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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended September 30, 2007

OR



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

For the transition period from  to

Commission File No. 000-51478



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TRX, INC.

(Exact name of registrant as specified in charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-2502748                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                           |  |           
|------------------------------------------ |  | ----------
|6 West Druid Hills Drive, Atlanta, Georgia |  | 30329     
|(Address of principal executive offices)   |  | (Zip Code)

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



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

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

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

The number of shares of the registrants common stock, $0.01 par value, outstanding at October 31, 2007 was 18,304,801 shares.



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##### Table of Contents

TRX, INC.

FORM 10-Q

TABLE OF CONTENTS



|         |  |                                                                                                                 |  |         
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                                 |  | PAGE NO.
|PART I:  |  | FINANCIAL INFORMATION                                                                                           |  |         
|Item 1.  |  | Financial Statements                                                                                            |  |         
|         |  | Unaudited Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006                            |  | 3       
|         |  | Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006 |  | 4       
|         |  | Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006           |  | 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                                                      |  | 18      
|Item 4.  |  | Controls and Procedures                                                                                         |  | 18      
|PART II: |  | OTHER INFORMATION                                                                                               |  | 18      
|Item 1A. |  | Risk Factors                                                                                                    |  | 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)



|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                             |  | September 30,2007 |         |   | December 31,2006 |  
|ASSETS                                                                                                                                                                                                       |  |                   |         |   |                  |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                              |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                    |  | $                 | 13,052  |   |                  | $ | 24,444  |  
|Settlement assets                                                                                                                                                                                            |  |                   | 26      |   |                  |   | 13,944  |  
|Trade accounts receivable, net                                                                                                                                                                               |  |                   | 14,247  |   |                  |   | 8,169   |  
|Prepaids and other                                                                                                                                                                                           |  |                   | 2,778   |   |                  |   | 2,547   |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                         |  |                   | 30,103  |   |                  |   | 49,104  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|NONCURRENT ASSETS:                                                                                                                                                                                           |  |                   |         |   |                  |   |         |  
|Property and equipment, net                                                                                                                                                                                  |  |                   | 19,710  |   |                  |   | 16,412  |  
|Goodwill                                                                                                                                                                                                     |  |                   | 36,540  |   |                  |   | 23,122  |  
|Other assets, net                                                                                                                                                                                            |  |                   | 2,571   |   |                  |   | 1,075   |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total noncurrent assets                                                                                                                                                                                      |  |                   | 58,821  |   |                  |   | 40,609  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                 |  | $                 | 88,924  |   |                  | $ | 89,713  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                         |  |                   |         |   |                  |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Accounts payable and accrued liabilities                                                                                                                                                                     |  | $                 | 23,241  |   |                  | $ | 20,151  |  
|Customer deposits and deferred revenue                                                                                                                                                                       |  |                   | 17,410  |   |                  |   | 13,403  |  
|Settlement obligations                                                                                                                                                                                       |  |                   | 26      |   |                  |   | 13,944  |  
|Current portion of long-term debt                                                                                                                                                                            |  |                   | 2,333   |   |                  |   | 157     |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                    |  |                   | 43,010  |   |                  |   | 47,655  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|NONCURRENT LIABILITIES:                                                                                                                                                                                      |  |                   |         |   |                  |   |         |  
|Long-term debtless current portion                                                                                                                                                                          |  |                   | 3,500   |   |                  |   |        |  
|Other long-term liabilities                                                                                                                                                                                  |  |                   | 1,007   |   |                  |   | 926     |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total noncurrent liabilities                                                                                                                                                                                 |  |                   | 4,507   |   |                  |   | 926     |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                            |  |                   | 47,517  |   |                  |   | 48,581  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTE 1)                                                                                                                                                                       |  |                   |         |   |                  |   |         |  
|SHAREHOLDERS EQUITY:                                                                                                                                                                                        |  |                   |         |   |                  |   |         |  
|Common stock, $.01 par value; 100,000,000 shares authorized; 18,492,332 and 17,960,301 shares issued; 18,304,801 and 17,772,771 shares
outstanding at September 30, 2007 and December 31, 2006, respectively |  |                   | 184     |   |                  |   | 179     |  
|Additional paid-in capital                                                                                                                                                                                   |  |                   | 95,837  |   |                  |   | 91,659  |  
|Treasury stock, at cost; 187,531 shares                                                                                                                                                                      |  |                   | (2,294  | ) |                  |   | (2,294  | )
|Cumulative translation adjustment                                                                                                                                                                            |  |                   | 48      |   |                  |   | 77      |  
|Accumulated deficit                                                                                                                                                                                          |  |                   | (52,368 | ) |                  |   | (48,489 | )
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                                                   |  |                   | 41,407  |   |                  |   | 41,132  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                   |  | $                 | 88,924  |   |                  | $ | 89,713  |  
|                                                                                                                                                                                                             |  |                   |         |   |                  |   |         |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                              |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                              |  | 2007                            |        |   | 2006                           |   |        | 2007 |  |   | 2006   |  
|REVENUES:                                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Transaction and other revenues                                                |  | $                               | 21,204 |   |                                | $ | 26,774 |      |  | $ | 70,944 |   |  | $ | 87,393 |  
|Client reimbursements                                                         |  |                                 | 1,327  |   |                                |   | 366    |      |  |   | 2,062  |   |  |   | 1,522  |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                |  |                                 | 22,531 |   |                                |   | 27,140 |      |  |   | 73,006 |   |  |   | 88,915 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|EXPENSES:                                                                     |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Operating, excluding depreciation and amortization                            |  |                                 | 14,270 |   |                                |   | 15,913 |      |  |   | 42,827 |   |  |   | 51,162 |  
|Selling, general, and administrative, excluding depreciation and amortization |  |                                 | 4,517  |   |                                |   | 4,701  |      |  |   | 13,376 |   |  |   | 14,315 |  
|Technology development                                                        |  |                                 | 3,453  |   |                                |   | 2,759  |      |  |   | 10,076 |   |  |   | 8,037  |  
|Client reimbursements                                                         |  |                                 | 1,327  |   |                                |   | 366    |      |  |   | 2,062  |   |  |   | 1,522  |  
|Restructuring                                                                 |  |                                 |       |   |                                |   | (148   | )    |  |   |       |   |  |   | 691    |  
|Depreciation and amortization                                                 |  |                                 | 2,862  |   |                                |   | 2,453  |      |  |   | 8,482  |   |  |   | 7,698  |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total expenses                                                                |  |                                 | 26,429 |   |                                |   | 26,044 |      |  |   | 76,823 |   |  |   | 83,425 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|OPERATING (LOSS) INCOME                                                       |  |                                 | (3,898 | ) |                                |   | 1,096  |      |  |   | (3,817 | ) |  |   | 5,490  |  
|INTEREST INCOME (EXPENSE):                                                    |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Interest income                                                               |  |                                 | 74     |   |                                |   | 256    |      |  |   | 310    |   |  |   | 779    |  
|Interest expense                                                              |  |                                 | (124   | ) |                                |   | (99    | )    |  |   | (423   | ) |  |   | (284   | )
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total interest (expense) income, net                                          |  |                                 | (50    | ) |                                |   | 157    |      |  |   | (113   | ) |  |   | 495    |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|(LOSS) INCOME BEFORE INCOME TAXES                                             |  |                                 | (3,948 | ) |                                |   | 1,253  |      |  |   | (3,930 | ) |  |   | 5,985  |  
|BENEFIT FROM INCOME TAXES                                                     |  |                                 | (51    | ) |                                |   |       |      |  |   | (51    | ) |  |   |       |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|NET (LOSS) INCOME                                                             |  | $                               | (3,897 | ) |                                | $ | 1,253  |      |  | $ | (3,879 | ) |  | $ | 5,985  |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|WEIGHTED AVERAGE NUMBER OF SHARES:                                            |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                         |  |                                 | 18,293 |   |                                |   | 17,735 |      |  |   | 18,262 |   |  |   | 17,692 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                       |  |                                 | 18,293 |   |                                |   | 17,736 |      |  |   | 18,262 |   |  |   | 17,693 |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|BASIC AND DILUTED NET (LOSS) INCOME PER SHARE                                 |  | $                               | (0.21  | ) |                                | $ | 0.07   |      |  | $ | (0.21  | ) |  | $ | 0.34   |  
|                                                                              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                         |  |                                |         |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------ | -
|                                                                                         |  | Nine Months EndedSeptember 30, |        
|                                                                                         |  | 2007                           |         |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                                |         |   |      |   |        |  
|Net (loss) income                                                                        |  | $                              | (3,879  | ) |      | $ | 5,985  |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                                |         |   |      |   |        |  
|Depreciation and amortization                                                            |  |                                | 8,482   |   |      |   | 7,698  |  
|Non-cash restructuring charges                                                           |  |                                |        |   |      |   | 193    |  
|Provision for bad debts                                                                  |  |                                | 249     |   |      |   | 125    |  
|Stock compensation expense                                                               |  |                                | 668     |   |      |   | 1,012  |  
|Changes in assets and liabilities, net of effects of acquisitions:                       |  |                                |         |   |      |   |        |  
|Trade accounts receivable                                                                |  |                                | (4,227  | ) |      |   | (3,554 | )
|Prepaids and other assets                                                                |  |                                | (75     | ) |      |   | 56     |  
|Accounts payable and accrued liabilities                                                 |  |                                | 1,050   |   |      |   | (4,534 | )
|Customer deposits and deferred revenue                                                   |  |                                | 3,399   |   |      |   | 196    |  
|                                                                                         |  |                                |         |   |      |   |        |  
|Total adjustments                                                                        |  |                                | 9,546   |   |      |   | 1,192  |  
|                                                                                         |  |                                |         |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                                | 5,667   |   |      |   | 7,177  |  
|                                                                                         |  |                                |         |   |      |   |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                                |         |   |      |   |        |  
|Capital expenditures                                                                     |  |                                | (6,354  | ) |      |   | (6,514 | )
|Acquisitions, net of cash acquired                                                       |  |                                | (10,049 | ) |      |   | (1,475 | )
|Sale of assets                                                                           |  |                                |        |   |      |   | 250    |  
|                                                                                         |  |                                |         |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                                | (16,403 | ) |      |   | (7,739 | )
|                                                                                         |  |                                |         |   |      |   |        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                                |         |   |      |   |        |  
|Repayments of long-term debt                                                             |  |                                | (1,324  | ) |      |   | (2,074 | )
|Proceeds from stock plans                                                                |  |                                | 94      |   |      |   | 128    |  
|                                                                                         |  |                                |         |   |      |   |        |  
|Net cash used in financing activities                                                    |  |                                | (1,230  | ) |      |   | (1,946 | )
|                                                                                         |  |                                |         |   |      |   |        |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                             |  |                                | 574     |   |      |   | 511    |  
|                                                                                         |  |                                |         |   |      |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                |  |                                | (11,392 | ) |      |   | (1,997 | )
|CASH AND CASH EQUIVALENTSBeginning of period                                            |  |                                | 24,444  |   |      |   | 28,633 |  
|                                                                                         |  |                                |         |   |      |   |        |  
|CASH AND CASH EQUIVALENTSEnd of period                                                  |  | $                              | 13,052  |   |      | $ | 26,636 |  
|                                                                                         |  |                                |         |   |      |   |        |  

