SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(Mark One)
       (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1996
                         -------------------------------

     ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
                        For the transition period from to

                         Commission file number 0-17158

                                   AMNEX, INC.

             (Exact name of registrant as specified in its charter)
      New York                                           11-2790221
 (State or other jurisdiction of                        (I.R.S Employer
  incorporation or organization)                        Identification No.)

  101 Park Avenue, New York, New York                      10178
 (Address of principal executive offices)               (Zip Code)

Registrant's telephone number    (212) 867-0166

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

     Title of each class              Name of each exchange on which registered
            None

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

                          Common Stock, $.001 par value
                                (Title of class)

     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 if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]



<PAGE>



     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days: $109,103,230 as of February 14, 1997

             (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes No .

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     Indicate the number of shares outstanding of the registrant's common stock,
as of the latest practicable date:  28,121,328 shares outstanding as of February
28, 1997

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None



<PAGE>

                                     PART I

Item 1.  BUSINESS

     (a)      General Development of Business.

     AMNEX, Inc.  ("AMNEX"),  through its operating  subsidiaries (AMNEX and its
consolidated subsidiaries  collectively,  the "Company"),  provides a variety of
telecommunications  services for operator-assisted ("0+") and direct-dialed long
distance ("1+") telephone calls transmitted  throughout the Unites States on the
Company's  network  and to and from  international  points,  as well as  related
billing  services.  The  Company  focuses on selected  niche  telecommunications
markets where it believes it can enter and operate profitably.

     In June  1996,  AMNEX  acquired  all of the  outstanding  stock of  Capital
Network  System,  Inc.  ("CNSI"),  a  telecommunications  company engaged in the
provision of 0+ calling  services  primarily  to American and Canadian  tourists
traveling in Mexico. CNSI is also engaged in the provision of 1+ and 0+ services
in the United States where,  prior to its acquisition,  it competed with AMNEX's
domestic telecommunications subsidiary, American Network Exchange, Inc. ("ANEI")
(see Item 1(c) hereof).

     In September 1996, AMNEX acquired 80% of the outstanding  stock of National
Business Exchange,  Inc., now known as National Billing Exchange ("NBE"),  which
provides various billing services to telecommunications companies, including the
ability to place billing  transactions on the local telephone  company bill page
(see Item 1(c) hereof).

     In  November  1996,  AMNEX's  wholly-owned   subsidiary,   Crescent  Public
Communications  Inc.  ("Crescent"),  acquired  certain assets of Coastal Telecom
Payphone Company, Inc. ("Coastal Telecom"),  Garden State Telephone Installation
& Service Co., Inc. ("Garden State") and BEK Tel, Inc. ("BEK Tel"), all of which
were New  Jersey-based  private pay telephone  route  operators and customers of
ANEI. From September 1996 to March 1997,  Crescent also acquired  certain assets
of several smaller pay telephone route operators in the New York area.  Further,
in March 1997, Crescent, through an 80%-owned subsidiary, Sun Tel North America,
Inc.  ("Sun Tel"),  acquired  certain  assets of Sun Tel Inc.,  a  Florida-based
private pay telephone route operator.  All such companies  provided  services of
the same nature as Crescent (see Items 1(c) and 7 hereof).

     In October 1996, the Company realigned its management  structure to reflect
its different lines of business.  Three operating  divisions were established at
the subsidiary level:  TelCom,  PubCom and Billing.  Common corporate  functions
were  assigned to the holding  company  level.  Each of the three  divisions has
responsibility for specific lines of business and its own profit and loss.

     The  TelCom  Division  provides   international  and  domestic  1+  and  0+
telecommunications  services;  the PubCom Division owns and operates private pay
telephones and provides  telecommunications  network management  services to the
hospitality  industry;  and the Billing  Division  provides billing services for
telecommunications-related  products.  Common corporate  functions at the parent
level include human  resources,  information  services,  network and operations,
legal  and  regulatory,   corporate   finance  and   accounting,   and  business
development.  This  organizational  structure  is also  intended  to enable  the
Company  to  exploit   certain   market   niches   created  by  the  passage  of
telecommunications reform legislation in early 1996 (see Item 1(c) hereof).



