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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 March 31, 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



---

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 May 1, 2006 was 17,675,635 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 March 31, 2006 and December 31, 2005                   |  | 3       
|          |  |                                                                                                   
|          |  | Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005 |  | 4       
|          |  |                                                                                                   
|          |  | Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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              |  | 12      
|          |  |                                                                                                   
|Item 3.   |  | Quantitative and Qualitative Disclosures about Market Risk                                         |  | 17      
|          |  |                                                                                                   
|Item 4.   |  | Controls and Procedures                                                                            |  | 17      
|          |  |                                                                                                   
|PART II:  |  | OTHER INFORMATION                                                                                  |  |         
|          |  |                                                                                                   
|Item 1A.  |  | Risk Factors                                                                                       |  | 18      
|          |  |                                                                                                   
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 18      
|          |  |                                                                                                   
|Item 6.   |  | Exhibits                                                                                           |  | 18      
|          |  |                                                                                                   
|Signature |  |                                                                                                    |  | 19      



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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)



|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                         |  | March 31,2006 |         |   | December 31,2005 |  
|ASSETS                                                                                                                                                                                                   |  |               |         |   |                  |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                |  | $             | 24,812  |   |                  | $ | 28,633  |  
|Trade accounts receivable, net                                                                                                                                                                           |  |               | 9,717   |   |                  |   | 5,705   |  
|Prepaids and other                                                                                                                                                                                       |  |               | 2,553   |   |                  |   | 2,260   |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                     |  |               | 37,082  |   |                  |   | 36,598  |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|NONCURRENT ASSETS:                                                                                                                                                                                       |  |               |         |   |                  |   |         |  
|Property and equipment, net                                                                                                                                                                              |  |               | 17,110  |   |                  |   | 17,435  |  
|Goodwill                                                                                                                                                                                                 |  |               | 21,512  |   |                  |   | 21,512  |  
|Other assets, net                                                                                                                                                                                        |  |               | 562     |   |                  |   | 589     |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total noncurrent assets                                                                                                                                                                                  |  |               | 39,184  |   |                  |   | 39,536  |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                             |  | $             | 76,266  |   |                  | $ | 76,134  |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Accounts payable and accrued liabilities                                                                                                                                                                 |  | $             | 20,928  |   |                  | $ | 24,305  |  
|Customer deposits and deferred revenue                                                                                                                                                                   |  |               | 13,598  |   |                  |   | 11,924  |  
|Current portion of long-term debt                                                                                                                                                                        |  |               | 2,859   |   |                  |   | 2,207   |  
|Convertible notes                                                                                                                                                                                        |  |               | 1,360   |   |                  |   |        |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                |  |               | 38,745  |   |                  |   | 38,436  |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|NONCURRENT LIABILITIES:                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Long-term debtless current portion                                                                                                                                                                      |  |               | 83      |   |                  |   | 1,909   |  
|Convertible notes                                                                                                                                                                                        |  |               |        |   |                  |   | 1,360   |  
|Other long-term liabilities                                                                                                                                                                              |  |               | 1,556   |   |                  |   | 1,828   |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total noncurrent liabilities                                                                                                                                                                             |  |               | 1,639   |   |                  |   | 5,097   |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                        |  |               | 40,384  |   |                  |   | 43,533  |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTE 1)                                                                                                                                                                   |  |               |         |   |                  |   |         |  
|SHAREHOLDERS EQUITY:                                                                                                                                                                                    |  |               |         |   |                  |   |         |  
|Common stock, $.01 par value; 100,000,000 shares authorized; 17,863,166 and 17,851,835 shares issued; 17,675,635 and 17,664,304 shares
outstanding at March 31, 2006 and December 31, 2005, respectively |  |               | 178     |   |                  |   | 178     |  
|Additional paid-in capital                                                                                                                                                                               |  |               | 90,400  |   |                  |   | 90,006  |  
|Treasury stock, at cost; 187,531 shares                                                                                                                                                                  |  |               | (2,294  | ) |                  |   | (2,294  | )
|Deferred compensation                                                                                                                                                                                    |  |               |        |   |                  |   | (43     | )
|Cumulative translation adjustment                                                                                                                                                                        |  |               | 462     |   |                  |   | 543     |  
|Accumulated deficit                                                                                                                                                                                      |  |               | (52,864 | ) |                  |   | (55,789 | )
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                                               |  |               | 35,882  |   |                  |   | 32,601  |  
|                                                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                               |  | $             | 76,266  |   |                  | $ | 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 EndedMarch 31, |       
