The following discussion and analysis presents the factors that had a material effect on our results of operations during the six months ended June 30, 2009 and 2008. Also discussed is our financial position as of June 30, 2009. You should read this discussion in conjunction with our unaudited consolidated financial statements and the notes to those unaudited consolidated financial statements included elsewhere in this report and in our Annual Report on Form 10-K. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See "Cautionary Notice Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

TRX is a global technology company. We develop and host software applications to automate manual processes and track transaction data, enabling our clients to optimize performance and control costs. We are a leading provider to the travel industry and expect to eventually include growth in industries beyond travel, such as financial services and health care. For the foreseeable future, we intend to focus our efforts on the large opportunities within the travel industry. We deliver our technology applications as a service over the Internet to travel agencies, corporations, travel suppliers, government agencies, credit card associations, credit card issuing banks, and third-party administrators. TRX is headquartered in Atlanta, Georgia with operations and associates in North America, Europe, and Asia.

We are focused on transaction-based revenue from data reporting, reservation processing and online booking technologies that provide economies of scale to our clients and to us. These transactions are an integral part of our clients' daily operations. Transaction levels, and thus revenues, fluctuate with our clients' business levels, which are impacted by market changes and seasonality. We supplement our transaction-based revenue with short-term projects to implement, customize or enhance our service delivery.

A significant portion of our revenue is derived from long-term contracts with several large clients. Our largest client, Expedia and its affiliates, accounted for 43% and 24% of our global revenues in the three months ended June 30, 2009 and 2008, respectively and 43% and 32% of our global revenues in the six months ended June 30, 2009 and 2008, respectively. Expedia has been a client since its launch in 1996. In December 2006, we replaced our existing contracts with Expedia with a Master Services Agreement (the "Expedia Agreement"). The Expedia Agreement continues through 2010.

Expedia began decreasing the volume of transactions that we service for them, beginning in the first quarter of 2009, as permitted under the Expedia Agreement. In addition, a number of global airlines have announced significant capacity reductions, which generally began in September 2008 and will continue through 2009, due to global macroeconomic conditions and the related impact on air travel demand. In general, reduced airline capacity results in lower transaction volumes for us. We have experienced a significant decline in our transaction volume thus far in 2009 as a result of Expedia reducing the level of services requested from us and reduced volumes from our clients in general, and we expect that trend to continue throughout 2009. Our revenues, operating results and cash flows have been materially lower thus far in 2009, and we expect that trend to continue throughout 2009.

Our scale and process-reengineering expertise has allowed us to reduce our costs in several areas when measured on a per transaction basis, and we continue to take steps to reduce our cost structure in the normal course of business. Additionally, in September 2008 we announced a cost reduction program specifically designed to align our costs with expectations of reduced 2009 revenues. Reductions made in 2008 and thus far in 2009 included personnel, leasehold and other operations-related costs. We have established pricing models that provide volume-based discounts to share scale efficiencies with our clients to ensure long-term, mutually-beneficial relationships. As a result, our average revenue per transaction has generally declined over the last few years. We expect it to continue to decline in the future because of scale efficiencies, as well as trends in the travel processing supply chain that are putting negative pressure on our revenue per transaction.

On July 13, 2007, TRX and Citibank executed an amendment to the Master Services Agreement dated February 1, 2002, as amended. The Amendment extends the scheduled expiration date of the Citibank Master Services Agreement from January 13, 2009 to December 31, 2010. The primary purpose of the Amendment was for TRX to sell a $4.5 million limited perpetual license of certain source code to Citibank in order for Citibank to perform certain services in-house that had previously been hosted by TRX. TRX continues to perform maintenance and project services for Citibank. As a result of the Amendment, recurring revenues from Citibank generated in 2008 were significantly less than revenues generated in 2007 and continue to decline in 2009.

The Amendment also provided that we would continue to provide the hosting services historically provided to Citibank until the sale of the perpetual license occurred. The license sale was completed during the second quarter of 2008 and, as a result, we recognized $4.5 million of revenue, the contractually-stated sales price of the license. In addition to the license sale, Citibank also paid us approximately $1.4 million for certain costs and assets that we had purchased in the past for Citibank's benefit, which are essential to the functionality of the technology.