See notes to unaudited consolidated financial statements.



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TRX, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(In thousands, except share data)

1. ACCOUNTING AND REPORTING POLICIES

TRX, Inc. and its subsidiaries (we, us or our) is a global technology company. We develop and host software
applications to automate manual processes and track transaction data, enabling our clients to optimize performance and control costs. We are a leading provider to the travel industry and are in the process of expanding into financial services and
healthcare. We deliver our technology applications as a service over the Internet to travel agencies, corporations, travel suppliers, government agencies, credit card associations, credit card issuing banks, and third-party administrators. TRX
is headquartered in Atlanta, Georgia with operations and associates in North America, Europe, and Asia. We are majority-owned by BCD Technology, S.A. (BCD). The accompanying consolidated financial statements include the accounts of TRX,
Inc. and its subsidiaries for the periods presented.

In February 2006, we entered into a five-year agreement related to global business
development with E2E SerWiz Solutions, Ltd. (SWS), a subsidiary of TATA Sons Ltd. Pursuant to the agreement, the parties market their respective offerings in the global travel marketplace in consideration for specified fees based on new
business referred. Additionally, in February 2006, we entered into a shared services agreement with SWS, effective November 1, 2005, in which we agreed to facilitate SWS establishment of U.S.-based customer care operations during 2006. In
connection with this agreement, we transferred all of our U.S.-based customer care assets and employees, located in Parkersburg, West Virginia and Milton, Florida to SWS on April 1, 2006. We transferred assets with a net book value of
approximately $75 to SWS for $250 and expect to record a gain associated with such sale of approximately $175 when our continuing involvement with SWS concludes (currently expected at the end of 2007). In addition, we retained SWS as a subcontractor
from April 2006 through December 2006, in order to provide customer care services to certain of our clients in the U.S.

On
July 13, 2007, TRX Data Services, Inc. (TRX Data Services), a wholly-owned subsidiary of TRX, Inc., and Citibank, N.A. (Citibank) executed an amendment to the Master Services Agreement dated February 1, 2002, as
amended (the Amendment). The Amendment extends the scheduled expiration date of the Master Services Agreement from January 13, 2009 to December 31, 2010. The primary purpose of the Amendment is for TRX Data Services to sell a
limited perpetual license of certain source code to Citibank in order for Citibank to perform certain services in-house that have previously been hosted by TRX Data Services. TRX Data Services will continue to perform maintenance and project
services for Citibank.

The Amendment also provides that we will continue to provide the hosting services historically provided to Citibank
until such time as the sale of the perpetual license occurs. The sale price for the perpetual license is $4.5 million and the sale will occur once the requisite activities to assist Citibank in readying its information technology environment to
support the technology have been performed by us and accepted by Citibank. We expect the license sale to occur in 2008, although it could occur in 2007. In addition, Citibank will compensate us for certain assets that we have purchased in
the past for Citibanks benefit, which are essential to the functionality of the technology. The amount of compensation for such assets will ultimately be determined on the date on which the perpetual license is sold.

The sale of the license, the compensation for the assets referred to above, and the hosting services are all elements of the Amendment. Revenue
recognition for these elements is governed by American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition(SOP 97-2). In
accordance with SOP 97-2, as there is no vendor specific objective evidence of the fair value of the perpetual license, revenue associated with the hosting services is being deferred until the sale of the perpetual license occurs. The amount of
revenue deferred for the hosting services is $3.0 million as of September 30, 2007. All costs associated with the hosting services are being expensed as incurred.

Basis of PresentationThe accompanying unaudited consolidated financial statements of TRX, Inc. and its subsidiaries 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, 2006. Due to the seasonal fluctuations for the purchase of air travel by leisure and corporate travelers as well as credit card volume related to corporate travel,
interim results are not necessarily indicative of results for a full year.

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



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

Settlement Assets and Settlement LiabilitiesWe provide back office processing
services for a client. We recognize fees associated with such services as revenues when services are rendered. We collect cash relating to the sale of travel on behalf of our client, and remit such cash to the providers of related travel services
(such as airline, hotel, etc.). We have a legal obligation to settle these transactions on behalf of our client each month, and therefore classify both the obligation and related asset as current on the accompanying consolidated balance sheet.
During the second quarter of 2007, our client transitioned the majority of back office processing in-house, which has significantly reduced the recorded amounts of settlement assets and settlement liabilities at September 30, 2007.

Allowance for Doubtful AccountsWe maintain an allowance for doubtful accounts to reserve for potentially uncollectible
receivables. The balance was $783 and $688 as of September 30, 2007 and December 31, 2006, respectively.

GoodwillOur goodwill was acquired through the 1999 purchase of International Software Products in the United States, the 2004 purchase of the remaining unowned interests in the United Kingdom and Central Europe equity
method investments, the 2006 purchase of Travel Analytics, Inc. (Travel Analytics), and our acquisition of certain assets and assumption of certain liabilities of Hi-Mark, LLC (Hi-Mark) in January 2007 (Note 4).

The following table discloses the changes in the carrying amount of goodwill during the nine months ended September 30, 2007:



|                                     |  |   |       
|------------------------------------ |  | - | ------
|Balance, January 1                   |  | $ | 23,122
|Hi-Mark acquisition (Note 4)         |  |   | 13,387
|Earnout on Travel Analytics (Note 4) |  |   | 31    
|                                     |  |   |       
|Balance, September 30                |  | $ | 36,540
|                                     |  |   |       



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Other Intangible AssetsWe recorded $1,905 in 2007 to recognize the value of
identifiable intangible assets acquired as part of our purchase of certain assets of Hi-Mark (Note 4), we recorded $539 in 2006 to recognize the value of identifiable intangible assets acquired as part of our purchase of certain assets of Travel
Analytics (Note 4), and we recorded $615 to recognize the value of certain customer relationships as part of our purchase of our European equity method investments in 2004. These amounts are included in other assets, net in the accompanying
consolidated balance sheets. We expect to record approximately $365 of amortization expense related to these intangible assets in each of the next three years, $340 of amortization expense in the fourth year, $239 of amortization expense in the
fifth year and $880 in the years thereafter. During the three and nine months ended September 30, 2007, we recorded related amortization expense of $88 and $263, respectively, and during the three and nine months ended September 30, 2006,
we recorded related amortization expense of $45 and $120, respectively.

