UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 Form 10-Q (Mark One)x
 QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
 period ended June 30, 2010o
 TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
 transition period from ______ to _______ Commission File No. 0-27845 TRANSAX INTERNATIONAL LIMITED(Name of registrant as specified in its charter) Colorado
 90-0287423(State or other jurisdiction of incorporation
 or organization)
 (I.R.S. Employer Identification No.) 1133 S. University Drive, Suite 210,
Plantation, Florida 33324(Address of principal executive offices) (888) 317-6984(Registrants telephone number, including area code) Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o Indicate
by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. Large
 accelerated filer o
 Accelerated
 filer oNon-accelerated
 filer o
 Smaller
 reporting company x Indicate
by checkmark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x Indicate
the number of shares outstanding of each of the issuers classes of common
stock, as of the most practicable date: 91,662,293 shares of common stock are
issued and outstanding as of August 16, 2010.   TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES
FORM 10-Q
June 30, 2010

TABLE OF CONTENTS

Page No.PART I - FINANCIAL INFORMATIONItem 1.
 Financial
 Statements:Consolidated Balance Sheets - 
 As of June 30, 2010 (unaudited) and December 31, 2009
 3Consolidated Statements of Operations - 
 For the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)
 4Consolidated Statements of Cash Flows -
 For the Six Months Ended June 30, 2010 and 2009 (unaudited)
 5Notes to Unaudited Consolidated Financial
 Statements.
 6Item 2.
 Managements
 Discussion and Analysis of Financial Condition and Results of Operations.
 24Item 3.
 Quantitative
 and Qualitative Disclosures About Market Risk.
 36Item 4
 Controls and
 Procedures.
 36PART II - OTHER INFORMATIONItem 1.
 Legal
 Proceedings.
 38Item 1A.
 Risk
 Factors.
 38Item 2.
 Unregistered
 Sales of Equity Securities and Use of Proceeds.
 38Item 3.
 Defaults
 Upon Senior Securities.
 38Item 4.
 (Removed and
 Reserved).
 38Item 5.
 Other
 Information.
 38Item 6.
 Exhibits.
 38FORWARD LOOKING STATEMENTS

This
report contains forward-looking statements regarding our business, financial
condition, results of operations and prospects. Words such as expects,
anticipates, intends, plans, believes, seeks, estimates and similar
expressions or variations of such words are intended to identify forward-looking
statements, but are not deemed to represent an all-inclusive means of
identifying forward-looking statements as denoted in this report. Additionally,
statements concerning future matters are forward-looking statements.

Although
forward-looking statements in this report reflect the good faith judgment of
our management, such statements can only be based on facts and factors
currently known by us. Consequently, forward-looking statements are inherently
subject to risks and uncertainties and actual results and outcomes may differ
materially from the results and outcomes discussed in or anticipated by the
forward-looking statements. Factors that could cause or contribute to such
differences in results and outcomes include, without limitation, those
specifically addressed under the headings Risks Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations in
our annual report on Form 10-K, in Managements Discussion and Analysis of
Financial Condition and Results of Operations in this Form 10-Q and in other
reports that we file with the SEC. You are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. We file reports with the SEC. The SEC maintains a website (www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including us. You can
also read and copy any materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.

We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of
this report, except as required by law. Readers are urged to carefully review
and consider the various disclosures made throughout the entirety of this Quarterly
Report, which are designed to advise interested parties of the risks and
factors that may affect our business, financial condition, results of
operations and prospects.

2

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS

June 30,
 
 December 31,2010
 
 2009(Unaudited)ASSETSCurrent Assets:Cash
 
 $
 20,602
 
 $
 21,813Accounts receivable, net
 
 
 439,811
 
 
 358,506Prepaid expenses and other current assets
 
 
 365,981
 
 
 448,033Total Current Assets
 
 
 826,394
 
 
 828,352Software development costs, net
 
 
 4,110
 
 
 33,405Property and equipment, net
 
 
 275,561
 
 
 467,701Total Assets
 
 $
 1,106,065
 
 $
 1,329,458LIABILITIES AND STOCKHOLDERS' DEFICITCurrent Liabilities:Current portion of loans payable
 
 $
 1,142,412
 
 $
 795,705Accounts payable and accrued expenses
 
 
 3,382,691
 
 
 2,695,728Deferred gain on sale of minority interest
 in subsidiary
 
 
 937,700
 
 
 937,700Due to related parties
 
 
 694,485
 
 
 572,722Warrant liability
 
 
 243
 
 
 1,696Convertible feature liability
 
 
 1,199,054
 
 
 1,348,157Loans payable - related party
 
 
 443,325
 
 
 419,462Convertible loan - related party
 
 
 231,092
 
 
 220,679Total Current Liabilities
 
 
 8,031,002
 
 
 6,991,849Loans payable, net of current portion
 
 
 139,158
 
 
 63,246Accounts payable and accrued expenses, net
 of current portion
 
 
 1,683,744
 
 
 1,667,950Total Liabilities
 
 
 9,853,904
 
 
 8,723,045COMMITTMENTS AND CONTINGENCIESStockholders' Deficit:Series A convertible preferred stock, no
 par value; 16,000 shares authorized; 14,393 and 14,410 shares issued and
 outstanding at June 30, 2010 and December 31, 2009, respectively; liquidation
 preference $1,439,300 at June 30, 2010
 
 
 1,323,369
 
 
 1,325,039Common stock $.00001 par value; 100,000,000
 shares authorized; 91,662,293 and 87,402,089 shares issued and outstanding at
 June 30, 2010 and December 31, 2009, respectively
 
 
 917
 
 
 874Paid-in capital
 
 
 8,493,817
 
 
 8,474,832Accumulated deficit
 
 
 (18,579,921
 )
 
 (17,212,428
 )Accumulated other comprehensive income
 (loss)
 
 
 13,979
 
 
 18,096Total Stockholders' Deficit
 
 
 (8,747,839
 )
 
 (7,393,587
 )Total Liabilities and Stockholders' Deficit
 
 $
 1,106,065
 
 $
 1,329,4583

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Unaudited)

For the Three Months Ended
 June 30,
 
 For the Six Months Ended
 June 30,2010
 
 2009
 
 2010
 
 2009REVENUES
 
 $
 1,046,429
 
 $
 1,093,705
 
 $
 2,069,261
 
 $
 2,046,023OPERATING EXPENSES:Cost of product support services
 
 
 511,991
 
 
 417,686
 
 
 1,075,586
 
 
 924,824Compensation and related benefits
 
 
 491,198
 
 
 452,642
 
 
 1,048,434
 
 
 783,506Professional fees
 
 
 28,251
 
 
 17,360
 
 
 48,251
 
 
 40,621Management and consulting fees - related
 parties
 
 
 62,055
 
 
 69,760
 
 
 120,500
 
 
 135,019Depreciation and amortization
 
 
 63,238
 
 
 84,948
 
 
 124,616
 
 
 157,717General and administrative
 
 
 308,600
 
 
 295,297
 
 
 590,054
 
 
 565,507Total Operating Expenses
 
 
 1,465,333
 
 
 1,337,693
 
 
 3,007,441
 
 
 2,607,194LOSS FROM OPERATIONS
 
 
 (418,904
 )
 
 (243,988
 )
 
 (938,180
 )
 
 (561,171
 )OTHER INCOME (EXPENSES):Foreign currency exchange gain (loss)
 
 
 19,999
 
 
 (15,445
 )
 
 33,843
 
 
 (5,221
 )Gain (loss) from derivative liabilities
 
 
 (449,458
 )
 
 (2,738,009
 )
 
 133,198
 
 
 (2,609,857
 )Interest expense
 
 
 (112,770
 )
 
 (436,162
 )
 
 (568,234
 )
 
 (528,143
 )Interest expense - related party
 
 
 (14,347
 )
 
 (8,984
 )
 
 (28,120
 )
 
 (17,423
 )Total Other Income (Expenses)
 
 
 (556,576
 )
 
 (3,198,600
 )
 
 (429,313
 )
 
 (3,160,644
 )LOSS BEFORE INCOME TAXES
 
 
 (975,480
 )
 
 (3,442,588
 )
 
 (1,367,493
 )
 
 (3,721,815
 )PROVISION FOR INCOME TAXES
 
 
 
 
 
 
 
 
 
 
 
 NET LOSS
 
 
 (975,480
 )
 
 (3,442,588
 )
 
 (1,367,493
 )
 
 (3,721,815
 )CONVERTIBLE PREFERRED STOCK DIVIDENDS
 
 
 (25,188
 )
 
 (25,220
 )
 
 (50,388
 )
 
 (50,440
 )NET LOSS ALLOCABLE TO COMMON STOCKHOLDERS
 
 $
 (1,000,668
 )
 $
 (3,467,808
 )
 $
 (1,417,881
 )
 $
 (3,772,255
 )COMPREHENSIVE LOSS:NET LOSS
 
 $
 (975,480
 )
 $
 (3,442,588
 )
 $
 (1,367,493
 )
 $
 (3,721,815
 )OTHER COMPREHENSIVE LOSSUnrealized foreign currency translation
 loss
 
 
 (64,677
 )
 
 (189,291
 )
 
 (4,117
 )
 
 (103,922
 )COMPREHENSIVE LOSS
 
 $
 (1,040,157
 )
 $
 (3,631,879
 )
 $
 (1,371,610
 )
 $
 (3,825,737
 )Net Loss per Common Share:Basic
 
 $
 (0.01
 )
 $
 (0.06
 )
 $
 (0.02
 )
 $
 (0.07
 )Diluted
 
 $
 (0.01
 )
 $
 (0.06
 )
 $
 (0.02
 )
 $
 (0.07
 )Weighted Average Shares Outstanding:Basic
 
 
 91,662,293
 
 
 57,402,089
 
 
 90,744,348
 
 
 55,554,391Diluted
 
 
 91,662,293
 
 
 57,402,089
 
 
 90,744,348
 
 
 55,554,391See accompanying notes to the unaudited
consolidated financial statements.

4

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited)

For the Six Months
 Ended June 30,2010
 
 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
 
 $
 (1,367,493
 )
 $
 (3,721,815
 )Adjustments to reconcile net loss to net
 cash (used in) provided by operating activities:Depreciation and amortization
 
 
 124,616
 
 
 157,553Amortization of software maintenance costs
 
 
 29,295
 
 
 65,632Gain from derivative liabilities
 
 
 (133,198
 )
 
 2,609,857Foreign currency exchange gain
 
 
 (33,843
 )
 
 5,221Changes in assets and liabilities:Accounts receivable
 
 
 (93,137
 )
 
 27,251Prepaid expenses and other current assets
 
 
 66,945
 
 
 (10,182
 )Accounts payable and accrued expenses
 
 
 717,036
 
 
 833,968Accrued interest payable, related party
 
 
 28,119
 
 
 17,423Due to related parties
 
 
 121,763
 
 
 130,381Accounts payable and accrued expenses -
 long-term
 
 
 71,496
 
 
 13,029NET CASH (USED IN) PROVIDED BY OPERATING
 ACTIVITIES
 
 
 (468,401
 )
 
 128,318CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property and equipment
 
 
 (22,728
 )
 
 (146,907
 )NET CASH USED IN INVESTING ACTIVITIES
 
 
 (22,728
 )
 
 (146,907
 )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from loans
 
 
 450,560
 
 
 36,952Proceeds from loans payable - related party
 
 
 40,000
 
 
 35,000Payment of capital lease obligations
 
 
 
 
 
 (71,654
 )NET CASH PROVIDED BY FINANCING ACTIVITIES
 
 
 490,560
 
 
 298Effect of Exchange Rate Changes on Cash
 
 
 (642
 )
 
 8,246Net Decrease in Cash
 
 
 (1,211
 )
 
 (10,045
 )Cash, Beginning of Year
 
 
 21,813
 
 
 25,676Cash, End of Period
 
 $
 20,602
 
 $
 15,631SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:Cash paid for interest
 
 $
 254,229
 
 $
 212,805Cash paid for income taxes
 
 $
 
 
 $
 NON-CASH INVESTING AND FINANCING ACTIVITIESSeries A preferred stock converted to
 common stock
 
 $
 1,670
 
 $
 5,000Derivative liability reclassified to equity
 upon conversion
 
 $
 17,357
 
 $
 4,200See accompanying notes to the unaudited
consolidated financial statements.