|                                                                              |  | 2006                        |        |   | 2005 |  
|REVENUES:                                                                     |  |                             |        |   |      |   |        |  
|Transaction and other revenues                                                |  | $                           | 31,238 |   |      | $ | 30,734 |  
|Client reimbursements                                                         |  |                             | 519    |   |      |   | 775    |  
|                                                                              |  |                             |        |   |      |   |        |  
|Total revenues                                                                |  |                             | 31,757 |   |      |   | 31,509 |  
|                                                                              |  |                             |        |   |      |   |        |  
|EXPENSES:                                                                     |  |                             |        |   |      |   |        |  
|Operating, excluding depreciation and amortization                            |  |                             | 18,316 |   |      |   | 19,852 |  
|Selling, general, and administrative, excluding depreciation and amortization |  |                             | 5,244  |   |      |   | 5,191  |  
|Technology development                                                        |  |                             | 2,362  |   |      |   | 3,131  |  
|Client reimbursements                                                         |  |                             | 519    |   |      |   | 775    |  
|Restructuring                                                                 |  |                             | (93    | ) |      |   | 290    |  
|Depreciation and amortization                                                 |  |                             | 2,635  |   |      |   | 2,403  |  
|                                                                              |  |                             |        |   |      |   |        |  
|Total expenses                                                                |  |                             | 28,983 |   |      |   | 31,642 |  
|                                                                              |  |                             |        |   |      |   |        |  
|OPERATING INCOME (LOSS)                                                       |  |                             | 2,774  |   |      |   | (133   | )
|INTEREST INCOME (EXPENSE):                                                    |  |                             |        |   |      |   |        |  
|Interest income                                                               |  |                             | 248    |   |      |   | 41     |  
|Interest expense                                                              |  |                             | (97    | ) |      |   | (798   | )
|                                                                              |  |                             |        |   |      |   |        |  
|Total interest income (expense)                                               |  |                             | 151    |   |      |   | (757   | )
|                                                                              |  |                             |        |   |      |   |        |  
|NET INCOME (LOSS)                                                             |  | $                           | 2,925  |   |      | $ | (890   | )
|                                                                              |  |                             |        |   |      |   |        |  
|Basic and diluted net income (loss) per share                                 |  | $                           | 0.17   |   |      | $ | (0.07  | )
|                                                                              |  |                             |        |   |      |   |        |  
|Basic and diluted weighted average shares outstanding                         |  |                             | 17,664 |   |      |   | 12,462 |  
|                                                                              |  |                             |        |   |      |   |        |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                         |  | Three Months EndedMarch 31, |       
|                                                                                         |  | 2006                        |        |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                             |        |   |      |   |        |  
|Net income (loss)                                                                        |  | $                           | 2,925  |   |      | $ | (890   | )
|                                                                                         |  |                             |        |   |      |   |        |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                                            |  |                             | 2,635  |   |      |   | 2,402  |  
|Restructuring charges                                                                    |  |                             |       |   |      |   | 143    |  
|Provision for bad debts                                                                  |  |                             | 561    |   |      |   | 127    |  
|Stock compensation expense                                                               |  |                             | 358    |   |      |   | 29     |  
|Amortization of debt discount                                                            |  |                             |       |   |      |   | 90     |  
|Changes in assets and liabilities:                                                       |  |                             |        |   |      |   |        |  
|Trade accounts receivable                                                                |  |                             | (4,680 | ) |      |   | (641   | )
|Prepaids and other assets                                                                |  |                             | (155   | ) |      |   | 449    |  
|Accounts payable and accrued liabilities                                                 |  |                             | (5,528 | ) |      |   | 896    |  
|Customer deposits and deferred revenue                                                   |  |                             | 1,659  |   |      |   | 876    |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Total adjustments                                                                        |  |                             | (5,150 | ) |      |   | 4,371  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash (used in) provided by operating activities                                      |  |                             | (2,225 | ) |      |   | 3,481  |  
|                                                                                         |  |                             |        |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                             |        |   |      |   |        |  
|Capital expenditures                                                                     |  |                             | (578   | ) |      |   | (1,804 | )
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                             | (578   | ) |      |   | (1,804 | )
|                                                                                         |  |                             |        |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                             |        |   |      |   |        |  
|Repayments of long-term debt                                                             |  |                             | (1,212 | ) |      |   | (2,275 | )
|Proceeds from stock plans                                                                |  |                             | 79     |   |      |   |       |  
|                                                                                         |  |                             |        |   |      |   |        |  
|Net cash used in financing activities                                                    |  |                             | (1,133 | ) |      |   | (2,275 | )
|                                                                                         |  |                             |        |   |      |   |        |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                             |  |                             | 115    |   |      |   | 17     |  
|                                                                                         |  |                             |        |   |      |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                |  |                             | (3,821 | ) |      |   | (581   | )
|                                                                                         |  |                            
|CASH AND CASH EQUIVALENTSBeginning of period                                            |  |                             | 28,633 |   |      |   | 10,595 |  
|                                                                                         |  |                             |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTSEnd of period                                                  |  | $                           | 24,812 |   |      | $ | 10,014 |  
|                                                                                         |  |                             |        |   |      |   |        |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 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 will 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. 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. These assets are carried on our consolidated balance sheet at March 31, 2006 as prepaids and other as such assets were
classified as available for sale under applicable accounting literature. We expect to record a gain associated with such sale of approximately $175 when our continuing involvement with SWS concludes at the end of 2006. In addition, we
have 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.