Changes in other intangible assets during the nine months ended
September 30, 2007 were as follows:



|                                  |  |   |       |  
|--------------------------------- |  | - | ----- | -
|Balance, January 1                |  | $ | 893   |  
|Hi-Mark acquisition (Note 4)      |  |   | 1,905 |  
|Amortization of intangible assets |  |   | (263  | )
|                                  |  |   |       |  
|Balance, September 30             |  | $ | 2,535 |  
|                                  |  |   |       |  

A summary of our intangible assets as of September 30, 2007 and December 31, 2006 is as
follows:



|                       |  |              |                    |                    |                         |  |                   |                     |   |                         |   |       |  |   |      |  
|---------------------- |  | ------------ | ------------------ | ------------------ | ----------------------- |  | ----------------- | ------------------- | - | ----------------------- | - | ----- |  | - | ---- | -
|                       |  | Useful Lives |                    | September 30, 2007 |                         |  | December 31, 2006 |                    
|                       |  |              | GrossCarryingValue |                    | AccumulatedAmortization |  |                   | Gross CarryingValue |   | AccumulatedAmortization |  
|Customer relationships |  | 6  8 years  |                    | $                  | 615                     |  | $                 | (279                | ) |                         | $ | 615   |  | $ | (232 | )
|Trademarks and patents |  | 10 years     |                    |                    | 2,062                   |  |                   | (172                | ) |                         |   | 432   |  |   | (18  | )
|Non-compete agreements |  | 4  5 years  |                    |                    | 382                     |  |                   | (73                 | ) |                         |   | 107   |  |   | (11  | )
|                       |  |              |                    |                    |                         |  |                   |                     |   |                         |   |       |  |   |      |  
|                       |  |              |                    | $                  | 3,059                   |  | $                 | (524                | ) |                         | $ | 1,154 |  |   | (261 | )
|                       |  |              |                    |                    |                         |  |                   |                     |   |                         |   |       |  |   |      |  

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, when certain other consulting or other services are combined with our transaction processing revenues
and Securities and Exchange Commission (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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With respect to the Citibank amendment discussed above, the sale of the license, the compensation for the assets referred to above, and the hosting services are all elements of the Amendment. Revenue recognition for these elements is
governed by SOP 97-2. In accordance with SOP 97-2, as there is no vendor specific objective evidence of the fair value of the perpetual license, revenue associated with the hosting services is being deferred until the sale of the perpetual license
occurs. The amount of revenue deferred for the hosting services is $3.0 million as of September 30, 2007. All costs associated with the hosting services are being expensed as incurred.

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.



Concentration of
Credit RiskA significant portion of our revenues is derived from a limited number of clients. Contracts with the major clients may be terminated by the client if we fail to meet certain performance criteria. Expedia, Inc. and its
affiliates accounted for 40% and 47% of revenues during the three months ended September 30, 2007 and 2006, respectively, and 40% and 47% of revenues during the nine months ended September 30, 2007 and 2006, respectively. Citibank
accounted for 8% and 15% of revenues during the three months ended September 30, 2007 and 2006, respectively, and 15% and 13% of revenues during the nine months ended September 30, 2007 and 2006, respectively. At September 30, 2007
and December 31, 2006, 3% and 11%, respectively, of our accounts receivable related to Citibank. We expect a further decline in the concentration of Citibank revenue as a result of our Citibank amendment discussed above.

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



7



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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. The following table sets forth the computation of basic and diluted net (loss) income per share:



|                                    |  |                                       |        |   |                                       |        |           |   |       |            |  |                         |       |           |        |  |   |     
|----------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------- | ------ | --------- | - | ----- | ---------- |  | ----------------------- | ----- | --------- | ------ |  | - | ----
|                                    |  | Three Months Ended September 30, 2007 |        |   | Three Months Ended September 30, 2006
|                                    |  | Net Loss                              |        |   | Weighted Average Shares               |        | Per Share |   |       | Net Income |  | Weighted Average Shares |       | Per Share
|Basic net (loss) income per share   |  | $                                     | (3,897 | ) |                                       | 18,293 |           | $ | (0.21 | )          |  | $                       | 1,253 |           | 17,735 |  | $ | 0.07
|Effect of dilutive securities:      |  |                                       |        |   |                                       |        |           |   |       |            |  |                         |       |           |        |  |   |     
|Options to acquire common stock     |  |                                       |       |   |                                       |       |           |   |      |            |  |                         |      |           | 1      |  |   |    
|                                    |  |                                       |        |   |                                       |        |           |   |       |            |  |                         |       |           |        |  |   |     
|Diluted net (loss) income per share |  | $                                     | (3,897 | ) |                                       | 18,293 |           | $ | (0.21 | )          |  | $                       | 1,253 |           | 17,736 |  | $ | 0.07
|                                    |  |                                       |        |   |                                       |        |           |   |       |            |  |                         |       |           |        |  |   |     



|                                    |  |                                      |        |   |                                      |        |           |   |       |            |  |                         |       |           |        |  |   |     
|----------------------------------- |  | ------------------------------------ | ------ | - | ------------------------------------ | ------ | --------- | - | ----- | ---------- |  | ----------------------- | ----- | --------- | ------ |  | - | ----
|                                    |  | Nine Months Ended September 30, 2007 |        |   | Nine Months Ended September 30, 2006
|                                    |  | Net Loss                             |        |   | Weighted Average Shares              |        | Per Share |   |       | Net Income |  | Weighted Average Shares |       | Per Share
|Basic net (loss) income per share   |  | $                                    | (3,879 | ) |                                      | 18,262 |           | $ | (0.21 | )          |  | $                       | 5,985 |           | 17,692 |  | $ | 0.34
|Effect of dilutive securities:      |  |                                      |        |   |                                      |        |           |   |       |            |  |                         |       |           |        |  |   |     
|Options to acquire common stock     |  |                                      |       |   |                                      |       |           |   |      |            |  |                         |      |           | 1      |  |   |    
|                                    |  |                                      |        |   |                                      |        |           |   |       |            |  |                         |       |           |        |  |   |     
|Diluted net (loss) income per share |  | $                                    | (3,879 | ) |                                      | 18,262 |           | $ | (0.21 | )          |  | $                       | 5,985 |           | 17,693 |  | $ | 0.34
|                                    |  |                                      |        |   |                                      |        |           |   |       |            |  |                         |       |           |        |  |   |     

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



|                                                |  |                                  |  |                                 |  |       |  |      
|----------------------------------------------- |  | -------------------------------- |  | ------------------------------- |  | ----- |  | -----
|                                                |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|                                                |  | 2007                             |  | 2006                            |  | 2007  |  | 2006 
|Convertible debt                                |  |                                 |  | 123                             |  |      |  | 123  
|Accrued but unpaid interest on convertible debt |  |                                 |  | 51                              |  |      |  | 47   
|Stock options                                   |  | 1,530                            |  | 1,923                           |  | 1,530 |  | 1,931
|                                                |  |                                  |  |                                 |  |       |  |      
|Total                                           |  | 1,530                            |  | 2,097                           |  | 1,530 |  | 2,101
|                                                |  |                                  |  |                                 |  |       |  |      

Stock-Based Employee CompensationWe account for stock-based employee
compensation under 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. 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 Employee Stock Purchase Plan (ESPP). SFAS 123(R) also requires us to estimate forfeitures in
calculating the expense related to stock-based compensation.

The weighted average grant-date fair value of the options granted during the
three and nine months ended September 30, 2007, calculated using the Black-Scholes model, ranged from $0.47 to $1.81. The following assumptions were used for grants in the three and nine months ended September 30, 2007: dividend yield of
zero, volatility of 22.1% to 27.9%, risk-free interest rate of 4.46% to 4.86%, and an expected life of 2.00 to 4.25 years. The following assumptions were used for stock option grants in 2006: dividend yield of zero, volatility of 22.8% to 28.6%,
risk-free interest rate of 4.9% to 5.0%, and an expected life of 2.00 to 4.25 years. Expected volatility is based on the volatility of a group of stocks we view as peer companies, due to the limited history of our stock trading on an exchange. We
use historical data to estimate the expected life and employee termination assumptions in our accounting under SFAS 123(R). The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant over the expected life
of the grant.



The following table summarizes stock options
outstanding as of September 30, 2007, as well as activity during the nine months then ended:



|                                  |  |           |   |  |                                 |     
|--------------------------------- |  | --------- | - |  | ------------------------------- | ----
|                                  |  | Options   |   |  | Weighted Average Exercise Price
|Outstanding at January 1, 2007    |  | 1,814,810 |   |  | $                               | 8.92
|Granted                           |  | 199,000   |   |  |                                 | 6.05
|Cancelled                         |  | (484,000  | ) |  |                                 | 9.13
|Exercised                         |  |          |   |  |                                 |     
|                                  |  |           |   |  |                                 |     
|Outstanding at September 30, 2007 |  | 1,529,810 |   |  | $                               | 8.48
|                                  |  |           |   |  |                                 |     

The intrinsic value of a stock option is the amount by which the market value of the underlying
stock exceeds the exercise price of the option. At September 30, 2007, the aggregate intrinsic value of options outstanding was $0 with a weighted average remaining contractual term of 7.9 years; the aggregate intrinsic value of the 789,810
options exercisable was $0 with a weighted average exercise price of $9.46 and a weighted average remaining contractual term of 7.1 years; and the aggregate intrinsic value of the 1,367,650 options vested or expected to vest was $0 with a weighted
average exercise price of $8.48 and a weighted average remaining contractual term of 7.9 years.



