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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission File No. 000-51478



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TRX, INC.

(Exact name of registrant as specified in charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-2502748                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6 West Druid Hills Drive, Atlanta, Georgia                     |  | 30329                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Issuers telephone number, including area code: (404) 929-6100



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Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act:

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

The number of shares of the registrants common stock, $0.01 par value outstanding at November 2, 2006 was 17,768,592 shares.



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##### Table of Contents

TRX, INC.

FORM 10-Q

TABLE OF CONTENTS



|          |  |                                                                                                                 |  |         
|--------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                                 |  | PAGE NO.
|PART I:   |  | FINANCIAL INFORMATION                                                                                           |  |         
|Item 1.   |  | Financial Statements                                                                                            |  |         
|          |  | Unaudited Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005                            |  | 3       
|          |  | Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005 |  | 4       
|          |  | Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005           |  | 5       
|          |  | Notes to Unaudited Consolidated Financial Statements                                                            |  | 6       
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 11      
|Item 3.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                      |  | 16      
|Item 4.   |  | Controls and Procedures                                                                                         |  | 16      
|          |  |                                                                                                                
|PART II:  |  | OTHER INFORMATION                                                                                               |  |         
|Item 1A.  |  | Risk Factors                                                                                                    |  | 16      
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 16      
|Item 6.   |  | Exhibits                                                                                                        |  | 16      
|Signature |  | 17                                                                                                             



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##### Table of Contents

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

TRX, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                             |  | September 30,2006 |         |   | December 31,2005 |  
|ASSETS                                                                                                                                                                                                       |  |                   |         |   |                  |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                              |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                    |  | $                 | 26,636  |   |                  | $ | 28,633  |  
|Settlement assets                                                                                                                                                                                            |  |                   | 9,061   |   |                  |   |        |  
|Trade accounts receivable, net                                                                                                                                                                               |  |                   | 9,673   |   |                  |   | 5,705   |  
|Prepaids and other                                                                                                                                                                                           |  |                   | 2,551   |   |                  |   | 2,260   |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                         |  |                   | 47,921  |   |                  |   | 36,598  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|NONCURRENT ASSETS:                                                                                                                                                                                           |  |                   |         |   |                  |   |         |  
|Property and equipment, net                                                                                                                                                                                  |  |                   | 16,085  |   |                  |   | 17,435  |  
|Goodwill                                                                                                                                                                                                     |  |                   | 23,125  |   |                  |   | 21,512  |  
|Other assets, net                                                                                                                                                                                            |  |                   | 1,007   |   |                  |   | 589     |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total noncurrent assets                                                                                                                                                                                      |  |                   | 40,217  |   |                  |   | 39,536  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                 |  | $                 | 88,138  |   |                  | $ | 76,134  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                         |  |                   |         |   |                  |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Accounts payable and accrued liabilities                                                                                                                                                                     |  | $                 | 22,018  |   |                  | $ | 24,305  |  
|Customer deposits and deferred revenue                                                                                                                                                                       |  |                   | 12,410  |   |                  |   | 11,924  |  
|Settlement obligations                                                                                                                                                                                       |  |                   | 9,061   |   |                  |   |        |  
|Current portion of long-term debt                                                                                                                                                                            |  |                   | 2,145   |   |                  |   | 2,207   |  
|Convertible notes                                                                                                                                                                                            |  |                   | 1,360   |   |                  |   |        |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                    |  |                   | 46,994  |   |                  |   | 38,436  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|NONCURRENT LIABILITIES:                                                                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Long-term debtless current portion                                                                                                                                                                          |  |                   |        |   |                  |   | 1,909   |  
|Convertible notes                                                                                                                                                                                            |  |                   |        |   |                  |   | 1,360   |  
|Other long-term liabilities                                                                                                                                                                                  |  |                   | 1,124   |   |                  |   | 1,828   |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total noncurrent liabilities                                                                                                                                                                                 |  |                   | 1,124   |   |                  |   | 5,097   |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                            |  |                   | 48,118  |   |                  |   | 43,533  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTE 1)                                                                                                                                                                       |  |                   |         |   |                  |   |         |  
|SHAREHOLDERS EQUITY:                                                                                                                                                                                        |  |                   |         |   |                  |   |         |  
|Common stock, $.01 par value; 100,000,000 shares authorized; 17,956,123 and 17,851,835 shares issued; 17,768,592 and 17,664,304 shares
outstanding at September 30, 2006 and December 31, 2005, respectively |  |                   | 179     |   |                  |   | 178     |  
|Additional paid-in capital                                                                                                                                                                                   |  |                   | 91,726  |   |                  |   | 90,006  |  
|Treasury stock, at cost; 187,531 shares                                                                                                                                                                      |  |                   | (2,294  | ) |                  |   | (2,294  | )
|Deferred compensation                                                                                                                                                                                        |  |                   |        |   |                  |   | (43     | )
|Cumulative translation adjustment                                                                                                                                                                            |  |                   | 213     |   |                  |   | 543     |  
|Accumulated deficit                                                                                                                                                                                          |  |                   | (49,804 | ) |                  |   | (55,789 | )
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                                                   |  |                   | 40,020  |   |                  |   | 32,601  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                   |  | $                 | 88,138  |   |                  | $ | 76,134  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                              |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                              |  | 2006                            |        |   | 2005                           |   |        | 2006 |  |   | 2005   |  
|REVENUES:                                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Transaction and other revenues                                                |  | $                               | 26,774 |   |                                | $ | 29,343 |      |  | $ | 87,393 |   |  | $ | 89,281 |  
|Client reimbursements                                                         |  |                                 | 366    |   |                                |   | 307    |      |  |   | 1,522  |   |  |   | 2,331  |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                |  |                                 | 27,140 |   |                                |   | 29,650 |      |  |   | 88,915 |   |  |   | 91,612 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|EXPENSES:                                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Operating, excluding depreciation and amortization                            |  |                                 | 15,913 |   |                                |   | 18,501 |      |  |   | 51,162 |   |  |   | 57,158 |  
|Selling, general, and administrative, excluding depreciation and amortization |  |                                 | 4,701  |   |                                |   | 5,076  |      |  |   | 14,315 |   |  |   | 15,303 |  
|Technology development                                                        |  |                                 | 2,759  |   |                                |   | 2,800  |      |  |   | 8,037  |   |  |   | 8,865  |  
|Client reimbursements                                                         |  |                                 | 366    |   |                                |   | 307    |      |  |   | 1,522  |   |  |   | 2,331  |  
|Restructuring                                                                 |  |                                 | (148   | ) |                                |   | 11     |      |  |   | 691    |   |  |   | 2,319  |  
|Depreciation and amortization                                                 |  |                                 | 2,453  |   |                                |   | 2,519  |      |  |   | 7,698  |   |  |   | 7,329  |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total expenses                                                                |  |                                 | 26,044 |   |                                |   | 29,214 |      |  |   | 83,425 |   |  |   | 93,305 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|OPERATING INCOME (LOSS)                                                       |  |                                 | 1,096  |   |                                |   | 436    |      |  |   | 5,490  |   |  |   | (1,693 | )
|INTEREST INCOME (EXPENSE):                                                    |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Interest income                                                               |  |                                 | 256    |   |                                |   | 23     |      |  |   | 779    |   |  |   | 126    |  
|Interest expense                                                              |  |                                 | (99    | ) |                                |   | (905   | )    |  |   | (284   | ) |  |   | (2,501 | )
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total interest income (expense), net                                          |  |                                 | 157    |   |                                |   | (882   | )    |  |   | 495    |   |  |   | (2,375 | )
|DEBT CONVERSION EXPENSE                                                       |  |                                 |       |   |                                |   | (2,898 | )    |  |   |       |   |  |   | (2,898 | )
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|NET INCOME (LOSS)                                                             |  | $                               | 1,253  |   |                                | $ | (3,344 | )    |  | $ | 5,985  |   |  | $ | (6,966 | )
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|WEIGHTED AVERAGE NUMBER OF SHARES:                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                         |  |                                 | 17,735 |   |                                |   | 12,519 |      |  |   | 17,692 |   |  |   | 12,481 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                       |  |                                 | 17,736 |   |                                |   | 12,519 |      |  |   | 17,693 |   |  |   | 12,481 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|BASIC AND DILUTED NET INCOME (LOSS) PER SHARE                                 |  | $                               | 0.07   |   |                                | $ | (0.27  | )    |  | $ | 0.34   |   |  | $ | (0.56  | )
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                                |        |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                         |  | Nine Months EndedSeptember 30, |       
|                                                                                         |  | 2006                           |        |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                                |        |   |      |   |        |  
|Net income (loss)                                                                        |  | $                              | 5,985  |   |      | $ | (6,966 | )
|                                                                                         |  |                                |        |   |      |   |        |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                |        |   |      |   |        |  
|Depreciation and amortization                                                            |  |                                | 7,698  |   |      |   | 7,329  |  
|Debt conversion expense                                                                  |  |                                |       |   |      |   | 2,898  |  
|Restructuring charges                                                                    |  |                                | 193    |   |      |   | 499    |  
|Provision for bad debts                                                                  |  |                                | 125    |   |      |   | 156    |  
|Stock compensation expense                                                               |  |                                | 1,012  |   |      |   | 56     |  
|Amortization of debt discount                                                            |  |                                |       |   |      |   | 268    |  
|Changes in assets and liabilities, net of effects of acquisition:                        |  |                                |        |   |      |   |        |  
|Trade accounts receivable                                                                |  |                                | (3,554 | ) |      |   | 1,901  |  
|Prepaids and other assets                                                                |  |                                | 56     |   |      |   | 247    |  
|Accounts payable and accrued liabilities                                                 |  |                                | (4,534 | ) |      |   | 481    |  
|Customer deposits and deferred revenue                                                   |  |                                | 196    |   |      |   | (379   | )
|                                                                                         |  |                                |        |   |      |   |        |  
|Total adjustments                                                                        |  |                                | 1,192  |   |      |   | 13,456 |  
|                                                                                         |  |                                |        |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                                | 7,177  |   |      |   | 6,490  |  
|                                                                                         |  |                                |        |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                                |        |   |      |   |        |  
|Capital expenditures                                                                     |  |                                | (6,514 | ) |      |   | (6,690 | )
|Acquisition, net of cash acquired                                                        |  |                                | (1,475 | ) |      |   |       |  
|Sale of assets                                                                           |  |                                | 250    |   |      |   |       |  
|                                                                                         |  |                                |        |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                                | (7,739 | ) |      |   | (6,690 | )
|                                                                                         |  |                                |        |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                                |        |   |      |   |        |  
|Issuances of long-term debt                                                              |  |                                |       |   |      |   | 964    |  
|Repayments of long-term debt                                                             |  |                                | (2,074 | ) |      |   | (4,459 | )
|Issuance of common stock, net of offering costs                                          |  |                                |       |   |      |   | 26,440 |  
|Debt conversion expense                                                                  |  |                                |       |   |      |   | (2,898 | )
|Repurchase of warrant                                                                    |  |                                |       |   |      |   | (1,600 | )
|Repayment of note receivable from shareholder                                            |  |                                |       |   |      |   | 1,000  |  
|Purchases of treasury stock                                                              |  |                                |       |   |      |   | (321   | )
|Proceeds from stock-based compensation plans                                             |  |                                | 128    |   |      |   | 806    |  
|                                                                                         |  |                                |        |   |      |   |        |  
|Net cash (used in) provided by financing activities                                      |  |                                | (1,946 | ) |      |   | 19,932 |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                             |  |                                | 511    |   |      |   | (589   | )
|                                                                                         |  |                                |        |   |      |   |        |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     |  |                                | (1,997 | ) |      |   | 19,143 |  
|CASH AND CASH EQUIVALENTSBeginning of period                                            |  |                                | 28,633 |   |      |   | 10,595 |  
|                                                                                         |  |                                |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTSEnd of period                                                  |  | $                              | 26,636 |   |      | $ | 29,738 |  
|                                                                                         |  |                                |        |   |      |   |        |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(In thousands, except share data)