Allowance for Doubtful
AccountsWe maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. The balance was $967 and $495 as of March 31, 2006 and December 31, 2005, respectively.

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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.



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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.

For the three months ended March 31, 2006 and 2005, the diluted share base excludes incremental shares related to convertible debt, warrants to purchase common stock and employee stock options as follows:



|                                                |  |                              |  |      
|----------------------------------------------- |  | ---------------------------- |  | -----
|                                                |  | Three Months Ended March 31,
|                                                |  | 2006                         |  | 2005 
|Convertible debt                                |  | 123                          |  | 1,813
|Accrued but unpaid interest on convertible debt |  | 44                           |  | 140  
|Warrants                                        |  |                             |  | 63   
|Employee stock options                          |  | 7                            |  | 104  
|                                                |  |                              |  |      
|Total                                           |  | 174                          |  | 2,120
|                                                |  |                              |  |      

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 $9.35 were outstanding at March 31, 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.

In the first quarter of fiscal 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 fiscal 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 fiscal 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 months ended March 31, 2006 are $358
lower than if we had continued to account for share-based compensation under APB No. 25 ($0.02 per basic and diluted share). The adoption of SFAS 123(R) had no effect on our statement of cash flows for the three months ended March 31,
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 months ended March 31, 2005
would have been as follows:



|                                                                                  |  |                                   |       |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----- | -
|                                                                                  |  | Three Months Ended March 31, 2005 |      
|Net loss - as reported                                                            |  | $                                 | (890  | )
|Add: Stock-based employee compensation expense included in reported net income    |  |                                   | 29    |  
|Deduct: Stock-based compensation expense determined under fair value-based method |  |                                   | (72   | )
|                                                                                  |  |                                   |       |  
|Pro forma net loss                                                                |  | $                                 | (933  | )
|                                                                                  |  |                                   |       |  
|Basic and diluted loss per share:                                                 |  |                                   |       |  
|As reported                                                                       |  | $                                 | (0.07 | )
|Pro forma                                                                         |  | $                                 | (0.07 | )



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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, nor during the three months ended March 31,
2006. 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 as of March 31, 2006 as well as activity during the three months then ended:



|                         |  |           |   |  |                               |     
|------------------------ |  | --------- | - |  | ----------------------------- | ----
|                         |  | Options   |   |  | WeightedAverageExercise Price
|Outstanding at January 1 |  | 1,939,810 |   |  | $                             | 9.35
|Granted                  |  |          |   |  |                               |     
|Forfeited                |  | (30,000   | ) |  |                               | 9.34
|Exercised                |  |          |   |  |                               |     
|                         |  |           |   |  |                               |     
|Outstanding at March 31  |  | 1,909,810 |   |  | $                             | 9.35
|                         |  |           |   |  |                               |     

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 March 31, 2006, the aggregate intrinsic value of options outstanding was $717 with a weighted average remaining contractual term of 8.8 years; the aggregate intrinsic value of the 491,060
options exercisable was $88 with a weighted average exercise price of $9.93 and a weighted average remaining contractual term of 7.1 years.

