U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-KSB/A
                                 AMENDMENT NO. 2

(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For fiscal year ended December 31, 2005.

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934


                         Commission file number 0-27845


                          TRANSAX INTERNATIONAL LIMITED
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


                    COLORADO                             84-1304106
         -------------------------------             -------------------
         (State or other jurisdiction of              (I.R.S. Employer
          incorporation of organization)             Identification No.)


                        8th Floor 5201 Blue Lagoon Drive
                                Miami, FL, 33126
                     --------------------------------------
                    (Address of Principal Executive Offices)


                                 (305) 629-3090
                            -------------------------
                           (Issuer's telephone number)


                                       N/A
               ---------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


      Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      None
                                ----------------
                                (Title of class)


      Securities registered pursuant to Section 12(g) of the Exchange Act:

                        Common Stock, Par Value $0.00001
                        --------------------------------
                                (Title of class)
<PAGE>

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 _____

Check here if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

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

State the issuer's revenues for its more recent fiscal year ended December 31,
2005: $3,380,150.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of
January 29, 2006: $1,471,091.63

    APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS.

                                       N/A

Indicate by check mark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.

                            Yes _____      No _____

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Class                                   Outstanding as of March 29, 2006
------                                  --------------------------------

Common Stock, $.001 par value                       31,926,559

                                     Page 2
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                   EXPLANATORY NOTE REGARDING AMENDMENT NO. 2

"Transax International Limited (the "Company") is amending this Annual Report on
Form 10-KSB for the period ended December, 31, 2005 in response to the U.S.
Securities & Exchange Commission's Comment Letter to the Company dated August
25, 2006 (the "Comment Letter"). In particular, the Company has added language
in the Section entitled "Item 8A. Controls & Procedures" in accordance with the
Comment Letter as well as the disclosure of certain negative covenants in the
Section entitled "Item 6. Management's Discussion & Analysis or Plan of
Operation" with respect to the Securities Purchase Agreement, dated April 1,
2005, by and between the Company and Scott and Heather Grimes and the Investment
Agreement, dated January 13, 2006, by and between the Company and Cornell
Capital Partners, LP. The remaining Items contained in this report consist of
all other Items originally contained in Amendment No. 1 to our Annual Report on
Form 10-KSB for the period ended December 31, 2005 as filed on July 10, 2006.
This report does not reflect events occurring after the filing of the original
Annual Report on Form 10-KSB, nor modify or update those disclosures in any way
other than as required to reflect the comments of the SEC in the Comment Letter.

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TABLE OF CONTENTS

PART 1........................................................................7

ITEM 1.  DESCRIPTION OF BUSINESS..............................................7
         Business History and Development.....................................7
         Subsidiaries ........................................................7
         Current Business Operations..........................................7
         Product Target Market Strategy.......................................11
         Strategic Alliances..................................................12
         Research and Development Agreements..................................14
         Material Agreements..................................................15
         Competition..........................................................16
         Government Regulation................................................17
         Intellectual Property, Patents and Trademarks........................18
         Employees............................................................18
         Risk Factors.........................................................18
         Transfer Agent.......................................................26

ITEM 2.  DESCRIPTION OF PROPERTIES............................................26

ITEM 3.  LEGAL PROCEEDINGS....................................................26

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS................27

PART II.......................................................................27

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS............27
         Market Information...................................................27
         Holders..............................................................27
         Dividends............................................................28
         Securities Authorized for Issuance under Equity Compensation Plans...28
         Stock Option Plan....................................................28
         Common Stock Purchase Warrants.......................................30
         Recent Sales of Unregistered Securities .............................30

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............33
         Results of Operations................................................34
         Liquidity and Capital Resources......................................35
         Plan of Operations...................................................37
         Material Liabilities.................................................39
         Off-Balance Sheet Arrangements.......................................41

ITEM 7.  FINANCIAL STATEMENTS INCLUDED AT END OF THIS REPORT COMMENCNG PAGE...F1
         Index to Financial Statements........................................F1
         Consolidated Balance Sheet...........................................F3
         Consolidated Statements of Operations and Comprehensive Income.......F4
         Consolidated Statements of Stockholders' Equity  [Deficit]...........F5
         Consolidated Statements of Cash Flows................................F6
         Notes to the Consolidated Financial Statements.......................F7

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL............................................................42

ITEM 8A. CONTROLS AND PROCEDURES .............................................42

ITEM 8B. OTHER INFORMATION ...................................................44


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PART III......................................................................44

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH 16(A) OF THE EXCHANGE ACT............................44
         Identification of Directors and Executive Officers...................44
         Involvement in Certain Legal Proceedings.............................46
         Audit Committee......................................................46
         Compliance with Section 16(a) of the Exchange Act....................46

ITEM 10. EXECUTIVE COMPENSATION...............................................47
         Compensation of Officers and Directors...............................47
         Summary Compensation Table...........................................48
         Stock Option/SAR Grants in Last Fiscal Year .........................49

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......49

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................51
         Indemnification Provisions...........................................52

ITEM 13. EXHIBITS.............................................................55

ITEM 14. PROFESSIONAL ACCOUNTANT FEES AND SERVICES............................55

SIGNATURES....................................................................55

EXHIBIT 31.1...............................................................EX 31

EXHIBIT 31.2...............................................................EX 31

EXHIBIT 32.1...............................................................EX 32

EXHIBIT 32.2...............................................................EX 32


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                           FORWARD LOOKING STATEMENTS

Statements made in this Form 10-KSB/A that are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. The Company
intends that such forward-looking statements be subject to the safe harbors for
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Any forward-looking statements represent management's best judgment as to
what may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
The Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.

AVAILABLE INFORMATION

Transax International Limited files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). You may read and copy documents referred to in this Annual
Report on Form 10-KSB/A that have been filed with the Commission at the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. You can also obtain copies of our Commission
filings by going to the Commission's website at http://www.sec.gov

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PART 1

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS HISTORY AND DEVELOPMENT

Transax International Limited, a Colorado corporation (the "Company"), currently
trades on the OTC Bulletin Board under the symbol "TNSX.OB". Transax
International Limited is referred to in this Form 10-KSB as "we" or the
"Company".

We were incorporated under the laws of the State of Colorado in 1999 under the
name "Vega-Atlantic Corporation". Previously, we were engaged in the business of
minerals and oil and gas exploration, acquisition and development within the
United States and worldwide. During August 2003, we completed the acquisition of
Transax Limited, a Colorado private-held corporation ("Transax Limited"),
pursuant to a reverse merger and changed our name to "Transax International
Limited" by filing an amendment to our articles of incorporation.

Together with our wholly-owned subsidiary, TDS Telecommunication Data Systems
LTDA ("TDS"), we are an international provider of information network solutions,
products and services specifically designed for the healthcare providers and
health insurance companies (collectively, the "Health Information Management
Products").

SUBSIDIARIES

TDS TELECOMMUNICATIONS DATA SYSTEMS LTDA

TDS Telecommunication Data Systems LTDA. ("TDS") was incorporated under the laws
of Brazil on May 2, 1998, and is our wholly-owned subsidiary. TDS assists us in
providing information network solutions, products and services within Brazil.

TRANSAX AUSTRALIA PTY LTD.

Transax Australia Pty Ltd. was incorporated under the laws of New South Wales,
Australia on January 19, 2003, and is our wholly-owned subsidiary ("Transax
Australia"). Transax Australia assists us in seeking marketing opportunities to
provide information network solutions, products and services within Australia
and regionally.

MEDLINK TECHNOLOGIES, INC.

Medlink Technologies, Inc. was incorporated under the laws of Mauritius on
January 17, 2003, and is our wholly-owned subsidiary ("Medlink"). Medlink holds
the intellectual property developed by us and is responsible for initiating
research and development.

CURRENT BUSINESS OPERATIONS

As of the date of this Annual Report, through TDS, we are an international
provider of health information management products (collectively, the "Health
Information Management Products"), as described below, which are specifically
designed for the healthcare providers

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and health insurance companies. We are dedicated to improving healthcare
delivery by providing to hospitals, physician practices and health insurance
companies with innovative health information management systems to manage
coding, compliance, abstracting and record management's processes.

Our strategic focus is to become a premier international provider of health
information management network solutions for the healthcare providers and health
insurance companies, enabling the real time automation of routine patient
transactions. We believe that our unique combination of complimentary solutions
is designed to significantly improve the business of healthcare. Our Health
Information Management Products and software solutions are designed to generate
operational efficiencies, improve cash flow and measure the cost and quality of
care. In general, the Health Information Management Products and software
solutions, including the MedLink Solution, fall into four main areas: (i)
compliance management; (ii) coding and reimbursement management; (iii)
abstracting; and (iv) record management.

We believe that hospitals and other healthcare providers must implement
comprehensive coding and compliance programs in order to minimize payer
submission errors and assure the receipt of anticipated revenues. We believe
that an effective program should include clear, defined guidelines and
procedures, which combined with our Health Information Management Products, will
enhance an organization's system and effectively increase revenues and reduce
costs. Our Health Information Management Products will include compliance
management and coding and reimbursement products and software, which are
designed to conduct automated prospective and retrospective reviews of all
in-patient and out-patient claims data. Management tools include internally
designed targets aimed to provide data quality, coding accuracy and appropriate
reimbursement. These tools work in conjunction with an organization's coding and
billing compliance program to (i) identify claims with potential errors prior to
billing; (ii) screen professional fees and services; and (iii) identify patterns
in coding and physician documentation. Results of the auditing and monitoring
activities are represented in executive reports summarizing clinical and
financial results as well as detailed reports providing information needed to
target specific areas for review. Billing practices for health care services are
under close scrutiny by governmental agencies as high-risk areas for Medicare
fraud and abuse. We believe that the Health Information Management Products will
increase an organization's progress in reducing improper payments and ensuring
that medical record documentation support services are provided.

The Health Information Management Products are also designed to include
abstracting solutions, which enable healthcare facilities to accurately collect
and report patient demographic and clinical information. We believe that the
Health Information Management Products will provide the organization with the
ability to calculate in-patient and out-patient hospital reimbursements and
customize data fields needed for state, federal or foreign governmental
regulatory requirements. Standard and custom reports will provide the customer
with the ability to generate facility-specific statistical reporting used for
benchmarking, outcomes and performance improvement, marketing and planning. We
believe that the Health Information Management Products will further provide
healthcare organizations the flexibility to customize abstracting workflow to
meet data collection reporting and analysis needs. The Health Information
Management Products will provide the organization with the ability to customize
workflow by creating fields and rules and designing screen navigation.

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We also believe that the Health Information Management Products will provide
record management, which will automate the record tracking and location
functions, monitor record completeness and facilitate the release of information
process within health information management departments. The Health Information
Management Products will assist healthcare organizations in properly completing
records pursuant to state, federal, foreign governmental and medical staff
requirements. The management tools are designed to monitor a facility's
adherence to patient privacy, disclosure and patient bill of rights
requirements, if applicable.

MEDLINK SOLUTION/MEDLINK WEB SOLUTION

We have developed a proprietary software trademarked (Brazil only) "MedLink
Solution", which was specifically designed and developed for the healthcare and
health insurance industry enabling the real time automation of routine patient
eligibility, verifications, authorizations, claims processing and payment
functions that are currently performed manually (the "MedLink Solution"). A
transaction fee is charged to the insurer for use of the MedLink Solution. The
MedLink Solution hosts its own network processing system (the "Total
Connectivity Solution"), whereby we are able to provide an insurer with the
ability to cost effectively process all of the transactions generated regardless
of location or method of generation.

During fiscal year 2005, we released a new version of MedLink Solution that is
Health Insurance Portability and Accountability Act ("HIPAA") compliant, which
was developed in-house by our professional using the Microsoft.NET platform (the
"MedLink Web Solution"). TDS became a member of the Microsoft Partnership
program, therefore, the initial design and specification of the MedLink Web
Solution was undertaken in collaboration with engineers from the Microsoft
Development and Training Center in Brazil. Our new MedLink Web Solution offers
all functionalities already available in our other capture solutions, but in an
Internet-based application that can be accessed by providers through a standard
Internet browser. The MedLink Web Solution allows providers to capture medical
and dental exams, procedures, therapies, visits, laboratory tests and doctor
referrals without complicated software conversion, utilizing an existing
Internet connection. MedLink Web Solution contains a number of important
security procedures following international standards, utilizing an intrusion
detection system and SSL security to encrypt transactions. Additional security
features are available at the application level to individual users.

We believe that the MedLink Solution and the MedLink Web Solution solves
technological and communication problems within the healthcare systems by
creating a virtual "paperless office" for the insurer and total connectivity,
regardless of method, for the health provider. The MedLink Solution replaces
manual medical claims systems and provides insurance companies and healthcare
providers significant savings through a substantial reduction in operational
costs. The MedLink Solution allows users to collect, authorize and process
transaction information in real-time for applications including, but not limited
to, patient and provider eligibility verification, procedure authorization and
claims and debit processing. Participants of the MedLink Solution include
private health insurance companies, group medical companies, and healthcare
providers.

During fiscal year ended December 31, 2005 and 2004, we installed approximately
1,850 and 2,500 MedLink Solutions, respectively, into healthcare provider
locations throughout Brazil. At the end of 2005 we had approximately 5,350
solutions installed into healthcare provider locations throughout Brazil.

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We anticipate that upon completion of compliance testing by an independent
third-party in the United States and subsequent certification, we will launch
our MedLink Web Solution to the United States market under our current
arrangements with Union Dental Corp. and to the general market. See "--Product
Market Target Strategy - Product Target Market - Union Dental Corp."

MEDLINK SOLUTION ARCHITECTURE AND DESIGN

We believe that the MedLink Solution is the total connectivity system that will
allow hospitals, clinics, medical specialists and other healthcare providers to
easily capture, route, and authorize medical, hospital, and dental claims in
"real time". The MedLink Solution will address pre-existing technological and
communication problems by creating a universal virtual link between the insurer
and the care provider.

The MedLink Solution's architecture and design is as follows: (i) seven capture
methods; (ii) a network processor; and (iii) an authorizer.

Capture Methods. The MedLink Solution is tailored to the specific care
provider's environment and needs usage based upon its technological resources,
physical installation and volume of claims. The MedLink Solution offers seven
different methods to capture data. The health care provider can select which of
these seven methods best suit its operational needs and technological abilities.
Regardless of the capture method chosen, transactions are seamless and
efficient. The MedLink Solution's capture methods are: o MedLink Solution POS
Terminal;

      o  MedLink Solution Phone;

      o  MedLink Solution PC Windows

      o  MedLink Solution PC Net

      o  MedLink Solution Server Labs

      o  MedLink Solution Server Hospitals

      o  MedLink Solution Web

Network Processor. The MedLink Solution network processor routes the
transactions captured by the MedLink Solution (the "Network Processor") to the
authorization system of the healthcare plan (the "Authorization System"). For
example, in Brazil this process is carried out either using Embratel's Renpac
service or the Internet. The Network Processor offers uninterrupted 24-hour,
seven days a week operation and service.

The Network Processor is secured from the Renpac and Internet communication
channels to the communication channels with the Authorization System, passing
through the elements of local network, processors and unities of storage of
data. It is implemented on a RAID5 disk array architecture.

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Authorization System. The Authorization System's software is composed of a
control module and a group of storage procedures that validate the specific
rules of the health plan or insurer. It is responsible for: (i) receiving and
decoding the messages sent by the Network Processor, containing the
solicitations of the MedLink Solution installed at the provider; (ii)
identification of the kind of the message (claim, refund, settlement, etc) and
of the service provider; (iii) validation or denial of the transaction; (iv)
updating the historical database of the claims; and (v) replying to the request
by sending a message to the Network Processor.

PRODUCT TARGET MARKET STRATEGY

MARKET STRATEGY

Our key marketing strategy is to position ourselves as a market leader in
providing total information management network processing solutions for the
healthcare industry worldwide. We believe that its Health Information Management
Products encompass a variety of solutions for healthcare provider locations, a
complete network processing service for the health insurance companies, and
in-house software and systems development to address specific and unique
customer requirements, and the ability to operate the systems through a variety
of communication methods.

The promotional and marketing strategy is based on creating a proactive "push
pull" effect on the demand for the Health Information Management Products and
services within the healthcare industry. We have been focusing on the promotion
and marketing of its products to the Brazilian healthcare providers and
insurance companies by demonstrating: (i) the benefits of the MedLink Solution
application and services; (ii) real-time cash visibility; (iii) nominal to no
capital investment; (iv) the established Network Processor facility; (v) custom
software development support; and (vi) option of immediate payment of
outstanding claims.

We believe that this commonly used marketing and promotional model will be
suitable and used for initial market penetration. However, international
marketing and promotional strategies will be developed and adapted on a
country-to-country basis to meet different market environments and governmental
requirements, build business and political relationships, and obtain domestic
media exposure and high visibility within the local healthcare industry to
establish credibility.

During fiscal year 2005, we attended the ValueRich Small Cap Financial Expo held
at the Jacob Javits Center in New York City. Our management made a presentation
during which our current operations, proprietary technology, including our new
cost-saving software MedLink Web Solutions, and growth strategies were
discussed. We believe that investment conferences are also an important
opportunity to connect with potential clients and the financial community in a
way that allows them to appreciate the benefits of our software solutions up
close. In addition, as of the date of this Annual Report, we are in the process
of scripting and producing a feature to be aired on CNN's Lou Dobbs Show for a
"Business Odyssey/Business & Beyond" and on Alexander Haig's Health Journal
Television series.

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PRODUCT TARGET MARKET

We have identified two initial target markets for our products. They are: (i)
healthcare providers, such as physicians, clinics, hospitals, laboratories,
diagnosis centers, emergency centers, etc.; and (ii) health insurance and group
medicine companies.

We have previously been successfully short-listed by the Australian Federal
Government through its Health Insurance Commission (the "HIC"), to supply an
authorization and eligibility solution for the Australian health insurance
market. On January 19, 2003, we established our wholly-owned subsidiary, Transax
Australia, to seek additional opportunities within Australia and New Zealand.

We are currently focused primarily on the marketing and sale of our Health
Information Management products in Brazil and have commenced to seek other
opportunities in certain South American countries. We believe that there is a
significant global market opportunity for our Healthcare Information Management
Products and services and software technology.

UNION DENTAL CORP.

During fiscal year 2005, we developed and demonstrated a "real time" solution
for authorization and adjudication of dental claims for Union Dental Corp.
("UDC"), for the United States market. The solution we demonstrated in
association with UDC and on behalf of the Communication Workers of America Union
will be developed in three phases. Phase I consisted of: (i) processing of
certain business rules in order to guarantee that error free claims are
generated; (ii) real time calculation of the proper co-pay according to the
existing and future schedules as negotiated; and (iii) generation of the
electronic claims files to be submitted to the insurer in real-time transactions
standards. The final stage of the project is expected to lead to a real time
payment option for union dental providers following the adjudication process. As
of the date of this Annual Report, UDC is testing our product and, when
completed, we anticipate that it may lead to contract in the United State to
provide "real time" authorization and auto-adjudication of health claims within
the expanding union dental network of dental providers throughout the United
States.

STRATEGIC ALLIANCES

We have developed key strategic alliances with the following technology
providers to support the MedLink Solution's unique system architecture and
design. We believe that the establishment of these strategic alliances has given
us a significant competitive advantage in Brazil.

CENTRO BRASILERIO DE INFORMATICA MEDICA S/A

On February 14, 2006, we entered into an agreement (the "CEBIM Agreement") with
Centro Brasilerio De Informatica Medica S/A, a Brazilian company ("CEBIM").
CEBIM is the developer of Brazil's Amigo premier medical practice management
system ("Amigo PMS"). Pursuant to the terms and provisions of the CEBIM
Agreement, CEBIM will integrate our MedLink Web Solution real time online claims
adjudication with the Amigo PMS software to provide users with a new version of
the Amigo PMS, including connectivity. As of the date of this Annual Report, we
anticipate that integration of the MedLink Web Solution is expected to be
completed by the end of second quarter 2006. We anticipate significant benefits
as a result of this strategic relationship. We believe we will obtain a minimum
of 2,000 additional capture solutions, which would represent an approximate 40%
increase. As a result of the anticipated

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increased solutions, we estimate up to 400,000 transaction per month may be
generated through the Amigo PMS once the integration is complete and rollout
becomes fully operational. We believe that this strategic partnership will
generate additional revenue of approximately $2,000,000 annually.

GENS INFORMATION - PMS/ASP

On February 19, 2001, we entered into an operating agreement (the "GENS
Operating Agreement") with GENS Information ("GENS"). Pursuant to the terms and
provisions of the GENS Operating Agreement: (i) GENS will provide to us a basic
product called "Personal Med", which is a Windows client-server application,
running with Delphi front-end and Paradox and Oracle DB; and (ii) we will
incorporate the MedLink Solution transaction services within the Personal Med
allowing for its users to use the MedLink Solution services from within their
PMS.

We believe that GENS is the leading Brazilian developer of practice management
software with over 50% of the market share. Personal Med is the name of GENS
basic product, with some thirty variations according to doctor's specialization.
The variations are designed around specific exams data to be acquired and stored
in each medical specialization.

We estimate that current installed basis is approximately 10,600 copies sold
directly to doctors, plus approximately 500 copies sold to corporations. We
believe that GENS has approximately 50% of the Brazilian market in practice
management systems. The current structure sells an average of 200 copies a
month, plus special events.

GENS is currently implementing versions to its Personal Med based on SQL server,
and is further developing a web enabled version, which will allow doctors to
select patients they want to have access through the Internet, and a tool to
access the database of each patient for this centralized base. GENS is also
implementing access to doctor's agenda and some direct news to be directed to
Internet enabled doctors.

VIDALINK, INC. - DRUG MANAGEMENT

On August 29, 2001, we entered into an operational agreement (the "Vidalink
Operational Agreement"), with Vidalink, Inc. ("Vidalink"), to allow the Vidalink
Health Portal access to the MedLink Solution connectivity services, creating the
first authorization and claims processing Internet service in Brazil. The
Vidalink Health Portal offers doctors, the most extensive set of information on
pathologies and medication practices, with complete drug interaction analysis
and alert functionality. It offers also extensive continuous education programs,
with selection of doctor's areas of interest and automatic issuing news on
selected subjects.

Pursuant to the terms and provisions of the Vidalink Operational Agreement, the
MedLink Solution connectivity capabilities will be added to the Vidalink Health
Portal, which will give the MedLink Solution access to Vidalink's drug
management services and Internet content, thus creating a synergic relationship
between the two portals and allow doctors access to each portal reaching a much
broader range of services.

Vidalink is a health portal focused in offering the premier drug management
service package in Latin America, with operations in Mexico and Brazil. Through
Vidalink, health plans have access to drug discount programs, as well as an
extensive drug usage management service, capable of monitoring consumption of
specific drugs by patients. We believe that the Vidalink

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programs are supported by agreements with approximately twenty-two of the
largest pharmaceutical industries in Brazil, offering discount packages for
drugs covering over 85% of total chronic diseases. We further believe that
Vidalink also offers a drug delivery scheme from an extensive network of
pharmacies reaching over 5000 points of presence nationwide.

MOSAIC SOFTWARE, INC. - NETWORK PROCESSOR SYSTEM

On November 25, 2002, we entered into supplier agreement (the "Mosaic Supplier
Agreement") with Mosaic Software, Inc. ("Mosaic"), to develop the Network
Processor software package, known as the "Positllion", for use in the MedLink
Solution.

We believe that Mosaic is the supplier of the most modern technology for network
control software, based on a low cost hardware platform (PC's) and Windows NT
software. Management believes the Position software is the best cost /effect
solution for this kind of system. During 2005 Mosaic Software, Inc. was acquired
by S1 Corporation of Atlanta, Georgia.

HYPERCOM CORPORATION

On December 1, 2003, we entered into a servicing agreement (the "Hypercom
Service Agreement") with Hypercom Corporation, a publicly traded multinational
company ("Hypercom'"). Pursuant to the terms and provisions of the Hypercom
Service Agreement Hypercom would provide leasing arrangements for POS (Point of
Sale) terminals in Brazil.

On April 30, 2002, we entered into a service agreement with Netset, Inc.
("Netset"), a wholly-owned subsidiary of Hypercom (the "Service Agreement").
Pursuant to the terms and provisions of the Service Agreement, Netset will (i)
provide to us installation, servicing, training, customer service and technical
support (Call Center) for its terminal network in Brazil; and (ii) allow us to
use the entire Hypercom structure to serve its clients.

RESEARCH AND DEVELOPMENT

Our research and development department is responsible for the definition,
design and implementation of our products. This comprises three main areas of
activity: research of electronic transaction product trends both in Brazil and
around the world as it applies to the healthcare industry, definition of
products and services required for MedLink Solution services and implementation
of the hardware and software products to support MedLink Solution services.
Products to be offered by MedLink Solution involves interactive discussions with
the marketing and sales team in order to identify the market needs, costs and
timing to introduce such products and solutions. We have entered into agreements
with Hypercom and Dione PLC, of the United Kingdom, to utilize their terminals
for the MedLink Solution.

During fiscal year 2005, we developed a biometric (fingerprint reader) version
of our MedLink Solution on behalf of a major health insurance group in Brazil,
which is currently piloting the solution in that region (the "Biometric
Solution"). The Biometric Solution is a new biometric security technology, which
is rendered from the first time a patient visits a medical provider location.
The patient passes a magnetic card through a reader for verification and then
provides a fingerprint and his/her biometric identity is stored in the MedLink
Solution authorizer. The Biometric Solution will be used in conjunction with
magnetic stripe or smart cards issued by the heath insurer to its policyholders
in such a way that through the MedLink

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<PAGE>

Solution real time adjudication system, information on the magnetic stripe card
and fingerprint recognition must match each time a patient requires
authorization and adjudication of medical claims. We believe that this
additional security for the MedLink Solution will expedite patient
authentication processes while significantly enhancing the security of customer
information transfer between the health care provider and the insurer. As of the
date of this Annual Report, upon certification of the Biometric Solution, we
will make the Biometric Solution available as an option to our current and
future clients.

MATERIAL AGREEMENTS

GOLDEN CROSS

On August 9, 2002, TDS and Golden Cross, ("Golden Cross"), one of Brazil's
largest health insurance companies entered into an agreement (the "Golden Cross
Agreement"). The agreement was extended in August 2004 for a period of two
years. Pursuant to the terms and conditions of the Golden Cross Agreement, we
have committed to supply to Golden Cross a total of 5,500 installations
consisting of more than 1500 MedLink Solution POS terminals with the balance
being MedLink PC and MedLink Solution servers. The Golden Cross Agreement also
provides for MedLink Solution WEB and MedLink Solution phone solutions, which
will be used as appropriate by the healthcare provider. We have approximately
3,900 Medlink Solutions in Golden Cross Provider's locations. During fiscal
years ended December 31, 2005 and 2004, we processed 2,800,000 and 1,900,000
transactions, respectively, for Golden Cross.