1. ACCOUNTING AND REPORTING POLICIES

TRX, Inc. and its subsidiaries (we, us or our) provide transaction processing and data integration services to the
global travel industry. We also serve clients in other industries involved with or affected by travel-related processes, such as credit card issuers. Our hosted technology and services allow our clients to efficiently manage the activities related
to travel and travel-related transactions, as well as the vast number of complex and dynamic data records generated by these transactions. We are majority-owned by BCD Technology, S.A. (BCD).

In February 2006, we entered into a five-year agreement related to global business development with E2E SerWiz Solutions, Ltd. (SWS), a
subsidiary of TATA Sons Ltd. Pursuant to the agreement, the parties market their respective offerings in the global travel marketplace in consideration for specified fees based on new business referred. Additionally, in February 2006, we entered
into a shared services agreement with SWS, effective November 1, 2005, in which we agreed to facilitate SWS establishment of U.S.-based customer care operations during 2006. In connection with this agreement, we transferred all of our
U.S.-based customer care assets and employees, located in Parkersburg, West Virginia and Milton, Florida to SWS on April 1, 2006. We transferred assets with a net book value of approximately $75 to SWS and expect to record a gain associated
with such sale of approximately $175 when our continuing involvement with SWS concludes. In addition, we retained SWS as a subcontractor beginning April 1, 2006, in order to provide customer care services to certain of our clients in the U.S.
Thus, we will continue to record revenues from our existing contractual relationships with a pass through of the revenue as costs to SWS.

Basis of PresentationThe accompanying unaudited consolidated financial statements of TRX, Inc. and its subsidiaries (we, us or our) have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures
required by GAAP for complete financial statements. As a result, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in our Form 10-K
for the year ended December 31, 2005. Due to the seasonal fluctuations for the purchase of air travel by leisure and corporate travelers as well as credit card volume related to corporate travel, interim results are not necessarily indicative
of results for a full year.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring items and restructuring items, considered necessary for a fair statement of results for the interim periods presented.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates.

Settlement Assets and Settlement LiabilitiesIn 2006, we began providing back office processing services for a client. We recognize fees associated with such services as revenues when services are
rendered. We collect cash relating to the sale of travel on behalf of our client, and remit such cash to the providers of related travel services (such as airline, hotel, etc.). We have a legal obligation to settle these transactions on behalf of
our client each month, and therefore classify both the obligation and related asset as current on the accompanying consolidated balance sheet.

Allowance for Doubtful AccountsWe maintain an allowance for doubtful accounts to reserve for uncollectible receivables. The balance was $503 and $495 as of September 30, 2006 and December 31, 2005,
respectively.

Other Intangible AssetsWe recorded $532 to recognize the value of amortizing intangible assets as part
of our purchase of certain assets of Travel Analytics, Inc. (Note 6), and we recorded $615 to recognize the value of certain customer relationships as part of our purchase of our European equity method investments in 2004. These amounts are included
as part of Other Assets, net in the accompanying consolidated balance sheets. We expect to record approximately $145 of amortization expense related to these intangible assets in each of the coming four years, and $120 of amortization expense in the
fifth year. During the three and nine months ended September 30, 2006, we recorded related amortization expense of $45 and $120, respectively and during the three and nine months ended September 30, 2005, we recorded related amortization
expense of $19 and $136, respectively.

Changes in other intangible assets during the nine months ended September 30, 2006 were as
follows:





|                                   |  |   |      |  
|---------------------------------- |  | - | ---- | -
|Balance, January 1, 2006           |  | $ | 615  |  
|Travel Analytics, Inc. acquisition |  |   | 532  |  
|Amortization of intangible assets  |  |   | (222 | )
|                                   |  |   |      |  
|Balance, September 30, 2006        |  | $ | 925  |  
|                                   |  |   |      |  

A summary of our intangible assets as of September 30, 2006 and December 31, 2005 is as
follows:



|                        |  |             |  |                    |       |                         |                   |      |                    |  |                         |     |  |   |      |  
|----------------------- |  | ----------- |  | ------------------ | ----- | ----------------------- | ----------------- | ---- | ------------------ |  | ----------------------- | --- |  | - | ---- | -
|                        |  |             |  | September 30, 2006 |       |                         | December 31, 2005 |     
|                        |  | UsefulLives |  | GrossCarryingValue |       | AccumulatedAmortization |                   |      | GrossCarryingValue |  | AccumulatedAmortization |    
|Customer contracts      |  | 8 years     |  | $                  | 615   |                         | $                 | (213 | )                  |  | $                       | 615 |  | $ | (155 | )
|Trademarks and patents  |  | 10 years    |  |                    | 432   |                         |                   | (5   | )                  |  |                         |    |  |   |     |  
|Non-compete agreement   |  | 4 years     |  |                    | 100   |                         |                   | (4   | )                  |  |                         |    |  |   |     |  
|                        |  |             |  |                    |       |                         |                   |      |                    |  |                         |     |  |   |      |  
|Total intangible assets |  |             |  | $                  | 1,147 |                         | $                 | (222 | )                  |  | $                       | 615 |  | $ | (155 | )
|                        |  |             |  |                    |       |                         |                   |      |                    |  |                         |     |  |   |      |  

Revenue Recognition and Cost DeferralWe recognize revenue in accordance with
Emerging Issues Task Force (EITF) Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition, when all of
the following have occurred: (1) persuasive evidence of an arrangement exists; (2) services have been performed; (3) the fee for services is fixed or determinable; and (4) collectibility is reasonably assured. Generally, these
criteria are considered to have been met as follows:



| |  |  | For transaction revenue, in which we perform ticketing, file-finishing, data consolidation and reporting, and customer care services, when the services are provided;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For short-term client-specific customizations, which do not generate direct on-going incremental transaction revenue, when the customization has been delivered to our customer; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For implementation and set-up fees, which generate direct on-going incremental transaction revenue, over the life of the underlying transaction service agreement. Related costs are
deferred and recognized as expenses over the life of the underlying transaction service agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

##### Table of Contents

We apply EITF Issue 01-14, Income Statement Characterization of Reimbursements Received for
Out of Pocket Expenses Incurred, which requires that client reimbursements received for direct costs paid to third parties and related expenses be characterized as revenue. Client reimbursements represent direct costs paid to
third parties primarily for voice and data and items such as paper tickets.

Earnings per ShareBasic earnings per share
is computed by dividing reported income (loss) available to common shareholders by weighted average shares outstanding during the period. Income (loss) available to common shareholders is the same as reported net income (loss) for all periods
presented.

Diluted earnings per share is computed by dividing reported earnings available to common shareholders, adjusted for the
earnings effect of potentially dilutive securities, by weighted average shares outstanding during the period and the impact of securities that, if exercised, would have a dilutive effect on earnings per share. All common stock equivalents with an
exercise price less than the average market share price for the period are assumed to have a dilutive effect on earnings per share. The following table sets forth the computation of basic and diluted net income (loss) per share:



|                                    |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  
|----------------------------------- |  | ------------------------------------- | ----- | ------------------------------------- | ------ | --------- | - | -------- |  | - | --------------------- | - | --------- | ------ |  | - | ----- | -
|                                    |  | Three Months Ended September 30, 2006 |       | Three Months Ended September 30, 2005 |       
|                                    |  | Net Income                            |       | WeightedAverageShares                 |        | Per Share |   | Net Loss |  |   | WeightedAverageShares |   | Per Share |       
|Basic net income (loss) per share   |  | $                                     | 1,253 |                                       | 17,735 |           | $ | 0.07     |  | $ | (3,344                | ) |           | 12,519 |  | $ | (0.27 | )
|Effect of dilutive securities:      |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  
|Options to acquire common stock     |  |                                       |      |                                       | 1      |           |   |          |  |   |                      |   |           |       |  |   |       |  
|                                    |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  
|Diluted net income (loss) per share |  | $                                     | 1,253 |                                       | 17,736 |           | $ | 0.07     |  | $ | (3,344                | ) |           | 12,519 |  | $ | (0.27 | )
|                                    |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  
|                                    |  |                                      
|                                    |  | Nine Months Ended September 30, 2006  |       | Nine Months Ended September 30, 2005  |       
|                                    |  | Net Income                            |       | WeightedAverageShares                 |        | Per Share |   | Net Loss |  |   | WeightedAverageShares |   | Per Share |       
|Basic net income (loss) per share   |  | $                                     | 5,985 |                                       | 17,692 |           | $ | 0.34     |  | $ | (6,966                | ) |           | 12,481 |  | $ | (0.56 | )
|Effect of dilutive securities:      |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  
|Options to acquire common stock     |  |                                       |      |                                       | 1      |           |   |          |  |   |                      |   |           |       |  |   |       |  
|                                    |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  
|Diluted net income (loss) per share |  | $                                     | 5,985 |                                       | 17,693 |           | $ | 0.34     |  | $ | (6,966                | ) |           | 12,481 |  | $ | (0.56 | )
|                                    |  |                                       |       |                                       |        |           |   |          |  |   |                       |   |           |        |  |   |       |  

