%. The primary components of cash used in operating activities during the current period are the net loss of ($5,639,278), partially offset by the non-cash charges of non-cash compensation of $3,326,012; and depreciation and amortization of $228,368.

Investing Activities

Net cash used in investing activities was $115,550 during the three months ended September 30, 2007 compared to $180,192 for the three months ended September 30, 2006, a decrease of $64,642 or approximately 36%. This change was primarily due to our decreased investing in software enhancement to our transaction processing system, and the acquisition of 50% of PLC Partners, LLC.

Financing Activities

Net cash provided by financing activities was $1,308,327 for the three months ended September 30, 2007, compared to $1,652,500 for the three months ended September 30, 2006, a decrease of $344,173 or approximately 21%. The reason for the decrease was a decrease in cash sales of common stock from $1,600,000 in the prior year to $500,000 during the current year.

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Liquidity and Capital Resources

As of September 30, 2007, we had total current assets of $2,235,108 and total current liabilities of $3,361,772, resulting in a working capital deficiency of ($1,126,664). We had cash and cash equivalents of $478,012 at September 30, 2007, and an accumulated deficit of $80,058,189.

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

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

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

As of June 30, 2007, the Company had received cash in the amount $7,169,924 pursuant to the March Financing, and had issued 22,850,000 shares of common stock and warrants to purchase an additional 24,836,957 shares. The Company also issued to consultants 7,600,000 shares of unregistered common stock with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of common stock at a price of $1.00 per share with a fair value of $2,212,684; and warrants to purchase an additional 1,000,000 shares of common stock at a price of $1.50 with a fair value of $148,086 as commission to consultants related to the March Financing. The Company charged the aggregate amount of $5,272,770 to operations during the twelve months ended June 30, 2006 with regard to the issuance of these shares and warrants.

During three months ended September 30, 2007, the Company received an additional $500,000 pursuant to the March Financing, and the Company issued a total of 23,000,000 shares of common stock and warrants to purchase an additional 25,000,000 shares. At September 30, 2007, there remains a total of $1,500,000 due on the 23,000,000 shares which were issued during the quarter. This amount is recorded as Subscriptions Receivable on the Company's balance sheet at September 30, 2007.

The independent auditor's report on the Company's June 30, 2007 financial statements included in our Annual Report states that the Company's recurring losses raise substantial doubts about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company continues as a going concern that contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the ability of the Company to continue as a going concern on a longer-term basis will be dependent upon its ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, to obtain additional financing, and ultimately, attain profitability.

Management plans to continue raising additional capital through a variety of fund raising methods during fiscal 2008 and to pursue all available financing alternatives in this regard. Management may also consider a variety of potential partnership or strategic alliances to strengthen its financial position. Although the Company has been successful in the past in raising capital, no assurance can be given that these sources of financing will continue to be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to the Company. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on the Company's financial condition, which could require the Company to:

- curtail operations significantly;
- sell significant assets;
- seek arrangements with strategic partners or other parties that may require us to relinquish significant rights to products, technologies or markets; or
- explore other strategic alternatives including a merger or sale;

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To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders.

Certain Indebtedness

Paul Egan and Ciaran Egan have delayed payment of a portion of their salary in order to conserve our cash. At September 30, 2007, $125,579 and $100,325 of accrued salaries were owed to Paul Egan and Ciaran Egan, respectively.

Paul Egan has also advanced the funds to the Company. These advances accrue interest at the rate of 7% per annum. At September 30, 2007, the Company owned the amount of $68,078 to Paul Egan for advances, plus $1,085 of accrued interest.

Ciaran Egan has also advanced the funds to the Company. These advances accrue interest at the rate of 7% per annum. At September 30, 2007, the Company owned the amount of $19,268 to Ciaran Egan for advances, plus $1,070 of accrued interest.

Pursuant to Paul Egan's and Ciaran Egan's employment agreements, the Company provides the officers a car allowance. These allowance have not been paid during the three months ended September 30, 2007. At September 30, 2007, the Company has accrued the amount of $8,559 to Paul Egan and $8,559 to Ciaran Egan for car allowances.

Exchange Rates

Our operations are principally conducted in Finland through our subsidiary Rahaxi, which operates in its local currency, the Euro. We also have operations in the Dominican Republic under the name ePayLatina S.A., and Freestar Dominicana, Inc. operating in its local currency, the Dominican Republic Peso. All assets and liabilities are translated at exchange rates in effect at the end of the year. Accounts for consolidated statements of operations are translated at weighted average rates for the year. Gains and losses from translation of foreign currency into U.S. dollars are included in other comprehensive income
(loss). The accumulated foreign currency translation adjustment was $136,826 for the three months ended September 30, 2007.

A significant portion of our revenues and expenses is denominated in currencies other than U.S. dollars; Rahaxi generates its revenue in Euros. Any significant change in exchange rates may have a favorable or negative effect on both our revenues and operational costs. In particular, the value of the U.S. dollar to the Euro impacts our operating results. Our expenses are not necessarily incurred in the currency in which revenue is generated, and, as a result, we are required from time to time to convert currencies to meet our obligations. In addition, a significant portion of our financial statements are prepared in Euro and translated to U.S. dollars for consolidation.

Inflation

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

Off-Balance Sheet Arrangements

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

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Contractual Obligations and Commercial Commitments The following table of contractual obligations sets forth the contractual obligations of the Company as of September 30, 2007:

Contractual obligation		Total		Less than 1 year		1 - 3 years		3 - 5 years
Operating lease obligations		$ 1,175,904		$ 315,362		$ 811,351		$ 49,191