UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-Q





(Mark
One)





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
ACT OF 1934





For the
period ended March 31, 2010





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
ACT OF 1934





For the
transition period from ______ to _______





Commission
File No. 0-27845





TRANSAX INTERNATIONAL LIMITED


(Name of
registrant as specified in its charter)





Colorado
                      
                      90-0287423(State
      or other jurisdiction of incorporation
                      
                      (I.R.S.
      Employer Identification No.)or
      organization)





1133 S University Drive, Suite 210, Plantation, Florida
33324


(Address
of principal executive offices)





(888) 317-6984


(Registrant’s
telephone number, including area code)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.





Large accelerated filer
                     ̈
                    
                    Accelerated filer
                     ̈Non-accelerated filer
                     ̈
                    
                    Smaller reporting company
                    x




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




Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the most
practicable date: 91,662,293 shares of common stock are issued and outstanding
as of May 22, 2010.








TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


FORM
10-Q


March
31, 2010





TABLE
OF CONTENTS





Page
                          No.PART
      I - FINANCIAL INFORMATIONItem
      1.
                        Financial
      Statements:Consolidated
      Balance Sheets -As
      of March 31, 2010 (unaudited) and December 31, 2009
                        3Consolidated
      Statements of Operations -For
      the Three Months Ended March 31, 2010 and 2009 (unaudited)
                        4Consolidated
      Statements of Cash Flows -For
      the Three Months Ended March 31, 2010 and 2009 (unaudited)
                        5Notes
      to Unaudited Consolidated Financial Statements.
                        6Item
      2.
                        Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                        23Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk.
                        33Item
      4
                        Controls
      and Procedures.
                        33PART
      II - OTHER INFORMATIONItem
      1.
                        Legal
      Proceedings.
                        35Item
      1A.
                        Risk
      Factors.
                        35Item
      2.
                        Unregistered
      Sales of Equity Securities and Use of Proceeds.
                        35Item
      3.
                        Defaults
      Upon Senior Securities.
                        35Item
      4.
                        (Removed
      and Reserved).
                        35Item
      5.
                        Other
      Information.
                        35Item
      6.
                        Exhibits.
                        36





FORWARD LOOKING STATEMENTS




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




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




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


2





TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 March
      31,
                                                  
                                                  
                                                  December
      31,2010
                                                  
                                                  
                                                  2009(Unaudited)ASSETSCurrent
      Assets:Cash
                                                  
                                                  $
                                                  8,555
                                                  
                                                  
                                                  $
                                                  21,813Accounts
      receivable, net
                                                  
                                                  
                                                  483,880
                                                  
                                                  
                                                  
                                                  358,506Prepaid
      expenses and other current assets
                                                  
                                                  
                                                  377,747
                                                  
                                                  
                                                  
                                                  448,033Total
      Current Assets
                                                  
                                                  
                                                  870,182
                                                  
                                                  
                                                  
                                                  828,352Software development costs,net
                                                  
                                                  
                                                  15,512
                                                  
                                                  
                                                  
                                                  33,405Property and equipment,
      net
                                                  
                                                  
                                                  339,804
                                                  
                                                  
                                                  
                                                  467,701Total
      Assets
                                                  
                                                  $
                                                  1,225,498
                                                  
                                                  
                                                  $
                                                  1,329,458LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      Liabilities:Current
      portion of loans payable
                                                  
                                                  $
                                                  967,239
                                                  
                                                  
                                                  $
                                                  795,705Accounts
      payable and accrued expenses
                                                  
                                                  
                                                  3,245,760
                                                  
                                                  
                                                  
                                                  2,695,728Deferred
      gain on sale of minority interest in subsidiary
                                                  
                                                  
                                                  937,700
                                                  
                                                  
                                                  
                                                  937,700Due
      to related parties
                                                  
                                                  
                                                  631,830
                                                  
                                                  
                                                  
                                                  572,722Warrant
      liability
                                                  
                                                  
                                                  907
                                                  
                                                  
                                                  
                                                  1,696Convertible
      feature liability
                                                  
                                                  
                                                  748,933
                                                  
                                                  
                                                  
                                                  1,348,157Loans
      payable - related party
                                                  
                                                  
                                                  434,213
                                                  
                                                  
                                                  
                                                  419,462Convertible
      loan - related party
                                                  
                                                  
                                                  225,857
                                                  
                                                  
                                                  
                                                  220,679Total
      Current Liabilities
                                                  
                                                  
                                                  7,192,439
                                                  
                                                  
                                                  
                                                  6,991,849Loans
      payable, net of current portion
                                                  
                                                  
                                                  53,207
                                                  
                                                  
                                                  
                                                  63,246Accounts
      payable and accrued expenses, net of current portion
                                                  
                                                  
                                                  1,687,534
                                                  
                                                  
                                                  
                                                  1,667,950Total
      Liabilities
                                                  
                                                  
                                                  8,933,180
                                                  
                                                  
                                                  
                                                  8,723,045COMMITMENTS
      AND CONTINGENCIESStockholders'
      Deficit:Series
      A convertible preferred stock, no par value; 16,000 shares authorized;
      14,393 and 14,410 shares issued and outstanding at March 31, 2010 and
      December 31, 2009, respectively; liquidation preference $1,439,300 at
      March 31, 2010
                                                  
                                                  
                                                  1,323,369
                                                  
                                                  
                                                  
                                                  1,325,039Common
      stock $.00001 par value; 100,000,000 shares authorized; 91,662,293 and
      87,402,089 shares issued and outstanding at March 31, 2010 and December
      31, 2009, respectively
                                                  
                                                  
                                                  917
                                                  
                                                  
                                                  
                                                  874Paid-in
      capital
                                                  
                                                  
                                                  8,493,817
                                                  
                                                  
                                                  
                                                  8,474,832Accumulated
      deficit
                                                  
                                                  
                                                  (17,604,441
                                                  )
                                                  
                                                  
                                                  (17,212,428
                                                  )Accumulated
      other comprehensive income (loss)
                                                  
                                                  
                                                  78,656
                                                  
                                                  
                                                  
                                                  18,096Total
      Stockholders' Deficit
                                                  
                                                  
                                                  (7,707,682
                                                  )
                                                  
                                                  
                                                  (7,393,587
                                                  )Total
      Liabilities and Stockholders' Deficit
                                                  
                                                  $
                                                  1,225,498
                                                  
                                                  
                                                  $
                                                  1,329,458
  See
accompanying notes to the unaudited consolidated financial
statements.
  3
 
 TRANSAX INTERNATIONAL LIMITED AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (Unaudited)
  For the Three Months EndedMarch 31,2010
                  
                  
                  2009REVENUES
                  
                  $
                  1,022,832
                  
                  
                  $
                  952,318OPERATING
      EXPENSES:Cost
      of product support services
                  
                  
                  563,595
                  
                  
                  
                  507,138Compensation
      and related benefits
                  
                  
                  557,236
                  
                  
                  
                  330,864Professional
      fees
                  
                  
                  20,000
                  
                  
                  
                  23,261Management
      and consulting fees - related parties
                  
                  
                  58,445
                  
                  
                  
                  65,259Depreciation
      and amortization
                  
                  
                  61,378
                  
                  
                  
                  72,769General
      and administrative
                  
                  
                  281,454
                  
                  
                  
                  270,210Total
      Operating Expenses
                  
                  
                  1,542,108
                  
                  
                  
                  1,269,501LOSS
      FROM OPERATIONS
                  
                  
                  (519,276
                  )
                  
                  
                  (317,183
                  )OTHER
      INCOME (EXPENSES):Foreign
      currency exchange gain (loss)
                  
                  
                  13,844
                  
                  
                  
                  10,224Gain
      (loss) from derivative liabilities
                  
                  
                  582,656
                  
                  
                  
                  128,152Interest
      expense
                  
                  
                  (455,464
                  )
                  
                  
                  (91,981
                  )Interest
      expense - related party
                  
                  
                  (13,773
                  )
                  
                  
                  (8,439
                  )Total
      Other Income (Expenses)
                  
                  
                  127,263
                  
                  
                  
                  37,956LOSS
      BEFORE INCOME TAXES
                  
                  
                  (392,013
                  )
                  
                  
                  (279,227
                  )PROVISION
      FOR INCOME TAXES
                  
                  
                  -
                  
                  
                  