Because of their anti-dilutive effect on the income (loss) per share recorded in each of the
periods presented, the diluted share base excludes incremental shares related to convertible debt, warrants to purchase common stock and employee stock options as follows:



|                                                |  |                                 |  |                                |  |       |  |      
|----------------------------------------------- |  | ------------------------------- |  | ------------------------------ |  | ----- |  | -----
|                                                |  | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|                                                |  | 2006                            |  | 2005                           |  | 2006  |  | 2005 
|Convertible debt                                |  | 123                             |  | 1,813                          |  | 123   |  | 1,813
|Accrued but unpaid interest on convertible debt |  | 51                              |  | 165                            |  | 47    |  | 153  
|Warrants                                        |  |                                |  | 63                             |  |      |  | 63   
|Employee stock options                          |  | 1,923                           |  | 506                            |  | 1,931 |  | 462  
|                                                |  |                                 |  |                                |  |       |  |      
|Total                                           |  | 2,097                           |  | 2,547                          |  | 2,101 |  | 2,491
|                                                |  |                                 |  |                                |  |       |  |      

These shares were excluded due to their anti-dilutive effect on the income (loss) per share
recorded in each of the periods presented. Approximately 1.9 million stock options at a weighted average strike price of $9.36 were outstanding at September 30, 2006, and could potentially dilute basic earnings per share in future periods
if our average stock price exceeds the strike price in those periods.

Stock-Based Employee CompensationWe have
stock-based employee compensation plans. The TRX, Inc. Omnibus Incentive Plan was amended upon our initial public offering in September 2005 to, among other things, increase the number of shares available for issuance to employees from
1.3 million to 3.3 million, and to expand the types of awards permitted to be made. Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant; those option awards generally vest
ratably over four years and have 10-year contractual terms. Certain option awards provide for accelerated vesting if there is a change of control (as defined in the Plan). In addition, in September 2005 we also amended our TRX, Inc. Employee Stock
Purchase Plan (ESPP) to reflect our public company status, among other things. 500,000 shares are reserved for issuance under our ESPP. As of September 30, 2006, 29,140 shares have been issued under our ESPP.

In the first quarter of 2006, we adopted Statement of Financial Accounting Standards (SFAS) Statement No. 123 (revised 2004) (SFAS
123(R)) entitled, Share-Based Payment. This standard requires the recognition of compensation expense for the grant-date fair value of all share-based awards granted to employees. Prior to 2006, we accounted for stock awards
granted to employees using the intrinsic value method under Accounting Principles Board (APB) No. 25,Accounting for Stock Issued to Employees, which requires the recording of compensation expense for some, but
not all, stock-based compensation. As a result, no compensation expense was recognized prior to 2006 for stock options granted to employees.

SFAS 123(R) applies to new awards and to awards modified, repurchased, or cancelled after January 1, 2006, as well as to the unvested portion of awards outstanding as of January 1, 2006. We adopted SFAS 123(R) by using the
modified prospective transition method, which requires us to value stock options granted prior to our adoption of SFAS 123(R) under the fair value method and expense the unvested portion over the remaining vesting period, for existing unvested
options, as well as shares purchased by employees under our ESPP. SFAS 123(R) also requires us to estimate forfeitures in calculating the expense related to stock-based compensation. Our results of operations for prior periods have not been
restated.

As a result of adopting SFAS 123(R) on January 1, 2006, our operating income and net income for the three and nine months
ended September 30, 2006 are $339 ($0.02 per basic and diluted share) and $1,036 ($0.06 per basic and diluted share) lower than if we had continued to account for share-based compensation under APB No. 25. The adoption of SFAS 123(R) had
no effect on our statement of cash flows for the nine months ended September 30, 2006. Deferred compensation of $43 was transferred to additional paid-in capital upon adoption of SFAS 123(R). If we had accounted for our stock-based awards under
SFAS 123(R), pro forma net loss for the three and nine months ended September 30, 2005 would have been as follows:



|                                                                                  |  |                                      |        |   |                                     |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ----------------------------------- | - | ------ | -
|                                                                                  |  | Three Months EndedSeptember 30, 2005 |        |   | Nine Months EndedSeptember 30, 2005 |  
|Net loss - as reported                                                            |  | $                                    | (3,344 | ) |                                     | $ | (6,966 | )
|Add: Stock-based employee compensation expense included in reported net loss      |  |                                      | 14     |   |                                     |   | 56     |  
|Deduct: Stock-based compensation expense determined under fair value-based method |  |                                      | (72    | ) |                                     |   | (217   | )
|                                                                                  |  |                                      |        |   |                                     |   |        |  
|Pro forma net loss                                                                |  |                                      | (3,402 | ) |                                     |   | (7,127 | )
|                                                                                  |  |                                      |        |   |                                     |   |        |  
|Basic and diluted loss per share:                                                 |  |                                      |        |   |                                     |   |        |  
|As reported                                                                       |  | $                                    | (0.27  | ) |                                     | $ | (0.56  | )
|                                                                                  |  |                                      |        |   |                                     |   |        |  
|Pro forma                                                                         |  | $                                    | (0.27  | ) |                                     | $ | (0.57  | )
|                                                                                  |  |                                      |        |   |                                     |   |        |  



7



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##### Table of Contents

We have computed the value of all stock-based awards issued prior to our initial public offering on
September 27, 2005 using the minimum value method. The following assumptions were used for grants in fiscal 2004: dividend yield and volatility of zero, risk-free interest rate of 3.43%, and expected life of five years. On September 27,
2005, we issued 1.5 million stock options as part of our initial public offering, and have computed the value of these stock-based awards using the fair value method, employing the Black-Scholes model. The following assumptions were used for
these grants in 2005: dividend yield of zero, volatility of 22.2% to 31.3%, risk-free interest rate of 4.11%, and an expected life of 2.00 to 4.25 years. No other awards were granted during 2005. The following assumptions were used for stock option
grants in 2006: dividend yield of zero, volatility of 22.8% to 28.6%, risk-free interest rate of 4.9%, and an expected life of 2.00 to 4.25 years. Expected volatility is based on the volatility of a group of stocks we view as peer companies, due to
the limited history of our stock trading on an exchange. We use historical data to estimate the expected life and employee termination assumptions in our accounting under SFAS 123(R). The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant over the expected life of the grant.

The following table summarizes stock options outstanding and
unvested stock options outstanding as of September 30, 2006 as well as activity during the nine months then ended:



|                            |  |             |   |                  |                                |       |         |           |   |                                |   |      
|--------------------------- |  | ----------- | - | ---------------- | ------------------------------ | ----- | ------- | --------- | - | ------------------------------ | - | -----
|                            |  | All Options |   | Unvested Options
|                            |  | Options     |   |                  | Weighted AverageExercise Price |       | Options |           |   | Weighted AverageExercise Price
|Outstanding at January 1    |  | 1,939,810   |   |                  | $                              | 9.35  |         | 1,485,000 |   |                                | $ | 9.25 
|Granted                     |  | 51,000      |   |                  |                                | 10.09 |         | 51,000    |   |                                |   | 10.09
|Forfeited                   |  | (69,000     | ) |                  |                                | 9.54  |         | (65,250   | ) |                                |   | 9.54 
|Exercised                   |  |            |   |                  |                                |      |         |          |   |                                |   |     
|Vested                      |  |            |   |                  |                                |      |         | (329,000  | ) |                                |   | 9.24 
|                            |  |             |   |                  |                                |       |         |           |   |                                |   |      
|Outstanding at September 30 |  | 1,921,810   |   |                  | $                              | 9.36  |         | 1,141,750 |   |                                | $ | 9.28 
|                            |  |             |   |                  |                                |       |         |           |   |                                |   |      

The table above has been revised to decrease unvested options outstanding at January 1 by
57,405 and to reduce the weighted average exercise price for such options from $9.27 to $9.25. This adjustment is not considered material and it had no impact on our diluted earnings per share or our results of operations.

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. At
September 30, 2006, the aggregate intrinsic value of options outstanding was $0 with a weighted average remaining contractual term of 8.3 years; the aggregate intrinsic value of the 780,060 options exercisable was $0 with a weighted average
exercise price of $9.60 and a weighted average remaining contractual term of 7.5 years.

Compensation cost from nonvested stock granted to
employees is recognized as expense using the straight-line method over the vesting period. As of September 30, 2006, total unrecognized compensation cost related to nonvested stock options was approximately $1.4 million. Approximately half of
this cost is expected to be recognized over the next year, with the remainder primarily over the subsequent two years.

Comprehensive Income (Loss)The Companys comprehensive income (loss) includes net income (loss) and cumulative translation adjustments. The components of comprehensive income (loss) are as follows:



|                                  |  |                                 |       |   |                                |   |        |      |  |   |       |   |  |   |        |  
|--------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ------ | ---- |  | - | ----- | - |  | - | ------ | -
|                                  |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|                                  |  | 2006                            |       |   | 2005                           |   |        | 2006 |  |   | 2005  |  
|Net income (loss)                 |  | $                               | 1,253 |   |                                | $ | (3,344 | )    |  | $ | 5,985 |   |  | $ | (6,966 | )
|Cumulative translation adjustment |  |                                 | (83   | ) |                                |   | (122   | )    |  |   | (329  | ) |  |   | 1,111  |  
|                                  |  |                                 |       |   |                                |   |        |      |  |   |       |   |  |   |        |  
|Total comprehensive income (loss) |  | $                               | 1,170 |   |                                | $ | (3,466 | )    |  | $ | 5,656 |   |  | $ | (5,855 | )
|                                  |  |                                 |       |   |                                |   |        |      |  |   |       |   |  |   |        |  

Statement of Cash FlowsCash paid for interest was $211 and $1,816 for the nine
months ended September 30, 2006 and 2005, respectively. Cash paid for income taxes was $0 for the nine months ended September 30, 2006 and 2005, respectively. During the three months ended September 30, 2005, the Company settled
convertible notes of $18,640 and associated interest payable of $1,109 by issuing 1,795,184 shares of common stock. The Company had accrued capital expenditures of $13 and $464 at September 30, 2006 and 2005, respectively.