5

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

The Company

Transax
International Limited (TNSX or the Company) was incorporated in the State
of Colorado in 1987. The Company currently trades on the OTC Pink Sheet market
under the symbol TNSX and the Frankfurt and Berlin Stock Exchanges under the
symbol TX6.

The Company,
primarily through its 55% owned subsidiary, Medlink Conectividade em Saude Ltda
(Medlink Conectividade) is an international provider of information network
solutions specifically designed for healthcare providers and health insurance
companies. The Companys MedLink Solution enables the real time automation of
routine patient eligibility, verification, authorizations, claims processing
and payment functions. The Company has offices located in Plantation, Florida
and Rio de Janeiro, Brazil.

On March 26,
2008, the Company executed a stock purchase and option agreement (the
Agreement) with Engetech, Inc., a Turks & Caicos corporation (the
Buyer) controlled and owned 20% by Americo de Castro, director and President
of Medlink Conectividade, and 80% by Flavio Gonzalez Duarte or assignees. In
accordance with the terms and provisions of the Agreement, the Company sold to
the Buyer 45% of the total issued and outstanding stock of its wholly-owned
subsidiary, Transax Limited, which owns one hundred percent of the total issued
and outstanding shares of: (i) Medlink Conectividade, and (ii) Medlink
Technologies, Inc., (MTI) a Mauritius corporation (See Note 7).

Principles of Consolidation

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 55% owned
subsidiary, Transax Limited, and Transax Limiteds wholly-owned subsidiaries
Medlink Conectividade, and MTI. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements. The
Company records 100% of its Transax Limited losses incurred in 2010 and 2009
since the minority stockholder has no legal obligation to reimburse the Company
for such losses.

Management
acknowledges its responsibility for the preparation of the accompanying interim
consolidated financial statements, which reflect all adjustments, consisting of
normal recurring adjustments, considered necessary, in its opinion, for a fair
statement of its consolidated financial position and the results of its
operations for the interim period presented. These consolidated financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to consolidated financial statements included in
the Companys Form 10-K annual report for the year ended December 31, 2009.

The
accompanying unaudited condensed consolidated financial statements for Transax
International, Inc. and its subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q and
Article 8-03 of Regulation S-X. Operating results for interim periods are not
necessarily indicative of results that may be expected for the fiscal year as a
whole.

Use of Estimates

The
preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, expenses, and the related disclosures at the
date of the financial statements and during the reporting period. Actual
results could materially differ from these estimates.

6

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant
estimates include the allowance for doubtful accounts receivable, the estimated
lives and recoverable value of property, equipment and software development
costs, and the assumptions used to calculate stock-based compensation and
derivative liabilities.

Fair Value of Financial Instruments

The Company
implemented accounting guidance, ASC 820, fair Value Measurements and
Disclosures, on a prospective basis for its non financial assets and
liabilities that are not recognized or disclosed at fair value on a recurring
basis. The guidance requires that the Company determines the fair value of
financial and non-financial assets and liabilities using the fair value
hierarchy and describes three levels of inputs that may be used to measure fair
value as follows:

Level 1-
 inputs which include quoted prices in active markets for identical assets or
 liabilities;Level 2 -
 inputs which include observable inputs other than Level 1 inputs such as
 quoted prices for similar assets and liabilities in active markets, quoted
 prices for identical or similar assets and liabilities in markets that are
 not active, inputs other than quoted prices that are observable, and inputs
 derived from or corroborated by observable market data for the full term of
 the asset or liability; andLevel 3 -
 inputs which include unobservable inputs that are supported by little or no
 market activity and that are significant to the fair value of the underlying
 asset or liability. Level 3 assets and liabilities include those whose fair
 value measurements are determined using pricing models, discounted cash flow
 methodologies or similar valuation techniques, as well as significant
 management judgment or estimation.The carrying
amounts reported in the balance sheet for cash, accounts receivable, loans
payable, accounts payable and accrued expenses, and amounts due from related
parties approximate their fair market value based on the short-term maturity of
these instruments. The Company uses Level 3 inputs to value its derivative
liabilities.

The following
table provides a reconciliation of the beginning and ending balances for the
major classes of assets and liabilities measured at fair value using
significant unobservable inputs (Level 3). The following table reflects gains
and losses for the six months for all financial assets and liabilities
categorized as Level 3 as of June 30, 2010.

Liabilities:Balance of derivative liabilities as of
 January 1, 2010
 
 $
 1,349,853Reclassification of derivative liabilities
 to paid-in capital upon conversion
 
 
 (17,358
 )Decrease in fair value of derivative
 liabilities (a)
 
 
 (133,198
 )Balance of derivative liabilities as of
 June 30, 2010
 
 $
 1,199,297(a)
 The Company
 calculates the fair value of the conversion features on the convertible
 preferred stock and warrants on a quarterly basis, as these conversion
 features on the convertible preferred stock and warrants have been treated as
 a derivative liability since their initial issuance dates (See Note 6).Cash and Cash Equivalents

The Company
considers all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents. The Company had no cash
equivalents at June 30, 2010 and December 31, 2009.

7

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

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 its
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.

The Company
recognizes an allowance for doubtful accounts to ensure accounts receivable are
not overstated due to uncollectability 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 June 30,
2010 and December 31, 2009, the Companys allowance for doubtful accounts was
$0.

The Companys
operations are carried out in Brazil. Accordingly, the Companys business,
financial condition and results of operations may be influenced by the political,
economic and legal environment in Brazil, and by the general state of Brazils
economy. The Companys operations in Brazil are subject to specific
considerations and significant risks not typically associated with companies in
North America. The Companys results may be adversely affected by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.

The Companys
revenues from two major customers for the six months ended June 30, 2010
accounted for approximately 72.9% or $1,507,560 of the revenues. For the six
months ended June 30, 2010, these two major customers accounted for 61.4% and
11.5% of revenues, respectively. At June 30, 2010, these two major customers
accounted for 53.2% and 11.1%, respectively, of the total accounts receivable
balance outstanding. The Companys revenues from two major customers for the
six months ended June 30, 2009 accounted for approximately 75.6% or $1,547,632
of the revenues. For the six months ended June 30, 2009, these two major
customers accounted for 62.1% and 13.5% of revenues, respectively. At June 30,
2009, the two major customers accounted for 63.6% and 14.4%, respectively, of the
total accounts receivable balance outstanding.

The Company
maintains its cash in accounts with major financial institutions in the United
States and Brazil. Deposits in these banks may exceed the amounts of insurance
provided on such deposits. As of June 30, 2010, bank deposits in the United
States did not exceed federally insured limits. At June 30, 2010, the Company
had deposits of $16,199 in banks in Brazil which may not be insured.
Historically, we have not experienced any losses on our deposits of cash.

Property and Equipment, net

Property and
equipment, net, is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed generally by the
straight-line method at rates adequate to allocate the cost of applicable
assets over their estimated useful lives, which range from 2 to 10 years.
Expenditures for maintenance and repairs that do not improve or extend the
lives of the related assets are expensed as incurred, while major repairs are
capitalized.

8

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of Long-Lived Assets

The Company
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset.
The amount of impairment is measured as the difference between the assets
estimated fair value and its book value. The Company did not record any
impairment charges during the six months ended June 30, 2010 and 2009.

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.
Deferred tax assets and liabilities are determined based on differences between
the financial statement and tax basis of assets and liabilities and net
operating loss and credit carry forwards using enacted tax rates in effect for
the year in which the differences are expected to affect taxable income. A
valuation allowance is established, when necessary, to reduce deferred tax
assets to the amount that is more likely than not to be realized. If it becomes
more likely than not that a deferred tax asset will be used, the related
valuation allowance on such assets would be reversed. Management makes
judgments as to the interpretation of the tax laws that might be challenged
upon an audit and cause changes to previous estimates of tax liability. In
managements opinion, adequate provisions for income taxes have been made for
all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversal of reserves may be necessary. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the statement of operations in the period that includes the enactment date.

The Company
has adopted the accounting standard related to the accounting for uncertainty
in income taxes, which provides a financial statement recognition threshold and
measurement attribute for a tax position taken or expected to be taken in a tax
return. The Company may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement. The
accounting standard also provides guidance on de-recognition of income tax
assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, and income tax disclosures. Management believes its exposure to
uncertain tax positions as of June 30, 2010 is deemed immaterial. The Companys
tax returns for the years 2006 and beyond are subject to audit.

Foreign Currency Translation

The reporting
currency of the Company is the U.S. dollar. The functional currency of the
Companys operating subsidiary, Medlink Conectividade, is its local currency,
the Brazilian Real (R$). Results of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are
translated at the unified exchange rate at the end of the period, and equity is
translated at historical exchange rates. Translation adjustments resulting from
the process of translating the local currency financial statements into U.S.
dollars are included in determining comprehensive income (loss). The cumulative
translation adjustment and effect of exchange rate changes on cash for the six
months ended June 30, 2010 and 2009 was $(642) and $8,246, respectively.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.

9

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Asset and
liability accounts at June 30, 2010 and December 31, 2009 were translated at
1.8015 R$ to $1.00 and at 1.7412 R$ to $1.00, respectively. Equity accounts are
translated at their historical rate. Cash flows from the Companys operations
are calculated based upon the local currencies using the average translation
rate. As a result, amounts related to assets and liabilities reported on the
statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet. 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
and are included in determining net earnings.

Although the
Brazilian economy has remained relatively stable in recent years, a return to
higher levels of inflation, and currency exchange rate volatility could
adversely affect the Companys operations. Changes in the 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, are recognized when (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred; (3) the Companys fee is fixed and determinable; and
(4) collectability 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 the 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 on the 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.

Accounting for Conversion Features and
Warrants issued with Preferred Stock

In 2006, the
Company issued 16,000 shares of convertible Series A preferred stock, (see Note
7), which contained an Embedded Conversion Feature, (ECF), and warrants to
purchase common stock. In accordance with the accounting standards related to
accounting for derivative instruments and hedging activities, it was necessary
to evaluate the conversion option separately from the debt host and account for
it separately as a derivative if the conversion option met certain criteria.
The conversion option met all of the three criteria: (1) the conversion feature
is not clearly and closely related to the host component, (2) the convertible
instrument is not accounted for at fair value, and (3) the embedded conversion
option meets the definition of a derivative.

10

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

In assessing
whether or not the conversion option would be classified as equity or a
liability if it were freestanding, management determined whether or not the
Series A convertible preferred stock is considered conventional. Conventional
convertible debt is defined as debt whereby the holder will, at the issuers
option, receive a fixed amount of shares or the equivalent amount of cash as
proceeds when the conversion option is exercised. Management determined that
the Series A convertible preferred stock was not conventional as defined.