CAMED

On October 17, 2002, TDS and Camed, a self-insured company based in northern
Brazil ("Camed"), entered into an agreement (the "Camed Agreement") pursuant to
which we installed MedLink Solution POS terminals for pilot testing. During
fiscal year ended December 31, 2005, we completed the installation of more then
330 MedLink Solution POS terminals and 250 IVR Phone solutions. The Camed
Agreement also provides for MedLink Solution WEB and MedLink Server Solution
solutions which will be used as appropriate by the healthcare providers. We have
approximately 600 Medlink Solutions in Camed providers' locations. During fiscal
years ended December 31, 2005 and 2004, we processed 400,000 and 220,000
transactions, respectively, for Camed.

BRADESCO HEALTH

On October 17, 2002 TDS and Bradesco Insurance ("Bradesco"), Brazil's largest
health insurance company, entered into an agreement for the provision of a four
month pilot program contract for the testing of its "Medlink" Solution.
Subsequently, in February 2003, the pilot program was extended for a further six
months at the request of Bradesco. On October 1, 2003, TDS and Bradesco entered
into a contract pursuant to which we would undertake and install its "Medlink"
Solution into the Bradesco healthcare provider's network. In order to undertake
this program, Bradesco agreed to set up a stand alone processing facility to
hold its database, which was subsequently contracted to a third party. Phase one
of the program went live during March 2004.During Fiscal year ended December 31,
2005 we had installed over 1,000 POS terminals. Current roll out plans indicate
that we will install up to 3,500 solutions into the Bradesco provider's network
in order to achieve Bradesco's initial target of 1,000,000 transactions per
month. During fiscal years ended December 31, 2005 and 2004, we processed
3,200,000 and 570,000 transactions, respectively, for Bradesco.

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<PAGE>

CORNELL CAPITAL PARTNERS

On October 13, 2004 and May 17, 2005, we entered into two respective standby
equity distribution agreement (collectively, the "Standby Equity Distribution
Agreement(s)"), and associated documentation, including a promissory note, with
Cornell Capital. The Standby Equity Distribution Agreements were terminated on
May 17, 2005 and January 13, 2006, respectively, (collectively, the "Termination
Agreement(s)"). In accordance with the terms and provisions of the Standby
Equity Distribution Agreements we: (i) issued to Cornell Capital 1,202,779
shares of our common stock; and (ii) issued to Monitor Capital Inc. ("Monitor
Capital") 125,000 shares of our common stock as compensation for placement
services. During fiscal year 2006, and in accordance with the terms and
provisions of the Termination Agreements: (i) Cornell Capital returned to us
601,884 shares of our common stock, which have been returned to treasury, and
shall retain 600,889 shares of our common stock,; and (ii) Monitor Capital
returned to us 62,500 shares of our common stock, which have been returned to
treasury, and shall retain 62,500 shares of our common stock.

On January 13, 2006, we entered into an investment agreement with Cornell
Capital (the "2006 Investment Agreement"). In accordance with the terms and
provisions of the 2006 Investment Agreement: (i) we shall sell to Cornell
Capital up to 16,000 shares of our series A convertible preferred stock for a
total price of up to $1,600,000 (the "Series A Convertible Preferred"); (ii) the
Series A Convertible Preferred is senior to all common stock and all series of
preferred stock; (iii) the holders of the Series A Convertible Preferred are
entitled to receive dividends or distribution on a pro rata basis in the amount
of seven percent (7%) per year; and (iv) each share of the Series A Convertible
Preferred can be converted into shares of our common stock equal to the sum of
the liquidation Amount, which is defined as an amount equal to $100 per shares
of Series A Preferred, plus accrued but unpaid dividends thereon, divided by the
conversion price (which conversion price is defined to be equal to the lower of
(a) $0.192 or (b) 80% of the lowest daily volume weighted average price of our
common stock as determined by price quotations from Bloomberg LP during the ten
trading days immediately preceding the date of conversion.

In connection with the Standby Equity Agreements, we had entered into a
promissory note with Cornell Capital in the principal amount of $255,237 (the
"Cornell Capital Promissory Note"). On January 13, 2006, Cornell Capital
surrendered to us the Cornell Capital Promissory Note in exchange for the
issuance by us to Cornell Capital of $255,237 of Series A Convertible Preferred.
Thus, as of the date of this Annual Report, the Cornell Capital Promissory Note
has been terminated and cancelled. See "Item 5. Market for Common Equity and
Related Stockholders Matters - Recent Sales of Unregistered Stock" and Item 6.
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations."

COMPETITION

The information network solutions market for the healthcare providers and health
insurance companies is characterized by rapidly evolving technology and intense
competition. Many companies of all sizes, including a number of large technology
companies, such as IBM, Siemens, Visanet and EDS, as well as several specialized
healthcare information management companies, are developing various products and
services. There may be products on the

                                    Page 16
<PAGE>

market that do or will compete directly with the products and services that we
are seeking to develop. These companies may also compete with us in recruiting
qualified personnel. Many of our potential competitors have substantially
greater financial, research and development, human and other resources than we
do. Furthermore, the larger companies may have significantly more experience
than we do in developing such products and services. Such competitors may: (i)
develop more efficient and effective products and services; (ii) obtain patent
protection or intellectual property rights that may limit our ability to
commercialize our products or services; or (iii) commercialize products and
services earlier than we do.

We expect technology developments in the healthcare information management and
technology industry to continue to occur at a rapid pace. Commercial
developments by any competitors may render some or all of our potential products
or services obsolete or non-competitive, which could materially harm our
business and financial condition.

We believe that the following Brazilian companies, which have developed or are
developing various types of similar products or services, could be our major
competitors: (i) Polimed, which offers two modalities for the authorization
software; (ii) Connectmed, which offers Internet connectivity services; and
(iii) Salutia, which offers a connectivity system with software to be installed
and integrated to the management systems, similar to our MedLink Solution Web
and MedLink Solution Server and related technologies.

We believe, however, that our Health Management information Products and related
services and solutions for the healthcare providers and health insurance
companies represent an unique approach and has certain competitive advantages as
follows: (i) the MedLink Solution significantly reduces medical administrative
procedures and costs through connecting in real time individual healthcare
provider locations to health insurance companies; (ii) irrespective of the
choice of connectivity or the method of transmission, MedLink provides a secure
and reliable service where healthcare providers can automatically verify patient
eligibility, receive authorization for the performance of approved medical
procedures and process a paperless claim electronically with each insurance
provider it interacts with, provided they are subscribed to the network; (iii)
once connected to the network, MedLink Solution provides numerous benefits to
doctors and private health insurance companies including the automation of their
paper-based clerical duties; and (iv) by using MedLink Solution, many of these
cumbersome tasks can be processed electronically in seconds, virtually
eliminating processing costs, paperwork, and the high risks associated with
fraud.

GOVERNMENT REGULATION

As of the date of this Annual Report, none of our software products or services
are regulated by the U.S. Department of Health. However, there is substantial
state and federal regulation of the confidentiality of patient medical records
and the circumstances under which such records may be used, disclosed to or
processed by us as a consequence of our contacts with various healthcare
providers and health insurance companies. Although compliance with these laws
and regulations is presently the principal responsibility of covered entities,
including hospitals, physicians or other healthcare providers, regulations
governing patient confidentiality rights are rapidly evolving. Additional
federal and state legislation governing the dissemination of medical record
information may be adopted which could have a material affect on our business.
Those laws, including HIPAA and ICD 10 implementation, may significantly affect
our future business and materially impact our product and service development,
revenue and working capital. During the past several years, the healthcare

                                    Page 17
<PAGE>

industry also has been subject to increasing levels of governmental regulation
of, among other things, reimbursement rates and certain capital expenditures. We
are unable to predict what, if any, changes will occur as a result of such
regulation.

INTELLECTUAL PROPERTY, PATENTS AND TRADEMARKS

Patents and other proprietary rights are vital to our business operations. Our
policy is to seek appropriate copyright and patent protection both in the United
States and abroad for our proprietary technologies and products. We have
acquired the license to certain intellectual property as follows:

   (i)   "Medlink" registered trade name in Brazil Registration number
         820986160 filed on August 17, 1998 with INPI Brazil; and

   (ii)  Source code for all of the Medlink Solutions, source nodes and
         Network processor source code.

We have hired appropriate counsel in the United States to apply for copyright
protection of our products in the United State. We intend to apply for a process
patent in the near future.

EMPLOYEES

Our subsidiary, TDS, employs approximately thirty-six staff and contract
personnel. As of the date of this Annual Report, we do not employ management on
a full-time or on a part-time basis. Our President/Chief Executive Officer and
Chief Financial Officer are primarily responsible for all day-to-day operations.
Other services are provided by outsourcing and verbal management contracts. As
the need arises and funds become available, however, management may seek
employees as necessary in our best interests.

RISK FACTORS

We are subject to various risks that may materially harm our business, financial
condition and results of operations. You should carefully consider the risks and
uncertainties described below and the other information in this Annual Report.
If any of these risks or uncertainties actually occurs, our business, financial
condition or operating results could be materially harmed. In that case, the
trading price of our common stock could decline and you could lose all or part
of your investment.

RISKS RELATED TO OUR BUSINESS

WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE
OBTAIN ADDITIONAL FUNDING. Our independent auditors have added a "going concern"
statement to their audit report for fiscal years ended December 31, 2005 and
2004, which states that we will need additional working capital to be successful
and to service our current debt for the coming year and, therefore, our
continuation as a going concern is dependent upon obtaining the additional
working capital necessary to accomplish our objectives. Our inability to obtain
adequate financing will result in the need to curtail business operations and
you could lose your entire investment. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

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<PAGE>

Our management anticipates that we will incur net losses for the immediate
future, and expect our operating expenses to increase significantly, and, as a
result, we will need to generate monthly revenue if we are to continue as a
going concern. To the extent that we do not generate revenue, that we do not
obtain additional funding, that our stock price does not increase, and that we
are unable to adjust operating expense levels accordingly, we may not have the
ability to continue on as a going concern.

WE HAVE A WORKING CAPITAL DEFICIT AND IF WE ARE UNABLE TO RAISE ADDITIONAL
CAPITAL WE WILL NEED TO CURTAIL BUSINESS OPERATIONS. We had a working capital
deficit of $2,068,956 at December 31, 2005, and continue to need cash for
operations. We have relied on significant external financing to fund our
operations. As of December 31, 2005, we had $7,875 of cash on hand and total
current assets were $494,244, and our total current liabilities were $2,563,200.
We will need to raise additional capital to fund our anticipated operating
expenses and future expansion. Among other things, external financing may be
required to cover our operating costs. Unless we achieve profitable operations,
it is unlikely that we will be able to secure additional financing from external
sources. If we are unable to secure additional financing, we believe that we
will not have sufficient funds to continue operations. We estimate that we will
require $1,000,000 to $3,000,000 of financing to fund our anticipated operating
expenses for the next twelve months. The sale of our common stock to raise
capital may cause dilution to our existing shareholders. Our inability to obtain
adequate financing will result in the need to curtail business operations. Any
of these events would be materially harmful to our business and may result in a
lower stock price. Our inability to obtain adequate financing will result in the
need to curtail business operations and you could lose your entire investment.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

WE WILL REQUIRE ADDITIONAL FUNDING, AND FUTURE ACCESS TO CAPITAL IS UNCERTAIN
AND WE MAY HAVE TO DELAY, REDUCE OR ELIMINATE CERTAIN BUSINESS OPERATIONS. It is
expensive to develop and commercialize Health Information Management Products.
We plan to continue to conduct research and development, which is costly. Our
product development efforts may not lead to new commercial products, either
because our products fail to be found effective or because we lack the necessary
financial or other resources or relationships to pursue commercialization. Our
capital and future revenues may not be sufficient to support the expenses of our
business operations and the development of commercial infrastructure. We may
need to raise additional capital to: (i) fund operations; (ii) continue the
research and development of Health Information Management Products; and (iii)
commercialize our products. We may need additional financing depending on a
number of factors. We may not be able to obtain additional financing on
favorable terms or at all. If we are unable to raise additional funds, we may
have to delay, reduce or eliminate certain business operations. If we raise
additional funds by issuing equity securities, further dilution to our existing
stockholders will result.

WE OWE THE BRAZILIAN GOVERNMENT MONEY FOR PAYROLL TAXES AND SOCIAL SECURITY
TAXES AND OUR FAILURE TO PAY THE BRAZILIAN AUTHORITIES WHEN REQUIRED TO DO SO
COULD RESULT IN LIABILITY. Since fiscal year 2000, we have been deficient in the
payment of Brazilian payroll taxes and Social Security taxes. At December 31,
2005, these deficiencies (including interest and fines) amounted to
approximately $732,000. This payroll liability is included as part of the
accounts payable and accrued expenses (short-term and long-term) within the
consolidated balance sheet. During fiscal years 2005 and 2004, we have entered
into a number of payment programs with the Brazilian authorities whereby the
Social Security

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<PAGE>

taxes due, Severance Fund Taxes due, plus other taxes and applicable penalties
and interests will be repaid over a period of between 18 and 60 months. At
December 31, 2005, we have negotiated some $546,422 of tax liabilities under
these programs. The payment program requires us to pay a monthly fixed amount of
the four taxes negotiated. Discussions are currently ongoing for us to enter
into a similar payment plan for the remainder of the payroll tax liabilities. We
made the first payment as per the plan in April 2004 and continue to make the
required payments. However, there is no certainty that the Brazilian authorities
will enter into a similar plan in the future

WE MAY EXPERIENCE PRICE REDUCTIONS, REDUCED GROSS MARGINS AND LOSS OF MARKET
SHARE IF WE ARE UNABLE TO SUCCESSFULLY COMPETE. Competition for our products and
services is intense and is expected to increase. Increased competition could
result in reductions in our prices, gross margins and market share, and could
have a material adverse effect on our business, financial condition and results
of operations. We compete with other providers of healthcare information
software and services, as well as healthcare consulting firms. Some competitors
may have formed business alliances with other competitors that may affect our
ability to work with some potential customers. In addition, if some of our
competitors merge, a stronger competitor may emerge. Some principal competitors
include: Polimed, Connectmed and Salutia, major software information systems
companies, including those specializing in the healthcare industry, may not
presently offer competing products but may in the future enter our market. Many
of our competitors and potential competitors have significantly greater
financial, technical, product development, marketing and other resources, and
market recognition than we have. Many of these competitors also have, or may
develop or acquire, substantial installed customer bases in the healthcare
industry. As a result of these factors, our competitors may be able to respond
more quickly to new or emerging technologies, changes in customer requirements,
and changes in the political, economic or regulatory environment in the
healthcare industry. These competitors may be in a position to devote greater
resources to the development, promotion and sale of their products than we can.
We may not be able to compete successfully against current and future
competitors, and such competitive pressures could materially adversely affect
our business, financial condition and operating results.

MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE, AND THE VALUE OF A SHAREHOLDER'S
INVESTMENT IN OUR COMMON STOCK MAY BE SUBJECT TO SUDDEN DECREASES. The trading
price for our shares of common stock has been, and we expect it to continue to
be, volatile. The price at which our common stock trades depends on a number of
factors, including the following, many of which are beyond our control: (i)
historical and anticipated operating results, including fluctuations in
financial and operating results; (ii) the market perception of the prospects for
health information management network solutions companies as an industry sector;
(iii) general market and economic conditions; (iv) changes in government
regulations affecting product approvals, reimbursement or other aspects of our
and/or competitors' businesses; (v) announcements of technological innovations
or new commercial products by us or our competitors; (vi) developments
concerning our contractual relations with our executive officers, executive
management and intellectual property rights; and (vii) announcements regarding
significant collaborations or strategic alliances.

In addition, the stock market has from time to time experienced extreme price
and volume fluctuations. These broad market fluctuations may lower the market
price of our common stock and affect the volume of trading in the stock. During
periods of stock market price volatility, share prices of many health
information management network solution companies

                                    Page 20
<PAGE>

have often fluctuated in a manner not necessarily related to their individual
operating performance. Accordingly, our common stock may be subject to greater
price volatility than the stock market as a whole.

THE HEALTHCARE INFORMATION MANAGEMENT AND TECHNOLOGY MARKET IS HIGHLY FRAGMENTED
AND CHARACTERIZED BY ON-GOING TECHNOLOGICAL DEVELOPMENTS, EVOLVING INDUSTRY
STANDARDS AND RAPID CHANGES IN CUSTOMER REQUIREMENTS AND WE MAY NOT SUCCESSFULLY
OR IN A TIMELY MANNER DEVELOP, ACQUIRE, INTEGRATE, INTRODUCE OR MARKET NEW
PRODUCTS OR PRODUCT ENHANCEMENTS. The healthcare information management and
technology market is highly fragmented and characterized by on-going
technological developments, evolving industry standards and rapid changes in
customer requirements. Our success depends on our ability to timely and
effectively: (i) offer a broad range of software products; (ii) enhance existing
products and expand product offerings; (iii) respond promptly to new customer
requirements and industry standards; (iv) remain compatible with popular
operating systems and develop products that are compatible with the new or
otherwise emerging operating systems; and (v) develop new interfaces with
healthcare provider organizations to fully integrate our products and services
in order to maximize features and functionality. Our performance depends in
large part on our ability to provide the increasing functionality required by
our customers through the timely development and successful introduction of new
products and enhancements to existing products. We may not successfully, or in a
timely manner, develop, acquire, integrate, introduce or market new products or
product enhancements. Product enhancements or new products developed by us may
not meet the requirements of hospital or other healthcare providers or health
insurance companies or achieve or sustain market acceptance. Our failure to
either estimate accurately the resources and related expenses required for a
project, or to complete our contractual obligations in a manner consistent with
the project plan upon which a contract is based, could have a material adverse
effect on our business, financial condition, and results of operations. In
addition, our failure to meet a customer's expectations in the performance of
our services and products could damage our reputation and adversely affect our
ability to attract new business.

FAILURE TO ACCURATELY ASSESS, PROCESS OR COLLECT HEALTHCARE CLAIMS OR ADMINISTER
CONTRACTS COULD SUBJECT US TO COSTLY LITIGATION AND FORCE US TO MAKE COSTLY
CHANGES TO OUR PRODUCTS. It is anticipated that some of our products and
services will be used in the payment, collection, coding and billing of
healthcare claims and the administration of managed care contracts. If our
products and services fail to accurately assess, possess or collect these
claims, customers could file claims against us. As of the date of this Annual
Report, we do not carry insurance coverage to cover such claims or, if we do
carry such insurance coverage in the future, such insurance coverage may not be
adequate to cover such claims. A successful claim that is not covered by or is
in excess of insurance coverage could adversely affect our business, financial
condition, and results of operations. Even a claim without merit could result in
significant legal defense costs and could consume management time and resources.
In addition, claims could increase insurance premiums such that appropriate
insurance cannot be found at commercially reasonable rates. Furthermore, if we
were found liable, we may have to significantly alter one or more of our
products, possibly resulting in additional unanticipated research and
development expenses.

THE NATURE OF OUR PRODUCTS MAKES US VULNERABLE TO UNDETECTED ERRORS THAT COULD
REDUCE REVENUES, MARKET SHARE OR DEMAND. Health Information Management Products
may contain errors or failures, especially when initially introduced or when new

                                    Page 21
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versions are released. Although we conduct extensive testing of our products and
services, software errors could be discovered in certain enhancements and
products after their introduction. Despite such testing by us and by our current
and potential customers, products under development, enhancements or shipped
products may contain errors or performance failures resulting in, among other
things: (i) loss of customers and revenue; (ii) delay in market acceptance;
(iii) diversion of resources; (iv) damage to our reputation; or (v) increased
service costs. Any of these consequences could have a material adverse effect on
our business, financial condition and results of operations.

WE MAY BE REQUIRED TO MAKE SUBSTANTIAL CHANGES TO OUR PRODUCTS IF THEY BECOME
SUBJECT TO GOVERNMENTAL REGULATION. None of our Health Information Management
Products are subject to regulation by the United States' federal government.
Computer products used or intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease or other conditions or that affect the
structure or function of the body are subject to regulation by the U.S.
Department of Health. In the future, however, the U.S. Department of Health
could determine that some of our products (because of their predictive aspects)
may be clinical decision tools and subject them to regulation. Compliance with
the U.S. Department of Health regulations, such as HIPPA, could be burdensome,
time consuming and expensive. Other new laws and regulations affecting
healthcare software development and marketing could also be enacted in the
future. If so, it is possible that our costs and the length of time for product
development and marketing could increase and that other unforeseeable
consequences could arise.

GOVERNMENT REGULATION OF CONFIDENTIALITY OF PATIENT HEALTH INFORMATION COULD
RESULT IN REQUIRED PRODUCT MODIFICATIONS WHICH WOULD REQUIRE SIGNIFICANT
EXPENDITURE OF CAPITAL RESOURCES. There is substantial U.S. federal and state
and foreign regulation of confidentiality of patient health information and the
circumstances under which such information may be used by, disclosed to or
processed by us as a consequence of any contracts with various health care
providers or insurance companies. Although compliance with these laws and
regulations is presently the principal responsibility of the hospital, physician
or other healthcare provider, regulations governing patient confidentiality
rights are dynamic and rapidly evolving. Changes may be made which would require
us to change our products and systems and methods which could require
significant expenditures of capital and decrease future business prospects.
Additional federal and state legislation governing the dissemination of
individually identifiable information have been proposed in the United States
and may be adopted, which may also significantly affect our business.

GOVERNMENT REGULATION OF HEALTHCARE INFORMATION DELIVERY SYSTEMS MAY AFFECT
HEALTHCARE PROVIDERS' DECISIONS WHICH COULD RESULT IN UNPLANNED PRODUCT
ENHANCEMENTS, DELAYS, OR CANCELLATIONS OF PRODUCT ORDERS OR SHIPMENTS, OR REDUCE
THE NEED FOR CERTAIN SYSTEMS. During the past several years, the healthcare
industry within the United States and other countries has been subject to
changing political, economic and regulatory influences and to increasing levels
of governmental regulation. Certain proposals to reform the U.S. healthcare
systems have been and are being considered by Congress. These proposals, if
enacted, could change the operating environment for any of our customers within
the United States that could have a negative impact on our business, financial
condition and results of operations. However, the U.S. federal government
recently mandated the use of electronic transmissions for large Medicare
providers, which may positively affect the marketability of our products in the
U.S. We are unable to predict what, if any, changes will occur.

                                    Page 22
<PAGE>

Changes in current healthcare financing, reimbursement systems and procurement
practices could result in unplanned product enhancements, delays, or
cancellations of product orders or shipments, or reduce the need for certain
systems. A portion of our revenues is expected to be derived from sales of our
Health Information Management Products to hospitals in the United States.
Consolidation in the healthcare industry, particularly in the hospital and
managed care markets, could decrease the number of potential purchasers of our
Health Information Management Products and adversely affect our business. In
addition, the decision to purchase such products generally involves a committee
approval. Consequently, it is difficult for us to predict the timing or outcome
of the buying decisions of our potential customers.

THERE ARE POLITICAL AND ECONOMIC RISKS IN FOREIGN MARKETPLACES WHICH COULD
AFFECT OUR OPERATIONS. As of the date of this Annual Report, the Health
Information Management Products are sold by us principally in Brazil. We intend
to enter the global marketplace which includes, but is not limited to, the
marketplaces within the United States, Australia, South America and Europe.
During fiscal years ended December 31, 2005 and 2004, international sales
accounted for 100% of our total revenue. As a result, we face certain risks
associated with international sales. International sales may be subject to
political, economic, legal and other uncertainties occurring within these
countries. Changes in policies by the respective governments may result in
changes in laws, regulations or the interpretation thereof, confiscatory
taxation, restrictions on imports and sources of supply, import duties,
corruption, economic reforms, and currency revaluation, all of which may
materially and adversely affect us. The continuation or increase of any such
disparities could affect the political and social stability of the country, and
thus our operations. Moreover, future controversies could arise which would
threaten trade relations between the United States and the respective country.
In any of such eventualities, our business could be adversely affected.

WE MAY FACE SCRUTINY FROM GOVERNMENTAL AGENCIES. As a result of the rising
healthcare costs, U.S. federal and state governments and foreign governments
have placed an increased emphasis on detecting and eliminating fraud and abuse
in healthcare programs. Numerous laws and regulations now exist within the U.S.
and other foreign countries to prevent fraudulent or abusive billing, to protect
patients' privacy rights, and to ensure patients' access to healthcare.
Violation of the laws or regulations governing our operations could result in
the imposition of civil or criminal penalties, including temporary or permanent
exclusion from participation in government healthcare programs, such as Medicare
and Medicaid in the United States, the cancellation of any contracts with us to
provide managed care services, and the suspension or revocation of any of our
governmental licenses. We intend to conduct routine internal audits in an effort
to ensure compliance with all applicable laws and regulations. If errors,
discrepancies or violations of laws are discovered in the course of these
internal audits or otherwise, we may be required by law to disclose the relevant
facts, once known, to the appropriate authorities.

THE INABILITY TO PROTECT INTELLECTUAL PROPERTY COULD LEAD TO UNAUTHORIZED USE OF
OUR PRODUCTS. We rely on a combination of trade secrets, copyright and trademark
laws, nondisclosure, non-compete and other contractual provisions to protect our
proprietary rights. Measures taken by us to protect our intellectual property
may not be adequate, and our competitors could independently develop products
and services that are substantially equivalent or superior to our products and
services. Any infringement or misappropriation of our proprietary software and
databases could put us at a competitive disadvantage in a highly

                                    Page 23
<PAGE>

competitive market and could cause us to lose revenues, incur substantial
litigation expense, and divert management's attention from other operations.
Intellectual property litigation is increasingly common in the software
industry. Therefore, the risk of an infringement claim against us may increase
over time as the number of competitors in the industry segment grows and the
functionality of products overlaps. Third parties could asset infringement
claims against us in the future. Regardless of the merits, we could incur
substantial litigation expenses in defending any such asserted claim. In the
event of an unfavorable ruling on any such claim, such an infringement may
result in significant monetary liabilities that could have a material adverse
effect on our business. In the event of an unfavorable ruling on any such claim,
a license or similar agreement may also not be available to use on reasonable
terms, if at all. We may not be successful in the defense of these or similar
claims.