Segment ReportingOperating segments are defined by SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information (SFAS No. 131). Our chief operating decision maker currently reviews information and makes operating decisions based on one operating segment and the expense structure of the business is managed functionally.
Our measure of segment profit is consolidated operating income.

Our revenue, aggregated by service offering, is as follows:



|                               |  |                                 |        |                                |   |        |  |      |        |  |   |       
|------------------------------ |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                               |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                               |  | 2006                            |        | 2005                           |   | 2006   |  | 2005
|Transaction processing         |  | $                               | 17,580 |                                | $ | 18,285 |  | $    | 56,991 |  | $ | 55,726
|Data integration               |  |                                 | 4,520  |                                |   | 3,903  |  |      | 12,700 |  |   | 11,858
|Customer care                  |  |                                 | 4,674  |                                |   | 7,155  |  |      | 17,702 |  |   | 21,697
|                               |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Transaction and other revenues |  |                                 | 26,774 |                                |   | 29,343 |  |      | 87,393 |  |   | 89,281
|Client reimbursements          |  |                                 | 366    |                                |   | 307    |  |      | 1,522  |  |   | 2,331 
|                               |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Total                          |  | $                               | 27,140 |                                | $ | 29,650 |  | $    | 88,915 |  | $ | 91,612
|                               |  |                                 |        |                                |   |        |  |      |        |  |   |       



8



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##### Table of Contents

The following is a geographic breakdown of revenues for the three and nine months ended
September 30, 2006 and 2005, and a geographic breakdown of long-lived assets at September 30, 2006 and December 31, 2005:



|                    |  |                                 |        |                                |   |        |  |      |        |  |   |       
|------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                    |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                    |  | 2006                            |        | 2005                           |   | 2006   |  | 2005
|Revenues:           |  |                                 |        |                                |   |        |  |      |        |  |   |       
|United States       |  | $                               | 22,315 |                                | $ | 22,283 |  | $    | 70,222 |  | $ | 67,137
|United Kingdom      |  |                                 | 2,544  |                                |   | 4,610  |  |      | 10,003 |  |   | 15,858
|Other International |  |                                 | 2,281  |                                |   | 2,757  |  |      | 8,690  |  |   | 8,617 
|                    |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Total               |  | $                               | 27,140 |                                | $ | 29,650 |  | $    | 88,915 |  | $ | 91,612
|                    |  |                                 |        |                                |   |        |  |      |        |  |   |       



|                    |  |                      |        |                     |   |       
|------------------- |  | -------------------- | ------ | ------------------- | - | ------
|                    |  | At September 30,2006 |        | At December 31,2005
|Long-Lived Assets:  |  |                      |        |                     |   |       
|United States       |  | $                    | 14,210 |                     | $ | 14,755
|United Kingdom      |  |                      | 1,079  |                     |   | 1,692 
|Other International |  |                      | 796    |                     |   | 988   
|                    |  |                      |        |                     |   |       
|                    |  | $                    | 16,085 |                     | $ | 17,435
|                    |  |                      |        |                     |   |       

LitigationWe are involved in various claims and lawsuits incidental to our
business. In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material effect on our financial position, liquidity, or results of operations.

Recent Accounting PronouncementsIn July 2006, the FASB issued Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides guidance for how errors should be evaluated to assess materiality from a quantitative perspective. SAB 108
permits companies to initially apply its provisions by either restating prior financial statements or recording the cumulative effect of initially applying the approach as adjustments to the carrying values of assets and liabilities as of
January 1, 2006 with an offsetting adjustment to retained earnings. SAB 108 is required to be adopted by December 31, 2006 and is not expected to have an effect on our consolidated financial statements.

2. DEBT

Debt consists of the following as of
September 30, 2006 and December 31, 2005:



|                          |  |                   |       |                  |   |      
|------------------------- |  | ----------------- | ----- | ---------------- | - | -----
|                          |  | September 30,2006 |       | December 31,2005
|Seller notes              |  | $                 | 1,876 |                  | $ | 2,553
|Other notes               |  |                   | 245   |                  |   | 987  
|Capital lease obligations |  |                   | 24    |                  |   | 576  
|                          |  |                   |       |                  |   |      
|Total                     |  |                   | 2,145 |                  |   | 4,116
|Less current maturities   |  |                   | 2,145 |                  |   | 2,207
|                          |  |                   |       |                  |   |      
|Long-term portion         |  | $                 |      |                  | $ | 1,909
|                          |  |                   |       |                  |   |      

Seller notes consist of unsecured promissory notes issued to the former owners of companies
acquired by us, and are outstanding at September 30, 2006 and December 31, 2005 as follows:



|                  |        |                  |   |               |  |                                      |  |                                                                                          
|----------------- | ------ | ---------------- | - | ------------- |  | ------------------------------------ |  | -----------------------------------------------------------------------------------------
|September 30,2006 |        | December 31,2005 |   | Interest Rate |  | Repayment Terms                     
|$                 | 1,032* |                  | $ | 949           |  | Variable, 5.50% atSeptember 30, 2006 |  | Due January 2007; denominated in British Pounds                                          
|                  | 124*   |                  |   | 236           |  | 6.50%                                |  | Three equal annual installments in January 2005 through 2007; denominated in Swiss Francs
|                  | 720    |                  |   | 1,368         |  | 6.50%                                |  | Three equal annual installments in January 2005 through 2007; denominated in Swiss Francs
|                  |        |                  |   |               |  |                                      |  |                                                                                          
|$                 | 1,876  |                  | $ | 2,553         |  | Total                                |  |                                                                                          
|                  |        |                  |   |               |  |                                      |  |                                                                                          

---

|* | The lender may accelerate the note upon a reduction of our ownership by BCD Technology, S.A. (BCD) to 50% or less, or upon a reduction of ownership by us in the
subsidiaries that issued the notes to 50% or less.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

From time to time, we enter into capital lease agreements with equipment
vendors. The agreements are collateralized by the leased assets, bear interest ranging from 6.5% to 7.9%, are payable in monthly installments, and expire on dates ranging from March 2007 to June 2007. Other notes are unsecured and bear interest at a
fixed rate of 5.25%, and are due in December 2006.

We have a $10.0 million revolving line of credit facility expiring May 2007. The lender
holds a senior security interest in all of our domestic assets, and a 66% interest in the stock of our international subsidiaries. Under the facility, we are subject to certain financial covenants, including maintenance of certain leverage ratios.
The facility also requires that we reduce our borrowings to $2.0 million or less for 30 days during each calendar quarter. Further, we are restricted in our ability to, among other things, make advances to our European operations, make acquisitions,
make capital expenditures, incur additional indebtedness and pay dividends. We pay a variable rate of interest on draws, at LIBOR plus 0.5%, and an annual fee of 0.5% of the unused portion of the $10.0 million commitment. As of September 30,
2006, we are in compliance with all financial covenants, $10.0 million was available for borrowing, and there were no borrowings against the facility.



9



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##### Table of Contents

3. CONVERTIBLE NOTES

In November 2001, we issued 7% convertible notes to shareholders of TRX. The notes are due in full on November 14, 2006. In December 2004, the notes were amended to subordinate them to the senior secured
revolving credit facility and to increase the interest rate to 11%. Further, if the convertible notes are not paid when due, the rate of interest will increase to 13% until repaid, with such interest rate applied retroactively from December 31,
2004. In managements view, the likelihood of this interest rate increase to 13% is remote. Accordingly, we are recording interest expense at 11%. The notes are junior and subordinated to the Companys senior secured revolving credit
facility. Interest is either payable in cash semiannually or upon settlement in cash or common stock, at the election of the holder. The $1,360 of outstanding notes are convertible at any time prior to maturity into shares of common stock at a
conversion price of $11.03, subject to adjustments, totaling 123,312 shares of common stock (plus shares related to accrued and unpaid interest). We expect to redeem these notes with cash on or before November 14, 2006.

4. RELATED-PARTY TRANSACTIONS

BCD Travel, formerly
WorldTravel BTI, is majority-owned by our majority shareholder, BCD. During the three and nine months ended September 30, 2006, we recognized transaction and other revenues from BCD Travel, totaling $2,350 and $7,539, respectively. During the
three and nine months ended September 30, 2005, we recognized transaction and other revenues from BCD Travel, totaling $2,138 and $6,482, respectively. At September 30, 2006 and December 31, 2005, respectively, $1,842 and $406 was
receivable from BCD Travel.

Hogg Robinson plc and its affiliates (Hogg Robinson) have historically owned a portion of our
stock. We have a shared services agreement with Hogg Robinson under which it provides administrative services, office space and technology. During the three and nine months ended September 30, 2006, we recognized transaction and other revenues
of $666 and $1,789, respectively, and expenses for shared services totaling $186 and $956, respectively. During the three and nine months ended September 30, 2005, we recognized transaction and other revenues of $381 and $1,100, respectively,
and expenses for shared services totaling $403 and $2,796, respectively. At September 30, 2006, $195 was net receivable from Hogg Robinson, and at December 31, 2005, $323 was payable to Hogg Robinson.