<PAGE>

     The Company's  strategy is (i) to develop  telecommunications  products and
services  which  will  enable  it to  provide  the  consumer  with  "end-to-end"
services,  while  controlling  the flow of traffic to its  network  through  the
ownership  of customer  access  equipment,  (ii) to continue to pursue  vertical
integration  of new  and/or  additional  services  with the  Company's  existing
markets to reduce its  infrastructure  costs and  secure its  customer  base and
(iii) to expand through the acquisition of businesses that are either  providers
of traffic to its network or providers of the  underlying  services  utilized by
the Company. Additional consideration is given to those enterprises operating in
markets where regulatory changes are taking place or are anticipated.

     Reference  is made to Item 7 hereof for a discussion  of a Preferred  Share
financing consummated by the Company during 1996.

     AMNEX is a New York corporation  which was organized on March 15, 1985. Its
principal  executive offices are located at 101 Park Avenue,  New York, New York
10178 (telephone number (212) 867-0166) (see Item 2 hereof).

    (b)      Financial Information About Industry Segments.

             Not applicable.

    (c)      Narrative Description of Business.

     Industry Background

     The long distance  transmission and operator  service  provider  industries
evolved principally as a result of the new competitive  opportunities created by
the court-ordered  divestiture by American  Telephone and Telegraph  ("AT&T") of
its local  operating  companies  (the "BOCs").  As discussed  under  "Government
Regulation-Federal  Regulation," the  Telecommunications  Act of 1996 (the "1996
Act")  has  further  accelerated  the  development  of local  and long  distance
competition.

     In 1981,  AT&T  removed  tariff  restrictions  that  prohibited  resale and
sharing of Message  Telecommunications  Service  ("MTS") and Wide Area Telephone
Service  ("WATS").  This  led to an  explosion  of new  entrants  into  the long
distance  telecommunications  business,  primarily as  resellers.  In 1982,  the
Department of Justice  ("DOJ") and AT&T agreed to the terms of the  Modification
of Final Judgment  ("MFJ") under which AT&T divested  itself of all its BOCs. As
part of the divestiture, the BOCs were organized into seven separate regions and
seven Regional  Holding  Companies  ("RBOCs") were created.  The BOCs, and other
independent  companies  which provide  local  telephone  service,  are generally
referred to as local exchange carriers ("LECs").

                                        2

<PAGE>




     At  divestiture,  the  United  States  was  divided  into 197 Local  Access
Transport  Areas  ("LATAs").  AT&T was given the right to handle  interLATA long
distance  service and was permitted to handle  intraLATA  long distance  service
where allowed by the applicable state regulatory authority. Conversely, the BOCs
were given the right to handle intraLATA  service,  but were prohibited from the
interLATA market. Such  differentiation  was substantially  modified by the 1996
Act (see "Government Regulation-Federal Regulation").

     The MFJ  also  required  the  BOCs to  provide  all  interexchange  or long
distance  carriers  ("IXCs")  with  access  to their  local  telephone  exchange
facilities which is "equal in type, quality and price" to that provided to AT&T.
This was  accomplished  through  the  filing of access  tariffs  at the  Federal
Communications Commission (the "FCC") and at state public utilities commissions.
Under these access  tariffs,  all IXCs,  including AT&T, pay charges to the LECs
for access to local telephone lines at both the originating and terminating ends
of all  long  distance  calls.  Access  charges  represent  the  single  largest
component of most IXCs' cost of service.  The BOCs, and  subsequently  all other
LECs, also were required to conduct a presubscription  process allowing business
and residential  consumers to select their long distance carriers.  The 1996 Act
continues these equal access obligations.

     A June 1984  decision of the FCC  permitted  the sale and  installation  of
privately  owned and operated pay  telephones,  known as COCOTs.  Such  decision
ended the 100 year monopoly of the LECs in this area,  and paved the way for the
development of the independent payphone industry.  LECs were required to provide
dial tone  connections  for COCOTs and,  subsequently,  blocking  and  screening
services  intended to deter fraudulent usage of such phones.  As a result of the
passage of the 1996 Act and its  nondiscrimination  provisions,  the independent
payphone industry is expected to achieve parity in cost structure with LEC-owned
payphones    (see     "Government     Regulation-Federal     Regulation-Domestic
Operations-1996 Act").