WE ARE DEPENDENT UPON THE LICENSE AGREEMENT TO FURTHER DEVELOP AND COMMERCIALIZE
OUR PRODUCTS EFFECTIVELY OR AT ALL. To further develop and successfully
commercialize the Health Information Management Products and related services,
we entered into a license agreement (the "License Agreement") with TDS to carry
out development and commercialization of the MedLink Solution within Brazil.
Under the terms of the License Agreement, we will receive certain royalties once
our subsidiary in Brazil has entered cash flow status.

The risks associated with the License Agreement include, but are not limited to,
the following: (i) TDS may not apply the expected resources or required
expertise in developing the MedLink Solution resources and systems or other
systems necessary to successfully commercialize the MedLink Solution products;
and (ii) disputes may arise between us and TDS that delay the commercialization
of the MedLink Solution or adversely affect our sales or profitability. Our
success will depend on the successful introduction and marketing of the MedLink
Solution and other products which, in turn, is dependent on the continued
existence of favorable contractual relations with TDS. Our business operations
may be materially affected in the event TDS fails to honor the terms and
provisions of the License Agreement.

FAILURE TO RETAIN KEY PERSONNEL COULD IMPEDE OUR ABILITY TO COMMERCIALIZE OUR
PRODUCTS, MAINTAIN THE LICENSE AGREEMENT OR OBTAIN SOURCES OF FUNDS. We depend,
to a significant extent, on the efforts of Mr. Stephen Walters, our
President/Chief Executive Officer and a director, and on the efforts of our
research and development personnel. The development of Health Information
Management Products requires expertise from a number of different disciplines,
some of which are not widely available. The quality and reputation of our
research and development personnel, including our executive officers, and their
success in performing their responsibilities, may directly influence our
success. In addition, Mr. Walters is involved in a broad range of critical
activities, including providing strategic and operational guidance. The loss of
Mr. Walters, or our inability to retain or recruit other key management and
research and development personnel, may delay or prevent us from achieving our
business objectives. We face intense competition for personnel from other
companies, public and private research institutions, government entities and
other organizations. We do not employ management on a full-time or part-time
basis and do not have a written employment agreement with Mr. Walters. In
addition, we do not maintain any key man life insurance policies on Mr. Walters.

                                    Page 24
<PAGE>

RISKS RELATED TO OUR COMMON STOCK

FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS. A substantial number of sales of
our common stock in the public market could lower the market price of our common
stock. Sales may also make it more difficult for us to sell equity securities or
equity-related securities in the future at a time and price that our management
deems acceptable or at all. Of the 31,926,559 shares of common stock outstanding
as of the date of this Annual Report, 10,896,975 shares are freely tradable
without restriction, unless held by our "affiliates." The remaining 21,029,584
shares of common stock which are held by existing stockholders, including the
officers and directors, are "restricted securities" and may be resold in the
public market only if registered or pursuant to an exemption from registration.
Some of these shares may be resold under Rule 144. In addition, we shall issue
to Cornell Capital up to 16,000 Series A Preferred Stock, which will be
convertible into shares of our common stock, and have issued to Cornell Capital
two warrants to purchase up to 5,000,000 shares of our common stock. As of the
date of this Annual Report, 8,000 shares of Series A Preferred Stock have been
issued to Cornell Capital.

THE SALE OF OUR STOCK UNDER THE TERMS OF THE INVESTMENT AGREEMENT COULD
ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FUTURE
DECLINE OF OUR STOCK PRICE. In many circumstances the provision of an Investment
Agreement or similar contractual arrangement for companies that are traded on
the Over-the-Counter Bulletin Board has the potential to cause a significant
downward pressure on the price of common stock. This is especially the case if
the shares being placed into the market exceed the market's ability to take up
the increased stock or if we have not performed in such a manner to show that
the equity funds raised will be used to grow our business. Such an event could
place further downward pressure on the price of our common stock. Under the
terms of our Investment Agreement, we issued to Cornell Capital two warrants to
purchase up to 5,000,000 shares of our common stock. If we used the funds raised
under the Investment Agreement to grow our revenues and profits or invest in
assets which are materially beneficial to us, the opportunity exists for short
sellers and others to contribute to the future decline of our stock price. If
there are significant short sales of stock, the price decline that would result
from this activity will cause the share price to decline more so which in turn
may cause long holders of our stock to sell their shares thereby contributing to
sales of stock in the market. If there is an imbalance on the sell side of the
market for the stock, the price will decline.

It is not possible to predict those circumstances whereby short sales could
materialize or to what the share price could drop. In some companies that have
been subjected to short sales, the stock price has dropped to near zero. This
could happen to our stock price.

OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS. Our common
stock is deemed to be "penny stock" as that term is defined in Rule 3a51-1
promulgated under the Securities Exchange Act of 1934. Penny stocks are stocks:
(i) with a price of less than $5.00 per share; (ii) that are not traded on a
"recognized" national exchange; (iii) whose prices are not quoted on the Nasdaq
automated quotation system; (iv) Nasdaq stocks that trade below $5.00 per share
are deemed a "penny stock" for purposes of Section 15(b)(6) of the Exchange Act;
and (v) issuers with net tangible assets less than $2.0 million (if the issuer
has been in continuous operation for at least three years) or $5.0 million (if
in continuous operation for less than three years), or with average revenues of
less than $6.0 million for the last three years.

                                    Page 25
<PAGE>

Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.

TRANSER AGENT

As of the date of this Annual Report, our transfer agent is Transfer Online,
Inc., 227 S.W. Pine Street, Suite 300, Portland, Oregon 97204; telephone
503.227.2950 and facsimile 503.227.6874.

ITEM 2.  DESCRIPTION OF PROPERTIES

Except as described above, we do not own any other real estate or other
properties. We lease office space in several locations as follows:

  (i)    United States: 8th Floor, 5201 Blue Lagoon Drive, Miami, Florida,33126
         USA
  (ii)   Brazil: Praia de Botafogo # 440, 4 andar, Botafogo 22250 - 040, Rio de
         Janeiro, RJ Brazil;
  (iii)  Asia-Pacific: Level 30, Six Battery Road, Singapore, 049909;
  (iv)   Australia: Suite 22, Old Northern Road, Baulkham Hills, NSW 2153,
         Australia; and
  (v)    Brazil: Av, Paulista, 726, conj. 1707, Bela Vista  Sao Paulo, Brazil.

ITEM 3.  LEGAL PROCEEDINGS

We, Transax International Limited ("Transax") have been in litigation since
March 14, 2005 with X-Clearing Corporation, a Colorado corporation
("X-Clearing"), our former transfer agent. During September 2001, we had entered
into an agreement with X-Clearing regarding engagement as our transfer agent,
registrar and disbursing agent in connection with our shares of common stock
(the "Transfer Agent Agreement"). Thereafter we entered into an Amendment to the
Transfer Agent Agreement. The Transfer Agent Agreement and the Amendment to the
Transfer Agent Agreement will be collectively referred to as the "Transfer
Agreements". X-Clearing's complaint generally alleges that: (1) We have breached
and wrongfully attempted to terminate the Transfer Agreements; (2) X-Clearing
has a valid and perfected security interest in our books and records in
accordance with the terms of the Transfer Agreements; and, (3) X-Clearing is
entitled to repleveting our stock books and records.

On April 5, 2005 we filed an Answer To The Complaint, Counterclaims and A Jury
Demand (the "Answer"). The Answer generally denies all allegations of X-Clearing
and the Counterclaim asserts that X-Clearing has failed to take reasonable steps
to transfer our stock transfer records to our new transfer agent; X-Clearing has
continued stock transfers on our behalf and has illegally issued fraudulent
stock certificates; and X-Clearing has improperly and illegally used our records
which include stock certificates that X-Clearing has fraudulently issued without
notifying us.

                                    Page 26
<PAGE>

On April 7, 2005, we filed a stipulated motion for testimony by telephone and
for expedited ruling by court. A hearing was set for April 12, 2005. X-Clearing
Corp.'s replevin action was dismissed by the District Court.

Trial has been set for May 22, 2006 and is scheduled to last for one week. The
court ordered mediation that was previously scheduled for April 3, 2006 has been
cancelled by the opposing party. No alternative date has been selected. Transax
anticipates filing an appropriate motion to address among other things
X-Clearing's cancellation of the mediation.

Management has instructed counsel to vigorously defend all claims against
Transax and to aggressively pursue all counterclaims on behalf of the company.
While the result of litigation is difficult to predict, counsel has advised
Transax that the likelihood of sustaining any significant damages at trial is
minimal. Counsel has further advised management that there is a significant
likelihood that the case could settle prior to trial without significant
financial exposure to Transax.

Other than as disclosed above, we are not aware of any legal proceedings
contemplated by any governmental authority or other party involving us or our
subsidiaries or our properties. None of our directors, officers or affiliates
are: (i) a party adverse to us in any legal proceedings; or (ii) has an adverse
interest to us in any legal proceedings. We are not aware of any other legal
proceedings pending or that have been threatened against us, our subsidiaries or
our properties.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our shareholders for approval during fiscal year
ended December 31, 2005.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCHOLDER MATTERS

MARKET INFORMATION

Our common stock is traded on the OTC Bulletin Board under the symbol "TNSX".
The market for our common stock is limited, volatile and sporadic. The following
table sets forth the high and low sales prices relating to our common stock for
the last two fiscal years. These quotations reflect inter-dealer prices without
retail mark-up, mark-down, or commissions, and may not reflect actual
transactions.

                                                 Fiscal Year Ended
                       December 31, 2005         December 31, 2004
                       -----------------         -----------------
                       High        Low           High        Low

First Quarter          $0.19       $0.12         $0.38       $0.16
Second Quarter         $0.16       $0.09         $0.62       $0.07
Third Quarter          $0.26       $0.10         $0.16       $0.03
Fourth Quarter         $0.22       $0.13         $0.25       $0.07

HOLDERS

As of March 31, 2006, we had approximately 649 shareholders of record.

                                    Page 27
<PAGE>

DIVIDENDS

No dividends have ever been declared by our Board of Directors on our common
stock. Our previous losses do not currently indicate the ability to pay any cash
dividends, and we do not indicate the intention of paying cash dividends on our
common stock in the foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We have one equity compensation plan, the Transax International Limited Stock
Option Plan. The table set forth below presents the securities authorized for
issuance with respect to the Stock Option Plan under which equity securities are
authorized for issuance as of December 31, 2005:
<TABLE>
<CAPTION>
                                   Equity Compensation Plan Information
----------------------------------------------------------------------------------------------------------
                          Number of Securities                                     Number of Securities
                           To be Issued Upon        Weighted-Average Exercise     Remaining Available for
                         Exercise of Outstanding      Price of Outstanding         Future Issuance Under
                            Options, Warrants          Options, Warrants         Equity Compensation Plans
                                and Rights                 and Rights             (excluding column (a))
Plan Category                      (a)                         (b)                          (c)
----------------------------------------------------------------------------------------------------------
<S>                            <C>                            <C>                         <C>
Equity Compensation
Plans Approved by
Security Holders

Stock Option Plan               1,425,000                     $0.50                       268,270
                                  600,000                      0.20
                                1,200,000                      0.15                        50,000

Merger Agreement -
 Warrants                       4,100,000                     $1.00                           -0-

Equity Compensation
Plans Not Approved by
Security Holders -

Warrants                        1,000,000                     $0.25                           -0-
Warrants                        2,402,500                     $0.20                           -0-
Warrants                        2,000,000                     $0.30                           -0-

Total                          12,727,500
</TABLE>

STOCK OPTION PLAN

On July 22, 2003, our Board of Directors unanimously approved and adopted a
stock option plan, and during fiscal year 2004, our Board of Directors
unanimously approved and adopted a 2004 incentive stock option plan
(collectively, the "Stock Option Plan"). The purpose of the Stock Option Plan is
to advance our interests and those of our shareholders by affording our key
personnel an opportunity for investment and the incentive advantages inherent in
stock ownership. Pursuant to the provisions of the Stock Option Plan, stock
options (the "Stock Options") will be granted only to our key personnel,
generally defined as a person designated by our Board of Directors upon whose
judgment, initiative and efforts we may rely including any of our directors,
officers, employees or consultants. The Stock Option Plan provides authorization
to our Board of Directors to grant Stock Options to purchase a total number of

                                    Page 28
<PAGE>

shares of our Common Stock not to exceed 4,500,000 shares and, in accordance
with the provisions of the 2004 incentive stock option plan, a further 2,500,000
shares.

The Stock Option Plan is to be administered by our Board of Directors, which
shall determine (i) the persons to be granted Stock Options under the Stock
Option Plan; (ii) the number of shares subject to each option, the exercise
price of each Stock Option; and (iii) whether the Stock Option shall be
exercisable at any time during the option period of ten (10) years or whether
the Stock Option shall be exercisable in installments or by vesting only. At the
time a Stock Option is granted under the Stock Option Plan, our Board of
Directors shall fix and determine the exercise price at which shares of our
Common Stock may be acquired; provided, however, that any such exercise price
shall not be less than that permitted under the rules and policies of any stock
exchange or over-the-counter market which are applicable.

In the event an optionee who is one of our directors or officers ceases to serve
in that position, any Stock Option held by such optionee generally may be
exercisable within up to ninety (90) calendar days after the effective date that
his position ceases, and after such 90-day period any unexercised Stock Option
shall expire. In the event an optionee who is one of our employees or
consultants ceases to be employed by us, any Stock Option held by such optionee
generally may be exercisable within up to sixty (60) calendar days (or up to
thirty (30) calendar days where the optionee provided only investor relations
services to us) after the effective date that his employment ceases, and after
such 60- or 30-day period any unexercised Stock Option shall expire.

No Stock Options granted under the Stock Option Plan will be transferable by the
optionee, and each Stock Option will be exercisable during the lifetime of the
optionee subject to the option period of ten (10) years or limitations described
above. Any Stock Option held by an optionee at the time of his death may be
exercised by his estate within one (1) year of his death or such longer period
as our Board of Directors may determine.

Unless restricted by the option agreement, the exercise price shall by paid by
any of the following methods or any combination of the following methods: (i) in
cash; (ii) by cashier's check, certified check, or other acceptable banker's
note payable to us; (iii) by net exercise notice whereby the option holder will
authorize the return to the Stock Option Plan pool, and deduction from the
option holder's Stock Option, of sufficient Stock Option shares whose net value
(fair value less option exercise price) is sufficient to pay the option price of
the shares exercise (the fair value of the shares of the Stock Option to be
returned to the pool as payment will be determined by the closing price of our
shares of Common Stock on the date notice is delivered); (iv) by delivery to us
of a properly executed notice of exercise together with irrevocable instructions
(referred to in the industry as `delivery against payment') to a broker to
deliver to us promptly the amount of the proceeds of the sale of all or a
portion of the stock or of a loan from the broker to the option holder necessary
to pay the exercise price; of (v) such other method as the option holder and our
Board of Directors may determine as adequate including delivery of acceptable
securities (including our securities), set-off for wages or invoices due,
property, or other adequate value. In the discretion of our Board of Director,
we may grant a loan or guarantee a third-party loan obtained by an option holder
to pay part of all of the exercise option price of the shares provided that such
loan or our guaranty is secured by the shares of Common Stock.

                                    Page 29
<PAGE>

INCENTIVE STOCK OPTIONS

The Stock Option Plan further provides that, subject to the provisions of the
Stock Option Plan and prior shareholder approval, our Board of Directors may
grant to any one of our key personnel who is an employee eligible to receive
options one or more incentive stock options to purchase the number of shares of
Common Stock allotted by our Board of Directors (the "Incentive Stock Options").
The option price per share of Common Stock deliverable upon the exercise of an
Incentive Stock Option shall be no less than fair market value of a share of
Common Stock on the date of grant of the Incentive Stock Option. In accordance
with the terms of the Stock Option Plan, "fair market value" of the Incentive
Stock Option as of any date shall not be less than the closing price for the
shares of Common Stock on the last trading day preceding the date of grant. The
option term of each Incentive Stock Option shall be determined by our Board of
Directors, which shall not commence sooner than from the date of grant and shall
terminate no later than ten (10) years from the date of grant of the Incentive
Stock Option, subject to possible early termination as described above.

FORM S-8 - REGISTRATION STATEMENT

On November 16, 2004, we filed with the Securities and Exchange Commission a
registration statement on "Form S-8 - For Registration Under the Securities Act
of 1933 of Securities to Be Offered to Employees Pursuant to Employee Benefit
Plans" registering the Stock Options and Incentive Stock Options under the Stock
Option Plan in the amount of up to 2,500,000 at an exercise price of $0.25.

STOCK OPTIONS GRANTED AND EXERCISED

As of December 31, 2005, we have granted 10,224,040 Stock Options and cancelled
3,524,040 Stock Options. As of December 31, 2005, 4,450,000 Stock Options were
exercised. As at December 31, 2005, 3,225,000 Stock Options were outstanding.

COMMON STOCK PURCHASE WARRANTS

As of the date of this Annual Report, there are an aggregate of 9,502,500 share
purchase warrants issued and outstanding as follows: (i) 4,100,000 Warrants
convertible into 4,100,000 shares of Common Stock at the price of $1.00 per
share expiring on August 14, 2008; (ii) 2,402,500 Warrants convertible into
2,402,500 shares of Common Stock at the price of $0.20 per share expiring on
September 29, 2009; (iii) 2,000,000 Warrants convertible into 2,000,000 shares
of Common Stock at $0.30 per share expiring on December 30, 2006; (iv) 500,000
warrants convertible into shares of common stock at $0.25 per share expiring on
June 28, 2007 and (v) 500,000 warrants convertible into shares of common stock
at $0.25 per share expiring on September 30, 2007.

RECENT SALES OF UNREGISTERED SECURITIES

As of the date of this Annual Report and during fiscal year ended December 31,
2005, to provide capital, we sold stock in private placement offerings, issued
stock in exchange for our debts or pursuant to contractual agreements as set
forth below.

CORNELL CAPITAL PARTNERS

On January 13, 2006, in accordance with the terms and provisions of the 2006
Investment Agreement, we issued to Cornell Capital: (i) 8,000 shares of Series A
Convertible Preferred in

                                    Page 30
<PAGE>

exchange for the surrender of the Cornell Capital Promissory Note; (ii) a
five-year warrant exercisable into 2,500,000 shares of our common stock at an
exercise price of $0.30; and (iii) a five-year warrant exercisable into
2,500,000 shares of our common stock at an exercise price of $0.20.

DEBT SETTLEMENT

DIRECTOR COMPENSATION

On December 26, 2005, we entered into a settlement agreement with David Bouzaid,
one of our officers/directors, regarding the settlement of an aggregate amount
of $6,000 due and owing pursuant to services provided by Mr. Bouzaid (the
"Director Settlement Agreement"). Pursuant to the terms and provisions of the
Settlement Agreement: (i) we agreed to settle $6,000 due and owing to Mr.
Bouzaid by issuing 40,000 shares of our restricted common stock at $0.15 per
share; and (ii) Mr. Bouzaid agreed to accept the issuance of the aggregate
40,000 shares of restricted common stock as full and complete satisfaction of
the debt due and owing. The issuance was exempt from registration under the
Securities Act in reliance on an exemption provided by Section 4(2) of the
Securities Act.

INVESTOR RELATION CONTRACT

On December 8, 2005, we entered into an investor relations contract (the
"Investor Relations Contract") with David Sasso, one of our directors. Pursuant
to the terms and provisions of the Investor Relations Contract, we agreed to
issue 50,000 shares of our restricted common stock at $0.15 per share to Mr.
Sasso as compensation for investor related services provided and valued at
$7,500. The issuance was exempt from registration under the Securities Act in
reliance on an exemption provided by Section 4(2) of the Securities Act.

CONVERTIBLE LOANS

On September 30, 2005, the holder of certain convertible loans exercised the
conversion right. Accordingly, we issued 600,000 shares of our restricted common
stock at the conversion price of $.125 per share and 600,000 warrants to
purchase shares of our restricted common stock at $.25 per share for the
conversion of principal balance of $75,000. We also issued an additional 77,968
shares of restricted common stock to settle $9,746 in interest due on the
convertible loans. The recipients are sophisticated investors who have such
knowledge and experience in financial, investment and business matters that they
are capable of evaluating the merits and risks of the prospective investment in
our securities. The recipients are accredited investors. The issuance was exempt
from registration under the Securities Act in reliance on an exemption provided
by Section 4(2) of the Securities Act.

DIRECTOR SETTLEMENT AGREEMENTS

On December 26, 2005, we entered into a settlement agreement with Stephen
Walters (the "Walters Settlement Agreement"), regarding the settlement of an
aggregate amount of $45,000 due and owing to Mr. Walters pursuant to managerial
services performed. Pursuant to the terms and provisions of the Walters
Settlement Agreement: (i) we agreed to settle $45,000 representing a partial
amount of the aggregate amount due and owing to Mr. Walters by issuing 300,000
shares of our restricted common stock at $0.15 per share; and (ii) Mr.

                                    Page 31
<PAGE>

Walters agreed to accept the issuance of an aggregate of 300,000 shares of our
restricted common stock as full and complete satisfaction of the aggregate
amount of $34,000. The issuance was exempt from registration under the
Securities Act in reliance on an exemption provided by Section 4(2) of the
Securities Act.

On September 26, 2005, we entered into a settlement agreement with Stephen
Walters (the "Walters Settlement Agreement"), regarding the settlement of an
aggregate amount of $34,000 due and owing to Mr. Walters pursuant to managerial
services performed. Pursuant to the terms and provisions of the Walters
Settlement Agreement: (i) we agreed to settle $34,000 representing a partial
amount of the aggregate amount due and owing to Mr. Walters by issuing 200,000
shares of our restricted common stock at $0.17 per share; and (ii) Mr. Walters
agreed to accept the issuance of an aggregate of 200,000 shares of our
restricted common stock as full and complete satisfaction of the aggregate
amount of $34,000. The issuance was exempt from registration under the
Securities Act in reliance on an exemption provided by Section 4(2) of the
Securities Act.

On June 28, 2005, we entered into a settlement agreement with Stephen Walters
(the "Walters Settlement Agreement"), regarding the settlement of an aggregate
amount of $33,000 due and owing to Mr. Walters pursuant to managerial services
performed. Pursuant to the terms and provisions of the Walters Settlement
Agreement: (i) we agreed to settle $33,000 representing a partial amount of the
aggregate amount due and owing to Mr. Walters by issuing 300,000 shares of our
restricted common stock at $0.11 per share; and (ii) Mr. Walters agreed to
accept the issuance of an aggregate of 300,000 shares of our restricted common
stock as full and complete satisfaction of the aggregate amount of $33,000. The
issuance was exempt from registration under the Securities Act in reliance on an
exemption provided by Section 4(2) of the Securities Act.

On March 28, 2005, we entered into a settlement agreement with Stephen Walters
(the "Walters Settlement Agreement"), regarding the settlement of an aggregate
amount of $50,500 due and owing to Mr. Walters pursuant to managerial services
performed. Pursuant to the terms and provisions of the Walters Settlement
Agreement: (i) we agreed to settle $50,500 representing a partial amount of the
aggregate amount due and owing to Mr. Walters by issuing 400,000 shares of our
restricted common stock at $0.126 per share; and (ii) Mr. Walters agreed to
accept the issuance of an aggregate of 400,000 shares of our restricted common
stock as full and complete satisfaction of the aggregate amount of $50,500. The
issuance was exempt from registration under the Securities Act in reliance on an
exemption provided by Section 4(2) of the Securities Act.

CONSULTING AGREEMENT

On July 15, 2005, we entered into a consulting services agreement (the
"Consulting Agreement") with Geoff Eiten ("Eiten").Pursuant to the terms and
provisions of the Consulting Agreement, we agreed to issue 200,000 shares of our
restricted common stock at $0.15 per share to Eiten as compensation for
consulting services provided and valued at $30,000. The issuance was exempt from
registration under the Securities Act in reliance on an exemption provided by
Section 4(2) of the Securities Act.

On March 21, 2005, we entered into a consulting services agreement (the
"Consulting Agreement") with Aiden Capital Management ("ACM").Pursuant to the
terms and provisions of the Consulting Agreement, we agreed to issue 150,000
shares of our restricted common stock

                                    Page 32
<PAGE>

at $0.14 per share to ACM as compensation for consulting services provided and
valued at $21,000. The issuance was exempt from registration under the
Securities Act in reliance on an exemption provided by Section 4(2) of the
Securities Act.

On January 14, 2005, we entered into a consulting services agreement (the
"Consulting Agreement") with Empire Relations Group ("ERG"). Pursuant to the
terms and provisions of the Consulting Agreement, we agreed to issue 100,000
shares of our restricted common stock at $0.16 per share to ERG as compensation
for consulting services provided and valued at $16,000. The issuance was exempt
from registration under the Securities Act in reliance on an exemption provided
by Section 4(2) of the Securities Act.

On January 14, 2005, we entered into a six-month consulting services agreement
(the "Consulting Agreement") with Mirador Consulting Ltd. ("Mirador") Pursuant
to the terms and provisions of the Consulting Agreement, we agreed to issue
400,000 shares of our restricted common stock at $0.16 per share to Mirador as
compensation for consulting services provided and valued at $42,667. The
issuance was exempt from registration under the Securities Act in reliance on an
exemption provided by Section 4(2) of the Securities Act. However, we terminated
the Consulting Agreement and cancelled 200,000 of the 400,000 shares of
restricted common stock that were previously issued under the terms of the
Consulting Agreement.

RELATED PARTY LOANS

On December 31, 2005 we issued 50,000 shares of restricted common stock to
settle $6,250 in interest due on certain related party notes. The recipients are
sophisticated investors who have such knowledge and experience in financial,
investment and business matters that they are capable of evaluating the merits
and risks of the prospective investment in our securities. The recipients are
accredited investors. The issuance was exempt from registration under the
Securities Act in reliance on an exemption provided by Section 4(2) of the
Securities Act.

On June 28, 2005, the holder of certain related party notes exercised the
conversion feature at a conversion price of $0.125 per share. Accordingly, we
issued 400,000 shares of our restricted common stock and 400,000 warrants to
purchase shares of our restricted common stock at $.25 per share for conversion
of the principal balance of $50,000. We also issued an additional 35,770 shares
of our restricted common stock to settle $4,471 in interest due on these related
party notes. The issuance was exempt from registration under the Securities Act
in reliance on an exemption provided by Section 4(2) of the Securities Act.

EXERCISE OF STOCK OPTIONS

During fiscal year ended December 31, 2005, we issued an aggregate of 450,000
shares of our common stock pursuant to the exercise of 450,000 Stock Options.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussions of our results of operations and financial position,
as amended should be read in conjunction with the financial statements and notes
pertaining to them that appear elsewhere in this Form 10-KSB/A.