The following table summarizes unvested stock options outstanding as of March 31, 2006 as well as activity during the three months then ended:



|                         |  |           |   |  |                               |      
|------------------------ |  | --------- | - |  | ----------------------------- | -----
|                         |  | Options   |   |  | WeightedAverageExercise Price
|Outstanding at January 1 |  | 1,542,405 |   |  | $                             | 9.27 
|Granted                  |  |          |   |  |                               |      
|Forfeited                |  | (26,250   | ) |  |                               | 9.10 
|Vested                   |  | 38,750    |   |  |                               | 11.03
|                         |  |           |   |  |                               |      
|Outstanding at March 31  |  | 1,554,905 |   |  | $                             | 9.31 
|                         |  |           |   |  |                               |      

Compensation cost from nonvested stock granted to employees is recognized as expense using the
straight-line method over the vesting period. As of March 31, 2006, total unrecognized compensation cost related to nonvested stock options was approximately $2.0 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 EndedMarch 31, |      
|                                  |  | 2006                        |       |   | 2005 |  
|Net income (loss)                 |  | $                           | 2,925 |   |      | $ | (890 | )
|Cumulative translation adjustment |  |                             | (81   | ) |      |   | 652  |  
|                                  |  |                             |       |   |      |   |      |  
|Total                             |  | $                           | 2,844 |   |      | $ | (238 | )
|                                  |  |                             |       |   |      |   |      |  

Statement of Cash FlowsCash paid for interest was $128 and $226 for the three
months ended March 31, 2006 and 2005, respectively. Cash paid for income taxes was $0 for the three months ended March 31, 2006 and 2005, respectively. The Company had accrued capital expenditures of $1,800 and $0 at March 31, 2006
and 2005, respectively.



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##### Table of Contents

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 operates 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 EndedMarch 31,
|                               |  | 2006                        |        | 2005
|Transaction processing         |  | $                           | 20,081 |      | $ | 18,946
|Data integration               |  |                             | 3,933  |      |   | 3,962 
|Customer care                  |  |                             | 7,224  |      |   | 7,826 
|                               |  |                             |        |      |   |       
|Transaction and other revenues |  |                             | 31,238 |      |   | 30,734
|Client reimbursements          |  |                             | 519    |      |   | 775   
|                               |  |                             |        |      |   |       
|Total                          |  | $                           | 31,757 |      | $ | 31,509
|                               |  |                             |        |      |   |       

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



|                    |  |                             |        |      |   |       
|------------------- |  | --------------------------- | ------ | ---- | - | ------
|                    |  | Three Months EndedMarch 31,
|                    |  | 2006                        |        | 2005
|Revenues:           |  |                             |        |      |   |       
|United States       |  | $                           | 24,325 |      | $ | 22,788
|United Kingdom      |  |                             | 4,011  |      |   | 5,700 
|Other International |  |                             | 3,421  |      |   | 3,021 
|                    |  |                             |        |      |   |       
|                    |  | $                           | 31,757 |      | $ | 31,509
|                    |  |                             |        |      |   |       



|                    |  |                   |        |                     |   |       
|------------------- |  | ----------------- | ------ | ------------------- | - | ------
|                    |  | At March 31, 2006 |        | At December 31,2005
|Long-Lived Assets:  |  |                   |        |                     |   |       
|United States       |  | $                 | 14,613 |                     | $ | 14,755
|United Kingdom      |  |                   | 1,602  |                     |   | 1,692 
|Other International |  |                   | 895    |                     |   | 988   
|                    |  |                   |        |                     |   |       
|                    |  | $                 | 17,110 |                     | $ | 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.