This caused
the ECF of the Series A convertible preferred stock to be classified as a
derivative financial instrument. In addition, all warrants to purchase common
stock issued with the preferred stock were then deemed to be derivative
instruments. The accounting treatment of derivative financial instruments
requires that the Company record the ECF and warrants at their fair values as
of each reporting date. Any change in fair value is recorded as a gain or loss
from derivative liabilities within the consolidated statements of operations
for all periods presented. The derivatives are valued using the
Black-Scholes-Merton option pricing model and are classified in the
consolidated balance sheets as current liabilities at June 30, 2010 and
December 31, 2009.

Basic and Diluted Net Loss per Common Share

Basic net loss
per share is computed by dividing net loss allocable to common shareholders by
the weighted average number of shares of common stock outstanding during the
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. Potentially
dilutive common shares consist of common shares issuable upon the conversion of
series A preferred stock (using the if-converted method) and common stock
warrants and options (using the treasury stock method). The following table
presents a reconciliation of basic and diluted net loss per share:

Three Months Ended
 June 30,
 
 Six Months Ended
 June 30,2010
 
 2009
 
 2010
 
 2009Net loss allocable to common shareholders
 for basic and diluted loss per common share
 
 $
 (1,000,668
 )
 $
 (3,467,808
 )
 $
 (1,417,881
 )
 $
 (3,772,255
 )Weighted average common shares outstanding
  basic
 
 
 91,662,293
 
 
 57,402,089
 
 
 90,744,348
 
 
 55,554,391Effect of dilutive securities:Series A convertible preferred stock and
 warrants
 
 
 
 
 
 
 
 
 
 
 
 Weighted average common shares outstanding
 diluted *
 
 
 91,662,293
 
 
 57,402,089
 
 
 90,744,348
 
 
 55,554,391Net loss per common share - basic
 
 $
 (0.01
 )
 $
 (0.06
 )
 $
 (0.02
 )
 $
 (0.07
 )Net loss per common share - diluted
 
 $
 (0.01
 )
 $
 (0.06
 )
 $
 (0.02
 )
 $
 (0.07
 )*
 The
 Companys authorized number of shares of common stock is limited to
 100,000,000 common shares11

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

The following
were excluded from the computation of diluted shares outstanding as they would
have had an anti-dilutive impact. In periods where the Company has a net loss,
all dilutive securities are excluded. In periods where the Company has net
income, the dilutive securities are excluded when, for example, their exercise
prices are greater than the average fair values of the Companys common stock
as follows:

Three Months Ended June 30,
 
 Six Months Ended June 30,2010
 
 2009
 
 2010
 
 2009Stock options
 
 
 1,175,000
 
 
 2,375,000
 
 
 1,175,000
 
 
 2,375,000Stock warrants
 
 
 5,000,000
 
 
 7,402,500
 
 
 5,000,000
 
 
 7,402,500Convertible loan-related party
 
 
 1,400,000
 
 
 1,400,000
 
 
 1,400,000
 
 
 1,400,000Convertible preferred stock
 
 
 890,187,500
 
 
 1,501,041,667
 
 
 890,187,500
 
 
 1,501,041,667Total
 
 
 897,762,500
 
 
 1,512,219,167
 
 
 897,762,500
 
 
 1,512,219,167These common
stock equivalents may be dilutive in the future.
However, the Companys authorized number of shares of common stock is limited
to 100,000,000 common shares and 91,662,293 were outstanding at June 30, 2010;
only 8,337,707 additional shares are authorized for issuance as of that date.

Stock Based Compensation

Stock based
compensation is accounted for based on the requirements of the share-based
payment topic 718 of the Financial Accounting Standards Board, (FASB),
Accounting Standards Codification. This FASB Accounting Standards Codification
requires recognition in the financial statements of the cost of employee and
director services received in exchange for an award of equity instruments over
the period the employee or director is required to perform the services in
exchange for the award (presumptively the vesting period). The FASB Accounting
Standards Codifications also requires measurement of the cost of employee and
director services received in exchange for an award based on the grant-date
fair value of the award.

Advertising

Advertising
costs are expensed when incurred. For the six months ended June 30, 2010 and
2009, advertising expense was deemed immaterial.

Comprehensive Loss

The Company
follows the accounting standards related to reporting comprehensive loss to
recognize the elements of comprehensive loss. Comprehensive loss is comprised
of net loss and all changes to the statements of changes in stockholders
deficit, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders. For the Company, comprehensive loss
for the three and six months ended June 30, 2010 and 2009 included net loss and
unrealized losses from foreign currency translation adjustments.

Research and Development

Research and
development costs are expensed as incurred. For the six months ended June 30,
2010 and 2009, research and development costs were deemed immaterial.

12

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Related Parties

Parties are considered to be
related to the Company if the parties directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the
Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. The Company discloses
all related party transactions. All transactions shall be recorded at fair
value of the goods or services exchanged. Property purchased from a related
party is recorded at the cost to the related party and any payment to or on
behalf of the related party in excess of the cost is reflected as a
distribution to related party.

Subsequent Events

For purposes of determining
whether a post-balance sheet event should be evaluated to determine whether it
has an effect on the financial statements for the period ending June 30, 2010,
subsequent events were evaluated by the Company through the date on which the
consolidated financial statements at and for the six months ended June 30,
2010, were available to be issued.

Recently Issued Accounting Pronouncements

In October 2009, the FASB
issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements. This ASU
establishes the accounting and reporting guidance for arrangements including
multiple revenue-generating activities. This ASU provides amendments to the
criteria for separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in this ASU
also establish a selling price hierarchy for determining the selling price of a
deliverable. Significantly enhanced disclosures are also required to provide
information about a vendors multiple-deliverable revenue arrangements,
including information about the nature and terms, significant deliverables, and
its performance within arrangements. The amendments also require providing
information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The adoption of this new ASU is not expected to have
any material impact on the Companys consolidated financial statements.

In October 2009, the FASB
issued ASU No. 2009-14, Certain Revenue Arrangements That Include Software
Elements. This ASU changes the accounting model for revenue arrangements that
include both tangible products and software elements that are essential to the
functionality, and scopes these products out of current software revenue
guidance. The new guidance will include factors to help companies determine
what software elements are considered essential to the functionality. The
amendments will now subject software-enabled products to other revenue guidance
and disclosure requirements, such as guidance surrounding revenue arrangements
with multiple-deliverables. The amendments in this ASU are effective
prospectively for revenue arrangements entered into or materially modified in
the fiscal years beginning on or after June 15, 2010. Early application is
permitted. The adoption of this new ASU is not expected to have any material
impact on the Companys consolidated financial statements.

13

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

In November 2009, the FASB
issued an ASU regarding accounting for stock dividends, including distributions
to shareholders with components of stock and cash. This ASU clarifies that the
stock portion of a distribution to shareholders that contains components of
cash and stock and allows shareholders to select their preferred form of the
distribution (with a limit on the amount of cash that will be distributed in
total) should be considered a stock dividend and included in EPS calculations
as a share issuance. The adoption of this guidance did not have a material
impact on the Companys consolidated financial statements.

In December 2009, the FASB
issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for the issuance of FASB
Statement No. 167,Amendments to FASB
Interpretation No. 46(R). The amendments in this Accounting
Standards Update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which reporting entity has the power to direct the activities of a variable
interest entity that most significantly impact the entitys economic
performance and (1) the obligation to absorb losses of the entity or (2) the
right to receive benefits from the entity. An approach that is expected to be
primarily qualitative will be more effective for identifying which reporting
entity has a controlling financial interest in a variable interest entity. The
amendments in this Update also require additional disclosures about a reporting
entitys involvement in variable interest entities, which will enhance the
information provided to users of financial statements. The adoption of this ASU
did not have a material impact on its consolidated financial statements.

In January 2010, the FASB
issued ASU No. 2010-01- Accounting for Distributions to Shareholders with
Components of Stock and Cash. The amendments in this Update clarify that the
stock portion of a distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total amount of cash
that all shareholders can elect to receive in the aggregate is considered a
share issuance that is reflected in EPS prospectively and is not a stock
dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per
Share). The amendments in this update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this ASU did not have a material impact on
the Companys consolidated financial statements.

In January 2010, the FASB
issued ASU No. 2010-02  Accounting and Reporting for Decreases in Ownership of
a Subsidiary  a Scope Clarification. The amendments in this Update affect accounting
and reporting by an entity that experiences a decrease in ownership in a
subsidiary that is a business or nonprofit activity. The amendments also affect
accounting and reporting by an entity that exchanges a group of assets that
constitutes a business or nonprofit activity for an equity interest in another
entity. The amendments in this update are effective beginning in the period
that an entity adopts SFAS No. 160, Non-controlling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51. If an entity has previously
adopted SFAS No. 160 as of the date the amendments in this update are included
in the Accounting Standards Codification, the amendments in this update are
effective beginning in the first interim or annual reporting period ending on
or after December 15, 2009. The amendments in this update should be applied
retrospectively to the first period that an entity adopted SFAS No. 160. The
adoption of this ASU did not have any material impact on the Companys
consolidated financial statements.

In January 2010, the FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU
2010-06 requires additional disclosures about fair value measurements including
transfers in and out of Levels 1 and 2 and a higher level of disaggregation for
the different types of financial instruments. For the reconciliation of Level 3
fair value measurements, information about purchases, sales, issuances and
settlements are presented separately.

14

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

This standard is effective
for interim and annual reporting periods beginning after December 15, 2009 with
the exception of revised Level 3 disclosure requirements which are effective
for interim and annual reporting periods beginning after December 15, 2010.
Comparative disclosures are not required in the year of adoption. The Company adopted
the provisions of the standard on January 1, 2010, which did not have a
material impact on the Companys financial statements.

In February 2010, the FASB
issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements. This amendment addresses both the
interaction of the requirements of this Topic with the SECs reporting
requirements and the intended breadth of the reissuance disclosure provision
related to subsequent events (paragraph 855-10-50-4). All of the amendments in
this Update are effective upon issuance of the final Update, except for the use
of the issued date for conduit debt obligors. That amendment is effective for
interim or annual periods ending after June 15, 2010. The adoption of this ASU
did not have an important impact on the Companys financial statements.

In March 2010, the FASB issued ASU 2010-11, Derivatives and
Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.
The amendments in this Update are effective for each reporting entity at the
beginning of its first fiscal quarter beginning after June 15, 2010. Early
adoption is permitted at the beginning of each entitys first fiscal quarter
beginning after issuance of this Update. The Company does not expect the
provisions of ASU 2010-11 to have a material effect on the financial position,
results of operations or cash flows of the Company.

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades - a consensus of the FASB Emerging Issues Task Force.
The amendments in this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2010. Earlier
application is permitted. The Company does not expect the provisions of ASU
2010-13 to have a material effect on the financial position, results of
operations or cash flows of the Company.

In May 2010, the FASB issued
ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple
Foreign Currency Exchange Rates. The amendments in this Update are effective as
of the announcement date of March 18, 2010. The adoption of this update did not
have a material effect on the financial position, results of operations or cash
flows of the Company.

Other accounting standards
that have been issued or proposed by FASB that do not require adoption until a
future date are not expected to have a material impact on the consolidated
financial statements upon adoption.

NOTE 2  GOING CONCERN

Since inception, the Company
has incurred cumulative net losses of $18,579,921, and has a stockholders
deficit of $8,747,839 and a working capital deficit of $7,204,608 at June 30,
2010. Since inception, the Company has funded operations through short-term
borrowings and the proceeds from equity sales 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 to meet its business objectives, including anticipated cash needs
for working capital, for a reasonable period of time. 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.