                                    Page 33
<PAGE>

RESTATEMENT

After reviewing certain accounting principles we had applied in previously
issued financial statements, management has determined that our accounting for
the embedded derivative option related to our debenture payable should have been
classified as a liability on the accompanying balance sheet and revalued at the
end of each period in accordance with SFAS No. 133 and EITF 00-19. Consequently,
we have restated our annual financial statements as of December 31, 2005 and for
year then ended. The change in presentation of the embedded derivative feature
associated with our debenture payable has the effect of increasing total assets
by $23,914, increasing liabilities by $136,176, increasing the stockholders'
deficit by $112,262 as of December 31, 2005, and increasing our net loss by
$49,762 for the year ended December 31, 2005. This change in presentation of the
embedded derivative feature affected some of the items within our consolidated
statement of cash flows for the year ended December 31, 2005 but did not impact
cash at the end of the year. Please see Note 14 - Restatement contained in the
Notes to Consolidated Financial Statements appearing later in this Form 10-KSB/A
which further describes the effect of this restatement. Results of Operations
and Liquidity and Capital Resources have been revised to reflect the effect of
this restatement.

RESULTS OF OPERATIONS

FOR FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2004

Our net losses during fiscal year ended December 31, 2005 were $764,484
compared to a net loss of $1,792,255 for fiscal year ended December 31, 2004
(a decrease of $1,027,771. During fiscal year ended December 31, 2005, we
generated $3,380,150 in revenues compared to $1,199,900 in revenues during
fiscal year ended December 31, 2004 (an increase of $2,180,250 or 181.7%). The
significant increase in revenues is due to the continued installation of our
software and/or hardware devices containing our software at the healthcare
provider's locations in Brazil. Upon installation, we begin the processing of
applications submitted by the healthcare provider for approval of patients for
healthcare services from the insurance carrier. We charge for these services on
a per transaction basis. We undertook approximately 6,500,000 "real time"
transactions during fiscal year 2005 compared to 2,800,000 "real time"
transactions during fiscal year 2004. At December 31, 2005, we had 5,350 MedLink
Solutions operational in Brazil, including 2,750 Point of Sales ("POS")
solutions.

During fiscal year ended December 31, 2005, we incurred operating expenses of
$3,543,534 compared to operating expenses of $2,326,063 during fiscal year ended
December 31, 2004 (an increase of $1,217,471 or 52.3%). The increase in
operating expenses during fiscal year ended December 31, 2005 from fiscal year
ended December 31, 2004 resulted from: (i) an increase of $910,337 or 78.0% in
cost of product support services resulting from the increase in net revenues;
(ii) an increase of $49,757 or 13.7% in payroll and related benefits due to an
increase in employees needed to handle our increased operations; (iii) an
increase of $143,980 or 23.2% in general and administrative expenses resulting
from increased operating costs associated with increased operations; (iv) an
increase of $194,300 or 345.7% in depreciation and amortization expense as a
result of an increase in property and equipment acquired for our TDS operations;
(v) an increase of $19,347 or 17.8% in investor relation fees attributable to an
increase in the use of investor relations services; and (vi) an increase of
$3,562 or 2.8% in professional fees related to legal fees associated with our
SEC filings.

Certain operating expenses, however, decreased during fiscal year ended December
31, 2005 from fiscal year ended December 31, 2004 as follows: (i) a decrease of
$103,812 or 30.6% in management fees - related parties, which is attributable to
a decrease in amounts paid to our management.

                                    Page 34
<PAGE>

We reported a loss from operations of ($163,384) for fiscal year ended December
31, 2005 as compared to a loss from operations of ($1,126,163) for fiscal year
ended December 31, 2004. Although there can be no assurances, we anticipate that
during fiscal year 2006, our ongoing marketing efforts and product roll-out will
result in an increase in our net sales from those reported during fiscal year
2005. To support these increased sales, we anticipate that our operating
expenses will also increase during fiscal year 2006 as compared to fiscal year
2005. We are, however, unable to predict at this time the amount of any such
increase in operating expenses.

Total other expenses decreased $64,991 or 9.8% for fiscal year ended December
31, 2005 as compared to fiscal year ended December 31, 2004. Included in this
change is: (i) a decrease in other income (expenses) of $69,139 or 135.3% during
fiscal year ended December 31, 2005 compared to fiscal year ended December 31,
2004, which results from income recognized during fiscal year ended December 31,
2004 upon settlement of accounts payable balances, which were settled for less
than the original obligation; (ii) a decrease of $109,338 or 15.7% in interest
expense for fiscal year ended December 31, 2005 compared to fiscal year ended
December 31, 2004 which reflects an increase in our borrowing during fiscal year
2005 offset by a decrease in interest expense recorded in connection with
warrants granted upon debt conversion;; (iii) an increase of $88,347 or 97.1% in
interest expense - related party during fiscal year ended December 31, 2005
compared to fiscal year ended December 31, 2004, which reflects an increase due
to the granting of warrants in connection with debt conversions and an increase
in our borrowing from related parties; and (iv) an increase of $43,304, or
210.5% in foreign exchange rate gains due to a favorable fluctuation in the
exchange rate between Brazil and the United States and (v) the recording of a
loss from derivative liability of $18,512 in 2005 related to our debenture
payable.

For the fiscal year ended December 31, 2005, our net loss was ($764,484) or
($0.03) per common share compared to a net loss of ($1,792,255) or ($0.10) per
common share for the fiscal year ended December 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

FOR FISCAL YEAR ENDED DECEMBER 31, 2005

For fiscal year ended December 31, 2005, net cash flow provided by operating
activities was $214,657 compared to $46,655 for fiscal year ended December 31,
2004. The change in cash flows provided by operating activities is mainly due to
the decrease in operating loss for fiscal year ended December 31, 2005.

Net cash flows used in investing activities amounted to ($662,355) during fiscal
year ended December 31, 2005 as compared to $490,334 for fiscal year ended
December 31, 2004, an increase of $172,021. During the year ended December 31,
2005, we capitalized software development costs and acquired equipment for our
hardware and software installations while in fiscal year ended December 31,
2004, these costs were less.

Net cash flows provided by financing activities during the fiscal year ended
December 31, 2005 were $526,524, resulting primarily from a loan and cash
advances from a related party of $85,000, net proceeds from convertible
debentures of $336,738 and proceeds from loans of $230,594, offset by the
repayment of capital lease obligations of $75,724 and related party advances and
loans of $50,084 compared to approximately $475,880 during fiscal year ended
December 31, 2004. The borrowings were used to fund operating activities.

In summary, based upon the cash flow activities as previously discussed, during
the fiscal year ended December 31, 2005, our overall cash position increased by
approximately $3,800.

                                    Page 35
<PAGE>

On January 13, 2006, we entered into an Investment Agreement with Cornell
Capital Partners, LP ("Cornell") pursuant to which we shall sell to Cornell up
to 16,000 shares of Series A Convertible Preferred Stock, no par value per
share, (the "Series A Preferred Shares") which shall be convertible, at
Cornell's discretion, into shares of our common stock, par value $.00001 per
share (the "Common Stock") for a total price of up to $1,600,000. The Series A
Preferred Shares are senior to all common stock and all series of preferred
stock of the Company. The holders of Series A Preferred Shares are entitled to
receive dividends or distributions on a pro rata basis in the amount of seven
(7) percent per year. Each share of Series A Preferred Shares can be converted
into shares of our common stock equal to the sum of the Liquidation Amount,
defined as an amount equal to $100 per share of Series A Preferred Shares, plus
accrued but unpaid dividends thereon, divided by the Conversion Price. The
Conversion Price is defined to be equal to the lower of (i) $0.192 or (ii) 80%
of the lowest daily volume weighted average price of our common stock, as
determined by price quotations from Bloomberg, LP, during the ten (10) trading
days immediately preceding the date of conversion. Of the 16,000 Series A
Preferred Shares to be sold to Cornell, 8,000 Series A Preferred Shares had a
purchase price of $800,000, which consists of $255,237 from the surrender of a
Promissory Note (as described below) and $544,763 consisting of new funding. The
purchase of the additional 8,000 Series A Preferred Shares, at the purchase
price of $800,000, shall close two (2) business days prior to the date that a
registration statement is filed with the United States Securities and Exchange
Commission In connection with the sale of the Series A Preferred Shares, on
January 13, 2006, the parties agreed that Cornell Capital Partners will
surrender the Promissory Note issued by us to Cornell on May 17, 2005, in the
principal amount of $255,237, in exchange for $255,237 of Series A Preferred
Shares. As of January 13, 2006, the full amount outstanding under the Promissory
Note was $255,237, plus accrued and unpaid interest of $0. As a result of the
parties' agreement, the Promissory Note was retired and canceled. The parties
also agreed to terminate the Securities Purchase Agreement and the Investor
Registration Rights Agreement, each dated as of October 25, 2004, as well as the
Pledge and Escrow Agreements, each dated as of October 21, 2004, that were
entered into by the parties in connection with the issuance of the Promissory
Note.

Certain negative covenants in the Investment Agreement could substantially
impact our ability to raise funds from alternative sources in the future. For
example, so long as any Series A Preferred Shares are outstanding, we shall not,
without the prior written consent of Cornell Capital Partners: (a) directly or
indirectly consummate any merger, reorganization, restructuring, reverse stock
split consolidation, sale of all or substantially all of our assets or any
similar transaction or related transactions; (b) incur any indebtedness for
borrowed money or become a guarantor or otherwise contingently liable for any
such indebtedness except for trade payables or purchase money obligations
incurred in the ordinary course of business; (c) file any other registration
statements on any form (including but not limited to forms S-1, SB-2, S-3 and
S-8); (d) issue or sell shares of common stock or preferred stock without
consideration or for a consideration per share less than the bid price of the
common stock determined immediately prior to its issuance or issue any preferred
stock, warrant, option, right, contract, call, or other security or instrument
granting the holder thereof the right to acquire common stock without
consideration or for a consideration per share less than the bid price of the
common stock determined immediately prior to the issuance of such convertible
security; or (e) enter into any security instrument granting the holder a
security interest in any and all of our assets.

                                    Page 36
<PAGE>

PLAN OF OPERATION

Since our inception, we have funded operations through short-term borrowings and
equity investments in order to meet our strategic objectives. Our future
operations are dependent upon external funding and our ability to increase
revenues and reduce expenses. Management believes that sufficient funding will
be available from additional related party borrowings and private placements to
meet our business objectives including anticipated cash needs for working
capital, for a reasonable period of time. However, there can be no assurance
that we will be able to obtain sufficient funds to continue the development of
our software products and distribution networks.

As of the date of this Annual Report, there is substantial doubt regarding our
ability to continue as a going concern as we have not generated sufficient cash
flow to fund our business operations and material commitments. Our future
success and viability, therefore, are dependent upon our ability to develop,
provide and market our information network solutions to healthcare providers,
health insurance companies and other end-users, and the continuing ability to
generate capital financing. We are optimistic that we will be successful in our
business operations and capital raising efforts; however, there can be no
assurance that we will be successful in generating revenue or raising additional
capital. The failure to generate sufficient revenues or raise additional capital
may have a material and adverse effect upon us and our shareholders.

We anticipate an increase in operating expenses over the next three years to pay
costs associated with such business operations. We must raise additional funds.
We may finance these expenses with further issuances of our Common Stock. We
believe that any anticipated private placements of equity capital and debt
financing, if successful, may be adequate to fund our operations over the next
twelve months. Thereafter, we expect we will need to raise additional capital to
meet long-term operating requirements. If we raise additional funds through the
issuance of equity or convertible debt securities other than to current
shareholders, the percentage ownership of our current shareholders would be
reduced, and such securities might have rights, preferences or privileges senior
to our existing Common Stock. In addition, additional financing may not be
available upon acceptable terms, or at all. If adequate funds are not available,
or are not available on acceptable terms, we may not be able to conduct our
business operations successfully, which could significantly and materially
restrict our overall business operations.

Based upon a twelve-month work plan proposed by management, it is anticipated
that such a work plan would require approximately $1,000,000 to $3,000,000 of
financing designed to fund various commitments and business operations. As of
the date of this Annual Report, we have entered into an Investment Agreement
with Cornell Capital Partners, pursuant to which we shall sell to Cornell
Capital up to 16,000 shares of Series A Preferred Stock, which shall be
convertible at Cornell Capital's discretion into shares of our common stock, for
a total price of up to $1,600,000.

We have also entered into a financing agreement with Scott and Heather Grimes,
Joint Tenants with Right of Survivorship (the "Investor"). Under the terms of
the financing arrangement with the Investor, we issued convertible debentures to
the Investor in the original principal amount of $250,000. The debentures are
convertible at the Investor's option any time up to maturity at a conversion
price equal to the lower of: (i) 120% of the closing bid price of our Common
Stock on the date of the debentures, or (ii) 80% of the lowest closing bid price
of our Common Stock for the five trading days immediately preceding the
conversion date. The debentures have a two-year term and accrue interest at 5%
per year. At maturity, the debentures will automatically convert into shares of
our Common Stock at a conversion price equal to the lower of: (i) 120% of the
closing bid price of our Common Stock on the date of the debentures, or (ii) 80%
of the lowest closing bid price on our Common Stock for five trading days
immediately preceding the conversion date.

                                    Page 37
<PAGE>

On February 1, 2006, we and the debenture holder mutually agreed to extend the
term of the debentures until December 1, 2007. In addition, we granted a warrant
to purchase 400,000 shares of the Company's common stock to the debenture
holder. The warrant has a term of 2 years and is exercisable at $0.20 per share.
We agreed to register 3,571,429 shares of our common stock underlying the
conversion of the Debentures and the exercise of the warrant not later than 30
days after we file this Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2005. The fair value of this warrant grant is estimated at $46,650
on the date of grant using the Black-Scholes option-pricing model. In connection
with these warrants, we will record interest expense of $46,650.

Certain negative covenants in the Securities Purchase Agreement could
substantially impact our ability to raise funds from alternative sources in the
future. For example, for as long as the convertible debenture remains
outstanding and without the written consent of the debenture holder, the Company
(a) shall not directly or indirectly consummate any merger, reorganization,
restructuring, reverse stock split consolidation, sale of all or substantially
all of the Company's assets or any similar transaction or related transactions;
(b) shall not issue or sell shares of common stock or preferred stock without
consideration or for a consideration per share less than the bid price of the
common stock determined immediately prior to its issuance or issue any warrant,
option, right, contract, call, or other security or instrument granting the
holder thereof the right to acquire common stock without consideration or for a
consideration per share less than the bid price of the common stock determined
immediately prior to the issuance of such convertible security; (c) shall not
enter into any security instrument granting the holder a security interest in
any or all assets of the Company; (d) shall not file any registration statement
on Form S-8 except the Company may file one registration statement on Form S-8
for up to 2,500,000 shares of common stock and provided however, anyone
receiving shares pursuant to such permitted Form S-8 registration shall be
restricted from selling such shares for a period of ninety (90) days after the
registration statement becomes effective and (e) shall not, and shall cause each
of its subsidiaries not to, enter into, amend, modify or supplement, or permit
any subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any of its
subsidiary's officers, directors, person who were officers or directors at any
time during the previous two years, stockholders who beneficially own five
percent (5%) or more of the Company's common stock, or Affiliates (as defined in
the Securities Purchase Agreement) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest,
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any investment in an Affiliate of the Company, (iii) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such related party and (iv) any agreement transaction,
commitment, or arrangement which is approved by a majority of the disinterested
directors of the Company.

We believe that we can satisfy our cash requirements for the next twelve months
based on our ability to enter into additional financing arrangements as
necessary. Our future success and viability are primarily dependent upon our
current management to generate revenues from business operations and raise
additional capital through further private offerings of our stock or loans from
private investors. There can be no assurance, however, that we will be able to
raise additional capital. Our failure to successfully raise additional capital
will have a material and adverse affect upon us and our shareholders.

                                    Page 38
<PAGE>

MATERIAL LIABILITIES

CONVERTIBLE LOANS

A significant and estimated material liability for us for fiscal year 2006 is
the aggregate principal amount of $175,000 and $21,621 in accrued interest due
and owing to a related party in accordance with two convertible promissory notes
(collectively, the Convertible Promissory Note(s)"). Previously, the aggregate
principal amounts of the Convertible Promissory Notes were $200,000 and
$100,000, respectively. During March 2005, we modified the terms of the
Convertible Promissory Notes: (i) $200,000 is due on March 31, 2007 and
convertible into shares of our common stock at $0.125 per share together with a
warrant per share to purchase our common stock at $0.25 per share for a period
of two years; and (ii) $100,000 is due on April 30, 2007 and convertible into
shares of our common stock at $0.125 per shares together with a warrant per
share to purchase our common stock at $0.25 per share for a period of two years.
On June 28, 2005 and September 30, 2005, the holders of the Convertible
Promissory Notes partially exercised the respective conversion rights. As at
December 31, 2005, an aggregate principal amount of $175,000 and interest in the
amount of $21,621 remains due and owing under the Convertible Promissory Notes.
See "Item 5. Market for Common Equity and Related Stockholder Matters - Recent
Sales of Unregistered Securities."

LOAN

A significant and estimated material liability for us for fiscal year 2006 is
the aggregate amount of $136,206 and $85,000 in principal due and owing to a
related party (collectively, the "Loan(s)"). The $136,206 Loan is evidenced by a
promissory note with an interest rate of 0.8% per month compounded monthly and
is repayable during March 2006. The $85,000 Loan is evidenced by a promissory
note with an interest rate of 9.6% per annum and is payable on demand. At
December 31, 2005, approximately $12,504 in interest was accrued on the Loans
and the aggregate principal amount of $221,206 is due and owing. During January
2006, we repaid the $85,000 loan and related interest

DEBENTURE

A significant and estimated material liability for us for fiscal year 2006 is
the aggregate amount of $250,000. On April 1, 2005, we entered into a financing
agreement with Scott and Heather Grimes, Joint Tenants with Right of
Survivorship (the "Investor"). Under the terms of the financing arrangement with
the Investor, we issued convertible debentures to the Investor in the original
principal amount of $250,000. The debentures are convertible at the Investor's
option any time up to maturity at a conversion price equal to the lower of: (i)
120% of the closing bid price of our common stock on the date of the debentures,
or (ii) 80% of the lowest closing bid price of our common stock for the five
trading days immediately preceding the conversion date. The debentures have a
two-year term and accrue interest at 5% per year. At maturity, the debentures
will automatically convert into shares of our common stock at a conversion price
equal to the lower of: (i) 120% of the closing bid price of our common stock on
the date of the debentures, or (ii) 80% of the lowest closing bid price on our
common stock for five trading days immediately preceding the conversion date.

ACCRUED TAXES AND RELATED EXPENSES

A significant and estimated material liability for us for fiscal year 2006 is
the aggregate amount of approximately $732,000 due and owing for Brazilian
payroll taxes and Social Security taxes.

                                    Page 39
<PAGE>

Effective April 1, 2004, we entered into a payment program with the Brazilian
authorities whereby the Social Security ("INSS") taxes due and applicable
penalties and interest will be repaid over a period of up to 60 months. The
payment program requires us to pay a monthly fixed amount of approximately
$9,000. We made the first payment as per the plan in April 2004 and have
continued to make the required payments. At December 31, 2005, approximately
$297,000 of our INSS tax are to be repaid over periods from 20-50 months. During
February 2006 we entered into a payment program for $30,000 of other taxes due
to be paid over a period of 60 months. Discussions are currently ongoing for us
to enter into a similar payment plan for approximately $213,000 of tax
liabilities.

PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any significant equipment during the next twelve
months with the exception of replacement and upgrading of hardware during the
normal course of business.

CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. These
estimates and assumptions are affected by management's applications of
accounting policies. Critical accounting policies for Transax International
Limited includes the useful live of property and equipment and accounting for
stock based compensation.

We review the carrying value of property and equipment for impairment at least
annually or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of long-lived
assets is measured by comparison of its carrying amount to the undiscounted cash
flows that the asset or asset group is expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property, if any, exceeds its fair
market value.

Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility of the software. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life, and changes in software and hardware technology. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years. We regularly
review the carrying value of software development assets and a loss is
recognized when the unamortized costs are deemed unrecoverable based on the
estimated cash flows to be generated from the applicable software.

Accounting for Stock Based Compensation - Effective January 1, 2006, we adopted
Statement of Financial Accounting Standards No.~123 (revised 2004), Share Based
Payment ("SFAS No.~123R"). SFAS No.~123R establishes the financial accounting
and reporting standards for stock-based compensation plans. As required by SFAS
No.~123R, we recognize the cost resulting from all stock-based payment
transactions including shares issued under its stock option plans in the
financial statements. The adoption of this pronouncement may have a material
effect on our results of operations.

                                    Page 40
<PAGE>

Revenue Recognition - Our revenues, which do not require any significant
production, modification or customization for the Company's targeted customers
and do not have multiple elements, is recognized when (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred; (3) the Company's fee is fixed
and determinable, and; (4) collectibility is probable.

Substantially all of our revenues are derived from the processing of
applications by healthcare providers for approval of patients for healthcare
services from insurance carriers. Our software or hardware devices containing
our software are installed at the healthcare provider's location. We offer
transaction services to authorize and adjudicate identity of the patient and
obtain "real time" approval for any necessary medical procedure from the
insurance carrier. Our transaction-based solutions provide remote access for
healthcare providers to connect with contracted insurance carriers. Transaction
services are provided through contracts with insurance carriers and others,
which specify the services to be utilized and the markets to be served. Our
clients are charged for these services on a per transaction basis. Pricing
varies depending type of transactions being processed under the terms of the
contract for which services are provided. Transaction revenues are recognized in
the period in which the transactions are performed.

OFF BALANCE SHEET ARRANGEMENTS

As of the date of this Annual Report, we do not have any off-balance sheet
arrangements that have or are reasonably like to have a current or future effect
on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. The term "off-balance sheet
arrangement" generally means any transaction, agreement or other contractual
arrangement to which an entity unconsolidated with us is a party, under which we
have: (i) any obligation arising under a guarantee contract, derivative
instrument or variable interest; or (ii) a retained or contingent interest in
assets transferred to such entity or similar arrangement that serves as credit,
liquidity or market risk support for such assets.

ITEM 7.  FINANCIAL STATEMENTS

The information required under Item 310(a) of Regulation S-B is included in this
report as set forth in the "Index to Financial Statement".

INDEX TO FINANCIAL STATEMENTS

   Report of Independent Auditors ...........................................F-2

   Consolidated Balance Sheet at December 31, 2005 ..........................F-3

   Consolidated Statements of Operations and Comprehensive Income for
   the years ended December 31, 2005 and 2004, and for the period
   from May 2, 1998 [Inception] to December 31, 2004 ........................F-4

   Consolidated Statements of Stockholders' Equity [Deficit] and for
   the period from May 2, 1998 [Inception] to December 31, 2005 .............F-5

   Consolidated Statements of Cash Flows for the years ended December
   31, 2005 and 2004, and for the period from May 2, 1998 [Inception]
   to December 31, 2005 .....................................................F-6

   Notes to the Consolidated Financial Statements ...................F-7 to F-34

                                    Page 41
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES.

None

ITEM 8A. CONTROLS AND PROCEDURES

FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES

We maintain "disclosure controls and procedures," as such term is defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"),
that are designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. We
conducted an evaluation (the "Evaluation"), under the supervision and with the
participation of our Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), of the effectiveness of the design and operation of our disclosure
controls and procedures ("Disclosure Controls") as of the end of the period
covered by this report pursuant to Rule 13a-15 of the Exchange Act.

Our management, including our CEO and CFO, do not expect that our disclosure
controls and internal controls will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving our objectives. Our certifying officers have concluded that our
disclosure controls and procedures were ineffective as at December 31, 2005.
However, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. It is our responsibility and that of our management to identify
any deficiencies in internal controls over financial reporting. We discovered
certain deficiencies in our internal control over financial reports, which
resulted in the restatement of our financial statements as discussed below. The
restatement was undertaken to properly reflect an embedded derivative conversion
liability related to our debentures payable in accordance with SFAS No. 133 and
EITF 00-19 after further consultation with our independent auditors.

We have implemented additional measures as part of changes to our internal
controls to determine and ensure that information required to be disclosed in
reports filed under the exchange Act was recorded, processed, summarized and
reported within the time periods specified in the rules and forms including, but
not limited to, the following: (i) engagement of a third party to assist us with
documenting processes, performing testing and reviewing our internal control
over financial reporting in connection with our assessment under Section 404 of
the Sarbanes-Oxley Act; (ii) evaluation and implementation of improvements to
our accounting and management information systems; and (iii) development and
implementation of a remediation plan to address any perceived deficiencies
identified by the Securities and Exchange Commission in our internal control
over financial reporting. The costs of these additional measures did not have a
material impact on our future results or operations liquidity.

                                    Page 42
<PAGE>
On July 6, 2006, we announced that we were restating our Consolidated Balance
Sheet at December 31, 2005 and our Consolidated Statement of Operation,
Consolidated Statement Of Stockholders' Deficit, and Consolidated Statement of
Cash Flows for the year ended December 31, 2005 to properly reflect a embedded
derivative conversion liability related to our debenture payable in accordance
with SFAS No. 133 and EITF 00-19. Consequently, management is restating its
annual financial statements as of December 31, 2005 and for the year then ended.
The change in presentation of the Company's embedded derivative feature
associated with our debenture payable has the effect of increasing total assets
by $23,914, increasing liabilities by $136,176, increasing the stockholders'
deficit by $112,262 as of December 31, 2005, and increasing our net loss by
$49,762 for the year ended December 31, 2005. This change in presentation of the
Company's embedded derivative feature affected some of the items within the
Company's consolidated statement of cash flows for the year ended December 31,
2005 but did not impact cash at the end of the year.

Our certifying officers have concluded that our disclosure controls and
procedures were ineffective as at December 31, 2005 related to the presentation
of derivative liabilities. However, we believe that the implementation of
changes to our internal controls and procedures as detailed above has corrected
this deficiency.

                                    Page 43
<PAGE>

Other than the changes related to the proper recording of a derivative liability
associated with a debenture payable, there were no changes in the Company's
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act with
respect to the fiscal year ended December 31, 2005 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management or board override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

ITEM 8B. OTHER INFORMATION

Not applicable.