                  -NET
      LOSS
                  
                  
                  (392,013
                  )
                  
                  
                  (279,227
                  )CONVERTIBLE
      PREFERRED STOCK DIVIDENDS
                  
                  
                  (25,200
                  )
                  
                  
                  (25,220
                  )NET
      LOSS ALLOCABLE TO COMMON STOCKHOLDERS
                  
                  $
                  (417,213
                  )
                  
                  $
                  (304,447
                  )COMPREHENSIVE
      LOSS:NET
      LOSS
                  
                  $
                  (392,013
                  )
                  
                  $
                  (279,227
                  )OTHER
      COMPREHENSIVE INCOMEUnrealized
      foreign currency translation income
                  
                  
                  60,560
                  
                  
                  
                  85,369COMPREHENSIVE
      LOSS
                  
                  $
                  (331,453
                  )
                  
                  $
                  (193,858
                  )Net
      Loss per Common Share:Basic
                  
                  $
                  -
                  
                  
                  $
                  (0.01
                  )Diluted
                  
                  $
                  -
                  
                  
                  $
                  (0.01
                  )Weighted
      Average Shares Outstanding:Basic
                  
                  
                  89,906,205
                  
                  
                  
                  53,686,164Diluted
                  
                  
                  89,906,205
                  
                  
                  
                  53,686,164
  See
accompanying notes to the unaudited consolidated financial
statements.
  4
 
 TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 For
      the Three MonthsEnded
      March 31,2010
                            
                            
                            2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                            
                            $
                            (392,013
                            )
                            
                            $
                            (279,227
                            )Adjustments
      to reconcile net loss to net cash (used in) provided byoperating
      activities:Depreciation
      and amortization
                            
                            
                            61,378
                            
                            
                            
                            72,769Amortization
      of software maintenance costs
                            
                            
                            17,893
                            
                            
                            
                            35,671Gain
      from derivative liabilities
                            
                            
                            (582,656
                            )
                            
                            
                            (128,152
                            )Foreign
      currency exchange gain
                            
                            
                            (13,844
                            )
                            
                            
                            (10,224
                            )Changes
      in assets and liabilities:Accounts
      receivable
                            
                            
                            (131,317
                            )
                            
                            
                            (34,951
                            )Prepaid
      expenses and other current assets
                            
                            
                            59,346
                            
                            
                            
                            11,903Accounts
      payable and accrued expenses
                            
                            
                            653,278
                            
                            
                            
                            283,029Accrued
      interest payable, related party
                            
                            
                            13,773
                            
                            
                            
                            8,439Due
      to related parties
                            
                            
                            59,108
                            
                            
                            
                            61,967Accounts
      payable and accrued expenses  - long-term
                            
                            
                            55,978
                            
                            
                            
                            (1,821
                            )NET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
                            
                            
                            (199,076
                            )
                            
                            
                            19,403CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property and equipment
                            
                            
                            (6,722
                            )
                            
                            
                            (110,485
                            )NET
      CASH USED IN INVESTING ACTIVITIES
                            
                            
                            (6,722
                            )
                            
                            
                            (110,485
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from loans
                            
                            
                            173,234
                            
                            
                            
                            119,972Proceeds
      from loans payable - related party
                            
                            
                            20,000
                            
                            
                            
                            -Payment
      of  capital lease obligations
                            
                            
                            -
                            
                            
                            
                            (31,204
                            )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                            
                            
                            193,234
                            
                            
                            
                            88,768Effect
      of Exchange Rate Changes on Cash
                            
                            
                            (694
                            )
                            
                            
                            1,259Net
      Decrease in Cash
                            
                            
                            (13,258
                            )
                            
                            
                            (1,055
                            )Cash,
      Beginning of Year
                            
                            
                            21,813
                            
                            
                            
                            25,676Cash,
      End of Period
                            
                            $
                            8,555
                            
                            
                            $
                            24,621SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for interest
                            
                            $
                            144,464
                            
                            
                            $
                            91,981Cash
      paid for income taxes
                            
                            $
                            -
                            
                            
                            $
                            -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Series
      A preferred stock converted to common stock
                            
                            $
                            1,670
                            
                            
                            $
                            5,000Derivative
      liability reclassified to equity upon conversion
                            
                            $
                            17,357
                            
                            
                            $
                            4,200
  See
accompanying notes to the unaudited consolidated financial
statements.
  5




TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010




NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The
Company





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





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





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





Principles
of Consolidation





The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America.  The
consolidated financial statements include the Company and its 55% owned
subsidiary, Transax Limited, and Transax Limited’s wholly-owned subsidiaries
Medlink Conectividade, and MTI. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements. The
Company records 100% of its Transax Limited losses incurred in 2010 and 2009
since the minority stockholder has no legal obligation to reimburse the Company
for such losses.





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





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





Use
of Estimates





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


6


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





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





Fair
Value of Financial Instruments





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





Level 1-
inputs which include quoted prices in active markets for identical assets or
liabilities;





Level
2 - inputs which include observable inputs other than Level 1 inputs such
as quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets and liabilities in markets that are not
active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data for the full term of the asset or
liability; and





Level
3 - inputs which include unobservable inputs that are supported by little
or no market activity and that are significant to the fair value of the
underlying asset or liability. Level 3 assets and liabilities include those
whose fair value measurements are determined using pricing models, discounted
cash flow methodologies or similar valuation techniques, as well as significant
management judgment or estimation.





The
carrying amounts reported in the balance sheet for cash, accounts receivable,
loans payable, accounts payable and accrued expenses, and amounts due from
related parties approximate their fair market value based on the short-term
maturity of these instruments. The Company uses Level 3 inputs to value its
derivative liabilities.





The
following table provides a reconciliation of the beginning and ending balances
for the major classes of assets and liabilities measured at fair value using
significant unobservable inputs (Level 3). The following table reflects gains
and losses for the quarter for all financial assets and liabilities categorized
as Level 3 as of March 31, 2010.





Liabilities:Balance
      of derivative liabilities as of January 1,  2010
                  
                  $
                  1,349,853Reclassification
      of derivative liabilities to paid-in capital upon
    conversion
                  
                  
                  (17,357
                  )Decrease
      in fair value of derivative liabilities (a)
                  
                  
                  (582,656
                  )Balance
      of derivative liabilities as of  March 31, 2010
                  
                  $
                  749,840





(a)
              The
      Company calculates the fair value of the conversion features on the
      convertible preferred stock and warrants on a quarterly basis, as these
      conversion features on the convertible preferred stock and warrants have
      been treated as a derivative liability since their initial issuance dates
      (See Note 6).





Cash
and Cash Equivalents





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


7


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





Concentrations
of Credit Risk





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





The
Company recognizes an allowance for doubtful accounts to ensure accounts
receivable are not overstated due to uncollectability and are maintained for all
customers based on a variety of factors, including the length of time the
receivables are past due, significant one-time events and historical experience.
An additional reserve for individual accounts is recorded when the Company
becomes aware of a customer's inability to meet
its  financial  obligation, such
as  in  the case of  bankruptcy filings or
deterioration in the customer's operating results or financial position. If
circumstances related to customers change, estimates of the recoverability of
receivables would be further adjusted.  As of March 31, 2010 and
December 31, 2009, the Company’s allowance for doubtful accounts was
$0.





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





The
Company’s revenues from two major customers for the three months ended March 31,
2010 accounted for approximately 73.2% or $748,590 of the
revenues.  For the three months ended March 31, 2010, these two major
customers accounted for 61.9% and 11.3% of revenues, respectively. At March 31,
2010, these two major customers accounted for 61.1% and 11.6%, respectively, of
the total accounts receivable balance outstanding The Company's revenues from
two major customers for the three months ended March 31, 2009 accounted for
approximately 71.9% or $684,431 of the revenues. For the three months ended
March 31, 2009, these two major customers accounted for 59.3% and 12.6% of
revenues, respectively.





The
Company maintains its cash in accounts with major financial institutions in the
United States and Brazil. Deposits in these banks may exceed the amounts of
insurance provided on such deposits.  As of March 31, 2010, bank
deposits in the United States did not exceed federally insured
limits.  At March 31, 2010, the Company had deposits of $7,150 in
banks in Brazil which may not be insured.  Historically, we have not
experienced any losses on our deposits of cash.