15

TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES

Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 2  GOING CONCERN (continued)

Further, since fiscal 2000,
the Company has been deficient in the payment of Brazilian payroll taxes and
Social Security taxes. At June 30, 2010 and December 31, 2009, these
deficiencies (including interest and penalties) amounted to approximately
$3,794,000 and $3,224,000, respectively. This payroll liability is included as
part of the accounts payable and accrued expenses (short-term and long-term)
within the consolidated balance sheets. Additionally, the Company had sold 45%
of its operating subsidiary. However, the Buyer has defaulted on payments and
the Company has been renegotiating with the Buyer and its assignee in an
attempt to restructure the contract. As of June 30, 2010, the Company
negotiations with the Buyer have not been successful and the Company intends to
seize the 45% interest in its operating subsidiary and has begun seeking other
potential buyers. If the Company successfully sells its operating subsidiary,
the Company will have no continuing operations. 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.

NOTE 3  PROPERTY AND EQUIPMENT

Property and equipment
consisted of the following at June 30, 2010 and December 31, 2009:

June
 30, 2010
 
 December
 31, 2009Computer Equipment
 
 $
 1,297,615
 
 $
 1,344,636Software
 
 
 684,606
 
 
 695,033Office Furniture and Equipment
 
 
 23,224
 
 
 23,682Vehicle
 
 
 76,619
 
 
 79,272Other
 
 
 21,011
 
 
 9,6702,103,075
 
 
 2,152,293Accumulated Depreciation
 
 
 (1,827,514
 )
 
 (1,684,592
 )$
 275,561
 
 $
 467,701For the six months ended
June 30, 2010 and 2009, depreciation expense amounted to $124,616 and $157,553
respectively.

NOTE 4  RELATED PARTY TRANSACTIONS

Convertible
Loan - Related Party

At June 30, 2010 and
December 31, 2009, the Company had aggregate loans payable for $175,000 to
Carlingford Investments Limited (Carlingford), a related party company whose
officer is an officer of the Company. These loans are convertible into the Companys
common stock at $0.125 per share (1,400,000 common shares). For each share of
common stock 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. The
interest rate of the loan is 12% per annum computed at simple interest. At June
30, 2010 and December 31, 2009, interest due on these loans amounted to $56,092
and $45,679, respectively, and the aggregate principal amount due is $175,000.
During the six months ended June 30, 2010 and 2009, the Company incurred
$10,414 and $10,414, respectively, in interest expense related to these two
loans. These two loans are in default and are due on demand.

16

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 4  RELATED PARTY TRANSACTIONS (continued)

Due
to Related Parties

For the six months ended
June 30, 2010 and 2009, the Company incurred $105,000 and $106,079
respectively, in management fees to an officer/director of the Company, which
has been included in management and consulting fees - related party on the
accompanying consolidated statements of operations. Effective July 1, 2007,
pursuant to a Management Consulting Services Agreement, the Companys board of
directors approved compensation for this officer/director of $17,500 per month.
At June 30, 2010 and December 31, 2009, $597,820 and $492,757 in management
fees and other expenses are payable to this officer/director and are included
in due to related parties on the accompanying consolidated balance sheets. The
amount due is unsecured, non-interest bearing and payable on demand.

For the six months ended
June 30, 2010 and 2009, the Company incurred $15,500 and $28,940, respectively,
in accounting fees to a company whose officer is an officer of the Company. The
fees are included in management and consulting fees - related party on the
accompanying consolidated statements of operations. At June 30, 2010 and
December 31, 2009, $84,665 and $67,965 in these fees is payable to this officer
and are included in due to related parties on the accompanying consolidated
balance sheets. The amount due is unsecured, non-interest bearing and payable
on demand.

At June 30, 2010 and
December 31, 2009, $12,000 and $12,000 in directors fees is payable to this
director and are included in due to related parties on the accompanying
consolidated balance sheets. The amount due is unsecured, non-interest bearing
and payable on demand.

Loans
Payable  Related Party

On March 5, 2004, the
Company borrowed 115,000 Euros (translated to $140,392 and $164,830 at June 30,
2010 and December 31, 2009, respectively) from an officer of the Company for
working capital purposes. The loan accrues 0.8% non-compounding interest per
month, (9.6% per annum), had an initial term of twelve months, and was
repayable quarterly in arrears. This loan has not been repaid and is currently
payable on demand. Additionally, through June 30, 2010, the Company borrowed
$200,000 from this officer. These loans accrue 1.0% non-compounding interest
per month, (12% per annum), and are due on demand. For the six months ended
June 30, 2010 and 2009, the Company incurred $17,706 and $7,010, respectively,
in interest related to these loans. At June 30, 2010 and December 31, 2009,
$102,933 and $94,632 in interest and loan fees was accrued on these loans and
the aggregate principal and interest amount due is $443,325 and $419,462,
respectively, and is included in loan payable - related party on the
accompanying consolidated balance sheets.

NOTE 5  LOANS PAYABLE

The Companys subsidiary,
Medlink Conectividade, has several loans and credit lines with financial
institutions. The loans require monthly installment payments, bear interest at
rates ranging from 18% to 36% per annum, are secured by certain receivables of
Medlink Conectividade, and are due through September 2011. At June 30, 2010 and
December 31, 2009, loans payable to these financial institutions aggregated
$1,281,570 and $858,951, respectively.

17

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 6  STOCKHOLDERS DEFICIT

Preferred
stock

On January 13, 2006, the
Companys Board of Directors approved the creation of 16,000 shares of Series A
Convertible Preferred Stock having the following rights, preferences and
limitations:

(a)
 each share has a stated
 value of $100 per share and no par value;(b)
 With respect to the
 payment of dividends and other distributions on the capital stock of the
 Company, including distribution of the assets of the Company upon
 liquidation, the Series A Preferred Shares shall be senior to the common
 stock of the Company, par value $.00001 per share and senior to all other
 series of Preferred Shares (the Junior Stock).(c)
 The holders of Series A
 Preferred Shares shall be entitled to receive dividends or distributions on a
 pro rata basis according to their holdings of shares of Series A Preferred
 Shares in the amount of seven percent (7%) per year (computed on the basis of
 a 365-day year and the actual days elapsed). Dividends shall be paid in cash.
 Dividends shall be cumulative. No cash dividends or distributions shall be
 declared or paid or set apart for payment on the common stock in any calendar
 year unless cash dividends or distributions on the Series A Preferred Shares
 for such calendar year are likewise declared and paid or set apart for
 payment. No declared and unpaid dividends shall bear or accrue interest.(d)
 Each share of Series A
 Preferred Shares shall be convertible, at the option of the holder thereof,
 at any time after the date of issuance of such shares, into such number of
 fully paid and non-assessable shares of common stock equal to the sum of (i)
 the Liquidation Amount of the Series A Preferred Shares ($100 per share) plus
 (ii) all accrued but unpaid dividends thereon, divided by the Conversion
 Price, which is equal to the lower of (i) $0.192 (the Fixed Conversion
 Price), or (ii) eighty percent (80%) of the lowest daily volume weighted
 average price (VWAP) of the common stock during the ten (10) Trading Days
 immediately preceding the date of conversion (the Market Conversion Price).
 The VWAP shall be determined using price quotations from Bloomberg, LP. A
 Trading Day is any day during which the FINRA OTC Bulletin Board is open
 for trading. Additionally, each share of Series A Preferred Shares shall
 automatically convert into shares of common stock at the Conversion Price
 then in effect immediately upon the consummation of the occurrence of a stock
 acquisition, merger, consolidation or reorganization of the Company into or
 with another entity through one or a series of related transactions, or the
 sale, transfer or lease of all or substantially all of the assets of the
 Company.(e)
 The Series A Preferred
 Shares shall not have any voting rights except as provided under the laws of
 the state of Colorado.(f)
 The Company has the right
 to redeem (unless otherwise prevented by law), with three (3) business days
 advance written notice (the Redemption Notice), any shares of Series A
 Preferred Shares provided that the closing bid price of the of the Companys
 common stock, as reported by Bloomberg, LP, is less than the Fixed Conversion
 Price at the time of the Redemption Notice. The Company shall pay an amount
 equal to One Hundred Fifteen percent (115%) of the Liquidation Amount, plus
 accrued but unpaid dividends thereon (the Redemption Amount). The Company
 shall deliver to the holder the Redemption Amount on the third (3rd) business
 day after the Redemption Notice. Upon receipt of a Redemption Notice, the
 holder shall be entitled to continue to convert outstanding shares of Series
 A Preferred Shares until the Redemption Price is received, subject to the
 conversion limitations as defined. The Company may not redeem these shares
 under any other circumstances.18

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 6  STOCKHOLDERS DEFICIT (continued)

Initially, there was an
automatic conversion clause associated with the Series A Preferred Shares which
would cause them to automatically convert into shares of common stock at the
Conversion Price then in effect upon the third anniversary of the date of the
Investment Agreement. On January 8, 2009, the Company amended the certificate
of designation for the Series A Preferred shares to eliminate this provision.

The Company is required to
record the fair value of the ECF and warrants as a liability. At June 30, 2010
and 2009, the Company revalued the ECF and warrants resulting in a gain (loss)
on derivative liabilities of $133,198 and $(2,609,857) for the six months ended
June 30, 2010 and 2009, respectively.

At June 30, 2010, the
estimated fair value of the ECF and warrants were liabilities of $1,199,054 and
$243, respectively. At December 31, 2009, the estimated fair value of the ECF
and warrants were liabilities of $1,348,157 and $1,696, respectively. These
derivative liabilities are reflected as a conversion feature liability and a
warrant liability, respectively, on the accompanying consolidated balance
sheets.

At the valuation date of
June 30, 2010, the fair value of the ECF and warrants were estimated using the
Black-Scholes-Merton option pricing model with the following assumptions:

Dividend rate
 0%Term (in years)
 0.50
 to 0.54 yearsVolatility
 255%Risk-free interest rate
 0.22%Common
Stock

On February 8, 2010, the
Company issued 4,260,204 shares of its common stock upon conversion of 16.70
shares of Series A preferred stock.

Stock
Options

On November 28, 2004, the
Company adopted the 2004 Incentive Stock Option Plan (the Plan). The Plan, as
amended, provides options to be granted, exercisable for a maximum of 7,000,000
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 of the Board of Directors.

19

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 6  STOCKHOLDERS DEFICIT (continued)

A summary of the status of
the Companys outstanding stock options as of June 30, 2010 and changes during
the period ending on that date is as follows:

Six
 Months Ended
 June 30, 2010Number
 of
 Options
 
 Weighted
 Average
 Exercise PriceStock optionsBalance at beginning of
 the period
 
 
 1,950,000
 
 $
 0.12Granted
 
 
 
 
 
 Exercised
 
 
 
 
 
 Forfeited
 
 
 (775,000
 )
 
 0.15Balance at end of the
 period
 
 
 1,175,000
 
 $
 0.10Options exercisable at end
 of period
 
 
 1,175,000
 
 $
 0.10Weighted average fair
 value of options granted during the period
 
 
 
 
 $
 The following table
summarizes information about employee and consultant stock options outstanding
at June 30, 2010:

Options
 Outstanding
 
 Options
 ExercisableRange ofExercisePrice
 
 Number
 Outstanding at
 June 30, 2010
 
 Weighted
 Average
 Remaining
 Contractual
 Life (Years)
 
 Weighted
 Average
 Exercise
 Price
 
 Number
 Exercisable at
 June 30, 2010
 
 Weighted
 Average
 Exercise
 Price$ 0.15
 
 
 575,000
 
 
 0.77
 
 
 0.15
 
 
 575,000
 
 
 0.15$ 0.06
 
 
 600,000
 
 
 2.41
 
 
 0.06
 
 
 600,000
 
 
 0.061,175,000
 
 
 
 
 $
 0.10
 
 
 1,175,000
 
 $
 0.10As of June 30, 2010 and
December 31, 2009, there are no unrecognized compensation costs since all
options granted under the stock option plan are vested.