8



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##### Table of Contents

The following table summarizes unvested stock options outstanding as of September 30, 2007, as well
as activity during the nine months then ended:



|                            |  |           |   |  |                                 |     
|--------------------------- |  | --------- | - |  | ------------------------------- | ----
|                            |  | Options   |   |  | Weighted Average Exercise Price
|Outstanding at January 1    |  | 1,026,000 |   |  | $                               | 8.56
|Granted                     |  | 199,000   |   |  |                                 | 6.05
|Forfeited                   |  | (306,750  | ) |  |                                 | 8.85
|Vested                      |  | (178,250  | ) |  |                                 | 9.42
|                            |  |           |   |  |                                 |     
|Outstanding at September 30 |  | 740,000   |   |  | $                               | 7.56
|                            |  |           |   |  |                                 |     

Compensation cost from unvested stock options granted to employees is recognized as expense using
the straight-line method over the vesting period. As of September 30, 2007, total unrecognized compensation cost related to unvested stock options was approximately $0.7 million. Approximately half of this cost is expected to be recognized over
the next year, with the remainder primarily over the subsequent two years. For the three months and nine months ended September 30, 2007, our total stock-based compensation expense was approximately $231 and $684, respectively. For the three
months and nine months ended September 30, 2006, our total stock-based compensation expense was approximately $339 and $1,036, respectively.

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



|                                  |  |                                  |        |   |                                 |   |       |      |  |   |        |   |  |   |       |  
|--------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                  |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|                                  |  | 2007                             |        |   | 2006                            |   |       | 2007 |  |   | 2006   |  
|Net (loss) income                 |  | $                                | (3,897 | ) |                                 | $ | 1,253 |      |  | $ | (3,879 | ) |  | $ | 5,985 |  
|Cumulative translation adjustment |  |                                  | 24     |   |                                 |   | (83   | )    |  |   | (29    | ) |  |   | (329  | )
|                                  |  |                                  |        |   |                                 |   |       |      |  |   |        |   |  |   |       |  
|Total comprehensive (loss) income |  | $                                | (3,873 | ) |                                 | $ | 1,170 |      |  | $ | (3,908 | ) |  | $ | 5,656 |  
|                                  |  |                                  |        |   |                                 |   |       |      |  |   |        |   |  |   |       |  

Statement of Cash FlowsCash paid for interest was $293 and $211 for the nine
months ended September 30, 2007 and 2006, respectively. Cash paid for income taxes was $221 and $0 for the nine months ended September 30, 2007 and 2006, respectively. We had accrued capital expenditures of $33 and $13 at
September 30, 2007 and 2006, respectively. For the nine months ended September 30, 2007, non-cash investing and financing activities related to the acquisition of Hi-Mark in January 2007 include the issuance of a $7,000 promissory note and
common stock of $3,405 (Note 4).

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 Ended September 30, |        | Nine Months Ended September 30,
|                               |  | 2007                             |        | 2006                            |   | 2007   |  | 2006
|Transaction processing         |  | $                                | 15,772 |                                 | $ | 17,580 |  | $    | 49,875 |  | $ | 56,991
|Data reporting                 |  |                                  | 4,103  |                                 |   | 4,520  |  |      | 17,585 |  |   | 12,700
|Customer care                  |  |                                  | 1,329  |                                 |   | 4,674  |  |      | 3,484  |  |   | 17,702
|                               |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Transaction and other revenues |  |                                  | 21,204 |                                 |   | 26,774 |  |      | 70,944 |  |   | 87,393
|Client reimbursements          |  |                                  | 1,327  |                                 |   | 366    |  |      | 2,062  |  |   | 1,522 
|                               |  |                                  |        |                                 |   |        |  |      |        |  |   |       
|Total                          |  | $                                | 22,531 |                                 | $ | 27,140 |  | $    | 73,006 |  | $ | 88,915
|                               |  |                                  |        |                                 |   |        |  |      |        |  |   |       

The following is a geographic breakdown of revenues for the three and nine months ended
September 30, 2007 and 2006, and a geographic breakdown of long-lived assets at September 30, 2007 and December 31, 2006:



|                    |  |                                 |        |                                |   |        |  |      |        |  |   |       
|------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                    |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                    |  | 2007                            |        | 2006                           |   | 2007   |  | 2006
|Revenues:           |  |                                 |        |                                |   |        |  |      |        |  |   |       
|United States       |  | $                               | 18,277 |                                | $ | 22,315 |  | $    | 60,510 |  | $ | 70,222
|United Kingdom      |  |                                 | 2,141  |                                |   | 2,544  |  |      | 6,866  |  |   | 10,003
|Other International |  |                                 | 2,113  |                                |   | 2,281  |  |      | 5,630  |  |   | 8,690 
|                    |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Total               |  | $                               | 22,531 |                                | $ | 27,140 |  | $    | 73,006 |  | $ | 88,915
|                    |  |                                 |        |                                |   |        |  |      |        |  |   |       





|                    |  |                      |        |                     |   |       
|------------------- |  | -------------------- | ------ | ------------------- | - | ------
|                    |  | At September 30,2007 |        | At December 31,2006
|Long-Lived Assets:  |  |                      |        |                     |   |       
|United States       |  | $                    | 18,845 |                     | $ | 14,938
|United Kingdom      |  |                      | 397    |                     |   | 902   
|Other International |  |                      | 468    |                     |   | 572   
|                    |  |                      |        |                     |   |       
|                    |  | $                    | 19,710 |                     | $ | 16,412
|                    |  |                      |        |                     |   |       

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

Recent Accounting PronouncementsIn February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS No. 159), which becomes effective for fiscal periods beginning
after November 15, 2007. Under SFAS No. 159,



9



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##### Table of Contents

companies may elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with
changes in fair value recognized in earnings each reporting period. This election, called the fair value option, will enable some companies to reduce volatility in reported earnings caused by measuring related assets and liabilities
differently. We do not expect that the adoption of this standard will have a material effect on our consolidated financial position and results of operations.

On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), with
no impact on beginning retained earnings. This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a companys financial statements. FIN 48
prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in financial statements. As of
January 1, 2007 and September 30, 2007, we had total unrecognized tax benefits of $815 and $393, respectively. The unrecognized tax benefits are fully offset by net operating losses.

These unrecognized tax benefits related primarily to the timing for recognition on various deductions or items of income. If recognized, the tax benefits
will have no impact on the effective rate in a future period.

We recognize potential accrued interest and penalties related to
unrecognized tax benefits within our income tax expense. Due to our net operating loss carryforward position, we recognized no interest and penalties at January 1, 2007 or during the three and nine months ended September 30, 2007,
associated with our uncertain tax positions.

Tax years 2003, 2004, 2005 and 2006 remain subject to examination by U.S. Federal and state
taxing authorities. We are currently under audit by Federal tax authorities for tax-year 2004. This audit is expected to be completed during tax-year 2007. Our primary state tax jurisdictions are Georgia, Florida, South Carolina, Texas, Virginia,
and West Virginia, and our international jurisdictions are the United Kingdom and Germany. The following table summarizes the open tax years for each major jurisdiction:



|               |  |               
|-------------- |  | --------------
|Jurisdiction   |  | Open Tax Years
|Federal        |  | 2003-2006     
|Georgia        |  | 2003-2006     
|Florida        |  | 2003-2006     
|South Carolina |  | 2003-2006     
|Texas          |  | 2003-2006     
|Virginia       |  | 2003-2006     
|West Virginia  |  | 2003-2006     
|United Kingdom |  | 2004-2006     
|Germany        |  | 2003-2006     



We do not currently
anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease during the twelve month period ended September 30, 2008.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. SFAS No. 157 establishes a single authoritative definition of fair value, sets out a framework for measuring
fair value, and expands on required disclosures about fair value measurement. This standard is effective on January 1, 2008 and will be applied prospectively. We do not expect that the adoption of this standard will have a material effect on
our consolidated financial position and results of operations.

2. DEBT

Debt consists of the following as of September 30, 2007 and December 31, 2006:



|                          |  |                   |       |                  |   |    
|------------------------- |  | ----------------- | ----- | ---------------- | - | ---
|                          |  | September 30,2007 |       | December 31,2006
|Note payable              |  | $                 | 5,833 |                  | $ |   
|Capital lease obligations |  |                   |      |                  |   | 157
|                          |  |                   |       |                  |   |    
|Total                     |  |                   | 5,833 |                  |   | 157
|Less current maturities   |  |                   | 2,333 |                  |   | 157
|                          |  |                   |       |                  |   |    
|Long-term debt            |  | $                 | 3,500 |                  | $ |   
|                          |  |                   |       |                  |   |    

Note payable relates to our acquisition of certain assets and assumption of certain liabilities of
Hi-Mark (Note 4), with quarterly principal payments (beginning in April 2007 through January 2010) in the amount of $583 together with accrued interest, which accrues at the Prime rate (7.75% at September 30, 2007).