Property
and Equipment, net





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


8


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





Impairment
of Long-Lived Assets





The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset.
The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. The Company did not record any
impairment charges during the three months ended March 31, 2010 and
2009.





Income
Taxes





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





The
Company has adopted the accounting standard related to the accounting for
uncertainty in income taxes, which provides a financial statement recognition
threshold and measurement attribute for a tax position taken or expected to be
taken in a tax return. The Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the
technical merits of the position.  The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement. The accounting standard also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, and income tax disclosures. Management
believes its exposure to uncertain tax positions as of March 31, 2010 is deemed
immaterial.  The Company’s tax returns for the years 2006 and beyond
are subject to audit.





Foreign
Currency Translation





The
reporting currency of the Company is the U.S. dollar. The functional currency of
the Company’s operating subsidiary, Medlink Conectividade, is its local
currency, the Brazilian Real (“R$”). Results of operations and cash flows are
translated at average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the period, and equity
is translated at historical exchange rates.  Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive income
(loss).  The cumulative translation adjustment and effect of exchange
rate changes on cash for the three months ended March 31, 2010 and 2009 was
$(694) and $1,259, respectively.  Transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency are included in the results of operations as
incurred.


9


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





Asset and
liability accounts at  March 31, 2010 and December 31,  2009
were translated at 1.781 R$ to $1.00 and at 1.7412 R$ to $1.00,
respectively.  Equity accounts are translated at their historical
rate. Cash flows from the Company's operations are calculated based upon the
local currencies using the average translation rate. As a result, amounts
related to assets and liabilities reported on the statement of cash flows will
not necessarily agree with changes in the corresponding balances on the balance
sheet.  Transactions and balances originally denominated in U.S.
dollars are presented at their original amounts.  Transactions and
balances in other currencies are converted into U.S. dollars and are included in
determining net earnings.





Although
the Brazilian economy has remained relatively stable in recent years, a return
to higher levels of inflation, and currency exchange rate volatility could
adversely affect the Company’s operations. Changes in the valuation of the
Brazilian Realin
relation to the U.S. dollar may have significant effects on the Company’s
consolidated financial statements.





Revenue
Recognition





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





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





Accounting
for Conversion Features and Warrants issued with Preferred Stock





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


10


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





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





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





Basic
and Diluted Earnings (Loss) per Share





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





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





ThreeMonthsEnded
                                    March31,2010
                                  
                                  
                                  2009Net
      loss allocable to common shareholders for basic and diluted earnings per
      common share
                                  
                                  $
                                  (417,213
                                  )
                                  
                                  $
                                  (304,447
                                  )Weighted
      average common shares outstanding – basic
                                  
                                  
                                  89,906,205
                                  
                                  
                                  
                                  53,686,164Effect
      of dilutive securities:Convertible
      debt
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Series
      A convertible preferred stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Weighted
      average common shares outstanding– diluted *
                                  
                                  
                                  89,906,205
                                  
                                  
                                  
                                  53,686,164Loss
      per common share  - basic
                                  
                                  $
                                  0.00
                                  
                                  
                                  $
                                  (0.01
                                  )Loss
      per common share  - diluted
                                  
                                  $
                                  0.00
                                  
                                  
                                  $
                                  (0.01
                                  )





* The
Company’s authorized number of shares of common stock is limited to 100,000,000
common shares


11





TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





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





Three Months Ended March 31,2010
                  
                  
                  2009Stock
      options
                  
                  
                  1,950,000
                  
                  
                  
                  2,375,000Stock
      warrants
                  
                  
                  5,000,000
                  
                  
                  
                  7,402,500Convertible
      loan-related party
                  
                  
                  1,400,000
                  
                  
                  
                  1,400,000Convertible
      preferred stock
                  
                  
                  619,260,870
                  
                  
                  
                  1,441,000,000Total
                  
                  
                  627,610,870
                  
                  
                  
                  1,452,177,500





These
common stock equivalents may be dilutive in the future. However, the Company’s
authorized number of shares of common stock is limited to 100,000,000 common
shares and 91,662,293 were outstanding at March 31, 2010; only 8,337,707
additional shares are authorized for issuance as of that date.





Stock
Based Compensation





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





Advertising





Advertising
costs are expensed when incurred.  For the three months ended March
31, 2010 and 2009, advertising expense was immaterial.





Comprehensive
Loss





The
Company follows the accounting standards related to reporting comprehensive loss
to recognize the elements of comprehensive loss.  Comprehensive loss
is comprised of net loss and all changes to the statements of stockholders'
equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders.  For the Company,
comprehensive loss for the  three months ended  March 31,
2010 and 2009 included net loss and unrealized gains (losses) from foreign
currency translation adjustments.





Research
and Development





Research
and development costs are expensed as incurred. For the three months ended March
31, 2010 and 2009, research and development costs were
immaterial.


12


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





Related
Parties





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





Subsequent
Events





For
purposes of determining whether a post-balance sheet event should be evaluated
to determine whether it has an effect on the financial statements for the period
ending March 31, 2010, subsequent events were evaluated by the Company through
May 22, 2010, the date on which the consolidated financial statements at and for
the three months ended March 31, 2010, were available to be issued.





Recently
Issued Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 810-10,
“Amendments to FASB Interpretation No. 46(R)”. This updated guidance requires a
qualitative approach to identifying a controlling financial interest in a
variable interest entity (VIE), and requires ongoing assessment of whether an
entity is a VIE and whether an interest in a VIE makes the holder the primary
beneficiary of the VIE. It is effective for annual reporting periods beginning
after November 15, 2009. The adoption of ASC Topic 810-10 did not have a
material impact on the Company’s results of operations or financial
condition.





The
Company adopted FASB ASC 805-10, which establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in an acquiree and the goodwill acquired.  The Company will apply
ASC 805-10 to any business combinations subsequent to adoption.





The
Company adopted FASB ASC 805-20, which amends ASC 805-10 to require that an
acquirer recognize at fair value, at the acquisition date, an asset acquired or
a liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value of such an
asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of ASC Topic 450, Contingences, to determine
whether the contingency should be recognized at the acquisition date or after
such date. The adoption of ASC
805-20 did not have a material impact on the Company’s consolidated
financial statements.





The
Company adopted FASB ASC 815-10-65, which amends and expands previously existing
guidance on derivative instruments to require tabular disclosure of the fair
value of derivative instruments and their gains and losses. This ASC also
requires disclosure regarding the credit-risk related contingent features in
derivative agreements, counterparty credit risk, and strategies and objectives
for using derivative instruments


13


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





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





In
October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13,
“Multiple-Deliverable Revenue Arrangements.” This ASU establishes the accounting
and reporting guidance for arrangements including multiple revenue-generating
activities. This ASU provides amendments to the criteria for separating
deliverables, measuring and allocating arrangement consideration to one or more
units of accounting. The amendments in this ASU also establish a selling price
hierarchy for determining the selling price of a deliverable. Significantly
enhanced disclosures are also required to provide information about a vendor’s
multiple-deliverable revenue arrangements, including information about the
nature and terms, significant deliverables, and its performance within
arrangements. The amendments also require providing information about the
significant judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or amount of
revenue recognition. The amendments in this ASU are effective prospectively for
revenue arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010. Early application is permitted. The Company
is currently evaluating this new ASU.





In
October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements
That Include Software Elements.” This ASU changes the accounting model for
revenue arrangements that include both tangible products and software elements
that are “essential to the functionality,” and scopes these products out of
current software revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered “essential to the
functionality.” The amendments will now subject software-enabled products to
other revenue guidance and disclosure requirements, such as guidance surrounding
revenue arrangements with multiple-deliverables. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The Company is currently evaluating this new
ASU.





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





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





NOTE
2 - GOING CONCERN





Since
inception, the Company has incurred cumulative net losses of $17,604,441, and
has a stockholders' deficit of $7,707,682 and a working capital deficit of
$6,322,257 at March 31, 2010.  Since inception, the Company has funded
operations through short-term borrowings and the proceeds from equity sales in
order to meet its strategic objectives.  The Company's future
operations are dependent upon external funding and its ability to increase
revenues and reduce expenses.  Management believes that sufficient
funding will be available from additional related party borrowings to meet its
business objectives, including anticipated cash needs for working capital, for a
reasonable period of time. However, there can be no assurance that the Company
will be able to obtain sufficient funds to continue the development of its
software products and distribution networks.