     An October 1988 federal  district court (the "Court")  ruling  required the
BOCs, and subsequently the LECs owned by GTE Corporation  ("GTOCs"),  to conduct
another  presubscription process for the public pay telephones they owned. Since
such phones are owned by BOCs and GTOCs,  the Court determined that the owner of
the premises on which the public pay  telephone  was located (the "Site  Owner")
rather  than the owner of the phones  should  select the long  distance  service
provider.  Several other LECs have introduced  similar programs,  including Site
Owner selection of the long distance service provider. The 1996 Act provides for
the  continued  participation  of the Site  Owner in the long  distance  service
provider selection process and allows for the Company to continue its efforts in
this current core business.

     In May 1990,  the Court  required the BOCs to provide equal access for long
distance  calls  which  are paid  for by coins  deposited  in their  public  pay
telephones ("1+ Coin"). To this end, the BOCs were directed to file equal access
plans with the DOJ and the 1984 waiver  under which such calls were being routed
automatically  to AT&T was to be terminated  within one year. Under the terms of
the equal access plans, AT&T was permitted to continue to accept 1+ Coin service

                                        3

<PAGE>


directly from the public pay  telephones  presubscribed  to other IXCs, but only
until such time as the presubscribed carrier designated either itself or another
carrier to handle the traffic.  Based on this ruling, ANEI and CNSI are entitled
to receive the 1+ Coin  traffic  from all public pay  telephones  for which they
have been selected to provide 0+ services and any other IXC may  designate  ANEI
(instead of AT&T) to carry the 1+ Coin traffic  originating at public telephones
for which it is the  presubscribed  long  distance  carrier.  This market niche,
which is  currently  being  exploited  by ANEI as it deploys its 1+ Coin service
nationally, will continue to be available under the 1996 Act.

     Equally  significant,  the 1996 Act, as well as recent  actions on both the
federal and state levels, will eventually open up the local exchange, and to the
extent not already mandated,  the intraLATA  market,  to full competition.  As a
result of the 1996 Act,  all states are  required  to adopt  rules  establishing
local  competition  and defining  how the LECs are to open up their  networks to
their  competitors  (see  "Government   Regulation-Federal   Regulation-Domestic
Operations-1996 Act").

     Organization and Structure; Business Direction

     The  Company,  through  its  operating  subsidiaries,   is  a  provider  of
telecommunications  and related billing services for telephone calls transmitted
throughout the United States and to and from international points. Approximately
70% of the Company's  revenues for the fiscal year ended  December 31, 1996 were
derived  from its  provision  of  operator  services  at public and  private pay
telephones;  approximately 10% from the provision of telecommunications services
to hotels and other hospitality  locations in Mexico; and approximately 20% from
the  ownership  and  operation  of private  pay  telephones,  the  provision  of
telecommunications  network management services to the hospitality industry, and
the provision of telecommunications services with regard to 1+ Coin, travel card
and  residential  and  commercial  1+ calls and other  revenues  (see  "Business
Units").

     During 1996, the Company  completed certain steps to shift the focus of its
future  direction  away  from  its  core  operator  services   business,   which
represented  virtually all of the Company's  revenues in 1994,  90% of the total
revenues in 1995,  and, as  previously  noted,  70% in 1996,  and towards  other
telecommunications  business which generate lower revenue per call than operator
services, but have higher profit margins.

     Prior to the adoption of the 1996 Act (see  "Government  Regulation-Federal
Regulation-Domestic  Operations-1996  Act"),  management of the Company believed
that the then pending legislation would improve margins and create opportunities
as barriers to market entry and regulatory obstacles were removed. Based on such
belief, in October 1995 and in advance of these legislative changes, the Company
acquired  Crescent.  This  acquisition  represented the Company's entry into the
ownership of private  payphones,  a business which the Company  anticipated  was
ripe to undergo radical positive  regulatory  change.  As a direct result of the
the 1996 Act, the FCC adopted new rules  expanding  both the  eligible  class of
calls  and the  level  of  compensation  paid by  IXCs to  independent  payphone
providers  ("IPPs")  such as  Crescent.  Such new rules  positively  affect  the
revenues   from  this  part  of  the   Company's   business   (see   "Government
Regulation-Federal Regulation-Domestic Operations-1996 Act").