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS AND EXCUTIVE OFFICERS

As of the date of this Annual Report, our directors and executive officers are
as follows:

         Name                          Age     Position
         ----                          ---     --------

         Stephen Walters               47      President/Chief Executive
                                               Officer and Director

         Laurie Bewes, BBA             53      Director

         David M. Bouzaid              50      Director

         Adam Wasserman                41      Chief Financial Officer

         David Sasso                   32      Vice-President Investor Relations

                                    Page 44
<PAGE>

BIOGRAPHIES OF OFFICERS AND DIRECTORS

STEPHEN WALTERS is our President/Chief Executive Officer and a director. Mr.
Walters currently is the President/Chief Executive Officer and a director of
Transax. Mr. Walters has more than 15 years of business experience in the
Asia-Pacific Region. He is responsible for corporate development initiatives
that have seen a successful restructuring of the predecessor company. Mr.
Walters is also the founder and principal of the Carlingford Group of companies
based in Singapore. In the past thirty six months, Mr. Walters has raised over
$6,000,000 for investment in promising early stage technology companies
principally from North America and to expand their operations to the
Asia-Pacific region through the establishment of joint ventures with strategic
partners and licensing arrangements. The Carlingford Group focuses on companies
in the biomedical, computer network and wireless telecommunications industries.
Mr. Walters possesses an in depth knowledge of the public markets having
previously acted as President and Chief Executive Officer of a US public
company. Mr. Walters currently is a director of a publicly traded company in
Canada.

LAURIE BEWES is one of our directors. Mr. Bewes currently is a director of
Transax. Mr. Bewes has a Bachelor of Business Administration (RMIT) and is a
member of the Australian Institute of Company Directors (MAICD). His business
background over the past 20 years includes joint ventures, business development,
mergers, infrastructure privatization and start-ups across South America
(Argentina and Brazil), Asia (Indonesia, Singapore and Malaysia) and
Australia/New Zealand. Mr. Bewes has worked in various senior executive
positions for companies such as P & O, ANL and TNT.

DAVID BOUZAID is one of our directors. Mr. Bouzaid currently is a director of
Transax. Mr. Bouzaid has accumulated 28 years' experience in the health
insurance industry within Asia and the Australasia region. Mr. Bouzaid
specializes in New Business Development within the health insurance industry and
over the past four years he has gained a wealth of experience in Global
Healthcare Insurance. Mr. Bouzaid is currently regional director (Asia-Pacific)
for Interglobal Insurance Services Ltd. based in Bangkok, Thailand.

ADAM WASSERMAN is our Chief Financial Officer. Mr. Wasserman has over fifteen
years of public and private market experience in financial reporting,
accounting, budgeting and planning, mergers and acquisitions, auditing,
automated systems, banking relations, internal control, and corporate
governance. Throughout his career, Mr. Wasserman has been an integral member of
executive management responsible for financial and accounting. Previously, Mr.
Wasserman was an audit manager of American Express Tax & Business in Ft.
Lauderdale, Florida. During his tenure as audit manager, Mr. Wasserman
successfully acted as an outsourced chief financial officer and advisor to a
diversified clientele in the wholesale, technology, distribution, medical,
retail and service industries in both the private and public sectors. His
responsibilities included supervising, training and evaluating senior staff
members, work paper review, auditing, maintaining client relations, preparation
of tax returns and preparation of financial statements and related footnotes.
Mr. Wasserman also has experience with filings under both the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, including
initial public offerings, annual reports, and quarterly reports. Mr. Wasserman
was also with Deloitte & Touche, LLP in New York City. Mr. Wasserman's
responsibilities at Deloitte & Touche, LLP included audits of public and private
companies, tax preparation and planning, management consulting, systems design,
staff instruction and recruiting. Mr. Wasserman holds a Bachelor of
Administration from the State University of New York at Albany in Albany, New
York. He is a Certified Public Accountant (New York) and a member of the
American Institute of Certified Public Accountants. Currently, Mr. Wasserman is
also a director and the treasurer of Gold Coast Venture Capital Club and a
former officer of Toastmasters International.

                                    Page 45
<PAGE>

DAVID SASSO is our Vice President Investor Relations . Mr. Sasso has over ten
years of public and private market experience in investor relations and
corporate governance. Throughout his career, Mr. Sasso has been an integral
member of executive management responsible for investor relations. Previously,
Mr. Sasso was the managing director of Marketing Services Group in New York
City, New York, as well as managing director of investor relations at KCSA
Public Relations Worldwide, representing several emerging growth companies.
Prior to KCSA Public Relations Worldwide, he was vice president at the Abernathy
MacGregor Group, a financial communications agency. Earlier in his career, Mr.
Sasso worked with Merrill Lynch in their worldwide headquarters. Mr. Sasso
earned a degree from the State University of New York at Albany, New York.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

As of the date of this Annual Report, none of our directors or executive
officers is or has been involved in any legal proceeding concerning (i) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (ii) any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses) within the past five years; (iii) being
subject to any order, judgment or decree permanently or temporarily enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law (and the judgment has
not been reversed, suspended or vacated).

AUDIT COMMITTEE

As of the date of this Annual Report, we have not appointed members to an audit
committee and, therefore, the respective role of an audit committee has been
conducted by our Board of Directors. When established, the audit committee's
primary function will be to provide advice with respect to our financial matters
and to assist our Board of Directors in fulfilling its oversight
responsibilities regarding finance, accounting, tax and legal compliance. The
audit committee's primary duties and responsibilities will be to: (i) serve as
an independent and objective party to monitor our financial reporting process
and internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our quarterly financial performance as
well as its compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide an open avenue of communication among the independent accountants,
management and our Board of Directors.

Our Board of Directors has considered whether the regulatory provision of
non-audit services is compatible with maintaining the principal independent
accountant's independence.

AUDIT COMMITTEE FINANCIAL EXPERT

As of the date of this Annual Report, our Board of Directors has determined that
we do not have an audit committee financial expert nor do we have an audit
committee.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and officers, and the persons who beneficially own more than ten
percent of our Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Copies of all filed

                                    Page 46
<PAGE>

reports are required to be furnished to us pursuant to Rule 16a-3 promulgated
under the Exchange Act. Based solely on the reports received by us and on the
representations of the reporting persons, we believe that these persons have
complied with all applicable filing requirements during the fiscal year ended
December 31, 2005.

ITEM 10. EXECUTIVE COMPENSATION

COMPENSATION OF OFFICERS AND DIRECTORS

As of the date of this Annual Report, certain of our executive officers are
compensated for their roles as executive officers. Officers and directors are
reimbursed for any out-of-pocket expenses incurred by them on behalf of us. None
of our directors or executive officers are party to written employment or
consulting agreements with us. We have, however, informal month-to-month verbal
agreements with certain executive officers. As of the date of this Annual
Report, Mr. Walters derives remuneration from us as compensation for consulting
services rendered, Mr. Wasserman derived remuneration from us as compensation
for financial services rendered, and since November 2005 Mr. Sasso derives
remuneration from us as compensation for investor service relations rendered.
See "Summary Compensation Table". We presently do not have any pension, health,
annuity, insurance, profit sharing or similar benefit plans.

WALTERS CONSULTING AGREEMENT

We entered into a verbal month-to-month consulting services agreement with
Stephen Walters, our President/Chief Executive Officer (the "Walters Consulting
Agreement"). Pursuant to the terms and provisions of the Walters Consulting
Agreement: (i) Mr. Walters provides managerial services to us; and (ii) Mr.
Walters shall be paid a monthly fee of $13,750.00 US Dollars for a potential
annual salary of $165,000.00, and reimbursement of expenses.

Mr. Walters derived remuneration from us as compensation under the terms and
provisions of the Walters Consulting Agreement. As at January 1, 2005, an
aggregate of $109,238 in consulting fees was due and owing to Mr. Walters.
During fiscal year ended December 31, 2005, $190,000 was incurred by us to Mr.
Walters for management and consulting services rendered, including a bonus of
$25,000. During fiscal year ended December 31, 2005, Mr. Walters was paid $-0-
by us for consulting fees. During fiscal year ended December 31, 2005, an
aggregate of $237,000 in accrued consulting fees was settled by us by the
issuance of 1,700,000 shares of our restricted common stock. At December 31,
2005, an aggregate of $177,799 remains due and owing to Mr. Walters.

BEWES CONSULTING AGREEMENT

We entered into a verbal month-to-month consulting services agreement with
Laurie Bewes, one of our directors (the "Bewes Consulting Agreement"). Pursuant
to the terms and provisions of the Bewes Consulting Agreement: (i) Mr. Bewes
agreed to provide managerial and developmental services to us; and (ii) Mr.
Bewes shall be paid a monthly fee of AUD $10,000 (USD approximately $6,600) for
a potential annual salary of AUD $120,000 (USD approximately $79,200) and
reimbursement of expenses.

Mr. Bewes derived remuneration from us as compensation under the terms and
provisions of the Bewes Consulting Agreement. As at January 1, 2005, an
aggregate of $10,565 in consulting fees was due and owing to Mr. Bewes. During
fiscal year ended December 31, 2005, $6,000 was incurred by us to Mr. Bewes for
consulting services rendered. During fiscal year ended December 31, 2005, Mr.
Bewes was paid $-0- by us for consulting fees. At December 31, 2005, an
aggregate of $10,565 remains due and owing to Mr. Bewes. In January 2006 this
amount was repaid.

                                    Page 47
<PAGE>

SASSO INVESTOR RELATIONS AGREEMENT

On January 17th 2006 we entered into a twelve month Consulting Agreement with
David Sasso for provision of Investor Relations services. Pursuant to the terms
of the Agreement Mr. Sasso is paid a monthly fee of $7,000. Mr. Sasso agreed to
act as our Vice President of Investor Relations and Corporate Communications.

WASSERMAN FINANCIAL SERVICES AGREEMENT

We entered into an engagement letter with Adam Wasserman. Pursuant to the terms
of this engagement Letter, Mr. Wasserman is paid a monthly retainer fee of
$2,500 plus hourly fees at a standard rate of $95 per hour for services
performed. Mr. Wasserman agreed to act as our Chief Financial Officer and
principal accounting office. During fiscal year ended December 31, 2005,
accounting fees amounted to $40,616 of which $17,149 remains due and owing to
Mr. Wasserman at December 31, 2005. In January and February 2006 we paid $15,000
of this balance to Mr. Wasserman.

DE CASTRO CONSULTING AGREEMENT

We entered into a consulting services agreement with Americo De Castro, an
executive officer of our subsidiary (the "De Castro Consulting Agreement").
Pursuant to the terms and provisions of the De Castro Consulting Agreement: (i)
Mr. De Castro agreed to provide technical, research and developmental services
to our subsidiary; and (ii) Mr. De Castro shall be paid a monthly fee of
$8,000.00 US Dollars for an aggregate annual salary of $96,000.00, and
reimbursement of expenses.

During fiscal year ended December 31, 2005 the consulting services agreement was
assigned to our Brazil subsidiary. An aggregate of $96,000 in fees was incurred
and paid to Mr. De Castro for services rendered.

SUMMARY COMPENSATION TABLE

The Summary Compensation Table below reflects those amounts received as
compensation by our executive officers and directors during fiscal years ended
December 31, 2002, 2003 and 2004 from us.

                                  ANNUAL COMPENSATION              LONG TERM
                                                                    COMPEN.
                            --------------------------------       ----------
                                                                   Securities
Name and                                                           Underlying
Principal Position          Year       Salary        Other          Options
------------------          ----       ------       --------       ----------
                                                       (1)
Stephen Walters             2005       0            $190,000        500,000
President and Chief         2004       0            $165,000        250,000
Executive Officer           2003       0            $132,000        750,000


Laurie Bewes                2005       0            $  6,000        225,000
                            2004       0            $ 25,600        125,000
                            2003       0            $      0        200,000

                                                       (1)
Adam Wasserman, Chief       2005       0            $ 40,616        150,000
Financial Officer
_________
(1) Pursuant to contractual arrangements, either verbal or written, between us
and the respective officer.

                                    Page 48
<PAGE>

STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR

OPTION/SAR GRANTS IN LAST FISCAL YEAR

                        Number of
                       Securities       Percent of Total   Exercise     Date of
Name               Underlying Options   Options Granted      Price    Expiration
---------------    ------------------   ----------------   --------   ----------
Stephen Walters           400,000                           $0.15     05/04/2010
                          100,000            41.66%          0.15     12/25/2010

Laurie Bewes              175,000                           $0.15     05/04/2010
                           50,000            18.75%          0.15     12/25/2010

David Bouzaid             175,000                           $0.15     05/04/2010
                           50,000            18.75%          0.15     12/25/2010

Adam Wasserman            150,000            12.50%         $0.15     05/04/2010


ITEM 11. SECURITY  OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT

As of the date of this Annual Report, there are 31,926,559 shares of Common
Stock issued and outstanding. The following table sets forth information as of
the date of this Annual Report concerning: (i) each person who is known by us to
own beneficially more than 5% of our outstanding Common Stock; (ii) each of our
executive officers, directors and key employees; and (iii) all executive
officers and directors as a group. Common Stock not outstanding but deemed
beneficially owned by virtue of the right of an individual to acquire shares
within sixty (60) days is treated as outstanding only when determining the
amount and percentage of Common Stock owned by such individual. Except as noted,
each person or entity has sole voting and sole investment power with respect to
the shares of Common Stock shown.

                                                         AMOUNT AND
                                                         NATURE OF
                 NAME AND ADDRESS OF                     BENEFICIAL   PERCENT OF
TITLE OF CLASS   BENEFICIAL OWNER                        OWNERSHIP      CLASS
--------------   ---------------------------             ----------   ----------

Common Stock     Stephen Walters               (1) (2)    3,434,819     10.56%
                 Bali View Block A4/7
                 Jl. Cirendeu Raya 46
                 Jakarta, 15419 Indonesia

Common Stock     Carlingford Investments Ltd   (1) (3)    8,718,788     25.81%
                 80 Raffles Place
                 #16-20 UOB Plaza II
                 Singapore 048624

Common Stock     Laurie Bewes                  (1) (4)    1,008,333      3.19%
                 429 Willarong Road
                 Caringbah, NSW,
                 Australia 2229


                                    Page 49
<PAGE>


Common Stock     David Sasso                   (1) (5)      150,000        NIL
                 1330 West Avenue #1703
                 Miami Beach, FL 33139

Common Stock     David Bouzaid                 (1) (6)      720,000      2.28%
                 Jl. Bangka Dalam 7/3A
                 Jakarta 12730 Indonesia

Common Stock     Adam Wasserman                (1) (7)      150,000        NIL
                 1643 Royal Grove Way
                 Weston, FL 33327

Common Stock     All Officers and Directors
                  as a group                       (8)   14,181,940     38.72%
_________
(1) These are restricted shares of Common Stock.

(2) This figure includes: (i) 1,934,819 shares of Common Stock held of record by
Mr. Walters; (ii) an assumption of the exercise by Mr. Walters of 750,000 Stock
Options granted to Mr. Walters to acquire 750,000 shares of common stock at
$0.50 per share expiring on August 14, 2008; (iii) an assumption of the exercise
by Mr. Walters of 250,000 Stock Options to acquire 250,000 shares of common
stock at $0.20 per share expiring on December 30, 2009; (iv) an assumption of
the exercise by Mr. Walters of 400,000 Stock Options to acquire 400,000 shares
of common stock at $0.15 per share expiring on May 4, 2010; (v) an assumption of
the exercise by Mr. Walters of 100,000 Stock Options to acquire 100,000 shares
of common stock at $0.15 per share expiring on December 25, 2010. As of the date
of this Annual Report, no Stock Options have been exercised.

(3) This figure includes: (i) 5,970,455 shares of common stock held of record by
Carlingford Investments Limited, over which Mr. Walters has sole voting and
disposition rights; (ii) an assumption of the exercise by Carlingford
Investments Limited of an aggregate of 2,700,000 warrants held of record by
Carlingford Investments Limited, over which Mr. Walters has sole voting and
disposition rights, into 2,700,000 shares of Common Stock at a price of $1.00
per share expiring on August 14, 2008; and (iii) an assumption of the exercise
by Carlingford Investments Limited of an aggregate of 48,333 warrants held of
record by Carlingford Investments Limited, over which Mr. Walters has sole
voting and disposition rights, into 48,333 shares of Common Stock at a price of
$0.20 per share expiring on September 29, 2009. As of the date of this Annual
Report, no Warrants have been exercised.

(4) This figure includes: (i) 458,333 shares of common stock held of record;
(ii) an assumption of the exercise by Mr. Bewes of 200,000 Stock Options to
acquire 200,000 shares of common stock at $0.50 per share expiring on August 14,
2008; (iii) an assumption of the exercise by Mr. Bewes of 125,000 Stock Options
to acquire 125,000 shares of common stock at $0.20 per share expiring on
December 30, 2009; (iv) an assumption of the exercise by Mr. Bewes of 175,000
Stock Options to acquire 175,000 shares of common stock at $0.15 per share
expiring on May 4, 2010; and (v) an assumption of the exercise by Mr. Bewes of
50,000 Stock Options to acquire 50,000 shares of common stock at $0.15 per share
expiring on Decmebr 25, 2010. As of the date of this Annual Report, no Stock
Options have been exercised.

                                    Page 50
<PAGE>

(5) This figure includes: (i) 50,000 shares of common stock held of record; and
(ii) an assumption of the exercise by Mr. Sasso of 100,000 Stock Options to
acquire 100,000 shares of common stock at $0.15 per share expiring on February
5, 2011.

(6) This figure includes: (i) 170,000 shares of Common Stock held of record; and
(ii) an assumption of the exercise by Mr. Bouzaid of 200,000 Stock Options to
acquire 200,000 shares of common stock at $0.50 per share expiring on August 14,
2008; (iii) an assumption of the exercise by Mr. Bouzaid of 125,000 Stock
Options to acquire 125,000 shares of common stock at $0.20 per share expiring on
December 30, 2009; (iv) an assumption of the exercise by Mr. Bouzaid of 175,000
Stock Options to acquire 175,000 shares of common stock at $0.15 per share
expiring on May 4, 2010; and (v) an assumption of the exercise by Mr. Bouzaid of
50,000 Stock Options to acquire 50,000 shares of common stock at $0.15 per share
expiring on December 25, 2010.

(7) This figure includes an assumption of the exercise by Mr. Wasserman of
150,000 Stock Options to acquire 150,000 shares of common stock at $0.15 per
share expiring on May 4, 2010.

(8) This figure includes: (i) 8,583,607 shares of common stock held of record;
(ii) an assumption of the exercise of an aggregate of 2,748,333 Warrants to
acquire 2,748,333 shares of Common Stock; and (iii) an assumption of the
exercise of an aggregate of 2,850,500 Stock Options to acquire 2,850,000 shares
of common stock.

There are no arrangements or understandings among the entities and individuals
referenced above or their respective associates concerning election of directors
or any other matters which may require shareholder approval.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

With the exception of the current month-to-month contractual relations between
us and certain of our executive officers as described above, as of the date of
this Annual Report, we have not entered into any contractual arrangements with
related parties other than those transactions resulting primarily from advances
made by related parties to us. Our Board of Directors has not adopted or
approved any policy regarding possible future transactions with related third
parties.

Our executive officers and directors may be engaged in other businesses, either
individually or through partnerships and corporations in which they may have an
interest, hold an office or serve on the boards of directors. Our executive
officers and directors may have other business interests to which they may
devote a portion of their time. Certain conflicts of interest, therefore, may
arise between us and our executive officers and directors. Such conflicts can be
resolved through the exercise by such executive officers and directors of
judgment consistent with their fiduciary duties to us. Our executive officers
and directors intend to resolve such conflicts in the best interests of us.
Moreover, the executive officers and directors will devote his time to our
affairs as they deem necessary.

                                    Page 51
<PAGE>

INDEMNIFICATION PROVISIONS

Under Section 7-109-102 of the Colorado Business Corporations Act (the "Colorado
Act") a corporation may indemnify a person made a party to a proceeding because
the person is or was a director, against liability incurred in the proceeding.
Indemnification permitted under this section in connection with a proceeding by
or in the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.

Indemnification is only possible under this section 7-109-102, however, if: (a)
the person conducted him/herself in good faith; and (b) the person reasonably
believed: (i) in the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best interests;
and (ii) in all other cases, that his or her conduct was at least not opposed to
the corporation's best interests; and (c) in the case of any criminal
proceeding, the person had no reasonable cause to believe his or her conduct was
unlawful. It should be noted, however, that under Section 7-109-102(4), a
corporation may not indemnify a director: (i) in connection with a proceeding by
or in the right of the corporation in which the director is adjudged liable to
the corporation; or (ii) in connection with any other proceeding in which a
director is adjudged liable on the basis that he or she derived improper
personal benefit.

Under Section 7-109-103 a director is entitled to mandatory indemnification,
when he/she is wholly successful in the defense of any proceeding to which the
person was a party because the person is or was a director, against reasonable
expenses incurred in connection to the proceeding.

Under Section 7-109-105, unless restricted by a corporation's Articles of
Incorporation, a director who is or was a party to a proceeding may apply for
indemnification to a court of competent jurisdiction. The court, upon receipt of
the application, may order indemnification after giving any notice the court
considers necessary. The court, however, is limited to awarding the reasonable
expenses incurred in connection with the proceeding and reasonable expenses
incurred to obtain court-ordered indemnification.

Under Section 7-109-107, unless restricted by the corporation's Articles of
Incorporation, an officer of a corporation is also entitled to mandatory
indemnification and to apply for court-ordered indemnification to the same
extent as a director. A corporation may also indemnify an officer, employee,
fiduciary or agent of the corporation to the same extent as a director.

Under Section 7-109-108 a corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary or
agent of the corporation against liability asserted against or incurred by the
person in that capacity, whether or not the corporation would have the power to
indemnify such person against the same liability under other sections of the
Colorado Act.

                                    Page 52
<PAGE>

Our officers and directors are accountable to our shareholders as fiduciaries,
which means such officers and directors are required to exercise good faith and
integrity in handling our affairs. A shareholder may be able to institute legal
action on behalf of himself and all other similarly situated shareholders to
recover damages where we have failed or refused to observe the law. Shareholders
may, subject to applicable rules of civil procedure, be able to bring a class
action or derivative suit to enforce their rights, including rights under
certain federal and state securities laws and regulations. Shareholders who have
suffered losses in connection with the purchase or sale of their equity interest
due to a breach of a fiduciary duty by one of our officers or directors in
connection with such sale or purchase including, but not limited to, the
misapplication by any such officer or director of the proceeds from the sale of
any securities, may be able to recover such losses from us. We may not be liable
to its shareholders for errors in judgment or other acts or omissions not
amounting to intentional acts.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by one of our directors, officers or controlling
persons in the successful defense or any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

We have has no agreements with any of our directors or executive officers
providing for indemnification of any such persons with respect to liability
arising out of their capacity or status as officers and directors.

At present, there is no pending litigation or proceeding involving any of our
directors or executive officers as to which indemnification is being sought.

ITEM 13. Exhibits.

         (a) The following exhibits are filed as part of this Annual Report:

         10.1     2004 Stock Option Plan effective January 1, 2004, incorporated
                  by reference to exhibit 10.2 filed with Form 10-KSB for fiscal
                  year ended December 31, 2004 on April 18, 2005.

         10.2     Investment Agreement dated as of January 13, 2006 by and
                  between Transax International Ltd. and Cornell Capital
                  Partners LP, incorporated by reference to Exhibit 10.1 filed
                  with Form 8-K on January 20, 2006.

         10.3     Investor Registration Rights Agreement dated as of January 13,
                  2006 by and between Transax International Ltd. and Cornell
                  Capital Partners LP, incorporated by reference to Exhibit 10.2
                  filed with Form 8-K on January 20, 2006.

         10.4     Certificate of Designation of Series A Convertible Preferred
                  Stock of Transax International Ltd., incorporated by reference
                  to Exhibit 10.3 filed with Form 8-K on January 20, 2006.

                                    Page 53
<PAGE>

         10.5     Warrant dated as of January 13, 2006 issued to Cornell Capital
                  Partners LP, incorporated by reference to Exhibit 10.4 filed
                  with Form 8-K on January 20, 2006.

         10.6     Warrant dated as of January 13, 2006 issued to Cornell Capital
                  Partners LP, incorporated by reference to Exhibit 10.5 filed
                  with Form 8-K on January 20, 2006.

         10.7     Escrow Agreement dated January 13, 2006 by and among Transax
                  International Ltd., Cornell Capital Partners LP and David
                  Gonzales, Esq., incorporated by reference to Exhibit 10.6
                  filed with Form 8-K on January 20, 2006.

         10.8     Irrevocable Transfer Agent Instructions dated as of January
                  13, 2006 by and between Transax International Ltd. and Cornell
                  Capital Partners LP, incorporated by reference to Exhibit 10.7
                  filed with Form 8-K on January 20, 2006.

         10.9     Letter from Cornell Capital Partners LP regarding the
                  surrender of a Promissory Note, incorporated by reference to
                  Exhibit 10.8 filed with Form 8-K on January 20, 2006.

         10.10    Termination Agreement dated as of January 13, 2006 by and
                  between Transax International Ltd. and Cornell Capital
                  Partners LP, incorporated by reference to Exhibit 10.9 filed
                  with Form 8-K on January 20, 2006.

         10.11    Investor Relations Agreement between Transax International
                  Limited and David Sasso dated January 17, 2006, filed
                  herewith.

         10.12    Consulting Agreement between Transax International Limited and
                  Geoff Eiten dated July 15, 2005, filed herewith.

         10.13    Consulting Services Agreement between Transax International
                  Limited and Aiden Capital Management dated March 21, 2005,
                  filed herewith.

         10.14    Consulting Agreement between Transax International Limited and
                  Mirador Consulting Inc. dated January 14, 2005, filed
                  herewith.

         31.1     Certification of Chief Executive Officer Pursuant to Rule
                  13a-14(a) or 15d-14(a).

         31.2     Certification of Chief Financial Officer Pursuant to Rule
                  13a-14(a) or 15d-14(a).

         32.1     Certifications Under Section 1350 as Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act.

         32.2     Certifications Under Section 1350 as Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act.

                                    Page 54
<PAGE>

ITEM 14. Professional Accountant Fees and Services

AUDIT FEES

During fiscal year ended December 31, 2005, we incurred approximately $43,000 in
fees to our principal independent accountant for professional services rendered
in connection with preparation and audit of our financial statements for fiscal
year ended December 31, 2005 and for the review of our financial statements for
the fiscal quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

During fiscal year ended December 31, 2005, we did not incur any fees for
professional services rendered by our principal independent accountant for
certain information technology services which may include, but is not limited
to, operating or supervising or managing our information or local area network
or designing or implementing a hardware or software system that aggregate source
data underlying the financial statements.

ALL OTHER FEES

During fiscal year ended December 31, 2005, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.

