UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 10-QSB/A
                                 Amendment No. 2
(Mark One)

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

                  For the quarterly period ended March 31, 2006

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

              For the transition period from ________ to __________


                         Commission File Number: 0-27845


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


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


                        8th Floor, 5201 Blue Lagoon Drive
                                Miami, FL, 33126
                        ---------------------------------
                    (Address of principal executive offices)


                                 (305) 629-3090
                                 --------------
                (Issuer's telephone number, including area code)

Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes _____ No __X__

Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years. N/A

Check whether the Registrant filed all documents required to be filed by Section
12, 13 and 15(d) of the Exchange Act after the distribution of securities under
a plan confirmed by a court. Yes _____ No _____

                      Applicable only to corporate issuers

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

                   Class                    Outstanding as of May 17 2006
                   -----                    -----------------------------
      Common Stock, $0.00001 par value                31,576,559

<PAGE>

                   EXPLANATORY NOTE REGARDING AMENDMENT NO. 2

Transax International Limited (the "Company") is amending this Quarterly Report
on Form 10-QSB for the period ended March 31, 2006 in response to the U.S.
Securities & Exchange Commission's Comment Letter to the Company dated August
25, 2006 (the "Comment Letter"). In particular, the Company has added language
in the Section entitled "Item 3. Controls & Procedures" in accordance with the
Comment Letter as well as the disclosure of certain negative covenants in the
Section entitled "Item 2 - Management's Discussion & Analysis or Plan of
Operation" with respect to the Securities Purchase Agreement, dated April 1,
2005, by and between the Company and Scott and Heather Grimes. The remaining
Items contained in this report consist of all other Items originally contained
in Amendment No. 1 to our Quarterly Report on Form 10-QSB for the period ended
March 31, 2006 as filed on July 10, 2006. This report does not reflect events
occurring after the filing of the original Quarterly Report on Form 10-QSB, nor
modify or update those disclosures in any way other than as required to reflect
the comments of the SEC in the Comment Letter.

                                       -1-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                                   FORM 10-QSB/A
                      QUARTERLY PERIOD ENDED MARCH 31, 2006

                                      INDEX

                                                                            Page
                                                                            ----
PART I - FINANCIAL INFORMATION

      Item 1 - Consolidated Financial Statements

      Consolidated Balance Sheet (Unaudited)
               As of March 31, 2006........................................    3

      Consolidated Statements of Operations (Unaudited)
               For the Three Months Ended March 31, 2006 and 2005..........    4

      Consolidated Statements of Cash Flows (Unaudited)
               For the Three Months Ended March 31, 2006 and 2005..........    5

      Notes to Unaudited Consolidated Financial Statements................. 6-24

      Item 2 - Management's Discussion and Analysis or Plan of Operation...25-33

      Item 3 - Controls and Procedures.....................................34-35


PART II - OTHER INFORMATION

      Item 1 - Legal Proceedings...........................................   36

      Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.   37

      Item 3 - Default Upon Senior Securities..............................   37

      Item 4 - Submission of Matters to a Vote of Security Holders.........   37

      Item 5 - Other Information...........................................   37

      Item 6 - Exhibits....................................................   37

      Signatures...........................................................   38


                                       -2-
<PAGE>
<TABLE>
                                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                                           CONSOLIDATED BALANCE SHEET
                                                 March 31, 2006
                                           (As Restated - See Note 8)
                                                  (Unaudited)
<CAPTION>
                                                     ASSETS
<S>                                                                                               <C>
CURRENT ASSETS:
  Cash ......................................................................................     $     44,333
  Accounts receivable (Net of allowance for doubtful accounts of $0) ........................          439,020
  Prepaid expenses and other current assets .................................................          208,366
                                                                                                  ------------

     TOTAL CURRENT ASSETS ...................................................................          691,719

SOFTWARE DEVELOPMENT COSTS, net .............................................................          361,140
PROPERTY AND EQUIPMENT, net .................................................................          778,587
DEFERRED DEBT OFFERING COSTS ................................................................           19,131
OTHER ASSETS ................................................................................            4,800
                                                                                                  ------------

     TOTAL ASSETS ...........................................................................     $  1,855,377
                                                                                                  ============

                                     LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Current portion of capital lease obligation ...............................................     $      1,982
  Current portion of loan payable ...........................................................          369,004
  Accounts payable and accrued expenses .....................................................        1,299,128
  Due to related parties ....................................................................          235,166
  Warrant liability .........................................................................          628,798
  Convertible feature liability .............................................................          462,065
  Loan payable - related party ..............................................................          152,967
  Convertible loans from related party ......................................................          201,799
                                                                                                  ------------

     TOTAL CURRENT LIABILITIES ..............................................................        3,350,909

DEBENTURE PAYABLE, NET ......................................................................          125,000
CONVERTIBE FEATURE LIABILITY ................................................................          273,438
ACCOUNTS PAYABLE AND ACCRUED EXPENSES, net of current portion ...............................          500,345
                                                                                                  ------------

     TOTAL LIABILITIES ......................................................................        4,249,692
                                                                                                  ------------

STOCKHOLDERS' DEFICIT:
  Series A preferred stock, no par value; 16,000 shares authorized;
    8,000 shares issued and outstanding ; liquidation preference $800,000 ...................          750,971
  Common stock $.00001 par value; 100,000,000 shares authorized;
    30,976,559 shares issued and outstanding ................................................              309
  Common stock issuable (900,000 shares) ....................................................                9
  Paid-in capital ...........................................................................        7,865,461
  Accumulated deficit .......................................................................      (10,736,124)
  Deferred compensation .....................................................................         (320,831)
  Other comprehensive income - Cumulative foreign currency translation adjustment ...........           45,890
                                                                                                  ------------

     TOTAL STOCKHOLDERS' DEFICIT ............................................................       (2,394,315)
                                                                                                  ------------

     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ............................................     $  1,855,377
                                                                                                  ============

                              The accompanying notes are an integral part of these
                                  unaudited consolidated financial statements
                                                      -3-
</TABLE>
<PAGE>
<TABLE>
                                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                           (As Restated - See Note 8)
<CAPTION>
                                                                          FOR THE THREE MONTHS ENDED MARCH 31,
                                                                          ------------------------------------
                                                                              2006                    2005
                                                                          ------------            ------------
                                                                           (Unaudited)             (Unaudited)
<S>                                                                       <C>                     <C>
REVENUES ......................................................           $    981,058            $    640,408
                                                                          ------------            ------------

OPERATING EXPENSES:
  Cost of product support services ............................                510,540                 241,795
  Payroll and related benefits ................................                 92,131                 104,027
  Professional fees ...........................................                 69,720                  12,165
  Management and consuling fees - related parties .............                108,841                  33,715
  Investor relations ..........................................                 24,362                  14,845
  Depreciation and amortization ...............................                 65,713                  44,577
  General & administrative ....................................                231,525                 228,412
                                                                          ------------            ------------

     TOTAL OPERATING EXPENSES .................................              1,102,832                 679,536
                                                                          ------------            ------------

LOSS FROM OPERATIONS ..........................................               (121,774)                (39,128)
                                                                          ------------            ------------

OTHER INCOME (EXPENSES):
  Other income (expense) ......................................                (22,349)                 10,514
  Foreign exchange gain (loss) ................................                 (2,875)                  2,502
  Debt settlement and offering costs ..........................               (153,671)                      -
  Loss from derivative liabilities ............................               (249,103)                      -
  Interest expense ............................................               (132,251)                (60,218)
  Interest expense - related party ............................                 (9,681)                (12,489)
                                                                          ------------            ------------

     TOTAL OTHER EXPENSES .....................................               (569,930)                (59,691)
                                                                          ------------            ------------

NET LOSS ......................................................               (691,704)                (98,819)

DEEMED PREFERRED STOCK DIVIDEND ...............................               (800,000)                      -
                                                                          ------------            ------------

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ..................           $ (1,491,704)           $    (98,819)
                                                                          ============            ============

COMPREHENSIVE LOSS:
      NET LOSS ................................................           $   (691,704)           $    (98,819)

      OTHER COMPREHENSIVE INCOME:
           Unrealized foreign currency translation gain .......                 31,739                  83,925
                                                                          ------------            ------------

      COMPREHENSIVE LOSS ......................................           $   (659,965)           $    (14,894)
                                                                          ============            ============

NET LOSS PER COMMON SHARE:
BASIC AND DILUTED .............................................           $      (0.02)           $          -
                                                                          ============            ============

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED .......             31,182,527              28,986,100
                                                                          ============            ============