5. RESTRUCTURING

In 2004, we closed our operation in
Switzerland and in 2005, we closed our call center operation in Orangeburg, South Carolina. During the nine months ended September 30, 2006, we closed our call center operation in the United Kingdom and accrued for severance payments of $670
which were paid by September 30, 2006, recorded an asset impairment of $193, recorded lease termination obligations of $150 and other directly related costs of $109. We also reduced our remaining estimated lease-termination accrual related to
our Orangeburg facility by $431 due to a revision to our estimated sublease assumption. We made related lease termination-related payments of $319 and made payments for human resources and legal consultation services related to closures in Europe of
$149. We expect to pay statutory shutdown costs in Switzerland through the remainder of 2006, and to pay the remaining lease termination costs over the remaining term of the leases, through the third quarter of 2007 in the United Kingdom, and
through 2008 in Orangeburg, South Carolina. A summary of the accruals associated with the above restructuring activities is as follows:



|                            |  |                                       |       |   |                         |   |      |               |  |   |                                        |   |  |   |      |  
|--------------------------- |  | ------------------------------------- | ----- | - | ----------------------- | - | ---- | ------------- |  | - | -------------------------------------- | - |  | - | ---- | -
|                            |  | Liability Balance atDecember 31, 2005 |       |   | Costs Charged(Credited) |   |      | Cash Payments |  |   | Liability Balance atSeptember 30, 2006 |  
|Lease termination costs     |  | $                                     | 998   |   |                         | $ | (281 | )             |  | $ | (319                                   | ) |  | $ | 398  |  
|Severance costs             |  |                                       |      |   |                         |   | 670  |               |  |   | (670                                   | ) |  |   |     |  
|Other related costs         |  |                                       | 68    |   |                         |   | 109  |               |  |   | (149                                   | ) |  |   | 28   |  
|                            |  |                                       |       |   |                         |   |      |               |  |   |                                        |   |  |   |      |  
|Total accrued               |  |                                       | 1,066 |   |                         |   |      |               |  |   |                                        |   |  |   | 426  |  
|Asset impairment            |  |                                       |       |   |                         |   | 193  |               |  |   |                                        |   |  |   |      |  
|Current portion             |  |                                       | (437  | ) |                         |   |      |               |  |   |                                        |   |  |   | (258 | )
|                            |  |                                       |       |   |                         |   |      |               |  |   |                                        |   |  |   |      |  
|Long-term portion           |  | $                                     | 629   |   |                         |   |      |               |  |   |                                        |   |  | $ | 168  |  
|                            |  |                                       |       |   |                         |   |      |               |  |   |                                        |   |  |   |      |  
|Total restructuring charges |  |                                       |       |   |                         | $ | 691  |               |  |   |                                        |   |  |   |      |  
|                            |  |                                       |       |   |                         |   |      |               |  |   |                                        |   |  |   |      |  

6. ACQUISITION

On August 2, 2006, we acquired certain assets and assumed certain liabilities of Travel Analytics, Inc., (Travel Analytics) which provides procurement and spend management services to corporations for
$2,251. Travel Analytics helps corporations make smart decisions about their travel suppliers and travel policies, with a focus on achieving practical savings. The strategic addition of Travel Analytics expands our growth opportunities in the global
corporate travel marketplace and augments the technology and talent in our data integration offerings for corporate travel clients. The purchase price included cash of $1,651 and the issuance of 85,870 shares of TRX common stock valued at $600 in
accordance with EITF Issue 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination.In addition to the consideration paid, we agreed to make payments to
the previous owner of Travel Analytics equal to 3% of sales related to Travel Analytics products through December 31, 2011. Payments will be made semi-annually and will be recorded as incremental goodwill in our consolidated balance sheet.

We have included the results of operations of Travel Analytics in our consolidated financial statements from the date of acquisition. This
acquisition was recorded using the purchase method of accounting, which included an evaluation of the existence of any identifiable intangibles at the date of acquisition, such as a noncompete agreement, certain trademarks and patents in process.
Due to the strategic nature of the acquisition and low asset base, goodwill of $1,599 was recorded in connection with the acquisition. The goodwill is deductible for tax purposes over a period of 15 years. The results of Travel Analytics were not
material to our results of operations for the three and nine months ended September 30, 2006; accordingly, no pro forma disclosure is presented. The following table summarizes the preliminary purchase price allocation of the fair values of the
assets acquired and liabilities assumed:



|                            |  |   |       |  
|--------------------------- |  | - | ----- | -
|Current assets              |  | $ | 578   |  
|Intangible assets           |  |   | 532   |  
|Goodwill                    |  |   | 1,599 |  
|                            |  |   |       |  
|Total assets acquired       |  |   | 2,709 |  
|                            | 
|Current liabilities assumed |  |   | (458  | )
|                            |  |   |       |  
|Total consideration         |  | $ | 2,251 |  
|                            |  |   |       |  

Changes in goodwill arising from the acquisition of Travel Analytics during the three months ended
September 30, 2006 were as follows:



|                             |  |   |       
|---------------------------- |  | - | ------
|Balance, January 1, 2006     |  | $ | 21,512
|Travel Analytics acquisition |  |   | 1,599 
|Acquisition earnout          |  |   | 14    
|                             |  |   |       
|Balance, September 30, 2006  |  | $ | 23,125
|                             |  |   |       

The following is a summary of the intangible assets acquired and the useful lives over which they
will be amortized:



|                                 |  |                 |     |              |         
|-------------------------------- |  | --------------- | --- | ------------ | --------
|                                 |  | PurchasedAssets |     | Useful Lives
|Trademarks and patents           |  | $               | 432 |              | 10 years
|Noncompete agreement             |  |                 | 100 |              | 4 years 
|                                 |  |                 |     |              |         
|Total intangible assets acquired |  | $               | 532 |              |         
|                                 |  |                 |     |              |         



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following
discussion and analysis presents the factors that had a material effect on our results of operations during the three and nine months ended September 30, 2006 and 2005. Also discussed is our financial position as of September 30, 2006. You
should read this discussion in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included elsewhere in this report and in our Annual Report on Form 10-K. This Managements Discussion
and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See Cautionary Notice Regarding Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with
these statements.

Overview

We are
a leading, independent provider of transaction processing and data integration services to the global travel industry, based on the dollar value of air travel processed in 2005. We also serve clients in other industries involved with or affected by
travel-related processes, such as credit card issuers. We provide a comprehensive service offering through hosted technology applications, generally under long-term services contracts.

We are focused on transaction-based revenue from transaction processing and data integration services that provide economies of scale to our clients and
us. These transactions are an integral part of our clients daily operations. Transaction levels, and thus revenues, fluctuate with our clients business levels, which are impacted by market changes and seasonality. We supplement our
transaction-based revenue with short-term projects to implement, customize or enhance our service delivery.

A significant portion of our
revenue is derived from long-term contracts with several large clients. Our largest client, Expedia.com, accounted for 33% of our revenues in the nine months ended September 30, 2006. Expedia.com has been a client since its launch in 1996, and
our current contract with them continues through 2010. Our scale and process-reengineering expertise has allowed us to reduce our costs in several areas when measured on a per transaction basis. We have established pricing models that provide
volume-based discounts to share scale efficiencies with our clients to ensure long-term, mutually-beneficial relationships. As a result, our average revenue per transaction has generally declined over the last few years.

Our historical business mix contained significant revenue from call center, or customer care operations, which accounted for approximately
24% of our transaction and other revenues in 2005. In late 2004, we made a strategic decision to gradually transition away from this type of lower-margin, labor-intensive business and to close some of our customer care facilities. We closed our
customer care operations in Paris, France and in Zurich, Switzerland during 2004; in Orangeburg, South Carolina during 2005; and in the United Kingdom during the second quarter of 2006. In connection with these closures, we recorded net charges
during the nine months ended September 30, 2006 of $0.7 million related to employee severance, lease abandonment and related charges, all but approximately $0.2 million of which required cash outlays, primarily during the second quarter of
2006. During 2006, our customer care revenues decreased as compared to 2005 and we expect them to decline further in the future.

In
February 2006, we entered into a five-year agreement related to global business development with E2E SerWiz Solutions, Ltd. (SWS), a subsidiary of TATA Sons Ltd. Pursuant to the agreement, the parties market their respective offerings in
the global travel marketplace in consideration for specified fees based on new business referred. Additionally, in February 2006, we entered into a shared services agreement with SWS, effective November 1, 2005, in which we agreed to facilitate
SWS establishment of U.S.-based customer care operations during 2006. In connection with this agreement, we transferred all of our U.S.-based customer care assets and employees, located in Parkersburg, West Virginia and Milton, Florida to SWS
on April 1, 2006. We transferred assets with a net book value of approximately $75 to SWS and expect to record a gain associated with such sale of approximately $175 when our continuing involvement with SWS concludes. In addition, we retained
SWS as a subcontractor beginning April 1, 2006, in order to provide customer care services to certain of our clients in the U.S. Thus, we will continue to record revenues from our existing contractual relationships with a pass through of
the revenue as costs to SWS.

On August 2, 2006, we acquired the assets of Travel Analytics, Inc., (Travel Analytics)
which provides procurement and spend management services to corporations for $2,251. Travel Analytics helps corporations make smart decisions about their travel suppliers and travel policies, with a focus on achieving practical savings. The
strategic addition of Travel Analytics expands our growth opportunities in the global corporate travel marketplace and augments the technology and talent in our data integration offerings for corporate travel clients. The purchase price included
cash of $1,651 and the issuance of 85,870 shares of TRX common stock. In addition to the consideration paid, we agreed to make payments to the previous owner of Travel Analytics equal to 3% of sales related to Travel Analytics products through
December 31, 2011. Payments will be made semi-annually and will be recorded as incremental goodwill in our consolidated balance sheet.

Industry factors impacting our operating results include the channel shifts toward online bookings and direct distribution, use of corporate credit cards, airline seat capacity, changing and increasing access methods to reach supplier
inventory, supplier commission rates, GDS incentive levels, and overall economic conditions. Our estimates of future results are primarily affected by assumptions of transaction volumes, pricing levels, our ability to efficiently scale with our
clients, and client retention and acquisition. These anticipated results may be impacted by seasonality of the travel industry and credit card volumes related to travel. Management uses various key indicators to manage the business, including volume
growth, revenue growth, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditure levels, and free cash flow.