2. DEBT

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



|                          |  |               |       |                  |   |      
|------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                          |  | March 31,2006 |       | December 31,2005
|Seller notes              |  | $             | 1,768 |                  | $ | 2,553
|Other notes               |  |               | 758   |                  |   | 987  
|Capital lease obligations |  |               | 416   |                  |   | 576  
|                          |  |               |       |                  |   |      
|Total                     |  |               | 2,942 |                  |   | 4,116
|Less current maturities   |  |               | 2,859 |                  |   | 2,207
|                          |  |               |       |                  |   |      
|Long-term portion         |  | $             | 83    |                  | $ | 1,909
|                          |  |               |       |                  |   |      



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##### Table of Contents

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



|              |       |   |                  |   |               |  |                                   |  |                                                                                                                    
|------------- | ----- | - | ---------------- | - | ------------- |  | --------------------------------- |  | -------------------------------------------------------------------------------------------------------------------
|March 31,2006 |       |   | December 31,2005 |   | Interest Rate |  | Repayment Terms                  
|$             | 959   | * |                  | $ | 949           |  | Variable, 5.50% at March 31, 2006 |  | Due January 2007; denominated in British Pounds and owed to a shareholder                                          
|              | 119   | * |                  |   | 236           |  | 6.50%                             |  | Three equal annual installments in January 2005 through 2007; denominated in Swiss Francs and owed to a shareholder
|              | 690   |   |                  |   | 1,368         |  | 6.50%                             |  | Three equal annual installments in January 2005 through 2007; denominated in Swiss Francs                          
|              |       |   |                  |   |               |  |                                   |  |                                                                                                                    
|$             | 1,768 |   |                  | $ | 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 May 2006 to June 2007. Other notes are unsecured and bear interest at
fixed rates ranging from 3.73% to 5.25%, and are due periodically from May 2006 to December 2006. The $83 classified as long-term debt at March 31, 2006 is due in the second fiscal quarter of 2007.

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 March 31, 2006, we are in compliance with all financial covenants, $10.0 million
was available for borrowing, and there were no borrowings against the facility.

3. CONVERTIBLE NOTES

In November 2001, we issued 7% convertible notes to shareholders of TRX. The notes are due in full in November 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, if any).

4. RELATED-PARTY TRANSACTIONS

BCD Travel, formerly
WorldTravel BTI, is majority-owned by our majority shareholder, BCD. During the three months ended March 31, 2006 and 2005, we recognized revenues from BCD Travel, totaling $2,487 and $2,270, respectively. At March 31, 2006 and
December 31, 2005, respectively, $20 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 months ended March 31, 2006
and 2005, we recognized transaction and other revenues of $392 and $349, respectively, and expenses for shared services totaling $395 and $1,093, respectively. At March 31, 2006 and December 31, 2005, $480 and $323 was payable to Hogg
Robinson.

Sabre Investments, Inc. (Sabre) has historically owned a portion of our stock. During the three months ended
March 31, 2006 and 2005, we incurred costs for connectivity fees and licensing technology from Sabre of $68 and $47, respectively. At March 31, 2006 and December 31, 2005, respectively, we had no payables to Sabre.



10



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##### Table of Contents

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 three months ended March 31, 2006, we reduced our remaining
lease-termination accrual estimate by $100 due to a revision to our estimated sublease assumption for the Orangeburg facility, made related lease termination-related payments of $150 and statutory shutdown payments relating to Switzerland of $33. We
expect to pay statutory shutdown costs in Switzerland through mid-2006, and to pay the remaining lease termination costs over the remaining term of the leases, through mid-2006 in Switzerland and through fiscal 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 at March 31, 2006 |  
|Lease termination costs     |  | $                                     | 998   |   |                         | $ | (93 | )             |  | $ | (150                                | ) |  | $ | 755  |  
|Other related costs         |  |                                       | 68    |   |                         |   |    |               |  |   | (33                                 | ) |  |   | 35   |  
|                            |  |                                       |       |   |                         |   |     |               |  |   |                                     |   |  |   |      |  
|Total accrued               |  | $                                     | 1,066 |   |                         |   |     |               |  |   |                                     |   |  | $ | 790  |  
|Current portion             |  |                                       | (437  | ) |                         |   |     |               |  |   |                                     |   |  |   | (346 | )
|                            |  |                                       |       |   |                         |   |     |               |  |   |                                     |   |  |   |      |  
|Long-term portion           |  | $                                     | 629   |   |                         |   |     |               |  |   |                                     |   |  | $ | 444  |  
|                            |  |                                       |       |   |                         |   |     |               |  |   |                                     |   |  |   |      |  
|Total restructuring charges |  |                                       |       |   |                         | $ | (93 | )             |  |   |                                     |   |  |   |      |  
|                            |  |                                       |       |   |                         |   |     |               |  |   |                                     |   |  |   |      |  