                              The accompanying notes are an integral part of these
                                  unaudited consolidated financial statements
                                                      -4-
</TABLE>
<PAGE>
<TABLE>
                                 TRANSAX INTERNATIONAL LIMITED AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (As Restated - See Note 8)
<CAPTION>
                                                                                       FOR THE THREE MONTHS
                                                                                          ENDED MARCH 31,
                                                                                   ---------------------------
                                                                                      2006              2005
                                                                                   ---------         ---------
                                                                                  (UNAUDITED)       (UNAUDITED)
<S>                                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................        $(691,704)        $ (98,819)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
     Depreciation and amortization ........................................           65,713            44,577
     Amortization of software maintenance costs ...........................           51,155            31,109
     Beneficial interest ..................................................                -            31,250
     Stock-based compensation and consulting ..............................           35,334            53,542
     Grant of warrants in connection with debt extention ..................           46,686                 -
     Amortization of deferred debt issuance costs .........................          111,768                 -
     Amortization of debt discount ........................................           31,250                 -
     Loss from derivative liabilities .....................................          249,103                 -

Changes in assets and liabilities:
     Accounts receivable ..................................................          (91,960)         (131,525)
     Prepaid expenses and other current assets ............................          (43,237)          (22,764)
     Other assets .........................................................           (2,400)           (2,400)
     Accounts payable and accrued expenses ................................          (36,474)          313,556
     Accrued interest payable, related party ..............................            9,434             4,163
     Due to related parties ...............................................            6,234           (18,218)
     Accounts payable and accrued expenses  - long-term ...................          104,511          (125,039)
                                                                                   ---------         ---------

NET CASH PROVIDED BY USED IN) OPERATING ACTIVITIES ........................         (154,586)           79,432
                                                                                   ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capitalized software development costs ..................................          (86,731)          (43,963)
  Acquisition of property and equipment ...................................         (196,766)         (217,238)
                                                                                   ---------         ---------

NET CASH USED IN INVESTING ACTIVITIES .....................................         (283,497)         (261,201)
                                                                                   ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES: .....................................                -                 -
  Advances from related party .............................................                -                 -
  Net proceeds from sale of Seris A preferred stock .......................          495,734                 -
  Repayment of advances from related party ................................                -           (35,000)
  Repayments under capital lease obligations ..............................          (14,307)           (8,063)
  Proceeds from convertible debenture .....................................                -           125,000
  Proceeds from loan payable ..............................................           77,499            17,397
  Proceeds from loan - related party ......................................          (85,000)                -
  Repayment of from loan - related party ..................................                -                 -
                                                                                   ---------         ---------

NET CASH PROVIDED BY FINANCING ACTIVITIES .................................          473,926            99,334
                                                                                   ---------         ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................................              615            83,924
                                                                                   ---------         ---------

NET INCREASE IN CASH ......................................................           36,458             1,489

CASH, BEGINNING OF YEAR ...................................................            7,875             4,090
                                                                                   ---------         ---------

CASH, END OF PERIOD .......................................................        $  44,333         $   5,579
                                                                                   =========         =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest ..................................................        $  95,656         $  25,358
                                                                                   =========         =========
  Cash paid for income taxes ..............................................        $       -         $       -
                                                                                   =========         =========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Common stock issued for debt and accrued interest .......................        $       -         $  50,500
                                                                                   =========         =========
  Common stock and options issued for services ............................        $  35,334         $ 101,000
                                                                                   =========         =========
  Loan paid paid with preferred stock proceeds ............................        $ 255,237         $       -
                                                                                   =========         =========
  Derivative laibilities recorded for deemed preferred stock dividend .....        $ 800,000         $       -
                                                                                   =========         =========

                              The accompanying notes are an integral part of these
                                  unaudited consolidated financial statements
                                                      -5-
</TABLE>
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
---------------------

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, the financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary to make the interim financials not misleading
have been included and such adjustments are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
financial statements for the year ended December 31, 2005 and notes thereto
contained in the Report on Form 10-KSB/A of Transax International Limited ("our
Company" or the "Company") as filed with the Securities and Exchange Commission
(the "Commission"). The results of operations for the three months ended March
31, 2006 are not necessarily indicative of the results for the full fiscal year
ending December 31, 2006.

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

Organization
------------

Transax International Limited was incorporated in the State of Colorado in 1999.
The Company, primarily through its wholly-owned subsidiary, TDS
Telecommunication Data Systems Ltda. ("TDS"), is an international provider of
information network solutions specifically designed for healthcare providers and
health insurance companies. The Company's MedLink Solution (TM) enables the real
time automation of routine patient eligibility, verification, authorizations,
claims processing and payment functions. The Company has offices located in
Miami, Florida and Rio de Janeiro, Brazil.

Use of estimates
----------------

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

                                       -6-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

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

Fair Value of Financial Instruments
-----------------------------------

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

Concentrations of Credit Risk
-----------------------------

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

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

Revenue recognition
-------------------

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

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

Comprehensive Loss
------------------

Other comprehensive loss currently includes only foreign currency translation
adjustments.

                                       -7-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

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

Foreign Currency Translation
----------------------------

The assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at the year-end exchange rates, equity is converted
historically and all revenue and expenses are translated into U.S. dollars at
the average exchange rates prevailing during the periods in which these items
arise. Translation gains and losses are deferred and accumulated as a component
of other comprehensive income or loss in stockholders' deficit. Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency (TDS - Brazilian
Real, Transax Australia, - Australian dollar and Transax and the Company - USD)
are included in the Statement of Operations as incurred.

Stock-based compensation
------------------------

Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS
No. 123R establishes the financial accounting and reporting standards for
stock-based compensation plans. As required by SFAS No. 123R, the Company
recognizes the cost resulting from all stock-based payment transactions
including shares issued under its stock option plans in the financial
statements. The recognition of this cost will be made on the modified
prospective basis, which applies to new stock-based awards issued after December
31, 2005, and for awards modified, purchased or cancelled after that date.

Prior to January 1, 2006, the Company accounted for stock-based employee
compensation plans (including shares issued under its stock option plans) in
accordance with APB Opinion No. 25 and followed the pro forma net income, pro
forma income per share, and stock-based compensation plan disclosure
requirements set forth in the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123").

Loss per common share
---------------------

Basic loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Diluted income
per share is computed by dividing net income by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive, although the common stock equivalents may
dilute earnings in the future. The Company's common stock equivalents at March
31, 2006 include the following:

         Options ........................................     3,425,000
         Warrants .......................................    16,902,500
         Preferred stock ................................     7,692,308
         Convertible loans payable - related party ......     1,400,000
         Debenture payable ..............................     2,604,166
                                                             ----------

              Total .....................................    32,023,974
                                                             ==========

                                       -8-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION 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 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 uncollectibility and are maintained for all customers based on a variety
of factors, including the length of time the receivables are past due,
significant one-time events and historical experience. An additional reserve for
individual accounts is recorded when the Company becomes aware of a customer's
inability to meet its financial obligation, such as in the case of bankruptcy
filings or deterioration in the customer's operating results or financial
position. If circumstances related to customers change, estimates of the
recoverability of receivables would be further adjusted. As of March 31, 2006,
the allowance for doubtful accounts was $0.

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

The Company had net revenues to 2 major customers during each of the three month
periods ended March 31, 2006 and 2005. These revenues accounted for
approximately 91%, or $892,763 and 95% or $608,388 of the total revenues for the
three months ended March 31, 2006 and 2005, respectively. For the three months
ended March 31, 2006, these 2 major customers accounted for 53% and 38% of net
revenues, respectively. At March 31, 2005, these 2 major customers accounted for
47% and 48%, respectively, of the total accounts receivable balance outstanding.

The Company maintains its cash in accounts with major financial institutions in
the United States, Australia and Brazil in the form of demand deposits and money
market accounts. Deposits in these banks may exceed the amounts of insurance
provided on such deposits. As of March 31, 2006, the Company had no deposits
subjected to such risk. We have not experienced any losses on our deposits of
cash and cash equivalents.

                                       -9-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

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

Accounting for Conversion Features and Warrants Issued with Preferred Stock
---------------------------------------------------------------------------

The Company issued $800,000 of convertible series A preferred stock, which
contained an Embedded Conversion Feature ("ECF") and warrants to purchase common
stock. In accordance with the guidance in paragraph 12 of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," it was necessary to evaluate separation of the
conversion option from the debt host and account for it separately as a
derivative if the conversion option met certain criteria. The Conversion option
met all three criteria of paragraph 12: (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 in paragraph 6 of SFAS No. 133.

To assess whether or not the ECF would be classified as stockholders' equity if
it were freestanding, management considered the guidance in EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock." 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." EITF 00-19 and EITF 05-2, "The Meaning of
Conventional Convertible Debt Instruments in issue No. 00-19," defines
conventional convertible debt 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 he exercises the conversion option. Management determined that
series A convertible preferred stock was not "conventional," and the Company
considered all aspects of EITF 00-19, paragraphs 12-33.

This caused the ECF of the series A convertible preferred stock to be classified
as a derivative financial instrument under SFAS No. 133. In addition, all
warrants to purchase common stock issued with the preferred stock were then
deemed to be classified as derivative instruments under SFAS No. 133. 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 non-operating, non-cash income or
expense at each reporting date. The derivatives were valued using the
Black-Scholes option pricing model and are classified in the consolidated
balance sheet as current liabilities at March 31, 2006.