We have a $10.0 million revolving line of credit facility expiring April 2009. The lender holds a senior security interest in all of our domestic assets,
and a 66% interest in the stock of our international subsidiaries. Under the facility, we are subject to certain financial covenants, including maintenance of certain leverage ratios. The facility also requires that we reduce our borrowings to $2.0
million or less for 30 days during each calendar quarter. Further, we are restricted in our ability to, among other things, make advances to our European operations, make acquisitions, make capital expenditures, incur additional indebtedness and pay
dividends. We pay a variable rate of interest on draws, at LIBOR plus 0.5%, and an annual fee of 0.5% of the unused portion of the $10.0 million commitment. As of September 30, 2007, we are in compliance with all financial covenants, $10.0
million was available for borrowing, and there were no borrowings against the facility. We have an outstanding letter of credit in the amount of $45 against the facility as of September 30, 2007.

3. RELATED-PARTY TRANSACTIONS

BCD Travel, formerly
WorldTravel BTI, is majority-owned by our majority shareholder, BCD. During the three and nine months ended September 30, 2007, we recognized transaction and other revenues from BCD Travel totaling $1,784 and $5,555, respectively. During the
three and nine months ended September 30, 2006, we recognized transaction and other revenues from BCD Travel totaling $2,350 and $7,539, respectively. At September 30, 2007 and December 31, 2006, respectively, $671 and $1,295 was
receivable from BCD Travel.



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##### Table of Contents

4. ACQUISITIONS

Travel Analytics

In August 2006, we acquired certain assets and assumed certain liabilities of Travel
Analytics, which provides procurement and spend management services to corporations, for $2,251. In addition to the consideration paid, we agreed to make payments to the previous owner of Travel Analytics equal to 3% of sales related to Travel
Analytics intellectual property through December 31, 2011. Payments are made semi-annually and are recorded as goodwill in our consolidated balance sheet. During the three months and nine months ended September 30, 2007, we recorded
$12 and $31, respectively, as goodwill in our consolidated balance sheet related to the earnout. We have included the results of operations of Travel Analytics in our consolidated financial statements from the date of acquisition.

Hi-Mark

In January 2007, we purchased
substantially all of the assets and assumed certain liabilities of Hi-Mark, a Delaware limited liability company and Atlanta-based provider of data acquisition and business intelligence technologies. The strategic addition of Hi-Mark expands our
opportunities in global corporate travel data reporting. We acquired Hi-Mark for total consideration of approximately $20.6 million, which consisted of 500,000 shares of our common stock (valued at $3.4 million, or $6.81 per share based on the
closing price of our common stock on the two trading days preceding through the two trading days following our announcement of the acquisition on December 7, 2006 in accordance with EITF Issue 99-12Determination of the Measurement
Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination), $10.0 million of cash on hand, a promissory note in favor of Hi-Mark in the amount of $7.0 million which amortizes quarterly over three years and
bears interest at the Prime rate (Note 2), and approximately $0.2 million of our transaction costs. In addition, we may make earnout payments to Hi-Mark of up to $12.0 million dependent on the achievement of defined revenue targets. As of
September 30, 2007, we have not made or accrued earnout payments to Hi-Mark because such revenue targets have not been met.

We have
included the results of operations of Hi-Mark in our consolidated financial statements from the date of acquisition. This acquisition was accounted for using the purchase method of accounting, which includes an evaluation of the existence of any
identifiable intangibles at the date of acquisition. Due to the strategic nature of the acquisition and low asset base, goodwill of $13.4 million was recorded in connection with the acquisition. The goodwill is deductible for tax purposes over a
period of 15 years. The following table summarizes the preliminary purchase price allocation of the fair values of the assets acquired and liabilities assumed (in millions). The estimated purchase price allocation is preliminary and is subject to
further revision.



|                            |  |   |      |  
|--------------------------- |  | - | ---- | -
|Current assets              |  | $ | 2.1  |  
|Property and equipment, net |  |   | 5.1  |  
|Intangible assets           |  |   | 1.9  |  
|Goodwill                    |  |   | 13.4 |  
|                            |  |   |      |  
|Total assets acquired       |  |   | 22.5 |  
|Current liabilities assumed |  |   | (1.9 | )
|                            |  |   |      |  
|Total consideration         |  | $ | 20.6 |  
|                            |  |   |      |  

The intangible assets acquired include non-compete agreements with an estimated value of $0.3
million and a life of five years, and trademarks with an estimated value of $1.6 million and a life of 10 years.

The following unaudited
pro forma financial information presents TRXs combined results as if the acquisition of Hi-Mark had occurred at the beginning of the three and nine months ended September 30, 2006:



|                                       |  |                                      |        |                                     |   |       
|-------------------------------------- |  | ------------------------------------ | ------ | ----------------------------------- | - | ------
|                                       |  | Three Months EndedSeptember 30, 2006 |        | Nine Months EndedSeptember 30, 2006
|Revenue                                |  | $                                    | 28,512 |                                     | $ | 93,032
|Net income                             |  |                                      | 1,432  |                                     |   | 6,521 
|Earnings per share  basic and diluted |  |                                      | 0.08   |                                     |   | 0.36  

These pro forma results have been prepared for comparative purposes only and include certain
adjustments such as additional amortization expense as a result of identifiable intangible assets arising from the acquisition, increased interest expense on acquisition debt and decreased interest income due to the use of cash for a portion of the
purchase price. The pro forma results are not necessarily indicative either of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the respective period or of future results. The pro
forma results of this acquisition for the three and nine months ended September 30, 2007 are not materially different than reported amounts and have therefore not been presented.



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

The following discussion and analysis presents the factors that had a material effect on our results of operations during the three and nine months ended September 30, 2007 and 2006. Also discussed is our
financial position as of September 30, 2007. 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 2006
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

TRX is a global technology company. We develop and host software applications to automate manual processes and track transaction data, enabling our
clients to optimize performance and control costs. We are a leading provider to the travel industry and are in the process of expanding into financial services and healthcare. We deliver our technology applications as a service over the
Internet to travel agencies, corporations, travel suppliers, government agencies, credit card associations, credit card issuing banks, and third-party administrators. TRX is headquartered in Atlanta, Georgia with operations and associates in North
America, Europe, and Asia.

We are focused on transaction-based revenue from data reporting, reservation processing and online booking
technologies 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, accounted for 40% of our global revenues in both the three and nine months ended
September 30, 2007, respectively. Expedia has been a client since its launch in 1996. In December 2006, we replaced our existing contract with Expedia with a Master Services Agreement (the Agreement). The Agreement continues through
2010. Revenues generated in 2007 under the Agreement are expected to be significantly less than those generated in 2006. 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. We expect it to continue to decline in the future because of scale efficiencies, as well as trends in the travel processing supply chain that began to evolve in late 2006 which are putting negative
pressure on our revenue per transaction.

Our historical business mix contained significant revenue from call center, or customer
care operations, which accounted for approximately 20% of our transaction and other revenues in 2006. In late 2004, we made a strategic decision to gradually transition away from this type of lower-margin, labor-intensive business and to close
some of our customer care facilities. We closed our customer care operations in Paris, France and in Zurich, Switzerland during 2004; in Orangeburg, South Carolina during 2005; and in the United Kingdom during 2006. In connection with these
closures, we recorded charges of $0.7 million, $2.3 million and $1.7 million during 2006, 2005 and 2004, respectively, related to employee severance, lease abandonment and related charges. We sold our remaining U.S. call center operations in 2006.
During the three and nine months ended September 30, 2007, our customer care revenues decreased by 72% and 80%, respectively, as compared to 2006 and we expect them to decline similarly through December 31, 2007.

In August 2006, we acquired the assets and assumed certain liabilities of Travel Analytics, Inc. (Travel Analytics), which provides
procurement and spend management services to corporations, for $2.3 million. Travel Analytics helps corporations make smart decisions about their travel suppliers and travel policies, with a focus on achieving practical savings. The strategic
addition of Travel Analytics expands our growth opportunities in the global corporate travel marketplace and augments the technology and talent in our data reporting offerings for corporate travel clients. In addition to the consideration paid, we
agreed to make payments to the previous owner of Travel Analytics equal to 3% of sales related to Travel Analytics intellectual property through December 31, 2011. Payments are made semi-annually and are recorded as goodwill in our
consolidated balance sheet. During the three and nine months ended September 30, 2007, we recorded $12 and $31, respectively, as goodwill in our consolidated balance sheet related to the earnout.