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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 months ended March 31, 2006 and 2005. Also discussed is our financial position as of March 31, 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 34% of our revenues in the three months ended March 31, 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, including those in
Paris, France; Zurich, Switzerland; and Orangeburg, South Carolina. During 2006, our customer care revenues decreased as compared to 2005 and we expect them to decline further in the future. In the U.K., we are in the final stages of an employee
consultation period, which is expected to complete our transition out of customer care services in the U.K. during the second quarter of 2006. In connection with this transition, we expect to record a charge during the second quarter of 2006 of
approximately $0.8 to $1.0 million related to employee severance, lease abandonment and related charges, all but approximately $0.2 million of which will require cash outlays, primarily during the second quarter of 2006.

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 will 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. 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. These assets are carried on our consolidated balance sheet at March 31, 2006 as prepaids and other as such assets were
classified as available for sale under applicable accounting literature. We expect to record a gain associated with such sale of approximately $175 when our continuing involvement with SWS concludes at the end of 2006. In addition, we
have 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.

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 in Note 1 of
the notes to our consolidated financial statements included elsewhere in this Form 10-Q, 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.



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##### Table of Contents

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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. 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 were $0.6 million and $1.1
million during the three months ended March 31, 2006 and 2005, respectively, and are included as operating expenses in our consolidated statements of operations.



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##### Table of Contents

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 loss margin percentage distorts such margin percentage. We evaluate our operating performance based upon operating loss margins
excluding client reimbursements.



|                                                      |  |                             |   |  |      |   
|----------------------------------------------------- |  | --------------------------- | - |  | ---- | --
|                                                      |  | Three Months EndedMarch 31, |  
|                                                      |  | 2006                        |   |  | 2005 |   
|Transaction and other revenues                        |  | 100                         | % |  | 100  | % 
|Expenses:                                             |  |                             |   |  |      |   
|Operating                                             |  | 59                          |   |  | 65   |   
|Selling, general and administrative                   |  | 17                          |   |  | 17   |   
|Technology development                                |  | 8                           |   |  | 10   |   
|Restructuring                                         |  |                            |   |  | 1    |   
|Depreciation and amortization                         |  | 8                           |   |  | 8    |   
|                                                      |  |                             |   |  |      |   
|Total operating expenses before client reimbursements |  | 92                          |   |  | 101  |   
|                                                      |  |                             |   |  |      |   
|Operating income (loss)                               |  | 8                           | % |  | (1   | )%
|                                                      |  |                             |   |  |      |   

Comparison of Three Months Ended March 31, 2006 and March 31, 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 March 31, 2006 and 2005, respectively:



|                               |  |                              |        |  |      |   |  |        |        |  |     |   |  |   |       |   |  |    |  
|------------------------------ |  | ---------------------------- | ------ |  | ---- | - |  | ------ | ------ |  | --- | - |  | - | ----- | - |  | -- | -
|                               |  | Three Months Ended March 31, |       
|                               |  | 2006                         |        |  | 2005 |   |  | Change |       
|                               |  | (dollars in thousands)       |       
|Transaction processing         |  | $                            | 20,081 |  | 64   | % |  | $      | 18,946 |  | 62  | % |  | $ | 1,135 |   |  | 6  | %
|Data integration               |  |                              | 3,933  |  | 13   |   |  |        | 3,962  |  | 13  |   |  |   | (29   | ) |  | (1 | )
|Customer care                  |  |                              | 7,224  |  | 23   |   |  |        | 7,826  |  | 25  |   |  |   | (602  | ) |  | (8 | )
|                               |  |                              |        |  |      |   |  |        |        |  |     |   |  |   |       |   |  |    |  
|Transaction and other revenues |  |                              | 31,238 |  | 100  |   |  |        | 30,734 |  | 100 |   |  |   | 504   |   |  | 2  |  
|Client reimbursements          |  |                              | 519    |  |      |   |  |        | 775    |  |     |   |  |   |       |   |  |    |  
|                               |  |                              |        |  |      |   |  |        |        |  |     |   |  |   |       |   |  |    |  
|Total                          |  | $                            | 31,757 |  |      |   |  | $      | 31,509 |  |     |   |  |   |       |   |  |    |  
|                               |  |                              |        |  |      |   |  |        |        |  |     |   |  |   |       |   |  |    |  

Transaction processing revenues. Transaction processing revenues were $20.1 million in the
three months ended March 31, 2006, an increase of 6% compared to $18.9 million the three months ended March 31, 2005. The increase was primarily due to volume growth of approximately 8% from existing clients offset by 2% due to a
strengthening U.S. dollar.