Reclassifications
-----------------

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

                                      -10-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

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

Recent accounting pronouncements
--------------------------------

In February 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments--an amendment of
FASB Statements No. 133 and 140" ("SFAS 155"). SFAS 155 permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation and clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement 133. SFAS 155 establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation and clarifies that concentrations
of credit risk in the form of subordination are not embedded derivatives.
Lastly, SFAS 155 amends SFAS 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective in the first fiscal year that begins after
September 15, 2006. The Company is still assessing the impact, if any, on its
consolidated financial position, results of operations and cash flows.

Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying financial statements.

NOTE 2 - RELATED PARTY TRANSACTIONS

Convertible Loans Payable
-------------------------

At March 31, 2006, the Company had aggregate loans payable for $175,000 to a
related party whose officer is an officer of the Company. On March 23, 2005, the
Company modified the terms of its convertible loans to this related party. Under
the modified terms, $75,000 of principal due under the convertible loans is due
on March 31, 2007 and is convertible into the Company's common stock at $.125
per share. The remaining principal of $100,000 is due on April 30, 2007 and is
convertible into the Company's common stock at $.125 per share. For each common
share received upon conversion of the principal balance, the related party is
entitled to receive one warrant to purchase the Company's common stock at $.25
per share for a period of two years from the conversion date. The interest rate
of the loan is 12% per annum compounded monthly. At March 31, 2006, interest due
on these two loans amounted to $26,799 and the aggregate principal amount due is
$175,000. During the three months ended March 31, 2006 and 2005, the Company
incurred $5,178 and $8,877, respectively, in interest expense related to these
two loans. In the 2005 period, the Company did not incur beneficial conversion
charges on these convertible loans because the conversion price was equivalent
to the average offering price for equity when these loans became convertible.

                                      -11-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 2 - RELATED PARTY TRANSACTIONS (CONTINUED)

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

At March 31, 2006, advances and interest due amounting to $24,041 are included
in due to related parties on the accompanying balance sheet.

For each of the three months ended March 31, 2006 and 2005, the Company incurred
$41,250 in management fees to an officer/director of the Company. At March 31,
2006, $201,318 in management fees and other expenses were outstanding to this
officer/director and are included in due to related parties on the accompanying
balance sheet. The amounts due are unsecured, non-interest bearing and are
payable on demand.

For the three months ended March 31, 2006, the Company incurred $11,157 in
management fees to a company whose officer is an officer of the Company.

For the three months ended March 31, 2006, the Company incurred $24,000 in
consulting fees to a director of the Company.

Loan Payable - Related Party
----------------------------

On March 5, 2004, the Company borrowed Euro 115,000 ($138,874 at March 31, 2006)
from an officer of the Company for working capital purposes. The loan accrues
0.8% interest compounded monthly, had an initial term of twelve months, and the
debt is repayable quarterly in arrears. The officer agreed to extend this loan
for an additional twelve months until March 2006. The due date of this loan is
currently being negotiated. Additionally, during 2005, the Company borrowed
$85,000 from this officer, which was repaid in 2006. This loan accrued interest
at 9.6% per annum and was payable on demand. For the three months ended March
31, 2006 and 2005, the Company incurred $3,876 and $3,612, respectively, in
interest related to these loans. At March 31, 2006, $14,093 in interest was
accrued on these loans and the aggregate principal and interest amount due is
$152,967 and is included in loan payable - related party on the accompanying
balance sheet.

NOTE 3 - FINANCING ARRANGEMENTS

Loan Payable
------------

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

On May 17, 2005, the Company and Cornell Capital Partners entered into a
$255,237 Promissory Note (the "Note"), whereby the Original Debentures were
terminated. This Note represents the outstanding principal balance of $250,000
on the Original Debentures, plus accrued but unpaid interest through April 30,
2005 equal to $5,237. In January 2006, in connection with a preferred stock
offering, this note was repaid.

The Company's subsidiary, TDS, has several loans and credit lines with
financials institutions. The loans require monthly installments, bear interest
at rates ranging from 30% to 50% per annum, are secured by certain receivables
and assets of TDS, and are due through December 2006. At March 31, 2006, loans
payable to these financial institutions aggregated $369,004.

                                      -12-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 3 - FINANCING ARRANGEMENTS (CONTINUED)

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

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

The Company determined that the conversion feature of the convertible debentures
represents an embedded derivative since the debentures are convertible into a
variable number of shares upon conversion. Accordingly, the convertible
debentures are not considered to be conventional debt under EITF 00-19 and the
embedded conversion feature must be bifurcated from the debt host and accounted
for as a derivative liability. The Company believes that the aforementioned
embedded derivative meets the criteria of SFAS 133 and EITF 00-19, and should be
accounted for as separate derivative with a corresponding value recorded as
liability. Accordingly, the fair value of this derivative instrument has been
recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to the debentures. Such discount will be accreted
from the date of issuance to the maturity date of the debentures. The change in
the fair value of the liability for derivative contracts will be credited to
other income/ (expense) in the consolidated statements of operations. On
February 1, 2006, the Company and the debenture holder mutually agreed to extend
the term of the debentures until December 1, 2007. In addition, the Company
granted a warrant to purchase 400,000 shares of the Company's common stock to
the debenture holder. The warrant has a term of 2 years and is exercisable at
$0.20 per share. The fair value of this warrant grant was estimated at $46,686
on the date of grant using the Black-Scholes option-pricing model. In connection
with these warrants, the Company recorded debt settlement expense of $46,686 and
a warrant liability of $46,686. At the end of each reporting period, the Company
revalues the warrant and convertible feature derivative liabilities. For the
three months ended March 31, 2006, after adjustment, the Company recorded a gain
on valuation of derivative liability of $1,212. Amortization of debt discount
for the three months ended March 31, 2006 was $31,250 and is included in
interest expense. Amortization of debt offering costs for the three months ended
March 31, 2006 was $4,783 and is included in interest expense.

The Company agreed to register, on a best efforts basis, 3,571,429 shares of its
common stock underlying the conversion of the Debentures and the exercise of the
warrant not later than 30 days after the Company files its annual report on Form
10-KSB for the fiscal year ended December 31, 2005.

The convertible debenture liability is as follows at March 31, 2006:

Convertible debentures payable ..................    $ 250,000

Less: unamortized discount on debentures ........     (125,000)
                                                     ---------

Convertible debentures, net .....................    $ 125,000
                                                     =========

                                      -13-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 3 - FINANCING ARRANGEMENTS (CONTINUED)

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

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

Upon execution of the Termination Agreement, the Company entered into a new
Standby Equity Distribution Agreement with Cornell on May 17, 2005. On January
13, 2006, the Company entered into a Termination Agreement with Cornell (the
"SEDA Termination Agreement") pursuant to which the Parties terminated the
Standby Equity Distribution Agreement, the Registration Rights Agreement and the
Placement Agent Agreement, each dated as of May 17, 2005. In connection with the
Standby Equity Distribution Agreement, in December 2004, the Company issued to
Cornell 1,202,779 shares of the Company's Common Stock (the "Investor's Shares")
and in connection with the Placement Agent Agreement, the Company issued to
Monitor Capital, Inc., as Placement Agent, 125,000 shares of the Company's
Common Stock (the "Placement Agent's Shares").

In December 2004, the Company valued the common shares issued to Cornell at the
fair market value on the dates of grant or $0.1664 per share, or $200,000, based
on the quoted trading price for the stock. At December 31, 2005, the commitment
fee was deemed to be a deferred offering cost on the accompanying balance sheet.
Pursuant to the SEDA Termination Agreement, Cornell shall retain 600,889 of the
Investor's Shares and return the other 601,890 of the Investor's Shares to the
Company to be cancelled. Monitor Capital, Inc. shall retain 62,500 of the
Placement Agent's Shares and return the other 62,500 of the Placement's Agent's
Shares to the Company to be cancelled. In connection with the termination of the
SEDA, the Company received and cancelled 664,390 shares of its common stock with
a fair market value of $93,015 and for the three months ended March 31, 2006,
recorded debt offering cost expense of $106,985 on the accompanying consolidated
statement of operations.

NOTE 4 - 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 $.0001 per share and senior to
      all other series of Preferred Shares (the "Junior Stock").

                                      -14-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' DEFICIT (CONTINUED)

Preferred Stock (continued)
---------------------------

(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 share for the Series A Preferred 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 plus (ii) all accrued
      but unpaid dividends thereon, divided by the Conversion Price, as defined.
      The Conversion Price" shall be 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. "Trading Day" shall mean any day during
      which the Nasdaq OTC Bulletin Board shall be 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. 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 third anniversary of the date of Investment
      Agreement.

(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 shares are not subject to redemption. However, The Company at its
      option shall have 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. After 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.