SIGNATURES
----------

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        TRANSAX INTERNATIONAL LIMITED

Dated: October 13, 2006                 By: /s/ Stephen Walters
                                            -------------------
                                            Stephen Walters,
                                            President/Chief Executive Officer


Dated: October 13, 2006                 By: /s/ Adam Wasserman
                                            ------------------
                                            Adam Wasserman,
                                            Chief Financial Officer


                                    Page 55
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                    CONTENTS


Report of Independent Registered Public Accounting Firm......................F-2

 Consolidated Financial Statements:

     Consolidated Balance Sheet..............................................F-3

     Consolidated Statements of Operations and Comprehensive Income..........F-4

     Consolidated Statements of Changes in Stockholders' Deficit.............F-5

     Consolidated Statements of Cash Flows...................................F-6

 Notes to Consolidated Financial Statements..........................F-7 to F-37


                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders'
of Transax International Limited.

We have audited the accompanying consolidated balance sheet of Transax
International Limited and Subsidiaries as of December 31, 2005 and the related
consolidated statements of operations and comprehensive income, stockholders'
deficit, and cash flows for each of the two years in the period then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amount and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transax
International Limited and Subsidiaries as of December 31, 2005 and the results
of their operations and their cash flows for each of the two years in the period
then ended in conformity with accounting principles generally accepted in the
United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has accumulated losses from
operations of approximately $9.2 million, a working capital deficiency of
approximately $2.1 million and a net capital deficiency of approximately $1.6
million at December 31, 2005. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As described in Note 14 to the consolidated financial statements, the Company
restated its consolidated financial statements as of and for the year ended
December 31, 2005.

                                        Moore Stephens, P.C.
                                        Certified Public Accountants

New York, New York
March 24, 2006, except for Note 14
as to which the date is June 26, 2006.

                                       F-2
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2005
                          (As Restated - See Note 14)

                                     ASSETS

CURRENT ASSETS:
  Cash ...........................................................  $     7,875
  Accounts receivable (Net of allowance for doubtful
   accounts of $0) ...............................................      321,240
  Prepaid expenses and other current assets ......................      165,129
                                                                    -----------

     TOTAL CURRENT ASSETS ........................................      494,244

SOFTWARE DEVELOPMENT COSTS, net ..................................      325,564
PROPERTY AND EQUIPMENT, net ......................................      647,534
DEFERRED DEBT OFFERING COSTS .....................................      223,914
OTHER ASSETS .....................................................        2,400
                                                                    -----------

     TOTAL ASSETS ................................................  $ 1,693,656
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Current portion of capital lease obligation ....................  $    16,289
  Current portion of loan payable ................................      546,742
  Accounts payable and accrued expenses ..........................    1,340,906
  Due to related parties .........................................      228,932
  Loan payable - related party ...................................      233,710
  Convertible loans from related party ...........................      196,621
                                                                    -----------

     TOTAL CURRENT LIABILITIES ...................................    2,563,200

DEBENTURE PAYABLE, NET OF UNAMORTIZED DISCOUNT OF $156,250 .......       93,750
CONVERSION FEATURE LIABILITY .....................................      268,512
ACCOUNTS PAYABLE AND ACCRUED EXPENSES, net of current portion ....      395,834
                                                                    -----------

     TOTAL LIABILITIES ...........................................    3,321,296
                                                                    -----------

STOCKHOLDERS' DEFICIT:
  Preferred stock $.0001 par value; 20,000,000 shares authorized;
  No shares issued and outstanding ...............................            -
  Common stock $.00001 par value; 100,000,000 shares authorized;
  31,640,949 shares issued and outstanding .......................          316
  Paid-in capital ................................................    7,602,313
  Accumulated deficit ............................................   (9,244,420)
  Other comprehensive income - Cumulative foreign currency
   translation adjustment ........................................       14,151
                                                                    -----------

     TOTAL STOCKHOLDERS' DEFICIT .................................   (1,627,640)
                                                                    -----------

     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .................  $ 1,693,656
                                                                    ===========

              The accompanying notes are an integral part of these
                    audited consolidated financial statements

                                       F-3
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                          (As Restated - See Note 14)

                                                 FOR THE YEAR ENDED DECEMBER 31,
                                                     2005               2004
                                                 ------------      ------------

REVENUES ...................................     $  3,380,150      $  1,199,900
                                                 ------------      ------------

OPERATING EXPENSES:
  Cost of product support services .........        1,620,730           710,393
  Payroll and related benefits .............          414,222           364,465
  Professional fees ........................          130,936           127,374
  Management fees - related parties ........          235,081           338,893
  Investor relations .......................          128,332           108,985
  Depreciation and amortization ............          250,511            56,211
  General & administrative .................          763,722           619,742
                                                 ------------      ------------

     TOTAL OPERATING EXPENSES ..............        3,543,534         2,326,063
                                                 ------------      ------------

LOSS FROM OPERATIONS .......................         (163,384)       (1,126,163)
                                                 ------------      ------------

OTHER INCOME (EXPENSES):
  Other income (expense) ...................          (18,044)           51,095
  Foreign exchange gain (loss) .............           22,734           (20,570)
  Loss on derivative liability .............          (18,512)
  Interest expense .........................         (407,976)         (605,661)
  Interest expense - related party .........         (179,303)          (90,956)
                                                 ------------      ------------

     TOTAL OTHER EXPENSES ..................         (601,101)         (666,092)
                                                 ------------      ------------

NET LOSS ...................................         (764,484)       (1,792,255)

OTHER COMPREHENSIVE INCOME  (LOSS):
  Unrealized foreign currency
   translation gain (loss) .................           76,803          (117,328)
                                                 ------------      ------------

COMPREHENSIVE LOSS .........................     $   (687,681)     $ (1,909,583)
                                                 ============      ============

NET LOSS PER COMMON SHARE:
BASIC AND DILUTED ..........................     $      (0.03)     $      (0.10)
                                                 ============      ============

WEIGHTED AVERAGE SHARES OUTSTANDING
 - BASIC AND DILUTED .......................       30,008,516        17,879,799
                                                 ============      ============

              The accompanying notes are an integral part of these
                    audited consolidated financial statements

                                       F-4
<PAGE>
<TABLE>
                                          TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                          For the Years Ended December 31, 2005 and 2004
                                                   (As Restated - See Note 14)

<CAPTION>
                                                                                                      Accumulated      Total
                          Common Stock                                                                   Other      Stockholders'
                       -------------------      Share        Paid-in     Accumulated     Deferred    Comprehensive     Equity
                         Shares     Amount  Subscriptions    Capital       Deficit     Compensation  Income (Loss)    [Deficit]
                       ----------   ------  -------------  -----------   -----------   ------------  -------------  -------------
<S>                    <C>          <C>       <C>          <C>           <C>             <C>           <C>           <C>
BALANCE,
DECEMBER 31, 2003 .... 14,029,647   $ 141     $ 421,293    $ 4,590,094   $(6,687,681)    $      -      $  54,676     $(1,621,477)

Issuance of stock for
settlement of share
subscriptions ........  1,168,570      12      (421,293)       421,281             -            -              -               -

Common stock issued for
debt ................. 10,147,881     101             -      1,107,253             -            -              -       1,107,354

Common stock issued
for services .........  2,163,334      21             -        222,979             -            -              -         223,000

Cancellation of
previously issued
shares ...............   (300,000)     (3)            -        (74,997)            -            -              -         (75,000)

Common stock issued in
connection with
financing arrangements  1,327,779      13             -         94,182             -      (94,195)             -               -

Stock options and
warrants granted .....          -       -             -        502,369             -            -              -         502,369

Beneficial conversion           -       -             -         31,250             -            -              -          31,250

Comprehensive Loss:
  Net loss for period           -       -             -              -    (1,792,255)           -              -               -
  Foreign currency
    translation
    adjustments ......          -       -             -              -             -            -       (117,328)              -
  Total comprehensive
    loss .............          -       -             -              -             -            -              -      (1,909,583)
                       ----------   -----     ---------    -----------   -----------     --------      ---------     -----------

BALANCE,
DECEMBER 31, 2004 .... 28,537,211     285             -      6,894,411    (8,479,936)     (94,195)       (62,652)     (1,742,087)

Common stock issued for
debt .................  1,163,738      12             -        145,455             -            -              -         145,467

Common stock issued
for services .........  2,140,000      21             -        306,978             -      (21,333)             -         285,666

Stock warrants granted
upon debt conversion .          -       -             -        129,745             -            -              -         129,745

Cancellation of shares   (200,000)     (2)            -        (21,331)            -       21,333              -               -

Beneficial conversion           -       -             -         93,750             -            -              -          93,750

Reclassification and
recalculation of
deferred offering
costs ................          -       -             -        115,805             -       84,195              -         200,000

Amortization of
deferred compensation           -       -             -              -             -       10,000              -          10,000

Comprehensive Loss:
   Net loss for period          -       -             -              -      (764,484)           -              -               -
   Foreign currency
     translation
     adjustments .....          -       -             -              -             -            -         76,803               -
   Total comprehensive
     loss ............          -       -             -              -             -            -              -        (687,681)
                       ----------   -----     ---------    -----------   -----------     --------      ---------     -----------
BALANCE,
DECEMBER 31, 2005 .... 31,640,949   $ 316     $       -    $ 7,664,813   $(9,244,420)    $      -      $  14,151     $(1,627,640)
                      ===========   =====     =========    ===========   ===========     ========      =========     ===========

                                       The accompanying notes are an integral part of these
                                            audited consolidated financial statements

                                                               F-5
</TABLE>
<PAGE>
<TABLE>
                      TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (As Restated - See Note 14)

<CAPTION>
                                                                      For the Year
                                                                     Ended December 31,
                                                                -------------------------
                                                                    2005         2004
                                                                -----------   -----------
<S>                                                             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .....................................................  $  (764,484)  $(1,792,255)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Depreciation and amortization ...........................      250,512        56,211
     Amortization of software maintenance costs ..............      153,884        83,829
     Beneficial interest .....................................       31,250        31,250
     Stock-based compensation and consulting .................      295,666       182,900
     Grant of warrants in connection with debt conversion ....      129,745       467,469
     Amortization of deferred debt issuance costs ............       14,348             -
     Amortization of discount on debenture payable............       93,750             -
     Loss on derivative liability ............................       18,512             -

Changes in assets and liabilities:
     Accounts receivable .....................................     (151,042)     (170,198)
     Prepaid expenses and other current assets ...............     (113,582)      (25,916)
     Other assets ............................................       (2,400)            -
     Accounts payable and accrued expenses ...................      217,281       249,393
     Accrued interest payable, related party .................       26,096        92,573
     Accrued interest payable ................................       14,655             -
     Due to related parties ..................................       (2,311)      478,333
     Accounts payable and accrued expenses  - long-term ......        2,769       393,066
                                                                -----------   -----------

NET CASH PROVIDED BY OPERATING ACTIVITIES ....................      214,649        46,655
                                                                -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capitalized software development costs .....................     (236,404)     (216,537)
  Acquisition of property and equipment ......................     (425,951)     (195,052)
                                                                -----------   -----------

NET CASH USED IN INVESTING ACTIVITIES ........................     (662,355)     (411,589)
                                                                -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Advances from related party ................................            -        82,500
  Advances from non-related company ..........................            -       114,000
  Repayment of advances from related party ...................      (35,000)            -
  Repayments under capital lease obligations .................      (75,724)       32,714
  Proceeds from convertible debenture ........................      336,738       125,000
  Proceeds from loan payable .................................      230,594        60,911
  Proceeds from loan - related party .........................       85,000       139,500
  Repayment of from loan - related party .....................      (15,084)            -
                                                                -----------   -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES ....................      526,524       475,880
                                                                -----------   -----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................      (75,033)     (117,328)
                                                                -----------   -----------

NET INCREASE (DECREASE) IN CASH ..............................        3,785        (6,382)

CASH, BEGINNING OF YEAR ......................................        4,090        10,472
                                                                -----------   -----------

CASH, END OF YEAR ............................................  $     7,875   $     4,090
                                                                ===========   ===========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest .....................................  $    20,188   $    96,000
                                                                ===========   ===========
  Cash paid for income taxes .................................  $         -   $         -
                                                                ===========   ===========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Common stock issued for debt and accrued interest ..........  $   256,717   $ 1,107,354
                                                                ===========   ===========
  Common stock issued for services ...........................  $   295,666   $   182,900
                                                                ===========   ===========
  Grant of common stock warrants in connection debt conversion  $   129,745   $   467,469
                                                                ===========   ===========
  Equipment acquired under capital leases ....................  $         -   $    78,745
                                                                ===========   ===========

                   The accompanying notes are an integral part of these
                         audited consolidated financial statements

                                            F-6
</TABLE>
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

         Transax International Limited ("TNSX" or the "Company") (formerly
Vega-Atlantic Corporation) was incorporated in the State of Colorado in 1999.
The Company currently trades on the OTC Bulletin Board under the symbol "TNSX"
and the Frankfurt and Berlin Stock Exchanges under the symbol "TX6".

         On June 19, 2003, as amended on July 22, 2003 and effective August 14,
2003, the Company entered into a Merger Agreement (referred to as the
"Agreement" or the "Merger") with Transax Limited ("Transax"), a Colorado
private corporation, whereby the Company issued 11,066,207 restricted common
shares of the Company in exchange for all of its outstanding shares of Transax.
For financial accounting purposes, the exchange of stock was treated as a
recapitalization of Transax with the former shareholders of the Company
retaining 1,406,710, or approximately 11%, of the outstanding stock. The
stockholders' equity section reflects the change in the capital structure of
Transax due to the recapitalization.

         On August 8, 2003, the shareholders of both TNSX and Transax held
meetings. TNSX's shareholders approved the following ratifications: (i) name
change from Vega-Atlantic Corporation to Transax International Limited; (ii) the
Stock Option Plan, and; (iii) the reverse Stock Split. Moreover, on August 8,
2003, the shareholders of Transax approved the terms and conditions of the
Agreement in Principle and of the Merger Agreement.

         Pursuant to the terms of the Merger Agreement and a corresponding
contribution agreement, Transax has contributed to the Company 4,500,000 stock
options and 4,100,000 share purchase warrants. Pursuant to further terms of the
Agreement, the Company; (i) exchanged with the Transax option holders an
aggregate of 4,500,000 stock options to acquire up to 4,500,000 shares of TNSX's
common stock to replace all stock options outstanding in Transax; and (ii)
exchanged with the Transax warrant holders an aggregate of 4,100,000 share
purchase warrants to acquire up to 4,100,000 shares of TNSX's common stock to
replace all share purchase warrants that were outstanding in Transax.

         The Company, primarily through its wholly-owned subsidiary TDS
Telecommunication Data Systems Ltda. ("TDS"), is an international provider of
information network solutions specifically designed for healthcare providers and
health insurance companies. The MedLink Solution (TM) enables the real time
automation of routine patient eligibility, verification, authorizations, claims
processing and payment functions. The Company has offices located in Miami,
Florida, and Rio de Janeiro, Brazil.

                                       F-7
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of presentation

         The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America. The
consolidated financial statements include the Company and its wholly-owned
subsidiaries, Transax Limited, TDS Telecommunication Data Systems Ltda., Transax
(Australia) Pty Ltd., and Medlink Technologies, Inc. All material intercompany
balances and transactions have been eliminated in the consolidated financial
statements.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Estimates
used in the preparation of the accompanying financial statements include the
allowance for doubtful accounts receivable, the useful lives of property,
equipment and software development costs and variables used to determine
stock-based compensation.

Fair Value of Financial Instruments

         The fair value of our cash and cash equivalents, accounts receivable,
debenture and loans payable, accounts payable and accrued expenses approximate
carrying values due to their short maturities. The fair value of our debt
instruments approximate their carrying values based on rates currently available
to us.

Concentrations of Credit Risk

         Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash and accounts
receivable.

         The Company performs certain credit evaluation procedures and does not
require collateral for financial instruments subject to credit risk. The Company
believes that credit risk is limited because the Company routinely assesses the
financial strength of its customers, and based upon factors surrounding the
credit risk of its customers, establishes an allowance for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit
risk exposure beyond such allowances is limited.

                                       F-8
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentrations of Credit Risk (continued)

         The Company recognizes an allowance for doubtful accounts to ensure
accounts receivable are not overstated due to uncollectibility and are
maintained for all customers based on a variety of factors, including the length
of time the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded when the
Company becomes aware of a customer's inability to meet its financial
obligation, such as in the case of bankruptcy filings or deterioration in the
customer's operating results or financial position. If circumstances related to
customers change, estimates of the recoverability of receivables would be
further adjusted. As of December 31, 2005, the allowance for doubtful accounts
was $0.

         The Company's principal business activities are located in Brazil.
Although Brazil is considered to be economically stable, it is always possible
that unanticipated events in foreign countries could disrupt the Company's
operations.

         The Company had net revenues to 2 major customers during each of the
years ended December 31, 2005 and 2004. These revenues accounted for
approximately 94%, or $3,100,000 and 91% or $1,100,000 of the total revenues for
the years 2005 and 2004, respectively. In 2005, these 2 major customers
accounted for 50% and 44% of net revenues, respectively. At December 31, 2005,
these 2 major customers accounted for 52% and 40%, respectively, of the total
accounts receivable balance outstanding.

         The Company maintains its cash in accounts with major financial
institutions in the United States, Australia and Brazil in the form of demand
deposits and money market accounts. Deposits in these banks may exceed the
amounts of insurance provided on such deposits. As of December 31, 2005, the
Company had no deposits subjected to such risk. We have not experienced any
losses on our deposits of cash and cash equivalents.

Cash and Cash Equivalents

         The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. The
Company had no cash equivalents at December 31, 2005.

Property and Equipment, net

         Property and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization is recorded on a straight-line
basis over the estimated useful lives (approximately 2 - 10 years) of the
assets. Expenditures for maintenance and repairs that do not improve or extend
the lives of the related assets are expensed to operations, while major repairs
are capitalized.

                                       F-9
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets

         The Company reviews its long-lived assets and identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When such factors and
circumstances exist, we compare the projected undiscounted future cash flows
associated with the future use and disposal of the related asset or group of
assets to their respective carrying amounts. Impairment, if any, is measured as
the excess of the carrying amount over the fair value, based on market value
when available, or discounted expected cash flows, of those assets and is
recorded in the period in which the determination is made. As of December 31,
2005, management expects those assets related to its continuing operations to be
fully recoverable.

Income Taxes

         The Company files federal and state income tax returns in the United
States for its domestic operations, and files separate foreign tax returns for
the Company's foreign subsidiaries in the jurisdictions in which those
subsidiaries operate. The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No.109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between their financial
statement carrying amounts and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

Foreign Currency Translation

         Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are converted into U.S. dollars in accordance with SFAS No. 52,
"Foreign Currency Translation," and are included in determining net income or
loss.

         For foreign operations with the local currency as the functional
currency, assets and liabilities are translated from the local currencies into
U.S. dollars at the exchange rate prevailing at the balance sheet date. Revenues
and expenses are translated at weighted average exchange rates for the period to
approximate translation at the exchange rates prevailing at the dates those
elements are recognized in the financial statements. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive loss. As
of December 31, 2005, the exchange rate for the Brazilian Real (R$) was $1.00 US
for 2.3407 R$.

                                      F-10
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translation (continued)

         Although the economic situation in Brazil has remained relatively
stable in recent years, a return to higher levels of inflation, and currency
fluctuations could adversely affect the Company's operations. The devaluation or
valuation of the Brazilian Real in relation to the U.S. dollar may have
significant effects on the Company's consolidated financial statements.

Revenue Recognition

         The Company's revenues, which do not require any significant
production, modification or customization for the Company's targeted customers
and do not have multiple elements, is recognized when (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred; (3) the Company's fee is fixed
and determinable, and; (4) collectibility is probable.

         Substantially all of the Company's revenues are derived from the
processing of applications by healthcare providers for approval of patients for
healthcare services from insurance carriers. The Company's software or hardware
devices containing the Company's software are installed at the healthcare
provider's location. The Company offers transaction services to authorize and
adjudicate identity of the patient and obtains "real time" approval for any
necessary medical procedure from the insurance carrier. The Company's
transaction-based solutions provide remote access for healthcare providers to
connect with contracted insurance carriers. Transaction services are provided
through contracts with insurance carriers and others, which specify the services
to be utilized and the markets to be served. The Company's clients are charged
for these services on a per transaction basis. Pricing varies depending type of
transactions being processed under the terms of the contract for which services
are provided. Transaction revenues are recognized in the period in which the
transactions are performed.

Loss per Share

         Basic loss per share is computed by dividing net loss by weighted
average number of shares of common stock outstanding during each period. Diluted
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive. At December 31, 2005, there were options
and warrants to purchase 13,726,070 shares of common stock and 1,400,000 shares
issuable upon conversion of outstanding debt, which could potentially dilute
future earnings per share.

                                      F-11
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock Based Compensation

         The Company accounts for stock options issued to employees in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts are amortized over the respective vesting periods of the
option grant. The Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for
Stock-Based Compensation -Transition and Disclosure", which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied. The Company accounts for stock options
and stock issued to non-employees for goods or services in accordance with the
fair value method of SFAS 123.

         Had compensation cost for the stock option plan been determined based
on the fair value of the options at the grant dates consistent with the method
of SFAS 123, "Accounting for Stock Based Compensation", the Company's net loss
and loss per share would have been changed to the pro forma amounts indicated
below for the years ended December 31, 2005 and 2004:

                                                     Year ended December 31,
                                                  ---------------------------
                                                      2005            2004
                                                  ----------     ------------
      Net loss as reported ..................     $ (764,484)    $ (1,792,255)
      Add: total stock-based employee
      compensation expense determined under
      fair value based method, net of related
      tax effect ............................       (156,786)        (109,568)
                                                  ----------     ------------

      Pro forma net loss ....................     $ (921,270)    $ (1,901,823)
                                                  ==========     ============

        Basic loss per share:
            As reported .....................     $     (.03)    $       (.10)
                                                  ==========     ============
            Pro forma .......................     $     (.03)    $       (.11)
                                                  ==========     ============

         The valuation of the option grants is estimated as of the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants during the year ended December 31, 2005: expected volatility of 205%
to 218%; risk free interest rate ranging from 3.25% to 3.75%; expected life of
2-5 years and annual dividend rate of 0%.

                                      F-12
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising

         Advertising costs are expensed when incurred. For the years ended
December 31, 2005 and 2004, advertising expense was not material.

Comprehensive Loss

         The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
Other comprehensive loss, which currently includes only foreign currency
translation adjustments, is shown net of tax in the Statement of Changes in
Stockholders' Deficit.

Recent accounting pronouncements

         In December 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123R, "Share-Based Payment, an Amendment of FASB Statement No.
123" ("SFAS No. 123R"). SFAS No. 123R requires companies to recognize, in the
statement of operations, the grant-date fair value of stock options and other
equity-based compensation issued to employees. SFAS No. 123R is effective for
the Company on January 1, 2006. The Company believes the adoption of this
pronouncement may have a material impact on its financial statements.

         In May 2005, FASB issued SFAS 154, "Accounting Changes and Error
Corrections -- a replacement of APB Opinion No. 20 and FASB Statement No. 3".
SFAS 154 changes the requirements for the accounting for and reporting of a
change in accounting principle. The provisions of SFAS 154 require, unless
impracticable, retrospective application to prior periods' financial statements
of (1) all voluntary changes in principles and (2) changes required by a new
accounting pronouncement, if a specific transition is not provided. SFAS 154
also requires that a change in depreciation, amortization, or depletion method
for long-lived, non-financial assets be accounted for as a change in accounting
estimate, which requires prospective application of the new method. SFAS 154 is
effective for all accounting changes made in fiscal years beginning after
December 15, 2005. Management does not believe the adoption of this
pronouncement will have a material effect on its financial statements.

Reclassifications

         Certain prior periods' balances have been reclassified to conform to
the current period's financial statement presentation. These reclassifications
had no impact on previously reported results of operations or stockholders'
equity.

                                      F-13
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2005:


         Computer Equipment .........................      $   916,208
         Software ...................................          196,338
         Office Furniture and Equipment .............           15,068
         Vehicle ....................................           24,345
         Other ......................................           14,020
                                                           -----------
                                                             1,165,979
         Accumulated Depreciation ...................         (518,445)
                                                           -----------

                                                           $   647,534
                                                           ===========

         For the years ended December 31, 2005 and 2004, depreciation expense
amounted to approximately $250,000 and $56,000, respectively.

NOTE 3 - GOING CONCERN

         Since inception, the Company has incurred cumulative net losses of
$9,244,420 has a stockholders' deficit of $1,627,640 at December 31, 2005 and
has a working capital deficit of $2,068,956. Since its inception, the Company
has funded operations through short-term borrowings and equity investments in
order to meet its strategic objectives. The Company's future operations are
dependent upon external funding and its ability to increase revenues and reduce
expenses. Management believes that sufficient funding will be available from
additional related party borrowings and private placements to meet its business
objectives, including anticipated cash needs for working capital, for a
reasonable period of time. In January 2006, the Company entered into an
investment agreement to sell 16,000 shares of its preferred stock for
approximately $1,600,000. As of the filing of these financial statements 8,000
of the preferred shares have been sold (see Note 13). Additionally, under the
current roll out schedules with its clients, the Company expects to continue to
increase its revenues during 2006. However, there can be no assurance that the
Company will be able to obtain sufficient funds to continue the development of
its software products and distribution networks.

         Further, since fiscal 2000, the Company has been deficient in the
payment of Brazilian payroll taxes and Social Security taxes. At December 31,
2005, these deficiencies (including interest and fines) amounted to
approximately $732,000. This payroll liability is included as part of the
accounts payable and accrued expenses (short-term and long-term) within the
consolidated balance sheet.

         As a result of the foregoing, there exists substantial doubt about the
Company's ability to continue as a going concern. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                      F-14
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 4 - SOFTWARE DEVELOPMENT COSTS

         The Company established the technological feasibility of its MedLink
Solutions in the year ended December 31, 2002. Therefore, from Inception to
December 31, 2002, all costs incurred in establishing the technological
feasibility of the MedLink Solutions were charged to expense when incurred, as
required by SFAS No. 2, "Accounting for Research and Development Costs."

         Under the criteria set forth in SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed," capitalization
of software development costs begins upon the establishment of technological
feasibility of the software. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life, and changes in software and hardware technology. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years. The Company
regularly reviews the carrying value of software development assets and a loss
is recognized when the unamortized costs are deemed unrecoverable based on the
estimated cash flows to be generated from the applicable software.

         For the years ended December 31, 2005 and 2004, amortization of
development costs amounted to approximately $154,000 and $84,000, respectively,
and has been included in cost of product support services on the accompanying
consolidated statements of operations.