14


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
2 - GOING CONCERN (continued)





Further,
since fiscal 2000, the Company has been deficient in the payment of Brazilian
payroll taxes and Social Security taxes.  At March 31, 2010 and
December 31, 2009, these deficiencies (including interest and penalties)
amounted to approximately $3,482,000 and $3,224,000,
respectively.  This payroll liability is included as part of the
accounts payable and accrued expenses (short-term and long-term) within the
consolidated balance sheets. Additionally, the Company had sold 45% of its
operating subsidiary and the Buyer had an option to acquire the remaining
55%.  However, the Buyer has defaulted on payments and the Company is
renegotiating with the Buyer and its assignee to restructure the
contract.





At March
31, 2010, the Company cannot determine the outcome of these
negotiations.  If the negotiations are successful, the Company may
sell the remaining 55% of its operating subsidiary, at which point the Company
will have no continuing operations.  If the outcome of the
negotiations are not successful, the Company will seize the 45% interest in its
operating subsidiary and will seek to sell it to other buyers. As a result of
the foregoing, there exists substantial doubt about the Company's ability to
continue as a going concern.  These consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.





NOTE
3 – PROPERTY AND EQUIPMENT





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





March 31, 2010
                  
                  
                  December 31, 2009Computer
      Equipment
                  
                  $
                  1,307,776
                  
                  
                  $
                  1,344,636Software
                  
                  
                  681,039
                  
                  
                  
                  695,033Office
      Furniture and Equipment
                  
                  
                  23,491
                  
                  
                  
                  23,682Vehicle
                  
                  
                  77,501
                  
                  
                  
                  79,272Other
                  
                  
                  21,254
                  
                  
                  
                  9,6702,111,061
                  
                  
                  
                  2,152,293Accumulated
      Depreciation
                  
                  
                  (1,771,257
                  )
                  
                  
                  (1,684,592
                  )$
                  339,804
                  
                  
                  $
                  467,701





For the
three months ended March 31, 2010 and 2009, depreciation expense amounted to
$61,378 and $72,769 respectively.





NOTE
4 – RELATED PARTY TRANSACTIONS





Convertible Loan - Related
Party





At March
31, 2010 and December 31, 2009, the Company had aggregate loans payable for
$175,000 to Carlingford Investments Limited (“Carlingford”), a related party
company whose officer is an officer of the Company.  These loans are
convertible into the Company's common stock at $0.125 per share (1,400,000
common shares).  For each share of common stock received upon
conversion of the principal balance, the related party is entitled to receive
one warrant to purchase the Company's common stock at $0.25 per share for a
period of two years from the conversion date.  The interest rate of
the loan is 12% per annum computed at simple interest.  At March 31,
2010 and December 31, 2009, interest due on these loans amounted to $50,857 and
$45,679, respectively, and the aggregate principal amount due is $175,000.
During the three months ended March 31, 2010 and 2009, the Company incurred
$5,178 and $5,178, respectively, in interest expense related to these two loans.
These two loans are in default and are due on demand.


15


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
4 – RELATED PARTY TRANSACTIONS (continued)





Due to Related
Parties





For the
three months ended March 31, 2010 and 2009, the Company incurred $52,500 and
$53,579 respectively, in management fees to an officer/director of the Company,
which has been included in management and consulting fees - related party on the
accompanying consolidated statements of operations.  Effective July 1,
2007, pursuant to a Management Consulting Services Agreement, the Company’s
board of directors approved compensation for this officer/director of $17,500
per month.  At March 31, 2010 and December 31, 2009, $545,320 and
$492,757 in management fees and other expenses are payable to this
officer/director and are included in due to related parties on the accompanying
consolidated balance sheets.  The amount due is unsecured,
non-interest bearing and payable on demand.





For the
three months ended March 31, 2010 and 2009, the Company incurred $5,945 and
$11,680, respectively, in accounting fees to a company whose officer is an
officer of the Company.  The fees are included in management and
consulting fees - related party on the accompanying consolidated statements of
operations.  At March 31, 2010 and December 31, 2009, $74,510 and
$67,965 in these fees is payable to this officer and are included in due to
related parties on the accompanying consolidated balance sheets. The amount due
is unsecured, non-interest bearing and payable on demand.





For the
three months ended March 31, 2010 and 2009 the Company incurred $0 and $0,
respectively, in consulting fees to an officer of the Company which has been
included in management and consulting fees - related party on the accompanying
consolidated statements of operations. At March 31, 2010 and December 31, 2009,
$12,000 and $12,000 in these fees is payable to this director and are included
in due to related parties on the accompanying consolidated balance sheets. The
amount due is unsecured, non-interest bearing and payable on
demand.





Loans Payable – Related
Party





On March
5, 2004, the Company borrowed 115,000 Euros (translated to $154,732 and $164,830
at March 31, 2010 and December 31, 2009, respectively) from an officer of the
Company for working capital purposes.  The loan accrues 0.8%
non-compounding interest per month, (9.6% per annum), had an initial term of
twelve months, and was repayable quarterly in arrears.  This loan has
not been repaid and is currently payable on demand.  Additionally,
through March 31, 2010, the Company borrowed $180,000 from this officer. These
loans accrue 1.0% non-compounding interest per month, (12% per annum), and are
due on demand.  For the three months ended March 31, 2010 and 2009,
the Company incurred $8,595 and $3,261, respectively, in interest related to
these loans.  At March 31, 2010 and December 31, 2009, $99,480 and
$94,632 in interest and loan fees was accrued on these loans and the aggregate
principal and interest amount due is $434,213 and $419,462, respectively, and is
included in loan payable - related party on the accompanying consolidated
balance sheets.





NOTE
5 – LOANS PAYABLE





The
Company's subsidiary, Medlink Conectividade, has several loans and credit lines
with financial institutions.  The loans require monthly installment
payments, bear interest at rates ranging from 28% to 42% per annum, are secured
by certain receivables of Medlink Conectividade, and are due through October
2010.  At March 31, 2010 and December 31, 2009, loans payable to these
financial institutions aggregated $1,020,446 and $858,951,
respectively.


16


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
6 – STOCKHOLDERS’ DEFICIT





Preferred
stock





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




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




17


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
6 – STOCKHOLDERS’ DEFICIT   (continued)





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





The
Company is required to record the fair value of the ECF and warrants as a
liability.  At March 31, 2010 and 2009, the Company revalued the ECF
and warrants resulting in a gains\ on derivative liabilities of $582,656 and
$128,152 for the three months ended March 31, 2010 and 2009,
respectively.





At March
31, 2010, the estimated fair value of the ECF and warrants were liabilities of
$748,933 and $907, respectively.  At December 31, 2009, the estimated
fair value of the ECF and warrants were liabilities of $1,348,157 and $1,696,
respectively.  These derivative liabilities are reflected as a
conversion feature liability and a warrant liability, respectively, on the
accompanying consolidated balance sheets.





At the
valuation date of March 31, 2010, the fair value of the ECF and warrants were
estimated using the Black-Scholes-Merton option pricing model with the following
assumptions:





Dividend
      rate
                  
                  0%Term
      (in years)
                  
                  .50
      to .79 yearsVolatility
                  
                  254%Risk-free
      interest rate
                  
                  0.20%
      - 0.47%





Common
Stock





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





Stock
Options





On
November 28, 2004, the Company adopted the 2004 Incentive Stock Option Plan (the
"Plan").  The Plan, as amended, provides options to be granted,
exercisable for a maximum of 7,000,000 shares of common stock. Both incentive
and nonqualified stock options may be granted under the Plan.  The
exercise price of options granted, the expiration date, and the vesting period,
pursuant to this plan, are determined by a committee of the Board of
Directors.