The sale of the license, the compensation for the assets referred to above, and the hosting services are all elements of the Amendment. Revenue recognition for these elements is governed by SOP 97-2, "Software Revenue Recognition" ("SOP 97-2"). In accordance with SOP 97-2, as there was no vendor specific objective evidence of the fair value of the perpetual license at the effective date of the Amendment, revenue associated with the hosting services was deferred until April 30, 2008, when the sale of the perpetual license occurred. We recognized revenue for the hosting services of $10.0 million in the second quarter of 2008. All costs associated with the hosting services were expensed as incurred from July 2007 through April 2008.

Effective January 1, 2009, we extended the Amended and Restated Master Agreement by and between TRX Technology and BCD Travel (the "Master Agreement") for the period January 1, 2009 through August 31, 2009 for the CORREX Services only. The provisions of the Master Agreement expired on December 31, 2008 with regard to all other services covered by that agreement. A separate three year agreement with an effective date of January 1, 2009 was entered into between the parties for the RESX Services, which had previously been covered under the Master Agreement.

In March 2009, as part of a program to reduce our cost structure, we decided not to pay bonuses for 2008 performance globally or provide funding for the 401K program in the U.S. These expenses were accrued during 2008. The reversal of the amounts accrued for the bonuses and 401K program funding resulted in a reduction of employee related expenses of $1.8 million during the first quarter of 2009.

Industry factors impacting our operating results include the channel shifts toward online bookings and direct distribution, cost compression in the travel processing supply chain, use of corporate credit cards, reduction in airline seat capacity, changing and increasing access methods to reach supplier inventory, reduction in supplier commission rates, global distribution system ("GDS") incentive levels, and overall economic conditions. Our estimates of future results are primarily affected by assumptions of transaction volumes, pricing levels, our ability to efficiently scale with our clients, and client retention and acquisition. These anticipated results may be impacted by seasonality of the travel industry and credit card volumes related to travel.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates. We believe that, of our significant accounting policies described in Note 1 of the notes to our consolidated financial statements included elsewhere in this Form 10-Q and described in our Form 10-K for the year ended December 31, 2008, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to assist investors in fully understanding and evaluating our consolidated financial condition and results of operations.

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

We recognize revenue in accordance with Emerging Issues Task Force ("EITF") Issue 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" when certain other consulting or other services are combined with our transaction processing revenues and SEC Staff Accounting Bulletin No. 104, "Revenue Recognition," when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) services have been performed, (3) the fee for services is fixed or determinable, and (4) collectability is reasonably assured. Generally, these criteria are considered to have been met as follows:

• for transaction revenue, in which we perform ticketing, file-finishing, data consolidation and reporting, and customer care services, when the services are provided;

• for short-term client-specific customizations, which do not generate direct on-going incremental transaction revenue, when the customization has been delivered to our client; and

• for implementation and set-up fees, which generate direct on-going incremental transaction revenue, over the life of the underlying transaction service agreement. Related costs are deferred and recognized as expenses over the life of the underlying transaction service agreement.

With respect to the Citibank amendment discussed above in the "Overview" section, the sale of the license, the compensation for the assets referred to above, and the hosting services are all elements of the Amendment. Revenue recognition for these elements is governed by SOP 97-2. In accordance with SOP 97-2, as there was no vendor specific objective evidence of the fair value of the perpetual license, revenue associated with the hosting services was deferred until the sale of the perpetual license, which occurred on April 30, 2008. We recognized revenue for the hosting services of $10.0 million in the second quarter of 2008. All costs associated with the hosting services were expensed as incurred from July 2007 through April 2008.

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

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

Goodwill and other intangible assets. Goodwill represents the excess of the purchase price over the fair value of assets acquired. We test goodwill for impairment annually as of September 30 or more frequently if an event occurs or circumstances change that more likely than not reduce the value of a reporting unit below its carrying value. We have one reporting unit as defined by Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). For purposes of goodwill impairment testing, we compare the fair value of the reporting unit determined on the basis of expected discounted future cash flows with its carrying amount, including goodwill. We also compare the guideline public company and guideline transaction methods to the value derived from the income approach as a test of the reasonableness of our discounted cash flow analysis. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired. If goodwill is considered impaired, the impairment loss to be recognized is measured as the amount by which the carrying amount of the goodwill exceeds implied fair value of that goodwill. As a result of declining market conditions from January 1, 2009 to March 31, 2009, and their related effect on current and anticipated volumes and pricing with clients, we determined that it was necessary to test goodwill for impairment as of March 31, 2009. We used the same approach that was used during the 2008 impairment analysis, which required estimates of future operating results and cash flows of the reporting unit discounted using estimated discount rates ranging from 16% to 18%. The estimates of future operating results and cash flows were principally derived from an updated long-term financial outlook in light of the first quarter of 2009 market conditions and the challenging economic outlook. As a result of our impairment test, we determined that goodwill was fully impaired and recorded a noncash impairment charge to goodwill of $37.4 million during the first quarter of 2009, which is included in "Impairment of goodwill, intangible assets and other long-lived assets" in our unaudited consolidated statements of operations.