                                      -15-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' DEFICIT (CONTINUED)

Preferred Stock (continued)
---------------------------

On January 13, 2006, the Company entered into an Investment Agreement with
Cornell Capital Partners, LP ("Cornell") and together with the Company, (the
"Parties"), pursuant to which the Company shall sell to Cornell up to 16,000
shares of Series A Convertible Preferred Stock, no par value per share, (the
"Series A Preferred Shares") which shall be convertible, at Cornell's
discretion, into shares of the Company's common stock, par value $.00001 per
share (the "Common Stock") for a total price of up to $1,600,000.

Of the 16,000 Series A Preferred Shares to be sold to Cornell, 8,000 Series A
Preferred Shares had a purchase price of $800,000, which consists of $255,237
from the surrender of a Promissory Note (as described below) and $544,763
consisting of new funding of which the Company received net proceeds of $470,734
after the payment of placement fees and expenses of $74,029. The purchase of the
additional 8,000 Series A Preferred Shares, at the purchase price of $800,000,
shall close two (2) business days prior to the date that a registration
statement is filed with the United States Securities and Exchange Commission,
which occurred in May 2006.

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

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

Subject to the terms and conditions of an Investor Registration Rights
Agreement, the Company shall prepare and file, no later than the earlier of 30
days from the date the Company files its Form 10-KSB/A for the year ended
December 31, 2005 or the date that such filing is due (the "Scheduled Filing
Deadline"), with the SEC, a registration statement on Form S-1 or SB-2 under the
1933 Act (the "Initial Registration Statement") for the registration for the
resale by the Investor of the underlying common stock and warrants, including at
least 25,000,000 shares underlying the Series A Preferred Shares and 5,000,000
Warrant Shares. The Company shall cause the Registration Statement to remain
effective until all of the Registerable Securities have been sold. The Company
shall use its best efforts (i) to have the Initial Registration Statement
declared effective by the SEC no later than ninety (90) days from the date
hereof (the "Scheduled Effective Deadline") and (ii) to insure that the Initial
Registration Statement and any subsequent Registration Statement remains in
effect until all of the Registerable Securities have been sold, subject to the
terms and conditions of this Agreement. It shall be an event of default
hereunder if the Initial Registration Statement is not declared effective by the
SEC within one hundred twenty (120) days from the date hereof. The Company filed
a registration statement on Form SB-2 on May 9, 2006.

                                      -16-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' DEFICIT (CONTINUED)

Preferred Stock (continued)
---------------------------

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

In accordance with SFAS No. 133, the Company is required to record the fair
value of the ECF and warrants as a liability. The initial estimated fair value
of the ECF and warrants was $588,363 and $689,000, respectively, which reduced
the carrying value of the Preferred Stock to zero. The $477,363 excess value of
the fair values of the ECF and warrants over the proceeds received from the
Preferred Stock was charged to other expense upon recording. The fair values of
the ECF and warrants were estimated using the Black-Scholes option pricing model
with the following assumptions: estimated volatility of 222%; risk-free interest
rate of 4.26%; estimated life of 5 years and no dividends. At March 31, 2006,
the Company revalued the EFC and warrants resulting in a gain on derivative
liability of $227,048 due to a decrease in the Company's stock price. The fair
value of the ECF and warrants were estimated using the Black-Scholes option
pricing model with the following assumptions: estimated volatility of 222%;
risk-free interest rate of 4.26%; estimated life of 4.8 years and no dividends.
At March 31, 2006, the estimated fair value of the ECF and warrants was $462,065
and $588,250, respectively, and are reflected as liabilities on the accompanying
consolidated balance sheet,

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

In connection with the termination of the SEDA, the Company received and
cancelled 664,390 shares of its common stock with a fair market value of
$93,015.

On March 20, 2006, the Company entered into a one-year consulting contract for
business development services. In connection with the agreement, the Company
agreed to issue 900,000 shares of common stock. Of the 900,000 shares issuable,
600,000 shares vest immediately and 300,000 shares vest on the fourth month of
the agreement. The Company valued these common shares at the fair market value
on the dates of grant or $0.12 per share based on the quoted trading price and
recorded deferred consulting expense of $108,000 to be amortized over the
service period. In addition, the Company granted a warrant to purchase 2,000,000
shares of the Company's common stock. The warrant has a term expiring January
31, 2009. 1,000,000 of the warrants are exercisable at $0.20 per share and
1,000,000 of the warrants are exercisable at $0.25 per share. The fair value of
this warrant grant was estimated at $221,998 or $.11 per warrant on the date of
grant using the Black-Scholes option-pricing model. In connection with these
warrants, the Company recorded deferred consulting expense, which will be
amortized over the contract period. As of March 31 2006, these shares had not
been issued and are included in common stock issuable on the accompanying
consolidated balance sheet (see Note 7).

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

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

                                      -17-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' DEFICIT (CONTINUED)

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

On February 5, 2006, the Company granted options to purchase 100,000 shares of
common stock to a consultant for business development services rendered. The
options are exercisable at $0.15 per share and expire on February 5, 2011. The
fair value of this option grant was estimated at $13,333 on the date of grant
using the Black-Scholes option-pricing model. In connection with these options,
the Company recorded consulting expense of $13,333.

A summary of the status of the Company's outstanding stock options as of March
31, 2005 and 2006 and changes during the periods then ended is as follows:

                                              Number of     Weighted Average
                                               Options       Exercise Price
                                              ---------     ----------------

   Balance at December 31, 2005 .........     3,225,000          $ 0.31
     Granted ............................       200,000            0.15
     Exercised ..........................             -               -
     Forfeited ..........................             -               -
                                              ---------          ------
   Balance at March 31, 2006 ............     3,425,000          $ 0.30
                                              =========          ======

   Options exercisable at end of period .     3,425,000          $ 0.30
                                              =========          ======

   Weighted average fair value of options
   granted during the period ............                        $ 0.15

The following table summarizes information about employee and consultants stock
options outstanding at March 31, 2006:

                Options Outstanding                       Options Exercisable
---------------------------------------------------    -------------------------
                              Weighted
                              Average      Weighted                     Weighted
Range of        Number       Remaining     Average         Number       Average
Exercise   Outstanding at   Contractual    Exercise    Exercisable at   Exercise
 Price     March 31, 2006   Life (Years)    Price      March 31, 2006     Price
--------   --------------   ------------   --------    --------------   --------
$   0.50      1,425,000         3.12       $   0.50       1,425,000     $   0.50
$   0.20        600,000         4.50           0.20         600,000         0.20
$   0.15      1,400,000         4.41           0.15       1,400,000         0.15
           --------------                  --------    --------------   --------
              3,425,000                    $   0.30       3,425,000     $   0.30
           ==============                  ========    ==============   ========

The total fair value of shares vested during the periods ended March 31, 2006
and 2005 is $26,167 and $0, respectively.

                                      -18-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' DEFICIT (CONTINUED)

The valuation of the option grants is estimated as of the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants during the period ended March 31, 2006: expected volatility of 222%; risk
free interest rate ranging from 3.75% to 4.26%; expected life of 5 years and
annual dividend rate of 0%. No options were granted during the period ended
March 31, 2005.

In utilizing the Black-Scholes, we calculate volatility using the historical
volatility of our stock, the expected term is based on our estimate of when the
options will be exercised, and the risk free interest rate is based on the U.S.
Treasury yield in effect at the time of the grant.

The total cost recognized during the periods ended March 31, 2006 and 2005 for
share-based payments is $35,334 and $53,542, respectively.

Stock Warrants
--------------

On February 1, 2006, the Company and the debenture holder (See Note 3 -
Debenture Payable) mutually agreed to extend the term of the debentures until
December 1, 2007. In addition, the Company granted a warrant to purchase 400,000
shares of the Company's common stock to the debenture holder. The warrant has a
term of 2 years and is exercisable at $0.20 per share. The Company agreed to
register 3,571,429 shares of its common stock underlying the conversion of the
Debentures and the exercise of the warrant not later than 30 days after the
Company files its annual report on Form 10-KSB/A for the fiscal year ended
December 31, 2005. The fair value of this warrant grant was estimated at $46,686
on the date of grant using the Black-Scholes option-pricing model. In connection
with these warrants, the Company recorded debt settlement expense of $46,686.