18


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
6 – STOCKHOLDERS’ DEFICIT   (continued)





A summary
of the status of the Company's outstanding stock options as of March 31, 2010
and changes during the period ending on that date is as follows:





Three Months Ended
                        March 31, 2010Number of
                        Options
                      
                      
                      Weighted
                        Average
                        Exercise
                        PriceStock optionsBalance
      at beginning of the period
                      
                      
                      1,950,000
                      
                      
                      $
                      0.12Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -Forfeited
                      
                      
                      -
                      
                      
                      
                      -Balance
      at end of the period
                      
                      
                      1,950,000
                      
                      
                      $
                      0.12Options
      exercisable at end of period
                      
                      
                      1,950,000
                      
                      
                      $
                      0.12Weighted
      average fair value of options granted during the period
                      
                      
                      
                      
                      
                      $
                      -





The
following table summarizes information about employee and consultant stock
options outstanding at March 31, 2010:





Options Outstanding
                            
                            
                            Options ExercisableRange of
                              Exercise
                              Price
                            
                            Number
                              Outstanding at
                              March 31,
                              2010
                            
                            
                            Weighted
                              Average
                              Remaining
                              Contractual
                              Life (Years)
                            
                            
                            Weighted
                              Average
                              Exercise
                              Price
                            
                            
                            Number
                              Exercisable at
                              March 31,
                              2010
                            
                            
                            Weighted
                              Average
                              Exercise
                              Price$
                            0.15
                            
                            
                            1,350,000
                            
                            
                            
                            0.48
                            
                            
                            
                            0.15
                            
                            
                            
                            1,350,000
                            
                            
                            
                            0.15$
                            0.06
                            
                            
                            600,000
                            
                            
                            
                            2.65
                            
                            
                            
                            0.06
                            
                            
                            
                            600,000
                            
                            
                            
                            0.061,950,000
                            
                            
                            
                            
                            
                            
                            $
                            0.12
                            
                            
                            
                            1,950,000
                            
                            
                            $
                            0.12





As of
March 31, 2010 and December 31,  2009, there are no unrecognized
compensation costs since all options granted under the stock option plan are
vested.


19


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
6 – STOCKHOLDERS’ DEFICIT   (continued)





Stock
Warrants





A summary
of the status of the Company's outstanding stock warrants as of March 31, 2010
and activities during the period then ended is as follows:





For the Three Months Ended
                      March 31, 2010Number of
                      Warrants
                    
                    
                    Weighted
                      Average
                      Exercise PriceWarrantsBalance
      at beginning of the period
                    
                    
                    5,000,000
                    
                    
                    $
                    0.25Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -Balance
      at end of the period
                    
                    
                    5,000,000
                    
                    
                    $
                    0.25





The
following information applies to all warrants outstanding at March 31,
2010:





Warrants Outstanding
                          
                          
                          Warrants ExercisableRange of
                            Exercise Prices
                          
                          Shares
                          
                          
                          Weighted
                            Average
                            Remaining
                            Contractual
                            Life (Years)
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price
                          
                          
                          Shares
                          
                          
                          Weighted
                            Average
                            Exercise
                            Price$
                          0.30
                          
                          
                          2,500,000
                          
                          
                          
                          0.79
                          
                          
                          $
                          0.30
                          
                          
                          
                          2,500,000
                          
                          
                          $
                          0.30$
                          0.20
                          
                          
                          2,500,000
                          
                          
                          
                          0.79
                          
                          
                          
                          0.20
                          
                          
                          
                          2,500,000
                          
                          
                          
                          0.205,000,000
                          
                          
                          
                          
                          
                          
                          $
                          0.25
                          
                          
                          
                          5,000,000
                          
                          
                          $
                          0.25





NOTE
7 – SALE OF NON-CONTROLLING INTEREST IN SUBSIDIARY





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





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


20


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
7 – SALE OF NON-CONTROLLING INTEREST IN SUBSIDIARY





Accordingly,
at March 31, 2010 and December 31, 2009, the Company’s consolidated balance
sheets reflect a deferred gain on the sale of non-controlling interest of
$937,700, which will be recognized as other income when collection is reasonably
assured and when all of the risks and other incidents of ownership have been
passed to the buyer. At March 31, 2010 and December 31, 2009, deferred gain on
sale of non-controlling interest consists of the following:





Sale
      price of 45% interest in Transax Limited
                  
                  $
                  3,200,000Less:
      note receivable balance
                  
                  
                  (2,262,300
                  )Deferred
      gain on sale of non-controlling interest in subsidiary
                  
                  $
                  937,700





As of the
date of this report, the Buyer is in default on the remaining notes receivable
balance of $2,262,300. The Company has issued default notices to the buyer in
respect of non-payment under the Agreement. The Company is currently in
discussion with the Buyer and/or assignees and plans to conclude any
renegotiation of contract terms on or before September 30, 2010.




NOTE
8- FOREIGN OPERATIONS





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





Three Months Ended
                      March 31,2010
                    
                    
                    2009Revenues
      to unaffiliated customers:Brazil
                    
                    $
                    1,022,832
                    
                    
                    $
                    952,318Operating
      Expenses:Brazil
                    
                    
                    1,457,669
                    
                    
                    
                    1,172,392USA
                    
                    
                    84,439
                    
                    
                    
                    96,277Mauritius
                    
                    
                    -
                    
                    
                    
                    832Total
      Operating Expenses
                    
                    
                    1,542,108
                    
                    
                    
                    1,269,501Loss
      from operations
                    
                    
                    (519,276
                    )
                    
                    
                    (317,183
                    )Other
      income (expenses):Brazil
                    
                    
                    (455,464
                    )
                    
                    
                    (91,981
                    )USA
                    
                    
                    582,727
                    
                    
                    
                    129,937127,263
                    
                    
                    
                    37,956Net
      loss as reported
                    
                    $
                    (392,013
                    )
                    
                    $
                    (279,227
                    )




21


TRANSAX
INTERNATIONAL LIMITED AND SUBSIDIARIES


Notes to
the Unaudited Consolidated Financial Statements


March 31,
2010





NOTE
9 - COMMITMENTS AND CONTINGENCIES





Accrued
Taxes and Social Contribution





Since
2000, the Company has been deficient in the payment of Brazilian payroll taxes
and Social Security taxes.  At March 31, 2010 and December 31, 2009,
these deficiencies, plus interest and penalties, amounted to approximately
$3,482,000 and $3,224,000, respectively. This liability is included as part of
the accounts payable and accrued expenses (short-term and long-term) within the
consolidated balance sheet.  In 2009, the Company submitted to the
Brazilian government a request to pay out the federal taxes pursuant to a
recently enacted law issued on May 27, 2009, which refinanced all federal tax
debts due by November 30, 2008. The Company’s request was granted by the
government on November 16, 2009. The monthly amount to be paid for the taxes due
has not yet been determined by the government.





Legal
Proceedings





The
Company’s subsidiary, Medlink Conectividade, is involved in litigation
pertaining to a previous provider of consultancy services regarding breach of
contract and two labor law suits involving employees for claims of unfair
dismissal.  At March 31, 2010 and December 31, 2009, the Company has
accrued approximately $254,000 and $260,000, respectively, related to these
lawsuits which are probable and estimable. The ultimate outcome of these claims
is uncertain at this time.


22


ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF
OPERATIONS





The
following analysis of the results of operations and financial condition should
be read in conjunction with our unaudited consolidated financial statements for
the three months ended March 31, 2010 and notes thereto contained elsewhere
in this report.





GENERAL





Transax
International Limited is a Colorado corporation and currently trades on the OTC
Pink Sheet market under the symbol "TNSX.PK" and the Frankfurt and Berlin Stock
Exchanges under the symbol "TX6". Please note that throughout this report, and
unless otherwise noted, the words "we," "our," "us," or the "Company" refer to
Transax International Limited. We are an international provider of information
network solutions, products and services specifically designed for the
healthcare providers and health insurance companies (collectively, the "Health
Information Management Products").





CURRENT
BUSINESS OPERATIONS





At the
end of the three-month period ended March 31, 2010, we had nine signed contracts
with Healthcare Insurance companies in Brazil to develop our
solutions.  No additional contracts were signed during the three
months ended March 31, 2010. Currently one of our nine contracts remains under
development with the customer and is awaiting final implementation. Transaction
data under development is being collected in a test environment and will be
subject to full roll out at a later date.


We
processed 2.18 million transactions during the three-month period ended March
31, 2010 compared to 1.9 million transactions during the same period in
2009.  Significant new growth was achieved in the introduction of the
company’s WEB (internet based) solution which increased to over 500,000
transactions per month in March 31, 2010 from 225,000 transactions in January
2009.