Critical Accounting Policies and
Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates. We believe that, of our significant accounting policies
described our Form 10-K for the year ended December 31, 2005, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to assist investors in
fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue recognition. A
significant portion of our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties. Accordingly, revenues recognized under these methods do not require the use of significant estimates that are
susceptible to change.

We recognize revenue, in accordance with EITF 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition , when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) services have been performed,
(3) the fee for services is fixed or determinable, and (4) collectibility is reasonably assured. Generally, these criteria are considered to have been met as follows:



| |  |  | for transaction revenue, in which we perform ticketing, file-finishing, data consolidation and reporting, and customer care services, when the services are provided;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | for short-term client-specific customizations, which do not generate direct on-going incremental transaction revenue, when the customization has been delivered to our client; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | for implementation and set-up fees, which generate direct on-going incremental transaction revenue, over the life of the underlying transaction service agreement. Related costs are
deferred and recognized as expenses over the life of the underlying transaction service agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Internal-Use Software Development Costs. We account for internal-use software development costs in
accordance with American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Cost of Software Developed or Obtained for Internal Use, or SOP 98-1. SOP 98-1 specifies that software costs,
including internal payroll costs, incurred in connection with the development or acquisition of software for internal use is charged to technology development expense as incurred until the project enters the application development phase. Costs
incurred in the application development phase are capitalized and depreciated over an estimated useful life of three years, beginning when the software is ready for use.

Each of our software products enters the application development phase upon completion of a detailed program in which (1) we have established that the necessary skills, hardware and software technology are
available to us to produce the product, (2) the completeness of the detailed program design has been confirmed by documentation and tracing the design to product specifications, and (3) the detailed program design has been reviewed for
high-risk development issues (for example, novel, unique, unproven function and features or technological innovations), and any uncertainties related to identified high-risk development issues have been resolved through coding and testing.
Significant judgment is required in determining when the application development phase has begun.

Goodwill. We assess the
impairment of goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Accordingly, we test our goodwill for impairment annually on September 30, or whenever events or changes in circumstances
indicate an impairment may have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of our business, adverse market conditions, adverse changes in applicable
laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that impairment has occurred, we are required to record an impairment charge for the difference
between the carrying value of the goodwill and the implied fair value of the goodwill in the period the determination is made. Based on the results of our annual impairment test, there was no impairment of goodwill at September 30, 2006.
Although we believe goodwill is appropriately stated in our consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and result in an impairment charge.

Impairment of long-lived assets. We record our long-lived assets, such as property and equipment and software development costs, at cost. We
review the carrying value of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable in accordance with the provisions of SFAS, No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. We evaluate these assets by examining estimated future cash flows to determine if their current recorded value is impaired. We evaluate these cash flows by using
weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an assets carrying value is impaired, we will record an
impairment of the carrying value of the identified asset as an operating expense in the period in which the determination is made. Although we believe that the carrying values of our long-lived assets are appropriately stated, changes in strategy or
market conditions or significant technological developments could significantly impact these judgments and result in impairments of recorded asset balances.

Transaction processing provisions. We have recorded estimates to account for processing errors made in the ticketing or fareloading process that result in tickets being issued at incorrect prices or from agency
commissions being miscalculated. Our reserve for processing errors is based on several factors including historical trends, average debit memo lag time and timely identification of errors. Transaction processing provisions during the three and nine
months ended September 30, 2006 were $1.3 million and $2.0 million, respectively, and during the three and nine months ended September 30, 2005 were $0.4 million and $2.1 million, respectively, and are included as operating expenses in our
consolidated statements of operations.

Results of Operations

The following table sets forth selected statement of operations data expressed as a percentage of transaction and other revenues for each of the periods indicated. Both revenue and expenses exclude client
reimbursements. We believe that the inclusion of client reimbursements as revenue in the calculation of our operating income (loss) margin percentage distorts such margin percentage. We evaluate our operating performance based upon operating income
(loss) margins excluding client reimbursements.



|                                                      |  |                                 |   |  |                                |   |  |      |   |  |      |   
|----------------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | --
|                                                      |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                                                      |  | 2006                            |   |  | 2005                           |   |  | 2006 |   |  | 2005 |   
|Transaction and other revenues                        |  | 100                             | % |  | 100                            | % |  | 100  | % |  | 100  | % 
|Expenses:                                             |  |                                 |   |  |                                |   |  |      |   |  |      |   
|Operating                                             |  | 59                              |   |  | 63                             |   |  | 59   |   |  | 64   |   
|Selling, general and administrative                   |  | 18                              |   |  | 17                             |   |  | 16   |   |  | 17   |   
|Technology development                                |  | 10                              |   |  | 10                             |   |  | 9    |   |  | 10   |   
|Restructuring                                         |  | (1                              | ) |  |                               |   |  | 1    |   |  | 3    |   
|Depreciation and amortization                         |  | 9                               |   |  | 9                              |   |  | 9    |   |  | 8    |   
|                                                      |  |                                 |   |  |                                |   |  |      |   |  |      |   
|Total operating expenses before client reimbursements |  | 95                              |   |  | 99                             |   |  | 94   |   |  | 102  |   
|                                                      |  |                                 |   |  |                                |   |  |      |   |  |      |   
|Operating income (loss)                               |  | 5                               | % |  | 1                              | % |  | 6    | % |  | (2   | )%
|                                                      |  |                                 |   |  |                                |   |  |      |   |  |      |   

Comparison of Three Months Ended September 30, 2006 and September 30, 2005

Revenues. The following table sets forth comparative revenues by type, in dollars and as a percentage of transaction and other revenue, for the
three months ended September 30, 2006 and 2005, respectively:



|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   
|------------------------------ |  | -------------------------------- | ------ |  | ---- | - |  | ------ | ------ |  | --- | - |  | - | ------ | - |  | --- | --
|                               |  | Three Months Ended September 30, |       
|                               |  | 2006                             |        |  | 2005 |   |  | Change |       
|                               |  | (dollars in thousands)           |       
|Transaction processing         |  | $                                | 17,580 |  | 66   | % |  | $      | 18,285 |  | 63  | % |  | $ | (705   | ) |  | (4  | )%
|Data integration               |  |                                  | 4,520  |  | 17   |   |  |        | 3,903  |  | 13  |   |  |   | 617    |   |  | 16  |   
|Customer care                  |  |                                  | 4,674  |  | 17   |   |  |        | 7,155  |  | 24  |   |  |   | (2,481 | ) |  | (35 | ) 
|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   
|Transaction and other revenues |  |                                  | 26,774 |  | 100  |   |  |        | 29,343 |  | 100 |   |  |   | (2,569 | ) |  | (9  | ) 
|Client reimbursements          |  |                                  | 366    |  |      |   |  |        | 307    |  |     |   |  |   |        |   |  |     |   
|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   
|Total                          |  | $                                | 27,140 |  |      |   |  | $      | 29,650 |  |     |   |  |   |        |   |  |     |   
|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   

Transaction processing revenues. Transaction processing revenues were $17.6 million in the
three months ended September 30, 2006, a decrease of 4% compared to $18.3 million in the three months ended September 30, 2005. Half of the decrease in revenue is due to a decrease in the average transaction price, and half is due to
decreased volumes from existing customers.

Data integration revenues. Data integration revenues were $4.5 million in the three
months ended September 30, 2006, an increase of 16% compared to $3.9 million in the three months ended September 30, 2005, primarily due to additional penetration and organic growth from our existing clients, as well as our acquisition of
Travel Analytics in August 2006.



12



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##### Table of Contents

Customer care revenues. Customer care revenues were $4.7 million in the three months ended
September 30, 2006, a decrease of 35% compared to $7.2 million in the three months ended September 30, 2005, primarily due to our planned volume reductions from existing customers as we continue to transition away from this lower-margin,
labor intensive business.

Client reimbursement revenues and expenses. Client reimbursement revenues and expenses were $0.4 million
in the three months ended September 30, 2006, a decrease of 19% compared to $0.3 million in the three months ended September 30, 2005, primarily due to planned reductions in telecommunication and other pass-through costs associated with
our customer care business.

Operating expenses. Operating expenses were $15.9 million in the three months ended September 30,
2006, a decrease of 14% compared to $18.5 million in the three months ended September 30, 2005. As a percentage of revenue, operating expenses decreased from 63% in the three months ended September 30, 2005 to 59% in the three months ended
September 30, 2006. Our margins improved as a result of the reduction in our less profitable customer care business somewhat offset by increased transaction processing provisions.

Selling, general and administrative expenses. Selling, general and administrative expenses were $4.7 million in the three months ended
September 30, 2006, a decrease of 7% compared to $5.1 million in the three months ended September 30, 2005. The decrease is primarily due to incentive payments of $0.5 million in 2005 associated with our IPO, partially offset by $0.3
million of stock compensation in 2006.

Technology development expenses. Technology development expenses remained constant at $2.8
million in the three months ended September 30, 2006 and 2005, respectively. As a percentage of revenue, technology development remained constant at 10% in the three months ended September 30, 2006 and 2005, respectively.

Restructuring expense. We recorded a credit of $0.1 million to restructuring expense in the three months ended September 30, 2006 primarily
due to the reduction of our remaining estimated lease-termination accrual resulting from a revision to our estimated sublease assumption for the Orangeburg, South Carolina facility.

Depreciation and amortization. Depreciation and amortization expenses remained constant at $2.5 million in the three months ended
September 30, 2006 and 2005, respectively. As a percentage of revenue, depreciation and amortization remained constant at 9% in the three months ended September 30, 2006 and 2005, respectively.

Interest income (expense), net. We generated $0.2 million of net interest income in the three months ended September 30, 2006, compared to
net interest expense of $0.9 million in the three months ended September 30, 2005. Our interest expense declined significantly due to debt repayments, and our interest income increased due to cash balances generated primarily from our initial
public offering of common stock in September 2005, and increased rates of interest earned on invested cash.

Debt conversion expense.Debt conversion expense was $2.9 million in the nine months ended September 30, 2005 due to the payment of $2.9 million to effect the conversion of $18.4 million of convertible notes.

Income tax provision. No income tax provision was recorded for the three months ended September 30, 2006, as such income was offset by net
operating loss carryforwards. No income tax benefit was recorded for the three months ended September 30, 2005, as we recorded a 100% valuation allowance on our net deferred tax assets.