In January 2007, we purchased substantially all of the assets and assumed certain liabilities of Hi-Mark, LLC (Hi-Mark), a Delaware limited
liability company and Atlanta-based provider of data acquisition and business intelligence technologies. We acquired Hi-Mark for total consideration of approximately $20.6 million, which consisted of 500,000 shares of our common stock (valued at
$3.4 million, or $6.81 per share based on the closing price of our common stock on the two trading days preceding through the two trading days following our announcement of the acquisition on December 7, 2006 in accordance with EITF Issue
99-12), $10.0 million of cash on hand, a promissory note in favor of Hi-Mark in the amount of $7.0 million which amortizes quarterly over three years and bears interest at the Prime rate, and approximately $0.2 million of our transaction costs. In
addition, we may make earnout payments to Hi-Mark of up to $12.0 million dependent on the achievement of defined revenue targets. As of September 30, 2007, we have not made earnout payments to Hi-Mark because such revenue targets have not yet
been met.



On July 13, 2007, TRX Data Services, Inc.
(TRX Data Services), a wholly-owned subsidiary of TRX, Inc., and Citibank, N.A. (Citibank) executed an amendment to the Master Services Agreement dated February 1, 2002, as amended (the Amendment). The
Amendment extends the scheduled expiration date of the Master Services Agreement from January 13, 2009 to December 31, 2010. The primary purpose of the Amendment is for TRX Data Services to sell a limited perpetual license of certain
source code to Citibank in order for Citibank to perform certain services in-house that have previously been hosted by TRX Data Services. TRX Data Services will continue to perform maintenance and project services for Citibank.

The Amendment also provides that we will continue to provide the hosting services historically provided to Citibank until such time as the sale of the
perpetual license occurs. The sale price for the perpetual license is $4.5 million and the sale will occur once the requisite activities to assist Citibank in readying its information technology environment to support the technology have been
performed by us and accepted by Citibank. We expect the license sale to occur in 2008, although it could occur in 2007. In addition, Citibank will compensate us for certain assets that we have purchased in the past for Citibanks
benefit, which are essential to the functionality of the technology. The amount of compensation for such assets will ultimately be determined on the date on which the perpetual license is sold.

The sale of the license, the compensation for the assets referred to above, and the hosting services are all elements of the Amendment. Revenue
recognition for these elements is governed by American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition(SOP 97-2). In
accordance with SOP 97-2, as there is no vendor specific objective evidence of the fair value of the perpetual license, revenue associated with the hosting services is being deferred until the sale of the perpetual license occurs. The amount of
revenue deferred for the hosting services is $3.0 million as of September 30, 2007. All costs associated with the hosting services are being expensed as incurred.

Industry factors impacting our operating results include the channel shifts toward online bookings and direct distribution, cost compression in the
travel processing supply chain, 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



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##### Table of Contents

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 and described in
our Form 10-K for the year ended December 31, 2006, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to assist investors in fully
understanding and evaluating our consolidated financial condition and results of operations.

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

We recognize revenue in accordance with Emerging Issues Task Force (EITF) Issue 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables when certain other consulting or other services are combined with our transaction processing revenues 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With respect to the Citibank amendment discussed above in the Overview section, the sale of the license, the compensation for the assets referred to above, and the hosting services are all elements of the Amendment. Revenue
recognition for these elements is governed by SOP 97-2. In accordance with SOP 97-2, as there is no vendor specific objective evidence of the fair value of the perpetual license, revenue associated with the hosting services is being deferred
until the sale of the perpetual license occurs. The amount of revenue deferred for the hosting services is $3.0 million as of September 30, 2007. All costs associated with the hosting services are being expensed as incurred.

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

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



Goodwill. We assess the impairment of goodwill in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Accordingly, we test our goodwill for impairment annually on September 30, or whenever events or changes in circumstances indicate an impairment may
have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of our business, adverse market conditions, adverse changes in applicable laws or regulations,
including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that impairment has occurred, we are required to record an impairment charge for the difference between the carrying value
of the goodwill and the implied fair value of the goodwill in the period the determination is made. Based on the results of our annual impairment test, there was no impairment of goodwill at September 30, 2007. Although we believe goodwill is
appropriately stated in our consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and result in an impairment charge.

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

Transaction processing provisions. We have recorded estimates to account for processing errors made in the ticketing or fareloading process that result in tickets being issued at incorrect prices or from agency
commissions being miscalculated. Our reserve for processing errors is based on several factors including historical trends, average debit memo lag time and timely identification of errors. Transaction processing provisions during the three and nine
months ended September 30, 2007 were $0.6 million and $2.4 million, respectively, and during the three and nine months ended September 30, 2006 were $1.3 million and $2.0 million, 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 income margin percentage distorts such margin percentage. We evaluate our operating performance based upon operating income margins
excluding client reimbursements.



|                                                      |  |                                 |    |  |                                |   |  |      |    |  |      |  
|----------------------------------------------------- |  | ------------------------------- | -- |  | ------------------------------ | - |  | ---- | -- |  | ---- | -
|                                                      |  | Three Months EndedSeptember 30, |    |  | Nine Months EndedSeptember 30, |  
|                                                      |  | 2007                            |    |  | 2006                           |   |  | 2007 |    |  | 2006 |  
|Transaction and other revenues                        |  | 100                             | %  |  | 100                            | % |  | 100  | %  |  | 100  | %
|Expenses:                                             |  |                                 |    |  |                                |   |  |      |    |  |      |  
|Operating                                             |  | 67                              |    |  | 59                             |   |  | 60   |    |  | 59   |  
|Selling, general and administrative                   |  | 21                              |    |  | 18                             |   |  | 19   |    |  | 16   |  
|Technology development                                |  | 16                              |    |  | 10                             |   |  | 14   |    |  | 9    |  
|Restructuring                                         |  |                                |    |  | (1                             | ) |  |     |    |  | 1    |  
|Depreciation and amortization                         |  | 13                              |    |  | 9                              |   |  | 12   |    |  | 9    |  
|                                                      |  |                                 |    |  |                                |   |  |      |    |  |      |  
|Total operating expenses before client reimbursements |  | 117                             |    |  | 95                             |   |  | 105  |    |  | 94   |  
|                                                      |  |                                 |    |  |                                |   |  |      |    |  |      |  
|Operating income (loss)                               |  | (17                             | )% |  | 5                              | % |  | (5   | )% |  | 6    | %
|                                                      |  |                                 |    |  |                                |   |  |      |    |  |      |  

Comparison of Three Months Ended September 30, 2007 and September 30, 2006

Revenues. The following table sets forth comparative revenues by type, in dollars and as a percentage of transaction and other revenue, for the
three months ended September 30, 2007 and 2006, respectively:



|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   
|------------------------------ |  | -------------------------------- | ------ |  | ---- | - |  | ------ | ------ |  | --- | - |  | - | ------ | - |  | --- | --
|                               |  | Three Months Ended September 30, |       
|                               |  | 2007                             |        |  | 2006 |   |  | Change |       
|                               |  | (dollars in thousands)           |       
|Transaction processing         |  | $                                | 15,772 |  | 74   | % |  | $      | 17,580 |  | 66  | % |  | $ | (1,808 | ) |  | (10 | )%
|Data reporting                 |  |                                  | 4,103  |  | 19   |   |  |        | 4,520  |  | 17  |   |  |   | (417   | ) |  | (9  | ) 
|Customer care                  |  |                                  | 1,329  |  | 6    |   |  |        | 4,674  |  | 17  |   |  |   | (3,345 | ) |  | (72 | ) 
|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   
|Transaction and other revenues |  |                                  | 21,204 |  | 100  | % |  |        | 26,774 |  | 100 | % |  | $ | (5,570 | ) |  | (21 | )%
|Client reimbursements          |  |                                  | 1,327  |  |      |   |  |        | 366    |  |     |   |  |   |        |   |  |     |   
|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   
|Total                          |  | $                                | 22,531 |  |      |   |  | $      | 27,140 |  |     |   |  |   |        |   |  |     |   
|                               |  |                                  |        |  |      |   |  |        |        |  |     |   |  |   |        |   |  |     |   

Transaction processing revenues. Transaction processing revenues were $15.8 million in the
three months ended September 30, 2007, a decrease of 10% as compared to $17.6 million in the three months ended September 30, 2006. The decrease in transaction processing revenues was primarily due to pricing pressure largely due to GDS
deregulation in the U.S. during 2006 and the resulting cost pressure it has placed on our clients and, in turn, on us. We expect this trend to continue throughout 2007 and to result in materially lower revenue as compared to 2006.

Data reporting revenues. Data reporting revenues were $4.1 million in the three months ended September 30, 2007, compared to $4.5 million in
the three months ended September 30, 2006. Our revenues grew by $1.4 million due to additional penetration and organic growth from our existing customers and $1.2 million due to acquisitions made in August 2006 and January 2007, which was more
than offset by $3.0 million reduction in revenue from Citibank, as previously discussed above.