At the
end of the three-month period ended March 31, 2010, we had 19,694 solutions
operational in Brazil compared with 16,768 solutions during the same period in
2009. Our installations at the end of the  three-month period
ended  March 31, 2010 included 3,192 POS (point of service) solutions,
14,744 WEB solutions and 1,708 Interactive Voice Response (“IVR”) solutions with
the balance of installations being Personal Computer (“PC”) and Server based
solutions installed in major medical laboratories. During the three-month period
ending March 31, 2010 we installed over 2,100 new WEB solutions in Brazil and 8
POS solutions.





During
the three-month period ended March 31, 2001, the Company maintained its current
staffing levels in response to the development of the Company’s HOSP solution, a
solution which would allow real time, on-line healthcare transactions to be
undertaken in an in-patient hospital environment. In addition, the Company is
developing a real time dental solution in response to market demand. Current
transactions are generally limited to real time, on-line transactions in the
out-patient environment.





Stock
Purchase and Option Agreement




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


23




In
accordance with further terms and provisions of the Agreement: (i) we sold 45 of
the 100 shares of  Transax Limited’s issued and outstanding, (the
“Initial Shares”), with an option to purchase the remaining 55 shares of Transax
Limited, (the “Option”); and (ii) the Buyer agreed to pay us an aggregate
purchase price of $3,200,000 for the Initial Shares.  A total of
$937,700 was received through December 31, 2008. We did not receive any proceeds
during the three months ended March 31, 2010.  The Company also has
received monies as reimbursement for legal fees which are excluded from these
amounts as they were used to offset the associated expenses.  For the
three months ended March 31 2010, we received $0 of such reimbursement, and a
total of $15,000 of reimbursement was received during the three months ended
March 31, 2009.




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





Sale
      price of 45% interest in Transax Limited
                  
                  $
                  3,200,000Less:
      note receivable balance
                  
                  
                  (2,262,300
                  )Deferred
      gain on sale of non-controlling interest in subsidiary
                  
                  $
                  937,700





As of the
date of this quarterly report, the Buyer is in default by $2,262,300 in periodic
payments. We are currently in discussions with the buyer and plan to conclude
any renegotiation of contract terms on or before September 30,
2010.





CRITICAL
ACCOUNTING POLICIES





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





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




24





Under the
criteria set forth in Accounting Standards Codification Topic 985, "Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", capitalization of
software development costs begins upon the establishment of technological
feasibility of the software. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life, and changes in software and hardware technology. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years. We regularly
review the carrying value of software development assets and a loss is
recognized when the unamortized costs are deemed unrecoverable based on the
estimated cash flows to be generated from the applicable software.





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





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





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





In June
2009, the FASB issued ASC Topic 810-10, “Amendments to FASB Interpretation No.
46(R)”. This updated guidance requires a qualitative approach to identifying a
controlling financial interest in a variable interest entity (VIE), and requires
ongoing assessment of whether an entity is a VIE and whether an interest in a
VIE makes the holder the primary beneficiary of the VIE. It is effective for
annual reporting periods beginning after November 15, 2009. The adoption of ASC
Topic 810-10 did not have a material impact on our results of operations or
financial condition.





We
adopted FASB ASC 805-10, which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in an
acquiree and the goodwill acquired.  We will apply ASC 805-10 to any
business combinations subsequent to adoption.





We
adopted FASB ASC 805-20, which amends ASC 805-10 to require that an acquirer
recognize at fair value, at the acquisition date, an asset acquired or a
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value of such an
asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of ASC Topic 450, Contingences, to determine
whether the contingency should be recognized at the acquisition date or after
such date. The adoption of ASC 805-20 did not have a material impact on our
consolidated financial statements.




25




We
adopted FASB ASC 815-10-65, which amends and expands previously existing
guidance on derivative instruments to require tabular disclosure of the fair
value of derivative instruments and their gains and losses. This ASC also
requires disclosure regarding the credit-risk related contingent features in
derivative agreements, counterparty credit risk, and strategies and objectives
for using derivative instruments





In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue
Arrangements.” This ASU establishes the accounting and reporting guidance for
arrangements including multiple revenue-generating activities. This ASU provides
amendments to the criteria for separating deliverables, measuring and allocating
arrangement consideration to one or more units of accounting. The amendments in
this ASU also establish a selling price hierarchy for determining the selling
price of a deliverable. Significantly enhanced disclosures are also required to
provide information about a vendor’s multiple-deliverable revenue arrangements,
including information about the nature and terms, significant deliverables, and
its performance within arrangements. The amendments also require providing
information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. We are currently evaluating this new ASU.





In
October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements
That Include Software Elements.” This ASU changes the accounting model for
revenue arrangements that include both tangible products and software elements
that are “essential to the functionality,” and scopes these products out of
current software revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered “essential to the
functionality.” The amendments will now subject software-enabled products to
other revenue guidance and disclosure requirements, such as guidance surrounding
revenue arrangements with multiple-deliverables. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. We are currently evaluating this new ASU.





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





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




26





Consolidated
Statement of Operations





THREE
MONTHS ENDED MARCH 31, 2010 COMPARED TO THREE MONTHS ENDED MARCH 31,
2009


2010
                  
                  
                  2009REVENUES
                  
                  $
                  1,022,832
                  
                  
                  $
                  952,318OPERATING
      EXPENSESCost
      of product support services
                  
                  
                  563,595
                  
                  
                  
                  507,138Compensation
      and related benefits
                  
                  
                  557,236
                  
                  
                  
                  330,864Professional
      fees
                  
                  
                  20,000
                  
                  
                  
                  23,261Management
      and consulting fees – related  parties
                  
                  
                  58,445
                  
                  
                  
                  65,259Depreciation
      and amortization
                  
                  
                  61,378
                  
                  
                  
                  72,769General
      and administrative
                  
                  
                  281,454
                  
                  
                  
                  270,210TOTAL
      OPERATING EXPENSES
                  
                  
                  1,542,108
                  
                  
                  
                  1,269,501LOSS
      FROM OPERATIONS
                  
                  
                  (519,276
                  )
                  
                  
                  (317,183
                  )OTHER
      INCOME (EXPENSES)Foreign
      exchange gain
                  
                  
                  13,844
                  
                  
                  
                  10,224Gain
      from derivative liabilities
                  
                  
                  582,656
                  
                  
                  
                  128,152Interest
      expense
                  
                  
                  (455,464
                  )
                  
                  
                  (91,981
                  )Interest
      expense –related party
                  
                  
                  (13,773
                  )
                  
                  
                  (8,439
                  )127,263
                  
                  
                  
                  37,956LOSS
      BEFORE INCOME TAXES
                  
                  
                  (392,013
                  )
                  
                  
                  (279,227
                  )PROVISION
      FOR INCOME TAXES
                  
                  
                  -
                  
                  
                  
                  -NET
      LOSS
                  
                  
                  (392,013
                  )
                  
                  
                  (279,227
                  )OTHER
      COMPREHENSIVE INCOMEUnrealized
      foreign currency translation gain
                  
                  
                  60,560
                  
                  
                  
                  85,369COMPREHENSIVE
      LOSS
                  
                  $
                  (331,453
                  )
                  
                  $
                  (193,858
                  )





Our net
loss for the three months ended March 31, 2010 was $(392,013) compared to net
loss of $(279,227) for the three months ended March 31, 2009 (an increase of
$112,786 or 40.4%).





During
the three months ended March 31, 2010, we generated $1,022,832 in revenues
compared to $952,318 in revenues generated during the three months ended March
31, 2009 (an increase of $70,514 or 7.4%). The increase in revenues is due to
the increase of revenues from new customers and increased revenues from existing
customers. We continue the installation of our software and/or hardware devices
containing our software at healthcare providers' locations in Brazil. Upon
installation, we begin the processing of applications submitted by healthcare
providers for approval of patients for healthcare services from the insurance
carrier. We charge for these services on a per transaction basis. We processed
2,178,664 "real time" transactions for the three months ended March 31, 2010, of
which 483, 577 were from POS terminals, 224,300 from PC and PC servers,
1,313,146 were via our proprietary WEB solution, and 157,841 from our
Interactive Voice Response solution.  We undertook approximately
1,900,000 "real time" transactions during the three months ended March 31, 2009,
of which 684,000 were from POS terminals, 219,000 from PC servers, 193,000 from
Interactive Voice Response and 774,000 from our proprietary WEB solution.
 The increase in transaction volume for the three months ended March 31,
2010 compared with the three months ended March 31, 2009 was due to installation
of solution and new transactions from recently signed contracts and continued
roll out of established contracts during the three months ended March 31,
2010.