NOTE 5 - RELATED PARTY TRANSACTIONS

Convertible Loans Payable - Related Party
-----------------------------------------

         At December 31, 2004, the Company had loans payable for $200,000 and
$100,000 to a related party whose officer is an officer of the Company. The
interest rate of the loan is 12% per annum compounded monthly

                                      F-15
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 5 - RELATED PARTY TRANSACTIONS

Convertible Loans Payable - Related Party (continued)
-----------------------------------------------------

         On March 23, 2005, the Company modified the terms of its convertible
loans to this related party. Under the modified terms, $200,000 of principal due
under the convertible loans is due on March 31, 2007 and is convertible into the
Company's common stock at $0.125 per share. The remaining principal of $100,000
is due on April 30, 2007 and is convertible into the Company's common stock at
$0.125 per share. For each common share received upon conversion of the
principal balance, the related party is entitled to receive one warrant to
purchase the Company's common stock at $0.25 per share for a period of two years
from the conversion date.

         On June 28, 2005, the holder of the notes partially exercised the
conversion feature. Accordingly, the Company issued 400,000 shares and 400,000
warrants to purchase common stock of the Company at $0.25 per share for the
conversion of principal balance of $50,000. The Company also issued 35,770
shares of common stock to settle $4,471 in interest due on these loans. The fair
value of these warrant grants were estimated at $0.078 per warrant on the date
of grant using the Black-Scholes option-pricing model. In connection with these
warrants, for the year ended December 31, 2005, the Company recorded interest
expense of $31,200.

         On September 30, 2005, the holder of the notes partially exercised the
conversion feature. Accordingly, the Company issued 600,000 shares and 600,000
warrants to purchase common stock of the Company for the conversion of principal
balance of $75,000. The Company also issued 77,968 shares of common stock to
settle $9,746 in interest due on these loans. The fair value of these warrant
grants were estimated at $0.164 per warrant on the date of grant using the
Black-Scholes option-pricing model. In connection with these warrants, for the
year ended December 31, 2005, the Company recorded interest expense of $98,545.

         On December 31, 2005, the Company issued 50,000 shares of common stock
to settle $6,250 in interest due on these loans.

         At December 31, 2005, interest due on these two loans amounted to
$21,621 and the aggregate principal amount due is $175,000. During the year
ended December 31, 2005 and 2004, the Company incurred $160,377 (including the
fair value of warrants granted upon conversion of $129,745) and $114,200
(including the fair value of warrants granted upon conversion of $65,849),
respectively, in interest expense related to these two loans. In 2005, the
Company did not incur beneficial conversion charges on these convertible loans
because the conversion price was equivalent to the average offering price for
equity when these loans became convertible.

                                      F-16
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)

Due to Related Parties
----------------------

         As of January 1, 2004 the Company had approximately $188,400 of
advances payable and accrued interest due to a related party whose officer is an
officer of the Company. During the year ended December 31, 2004, this related
party advanced the Company an additional $82,500, for working capital purposes.
These advances accrue interest at 1% per month (12% per annum). For the years
ended December 31, 2005 and 2004, the Company accrued $2,509 and $31,134 of
interest, respectively, related to these advances. On September 29, 2004, the
Company issued 374,848 shares of common stock to settle $28,114 in interest due
to this related party. On December 30, 2004, the Company issued 1,633,333 shares
of common stock and 1,633,333 warrants to purchase 1,633,333 shares of common
stock at $0.30 per share to settle debt of $245,000 and 53,575 shares of common
stock for the settlement of related interest of $8,036. The fair value of this
warrant grant was estimated at $0.096 per warrant on the date of grant using the
Black-Scholes option-pricing model. In connection with these warrants, for the
year ended December 31, 2004, the Company recorded interest expense of $193,842.

         At December 31, 2005, advances and interest due amounting to $23,414
are included in due to related parties on the accompanying balance sheet.

         For each of the years ended December 31, 2005 and 2004, the Company
incurred $190,000 and $165,000, respectively, in management fees to an
officer/director of the Company, including an accrual of a bonus in 2005 and
2004 of $25,000 and $33,000, respectively, which were approved by the board of
directors. On December 30, 2004, the Company issued 500,000 shares of common
stock at $0.15 per share to this officer/director for settlement of $75,000 of
this debt. On March 28, 2005, the Company issued 400,000 shares of common stock
at $0.126 per share, or $50,000, to this officer/director as payment for
management services rendered. The fair market value of these shares was based on
the average price of the Company's shares traded between March 14 and March 27,
2005. On June 28, 2005, the Company issued 300,000 shares of common stock at
$0.11 per share, or $33,000, to this officer/director as payment for management
services rendered. The fair market value of these shares was based on the
average price of the Company's shares traded between June 14 and June 27, 2005.
On September 27, 2005, the Company issued 200,000 shares of common stock at
$0.17 per share, or $34,000, to this officer/director for management services
rendered. The fair market value of these shares was based on the average price
of the Company's shares traded between August 29 and September 26, 2005. On
December 26, 2005, the Company issued 300,000 shares of common stock at $0.15
per share, or $45,000, to this officer/director for management services
rendered. The fair market value of these shares was based on the average price
of the Company's shares traded between December 1 and December 26, 2005. At
December 31, 2005, $177,799 in management fees and other expenses were
outstanding to this officer/director and are included in due to related parties
on the accompanying balance sheet. The amounts due are unsecured, non-interest
bearing and are payable on demand.

                                      F-17
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)

Due to Related Parties (continued)
----------------------------------

         For the years ended December 31, 2005 and 2004, the Company incurred
approximately $6,000 and $25,600 in consulting fees, respectively, to a company
whose director is a director of the Company. On December 30, 2004, the Company
issued 233,333 shares of common stock at $0.15 per share to this
officer/director for settlement of $35,000 of this debt. At December 31, 2005,
$10,570 in management fees was outstanding to this officer/director and is
included in due to related parties on the accompanying balance sheet. The
amounts due are unsecured, non-interest bearing and are payable on demand.

         For the years ended December 31, 2004, the Company incurred $62,535 in
management fees to a company whose officer is an officer of the operating
subsidiary of the Company.

         For the years ended December 31, 2005, the Company incurred $40,616 in
accounting fees to a company whose officer is an officer of the Company. At
December 31, 2005, $17,149 in accounting fees were outstanding to this officer
and are included in due to related parties on the accompanying balance sheet.

Loans Payable - Related Party
-----------------------------

         On March 5, 2004, the Company borrowed Euro 115,000 ($136,206 at
December 31, 2005) from an officer of the Company for working capital purposes.
The loan accrues 0.8% compounded interest per month, is repayable quarterly in
arrears and had an initial term of twelve months. . The officer agreed to extend
this loan for an additional twelve months until March 2006. The due date of this
loan is currently being negotiated. Additionally, during 2005, the Company
borrowed $85,000 from this officer, which was repaid in 2006. This loan accrues
interest at 9.6% per annum and is payable on demand. For the years ended
December 31, 2005 and 2004, the Company incurred $16,417 and $11,471,
respectively, in interest related to these loans. At December 31, 2005, $12,504
in interest was accrued on these loans and the aggregate principal amount due is
$221,206 and is included in loan payable - related party on the accompanying
balance sheet.

NOTE 6 - FINANCING ARRANGEMENTS

Loans Payable
-------------

         On October 25, 2004, the Company and Cornell Capital Partners
("Cornell") entered into a Securities Purchase Agreement, pursuant to which
Cornell Capital Partners purchased two 5% secured convertible debentures. The
initial convertible debenture in the original principal amount of $125,000 was
dated October 25, 2004 and the second convertible debenture in the original
principal amount of $125,000 was dated January 4, 2005 (collectively, the
"Original Debentures"). In connection with the terms of the original debentures,
for the year ended December 31, 2005, the Company recorded a beneficial
conversion amount of $31,250 as interest expense since the debentures were
immediately convertible. On May 17, 2005, the Company and Cornell Capital
Partners entered into a $255,237 Promissory Note (the "Note"), whereby the
Original Debentures were terminated.

                                      F-18
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 6 - FINANCING ARRANGEMENTS (CONTINUED)

Loans Payable (continued)
-------------------------

         This Note represents the outstanding principal balance of $250,000 on
the Original Debentures, plus accrued but unpaid interest through April 30, 2005
equal to $5,237 for a total principal balance due at December 31, 2005 of
$255,237. The Note bears interest at a rate of 12% per annum and is secured by
stock pledged by certain shareholders of the Company. In January 2006, this Note
was cancelled (see Note 13).

         The Company's subsidiary, TDS, has several loans with financials
institutions. The loans require monthly installments, bear interest at rate
ranging from 30% to 71% per annum, are secured by certain receivables and assets
of TDS, and are due through December 2006. At December 31, 2005 loans payable to
these financial institutions aggregated $291,505.

Standby Equity Distribution Agreement
-------------------------------------

         On October 25, 2004, the Company entered into a Standby Equity
Distribution Agreement with Cornell. Pursuant to the Standby Equity Distribution
Agreement, the Company could, at its discretion, periodically sell to Cornell
shares of common stock for a total purchase price of up to $5.0 million. On May
17, 2005, the Company entered into a Termination Agreement with Cornell, whereby
the Standby Equity Distribution Agreement, dated October 25, 2004, and the
related Registration Rights Agreement, Placement Agent Agreement and Escrow
Agreement were terminated.

         Upon execution of the Termination Agreement, the Company entered into a
new Standby Equity Distribution Agreement with Cornell on May 17, 2005. On
January 13, 2006 (see Note 13), the Company entered into a Termination Agreement
with Cornell (the "SEDA Termination Agreement") pursuant to which the Parties
terminated the Standby Equity Distribution Agreement, the Registration Rights
Agreement and the Placement Agent Agreement, each dated as of May 17, 2005. In
connection with the Standby Equity Distribution Agreement, in December 2004, the
Company issued to Cornell 1,202,779 shares of the Company's Common Stock (the
"Investor's Shares") and in connection with the Placement Agent Agreement, the
Company issued to Monitor Capital, Inc., as Placement Agent, 125,000 shares of
the Company's Common Stock (the "Placement Agent's Shares"). In December 2004,
the Company valued the common shares issued to Cornell at the fair market value
on the dates of grant or $0.1664 per share, or $200,000, based on the quoted
trading price for the stock. At December 31, 2005, the commitment fee was deemed
to be a deferred offering cost on the accompanying balance sheet. Pursuant to
the SEDA Termination Agreement, Cornell shall retain 600,889 of the Investor's
Shares and return the other 601,890 of the Investor's Shares to the Company to
be cancelled. Monitor Capital, Inc. shall retain 62,500 of the Placement Agent's
Shares and return the other 62,500 of the Placement's Agent's Shares to the
Company to be cancelled.

                                      F-19
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 6 - FINANCING ARRANGEMENTS (CONTINUED)

Debenture Payable
-----------------

         On April 1, 2005, the Company entered into a Securities Purchase
Agreement with Scott and Heather Grimes, Joint Tenants - with Rights of
Survivorship (the "Investor"). Pursuant to the Securities Purchase Agreement,
the Company issued convertible debentures to the Investor in the original
principal amount of $250,000. The debentures are convertible at the holder's
option any time up to maturity at a conversion price equal to the lower of (i)
120% of the closing bid price of the common stock on the date of the debentures
or (ii) 80% of the lowest closing bid price of the common stock for the five
trading days immediately preceding the conversion date. The debentures have a
two-year term and accrue interest at 5% per year. At maturity, the debentures
will automatically convert into shares of common stock at a conversion price
equal to the lower of (i) 120% of the closing bid price of the common stock on
the date of the debentures or (ii) 80% of the lowest closing bid price of the
common stock for five trading days immediately preceding the conversion date.

The Company determined that the conversion feature of the convertible debentures
represents an embedded derivative since upon conversion the debentures are
convertible into a variable number of shares. Accordingly, the convertible
debentures are not considered to be conventional debt under EITF 00-19 and the
embedded conversion feature must be bifurcated from the debt host and accounted
for as a derivative liability in accordance with SFAS 133 and EITF 00-19.The
change in the fair value of the liability for derivative contracts will be
credited to other income/ (expense) in the consolidated statements of
operations.

The embedded derivative included in this debenture resulted in an initial debt
discount of $250,000 and an initial loss on the valuation of derivative
liabilities of $44,299. The debt discount is being amortized over the term of
the debenture. At the end of each reporting period, the Company revalues this
derivative liability. For the year ended December 31, 2005, after adjustment,
the Company recorded a loss on valuation of derivative liability of $18,512.

The amount allocated as a discount on the debenture for the value of the
conversion option is being amortized to interest expense, using the effective
interest method, over the term of the debenture. Additionally, the Company paid
fees of $38,262 in connection with this debenture. These fees are recorded as
deferred offering costs on the balance sheet and are being amortized over the
debenture term.

Amortization expense for the year ended December 31, 2005 for both the discount
on the debenture and the deferred offering costs was approximately $108,100 and
is included in interest expense.

At the date of inception and at the valuation date of December 31, 2005, the
following assumptions were applied to all convertible debt and warrants:

                                    At Inception           At December 31, 2005
                               ---------------------     -----------------------
Market Price:                        $0.14                      $0.14
Exercise prices                      $0.104                     $0.106
Term                                 2 years                     1.25 years
Volatility:                          203%                        219%
Risk-free interest rate             3.25%                       3.75%

                                      F-20
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 6 - FINANCING ARRANGEMENTS (CONTINUED)

The convertible debenture liability is as follows at December 31, 2005:

         Convertible debentures payable .................    $ 250,000
         Less: unamortized discount on debentures .......     (156,250)
                                                             ---------

         Convertible debentures, net ....................    $  93,750
                                                             =========

NOTE 7 - ADVANCES PAYABLE

         As of January 1, 2004 the Company had approximately $152,600 of
advances payable and accrued interest outstanding to a non-related company and
individual. During the year ended December 31, 2004, the Company received
$114,000 in cash advances from this non-related party, accrued interest payable
of $15,391, and recorded capitalized development costs of $37,500. The advances
accrued interest at 1% per month (12% per annum). In February 2004, the Company
issued 300,000 shares of its common stock for the settlement of $37,500 of
advances payable and $37,500 of accrued expenses to this non-related company. On
September 29, 2004, the Company issued 1,715,000 units and 286,200 shares of
common stock to settle $128,625 in advances and $21,465 in interest,
respectively, due to this non-related party. Each unit is comprised of one
common share and one warrant. Each warrant entitles the holder to purchase an
additional share of the Company's common stock at $0.20 until September 29,
2009.

         The fair value of this warrant grant was estimated at $0.096 per
warrant on the date of grant using the Black-Scholes option-pricing model. In
connection with these warrants, for the year ended December 31, 2004, the
Company recorded interest expense of $164,262.

         On December 30, 2004, the Company issued 366,667 units and 29,333
shares of common stock to settle $55,000 in advances and $4,400 in interest due
to this non-related company and individual. Each unit is comprised of one common
share and one warrant. Each warrant entitles the holder to purchase an
additional share of the Company's common stock at $0.30 until December 30, 2006.
The fair value of this warrant grant was estimated at $0.096 per warrant on the
date of grant using the Black-Scholes option-pricing model. In connection with
these warrants, for the year ended December 31, 2004, the Company recorded
interest expense of $43,516. As at December 31, 2004, advances payable amounted
to $35,000, which was repaid in 2005.

NOTE 8 - INCOME TAXES

         As of December 31, 2005, the Company had approximately $3,800,000 of
U.S. federal and state net operating loss carry forwards available to offset
future taxable income which, if not utilized, begin expiring in 2011. In
addition, the Company has approximately $4,097,000 of foreign net operating loss
carry forwards related to the Company's Brazilian subsidiary. Current Brazilian
tax legislation imposes no time period for the utilization of the losses,
although it does limit the annual usage of the losses to 30% of taxable profits.
Transax files its income tax return on a consolidated company basis with TNSX,
its legal parent, as U.S. tax rules prohibit the consolidation of its foreign
subsidiaries.

                                      F-21
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 8 - INCOME TAXES (CONTINUED)

         Under the Tax Reform Act of 1986, the utilization of a corporation's
net operating loss carry forward is limited following a greater than 50% change
in ownership. Due to prior transactions, the Company's net operating loss carry
forwards are subject to an annual limitation. Any unused annual limitation may
be carried forward to future years for the balance of the net operating loss
carry forward period. The Company has not yet determined the limitation as
defined by the Tax Reform Act of 1986. Additionally, because U.S. tax laws limit
the time during which these carry forwards may be applied against future taxes,
the Company may not be able to take full advantage of these attributes for
Federal income tax purposes.

         Deferred income taxes reflect the net tax effects of operating loss and
tax credit carry forwards and temporary differences between carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which temporary differences representing net future
deductible amounts become deductible. Due to the uncertainty of the Company's
ability to realize the benefit of the deferred tax assets, the deferred tax
assets are fully offset by a valuation allowance at December 31, 2005 and 2004.

         The Company's tax expense differs from the "expected" tax expense for
the years ended December 31, 2005 and 2004 as follows:

                                                   2005         2004
                                                ---------    ---------

         Computed "expected" tax benefit ....   $ (59,700)   $(636,000)
         State income taxes benefit .........      (7,800)     (44,000)
         Other ..............................           -      (75,000)
         Change in valuation allowance ......      67,500      755,000
                                                ---------    ---------

                                                $       -    $       -
                                                =========    =========

         The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 2005 are as
follows:

         Deferred tax assets:
         Net operating loss carry forward ...........      $ 2,668,000
                                                           -----------

         Total gross deferred tax assets ............        2,668,000

         Less valuation allowance ...................      (2,668,000)
                                                           -----------

         Net deferred tax assets ....................      $         -
                                                           ===========

         The valuation allowance at December 31, 2005 was $2,668,000. The
increase during 2005 was approximately $676,500.

                                      F-22
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 9 - FOREIGN OPERATIONS

         The Company identifies its operating segments based on its business
activities and geographical locations. The Company operates within a single
operating segment, being a provider of information network solutions
specifically designed for healthcare providers and health insurance companies.
The Company operates in the United States, Brazil, Australia and Mauritius, and
has a registered mailing address in Singapore. Substantially all of the
Company's assets are located in Brazil.

                                                   Year ended December 31,
                                                  -------------------------
                                                      2005         2004
                                                  -----------   -----------
         Net revenues to unaffiliated customers:
                 Brazil ........................  $ 3,380,150   $ 1,199,900
                                                  -----------   -----------
         Operating Expenses:
                 Brazil ........................    2,707,410     1,420,343
                 USA ...........................      758,542       831,603
                 Australia .....................       12,257        32,429
                 Mauritius .....................       65,324        41,688
                                                  -----------   -----------
                                                    3,543,533     2,326,063
                                                  -----------   -----------
         Loss from operations ..................     (163,383)   (1,126,163)
                                                  -----------   -----------
         Other income (expenses):
                 Brazil ........................     (301,748)      (90,249)
                 USA ...........................     (306,764)     (572,602)
                 Australia .....................        7,411        (3,241)
                                                  -----------   -----------
                                                     (601,101)     (666,092)
                                                  -----------   -----------
         Net loss as reported ..................  $  (764,484)  $(1,792,255)
                                                  -----------   -----------

NOTE 10 - STOCKHOLDERS' DEFICIT

Common Stock
------------

         On January 26, 2004, the Company issued 300,000 shares of restricted
common stock for services rendered, for net value of $75,000. On May 5, 2004,
the Company returned to treasury 300,000 restricted shares that had been issued
for services rendered on January 26, 2004. The shares were returned for
non-performance and the expense was reversed during the year ended December 31,
2004.

         On February 12, 2004, the Company issued 300,000 shares of common stock
for options exercised, for net proceeds of $75,000. The proceeds were utilized
for the settlement of advances payable.

         On June 11, 2004, the Company issued 150,000 shares of common stock to
a consultant for services rendered. The Company valued these common shares at
the fair market value on the dates of grant, or $0.25 per share, based on the
quoted trading price and recorded consulting expense of $37,500.

                                      F-23
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

         On July 26, 2004, in connection with the exercise of stock options, the
Company issued 600,000 shares to consultants for services rendered. Since the
Company did not receive any cash for the exercise of these options, the Company
recorded consulting expense of $36,000 based on the exercise price of the stock
options granted ($0.06 per share).

         On August 12, 2004, the Company issued 600,000 shares of common stock
to a consultant for services rendered. The Company valued these common shares at
the fair market value on the dates of grant, or $0.06 per share, based on the
quoted trading price and recorded investor relation expense of $36,000.

         On September 29, 2004, the Company issued 374,848 shares of common
stock to settle approximately $28,100 in interest due to a related party in
relation to cash advances.

         On September 29, 2004, the Company issued 346,667 shares of common
stock to a company related to an officer of the Company for services rendered.
The Company valued these common shares at the fair market value on the dates of
grant, or $0.075 per share, based on the quoted trading price and recorded
consulting expense of $26,000.

         On September 29, 2004, the Company issued 1,687,500 shares of common
stock to settle $135,000 of debt owed to a related party.

         On September 29, 2004, the Company granted 1,715,000 units to settle
$128,625 in cash advances. Each unit is comprised of one common share and one
warrant. Each warrant entitles the holder to purchase an additional share of the
Company's common stock at $0.20 per share until September 29, 2009.

         On September 29, 2004, 2004, the Company issued 166,667 shares of
common stock to a consultant for services rendered. The Company valued these
common shares at the fair market value on the dates of grant, or $0.075 per
share, based on the quoted trading price and recorded consulting expense of
$12,500.

         On September 29, 2004, the Company issued 286,200 shares of common
stock to settle $21,465 in interest due in relation to cash advances.

         On September 29, 2004, the Company issued 562,500 shares of common
stock to settle $45,000 of debt.

         On September 29, 2004, the Company granted 687,500 units upon
conversion of $55,000 of a convertible loan to a related party. Each unit is
comprised of one common share and one warrant. Each warrant entitles the holder
to purchase an additional share of the Company's common stock at $0.20 per share
until September 29, 2009.

                                      F-24
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

         On September 29, 2004, the Company issued 871,425 shares of common
stock to settle $69,714 in interest due to a related party in relation to a
convertible loan.

         On October 25, 2004, the Company entered into a Standby Equity
Distribution Agreement with Cornell. Pursuant to the Standby Equity Distribution
Agreement, the Company could, at its discretion, periodically sell to Cornell
shares of common stock for a total purchase price of up to $5.0 million. On May
17, 2005, the Company entered into its first Termination Agreement with Cornell,
whereby the Standby Equity Distribution Agreement, dated October 25, 2004, and
the related Registration Rights Agreement, Placement Agent Agreement and Escrow
agreement were terminated. Upon execution of this Termination Agreement, the
Company entered into a new Standby Equity Distribution Agreement with Cornell on
May 17, 2005. On January 13, 2006 (see Note 13), the Company entered into a new
Termination Agreement with Cornell (the "SEDA Termination Agreement") pursuant
to which the Parties terminated the Standby Equity Distribution Agreement, the
Registration Rights Agreement and the Placement Agent Agreement, each dated as
of May 17, 2005. In connection with the Standby Equity Distribution Agreement,
in December 2004, the Company issued to Cornell 1,202,779 shares of the
Company's Common Stock (the "Investor's Shares") and in connection with the
Placement Agent Agreement, the Company issued to Monitor Capital, Inc., as
Placement Agent, 125,000 shares of the Company's Common Stock (the "Placement
Agent's Shares"). In December 2004, the Company valued the common shares issued
to Cornell at their initial fair market value on the dates of grant at $0.07 per
share, or $84,195, based on the quoted trading price for the stock. These shares
were revalued in October 2005 to $0.166 per share, or $200,000. At December 31,
2005, the commitment fee of $200,000 was deemed to be a deferred offering cost
on the accompanying balance sheet. Subsequent to December 31, 2005, pursuant to
the SEDA Termination Agreement, Cornell shall retain 600,889 of the Investor's
Shares and return the other 601,890 of the Investor's Shares to the Company to
be cancelled.

         In October 2004, the Company issued 125,000 shares of common stock to
Monitor Capital, Inc. (Monitor), an unaffiliated registered broker-dealer that
had been retained by the Company in connection with the terminated Standby
Equity Distribution Agreement. In connection with the issuance of these shares,
the Company valued these common shares at the fair market value on the date of
grant at $0.08 per share, or $10,000, based on the quoted trading price and
recorded deferred compensation in this amount which was to be amortized over the
equity funding commitment period of 24 months or less if funded earlier. In
2005, in connection with the termination of the Standby Equity Distribution
Agreement, the Company amortized the previously recorded deferred compensation
and recorded consulting expense of $10,000. Subsequent to December 31, 2005, in
connection with a SEDA Termination Agreement, Monitor shall retain 62,500 of
these Placement Agent's Shares and return the other 62,500 of the Placement's
Agent's Shares to the Company to be cancelled.

                                      F-25
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

         On December 30, 2004, the Company granted 2,000,000 units for
conversion of $300,000 of loans payable to unrelated parties. Each unit is
comprised of one common share and one warrant. Each warrant entitles the holder
to purchase an additional share of the Company's common stock at $0.30 per share
until December 30, 2006. Additionally, in connection with these loans, the
Company issued 82,908 common shares as settlement of accrued interest payable
amounting to $12,436

         On December 30, 2004, the Company issued 1,580,000 shares of common
stock to settle $237,000 in amounts due to related parties.

         On January 14, 2005, the Company entered into a six-month consulting
contract for business development services. In connection with the agreement,
the Company issued 400,000 shares of common stock. On May 10, 2005, the Company
cancelled this contract and cancelled 200,000 shares that were due on this
contract pursuant to the terms of the contract. The Company valued these common
shares at the fair market value on the date of grant at $0.16 per share based on
the quoted trading price and recorded stock-based consulting expense of $42,667
through the date of cancellation.

         On January 14, 2005, the Company entered into a consulting contract for
business development services. In connection with the agreement, the Company
issued 100,000 shares of common stock. The Company valued these common shares at
the fair market value on the date of grant at $0.16 per share based on the
quoted trading price and recorded stock-based consulting expense of $16,000.

         On March 21, 2005, the Company entered into a consulting contract for
business development services. In connection with the agreement, the Company
issued 150,000 shares of common stock. The Company valued these common shares at
the fair market value on the dates of grant at $0.14 per share or $21,000 based
on the quoted trading price and recorded stock-based consulting expense of
$21,000.

         On March 28, 2005, the Company issued 400,000 shares of common stock
for services rendered of $50,500 to an officer/director of the Company. The
Company valued these common shares at the fair market value on the date of grant
at $0.126 per share. On June 28, 2005, the Company issued 300,000 shares of
common stock at $0.11 per share, the fair market value on the date of grant, to
an officer/director for management services rendered of $33,000. On September
27, 2005, the Company issued 200,000 shares of common stock at $0.17 per share,
or $34,000, the average fair market value on the date of grant, to an
officer/director for management services rendered. On December 26, 2005, the
Company issued 300,000 shares of common stock at $0.15 per share, or $45,000,
the average fair market value on the date of grant, to an officer/director for
management services rendered. (See note 5).