Customer care revenues. Customer
care revenues were $1.3 million in the three months ended September 30, 2007, a decrease of 72% compared to $4.7 million in the three months ended September 30, 2006, primarily due to the sale of our U.S. call center business effective
December 2006, and the closure of our U.K. call center business in May 2006.

Client reimbursement revenues and expenses. Client
reimbursement revenues and expenses were $1.3 million in the three months ended September 30, 2007, an increase of 263% compared to $0.4 million in the three months ended September 30, 2006.

Operating expenses. Operating expenses were $14.3 million in the three months ended September 30, 2007, a decrease of 10% compared to $15.9
million in the three months ended September 30, 2006. The decrease was primarily due to the decline in our customer care business and the closure of two call center facilities in 2006. As a percentage of revenue, operating expenses increased
from 59% in the three months ended September 30, 2006 to 67% in the three months ended September 30, 2007. The increase was primarily due to the deferral of $3.0 million of routine data reporting revenues from Citibank, without a related
deferral of expenses in accordance with U.S. GAAP.



Selling,
general and administrative expenses. Selling, general and administrative expenses were $4.5 million in the three months ended September 30, 2007, a decrease of 4% compared to $4.7 million in the three months ended September 30, 2006.

Technology development expenses. Technology development expenses were $3.5 million in the three months ended September 30,
2007, an increase of 25% compared to $2.8 million in the three months ended September 30, 2006. As a percentage of revenue, technology development expense increased from 10% in the three months ended September 30, 2006 to 16% in the three
months ended September 30, 2007. The increase was primarily due to our increased investment in new product technology related to our data reporting, reservation processing and online booking product offerings.

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

Depreciation and amortization. Depreciation and amortization expenses were $2.9 million in the three months ended September 30, 2007, an
increase of 17% compared to $2.5 million in the three months ended September 30, 2006. The increase is primarily due to additional depreciation and amortization related to our acquisition of Hi-Mark in January 2007.

Interest income. We generated $0.1 million of interest income in the three months ended September 30, 2007, a decrease of 71% compared to
$0.3 million in the three months ended September 30, 2006. The decrease is primarily due to reduced cash balances available for investment due to the cash purchase price paid for the Hi-Mark acquisition.



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##### Table of Contents

Interest expense. Interest expense remained constant at $0.1 million in the three months ended
September 30, 2007 and 2006.

Income tax provision. We recorded an income tax benefit of $0.1 million for the three months
ended September 30, 2007 related to a refund of a portion of our 2006 alternative minimum tax payment. No income tax provision was recorded for the three months ended September 30, 2006, as such income was offset by net operating loss
carryforwards.

Net (loss) income. Due to the factors described above, net loss was $3.9 million in the three months ended
September 30, 2007 compared to net income of $1.3 million in the three months ended September 30, 2006.

Comparison of Nine Months Ended
September 30, 2007 and September 30, 2006

Revenues. The following table sets forth comparative revenues by type,
in dollars and as a percentage of transaction and other revenue, for the nine months ended September 30, 2007 and 2006, respectively:



|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |         |   |  |     |   
|------------------------------ |  | ------------------------------- | ------ |  | ---- | - |  | ------ | ------ |  | --- | - |  | - | ------- | - |  | --- | --
|                               |  | Nine Months Ended September 30, |       
|                               |  | 2007                            |        |  | 2006 |   |  | Change |       
|                               |  | (dollars in thousands)          |       
|Transaction processing         |  | $                               | 49,875 |  | 70   | % |  | $      | 56,991 |  | 65  | % |  | $ | (7,116  | ) |  | (12 | )%
|Data reporting                 |  |                                 | 17,585 |  | 25   |   |  |        | 12,700 |  | 15  |   |  |   | 4,885   |   |  | 38  |   
|Customer care                  |  |                                 | 3,484  |  | 5    |   |  |        | 17,702 |  | 20  |   |  |   | (14,218 | ) |  | (80 | ) 
|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |         |   |  |     |   
|Transaction and other revenues |  |                                 | 70,944 |  | 100  | % |  |        | 87,393 |  | 100 | % |  | $ | (16,449 | ) |  | (19 | )%
|Client reimbursements          |  |                                 | 2,062  |  |      |   |  |        | 1,522  |  |     |   |  |   |         |   |  |     |   
|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |         |   |  |     |   
|Total                          |  | $                               | 73,006 |  |      |   |  | $      | 88,915 |  |     |   |  |   |         |   |  |     |   
|                               |  |                                 |        |  |      |   |  |        |        |  |     |   |  |   |         |   |  |     |   

Transaction processing revenues. Transaction processing revenues were $49.9 million in the
nine months ended September 30, 2007, a decrease of 12% compared to $57.0 million in the nine months ended September 30, 2006. The decrease in transaction processing revenues was primarily due to pricing pressure largely due to GDS
deregulation in the U.S. during 2006 and the resulting cost pressure it has placed on our clients and, in turn, on us. We expect this trend to continue throughout 2007 and to result in materially lower revenue as compared to 2006.

Data reporting revenues. Data reporting revenues were $17.6 million in the nine months ended September 30, 2007, compared to $12.7 million in
the nine months ended September 30, 2006. Our revenues grew by $4.0 million due to additional penetration and organic growth from our existing customers and $3.9 million due to acquisitions made in August 2006 and January 2007, partially offset
by $3.0 million reduction in revenue from Citibank, as previously discussed above.

Customer care revenues. Customer care revenues
were $3.5 million in the nine months ended September 30, 2007, a decrease of 80% compared to $17.7 million in the nine months ended September 30, 2006, primarily due to the sale of our U.S. call center business effective December 2006, and
the closure of our U.K. call center business in May 2006.

Client reimbursement revenues and expenses. Client reimbursement revenues
and expenses were $2.1 million in the nine months ended September 30, 2007, an increase of 35% compared to $1.5 million in the nine months ended September 30, 2006.

Operating expenses. Operating expenses were $42.8 million in the nine months ended September 30, 2007, a decrease of 16% compared to $51.2
million in the nine months ended September 30, 2006. The decrease was primarily due to the decline in our customer care business and the closure of two call center facilities in 2006. As a percentage of revenue, operating expenses increased
from 59% in the nine months ended September 30, 2006 to 60% in the nine months ended September 30, 2007. The increase was primarily due to the deferral of $3.0 million of routine data reporting revenues from Citibank, without a related
deferral of expenses in accordance with U.S. GAAP.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $13.4 million in the nine months ended September 30, 2007, a decrease of 7% compared to $14.3 million in the nine months ended September 30, 2006.

Technology development expenses. Technology development expenses were $10.1 million in the nine months ended September 30, 2007, an increase
of 25% compared to $8.0 million in the nine months ended September 30, 2006. As a percentage of revenue, technology development expense increased from 9% in the nine months ended September 30, 2006 to 14% in the nine months ended
September 30, 2007. The increase was primarily due to our increased investment in new product technology related to our data reporting, reservation processing and online booking product offerings.



Restructuring expense. We recorded $0.7 million of restructuring expense
in the nine months ended September 30, 2006. The charge in 2006 is due to $1.0 million of severance, asset impairment charges, and other related costs from the closure of our customer care operations in the United Kingdom, partly offset by a
credit of $0.3 million due to the reduction of our estimated remaining lease-termination accrual resulting from a revision to our estimated sublease assumption for the Orangeburg, South Carolina facility.

Depreciation and amortization. Depreciation and amortization expenses were $8.5 million in the nine months ended September 30, 2007, an
increase of 10% compared to $7.7 million in the nine months ended September 30, 2006. The increase is primarily due to additional depreciation and amortization related to our acquisition of Hi-Mark in January 2007.

Interest income. We generated $0.3 million of interest income in the nine months ended September 30, 2007, a decrease of 60% compared to $0.8
million in the nine months ended September 30, 2006. The decrease is primarily due to reduced cash balances available for investment due to the cash purchase price paid for the Hi-Mark acquisition.

Interest expense. Interest expense was $0.4 million in the nine months ended September 30, 2007, an increase of 49% compared to $0.3 million
in the nine months ended September 30, 2006. The increase in interest expense is due to the interest expense on a promissory note issued related to the Hi-Mark acquisition in January 2007.

Income tax provision. We recorded an income tax benefit of $0.1 million for the nine months ended September 30, 2007 related to a refund of a
portion of our 2006 alternative minimum tax. No income tax provision was recorded for the nine months ended September 30, 2006, as such income was offset by net operating loss carryforwards.



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Net income. Due to the factors described above, net income was $3.9 in the nine months ended
September 30, 2007 compared to $6.0 million in the nine months ended September 30, 2006.

Liquidity and Capital Resources

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

At September 30, 2007, our principal sources of liquidity were cash and
cash equivalents of $13.1 million and $10.0 million of availability under our revolving credit facility. We had no borrowings outstanding under our credit facility at September 30, 2007. The maximum amount available under our revolving credit
facility is $10.0 million, and the monthly availability fluctuates based upon our last twelve months consolidated senior leverage ratio (as defined in the facility).