A summary of the status of the Company's outstanding stock warrants as of March
31, 2006 and changes during the period then ended is as follows:

                                              Number of     Weighted Average
                                              Warrants       Exercise Price
                                              ---------     ----------------
   Balance at December 31, 2005 .........     9,502,500          $ 0.57
   Granted ..............................     7,400,000            0.24
   Exercised ............................             -               -
   Forfeited ............................             -               -
                                             ----------          ------
   Balance at March 31, 2006 ............    16,902,500          $ 0.43
                                             ==========          ======

   Options exercisable at end of period .    16,902,500          $ 0.43
                                             ==========          ======

   Weighted average fair value of options
   granted during the period ............                        $ 0.24

The following information applies to all warrants outstanding at March 31, 2006:

                             Warrants Outstanding          Warrants Exercisable
                           -------------------------      ----------------------
                             Weighted
                             Average        Weighted                    Weighted
Range of                    Remaining       Average                     Average
Exercise                   Contractual      Exercise                    Exercise
 Prices       Shares       Life (Years)      Price          Shares       Price
--------     ---------     ------------     --------      ---------     --------
 $ 1.00      4,100,000         2.38          $ 1.00       4,100,000      $ 1.00
 $ 0.30      4,500,000         3.00          $ 0.30       4,500,000      $ 0.30
 $ 0.20      6,302,500         3.80          $ 0.20       6,302,500      $ 0.20
 $ 0.25      2,000,000         2.12          $ 0.25       2,000,000      $ 0.25

                                      -19-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 5 - FOREIGN OPERATIONS

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

                                                 Three months ended March 31,
                                                     2006            2005
                                                 -----------     -----------
      Net revenues to unaffiliated customers:
              Brazil ........................    $   981,058     $   640,408
                                                 -----------     -----------
      Operating Expenses:
              Brazil ........................        801,983         501,705
              USA ...........................        284,285         156,023
              Australia .....................          2,293           7,218
              Mauritius .....................         14,271          14,590
                                                 -----------     -----------
                                                   1,102,832         679,536
                                                 -----------     -----------
      Loss from operations ..................       (121,774)        (39,128)
                                                 -----------     -----------
      Other income (expenses):
              Brazil ........................       (115,485)        (31,228)
              USA ...........................       (454,445)        (28,463)
              Australia .....................              -               -
                                                 -----------     -----------
                                                    (569,930)        (59,691)
                                                 -----------     -----------
      Net loss as reported ..................    $  (691,704)    $   (98,819)
                                                 -----------     -----------

NOTE 6 - GOING CONCERN

Since inception, the Company has incurred cumulative net losses of $10,736,124,
and at March 31, 2006 has a stockholders' deficit of $2,394,315 and has a
working capital deficit of $2,659,190. Since its inception, the Company has
funded operations through short-term borrowings and equity investments in order
to meet its strategic objectives. The Company's future operations are dependent
upon external funding and its ability to increase revenues and reduce expenses.
Management believes that sufficient funding will be available from additional
related party borrowings and private placements to meet its business objectives,
including anticipated cash needs for working capital, for a reasonable period of
time. Additionally, under the current roll out schedules with its clients, the
Company expects to increase its revenues significantly during 2006 with the
expectation of the Company becoming a profitable entity. However, there can be
no assurance that the Company will be able to obtain sufficient funds to
continue the development of its software products and distribution networks.
Further, since fiscal 2000, the Company has been deficient in the payment of
Brazilian payroll taxes and Social Security taxes. At March 31, 2006, these
deficiencies (including interest and fines) amounted to approximately $755,100.
This payroll liability is included as part of the accounts payable and accrued
expenses (short-term and long-term) within the consolidated balance sheet. As a
result of the foregoing, there exists substantial doubt about the Company's
ability to continue as a going concern. These consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
                                      -20-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 7 - SUBSEQUENT EVENT

On May 7, 2006, the Company sold 8,000 shares of Series A Preferred stock to
Cornell for net proceeds of $728,000 (see Note 4). On May 17, 2006, the Company
issued 600,000 common shares in connection with a consulting contract(see Note
4).

NOTE 8 - RESTATEMENT

After reviewing certain accounting principles the Company had applied in
previously issued financial statements, management has determined that the
Company's accounting for the embedded derivative option related to the Company's
debenture payable should have been classified as a liability on the accompanying
balance sheet and revalued at the end of each period in accordance with SFAS No.
133 and EITF 00-19. Consequently, management is restating its quarterly
financial statements as of March 31, 2006 and for the three months then ended.
The change in presentation of the Company's embedded derivative feature
associated with its debenture payable and related warrants has the effect of
increasing assets by $19,131, increasing liabilities by $208,117, increasing the
stockholders' deficit by $188,986 as of March 31, 2006, and increasing the
Company's net loss by $30,038 for the three months ended March 31, 2006. This
change in presentation of the Company's embedded derivative feature affected
some of the items within the Company's consolidated statement of cash flows for
the three months ended March 31, 2006 but did not impact cash at the end of the
period. Accordingly, the adjustments to the balance sheet, statement of
operations, and statement of cash flows are summarized as follows:

                                      -21-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 8 - RESTATEMENT (continued)
<TABLE>
                                           CONSOLIDATED BALANCE SHEET
                                                 MARCH 31, 2006
                                                  (UNAUDITED)
<CAPTION>
                                                     ASSETS
                                                                       INITIAL                         AS
                                                                       FILING      RESTATEMENT      RESTATED
                                                                    ------------   ------------   ------------
<S>                                                                 <C>            <C>            <C>
Current Assets:
  Cash ...........................................................  $     44,333   $          -   $     44,333
  Accounts receivable (Net of allowance for doubtful
    accounts of $0) ..............................................       439,020              -        439,020
  Prepaid expenses and other current assets ......................       208,366              -        208,366
                                                                    ------------   ------------   ------------

     TOTAL CURRENT ASSETS ........................................       691,719              -        691,719

SOFTWARE DEVELOPMENT COSTS, net ..................................       361,140              -        361,140
PROPERTY AND EQUIPMENT, net ......................................       778,587              -        778,587
DEFERRED DEBT OFFERING COSTS .....................................             -         19,131         19,131
OTHER ASSETS .....................................................         4,800              -          4,800
                                                                    ------------   ------------   ------------
     TOTAL ASSETS ................................................  $  1,836,246   $     19,131   $  1,855,377
                                                                    ============   ============   ============

                                     LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Current portion of capital lease obligation ....................  $      1,982   $          -   $      1,982
  Current portion of loan payable ................................       369,004              -        369,004
  Accounts payable and accrued expenses ..........................     1,299,128              -      1,299,128
  Due to related parties .........................................       235,166              -        235,166
  Warrant liability ..............................................       588,250         40,548        628,798
  Convertible feature liability ..................................       462,065              -        462,065
  Loan payable - related party ...................................       152,967              -        152,967
  Convertible loans from related party ...........................       201,799              -        201,799
                                                                    ------------   ------------   ------------

     TOTAL CURRENT LIABILITIES ...................................     3,310,361         40,548      3,350,909

DEBENTURE PAYABLE, NET ...........................................       230,869       (105,869)       125,000
CONVERTIBE FEATURE LIABILITY .....................................             -        273,438        273,438
ACCOUNTS PAYABLE AND ACCRUED EXPENSES, net of current portion ....       500,345              -        500,345
                                                                    ------------   ------------   ------------
     TOTAL LIABILITIES ...........................................     4,041,575        208,117      4,249,692
                                                                    ------------   ------------   ------------

STOCKHOLDERS' DEFICIT:
  Series A preferred stock, no par value; 16,000 shares
    authorized; 8,000 shares issued and outstanding;
    liquidation preference $800,000 ..............................       750,971              -        750,971
  Common stock $.00001 par value; 100,000,000 shares
    authorized; 30,976,559 shares issued and outstanding .........           309              -            309
  Common stock issuable (900,000 shares) .........................             9              -              9
  Paid-in capital ................................................     7,974,647       (109,186)     7,865,461
  Accumulated deficit ............................................   (10,656,324)       (79,800)   (10,736,124)
  Deferred compensation ..........................................      (320,831)             -       (320,831)
  Other comprehensive income - Cumulative foreign currency
    translation adjustment .......................................        45,890              -         45,890
                                                                    ------------   ------------   ------------
     TOTAL STOCKHOLDERS' DEFICIT .................................    (2,205,329)      (188,986)    (2,394,315)
                                                                    ------------   ------------   ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .................  $  1,836,246   $     19,131   $  1,855,377
                                                                    ============   ============   ============

</TABLE>
                                      -22-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 8 - RESTATEMENT (continued)
<TABLE>
                                     CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
                                                                           FOR THE THREE MONTHS ENDED
                                                                                 MARCH 31, 2006
                                                                  --------------------------------------------
                                                                     INITIAL                           AS
                                                                     FILING       RESTATEMENT       RESTATED
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
LOSS FROM OPERATIONS ..........................................   $   (121,774)   $          -    $   (121,774)
                                                                  ------------    ------------    ------------

OTHER INCOME (EXPENSES):
  Other income (expense) ......................................        (22,349)              -         (22,349)
  Foreign exchange gain (loss) ................................         (2,875)              -          (2,875)
  Debt settlement and offering costs ..........................       (153,671)              -        (153,671)
  Loss from derivative liabilities ............................       (250,315)          1,212        (249,103)
  Interest expense ............................................       (101,001)        (31,250)       (132,251)
  Interest expense - related party ............................         (9,681)              -          (9,681)
                                                                  ------------    ------------    ------------