         On June 28, 2005, the holder of the related party loans exercised the
conversion feature. Accordingly, the Company issued 400,000 shares at the
conversion price of $0.125 per share and 400,000 warrants to purchase common
stock of the Company at $0.25 per share (see note 5) for the conversion of
principal balance of $50,000. The Company also issued 35,770 shares of common
stock to settle $4,471 in interest due on these loans.

                                      F-26
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

         On July 15, 2005, the Company entered into a six month consulting
contract for public relations services. For services rendered, the Company shall
pay $5,000 per month payable in cash and/or free-trading common stock. In
connection with this agreement, the Company issued 200,000 shares of common
stock. The Company valued these common shares at the fair market value on the
date of grant at $0.15 per share, or $30,000, based on the quoted trading price
and recorded stock-based consulting expense of $30,000.

         On September 30, 2005, the holder of the related party loans (see note
5) exercised the conversion feature. Accordingly, the Company issued 600,000
shares at the conversion price of $0.125 per share and 600,000 warrants to
purchase common stock of the Company at $0.25 per share for the conversion of
principal balance of $75,000. The Company also issued 77,968 shares of common
stock to settle $9,746 in interest due on these loans.

         On December 8, 2005, the Company issued 50,000 shares of common stock
for investor relations services rendered. The Company valued these common shares
at the fair market value on the dates of grant of $0.15 per share, or $7,500,
based on the quoted trading price and recorded investor relations fees of
$7,500.

         On December 26, 2005, the Company issued 40,000 shares of common stock
to a director for services rendered. The Company valued these common shares at
the fair market value on the dates of grant of $0.15 per share, or $6,000, based
on the quoted trading price and recorded compensation expense of $6,000.

         On December 31, 2005, the Company issued 50,000 shares of common stock
to a related party to settle $6,250 of interest due on related party debt.

Stock Options
-------------

         On November 28, 2004, the Company adopted a 2004 Incentive Stock Option
Plan (the "Plan"). The Plan provides options to be granted, exercisable for a
maximum of 2,500,000 shares of common stock. Both incentive and nonqualified
stock options may be granted under the Plan. The exercise price of options
granted, the expiration date, and the vesting period, pursuant to this plan, are
determined by a committee.

         On July 26, 2004, the Company granted options to purchase 600,000
shares of stock to a consultant for serviced rendered. The options expire on
August 14, 2008 and are exercisable at $0.06 per share, which was the fair
market value of the common stock at the grant date. These options were valued
using the Black-Scholes pricing method at a fair value of $0.058 per option.
Accordingly, the Company recorded stock-based consulting expense of $34,900.

         On December 31, 2004, the Company granted options to purchase 750,000
shares of common stock to certain employees of the Company with an exercise
price of $0.20 per share. The exercise price on the date of grant exceeded the
fair market value of the common stock at the grant date. Accordingly, under APB
25, no compensation expense was recognized. These options expire on December 30,
2009.

                                      F-27
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

         On May 5, 2005, the Company granted options to purchase an aggregate of
1,000,000 shares of common stock to employees, officers and directors of the
Company. The options are exercisable at $0.15 per share, which exceeds the fair
market value of the common stock at the grant date. Accordingly, under APB 25,
no compensation expense was recognized. The options expire on May 5, 2010.

         On December 26, 2005, the Company granted options to purchase an
aggregate of 200,000 shares of common stock to an officer and directors of the
Company. The options are exercisable at $0.15 per share, which exceeds the fair
market value of the common stock at the grant date. Accordingly, under APB 25,
no compensation expense was recognized. The options expire on December 25, 2010.

         A summary of the status of the Company's outstanding stock options as
of December 31, 2005 and 2004 and changes during the years then ended is as
follows:
                                                                 Weighted
                                                                 Average
                                                                 Exercise
                                                     Shares       Price
                                                   ----------    --------
         Outstanding at December 31, 2003 ......    2,725,000    $   0.43
         Granted ...............................    1,350,000        0.14
         Exercised .............................   (1,050,000)      (0.14)
         Cancelled .............................     (600,000)      (0.50)
                                                   ----------    --------
         Outstanding at December 31, 2004 ......    2,425,000        0.41
         Granted ...............................    1,200,000        0.15
         Exercised .............................            -        -
         Forfeited .............................     (400,000)      (0.39)
                                                   ----------    --------

         Outstanding at December 31, 2005 ......    3,225,000    $   0.31
                                                   ==========    ========

         Options exercisable at end of year ....    3,225,000    $   0.31
                                                   ==========    ========

                                                      2005         2004
         Weighted-average fair value of ........   ----------    --------
          options granted during the year ......   $     0.15    $   0.14

         The following information applies to options outstanding at December
31, 2005:
                              Options Outstanding         Options Exercisable
                         ----------------------------    ---------------------
                         Weighted Average    Weighted                 Weighted
Range of                    Remaining        Average                  Average
Exercise                   Contractual       Exercise                 Exercise
 Prices      Shares        Life (Years)       Price        Shares      Price
--------    ---------    ----------------    --------    ---------    --------
 $0.50      1,425,000          3.37           $ 0.50     1,425,000     $ 0.50
 $0.20        600,000          4.75           $ 0.20       600,000     $ 0.20
 $0.15      1,200,000          4.65           $ 0.15     1,200,000     $ 0.15

         The exercise price of all options granted by the Company equals or
exceeded the market price at the date of grant. Accordingly, no compensation
expense has been recognized on options granted to employees and directors.

                                      F-28
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

Warrants
--------

         On September 29, 2004, in connection with a conversion of debt, the
Company granted 2,402,500 warrants to purchase 2,402,500 shares of common stock
at $0.20 per share. The warrants expire on September 29, 2009. The fair value of
this warrant grant was estimated at $0.096 per warrant on the date of grant
using the Black-Scholes option-pricing model. In connection with these warrants,
the Company recorded interest expense of $230,111 for the year ended December
31, 2004.

         On December 31, 2004, in connection with a conversion of debt, the
Company granted 2,000,000 warrants to purchase 2,000,000 shares of common stock
at $0.30 per share. The warrants expire on December 30, 2006. The fair value of
this warrant grant was estimated at $0.118 per warrant on the date of grant
using the Black-Scholes option-pricing model. In connection with these warrants,
the Company recorded interest expense of $237,358 for the year ended December
31, 2004.

         In 2005, in connection with a conversion of debt, the Company granted
1,000,000 warrants to purchase 1,000,000 shares of common stock at $0.25 per
share. Of the 1,000,000 warrants, 400,000 expire on June 28, 2007 and 600,000
expire on September 30, 2007. The fair value of these warrant grants was
estimated on the date of grant using the Black-Scholes option-pricing model (see
note 5). In connection with these warrants, the Company recorded interest
expense of $129,745 for the year ended December 31, 2005.

         A summary of the status of the Company's outstanding stock warrants as
of December 31, 2005 and 2004 and changes during the years is as follows:

                                                                 Weighted
                                                                 Average
                                                                 Exercise
                                                     Shares       Price
                                                   ----------    --------
         Outstanding at December 31, 2003 ......    4,748,570    $   0.95
         Granted ...............................    4,402,500        0.25
         Forfeited .............................      (50,000)      (1.50)
                                                   ----------    --------
         Outstanding at December 31, 2004 ......    9,101,070        1.00
         Granted ...............................    1,000,000        0.25
         Exercised .............................            -           -
         Forfeited .............................     (598,570)      (0.69)
                                                   ----------    --------

         Outstanding at December 31, 2005 ......    9,502,500    $   0.57
                                                   ==========    ========

         Warrants exercisable at end of year ...    9,502,500    $   0.57
                                                   ==========    ========

                                                      2005         2004
                                                   ----------    --------
         Weighted-average fair value of
          warrants granted during the year .....   $     0.25    $   0.25

                                      F-29
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)

         The following information applies to all warrants outstanding at
December 31, 2005:

                             Warrants Outstanding        Warrants Exercisable
                         ----------------------------    ---------------------
                         Weighted Average    Weighted                 Weighted
Range of                    Remaining        Average                  Average
Exercise                   Contractual       Exercise                 Exercise
 Prices      Shares        Life (Years)       Price        Shares      Price
--------    ---------    ----------------    --------    ---------    --------
 $1.00      4,100,000          2.62           $ 1.00     4,100,000     $ 1.00
 $0.30      2,000,000          1.00           $ 0.30     2,000,000     $ 0.30
 $0.20      2,402,500          3.75           $ 0.20     2,402,500     $ 0.20
 $0.25      1,000,000          1.65           $ 0.25     1,000,000     $ 0.25

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Rent

         The Company has an operating lease for rental of office space in
Brazil, renewable on an annual basis. Additionally, the Company leases office
space in Miami, Florida and Singapore, on a month-to-month basis. Rent expense
amounted to approximately $104,045 and $62,300 and is classified as part of
general and administrative expenses in the statement of operations for each of
the years ended December 31 2005 and 2004, respectively.

Accrued Taxes and Social Contribution

         Since fiscal year 2000, the Company has been deficient in the payment
of Brazilian payroll taxes and Social Security taxes. At December 31, 2005,
these deficiencies, plus interest and fines, amounted to approximately $732,000.
This liability is included as part of the accounts payable and accrued expenses
(short-term and long-term) within the consolidated balance sheet. During fiscal
years 2005 and 2004, the Company entered into a number of payment programs with
the Brazilian authorities whereby the Social Security ("INSS") taxes due, plus
applicable penalties and interests are to be repaid over a period of up to 60
months. At December 31, 2005, $297,218 of the Company's INSS taxes are to be
repaid over periods from 20-50 months. The payment program requires the Company
to pay a monthly fixed amount of approximately $9,000 During February 2006, the
Company entered into a payment program for $30,000 of other taxes due that will
be repaid over a period of 60 months. Discussions are currently ongoing for the
Company to enter into similar payment plans for the remaining tax liabilities.
The Company made the first payment as per the plan in April 2004 and have
continued to make the required payments. However, there is no certainty that the
Brazilian authorities will enter into a similar plan in the future.

                                      F-30
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Accrued Taxes and Social Contribution (continued)

Future payments due to the Brazilian authorities are follows:

         2006     $549,700
         2007       72,300
         2008       71,300
         2009       32,500
         2010        6,100

The current portion due, which is included in current liabilities, also includes
amounts whose payment terms have not been negotiated with the Brazilian
authorities.

Leases

         The Company acquired Point-of-Sale terminals and computer equipment
under capital leases. The minimum lease payments under these capital leases are
$16,289, are due in 2006, and are included in current liabilities at December
31, 2005.

NOTE 12 - LITIGATION

         An action has been brought against the Company by its former stock
transfer agent who alleges, among other items, that the Company breached its
contract with the transfer agent. The Company has filed an answer to the action
and a portion of the action has been dismissed by the court. A trial date has
been set for May 22, 2006. While the result of litigation is difficult to
predict, counsel has advised the Company that the likelihood of sustaining any
significant damages at trial is minimal. An accrual of $50,000 was recorded at
December 31, 2004.

NOTE 13 - SUBSEQUENT EVENTS

         On January 13, 2006, the Company entered into an Investment Agreement
with Cornell Capital Partners, LP ("Cornell") and together with the Company,
(the "Parties"), pursuant to which the Company shall sell to Cornell up to
16,000 shares of Series A Convertible Preferred Stock, no par value per share,
(the "Series A Preferred Shares") which shall be convertible, at Cornell's
discretion, into shares of the Company's common stock, par value $.00001 per
share (the "Common Stock") for a total price of up to $1,600,000. The Series A
Preferred Shares are senior to all Common Stock and any other series of
preferred stock of the Company. The holders of Series A Preferred Shares are
entitled to receive dividends or distributions on a pro rata basis in the amount
of seven (7) percent per year. Each share of Series A Preferred Shares can be
converted into shares of the Company's Common Stock equal to the sum of the
Liquidation Amount, defined as an amount equal to $100 per share of Series A
Preferred Shares, plus accrued but unpaid dividends thereon, divided by the
Conversion Price. The Conversion Price is defined to be equal to the lower of
(i) $0.192 or (ii) 80% of the lowest daily volume weighted average price of the
Company's Common Stock, as determined by price quotations from Bloomberg, LP,
during the ten (10) trading days immediately preceding the date of conversion.

                                      F-31
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

         Of the 16,000 Series A Preferred Shares to be sold to Cornell, 8,000
Series A Preferred Shares had a purchase price of $800,000, which consisted of
$255,237 from the surrender of a Promissory Note (as described below) and
$544,763 of new funding. The purchase of the additional 8,000 Series A Preferred
Shares, at the purchase price of $800,000, shall close two (2) business days
prior to the date that a registration statement is filed with the United States
Securities and Exchange Commission

         In connection with the sale of the Series A Preferred Shares, on
January 13, 2006, the Parties agreed that Cornell Capital Partners would
surrender the Promissory Note issued by the Company to Cornell on May 17, 2005,
in the principal amount of $255,237, in exchange for $255,237 of Series A
Preferred Shares. As of January 13, 2006, the full amount outstanding under the
Promissory Note was $255,237, plus accrued and unpaid interest of $0. As a
result of the Parties' agreement, the Promissory Note was retired and canceled.
The Parties also agreed to terminate the Securities Purchase Agreement and the
Investor Registration Rights Agreement, each dated as of October 25, 2004, as
well as the Pledge and Escrow Agreements, each dated as of October 21, 2004,
that were entered into by the Parties in connection with the issuance of the
Promissory Note.

         On January 13, 2006, the Company also issued to Cornell warrants to
purchase up to 5,000,000 shares of Common stock. The first warrant issued to
Cornell for 2,500,000 shares of Common Stock at an exercise price of $0.30 per
share, shall terminate after the five (5) year anniversary of the date of
issuance. The second warrant issued to Cornell was for 2,500,000 shares of
Common Stock at an exercise price of $0.20 per share, and shall terminate after
the five (5) year anniversary of the date of issuance.

         THE PREFERRED STOCK AND RELATED ITEMS WILL BE RECORDED IN FISCAL 2006
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPALS. THIS MAY REQUIRE
SOME PORTION TO BE RECORDED OUTSIDE OF PERMANENT EQUITY.

         On January 13, 2006, the Company entered into a Termination Agreement
with Cornell, (the "SEDA Termination Agreement") pursuant to which the Parties
terminated the Standby Equity Distribution Agreement, the Registration Rights
Agreement and the Placement Agent Agreement, each dated as of May 17, 2005. In
connection with the Standby Equity Distribution Agreement, the Company issued to
Cornell 1,202,779 shares of the Company's Common Stock (the "Investor's Shares")
and in connection with the Placement Agent Agreement, the Company issued to
Monitor Capital, Inc., as Placement Agent, 125,000 shares of the Company's
Common Stock (the "Placement Agent's Shares"). Pursuant to the SEDA Termination
Agreement, Cornell retained 600,889 of the Investor's Shares and returned the
other 601,890 of the Investor's Shares to the Company to be cancelled. Monitor
Capital, Inc. retained 62,500 of the Placement Agent's Shares and returned the
other 62,500 of the Placement's Agent's Shares to the Company to be cancelled.

                                      F-32
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

         On January 26, 2006, the Company's Board of Directors , pursuant to
written unanimous consent, appointed David Sasso as the Vice President of
Investor Relations and Corporate Communications of the Company effective January
26, 2006. On February 6, 2006, the Company granted Mr. Sasso 100,000 options to
purchase 100,000 shares of the Company's common stock at $0.15 per share. The
options expire on February 5, 2011. The fair value of this option grant was
estimated at $12,834 on the date of grant using the Black-Scholes option-pricing
model. In connection with these warrants, the Company recorded stock-based
compensation expense of $12,834.

         On February 1, 2006, the Company and the debenture holder (See Note 6 -
Debenture Payable) mutually agreed to extend the term of the debentures until
December 1, 2007. In addition, the Company granted a warrant to purchase 400,000
shares of the Company's common stock to the debenture holder. The warrant has a
term of 2 years and is exercisable at $0.20 per share. The Company agreed to
register 3,571,429 shares of its common stock underlying the conversion of the
Debentures and the exercise of the warrant not later than 30 days after the
Company files its annual report on Form 10-KSB for the fiscal year ended
December 31, 2005. The fair value of this warrant grant was estimated at $46,650
on the date of grant using the Black-Scholes option-pricing model. In connection
with these warrants, the Company recorded interest expense of $46,650.

         On February 1, 2006, the Company's board of directors passed a
resolution allowing the Company enter into a consulting agreement with Steve
Nichols for business development services in New Zealand and granted Mr. Nichols
100,000 options to purchase 100,000 shares of the Company's common stock at
$0.15 per share. The options expire on February 5, 2011. The fair value of this
option grant was estimated at $13,331 on the date of grant using the
Black-Scholes option-pricing model. In connection with these warrants, the
Company recorded deferred consulting expense, which will be amortized over the
contract period.

         On March 20, 2006, the Company entered into a one-year consulting
contract for business development services. In connection with the agreement,
the Company issued 900,000 shares of common stock. The Company valued these
common shares at the fair market value on the dates of grant or $0.11 per share
based on the quoted trading price and recorded deferred consulting expense of
$99,000 to be amortized over the service period. In addition, the Company
granted a warrant to purchase 2,000,000 shares of the Company's common stock.
The warrant has a term expiring January 31, 2009. 1,000,000 of the warrants are
exercisable at $0.20 per share and 1,000,000 of the warrants are exercisable at
$0.25 per share. The fair value of this warrant grant was estimated at $212,345
or $.106 per warrant on the date of grant using the Black-Scholes option-pricing
model. In connection with these warrants, the Company recorded deferred
consulting expense, which will be amortized over the contract period.

                                      F-33
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

Registration Rights Agreement
-----------------------------

         Subject to the terms and conditions of an Investor Registration Rights
Agreement, the Company shall prepare and file, no later than the earlier of 30
days from the date the Company files its Form 10-KSB for the year end December
31, 2005 or the date that such filing is due (the "Scheduled Filing Deadline"),
with the SEC, a registration statement on Form S-1 or SB-2 (or, if the Company
is then eligible, on Form S-3) under the 1933 Act (the "Initial Registration
Statement") for the registration for the resale by the Investor of the
underlying common stock and warrants, including at least 25,000,000 shares
underlying the Series A Preferred Shares and 5,000,000 Warrant Shares. The
Company shall cause the Registration Statement to remain effective until all of
the Registerable Securities have been sold.

         The Company shall use its best efforts (i) to have the Initial
Registration Statement declared effective by the SEC no later than ninety (90)
days from the date hereof (the "Scheduled Effective Deadline") and (ii) to
insure that the Initial Registration Statement and any subsequent Registration
Statement remains in effect until all of the Registerable Securities have been
sold, subject to the terms and conditions of this Agreement. It shall be an
event of default hereunder if the Initial Registration Statement is not declared
effective by the SEC within one hundred twenty (120) days from the date hereof.

         In the event the Registration Statement is not filed by the Scheduled
Filing Deadline or is not declared effective by the SEC on or before the
Scheduled Effective Deadline, or if after the Registration Statement has been
declared effective by the SEC, sales cannot be made pursuant to the Registration
Statement, the Company will pay as liquidated damages (the "Liquidated Damages")
to the holder, at the holder's option, either a cash amount or shares of the
Company's Common Stock equal to two percent (2%) of the Liquidation Amount (as
defined in the Certificate of Designation of Series A Convertible Preferred
Shares) outstanding as Liquidated Damages for each thirty (30) day period or any
part thereof after the Scheduled Filing Deadline or the Scheduled Effective
Deadline as the case may be.

NOTE 14 - RESTATEMENT

After reviewing certain accounting principles the Company has applied in
previously issued financial statements, management has determined that the
Company's accounting for the embedded derivative option related to the Company's
debenture payable should have been classified as a liability on the accompanying
balance sheet and revalued at the end of each period in accordance with SFAS No.
133 and EITF 00-19. Consequently, management is restating its annual financial
statements as of December 31, 2005 and for year then ended. The change in
presentation of the Company's embedded derivative feature associated with its
debenture payable has the effect of increasing total assets by $23,914,
increasing liabilities by $136,176, increasing the stockholders' deficit by
$112,262 as of December 31, 2005, and increasing the Company's net loss by
$49,762 for the year ended December 31, 2005. This change in presentation of the
Company's embedded derivative feature affected some of the items within the
Company's consolidated statement of cash flows for the year ended December 31,
2005 but did not impact cash at the end of the year. Accordingly, the
adjustments to the balance sheet, statement of operations, and statement of cash
flows are summarized as follows:

                                      F-34
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 14 - RESTATEMENT (continued)

                           CONSOLIDATED BALANCE SHEET
                                December 31, 2005
<TABLE>
<CAPTION>
ASSETS
                                                                         Initial                        As
                                                                          Filing     Restatement     Restated
                                                                       -----------   -----------   -----------
<S>                                                                    <C>           <C>           <C>
Current Assets:
  Cash ..............................................................  $     7,875   $         -   $     7,875
  Accounts receivable (Net of allowance for doubtful accounts of $0)       321,240             -       321,240
  Prepaid expenses and other current assets .........................      165,129             -       165,129
                                                                       -----------   -----------   -----------
     Total Current Assets ...........................................      494,244             -       494,244

Software Development Costs, net .....................................      325,564             -       325,564
Property and Equipment, net .........................................      647,534             -       647,534
Deferred Debt Offering Costs ........................................      200,000        23,914       223,914
Other Assets ........................................................        2,400             -         2,400
                                                                       -----------   -----------   -----------
     Total Assets ...................................................  $ 1,669,742   $    23,914   $ 1,693,656
                                                                       ===========   ===========   ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Current portion of capital lease obligation .......................  $    16,289   $         -   $    16,289
  Current portion of loan payable ...................................      546,742             -       546,742
  Accounts payable and accrued expenses .............................    1,340,906             -     1,340,906
  Due to related parties ............................................      228,932             -       228,932
  Loan payable - related party ......................................      233,710             -       233,710
  Convertible loans from related party ..............................      196,621             -       196,621
                                                                       -----------   -----------   -----------
     Total Current Liabilities ......................................    2,563,200             -     2,563,200

Debenture payable, net ..............................................      226,086      (132,336)       93,750
Conversion feature liability ........................................            -       268,512       268,512
Accounts payable and accrued expenses, net of current portion .......      395,834             -       395,834
                                                                       -----------   -----------   -----------
     Total Liabilities ..............................................    3,185,120       136,176     3,321,296
                                                                       -----------   -----------   -----------

Stockholders' Deficit:
  Preferred stock $.0001 par value; 20,000,000 shares authorized;
  No shares issued and outstanding ..................................            -             -             -
  Common stock $.00001 par value; 100,000,000 shares authorized;
  31,640,949 shares issued and outstanding ..........................          316             -           316
  Paid-in capital ...................................................    7,664,813       (62,500)    7,602,313
  Accumulated deficit ...............................................   (9,194,658)      (49,762)   (9,244,420)
  Other comprehensive income - Cumulative foreign currency
   translation adjustment ...........................................       14,151             -        14,151
                                                                       -----------   -----------   -----------
     Total Stockholders' Deficit ....................................   (1,515,378)     (112,262)   (1,627,640)
                                                                       -----------   -----------   -----------
     Total Liabilities and Stockholders' Deficit ....................  $ 1,669,742   $    23,914   $ 1,693,656
                                                                       ===========   ===========   ===========
</TABLE>
                                      F-35
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 14 - RESTATEMENT (continued)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                               For the Year Ended
                                                                                December 31, 2005
                                                                  --------------------------------------------
                                                                     Initial                           As
                                                                     Filing        Restatement      Restated
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
LOSS FROM OPERATIONS ..........................................   $   (163,384)   $          -    $   (163,384)
                                                                  ------------    ------------    ------------

OTHER INCOME (EXPENSES):
  Other expense ...............................................        (18,044)              -         (18,044)
  Foreign exchange gain .......................................         22,735               -          22,734
  Loss on derivative liability ................................              -         (18,512)        (18,512)
  Interest expense ............................................       (376,726)        (31,250)       (407,976)
  Interest expense - related party ............................       (179,303)              -        (179,303)
                                                                  ------------    ------------    ------------
     Total Other Expenses .....................................       (551,338)        (49,762)       (601,101)
                                                                  ------------    ------------    ------------

NET LOSS ......................................................       (714,722)        (49,762)       (764,484)

OTHER COMPREHENSIVE INCOME:
   Unrealized foreign currency translation gain ...............         76,803               -          76,803
                                                                  ------------    ------------    ------------

COMPREHENSIVE LOSS ............................................   $   (637,919)   $    (49,762)   $   (687,681)
                                                                  ============    ============    ============

Net loss per Common Share - Basic and diluted .................   $      (0.02)                   $      (0.03)
                                                                  ============                    ============
Weighted Average Shares Outstanding - Basic and Diluted .......     30,008,516                      30,008,516
                                                                  ============                    ============
</TABLE>
                                      F-36
<PAGE>

                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                December 31, 2005

NOTE 14 - RESTATEMENT (continued)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                     Initial                           As
                                                                     Filing        Restatement      Restated
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................   $   (714,722)   $    (49,762)   $   (764,484)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Depreciation and amortization ............................        250,511               -         250,511
     Amortization of software maintenance costs ...............        153,884               -         153,884
     Beneficial interest ......................................         93,750         (62,500)         31,250
     Stock-based compensation and consulting ..................        295,666               -         295,666
     Grant of warrants in connection with debt conversion .....        129,745               -         129,745
     Amortization of deferred debt issuance costs .............         14,348               -          14,348
     Amortization of discount of debenture payable ............              -          93,750          93,750
     Loss on derivative liability .............................              -          18,512          18,512

Changes in assets and liabilities:
     Accounts receivable ......................................       (151,042)              -        (151,042)
     Prepaid expenses and other current assets ................       (113,582)              -        (113,582)
     Other assets .............................................         (2,400)              -          (2,400)
     Accounts payable and accrued expenses ....................        217,282               -         217,282
     Accrued interest payable, related party ..................         26,096               -          26,096
     Accrued interest payable .................................         14,655               -          14,655
     Due to related parties ...................................         (2,311)              -          (2,311)
     Accounts payable and accrued expenses - long-term ........          2,769               -           2,769
                                                                  ------------    ------------    ------------

NET CASH PROVIDED BY OPERATING ACTIVITIES .....................   $    214,649    $          -    $    214,649
                                                                  ------------    ------------    ------------
</TABLE>

                                      F-37