Net cash provided by operating activities was $5.7 million in the nine months ended September 30, 2007 compared to $7.2 million in the nine months
ended September 30, 2006.

Net cash used in investing activities was $16.4 million during the nine months ended September 30,
2007, compared to $7.7 million during the nine months ended September 30, 2006. The primary driver in the nine months ended September 30, 2007 related to the $10.0 million of purchase price paid (net of cash acquired) for the acquisition
of Hi-Mark. The other significant driver of our investing activities is our capital expenditures, which include costs associated with internally developed software. Capital expenditures in the nine months ended September 30, 2007 and 2006 were
primarily comprised of ongoing development related to our transaction processing platforms. Drivers of capital expenditures include infrastructure required to support volume expansion, the acquisition of new revenue streams with new and existing
clients, technology development costs, investment in business continuity, and opportunities to reduce costs. As of September 30, 2007, 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 $9.0 million in fiscal 2007.

Net cash used in financing
activities was $1.2 million during the nine months ended September 30, 2007 compared to $1.9 million during the nine months ended September 30, 2006. The primary driver of the decrease in cash used in financing activities was a decrease in
debt repayments.

We have a $10.0 million senior secured revolving credit facility that expires in April 2009. The lender holds a senior
security interest in all of our domestic assets and a 66% interest in the stock of our international subsidiaries. Under the facility, we are subject to a maximum consolidated senior leverage ratio (as defined in the facility) of 1 to 1. The
facility also requires that we reduce our borrowings under the facility to $2.0 million or less for 30 days during each calendar quarter. We are restricted in our ability to, among other things, make advances to our European operations, make
acquisitions or sell assets, make capital expenditures, incur additional indebtedness and pay dividends. We are currently in compliance with all covenants. We pay a variable rate of interest on draws, at LIBOR plus 0.5%, and an annual fee of 0.5% of
the unused portion of the $10.0 million commitment. At September 30, 2007, we had no borrowings outstanding against the facility. We have an outstanding letter of credit in the amount of $45 against the facility as of September 30, 2007.

Based on our current level of operations, we believe our cash flow from operations and other available sources of liquidity, including
borrowings under the revolving credit facility until it expires in April 2009, will provide adequate funds for ongoing operations, planned capital expenditures and debt service for the next twelve months.

Contractual Obligations

The following table
summarizes our future minimum non-cancelable contractual obligations (including interest) at September 30, 2007:



|                                      |  |                        |        |                   |   |          |  |          |       |                     |   |       |  |   |    
|------------------------------------- |  | ---------------------- | ------ | ----------------- | - | -------- |  | -------- | ----- | ------------------- | - | ----- |  | - | ---
|                                      |  | Payments Due by Period
|                                      |  | Total                  |        | Less thanone year |   | 1-3years |  | 3-5years |       | More thanFive years
|                                      |  | (in thousands)        
|Long-term debt                        |  | $                      | 5,833  |                   | $ | 2,333    |  | $        | 3,500 |                     | $ |      |  | $ |   
|Cash interest costs on long-term debt |  |                        | 662    |                   |   | 409      |  |          | 253   |                     |   |      |  |   |   
|Operating leases                      |  |                        | 4,871  |                   |   | 2,230    |  |          | 1,453 |                     |   | 660   |  |   | 528
|Employment agreements                 |  |                        | 2,271  |                   |   | 975      |  |          | 864   |                     |   | 432   |  |   |   
|Service agreement                     |  |                        | 169    |                   |   | 169      |  |          |      |                     |   |      |  |   |   
|                                      |  |                        |        |                   |   |          |  |          |       |                     |   |       |  |   |    
|Total contractual obligations         |  | $                      | 13,806 |                   | $ | 6,116    |  | $        | 6,070 |                     | $ | 1,092 |  | $ | 528
|                                      |  |                        |        |                   |   |          |  |          |       |                     |   |       |  |   |    

The above contractual obligations table excludes any amounts due under the earnout agreements
executed as part of the acquisitions of Travel Analytics and Hi-Mark, because such amounts are based on a percentage of future revenues. All such obligations are payable in cash. The cash interest costs shown above assume that interest rates in
effect at September 30, 2007 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. The employment agreements with certain key executives provide for compensation and benefits through the expiration of the individual agreements upon termination of
employment, other than by the employee voluntarily or by us for cause.

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.



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Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS
No. 159), which becomes effective for fiscal periods beginning after November 15, 2007. Under SFAS No. 159, companies may elect to measure specified financial instruments and warranty and insurance contracts at fair value
on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. This election, called the fair value option, will enable some companies to reduce volatility in reported earnings caused by
measuring related assets and liabilities differently. We do not expect that the adoption of this standard will have a material effect on our consolidated financial position and results of operations.

On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109 (FIN 48), with no impact on beginning retained earnings. This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position
to be recognized in a companys financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax
positions to be recognized in financial statements. As of January 1, 2007 and September 30, 2007, we had total unrecognized tax benefits of $815 and $393, respectively. The unrecognized tax benefits are fully offset by net operating
losses.

These unrecognized tax benefits related primarily to the timing for recognition on various deductions or items of income. If
recognized, the tax benefits will have no impact on the effective rate in a future period.

We recognize potential accrued interest and
penalties related to unrecognized tax benefits within our income tax expense. Due to our net operating loss carryforward position, we recognized no interest and penalties at January 1, 2007 or during the three and nine months ended
September 30, 2007 associated with our uncertain tax positions.

Tax years 2003, 2004, 2005 and 2006 remain subject to examination by
U.S. Federal and state taxing authorities. We are currently under audit by Federal tax authorities for tax-year 2004. This audit is expected to be completed during tax-year 2007. Our primary state tax jurisdictions are Georgia, Florida, South
Carolina, Texas, Virginia, and West Virginia, and our international jurisdictions are the United Kingdom and Germany. The following table summarizes the open tax years for each major jurisdiction:



|               |  |               
|-------------- |  | --------------
|Jurisdiction   |  | Open Tax Years
|Federal        |  | 2003-2006     
|Georgia        |  | 2003-2006     
|Florida        |  | 2003-2006     
|South Carolina |  | 2003-2006     
|Texas          |  | 2003-2006     
|Virginia       |  | 2003-2006     
|West Virginia  |  | 2003-2006     
|United Kingdom |  | 2004-2006     
|Germany        |  | 2003-2006     

We do not currently anticipate that the total amount of unrecognized tax benefits will
significantly increase or decrease during the twelve month period ended September 30, 2008.

In September 2006, the FASB issued
SFAS No. 157,Fair Value Measurements. SFAS No. 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value
measurement. This standard is effective on January 1, 2008 and will be applied prospectively. We do not expect that the adoption of this standard will have a material effect on our consolidated financial position and results of operations.

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.



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|Item 3. | Qualitative and Quantitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Foreign Currency Exchange Risk. Approximately 17% of our consolidated revenues for the nine months ended September 30, 2007 and 15% of our consolidated assets at September 30, 2007 are associated with operations outside of
the U.S. 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 nine months ended
September 30, 2007, consolidated revenues and operating income would have been increased by approximately $101,000 and $3,000, 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 a $48,000 increase in shareholders equity at September 30, 2007.

Interest Rate Market Risk. Our interest costs are sensitive to changes in the general level of interest rates, because our note payable and our revolving credit facility are at a variable interest rate. We had
no borrowings under our revolving credit facility as of September 30, 2007.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of Disclosure Controls
and Procedures

Our management, including our principal executive officer and principal financial officer, concluded an evaluation of
the effectiveness of our disclosure controls and procedures as of September 30, 2007. 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 Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Based on our evaluation, as of September 30, 2007,
our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial
reporting or in other factors that occurred during the quarter ended September 30, 2007 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, 2006 filed on February 21, 2007.



|Item 6. | Exhibits
|------- | --------



|            |  |                                                                                                                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                     
|10.1        |  | Amendment to Work Order for Ongoing TRX Global Data Services and Work Order for TRX Datatrax Ad-Hoc Reporting of the Citi Global Data Repository (GDR) and Master Services Agreement between
CitiBank, N.A. and TRX Data Services, Inc., dated July 13, 2007. *
|            | 
|10.2        |  | Release Agreement between Peter Grover and TRX Europe Ltd dated July 13, 2007. **                                                                                                                                                                              
|            | 
|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 David D. Cathcart, 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.                                                                                                                                                                                       

---

| | Filed herewith.
|- | ---------------

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

|** | Management contract or compensatory plan or arrangement.
|-- | --------------------------------------------------------



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SIGNATURE

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



|                        |  |           |  |                                                                     
|----------------------- |  | --------- |  | --------------------------------------------------------------------
|                        |  | TRX, INC.
|                        |  |          
|Dated: November 8, 2007 |  | By:       |  | /s/ David D. Cathcart                                               
|                        |  |           |  | David D. Cathcart                                                   
|                        |  |           |  | Chief Financial Officer (principal financial and accounting officer)



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