Data integration revenues. Data integration revenues remained relatively constant at $3.9 million in the
three months ended March 31, 2006, compared to $4.0 million in the three months ended March 31, 2005.

Customer care
revenues. Customer care revenues were $7.2 million in the three months ended March 31, 2006, a decrease of 8% compared to $7.8 million in the three months ended March 31, 2005. This decrease was 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 $0.5 million in the three months ended March 31, 2006, a decrease of 33% compared to $0.8 million in the three months ended March 31, 2005. The
decrease was primarily due to planned reductions in telecommunication and other pass-through costs associated with our customer care business.

Operating expenses. Operating expenses were $18.3 million in the three months ended March 31, 2006, a decrease of 8% compared to $19.9 million in the three months ended March 31, 2005. The decrease was primarily due to the
decline in our customer care business and the closure of our Orangeburg, South Carolina facility effective April 30, 2005. As a percentage of revenue, operating expenses decreased from 65% in the three months ended March 31, 2005 to 59% in
the three months ended March 31, 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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Selling, general and administrative expenses. Selling, general and administrative expenses
remained constant at $5.2 million in the three months ended March 31, 2006 and 2005, respectively. We recorded $0.3 million of stock compensation expense in 2006, which offset reduced headcount expense for overhead functions due to reduction of
call center activity since 2005.

Technology development expenses. Technology development expenses were $2.4 million in the three
months ended March 31, 2006, a decrease of 25% compared to $3.1 million in the three months ended March 31, 2005. The decrease was primarily due to reduced rates 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 three months ended March 31, 2005 to 8% in the three months ended March 31, 2006.

Restructuring expense.We recorded a credit of $0.1 million of restructuring expense in the three months ended March 31, 2006, compared to
$0.3 million of expense in the three months ended March 31, 2005. The credit in fiscal 2006 is due to the reduction of our remaining lease-termination accrual estimate by $0.1 million due to a revision to our estimated sublease assumption for
the Orangeburg, South Carolina facility. The expense in fiscal 2005 consisted of a $0.4 million charge for severance, 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 $2.6 million in the three months ended March 31, 2006, compared to $2.4 million in the three months ended March 31, 2005. The increase is due to additional depreciation recorded
on several U.S. assets.

Interest income (expense). We generated $0.2 million of net interest income in the three months ended
March 31, 2006, compared to net interest expense of $0.8 million in the three months ended March 31, 2005. Our interest expenses declined markedly 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.

Income tax provision.No income tax provision was recorded for the three months ended March 31, 2006, as such income was offset by net operating loss carryforwards. No income tax benefit was recorded for the three months ended
March 31, 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 $2.9 million in the three months ended March 31, 2006 compared to net loss of $0.9 million in the three months ended March 31, 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. These payment terms have positively impacted working capital since mid-2003.

At March 31, 2006, our principal sources of liquidity were cash and cash equivalents of $24.8 million and $10.0 million of availability under our
revolving credit facility. We had no borrowings outstanding under our credit facility at March 31, 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 used in operating activities was $2.2
million in the three months ended March 31, 2006 compared to net cash provided by operating activities of $3.5 million in the three months ended March 31, 2005. The primary driver of the reduction in operating cash flow was a use of
working capital of $8.6 million in 2006. While we expect the negative working capital effect on our operating cash flows to recover somewhat during the second quarter of 2006, we do expect to invest cash in working capital during 2006 as a whole,
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 $0.6 million during the three months ended March 31, 2006 compared to $1.8
million during the three months ended March 31, 2005. The significant driver of our investing activities is our capital expenditures, which include costs associated with internally developed software. Capital expenditures in the three months
ended March 31, 2006 of $0.6 million were primarily comprised of ongoing development related to our transaction processing platforms. Capital expenditures in the three months ended March 31, 2005 of $1.8 million were primarily comprised of
investment in our data integration technology infrastructure and 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 March 31, 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 by financing activities was $1.1 million during the three months ended March 31, 2006 compared to $2.3 million during the three months ended March 31, 2005. The primary driver in the three months ended March 31,
2006 and March 31, 2005 was debt repayments.