27





During
the three months ended March 31, 2010, we incurred operating expenses in the
aggregate amount of $1,542,108 compared to $1,269,501 incurred during the three
months ended March 31, 2009 (an increase of $272,607 or 21.5%). The increase in
operating expenses incurred during the three-month period ended March 31, 2010
compared to the three-month period ended March 31, 2009 resulted from: (i) an
increase of $56,457 or 11.1% in cost of product support services resulting from
the increase in revenues; (ii) an increase of $226,372 or 68.4% in compensation
and related benefits; (iii) a decrease of $3,261 or 14.0% based on a decrease in
the amount of professional fees incurred; (iv) a decrease of $6,814 or 10.4% in
management and consulting fees-related parties due to a decrease in use of
certain management and a director/consultant needed to handle our operations;
(v) a decrease of $11,391 or 15.7% in depreciation and amortization; and (vi) an
increase of $11,244 or 4.2% in general and administrative expenses primarily
resulting from an increase in operating costs associated with our increased
business revenues in 2010.





We
reported a loss from operations of $(519,276) during the three months ended
March 31, 2010 as compared to loss from operations of $(317,183) during the
three months ended March 31, 2009 due to the factors previously
discussed.





During
the three-month period ended March 31, 2010, we incurred other income of
$127,263, compared to other income of $37,956 during the three-month period
ended March 31, 2009 (an increase of $89,307). The variance change during the
three-month period ended March 31, 2010, compared to the three-month period
ended March 31, 2009 resulted primarily from the three-month period change in
the fair value of the Company's derivative liabilities. We recorded a gain of
$582,656 in the 2010 period as compared to 128,152 in the comparable period of
2009 offset by the increase in interest expense of $363,483 principally
attributable to interest cost associated with our loans and delinquent Brazilian
payroll taxes and Social Security taxes. This change in the fair value of the
Company’s derivative liabilities position is related to the classification of
the embedded conversion feature and related warrants issued in connection with
our Series A Preferred Stock as derivative instruments.





For the
three-month period ended March 31, 2010, our loss before income taxes was
$392,013 compared to loss before taxes of $279,227 for the three-month period
ended March 31, 2009. During the three-month period ended March 31, 2010 and
2009, we did not record any tax provision for Brazilian income taxes, resulting
in a net loss of $392,013 compared to a net loss of $279,227.





During
the three-month period ended  March 31, 2010, we recorded a deemed and
cumulative preferred stock dividend of $25,200 compared to $25,220 during the
three-month period ended March 31, 2009, which is related to our cumulative
dividends on the Series A Preferred Stock.





We
reported net loss allocable to common shareholders of $417,213 during the
three-month period ended  March 31, 2010 as compared to net loss
allocable to common shareholders of $304,447 during the three-month period ended
March 31, 2009. This translates to an overall loss per-share (basic and diluted)
available to shareholders of $(0.00) and $(0.01) for each of the three-month
periods ended March 31, 2010 and 2009, respectively.





During
the three-month period ended March 31, 2010 and 2009, we recorded an unrealized
foreign currency translation gain of $60,560 and $85,369, respectively. This
resulted in comprehensive loss for the three months ended March 31, 2010 of
$(331,453) compared to comprehensive loss of $(193,858) for the three months
ended March 31, 2009.




28





LIQUIDITY
AND CAPITAL RESOURCES





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing
basis.  At March 31, 2010 and December 31, 2009, we had cash balances
of $8,555 and $21,813, respectively. These funds are located in financial
institutions located as follows:





March 31, 2010
                  
                  
                  December 31, 2009Country:United
      States
                  
                  $
                  1,405
                  
                  
                  
                  16.4
                  %
                  
                  $
                  2,745
                  
                  
                  
                  12.6
                  %Brazil
                  
                  
                  7,150
                  
                  
                  
                  83.6
                  %
                  
                  
                  19,068
                  
                  
                  
                  87.4
                  %Total
      cash and cash equivalents
                  
                  $
                  8,555
                  
                  
                  
                  100.0
                  %
                  
                  $
                  21,813
                  
                  
                  
                  100.0
                  %





As of
March 31, 2010, our current assets were $870,182 and our current liabilities
were $7,192,439, which resulted in a working capital deficit of $(6,322,257). As
of March 31, 2010, our total assets were $1,225,498 consisting of: (i) $8,555 in
cash; (ii) $483,880 in accounts receivable; (iii) $377,747 in prepaid expenses
and other current assets; (iv) $15,512 in net software development costs; and
(v) $339,804 in net property and equipment. As at March 31, 2010, our total
assets were $1,225,498 compared to $1,329,458 at December 31, 2009.





As of
March 31, 2010, our total liabilities were $8,933,180 consisting of: (i)
$4,933,294 in current and non-current portion of accounts payable and accrued
expenses; (ii) $631,830 due to related parties; (iii) $225,857 in convertible
loan to related party; (iv) $434,213 in loan payable to related party; (v)
$1,020,446 in current and non-current portion of loans payable; (vi) $907 in
warrant liability; (vii) $748,933 in convertible feature liability; (viii)
$937,700 in deferred gain on sale of non-controlling interest in subsidiary. At
March 31, 2010, our total liabilities were $8,933,180 compared to $8,723,045 at
December 31, 2009.
 
 For the
three months ended March 31, 2010, net cash flow used in operating activities
was $199,076 compared to net cash provided by operating activities of $19,403
for the three months ended March 31, 2009. For the three months ended March 31,
2010, net cash flows used in operating activities is principally due
to  our net loss of $(392,013) and non-cash item of $(582,656)
from gain from derivative liabilities and changes in assets and
liabilities, such as: an increase in accounts receivable of $(131,317), an
increase in accrued interest payable, related party of $13,773 offset by
non-cash items such as depreciation and amortization of $61,378, amortization of
software maintenance costs of $17,893, and foreign currency exchange gain of
$13,844 and the changes in assets and liabilities, such as: a decrease in
prepaid expenses and other current assets of $59,346, an increase in accounts
payable and accrued expenses of $653,278, an increase in due to related parties
of $59,108 and an increase in accounts payable and accrued expenses (long-term)
of $55,978. For the three months ended March 31, 2009, net cash flows provided
by operating activities is principally due to our net loss of $(279,227)
adjusted for non-cash items of $(29,936) such as a gain from derivative
liabilities of ($128,152), depreciation and amortization of $72,769,the
amortization of software maintenance costs of $35,671, and a foreign currency
gain of $(10,224), and an increase in accounts receivable of $34,951, offset by
a decrease in prepaid expense and other current assets of $11,903, an increase
in accounts payable and accrued expenses of $283,029 and an increase in due to
related parties of $61,967.





Net cash
flows used in investing activities amounted to $6,722 for the three months ended
March 31, 2010 as compared to net cash used in investing activities of $110,485
for the three months ended March 31, 2009. During the three months ended March
31, 2010, we used cash for the acquisition of property and equipment of $6,722.
During the three months ended March 31, 2009, we used cash for the acquisition
of property and equipment of $110,485.





Net cash
flows provided by financing activities for three months ended March 31, 2010
were $193,234 as compared to net cash flows provided by financing activities of
$88,768 for three months ended March 31, 2009.  For the three months
ended March 31, 2010, cash flow provided by financing activities was
attributable to $173,234 in proceeds from loans and $20,000 in proceeds from
loans-related party. For the three months ended March31,
2009, cash flow provided by in financing activities was attributable to$119,972
in proceeds from loans offset by the payment of capital leaseobligations
of $31,204.