20

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 6  STOCKHOLDERS DEFICIT (continued)

Stock
Warrants

A summary of the status of
the Companys outstanding stock warrants as of June 30, 2010 and activities
during the period then ended is as follows:


For
 the Six Months Ended
 June 30, 2010Number
 of
 Warrants
 
 Weighted
 Average
 Exercise PriceWarrantsBalance at beginning of the period
 
 
 5,000,000
 
 $
 0.25Granted
 
 
 
 
 
 Exercised
 
 
 
 
 
 Forfeited
 
 
 
 
 
 Balance at end of the period
 
 
 5,000,000
 
 $
 0.25The following information
applies to all warrants outstanding at June 30, 2010:

Warrants
 Outstanding
 
 Warrants
 ExercisableRange
 of
 Exercise Prices
 
 Shares
 
 Weighted
 Average
 Remaining
 Contractual
 Life (Years)
 
 Weighted
 Average
 Exercise
 Price
 
 Shares
 
 Weighted
 Average
 Exercise
 Price$0.30
 
 
 2,500,000
 
 
 0.54
 
 $
 0.30
 
 
 2,500,000
 
 $
 0.30$0.20
 
 
 2,500,000
 
 
 0.54
 
 
 0.20
 
 
 2,500,000
 
 
 0.205,000,000
 
 
 
 
 $
 0.25
 
 
 5,000,000
 
 $
 0.25NOTE 7  SALE OF NON-CONTROLLING INTEREST IN SUBSIDIARY

On March 26, 2008, the board
of directors of the Company, pursuant to unanimous written consent resolutions,
approved the execution of a stock purchase and option agreement (the
Agreement) with the Buyer. In accordance with the terms and provisions of the
Agreement, the Company sold to the Buyer 45% of the total issued and
outstanding stock of its wholly-owned subsidiary, Transax Limited (Transax
Sub). Transax Sub owns one hundred percent of the total issued and outstanding
shares of: (i) Medlink Conectividade and (ii) MTI.

The purchase price for the
45%, or 45 shares, (Initial Shares) was $3,200,000. Through December 31,
2009, the Company received proceeds towards the purchase price of $937,700. The
Company did not receive any proceeds during the six months ended June 30, 2010.
The balance due and owing by the Buyer is evidenced by an installment note
secured by a pledge of all of the Initial Shares. As of the date of this
report, the Buyer is in default on its payments of principal and interest. At
June 30, 2010 and December 31, 2009, pursuant to the terms of the Agreement, as
amended, the Company has a remaining note receivable of $2,262,300 due from the
Buyer. Since collection of the remaining purchase price is not reasonably
assured, the Company recorded the full amount of the purchase price of
$3,200,000 as deferred revenue and is reflecting the deferred revenue net of
the remaining note receivable on the accompanying consolidated balance sheets.

21

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 7  SALE OF NON-CONTROLLING INTEREST IN SUBSIDIARY
(continued)

Accordingly, at June 30,
2010 and December 31, 2009, the Companys consolidated balance sheets reflect a
deferred gain on the sale of non-controlling interest of $937,700, which will
be recognized as other income when collection is reasonably assured and when
all of the risks and other incidents of ownership have been passed to the buyer
or the Company properly seizes the 45% interest in the operating subsidiary
from the Buyer. At June 30, 2010 and December 31, 2009, deferred gain on sale
of non-controlling interest consists of the following:

Sale price of 45% interest
 in Transax Limited
 
 $
 3,200,000Less: note receivable
 balance
 
 
 (2,262,300
 )Deferred gain on sale of
 non-controlling interest in subsidiary
 
 $
 937,700As of the date of this
report, the Buyer is in default on the remaining notes receivable balance of
$2,262,300. The Company has issued default notices to the buyer in respect of
non-payment under the Agreement and as of June 30, 2010, the Companys
negotiations with the Buyer have not been successful. The Company intends to
seize the 45% interest in its operating subsidiary and has begun seeking other
potential buyers. If the Company successfully sells its operating subsidiary,
the Company will have no continuing operations. The Company is currently in
discussion with the Buyer and/or assignees and other entities and plans to
conclude any renegotiation of contract terms or sale on or before December 31,
2010.

NOTE 8  FOREIGN OPERATIONS

The Company identifies its
operating segments based on its geographical locations. The Company operates in
the United States, Brazil and Mauritius. Substantially all of the Companys
assets are located in Brazil.

Six
 Months Ended
 June 30,2010
 
 2009Revenues to unaffiliated customers:Brazil
 
 $
 2,069,261
 
 $
 2,046,023Operating Expenses:Brazil
 
 
 2,797,858
 
 
 2,411,321USA
 
 
 207,795
 
 
 194,391Mauritius
 
 
 1,788
 
 
 1,482Total Operating Expenses
 
 
 3,007,441
 
 
 2,607,194Loss from operations
 
 
 (938,180
 )
 
 (561,171
 )Other income (expenses):Brazil
 
 
 (568,234
 )
 
 (528,143
 )USA
 
 
 138,921
 
 
 (2,632,501
 )(429,313
 )
 
 (3,160,644
 )Net loss as reported
 
 $
 (1,367,493
 )
 $
 (3,721,815
 )22

TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES 
Notes to the Unaudited Consolidated Financial Statements 
June 30, 2010

NOTE 9  COMMITMENTS AND CONTINGENCIES

Accrued Taxes and Social Contribution

Since 2000, the Company has
been deficient in the payment of Brazilian payroll taxes and Social Security
taxes. At June 30, 2010 and December 31, 2009, these deficiencies, plus
interest and penalties, amounted to approximately $3,794,000 and $3,224,000,
respectively. This liability is included as part of the accounts payable and
accrued expenses (short-term and long-term) within the consolidated balance
sheet. In 2009, the Company submitted to the Brazilian government a request to
pay out the federal taxes pursuant to a recently enacted law issued on May 27,
2009, which refinanced all federal tax debts due by November 30, 2008. The
Companys request was granted by the government on November 16, 2009. The
monthly amount to be paid for the taxes due has not yet been determined by the
government.

Legal Proceedings

The Companys subsidiary,
Medlink Conectividade, is involved in litigation pertaining to a previous
provider of consultancy services regarding breach of contract and two labor law
suits involving employees for claims of unfair dismissal. At June 30, 2010 and
December 31, 2009, the Company has accrued approximately $251,000 and $260,000,
respectively, related to these lawsuits which are probable and estimable. The
ultimate outcome of these claims is uncertain at this time.

23

ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONSThe following analysis of
the results of operations and financial condition should be read in conjunction
with our unaudited consolidated financial statements for the three and six
months ended June 30, 2010 and notes thereto contained elsewhere in this
report.

GENERAL

Transax International
Limited is a Colorado corporation and currently trades on the OTC Pink Sheet market
under the symbol TNSX.PK and the Frankfurt and Berlin Stock Exchanges under
the symbol TX6. Please note that throughout this report, and unless otherwise
noted, the words we, our, us, or the Company refer to Transax
International Limited. 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).

CURRENT BUSINESS OPERATIONS

At the end of the six-month
period ended June 30, 2010, we had eleven signed contracts with Healthcare
Insurance companies in Brazil to develop our solutions. No additional contracts
were signed during the six months ended June 30, 2010. Currently one of our
eleven contracts remains under development with the customer and is awaiting
final implementation. Transaction data under development is being collected in
a test environment and will be subject to full roll out at a later date.

We processed 4.46 million
transactions during the six-month period ended June 30, 2010 compared to 4.00
million transactions during the same period in 2009. Significant new growth was
achieved in the introduction of the companys WEB (internet based) solution
which increased to approximately 500,000 transactions per month in June 2010
from 400,000 transactions in January 2010.

At the end of the six-month
period ended June 30, 2010, we had 20,121 solutions operational in Brazil
compared with 14,628 solutions during the same period in 2009. Our
installations at the end of the six-month period ended June 30, 2010 included
3,094 POS (point of service) solutions, 15,152 WEB solutions and 1,875
Interactive Voice Response (IVR) solutions with the balance of installations
being Personal Computer (PC) and Server based solutions installed in major
medical laboratories. During the six-month period ending June 30, 2010 we
installed over 3,223 new WEB solutions in Brazil, installed 127 IVR solutions
and disconnected 47 POS solutions.

During the six-month period
ended June 30, 2010, the Company maintained its current staffing levels in
response to the development of the Companys HOSP solution, a solution which
would allow real time, on-line healthcare transactions to be undertaken in an
in-patient hospital environment. In addition, the Company is developing a real
time dental solution in response to market demand. Current transactions are
generally limited to real time, on-line transactions in the out-patient
environment.

Stock Purchase and Option Agreement

On March 26, 2008, our board
of directors, pursuant to unanimous written consent resolutions approved the
execution of a stock purchase and option agreement (the Agreement) with
Engetech, Inc., a Turks & Caicos corporation controlled and 20% owned by
Americo de Castro, director and President of our subsidiary, Medlink
Conectividade, and 80% owned by Flavio Gonzalez Duarte (the Buyer). In
accordance with the terms and provisions of the Agreement, we sold to the Buyer
45% of the total issued and outstanding stock of our wholly-owned subsidiary,
Transax Limited. Transax Limited owns 100% of the total issued and outstanding
shares of: (i) Medlink Conectividade; and (ii) Medlink.

24

In accordance with further
terms and provisions of the Agreement: (i) we sold 45 of the 100 shares of
Transax Limiteds issued and outstanding, (the Initial Shares), with an
option to purchase the remaining 55 shares of Transax Limited, (the Option);
and (ii) the Buyer agreed to pay us an aggregate purchase price of $3,200,000
for the Initial Shares. A total of $937,700 was received through December 31,
2009. We did not receive any proceeds during the six months ended June 30,
2010. The Company also has received monies as reimbursement for legal fees
which are excluded from these amounts as they were used to offset the
associated expenses. For the six months ended June 30, 2010, we received $0 of
such reimbursement, and a total of $15,000 of reimbursement was received during
the six months ended June 30, 2009.