     TOTAL OTHER EXPENSES .....................................       (539,892)        (30,038)       (569,930)
                                                                  ------------    ------------    ------------

NET LOSS ......................................................       (661,666)        (30,038)       (691,704)

DEEMED PREFERRED STOCK DIVIDEND ...............................       (800,000)              -        (800,000)
                                                                  ------------    ------------    ------------

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ..................   $ (1,461,666)   $    (30,038)   $ (1,491,704)
                                                                  ============    ============    ============

COMPREHENSIVE LOSS:
     NET LOSS .................................................   $   (661,666)   $    (30,038)   $   (691,704)

     OTHER COMPREHENSIVE INCOME:
          Unrealized foreign currency translation gain ........         31,739               -          31,739
                                                                  ------------    ------------    ------------

     COMPREHENSIVE LOSS .......................................   $   (629,927)   $    (30,038)   $   (659,965)
                                                                  ============    ============    ============

NET LOSS PER COMMON SHARE - BASIC AND DILUTED .................   $      (0.02)                   $      (0.02)
                                                                  ============                    ============

WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED .......     31,182,527                      31,182,527
                                                                  ============                    ============
</TABLE>
                                      -23-
<PAGE>

                          TRANSAX INTERNATIONAL LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006
                                   (UNAUDITED)

NOTE 8 - RESTATEMENT (continued)
<TABLE>
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                        INITIAL                          AS
                                                                         FILING      RESTATEMENT      RESTATED
                                                                       ---------     -----------     ---------
<S>                                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .........................................................     $(661,666)     $ (30,038)     $(691,704)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
     Depreciation and amortization ...............................        65,713              -         65,713
     Amortization of software maintenance costs ..................        51,155              -         51,155
     Stock-based compensation and consulting .....................        35,334              -         35,334
     Grant of warrants in connection with debt extention .........        46,686              -         46,686
     Amortization of deferred debt issuance costs ................       111,768              -        111,768
     Amortization of debt discount ...............................             -         31,250         31,250
     Loss from derivative liabilities ............................       250,315         (1,212)       249,103

Changes in assets and liabilities:
     Accounts receivable .........................................       (91,960)             -        (91,960)
     Prepaid expenses and other current assets ...................       (43,237)             -        (43,237)
     Other assets ................................................        (2,400)             -         (2,400)
     Accounts payable and accrued expenses .......................       (36,473)             -        (36,473)
     Accrued interest payable, related party .....................         9,434              -          9,434
     Due to related parties ......................................         6,234              -          6,234
     Accounts payable and accrued expenses  - long-term ..........       104,511              -        104,511
                                                                       ---------      ---------      ---------

NET CASH USED IN OPERATING ACTIVITIES ............................     $(154,586)     $       -      $(154,586)
                                                                       ---------      ---------      ---------
</TABLE>
                                      -24-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This report on Form 10-QSB contains forward-looking statements that are subject
to risks and uncertainties that could cause actual results to differ materially
from those discussed in the forward-looking statements and from historical
results of operations. Among the risks and uncertainties which could cause such
a difference are those relating to our dependence upon certain key personnel,
our ability to manage our growth, our success in implementing the business
strategy, our success in arranging financing where required, and the risk of
economic and market factors affecting us or our customers. Many of such risk
factors are beyond the control of the Company and its management.

GENERAL

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

Through our wholly-owned subsidiary TDS Telecommunication Data Systems LTDA
("TDS"), we are an international provider of health information management
products (collectively, the "Health Information Management Products"), which are
specifically designed for the healthcare providers and health insurance
companies. We are dedicated to improving healthcare delivery by providing
hospitals, physician practices and health insurance companies with innovative
health information management systems to manage coding, compliance, abstracting
and record management processes. We have developed a proprietary software
trademarked (Brazil only) "MedLink Solution", which was specifically designed
and developed for the healthcare and health insurance industry enabling the real
time automation of routine patient eligibility, verifications, authorizations,
claims processing and payment functions that were previously performed manually
(the "MedLink Solution").

PLAN OF OPERATION

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

As of the date of this 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 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.

RESULTS OF OPERATIONS

THREE-MONTH PERIOD ENDED MARCH 31, 2006 COMPARED TO THREE-MONTH PERIOD ENDED
MARCH 31, 2005

Our net losses during the three-month period ended March 31, 2006 were $691,704
compared to a net loss of $98,819 during the three-month period ended March 31,
2005, an increase of $592,885.

                                      -25-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

During the three-month period ended March 31, 2006, we generated $981,058 in
revenues compared to $640,408 in revenues for the three-month period ended March
31, 2005, an increase of $340,650 or 53.19%. The significant increase in
revenues is due to the continued installation of our software and/or hardware
devices containing our software at the healthcare provider's locations in
Brazil. Upon installation, we begin the processing of applications submitted by
the healthcare provider for approval of patients for healthcare services from
the insurance carrier. We charge for these services on a per transaction basis.
We undertook approximately 1.84 million "real time transactions during the
three-month period ended March 31, 2006 compared to 1.33 million "real time"
transactions during the period ended March 31, 2005.

During the three-month period ended March 31, 2006, we incurred operating
expenses of $1,102,832 compared to operating expenses of $679,536 incurred
during the three month period ended March 31, 2005, an increase of $423,296 or
62.29%. The increase in operating expenses during the three-month period ended
March 31, 2006 from the same period in 2005 resulted from: (i) an increase of
$268,745 or 111.15% in cost of product support services resulting from the
increase in revenues; (ii) an increase of $75,126 or 222.82%, in management and
consulting fee-related parties due to an increase in use of management and a
director/consultants needed to handle our increased operations; (iii) an
increase of $3,113 or 1.36%, in general and administrative expenses resulting
from a slight increase in operating costs associated with increased operations;
an increase of $21,136 or 47.41% in depreciation and amortization expense
as a result of an increase in property and equipment acquired for our TDS
operations; (iv) an increase of $9,517 in investor relations fees; and (v) an
increase of $57,555 or 473.12% in professional fees relating to our legal costs
associated with our financings and filing of a registration statement of Form
SB-2.

Certain operating expenses, however, decreased during the three-month period
ended March 31, 2006 from the same period in 2005 as follows: (i) a decrease of
$11,896 or 11.44%, in payroll and related benefits, which is attributable to a
slight decrease in the number of employees.

We reported a loss from operations of $121,774 for the three-month period ended
March 31, 2006 as compared to a loss from operations of $39,128 for the three
month period ended March 31, 2005. Although there can be no assurances, we
anticipate that during fiscal year 2006, our ongoing marketing efforts and
product roll-out will result in an increase in our net sales from those reported
during fiscal year 2006. To support these increased sales, we anticipate that
our operating expenses will also increase during fiscal year 2006 as compared to
fiscal year 2005. We are, however, unable to predict at this time the amount of
any such increase in operating expenses.

Total other expenses increased $510,239 or 854.80% for the three-month period
ended March 31, 2006 as compared to the three-month period ended March 31, 2005.
Included in this change is: (i) an increase in other expense of $32,863 from
$10,514 of other income recognized during the three-month period ended March 31,
2005; (ii) an increase of $153,671 in debt settlement and offering costs from
$-0- during the three-month period ended March 31, 2005, which relates to the
issuance of warrants to the debenture holder and amortization of certain debt
offering costs; (iii) an increase of $249,103 in loss from derivative
liabilities from $-0- during the three-month period ended March 31, 2005, which
relates to the classification of the embedded conversion feature and related
warrants issued in connection with our Series A preferred stock and debenture
payable as a derivative instrument; and (iv) an increase of $72,033 in interest
expense from $60,218 for the three-month period ended March 31, 2005, which
reflects an increase in our borrowings during the three-month period ended March
31, 2006 and in connection with the amortization of debt discounts and debt
offering costs of $36,033.

For the three-month period ended March 31, 2006, our net loss was $691,704
compared to a net loss of $98,819 for the three-month period ended March 31,
2005.

                                      -26-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

During the three months ended March 31, 2006, we recorded a deemed preferred
stock dividend of $800,000 which relates to our Series A Convertible Preferred
Stock. This non-cash expense related to the embedded beneficial conversion
features of those securities and fair value of warrants of those securities.

We reported a net loss attributable to common shareholders of $1,491,704 for the
three months ended March 31, 2006 as compared to a net loss attributable to
common shareholders of $98,819 for the three months ended March 31, 2005. This
translates to an overall per-share loss available to shareholders of ($.02) and
$(0.00) for the three months ended March 31, 2006 and 2005, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2006, our current assets were $691,719 and our current
liabilities were $3,350,909, which resulted in a working capital deficit of
$2,659,190. As of March 31, 2006, our total assets were $1,855,377 consisting
of: (i) $44,333 in cash; (ii) $208,366 in prepaid expenses and other current
assets; (iii) $439,020 in accounts receivable; (iv) $361,140 in net software
development costs; (v) $778,587 in net valuation of property and equipment; (vi)
$4,800 in other assets; and (vii) $19,131 in deferred debt offering costs.