29




PLAN
OF OPERATION





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





YA
GLOBAL INVESTMENTS (“YA GLOBAL”)





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





In
connection with the Investment Agreement, the Parties entered into an Investor
Registration Rights Agreement (the "IRRA"), dated January 13, 2006, pursuant to
which the Parties agreed that, in the event the Registration Statement is not
filed within thirty (30) days from the date we file our Annual Report on Form
10-KSB for the year ended December 31, 2005 (the "Filing Deadline") or is not
declared effective by the Securities and Exchange Commission within ninety (90)
days of the date of the IRRA (the "Effective Deadline"), then as relief for the
damages to any holder of Registerable Securities (as defined in the IRRA) by
reason of any such delay in or reduction of its ability to sell the underlying
shares of common stock (which remedy shall not be exclusive of any other
remedies at law or in equity), we would pay as liquidated damages to the holder,
at the holder's option, either a cash amount or shares of our common stock equal
to two percent (2%) of the Liquidation Amount (as defined in the Certificate of
Designation of Series A Convertible Preferred Shares) outstanding as liquidated
damages for each thirty (30) day period or any part thereof after the Filing
Deadline or the Effective Deadline as the case may be. It shall also become an
event of default under the IRRA if the Registration Statement is not declared
effective by the Securities and Exchange Commission within one-hundred twenty
(120) days from the date of the IRRA.




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




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


30





During
the three months ended March 31, 2010, we issued 4,260,204 shares of our common
stock to YA Global in connection with the conversion of 16.7 shares of Series A
Preferred Stock.





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





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





Based
upon a twelve (12) month work plan proposed by management, it is anticipated
that such a work plan would require approximately $1,000,000 to $3,000,000 of
financing designed to fund various commitments and business
operations.





We
believe that we can satisfy our cash requirements for the next twelve (12)
months based on our ability to consummate the sale of Transax Limited’s
subsidiary-Medlink Connectividade, and to enter into additional financing
arrangements as necessary. Our future success and viability are primarily
dependent upon our current management to generate revenues from business
operations and raise additional capital through further private offerings of our
stock or loans from private investors. There can be no assurance, however, that
we will be able to raise additional capital. Our failure to successfully raise
additional capital will have a material and adverse affect upon us and our
shareholders.





MATERIAL
COMMITMENTS





Convertible
Loans – Related Party





A
material liability for us at  March 31, 2010 is the aggregate
principal amount of $175,000 and $50,857 in accrued interest due and owing to a
related party in accordance with two convertible promissory notes (collectively,
the "Convertible Promissory Note(s)"). The Convertible Promissory Notes are
convertible into shares of our common stock at $0.125 per share together with a
warrant to purchase our common stock at $0.25 per share for a period of two
years. As of March 31, 2010, an aggregate principal amount of $175,000 and
interest in the amount of $50,957 remains due and owing under the Convertible
Promissory Notes. As of the date of this quarterly report, the Convertible
Promissory Notes are deemed in default and are due on demand.




31


Loan
– Related Party





A
material liability for us at  March 31, 2010 is the aggregate amount
of $434,213 in principal and interest due and owing to Stephen Walters, our
Chief Executive Officer (collectively, the "Loans"). The Loans are evidenced by
a promissory note with an interest rate of 0.8% per month and are currently due
on demand. For the three months ended March 31, 2010 and 2009, we incurred
$8,595 and $3,261, respectively, in interest related to these loans. At March
31, 2010 and December 31, 2009, $99,480 and $94,632 in interest and loan fees
was accrued on these loans and the aggregate principal and interest amount due
is $434,213 and $419,462, respectively.  During the three months ended
March 31, 2010, we borrowed $20,000 which was used for working capital
purposes.





Consulting
Agreement





A
material liability for us at March 31, 2010 is the amount due and owing as
management fees to Stephen Walters, our Chief Executive Officer. For the three
months ended March 31, 2010 and 2009, we incurred $52,500 and $53,579,
respectively, in management fees. At March 31, 2010 and December 31, 2009,
$545,320 and $492,757 in management fees and other expenses are payable to Mr.
Walters. In accordance with the terms of an agreement effective July 2007, we
pay monthly to Mr. Walters an aggregate amount of $17,500 as compensation for
managerial and consulting services he provides.





Accrued
Taxes and Related Expenses





A
material estimated liability for us for fiscal year 2010 and 2009 is the amount
due and owing for Brazilian payroll taxes and Social Security taxes. At March
31, 2010 and December 31, 2009, these deficiencies, plus interest and penalties,
amounted to approximately $3,482,000 and $3,224,000, respectively.





Since
2000, the Company has been deficient in the payment of Brazilian payroll taxes
and Social Security taxes.  At March 31, 2010 and December 31, 2009,
these deficiencies, plus interest and penalties, amounted to approximately
$3,482,000 and $3,224,000, respectively. This liability is included as part of
the accounts payable and accrued expenses (short-term and long-term) within the
consolidated balance sheet.  In 2009, the Company submitted to the
Brazilian government a request to pay out the federal taxes pursuant to a
recently enacted law issued on May 27, 2009, which refinanced all federal tax
debts due by November 30, 2008. The Company’s request was granted by the
government on November 16, 2009. The monthly amount to be paid for the taxes due
has not yet been determined by the government.




Medlink
Connectividade Loan Payable and Other Loans Payable





At March
31, 2010, significant liabilities for us are the several loans and credit lines
with financial institutions in Brazil. The Brazil loans require monthly
installment payments, bear interest at rates ranging from 28% to 42% per annum,
are secured by certain receivables of Medlink Connectividade, and are due
through October 2010. As of March 31, 2010 and December 31, 2009, the loans
payable to these financial institutions and others aggregated $1,020,446 and
$858,951, respectively.





Purchase
of Significant Equipment





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





Off-Balance
Sheet Arrangements





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




32




ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
required for smaller reporting companies.





ITEM
4T. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





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





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





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





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





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




33





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





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





·
            We
      have committed to the establishment of effective internal audit functions,
      however, due to the scarcity of qualified candidates with extensive
      experience in U.S. GAAP reporting and accounting in the region, we were
      not able to hire sufficient internal audit resources before March 31,
      2010. However, we will increase our search for qualified candidates with
      assistance from recruiters and through
  referrals.





·
            We
      will consider searching for independent directors, with one qualified to
      serve on an audit committee to be established by our Board of Directors
      and we anticipate that our Board of Directors will also establish a
      compensation committee to be headed by one of the independent
      directors.





·
            Due
      to our size and nature, segregation of all conflicting duties may not
      always be possible and may not be economically feasible. However, to the
      extent possible, we will implement procedures to assure that the
      initiation of transactions, the custody of assets and the recording of
      transactions will be performed by separate
  individuals.





We
believe that the foregoing steps will remediate the significant material
weaknesses identified above, and we will continue to monitor the effectiveness
of these steps and make any changes that our management deems appropriate. Due
to the nature of these material weaknesses in our internal control over
financial reporting, there is a remote likelihood that misstatements which could
be material to our annual or interim financial statements could occur that would
not be prevented or detected.





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





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal controls over financial reporting during the
first quarter of fiscal year 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.


34





PART
II - OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





Our
subsidiary, Medlink Connectividade, is involved in litigation pertaining to a
previous provider of consultant services regarding breach of contract and two
labor law suits involving employees for unfair dismissal claims. At March 31,
2010 and December 31, 2009, we have accrued approximately $254,000 and $260,000,
respectively, related to these lawsuits. The outcome of these claims is
uncertain at this time.





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





ITEM
1A. RISK FACTORS





Not
required for smaller reporting companies.





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





On
February 8, 2010, we 4,260,204 shares of our common stock upon conversion of
16.70 shares of Series A preferred stock.





Thie
issuance was exempt from registration under the Securities Act in reliance on an
exemption provided by Section 4(2) of that Act.  Each person to whom
the shares were issued acquired the shares for investment and not with a view to
the sale or distribution and received information concerning us, our business
and our financial condition, and the stock certificates bear an investment
legend.  No brokerage fees were paid in connection with any of these
stock issuances.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.





ITEM
4. (REMOVED AND RESERVED)




ITEM
5. OTHER INFORMATION





None.


35




ITEM
6. EXHIBITS




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




SIGNATURES





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




TRANSAX
      INTERNATIONAL LIMITEDDated:
      May 24, 2010
                  
                  By:
      /s/ STEPHEN WALTERSStephen
      Walters, President/ChiefExecutive
      Officer and DirectorDated:
      May 24, 2010
                  
                  By:
      /s/ADAM WASSERMANAdam
      Wasserman, Chief Financial Officerand
      Principal Accounting
Officer




36