The balance due and owing by
the Buyer is evidenced by an installment note secured by a pledge of all of
Initial Shares. As of the date of this report, the Buyer is in default on its
payments of principal and interest. At June 30, 2010, pursuant to the terms of
the Agreement, as amended, the Company has a remaining note receivable of
$2,262,300 due from the Buyer. Since collection of the remaining purchase price
is not reasonably assured, the Company recorded the full amount of the purchase
price of $3,200,000 as deferred revenue and is reflecting the deferred revenue
net of the remaining note receivable on the accompanying consolidated balance
sheets. Accordingly, at June 30, 2010 and December 31, 2009, the Companys
consolidated balance sheets reflect a deferred gain on the sale of
non-controlling interest of $937,700, which will be recognized as other income
when collection is reasonably assured and not until all of the risks and other
incidents of ownership have been passed to the buyer or when the Company
invalidates the Agreement due to breach of contract. At June 30, 2010 and
December 31, 2009, the deferred gain on sale of non-controlling interest
consists of the following:

Sale price of 45% interest
 in Transax Limited
 
 $
 3,200,000Less: note receivable
 balance
 
 
 (2,262,300
 )Deferred gain on sale of
 non-controlling interest in subsidiary
 
 $
 937,700As of the date of this
quarterly report, the Buyer is in default by $2,262,300 in periodic payments.
The Company has issued default notices to the buyer in respect of non-payment
under the Agreement and as of June 30, 2010, the Companys negotiations with
the Buyer have not been successful. The Company intends to seize the 45%
interest in its operating subsidiary and has begun seeking other potential
buyers. If the Company successfully sells its operating subsidiary, the Company
will have no continuing operations. The Company is currently in discussion with
the Buyer and/or assignees and other entities and plans to conclude any
renegotiation of contract terms or sale on or before December 31, 2010.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis
of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We continually
evaluate our estimates, including those related to bad debts, recovery of
long-lived assets, income taxes, the change in fair value of our derivatives,
and the valuation of equity transactions. We base our estimates on historical
experience and on various other assumptions that we believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Any future changes to these estimates and
assumptions could cause a material change to our reported amounts of revenues,
expenses, assets and liabilities. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies affect our more significant judgments and
estimates used in the preparation of the financial statements

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 the
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.

25

Under the criteria set forth
in Accounting Standards Codification Topic 985, 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.

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) collectability 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 on the
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.

RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS

In October 2009, the FASB
issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements. This ASU
establishes the accounting and reporting guidance for arrangements including
multiple revenue-generating activities. This ASU provides amendments to the
criteria for separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in this ASU
also establish a selling price hierarchy for determining the selling price of a
deliverable. Significantly enhanced disclosures are also required to provide
information about a vendors multiple-deliverable revenue arrangements,
including information about the nature and terms, significant deliverables, and
its performance within arrangements. The amendments also require providing
information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The adoption of this new ASU is not expected to have
any material impact on our consolidated financial statements.

In October 2009, the FASB issued
ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements.
This ASU changes the accounting model for revenue arrangements that include
both tangible products and software elements that are essential to the
functionality, and scopes these products out of current software revenue
guidance. The new guidance will include factors to help companies determine
what software elements are considered essential to the functionality. The
amendments will now subject software-enabled products to other revenue guidance
and disclosure requirements, such as guidance surrounding revenue arrangements
with multiple-deliverables. The amendments in this ASU are effective
prospectively for revenue arrangements entered into or materially modified in the
fiscal years beginning on or after June 15, 2010. Early application is
permitted. The adoption of this new ASU is not expected to have any material
impact on our consolidated financial statements.

26

In November 2009, the FASB
issued an ASU regarding accounting for stock dividends, including distributions
to shareholders with components of stock and cash. This ASU clarifies that the
stock portion of a distribution to shareholders that contains components of
cash and stock and allows shareholders to select their preferred form of the
distribution (with a limit on the amount of cash that will be distributed in
total) should be considered a stock dividend and included in EPS calculations
as a share issuance. The adoption of this guidance did not have a material
impact on our consolidated financial statements.

In December 2009, the FASB
issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for the issuance of FASB
Statement No. 167,Amendments to FASB
Interpretation No. 46(R). The amendments in this Accounting
Standards Update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which reporting entity has the power to direct the activities of a variable
interest entity that most significantly impact the entitys economic
performance and (1) the obligation to absorb losses of the entity or (2) the
right to receive benefits from the entity. An approach that is expected to be
primarily qualitative will be more effective for identifying which reporting
entity has a controlling financial interest in a variable interest entity. The
amendments in this Update also require additional disclosures about a reporting
entitys involvement in variable interest entities, which will enhance the
information provided to users of financial statements. The adoption of this ASU
did not have a material impact on its consolidated financial statements.

In January 2010, the FASB
issued ASU No. 2010-01- Accounting for Distributions to Shareholders with
Components of Stock and Cash. The amendments in this Update clarify that the
stock portion of a distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total amount of cash
that all shareholders can elect to receive in the aggregate is considered a
share issuance that is reflected in EPS prospectively and is not a stock
dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per
Share). The amendments in this update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this ASU did not have a material impact on
our consolidated financial statements.

In January 2010, the FASB
issued ASU No. 2010-02  Accounting and Reporting for Decreases in Ownership of
a Subsidiary  a Scope Clarification. The amendments in this Update affect
accounting and reporting by an entity that experiences a decrease in ownership
in a subsidiary that is a business or nonprofit activity. The amendments also
affect accounting and reporting by an entity that exchanges a group of assets
that constitutes a business or nonprofit activity for an equity interest in
another entity. The amendments in this update are effective beginning in the
period that an entity adopts SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51. If an entity
has previously adopted SFAS No. 160 as of the date the amendments in this
update are included in the Accounting Standards Codification, the amendments in
this update are effective beginning in the first interim or annual reporting
period ending on or after December 15, 2009. The amendments in this update
should be applied retrospectively to the first period that an entity adopted
SFAS No. 160. The adoption of this ASU did not have any material impact on our
consolidated financial statements.

In January 2010, the FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU
2010-06 requires additional disclosures about fair value measurements including
transfers in and out of Levels 1 and 2 and a higher level of disaggregation for
the different types of financial instruments. For the reconciliation of Level 3
fair value measurements, information about purchases, sales, issuances and
settlements are presented separately. This standard is effective for interim
and annual reporting periods beginning after December 15, 2009 with the
exception of revised Level 3 disclosure requirements which are effective for interim
and annual reporting periods beginning after December 15, 2010. Comparative
disclosures are not required in the year of adoption. We adopted the provisions
of the standard on January 1, 2010, which did not have a material impact on our
financial statements.

27

In February 2010, the FASB
issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements. This amendment addresses both the
interaction of the requirements of this Topic with the SECs reporting
requirements and the intended breadth of the reissuance disclosure provision
related to subsequent events (paragraph 855-10-50-4). All of the amendments in
this Update are effective upon issuance of the final Update, except for the use
of the issued date for conduit debt obligors. That amendment is effective for
interim or annual periods ending after June 15, 2010. The adoption of this ASU
did not have an important impact on our financial statements.

In March 2010, the FASB issued ASU 2010-11, Derivatives and
Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.
The amendments in this Update are effective for each reporting entity at the
beginning of its first fiscal quarter beginning after June 15, 2010. Early
adoption is permitted at the beginning of each entitys first fiscal quarter
beginning after issuance of this Update. We do not expect the provisions of ASU
2010-11 to have a material effect on the financial position, results of
operations or cash flows of the Company.

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades - a consensus of the FASB Emerging Issues Task Force.
The amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010.
Earlier application is permitted. We do not expect the provisions of ASU
2010-13 to have a material effect on the financial position, results of
operations or cash flows of the Company.

In May 2010, the FASB issued
ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple
Foreign Currency Exchange Rates. The amendments in this Update are effective as
of the announcement date of March 18, 2010. The adoption of this update did not
have a material effect on the financial position, results of operations or cash
flows of the Company.

Other accounting standards that
have been issued or proposed by FASB that do not require adoption until a
future date are not expected to have a material impact on the consolidated
financial statements upon adoption.

28

Consolidated Statement of Operations

THREE AND SIX MONTHS ENDED JUNE 30, 2010
COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2009

Three
 Months Ended June 30,
 
 Six
 Months Ended June 30,2010
 
 
 2009
 
 
 2010
 
 
 2009REVENUES
 
 $
 1,046,429
 
 $
 1,093,705
 
 $
 2,069,261
 
 $
 2,046,023OPERATING EXPENSESCost of product support services
 
 
 511,991
 
 
 417,686
 
 
 1,075,586
 
 
 924,824Compensation and related benefits
 
 
 491,198
 
 
 452,642
 
 
 1,048,434
 
 
 783,506Professional fees
 
 
 28,251
 
 
 17,360
 
 
 48,251
 
 
 40,621Management and consulting feesrelated parties
 
 
 62,055
 
 
 69,760
 
 
 120,500
 
 
 135,019Depreciation and amortization
 
 
 63,238
 
 
 84,948
 
 
 124,616
 
 
 157,717General and administrative
 
 
 308,600
 
 
 295,297
 
 
 590,054
 
 
 565,507TOTAL OPERATING EXPENSES
 
 
 1,465,333
 
 
 1,337,693
 
 
 3,007,441
 
 
 2,607,194LOSS FROM OPERATIONS
 
 
 (418,904
 )
 
 (243,988
 )
 
 (938,180
 )
 
 (561,171
 )OTHER INCOME (EXPENSES)Foreign exchange gain (loss)
 
 
 19,999
 
 
 (15,445
 )
 
 33,843
 
 
 (5,221
 )Gain (loss) from derivative liabilities
 
 
 (449,458
 )
 
 (2,738,009
 )
 
 133,198
 
 
 (2,609,857
 )Interest expense
 
 
 (112,770
 
 
 (436,162
 )
 
 (568,234
 )
 
 (528,143
 )Interest expense related party
 
 
 (14,347
 )
 
 (8,984
 )
 
 (28,120
 )
 
 (17,423
 )(556,576
 )
 
 (3,198,600
 )
 
 (429,313
 )
 
 (3,160,644
 )LOSS BEFORE INCOME TAXES
 
 
 (975,480
 )
 
 (3,442,588
 )
 
 (1,367,493
 )
 
 (3,721,815
 )PROVISION FOR INCOME TAXES
 
 
 
 
 
 
 
 
 
 
 
 NET LOSS
 
 
 (975,480
 )
 
 (3,442,588
 )
 
 (1,367,493
 )
 
 (3,721,815
 )OTHER COMPREHENSIVE LOSSUnrealized foreign currency translation loss
 
 
 (64,677
 )
 
 (189,291
 )
 
 (4,117
 )
 
 (103,922
 )COMPREHENSIVE LOSS
 
 $
 (1,040,157
 )
 $
 (3,631,879
 )
 $
 (1,371,610
 )
 $
 (3,825,737
 )Revenues

During the six months ended
June 30, 2010, we generated $2,069,261 in revenues compared to $2,046,023 in
revenues generated during the six months ended June 30, 2009 (an increase of
$23,238 or 1.1%). The increase in revenues is due to the increase of revenues
from new customers and increased revenues from existing customers. We continue
the installation of our software and/or hardware devices containing our
software at healthcare providers locations in Brazil. Upon installation, we
begin the processing of applications submitted by healthcare providers for
approval of patients for healthcare services from the insurance carrier. We
charge for these services on a per transaction basis. We processed 4,465,984
real time transactions for the six months ended June 30, 2010, of which
949,823 were from POS terminals, 471,280 from PC and PC servers, 2,745,936 were
via our proprietary WEB solution, and 298,945 from our Interactive Voice
Response solution. We processed approximately 4,000,000 real time
transactions for the six months ended June 30, 2009, of which 1,350,000 were
from POS terminals, 450,000 from PC and PC servers, 1,800,000 were via our
proprietary WEB solution, and 400,000 from our Interactive Voice Response
solution. The increase in transaction volume for the six months ended June 30,
2010 compared with the six months ended June 30, 2009 was due to installation
of solution and new transactions from recently signed contracts and continued
roll out of established contracts during the six months ended June 30, 2010.