As of March 31, 2006, our total liabilities were $4,249,692 consisting of: (i)
$1,799,473 in long-term and current portion of accounts payable and accrued
expenses; (ii) $235,166 due to related parties; (iii) $201,799 in convertible
loans to related parties; (iv) $152,967 in loan payable to related parties; (v)
$1,982 in current portion of capital lease obligation; (vi) $125,000 in net
convertible debenture payable; (vii) $369,004 in loans payable; (viii) $628,798
in warranty liability; and (ix) $735,503 in convertible feature liability. As at
March 31, 2006, our current liabilities were $3,350,909 compared to $2,563,200
at December 31, 2005. The increase in current liabilities is due primarily to
the recording of warrant and convertible feature liabilities offset by the
repayment of loans and related loans payable.

Stockholders' deficit increased from $1,627,640 for fiscal year ended December
31, 2005 to $2,394,315 for the three-month period ended March 31, 2006.

For the three-month period ended March 31, 2006, net cash flow used in operating
activities was $154,586 compared to net cash provided by operating activities of
$79,432 for the three-month period ended March 31, 2005. The change in cash
flows used by operating activities is due to the increase in net loss for the
three-month period ended March 31, 2006 as well as the repayment of accounts
payable.

Net cash flows used in investing activities amounted to $283,497 for the
three-month period ended March 31, 2006 compared to $261,201 for the three-month
period ended March 31, 2005. During the three-month period ended March 31, 2006,
we capitalized software development costs and acquired equipment for our
hardware and software installations while in the three-month period ended March
31, 2005, these costs were less.

Net cash flow provided by financing activities for the three-month period ended
March 31, 2006 was $473,926, resulting primarily from net proceeds from the sale
of shares of Series A Preferred Stock of $495,734 and proceeds from loans in the
amount of $77,499 offset by repayment of capital lease obligations of $14,307
and the repayment or related party loans of $85,000 compared to $99,334 for the
three-month period ended March 31, 2005 resulting primarily from proceeds from a
convertible debenture.

In summary, based upon the cash flow activities as previously discussed, for the
three-month period ended March 31, 2006, our overall cash position increased by
$36,458.

                                      -27-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

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

On January 13, 2006, we entered into an Investment Agreement with Cornell
Capital Partners, LP ("Cornell") and together with the Company, (the "Parties"),
pursuant to which we shall sell to Cornell up to 16,000 shares of Series A
Convertible Preferred Stock, no par value per share, (the "Series A Preferred
Shares") which shall be convertible, at Cornell's discretion, into shares of the
Company's common stock, par value $.00001 per share (the "Common Stock") for a
total price of up to $1,600,000.

Of the 16,000 Series A Preferred Shares to be sold to Cornell, 8,000 Series A
Preferred Shares had a purchase price of $800,000, which consists of $255,237
from the surrender of a Promissory Note (as described below) and $544,763
consisting of new funding of which the Company received net proceeds of $470,734
after the payment of placement fees and expenses of $74,029. The purchase of the
additional 8,000 Series A Preferred Shares, at the purchase price of $800,000,
shall close two (2) business days prior to the date that a registration
statement is filed with the United States Securities and Exchange Commission,
which occurred in May 2006.

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

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

On May 7, 2006, we sold the remaining 8,000 shares of Series A Preferred Stock
to Cornell and received net proceeds of $728,000.

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 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.

                                      -28-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

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-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.

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

On February 1, 2006, we and the debenture holder mutually agreed to extend the
term of the debentures until December 1, 2007. In addition, we granted a warrant
to purchase 400,000 shares of our common stock to the debenture holder. The
warrant has a term of 2 years and is exercisable at $0.20 per share. We agreed
to register 3,571,429 shares of our common stock underlying the conversion of
the Debentures and the exercise of the warrant on a best efforts basis not later
than 30 days after we filed our Annual Report on Form 10-KSB/A for the fiscal
year ended December 31, 2005. On May 9, 2006 a registration statement was filed
with the Securities and Exchange Commission.

Certain negative covenants in the Securities Purchase Agreement could
substantially impact our ability to raise funds from alternative sources in the
future. For example, for as long as the convertible debenture remains
outstanding and without the written consent of the debenture holder, the Company
(a) shall not directly or indirectly consummate any merger, reorganization,
restructuring, reverse stock split consolidation, sale of all or substantially
all of the Company's assets or any similar transaction or related transactions;
(b) shall not issue or sell shares of common stock or preferred stock without
consideration or for a consideration per share less than the bid price of the
common stock determined immediately prior to its issuance or issue any warrant,
option, right, contract, call, or other security or instrument granting the
holder thereof the right to acquire common stock without consideration or for a
consideration per share less than the bid price of the common stock determined
immediately prior to the issuance of such convertible security; (c) shall not
enter into any security instrument granting the holder a security interest in
any or all assets of the Company; (d) shall not file any registration statement
on Form S-8 except the Company may file one registration statement on Form S-8
for up to 2,500,000 shares of common stock and provided however, anyone
receiving shares pursuant to such permitted Form S-8 registration shall be
restricted from selling such shares for a period of ninety (90) days after the
registration statement becomes effective and (e) shall not, and shall cause each
of its subsidiaries not to, enter into, amend, modify or supplement, or permit
any subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any of its

                                      -29-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

subsidiary's officers, directors, person who were officers or directors at any
time during the previous two years, stockholders who beneficially own five
percent (5%) or more of the Company's common stock, or Affiliates (as defined in
the Securities Purchase Agreement) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest,
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any investment in an Affiliate of the Company, (iii) any
agreement, transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such related party and (iv) any agreement transaction,
commitment, or arrangement which is approved by a majority of the disinterested
directors of the Company.

On January 13, 2006, we entered into an Investment Agreement with Cornell
Capital Partners ("Cornell") (the "Parties"), pursuant to which we sold to
Cornell 16,000 shares of Series A Convertible Preferred Stock, no par value per
share, (the "Series A Preferred Shares") which shall be convertible, at
Cornell's discretion, into shares of our common stock, par value $.00001 per
share (the "Common Stock") for a total price of up to $1,600,000.

Of the 16,000 Series A Preferred Shares to be sold to Cornell, 8,000 Series A
Preferred Shares had a purchase price of $800,000, which consisted of $255,237
from the surrender of a Promissory Note (as described below) and $544,763 in new
funding, of which we received net proceeds of $470,734 after the payment of
placement fees and expenses of $74,029. On May 8, 2006, we sold the remaining
8,000 shares of Series A Preferred Shares to Cornell, for the purchase price of
$800,000 and received net proceeds of $728,000 (net of placement fees of
$72,000).

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

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

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

                                      -30-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

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

MATERIAL COMMITMENTS

CONVERTIBLE LOANS

A significant material liability for us for fiscal year 2006 is the aggregate
principal amount of $175,000 and $26,799 in accrued interest due and owing to a
related party in accordance with two convertible promissory notes (collectively,
the Convertible Promissory Note(s)"). Previously, the aggregate principal
amounts of the Convertible Promissory Notes were $200,000 and $100,000,
respectively. During March 2005, we modified the terms of the Convertible
Promissory Notes: (i) $200,000 is due on March 31, 2007 and convertible into
shares of our common stock at $0.125 per share together with a warrant per share
to purchase our common stock at $0.25 per share for a period of two years; and
(ii) $100,000 is due on April 30, 2007 and convertible into shares of our common
stock at $0.125 per shares together with a warrant per share to purchase our
common stock at $0.25 per share for a period of two years. On June 28, 2005 and
September 30, 2005, the holders of the Convertible Promissory Notes partially
exercised the respective conversion rights. As at March 31, 2006, an aggregate
principal amount of $175,000 and interest in the amount of $26,799 remains due
and owing under the Convertible Promissory Notes.

LOAN

A significant material liability for us for fiscal year 2006 is the aggregate
amount of $138,874 in principal due and owing to a related party (the "Loan").
The $138,874 Loan is evidenced by a promissory note with an interest rate of
0.8% per month compounded and was repayable during March 2006. As of the date of
this Quarterly Report, the Loan due date is being negotiated. Additionally,
during 2005, we borrowed $85,000 from this officer, which amount was repaid
during the three-month period ended March 31, 2006. At March 31, 2006, $14,093
in interest was accrued and the aggregate principal amount of $152,967 is due
and owing.

CONSULTING AGREEMENT

A significant and estimated material liability for us for fiscal year 2006 is
the aggregate amount of $201,318 due and owing to Stephen Walters, our
President. In accordance with the terms of an agreement, we pay monthly to Mr.
Walters an aggregate amount of $13,750 as compensation for managerial and
consulting services provided by Mr. Walters.