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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 March 31, 2006, we had no borrowings outstanding against the facility.

In
November 2001, we issued 7% convertible notes to shareholders of TRX. 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, if any). The notes are due in full in November 2006.

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, 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 March 31, 2006:



|                                                                            |  |                        |        |                    |   |          |  |          |       |                      |   |     |  |   |    
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | ------------------ | - | -------- |  | -------- | ----- | -------------------- | - | --- |  | - | ---
|                                                                            |  | Payments Due by Period
|                                                                            |  | Total                  |        | Less than one year |   | 1-3years |  | 3-5years |       | More than five years
|                                                                            |  | (in thousands)        
|Long-term debt, including capital leases                                    |  | $                      | 2,942  |                    | $ | 2,859    |  | $        | 83    |                      | $ |    |  | $ |   
|Convertible notes                                                           |  |                        | 1,360  |                    |   | 1,360    |  |          |      |                      |   |    |  |   |   
|Cash interest costs on long-term debt, convertible notes and capital leases |  |                        | 736    |                    |   | 735      |  |          | 1     |                      |   |    |  |   |   
|Operating leases                                                            |  |                        | 8,179  |                    |   | 3,322    |  |          | 3,800 |                      |   | 881 |  |   | 176
|Employment agreements                                                       |  |                        | 1,044  |                    |   | 1,044    |  |          |      |                      |   |    |  |   |   
|Service agreement                                                           |  |                        | 2,707  |                    |   | 2,030    |  |          | 677   |                      |   |    |  |   |   
|                                                                            |  |                        |        |                    |   |          |  |          |       |                      |   |     |  |   |    
|Total contractual obligations                                               |  | $                      | 16,968 |                    | $ | 11,350   |  | $        | 4,561 |                      | $ | 881 |  | $ | 176
|                                                                            |  |                        |        |                    |   |          |  |          |       |                      |   |     |  |   |    

The cash interest costs shown above assume that interest rates in effect at March 31, 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 is effective for the quarter ended March 31, 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



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employee stock purchase plan reduced net income by approximately $358,000 for the quarter ended March 31,
2006. 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 quarter ended March 31, 2006 because no stock options were exercised and we do
not expect to receive tax deductions in excess of recognized compensation cost.

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;
| | - |  | -----------------------------------------------------------------------



| |  |  | 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 23% of our consolidated revenues for the three months ended March 31, 2006 and 4% of our consolidated assets at March 31, 2006 are associated with operations outside of the U.S. In addition, at March 31, 2006, we had
debt denominated in British pounds sterling and Swiss francs. The U.S. dollar balance sheets and statements of operations for these businesses 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 three months ended March 31, 2006, consolidated revenues and operating loss would have been reduced by approximately $51,000 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 $0.5 million increase in shareholders equity at March 31, 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 March 31, 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



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rules and forms. Based on our evaluation, as of March 31, 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 March 31, 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 30, 2005, we closed
the initial public offering of our common stock. The offering of 3,400,000 shares of stock by us resulted in gross proceeds of $30.6 million. We received net proceeds of $26.4 million after deducting underwriting discounts of $2.2 million and
offering expenses of $2.0 million. Of the $26.4 million net proceeds we raised in the offering, we have expended $4.9 million of the net proceeds from the offering, all in conformance with the intended use of proceeds as described in our initial
public offering prospectus dated September 27, 2005 and invested the remaining $21.5 million net proceeds in investment-grade commercial paper pending their use to fund working capital and capital expenditures.

Item 6. Exhibits



|            |  |                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                              
|10.1        |  | Amended and Restated Master Agreement dated April 10, 2006 by and between TRX Technology Services, L.P. and WorldTravel Partners I, LLC.*
|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.                                                                 

---

|* | Confidential treatment requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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: May 4, 2006 |  |  |  | By:       |  | /s/ Lindsey B. Sykes
|                   |  |  |  |           |  |                      |  | Lindsey B. Sykes                            
|                   |  |  |  |           |  |                      |  | Chief Financial Officer                     
|                   |  |  |  |           |  |                      |  | (principal financial and accounting officer)



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