29

During the three months
ended June 30, 2010, we generated $1,046,429 in revenues compared to $1,093,705
in revenues generated during the three months ended June 30, 2009 (a decrease
of $47,276 or 4.3%). The decrease in revenues is due to the decrease in
transaction volume from higher priced POS solutions to more cost effective WEB
based transactions. We continue the installation of our software and/or
hardware devices containing our software at healthcare providers locations in
Brazil. Upon installation, we begin the processing of applications submitted by
healthcare providers for approval of patients for healthcare services from the
insurance carrier. We charge for these services on a per transaction basis. We
processed 2,287,008 real time transactions for the three months ended June
30, 2010, of which 466,246 were from POS terminals, 246,868 from PC and PC
servers, 1,432,790 were via our proprietary WEB solution, and 141,104 from our
Interactive Voice Response solution. We undertook approximately 2,103,357 real
time transactions during the three months ended June 30, 2009, of which 650,753
were from POS terminals, 219,367 from PC and PC servers, 198,196 from
Interactive Voice Response and 1,035,041 from our proprietary WEB solution. The
increase in transaction volume for the three months ended June 30, 2010
compared with the three months ended June 30, 2009 was due to installation of
new solution and new transactions from recently signed contracts and continued
roll out of established contracts during the three months ended June 30, 2010.

Operating
Expenses

During the six months ended
June 30, 2010, we incurred operating expenses in the aggregate amount of
$3,007,441 compared to $2,607,194 incurred during the six months ended June 30,
2009 (an increase of $400,247 or 15.4%). The increase in operating expenses
incurred during the six-month period ended June 30, 2010 compared to the
six-month period ended June 30, 2009 resulted from: (i) an increase of $150,762
or 16.3% in cost of product support services resulting from the increase in
revenues; (ii) an increase of $264,928 or 33.8% in compensation and related
benefits; (iii) an increase of $7,630 or 18.8% in professional fees incurred;
(iv) a decrease of $14,519 or 10.7% in management and consulting fees-related
parties due to a decrease in use of certain management and a director/consultant
needed to handle our operations; (v) a decrease of $33,101 or 21.0% in
depreciation and amortization; and (vi) an increase of $24,547 or 4.3% in
general and administrative expenses primarily resulting from an increase in
operating costs associated with our increased business revenues in 2010.

During the three months
ended June 30, 2010, we incurred operating expenses in the aggregate amount of
$1,465,333 compared to $1,337,693 incurred during the three months ended June
30, 2009 (an increase of $127,640 or 9.5%). The increase in operating expenses
incurred during the three-month period ended June 30, 2010 compared to the
three-month period ended June 30, 2009 resulted from: (i) an increase of
$94,305 or 22.6% in cost of product support services resulting from the
increase in revenues; (ii) an increase of $38,556 or 8.5% in compensation and
related benefits; (iii) an increase of $10,891 or 62.7% in professional fees
incurred; (iv) a decrease of $7,705 or 11.0% in management and consulting
fees-related parties due to a decrease in use of certain management and a
director/consultant needed to handle our operations; (v) a decrease of $21,710
or 25.6% in depreciation and amortization; and (vi) an increase of $13,303 or
4.5% in general and administrative expenses primarily resulting from an
increase in operating costs associated with our increased business revenues in
2010.

Loss
from Operations

We reported a loss from
operations of $938,180 during the six months ended June 30, 2010 as compared to
loss from operations of $561,171 during the six months ended June 30, 2009 due
to the factors previously discussed.

We reported a loss from
operations of $418,904 during the three months ended June 30, 2010 as compared
to loss from operations of $243,988 during the three months ended June 30, 2009
due to the factors previously discussed.

30

Other
Income (Expenses)

During the six-month period
ended June 30, 2010, we incurred other expenses of $429,313 as compared to
other expenses of $3,160,644 during the six-month period ended June 30, 2009
(an decrease of $2731,331 or 86.4%). The variance change during the six-month
period ended June 30, 2010 compared to the six-month period ended June 30, 2009
resulted primarily from the six-month period change in the fair value of the
Companys derivative liabilities. We recorded a gain of $133,198 in the 2010
period as compared to a loss of $2,609,857 in the comparable period of 2009
offset by the increase in interest expense of $50,788 principally attributable
to interest cost associated with our loans and delinquent Brazilian payroll
taxes and Social Security taxes. This change in the fair value of the Companys
derivative liabilities position is related to the classification of the
embedded conversion feature and related warrants issued in connection with our
Series A Preferred Stock as derivative instruments.

During the three-month
period ended June 30, 2010, we incurred other expenses of $556,576 compared to
other expense of $3,198,600 during the three-month period ended June 30, 2009
(a decrease of $2,642,024 or 82.6%). The variance change during the three-month
period ended June 30, 2010 as compared to the three-month period ended June 30,
2009 resulted primarily from the three-month period change in the fair value of
the Companys derivative liabilities. We recorded a loss of $449,458 in the
2010 period as compared to a loss of $2,738,009 in the comparable period of
2009 and a decrease in interest expense of $318,029. The change in the fair
value of the Companys derivative liabilities position is related to the
classification of the embedded conversion feature and related warrants issued
in connection with our Series A Preferred Stock as derivative instruments.

Net
Loss

For the six-month period
ended June 30, 2010 our net loss was $1,367,493 compared to a net loss of
$3,721,815 for the six-month period ended June 30, 2009. Our net loss for the
three months ended June 30, 2010 was $975,480 compared to net loss of
$3,442,588 for the three months ended June 30, 2009 (a decrease of $2,467,108
or 71.7%). During the three and six-month period ended June 30, 2010 and 2009,
we did not record any tax provision for Brazilian income taxes due to our net
loss.

During the six-month period
ended June 30, 2010, we recorded a cumulative preferred stock dividend of
$50.388 compared to $50,440 during the six-month period ended June 30, 2009.
During the three-month period ended June 30, 2010, we recorded a cumulative
preferred stock dividend of $25,188 compared to $25,220 during the three-month
period ended June 30, 2009. The cumulative dividends relates to our Series A
Preferred Stock.

For the six months ended
June 30, 2010, we reported net loss allocable to common shareholders of
$1,417,881 as compared to net loss allocable to common shareholders of
$3,772,255 for the six months ended June 30, 2009. This translates to an
overall net loss per common share (basic and diluted) available to shareholders
of $(0.02) and $(0.07) for each of the six-month periods ended June 30, 2010
and 2009, respectively. For the three months ended June 30, 2010, we reported a
net loss allocable to common shareholders of $1,000,668 as compared to a net
loss allocable to common shareholders of $3,467,808 for the three months ended
June 30, 2009. This translates to an overall net loss per common share (basic
and diluted) available to shareholders of $(0.01) and $(0.06) for each of the
three-month periods ended June 30, 2010 and 2009, respectively.

Comprehensive
Loss

During the six-month period
ended June 30, 2010 and 2009, we recorded an unrealized foreign currency
translation loss of $4,117 and $103,922, respectively. This resulted in
comprehensive loss for the six months ended June 30, 2010 of $1,371,610
compared to a comprehensive loss of $3,825,737 for the six months ended June
30, 2009. During the three-month period ended June 30, 2010 and 2009, we
recorded an unrealized foreign currency translation loss of $64,677 and
$189,291, respectively. This resulted in a comprehensive loss for the three
months ended June 30, 2010 of $1,040,157 as compared to a comprehensive loss of
$3,631,879 for the three months ended June 30, 2009.

31

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of
a company to generate funds to support its current and future operations, satisfy
its obligations and otherwise operate on an ongoing basis. At June 30, 2010 and
December 31, 2009, we had cash balances of $20,602 and $21,813, respectively.
These funds are located in financial institutions located as follows:

June 30, 2010
 
 December 31, 2009Country:United States
 
 $
 4,403
 
 
 21.4
 %
 $
 2,745
 
 
 12.6
 %Brazil
 
 
 16,199
 
 
 78.6
 %
 
 19,068
 
 
 87.4
 %Total cash and cash
 equivalents
 
 $
 20,602
 
 
 100.0
 %
 $
 21,813
 
 
 100.0
 %As of June 30, 2010, our
current assets were $826,394 and our current liabilities were $8,031,002, which
resulted in a working capital deficit of $7,204,608. As of June 30, 2010, our
total assets were $1,106,065 consisting of: (i) $20,602 in cash; (ii) $439,811
in accounts receivable; (iii) $365,981 in prepaid expenses and other current
assets; (iv) $4,110 in net software development costs; and (v) $275,561 in net
property and equipment. As at June 30, 2010, our total assets were $1,106,065
compared to $1,329,458 at December 31, 2009.

As of June 30, 2010, our
total liabilities were $9,853,904 consisting of: (i) $5,066,435 in current and
non-current portion of accounts payable and accrued expenses; (ii) $694,485 due
to related parties; (iii) $231,092 in a convertible loan and interest to a
related party; (iv) $443,325 in loans and interest payable to a related party;
(v) $1,281,570 in current and non-current portion of loans payable; (vi) $243
in warrant liability; (vii) $1,199,054 in convertible feature liability; and
(viii) $937,700 in deferred gain on sale of non-controlling interest in
subsidiary. At June 30, 2010, our total liabilities were $9,853,904 compared to
$8,723,045 at December 31, 2009.

For the six months ended
June 30, 2010, net cash flow used in operating activities was $468,401 compared
to net cash provided by operating activities of $128,318 for the six months
ended June 30, 2009. For the six months ended June 30, 2010, net cash flows
used in operating activities is principally due to our net loss of $(1,367,493)
and the add back of certain non-cash item such as a gain on derivative
liabilities of $(133,198) and depreciation and amortization of $124,616 and
changes in operating assets and liabilities, such as an increase in accounts
receivable of $(93,137) offset by a decrease in prepaid expenses and other
current assets of $66,945, an increase in accounts payable and accrued expenses
of $717,036, an increase in accrued interest payable - related party of
$28,119, an increase in due to related parties of $121,763, and an increase in
accounts payable and accrued expenses (long-term) of $71,496. For the six
months ended June 30, 2009, net cash flows provided by operating activities is
principally due to our net loss of $(3,721,815) adjusted for non-cash items of
$2,838,263 such as a loss from derivative liabilities of $2,609,857,
depreciation and amortization of $157,553,the amortization of software
maintenance costs of $65,632, and a foreign currency loss of $5,221, and
changes in operating assets and liabilities such as a decrease in accounts
receivable of $27,251, an increase in accounts payable and accrued expenses of
$846,997, an increase in accrued interest payable-related party of $17,423, and
an increase in due to related parties of $130,381, offset by a decrease in
prepaid expense and other current assets of $10,182.

Net cash flows used in
investing activities amounted to $22,728 for the six months ended June 30, 2010
as compared to net cash used in investing activities of $146,907 for the six
months ended June 30, 2009. During the six months ended June 30, 2010, we used
cash for the acquisition of property and equipment of $22,728. During the six
months ended June 30, 2009, we used cash for the acquisition of property and equipment
of $146,907.

Net cash flows provided by
financing activities for six months ended June 30, 2010 were $490,560 as
compared to net cash flows provided by financing activities of $298 for six
months ended June 30, 2009. For the six months ended June 30, 2010, cash flow
provided by financing activities was attributable to $450,560 in proceeds from
loans and $40,000 in proceeds from loans-related party. For the six months
ended June 30, 2009, cash flow provided by in financing activities was attributable
to $36,952 in proceeds from loans and $35,000 in proceeds from loans-related
party offset by the payment of capital lease obligations of $71,654.

32

PLAN OF OPERATION

Since our inception, we have
funded operations through borrowings and equity sales 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.