DEBENTURE

A significant material liability for us for fiscal year 2006 is the aggregate
amount of $250,000. On April 1, 2005, we entered into a financing agreement with
Scott and Heather Grimes, Joint Tenants with Right of Survivorship (the
"Investor"). Under the terms of the financing arrangement with the Investor, we
issued convertible debentures to the Investor in the original principal amount
of $250,000. The debentures are convertible at the Investor's option any time up
to maturity at a conversion price equal to the lower of: (i) 120% of the closing
bid price of our common stock on the date of the debentures, or (ii) 80% of the
lowest closing bid price of our common stock for the five trading days
immediately preceding the conversion date. The debentures have a two-year term
and accrue interest at 5% per year. At maturity, the debentures will
automatically convert into shares of our common stock at a conversion price
equal to the lower of: (i) 120% of the closing bid price of our common stock on
the date of the debentures, or (ii) 80% of the lowest closing bid price on our
common stock for five trading days immediately preceding the conversion date. On
February 1, 2006 we agreed to extend the term of the debentures to December 1,
2007 and issued 400,000 warrants at 0.20 per share valid for two years.

                                      -31-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

ACCRUED TAXES AND RELATED EXPENSES

A significant and estimated material liability for us for fiscal year 2006 is
the aggregate amount of approximately $755,100 due and owing for Brazilian
payroll taxes and Social Security taxes.

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

CRITICAL ACCOUNTING POLICIES

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

We review the carrying value of property and equipment for impairment at least
annually or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of long-lived
assets is measured by 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.

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

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

                                      -32-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

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

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

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 likely 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.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the FASB issued FAS No. 155, "Accounting for Certain Hybrid
Financial Instruments--an amendment of FASB Statements No. 133 and 140" ("FAS
155"). FAS 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation and clarifies which interest-only strips and principal-only strips
are not subject to the requirements of Statement 133. FAS 155 establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation and
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives. Lastly, FAS 155 amends FAS 140 to eliminate the
prohibition on a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. FAS 155 is effective in the first fiscal year
that begins after September 15, 2006. We are still assessing the impact, if any,
on its consolidated financial position, results of operations and cash flows.

Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.

                                      -33-
<PAGE>

ITEM 3.  CONTROLS AND PROCEDURES

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

Our management, including our CEO and CFO, do not expect that our disclosure
controls and internal controls will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving our objectives.Our certifying officers have concluded that our
disclosure controls and procedures were ineffective as at March 31, 2006.
However, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. It is our responsibility and that of our management to identify
any deficiencies in internal controls over financial reporting. We discovered
certain deficiencies in our internal control over financial reports, which
resulted in the restatement of our financial statements as discussed below. The
restatement was undertaken to properly reflect an embedded derivative conversion
liability related to our debentures payable in accordance with SFAS No. 133 and
EITF 00-19 after further consultation with our independent auditors.

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

On July 6, 2006, we announced that we were restating our Consolidated Balance
Sheet at December 31, 2005 and March 31, 2006 and our Consolidated Statement of
Operations and Statement Of Stockholders' Deficit as of and for the year ended
December 31, 2005 and for the three months ended March 31, 2006 to properly
reflect an embedded derivative conversion liability related to our debenture
payable in accordance with SFAS No. 133 and EITF 00-19. The change in
presentation of the Company's embedded derivative feature associated with its
debenture payable has the effect of increasing assets by $19,131, increasing
liabilities by $208,117, increasing the stockholders' deficit by $188,986 as of
March 31, 2006, and increasing the Company's net loss by $30,038 for the three
months ended March 31, 2006. This change in presentation of the Company's
embedded derivative feature affected some of the items within the Company's
consolidated statement of cash flows for the three months ended March 31, 2006
but did not impact cash at the end of the period.

                                      -34-
<PAGE>

ITEM 3.  CONTROLS AND PROCEDURES (CONTINUED)

Our certifying officers have concluded that our disclosure controls and
procedures were ineffective as at March 31, 2006 related to the presentation of
derivative liabilities. However, we believe that the implementation of changes
to our internal controls and procedures as detailed above has corrected this
deficiency.

Other than the changes related to the proper presentation and recording of
derivative liabilities, there were no changes during our last fiscal quarter in
the Company's internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange
Act with respect to the period ended March 31, 2006 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

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

                                      -35-
<PAGE>

                           PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

         On March 14, 2005, X-Clearing Corp, a Colorado corporation
         ("X-Clearing"), our former transfer agent, initiated legal proceedings
         against us by filing a complaint and verified motion for replevin and
         for temporary order to preserve property in the District Court of the
         City and County of Denver, State of Colorado, civil action no. 05 CV
         1980 (the "Complaint"). During September 2001, we had entered into an
         agreement with X-Clearing Corp. regarding engagement as our transfer
         agent, registrar and disbursing agent in connection with our shares of
         Common Stock (the "Transfer Agent Agreement"). The Complaint generally
         alleges that: (i) we have breached and wrongfully attempted to
         terminate the Transfer Agent Agreement; (ii) X-Clearing has a valid and
         perfected security interest in our books and records in accordance with
         the terms of the Transfer Agent Agreement; and (iii) X-Clearing is
         entitled to an order from the District Court replevining and preventing
         us from altering, destroying or otherwise interfering with the valid
         and perfected security interest and liquidated damages.

         On April 5, 2005, we filed an answer to the Complaint, counterclaims
         and jury demand (the "Answer"). The Answer generally denies that: (i)
         we breached and attempted to wrongfully terminate the Transfer Agent
         Agreement; (ii) X-Clearing Corp. has a valid and perfected security
         interest in our books and records; (iii) X-Clearing is entitled to an
         order of replevin and liquidated damages. Our Answer further states
         that: (i) X-Clearing Corp. has failed to take reasonable steps to
         minimize or mitigate its claimed damages; and (ii) X-Clearing Corp.'s
         claims are barred by the statute of frauds, doctrine of laches,
         doctrine of accord and satisfaction. Our Answer further counterclaims
         that: (i) despite X-Clearing Corp. being paid all administrative fees,
         share transfer fees and fees for new issuances, X-Clearing Corp. has
         refused to produce and provide us with our stock transfer records,
         which has caused us irreparable harm; (ii) X-Clearing Corp. has
         continued undertaking stock transfers on our behalf and illegally
         issuing fraudulent stock certificates; and (iii) X-Clearing Corp. has
         improperly and illegally used our records, which included stock
         certificates that X-Clearing Corp. has fraudulently created and issued
         to make stock transfers without notification to us.

         On April 7, 2005, we filed a stipulated motion for testimony by
         telephone and for expedited ruling by court. A hearing was set for
         April 12, 2005, at which X-Clearing Corp.'s replevin action was
         dismissed by the District Court. As of the date of this Quarterly
         Report, we intend to aggressively pursue all such legal actions and
         review further legal remedies against X-Clearing Corp.

         Trial has been set for May 22, 2006 and is scheduled to last for one
         week. The court ordered mediation previously scheduled for April 3,
         2006 had been cancelled by the opposing party and was undertaken on May
         8th 2006.

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

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

                                      -36-
<PAGE>

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

         Cornell Capital Partners

         On January 13, 2006, in accordance with the terms and provisions of the
         2006 Investment Agreement, we issued to Cornell Capital: (i) 8,000
         shares of Series A Convertible Preferred in exchange for the surrender
         of the Cornell Capital Promissory Note; (ii) a five-year warrant
         exercisable into 2,500,000 shares of our common stock at an exercise
         price of $0.30; and (iii) a five-year warrant exercisable into
         2,500,000 shares of our common stock at an exercise price of $0.20.

         ROI Group Associates Inc.

         On March 20, 2006, we entered into a one-year consulting contract for
         business development services with ROI Group Associates Inc. In
         connection with the agreement, we agreed to issue 900,000 shares of
         common stock. We valued these common shares at the fair market value on
         the dates of grant or $0.12 per share based on the quoted trading price
         and recorded deferred consulting expense of $108,000 to be amortized
         over the service period. In addition, we granted a warrant to purchase
         2,000,000 shares of the Company's common stock. The warrant has a term
         expiring January 31, 2009. 1,000,000 of the warrants are exercisable at
         $0.20 per share and 1,000,000 of the warrants are exercisable at $0.25
         per share. As of March 31, 2006 these shares had not been issued and
         are included in common stock issuable on the accompanying balance
         sheet.

Item 3 - Defaults Upon Senior Securities

         None

Item 4 - Submissions of Matters to a Vote of Security Holders

         None

Item 5 - Other Information

         None

Item 6 - Exhibits

31.1     Certification of the Chief Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002

31.2     Certification of the Chief Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002

32.1     Certification of Chief Executive Officer Certification pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002

32.2     Certification of Chief Financial Officer Certification pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002

                                      -37-
<PAGE>

                                   SIGNATURES

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

                                       TRANSAX INTERNATIONAL LIMITED


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


         Date:  October 13, 2006       By: /s/ Adam Wasserman
                                           ------------------
                                           Adam Wasserman
                                           Principal Financial and
                                           Accounting Officer


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