The outcome of our goodwill impairment analysis as of March 31, 2009 indicated that the carrying amount of certain acquisition-related intangible assets or asset groups may not be recoverable. We assessed the recoverability of the acquisition-related intangible assets by determining whether the unamortized balances could be recovered through undiscounted future net cash flows. We determined that certain of the acquisition-related intangible assets were impaired primarily due to the revised lower revenue forecasts associated with the products incorporating the trademarks and patents, customer relationships and non-compete agreements. We measured the amount of impairment by calculating the amount by which the carrying value of the assets exceeded their estimated fair values, which were based on projected discounted future net cash flows. As a result of this impairment analysis, we recorded a noncash impairment charge of approximately $1.1 million during the first quarter of 2009, which is included in "Impairment of goodwill, intangible assets and other long-lived assets" in our unaudited consolidated statements of operations.

Impairment of long-lived assets. We record our long-lived assets, such as property and equipment and software development costs, at cost. We review the carrying value of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable in accordance with the provisions of SFAS, No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We evaluate these assets by examining estimated future cash flows to determine if their current recorded value is impaired. We evaluate these cash flows by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset's carrying value is impaired, we will record an impairment of the carrying value of the identified asset as an operating expense in the period in which the determination is made. During the first quarter of 2009, we experienced a continued decline in our business that led us to revise our short-term and long-term financial forecasts which indicated that an impairment of long-lived assets may have occurred. Accordingly, we performed an analysis comparing the undiscounted cash flows estimated to be

generated by the long-lived assets to the carrying amounts of those assets. The estimates of future operating results and cash flows are derived from our updated long-term financial forecast. The results of the comparison of our undiscounted cash flows to the carrying value of the long-lived assets indicated a requirement to move to a fair value approach. The values of the intangible long lived assets were determined using both the cost approach and an income approach. The relief from royalty method was the specific income approach utilized. We also used an appraisal of certain long-lived fixed assets to support our conclusions related to those assets. As a result, we recorded a long-lived asset impairment noncash charge during the first quarter of 2009 of $5.2 million, which is included in "Impairment of goodwill, intangible assets and other long-lived assets" in our unaudited consolidated statements of operations.

Transaction processing provisions. We have recorded estimates to account for processing errors made in the ticketing or fareloading process that result in tickets being issued at incorrect prices or from agency commissions being miscalculated. Our reserve for processing errors is based on several factors including historical trends, average debit memo lag time and timely identification of errors. Transaction processing provisions were $0.1 million and $0.3 million during the three months ended June 30, 2009 and 2008, respectively, and $0.3 million and $0.5 million during the six months ended June 30, 2009 and 2008, respectively, and are included as operating expenses in our consolidated statements of operations.

Results of Operations

The following table sets forth selected statement of operations data expressed as a percentage of transaction and other revenues for each of the periods indicated. Both revenue and expenses exclude client reimbursements. We believe that the inclusion of client reimbursements as revenue in the calculation of our operating income margin percentage distorts such margin percentage. We evaluate our operating performance based upon operating income margins excluding client reimbursements.