Net income (loss). Due to the factors described above, net income was $1.3 million in the three months ended September 30, 2006 compared to
net loss of $3.3 million in the three months ended September 30, 2005.

Comparison of Nine Months Ended September 30, 2006 and
September 30, 2005

Revenues. The following table sets forth comparative revenues by type, in dollars and as a
percentage of transaction and other revenue, for the nine months ended September 30, 2006 and 2005, respectively:



|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |  
|------------------------------ |  | ------------------------------- | ------ |  | ---- | - |  | ------ | ------ |  | --- | - |  | - | ------ | - |  | --- | -
|                               |  | Nine Months Ended September 30, |       
|                               |  | 2006                            |        |  | 2005 |   |  | Change |       
|                               |  | (dollars in thousands)          |       
|Transaction processing         |  | $                               | 56,991 |  | 65   | % |  | $      | 55,726 |  | 63  | % |  | $ | 1,265  |   |  | 2   | %
|Data integration               |  |                                 | 12,700 |  | 15   |   |  |        | 11,858 |  | 13  |   |  |   | 842    |   |  | 7   |  
|Customer care                  |  |                                 | 17,702 |  | 20   |   |  |        | 21,697 |  | 24  |   |  |   | (3,995 | ) |  | (18 | )
|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |  
|Transaction and other revenues |  |                                 | 87,393 |  | 100  |   |  |        | 89,281 |  | 100 |   |  |   | (1,888 | ) |  | (2  | )
|Client reimbursements          |  |                                 | 1,522  |  |      |   |  |        | 2,331  |  |     |   |  |   |        |   |  |     |  
|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |  
|Total                          |  | $                               | 88,915 |  |      |   |  | $      | 91,612 |  |     |   |  |   |        |   |  |     |  
|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |  

Transaction processing revenues. Transaction processing revenues were $57.0 million in the
nine months ended September 30, 2006, an increase of 2% compared to $55.7 million in the nine months ended September 30, 2005, primarily due to volume growth of approximately 3% from existing customers.

Data integration revenues. Data integration revenues were $12.7 million in the nine months ended September 30, 2006, an increase of 7%
compared to $11.9 million in the nine months ended September 30, 2005, primarily due to additional penetration and organic growth from our existing clients.

Customer care revenues. Customer care revenues were $17.7 million in the nine months ended September 30, 2006, a decrease of 18% compared to $21.7 million in the nine months ended September 30, 2005,
primarily due to our planned volume reductions from existing customers as we continue to transition away from this lower-margin, labor intensive business.

Client reimbursement revenues and expenses. Client reimbursement revenues and expenses were $1.5 million in the nine months ended September 30, 2006, a decrease of 35% compared to $2.3 million in the nine
months ended September 30, 2005, primarily due to planned reductions in telecommunication and other pass-through costs associated with our customer care business.

Operating expenses. Operating expenses were $51.2 million in the nine months ended September 30, 2006, a decrease of 10% compared to $57.2 million in the nine months ended September 30, 2005. The
decrease was primarily due to the decline in our customer care business and the closure of two call center facilities in the second quarter of 2005 and the second quarter of 2006. As a percentage of revenue, operating expenses decreased from 64% in
the nine months ended September 30, 2005 to 59% in the nine months ended September 30, 2006. Our margins have improved as a result of the reduction in our less profitable customer care business and operating leverage associated with growth
in our core transaction processing and data integration revenue streams.



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##### Table of Contents

Selling, general and administrative expenses. Selling, general and administrative expenses were
$14.3 million in the nine months ended September 30, 2006, a decrease of 6% compared to $15.3 million in the nine months ended September 30, 2005. The decrease is primarily due to reduced headcount expense for overhead functions due to
reduction of call center activity since 2005, partially offset by $1.0 million of stock compensation expense in 2006.

Technology
development expenses. Technology development expenses were $8.0 million in the nine months ended September 30, 2006, a decrease of 9% compared to $8.9 million in the nine months ended September 30, 2005. The decrease was primarily due
to reduced costs for our technology development resources driven by the replacement of higher cost contract labor resources with permanent resources in the U.S. and India. The decrease in expense was also attributable to an increase in capitalized
labor driven by increased investment in our booking and agent productivity solutions. As a percentage of revenue, technology development expense decreased from 10% in the nine months ended September 30, 2005 to 9% in the nine months ended
September 30, 2006.

Restructuring expense. We recorded $0.7 million of restructuring expense in the nine months ended
September 30, 2006, compared to $2.3 million of expense in the nine months ended September 30, 2005. The charge in 2006 is due to $1.0 million of severance, asset impairment charges, and other related costs from the closure of our customer
care operations in the United Kingdom, partly offset by a credit of $0.3 million due to the reduction of our estimated remaining lease-termination accrual resulting from a revision to our estimated sublease assumption for the Orangeburg, South
Carolina facility. The expense in fiscal 2005 consisted of a $2.4 million charge for severance, lease abandonment, operational transition costs and accelerated depreciation related to the closure of our Orangeburg, South Carolina facility effective
April 30, 2005, partially offset by a $0.1 million credit to reflect lower than expected lease termination costs in Europe.

Depreciation and amortization. Depreciation and amortization expenses were $7.7 million in the nine months ended September 30, 2006, compared to $7.3 million in the nine months ended September 30, 2005, primarily due to
depreciation recorded on additional U.S. assets.

Interest income (expense), net. We generated $0.5 million of net interest income
in the nine months ended September 30, 2006, compared to net interest expense of $2.4 million in the nine months ended September 30, 2005. Our interest expenses declined significantly due to debt repayments, and our interest income
increased due to cash balances generated primarily from our initial public offering of common stock in September 2005, and increased rates of interest earned on invested cash.

Debt conversion expense.Debt conversion expense was $2.9 million in the nine months ended September 30, 2005 due to the payment of $2.9
million to effect the conversion of $18.4 million of convertible notes.

Income tax provision. No income tax provision was recorded
for the nine months ended September 30, 2006, as such income was offset by net operating loss carryforwards. No income tax benefit was recorded for the nine months ended September 30, 2005, as we recorded a 100% valuation allowance on our
net deferred tax assets.

Net income (loss). Due to the factors described above, net income was $6.0 million in the nine months
ended September 30, 2006 compared to net loss of $7.0 million in the nine months ended September 30, 2005.

Liquidity and Capital Resources

We have funded our operations primarily with cash from operating activities, the private placement of debt and equity securities
totaling approximately $30.0 million since 2001, and the public offering of common stock which provided net proceeds of approximately $26.4 million in September 2005. The underlying drivers of cash from operating activities include cash receipts
from the sale of our products and services and cash payments to our employees and service providers. Most of our larger clients remit payment for our services 30 to 90 days in advance of our service delivery. Advance payments from clients are
recorded as customer deposits and deferred revenue until the service is performed.

At September 30, 2006, our principal sources of
liquidity were cash and cash equivalents of $26.6 million and $10.0 million of availability under our revolving credit facility. We had no borrowings outstanding under our credit facility at September 30, 2006. The maximum amount available
under our revolving credit facility is $10.0 million, and the monthly availability fluctuates based upon our last twelve months consolidated senior leverage ratio (as defined in the facility).

Net cash provided by operating activities was $7.2 million during the nine months ended September 30, 2006 compared to $6.5 million during the nine
months ended September 30, 2005. The primary driver of the increase in operating cash flow was improved operating profitability in 2006. In addition, we used working capital of $7.9 million in 2006 compared to $2.3 million of working capital
being provided in 2005. We expect to invest cash in working capital during 2006, primarily due to lower customer prepaid revenues as we continue to reduce our customer care business, accelerated vendor payments and restructuring related payments
that were charged to expense in 2005.

Net cash used in investing activities was $7.7 million during the nine months ended
September 30, 2006 compared to $6.7 million during the nine months ended September 30, 2005. The primary driver in the nine months ended September 30, 2006 related to the $1.5 million of purchase price paid (net of cash acquired) for
the acquisition of Travel Analytics. The other significant driver of our investing activities is our capital expenditures, which include costs associated with internally developed software. Capital expenditures in the nine months ended
September 30, 2006 and 2005 were primarily comprised of ongoing development related to our transaction processing platforms. Drivers of capital expenditures include infrastructure required to support volume expansion, the acquisition of new
revenue streams with new and existing clients, technology development costs, investment in business continuity, and opportunities to reduce costs. As of September 30, 2006, we had no material commitments related to capital expenditures.
Excluding capital expenditures associated with potential new clients, we currently expect capital expenditures of less than $10.0 million in fiscal 2006.

Net cash used in financing activities was $1.9 million during the nine months ended September 30, 2006 compared to net cash provided by financing activities of $19.9 million during the nine months ended
September 30, 2005. The primary driver in the nine months ended September 30, 2006 was debt repayments of $2.1 million. Cash provided by financing activities during the nine months ended September 30, 2005 related to $26.4 million of
net proceeds from our initial public offering of common stock, the repayment of a note receivable from a shareholder of $1.0 million, issuances of debt of $1.0 million and net proceeds of $0.8 million related to the exercise of stock options,
partially offset by debt repayments of $4.5 million, warrant repurchase and debt conversion expenses of $4.5 million and repurchases of common stock of $0.3 million.

We have a $10.0 million senior secured revolving credit facility that expires in May 2007. The lender holds a senior security interest in all of our domestic assets and a 66% interest in the stock of our international
subsidiaries. Under the facility, we are subject to a maximum consolidated senior leverage ratio (as defined in the facility) of 1 to 1. The facility also requires that we reduce our borrowings under the facility to $2.0 million or less for 30 days
during each calendar quarter. We are restricted in our ability to, among other things, make advances to our European operations, make acquisitions or sell assets, make capital expenditures, incur additional indebtedness and pay dividends. We are
currently in compliance with all covenants. We pay a variable rate of interest on draws, at LIBOR plus 0.5%, and an annual fee of 0.5% of the unused portion of the $10.0 million commitment. At September 30, 2006, we had no borrowings
outstanding against the facility.