YA GLOBAL INVESTMENTS (YA GLOBAL)

On January 13, 2006, we
entered into an Investment Agreement with YA Global (collectively, the
Parties), pursuant to which we sold YA Global up to 16,000 shares of Series A
Convertible Preferred Stock, no par value, (the Series A Preferred Shares)
for a total price of up to $1,600,000. The Series A Preferred Shares are
convertible, at YA Globals discretion, into shares of our common stock.

In connection with the
Investment Agreement, the Parties entered into an Investor Registration Rights
Agreement (the IRRA), dated January 13, 2006, pursuant to which the Parties
agreed that, in the event the Registration Statement is not filed within thirty
(30) days from the date we file our Annual Report on Form 10-KSB for the year
ended December 31, 2005 (the Filing Deadline) or is not declared effective by
the Securities and Exchange Commission within ninety (90) days of the date of
the IRRA (the Effective Deadline), then as relief for the damages to any
holder of Registerable Securities (as defined in the IRRA) by reason of any
such delay in or reduction of its ability to sell the underlying shares of
common stock (which remedy shall not be exclusive of any other remedies at law
or in equity), we would pay as liquidated damages to the holder, at the
holders option, either a cash amount or shares of our 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 Filing
Deadline or the Effective Deadline as the case may be. It shall also become an
event of default under the IRRA if the Registration Statement is not declared
effective by the Securities and Exchange Commission within one-hundred twenty
(120) days from the date of the IRRA.

We initially filed our
Registration Statement with the Securities and Exchange Commission on May 9,
2006. As of the date of this Quarterly Report, the Registration Statement has
not been declared effective by the Securities and Exchange Commission. We do
not have any intent to re-file our Registration Statement and on November 13,
2008, we formally withdrew the Registration Statement by filing form RW with
the Securities and Exchange Commission. The Company recorded a registration
rights penalty expense of $160,000 that is included in accrued expenses on the
accompanying consolidated balance sheet. Based on managements analysis, the
Company does not believe that any additional penalty is due under the Investor
Registration Rights Agreement.

Certain 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 YA Global (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.

33

During the six months ended
June 30, 2010, we issued 4,260,204 shares of our common stock to YA Global in
connection with the conversion of 16.7 shares of Series A Preferred Stock.

As of the date of this
Quarterly 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 consummate the sale of our
subsidiary, Medlink Connectividade and to subsequently further 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 may need to 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 with acceptable terms, we may not be able to
conduct our business operations successfully. This eventuality could
significantly and materially restrict our overall business operations.

Based upon a twelve (12)
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.

We believe that we can
satisfy our cash requirements for the next twelve (12) months based on our
ability to consummate the sale of Transax Limiteds subsidiary-Medlink
Connectividade, and 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.

MATERIAL COMMITMENTS

Convertible Loans  Related Party

A material liability for us
at June 30, 2010 is the aggregate principal amount of $175,000 and $56,092 in
accrued interest due and owing to a related party in accordance with two
convertible promissory notes (collectively, the Convertible Promissory
Note(s)). The Convertible Promissory Notes are convertible into shares of our
common stock at $0.125 per share together with a warrant to purchase our common
stock at $0.25 per share for a period of two years. As of June 30, 2010, an
aggregate principal amount of $175,000 and interest in the amount of $56,092
remains due and owing under the Convertible Promissory Notes. As of the date of
this quarterly report, the Convertible Promissory Notes are deemed in default
and are due on demand.

34

Loan  Related Party

A material liability for us
at June 30, 2010 is the aggregate amount of $443,325 in principal and interest
due and owing to Stephen Walters, our Chief Executive Officer (collectively,
the Loans). The Loans are evidenced by a promissory note with an interest
rate of 0.8% per month and are currently due on demand. For the six months
ended June 30, 2010 and 2009, we incurred $17,706 and $12,794, respectively, in
interest related to these loans. At June 30, 2010 and December 31, 2009,
$102,933 and $94,632 in interest and loan fees was accrued on these loans and
the aggregate principal and interest amount due is $443,325 and $419,462,
respectively. During the six months ended June 30, 2010, we borrowed $40,000
which was used for working capital purposes.

Consulting Agreement

A material liability for us
at June 30, 2010 is the amount due and owing as management fees to Stephen
Walters, our Chief Executive Officer. For the six months ended June 30, 2010
and 2009, we incurred $105,000 and $106,079, respectively, in management fees.
At June 30, 2010 and December 31, 2009, $597,820 and $492,757 in management
fees and other expenses are payable to Mr. Walters. In accordance with the
terms of an agreement effective July 2007, we pay monthly to Mr. Walters an
aggregate amount of $17,500 as compensation for managerial and consulting
services he provides.

Accrued Taxes and Related Expenses

A material estimated
liability for us for fiscal year 2010 and 2009 is the amount due and owing for
Brazilian payroll taxes and Social Security taxes. At June 30, 2010 and
December 31, 2009, these deficiencies, plus interest and penalties, amounted to
approximately $3,794,000 and $3,224,000, respectively.

Since 2000, the Company has
been deficient in the payment of Brazilian payroll taxes and Social Security
taxes. At June 30, 2010 and December 31, 2009, these deficiencies, plus
interest and penalties, amounted to approximately $3,794,000 and $3,224,000,
respectively. This liability is included as part of the accounts payable and
accrued expenses (short-term and long-term) within the consolidated balance
sheet. In 2009, the Company submitted to the Brazilian government a request to
pay out the federal taxes pursuant to a recently enacted law issued on May 27,
2009, which refinanced all federal tax debts due by November 30, 2008. The
Companys request was granted by the government on November 16, 2009. The
monthly amount to be paid for the taxes due has not yet been determined by the
government.

Medlink Connectividade Loan Payable and Other Loans Payable

At June 30, 2010,
significant liabilities for us are the several loans and credit lines with
financial institutions in Brazil. The Brazil loans require monthly installment
payments, bear interest at rates ranging from 18% to 36% per annum, are secured
by certain receivables of Medlink Connectividade, and are due through September
2011. As of June 30, 2010 and December 31, 2009, the loans payable to these
financial institutions and others aggregated $1,281,570 and $858,951,
respectively.

Purchase of Significant Equipment

We do not intend to purchase
any significant equipment during the next twelve months.

35

Off-Balance Sheet Arrangements

As of the date of this
quarterly 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 3.
 QUANTITATIVE
 AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot required for smaller
reporting companies.

ITEM 4T.
 CONTROLS
 AND PROCEDURESEvaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934 (Exchange Act), the Company carried
out an evaluation, with the participation of the Companys management,
including the Companys Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) (the Companys principal financial and accounting officer), of
the effectiveness of the Companys disclosure controls and procedures (as
defined under Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this report. Based upon that evaluation, the Companys CEO
and CFO concluded that the Companys disclosure controls and procedures are not
effective to ensure that information required to be disclosed by the Company in
the reports that the Company files or submits under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms, and that such information is accumulated and
communicated to the Companys management, including the Companys CEO and CFO,
as appropriate, to allow timely decisions regarding required disclosure. The
conclusion was reached due to material weaknesses that we identified in
internal control over financial reporting.

In designing and evaluating
our disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management is required to apply its judgment in evaluating and implementing
possible controls and procedures.

Managements Annual Report on Internal Control over Financial
Reporting.

Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act. Our management is also required to assess and report
on the effectiveness of our internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404)
on a annual basis. Management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2009. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. In our assessment of the effectiveness of internal
control over financial reporting as of December 31, 2009, our management
determined that material weaknesses existed as outlined below. A material
weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency,
or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected in a
timely basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control over financial reporting that is less severe
than a material weakness, yet important enough to merit attention by those
responsible for oversight of the companys financial reporting. Therefore, our
internal controls over financial reporting were not effective as of December
31, 2009.

36

Management identified
material weaknesses related to (i) the U.S. GAAP expertise of our internal accounting
staff, (ii) our internal audit functions; (iii) the absence of an Audit
Committee as of December 31, 2009, and (iv) a lack of segregation of duties
within accounting functions.

We began preparing to be in
compliance with the internal control obligations including Section 404, in
fiscal year ending December 31, 2009 and we will continue to comply with our
internal control obligations as working capital permits. Our internal
accounting staff was primarily engaged in ensuring compliance with Brazil
accounting and reporting requirements for our operating subsidiary and their
U.S. GAAP knowledge was limited. As a result, majority of our internal
accounting staff is relatively inexperienced with U.S. GAAP and the related
internal control procedures required of U.S. public companies. Although our
accounting staff is professional and experienced in accounting requirements and
procedures generally accepted in Brazil, management has determined that they
require additional training and assistance in U.S. GAAP matters. Management has
determined that our internal audit function is also significantly deficient due
to insufficient qualified resources to perform internal audit functions.
Finally, management determined that the lack of an Audit Committee of our Board
of Directors also contributed to insufficient oversight of our accounting and
audit functions.

In order to correct the
foregoing material weaknesses, we have taken the following remediation
measures:


 We have committed to the
 establishment of effective internal audit functions, however, due to the
 scarcity of qualified candidates with extensive experience in U.S. GAAP
 reporting and accounting in the region as well as a lack of operating funds,
 we have not hired sufficient internal audit resources before June 30, 2010.
 We intend to search for qualified candidates with the assistance of
 recruiters and through referrals.
 We will consider searching
 for independent directors, with one qualified to serve on an audit committee
 to be established by our Board of Directors and we anticipate that our Board
 of Directors will also establish a compensation committee to be headed by one
 of the independent directors.
 Due to our size and
 nature, segregation of all conflicting duties may not always be possible and
 may not be economically feasible. However, to the extent possible, we will
 implement procedures to assure that the initiation of transactions, the
 custody of assets and the recording of transactions will be performed by
 separate individuals.We believe that the
foregoing steps will remediate the significant material weaknesses identified
above, and we will continue to monitor the effectiveness of these steps and
make any changes that our management deems appropriate. Due to the nature of
these material weaknesses in our internal control over financial reporting,
there is a remote likelihood that misstatements which could be material to our
annual or interim financial statements could occur that would not be prevented
or detected.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.

Changes in Internal Control
over Financial Reporting

There were no changes in our
internal controls over financial reporting during the period covere3d by this
report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

37

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Our subsidiary, Medlink
Connectividade, is involved in litigation pertaining to a previous provider of
consultant services regarding breach of contract and two labor law suits
involving employees for unfair dismissal claims. At June 30, 2010 and December
31, 2009, we have accrued approximately $251,000 and $260,000, respectively,
related to these lawsuits. The outcome of these claims is uncertain at this
time.

Management is not aware of
any other legal proceedings contemplated by any governmental authority or any
other party involving us or our properties. As of the date of this Quarterly
Report, no director, officer or affiliate is (i) a party adverse to us in any
legal proceeding, or (ii) has an adverse interest to us in any legal
proceedings. Management is not aware of any other legal proceedings pending or
that have been threatened against us or our properties.

ITEM 1A. RISK FACTORS

Not required for smaller
reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1
 Rule 13a-14(a)/15d-14(a)
 certification of Chief Executive Officer31.2
 Rule 13a-14(a)/15d-14(a)
 certificate of Chief Financial Officer32.1
 Section 1350 certification
 of Chief Executive Officer32.2
 Section 1350 certification
 of Chief Financial Officer38

SIGNATURES

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

TRANSAX INTERNATIONAL LIMITED

Dated: August 23, 2010
 By: /s/ STEPHEN WALTERSStephen Walters,
 President/ChiefExecutive Officer and
 DirectorDated: August 23, 2010
 By: /s/ADAM WASSERMANAdam Wasserman, Chief
 Financial Officerand Principal Accounting
 Officer39