Comparison of Three and Six Months Ended June 30, 2009 and June 30, 2008

The following tables set forth comparative revenue and expense items by type, in
dollars and as a percentage of transaction and other revenue, for the three and
six months ended June 30, 2009 and 2008, respectively:



                                                                Three Months Ended June 30,
                                                    2009                   2008                   Change
                                                                  (dollars in thousands)
Revenue:
Transaction processing                       $  12,235       82 %    $ 16,550       44 %    $  (4,315 )    (26 )%
Data reporting                                   2,705       18        20,994       56        (18,289 )    (87 )

Transaction and other revenues                  14,940      100 %      37,544      100 %      (22,604 )    (60 )%
Client reimbursements                              145                    147

Total revenues                                  15,085                 37,691
Expenses:
Operating                                        9,195                 13,180                  (3,985 )    (30 )
Selling, general, and administrative             3,265                  4,784                  (1,519 )    (32 )
Technology development                             801                  3,724                  (2,923 )    (78 )
Client reimbursements                              145                    147                      (2 )     (1 )
Depreciation and amortization                    1,406                  2,636                  (1,230 )    (47 )
Interest:
Interest income                                     (1 )                  (18 )                   (17 )    (94 )
Interest expense                                   201                    128                      73       57
Income tax provision                                51                     -                       51       -


Net income                                   $      22               $ 13,110               $ (13,088 )


                                                                 Six Months Ended June 30,
                                                    2009                   2008                   Change
                                                                  (dollars in thousands)
Revenue:
Transaction processing                       $  24,281       81 %    $ 34,197       58 %    $  (9,916 )    (29 )%
Data reporting                                   5,558       19        25,222       42        (19,664 )    (78 )

Transaction and other revenues                  29,839      100 %      59,419      100 %      (29,580 )    (50 )%
Client reimbursements                              247                    274

Total revenues                                  30,086                 59,693
Expenses:
Operating                                       18,199                 27,400                  (9,201 )    (34 )
Selling, general, and administrative             5,539                  9,235                  (3,696 )    (40 )
Technology development                           2,466                  7,594                  (5,128 )    (68 )
Client reimbursements                              247                    274                     (27 )    (10 )
Impairment of goodwill, intangible assets
and other long-lived assets                     43,692                     -                   43,691       -
Depreciation and amortization                    3,787                  5,305                  (1,518 )    (29 )
Interest:
Interest income                                    (10 )                  (67 )                   (57 )    (85 )
Interest expense                                   392                    225                     167       74
Income tax benefit                                (633 )                   -                      633       -


Net (loss) income                            $ (43,593 )             $  9,727               $ (53,320 )

Transaction processing revenues. The decrease for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to a reduction in corporate and leisure travel volumes related to the economic downturn in the global travel industry and as a result of the decreased level of services provided to Expedia as previously discussed. We expect revenues per transaction to continue to decline in the future because of scaled pricing we offer to clients for increased volume, as well as trends in the travel processing supply chain that are putting negative pressure on our revenue per transaction.

Data reporting revenues. The decrease in data reporting revenues for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to the recognition of $10.0 million of routine data reporting revenues from Citibank that were previously deferred and the sale of a $4.5 million limited perpetual license to Citibank in the second quarter of 2008, as previously discussed. In addition, we experienced volume reductions and customer churn as a result of the economic downturn in the global travel industry.

Operating expenses. The decrease in operating expenses for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to the reduction in our revenues and a program to reduce our cost structure primarily through personnel reductions in preparation for significantly lower revenues in 2009. Additionally, we recorded one-time reductions in personnel-related accrued expenses of $0.7 million in the first quarter of 2009, which were partially offset by severance expenses during the same period.

Selling, general and administrative expenses. The decrease in selling, general and administrative expenses for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to a program to reduce our cost structure primarily through reductions in personnel, contract labor and travel in preparation for expected revenues in 2009. Additionally, we recorded one-time reductions in personnel-related accrued expenses of $0.8 million in the first quarter of 2009, which were partially offset by severance expenses during the same period.

Technology development expenses. The decrease in technology development expense for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to a program to reduce our cost structure primarily through reductions in personnel and contract labor in preparation for significantly lower revenues in 2009. Additionally, we recorded one-time reductions in personnel-related accrued expenses of $0.3 million in the first quarter of 2009, which were partially offset by severance expenses during the same period.

Impairment of goodwill, intangible assets and other long-lived assets. We recorded an impairment charge of $43.7 million during the first quarter of 2009 as discussed above.

Depreciation and amortization. The decrease for the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to a decrease in our capital additions and a reduction in our property and equipment balances as a result of our impairment of other long-lived assets recorded in the first quarter of 2009.

Interest income. The decrease for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to reduced average cash balances available for investment.

Interest expense. The increase for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was primarily due to additional interest expense related to our credit facility borrowings, which were partially offset by lower interest rates.

Income tax provision (benefit). Income tax provision of $51 was recorded in the . . .