In November 2001, we issued 7% convertible notes to shareholders of TRX. The notes are due in full on
November 14, 2006. In December 2004, the notes were amended to subordinate them to the senior secured revolving credit facility and to increase the interest rate to 11%. Further, if the convertible notes are not paid when due, the rate of
interest will increase to 13% until repaid, with such interest rate applied retroactively from December 31, 2004. We view the likelihood of the interest rate increasing to 13% as remote. Accordingly, we are recording interest expense in our
consolidated statements of operations at 11%. The notes are junior and subordinated to our senior secured revolving credit facility. The $1,360 of outstanding notes are convertible at any time prior to maturity into shares of common stock at a
conversion price of $11.03, subject to adjustments, totaling 123,312 shares of common stock (plus shares related to accrued and unpaid interest). We expect to redeem these notes with cash on or prior to November 14, 2006.



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Based on our current level of operations, we believe our cash flow from operations and other available
sources of liquidity, including borrowings under the revolving credit facility until it matures in May 2007, will provide adequate funds for ongoing operations, planned capital expenditures and debt service for the next twelve months.

Contractual Obligations

The following table
summarizes our future minimum non-cancelable contractual obligations (including interest) at September 30, 2006:



|                                                                            |  |                        |        |                   |   |          |  |          |       |                     |   |     |  |   |  
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | ----------------- | - | -------- |  | -------- | ----- | ------------------- | - | --- |  | - | -
|                                                                            |  | Payments Due by Period
|                                                                            |  | Total                  |        | Less thanone year |   | 1-3years |  | 3-5years |       | More thanfive years
|                                                                            |  | (in thousands)        
|Long-term debt, including capital leases                                    |  | $                      | 2,145  |                   | $ | 2,145    |  | $        |      |                     | $ |    |  | $ | 
|Convertible notes                                                           |  |                        | 1,360  |                   |   | 1,360    |  |          |      |                     |   |    |  |   | 
|Cash interest costs on long-term debt, convertible notes and capital leases |  |                        | 676    |                   |   | 676      |  |          |      |                     |   |    |  |   | 
|Operating leases                                                            |  |                        | 5,798  |                   |   | 2,162    |  |          | 2,714 |                     |   | 922 |  |   | 
|Employment agreements                                                       |  |                        | 1,044  |                   |   | 1,044    |  |          |      |                     |   |    |  |   | 
|Service agreement                                                           |  |                        | 1,692  |                   |   | 1,692    |  |          |      |                     |   |    |  |   | 
|                                                                            |  |                        |        |                   |   |          |  |          |       |                     |   |     |  |   |  
|Total contractual obligations                                               |  | $                      | 12,715 |                   | $ | 9,079    |  | $        | 2,714 |                     | $ | 922 |  | $ | 
|                                                                            |  |                        |        |                   |   |          |  |          |       |                     |   |     |  |   |  

The above contractual obligations table excludes any amounts due under the earnout agreement
executed as part of the August 2, 2006 acquisition of Travel Analytics, Inc. All such obligations are payable in cash. The cash interest costs shown above assume that interest rates in effect at September 30, 2006 on variable-rate debt
remain constant in the future. The long-term commitments under operating leases shown above consist of facility leases in the U.S. and Europe for our operations. The service agreement relates to an agreement with an unrelated party that provides
certain labor services to us.

Seasonality

Our business experiences seasonal fluctuations, reflecting seasonal trends for the purchase of air travel by both leisure and corporate travelers as well as credit card volume related to corporate travel. For example, traditional leisure
air travel bookings are higher in the first two calendar quarters of the year in anticipation of spring and summer vacations and holiday periods. Corporate travel air bookings and credit card spending levels are generally higher in the first and
third calendar quarters of the year. Business and consumer travel bookings typically decline during the fourth quarter of each calendar year. Accordingly, our fourth calendar quarter generally reflects lower revenues as compared to the first three
calendar quarters.

Inflation and Changing Prices

We do not believe that inflation and changing prices have materially impacted our results of operations during the past two years.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS 123(R), Share Based
Payment, which became effective for us on January 1, 2006. This statement eliminated the ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion 25, Accounting
for Stock Issued to Employees, and requires instead that compensation expense be recognized based on the fair value on the date of the grant. The recognition of compensation expense for stock options and our employee stock purchase plan
reduced net income by approximately $0.3 million and $1.0 million for the three and nine months ended September 30, 2006, respectively. We elected the modified prospective method for our adoption of SFAS 123(R). SFAS 123(R) also
requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under former literature. This requirement had no effect on our net
operating cash flows and net financing cash flows in the nine months ended September 30, 2006 because no stock options were exercised and we do not expect to receive tax deductions in excess of recognized compensation cost.

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which
clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides guidance on the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48
is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of this standard on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108). SAB 108 provides guidance for how errors should be evaluated to assess materiality from a quantitative perspective. SAB 108 permits companies to initially apply its provisions by
either restating prior financial statements or recording the cumulative effect of initially applying the approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment to retained
earnings. SAB 108 is required to be adopted by December 31, 2006 and is not expected to have an effect on our consolidated financial statements.

Cautionary Notice Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may
constitute forward-looking statements as defined in Section 27A of the Securities Act of 1933 (the Securities Act), Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), the Private
Securities Litigation Reform Act of 1995 (the PSLRA), or in releases made by the Securities and Exchange Commission (the SEC), all as may be amended from time to time. Statements contained in this quarterly report that are
not historical facts may be forward-looking statements within the meaning of the PSLRA. You can identify forward-looking statements as those that are not historical in nature, particularly those that use terminology such as may,
will, should, expect, anticipate, contemplate, estimate, believe, plan, project, predict, potential or
continue, or the negative of these, or similar terms.

Any such forward-looking statements reflect our beliefs and assumptions
and are based on information currently available to us. Forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry
results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the
PSLRA with the intention of obtaining the benefits of the safe harbor provisions of such laws. We caution investors that any forward-looking statements we make are not guarantees or indicative of future performance.

In evaluating these forward-looking statements, you should consider the following factors, as well as others set forth under Risk Factors in
our Annual Report on Form 10-K filed with the SEC and as are detailed from time to time in other reports we file with the SEC, which may cause our actual results to differ materially from any forward-looking statement:



| |  |  | the loss of current key clients or the inability to obtain new clients;
| | - |  | -----------------------------------------------------------------------



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| |  |  | volatility in the number of transactions we service;
| | - |  | ----------------------------------------------------



| |  |  | failure or interruptions of our software, hardware or other systems;
| | - |  | --------------------------------------------------------------------



| |  |  | Industry declines and other competitive pressures; and
| | - |  | ------------------------------------------------------



| |  |  | our ability to control costs and implement measures designed to enhance operating efficiencies.
| | - |  | -----------------------------------------------------------------------------------------------

Any subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements set forth or referred to above, as well as the risk factors contained in our Annual Report. Except as required by law, we disclaim any obligation to update such statements or to publicly announce the result of any revisions
to any of the forward-looking statements contained herein to reflect future events or developments.

Item 3. Qualitative and Quantitative Disclosures About Market Risk

Foreign Currency Exchange Risk.
Approximately 21% of our consolidated revenues for the nine months ended September 30, 2006 and 11% of our consolidated assets at September 30, 2006 are associated with operations outside of the U.S. In addition, at September 30,
2006, we had debt denominated in British pounds sterling and Swiss francs. The balance sheets and statements of operations for these businesses, translated from the functional currency of the businesses to the U.S. dollar, are subject to currency
fluctuations. We are most vulnerable to fluctuations in the British pound sterling and euro against the U.S. dollar. We are also subject to currency fluctuations in the Indian rupee. Historically, we have not entered into derivative financial
instruments to mitigate this risk, as it has not been cost-effective for us. The impact of currency fluctuations on profitability has not been significant since both revenues and operating costs of these businesses are denominated in local currency.
If the U.S. dollar had a 10 percent greater appreciation against our non-U.S. dollar denominated businesses in the nine months ended September 30, 2006, consolidated revenues and operating income would have been reduced by approximately $83,000
and $1,000, respectively. We may use derivative financial instruments in the future if we deem it useful in mitigating an exposure to foreign currency exchange rates. The cumulative translation adjustment was an $0.2 million increase in
shareholders equity at September 30, 2006.

Interest Rate Market Risk. Our interest costs are sensitive to changes in the
general level of interest rates, because our British pounds sterling-denominated notes and our revolving credit facility are at variable interest rates based on LIBOR. An increase in interest rates of one percentage point during fiscal 2006 would
increase our interest expense by $10,000.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure
controls and procedures as of September 30, 2006. Our evaluation tested controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Based on our evaluation, as of September 30, 2006, our management, including our principal executive
officer and principal financial officer, concluded that our disclosure controls and procedures were effective.

(b) Changes in Internal Control over
Financial Reporting

There were no changes in our internal control over financial reporting or in other factors that occurred during the
quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to the risk factors as discussed in
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005 filed on February 22, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 13, 2006, pursuant
to that certain Asset Purchase Agreement, dated August 2, 2006, among TRX, Inc., Travel Analytics, Inc. and certain principals of Travel Analytics, Inc., the Company purchased substantially all of the assets (the Assets) of Travel
Analytics, Inc. As partial consideration for the Assets, the Company issued 85,870 shares of its common stock to Travel Analytics, Inc. The issuance of the securities set forth in this Item 2 was exempt under the Securities Act of 1933, as
amended, in reliance upon Section 4(2) and Regulation D promulgated thereunder as transactions by an issuer not involving a public offering.

Item 6. Exhibits



|            |  |                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                         
|            | 
|31.1        |  | Certification of Norwood H. (Trip) Davis, III, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|            | 
|31.2        |  | Certification of Lindsey B. Sykes, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.              
|            | 
|32.1        |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                            



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                        |  |           |  |                                             
|----------------------- |  | --------- |  | --------------------------------------------
|                        |  | TRX, INC.
|                        |  |          
|Dated: November 2, 2006 |  | By:       |  | /s/ Lindsey B. Sykes                        
|                        |  |           |  | Lindsey B. Sykes                            
|                        |  |           |  | Chief Financial Officer                     
|                        |  |           |  | (principal financial and accounting officer)



17