                                        4

<PAGE>


     In order to expand its ownership of private  payphones,  in November  1996,
Crescent  acquired certain assets of Coastal Telecom,  Garden State and BEK Tel.
Through this transaction,  approximately 4,300 telephone stations with locations
primarily  in the state of New Jersey  were  acquired,  bringing  the  Company's
domestic  phone count to 6,300.  A series of subsequent  acquisitions  increased
this total to 7,500 at March 31, 1997. By the end of 1997,  the Company  expects
to own and operate approximately 12,000 telephone stations throughout the United
States.

     Similarly,  in late 1995,  management  identified the 1+ Coin business as a
viable  one for it to enter.  This  service  allows  the  consumer  to make long
distance coin calls from  LEC-owned and operated pay  telephones  using the long
distance provider selected by the Site Owner.  Prior to the Company's entry into
this business,  only AT&T provided this service. To date, the Company has signed
up approximately 600,000 phones for this service.

     In  an  effort  to  take  advantage  of  emerging   opportunities   in  the
international   telecommunications   market,   as  well  as  improve   operating
efficiencies,  in June 1996, AMNEX acquired CNSI. CNSI's primary business is the
provision  of 0+ calling  services  to,  among  others,  American  and  Canadian
tourists  traveling  in  Mexico.  The  market  penetration  of CNSI has made its
hospitality  customer  base second  only in size to that of Telmex,  the Mexican
stated-owned  telecommunications  company. This business was a logical extension
of  the  Company's   domestic   operator  service  and  will  utilize  a  common
infrastructure.  As  part  of  the  Company's  international  expansion,  CNSI's
business  gives the  Company a  customer  base in a  deregulating  international
telecommunications  market,  where  newly-deregulated  services can be sold (see
"Government  Regulation-Federal  Regulation-International").  In  addition,  the
Company was able to utilize a common platform for CNSI's domestic operations and
those of ANEI,  providing  further  opportunity  for cost reduction and improved
efficiency.

     In  January  1997,  AMNEX  acquired a minority  equity  position  in Galesi
Telecom International,  Inc. ("GTI") (see Item 13 (a) hereof), a privately-owned
telecommunications  holding company with  operations in Sweden and Germany.  The
transaction also contemplates the development of operating  agreements and joint
marketing  efforts in the  deregulating  European market.  In addition,  between
December 1996 and February 1997, CNSI,  through its subsidiary,  Capital Network
Mexico ("CNM"), entered into a series of agreements with InvestCom S. A. de C.V.
("InvestCom"),  a licensed Mexican telecommunications  carrier, which allows CNM
to  resell  intraMexico  1+  service  to its  customers  in  Mexico.  Additional
agreements are under negotiation which, if entered into, will further expand the
Company's  relationship  with  InvestCom.   By  virtue  of  these  international
relationships, the Company believes that it is well positioned to participate in
the flow of traffic  between Mexico,  the United States and Europe.  The Company
intends to expand these relationships in 1997.

     Further, the Company has identified several underlying services,  including
billing services,  which many competitors in the  newly-deregulated  marketplace
will require to support new product deployment.  Accordingly, in September 1996,
to better position itself to supply these billing services needs, AMNEX acquired
80%  of  the   outstanding   stock  of  NBE,   which   currently   provides  its
telecommunications  company  customers  with the ability to place their  billing
transactions on the local telephone  company bill. This service unit is expected
to grow as more competitors begin to provide the new telecommunications services
authorized by the 1996 Act.

                                        5

<PAGE>


     The  Company  is also  planning  to enter  the  local  exchange  market  by
providing  dial tone and local  calling  services  ("Local  Service") for public
access  lines  (initially,  in the New York City area).  The Company  intends to
enter the Local  Service  market by either  reselling  the LEC's  services or by
purchasing   unbundled   network  elements  and  constructing  its  own  service
offerings.  This  provides  the  Company  with  another  opportunity  to further
vertically  integrate  its service  offerings and control the flow of traffic to
its   network   (see    "Government    Regulation-Federal    Regulation-Domestic
Operations-1996 Act").

     Business Units

     To better manage its businesses, in October 1996, the Company realigned its
management  structure.  Three operating  divisions were established,  and common
corporate  functions  were assigned to the holding  company  level.  Each of the
three divisions,  TelCom, PubCom and Billing, has profit and loss responsibility
for specific business  operations of the Company.  The TelCom Division,  through
ANEI and CNSI, provides domestic operator services,  long distance  transmission
services and travel card services to telephone users and also provides  domestic
support to the Company's international  operations.  Through CNSI, CNM and AMNEX
International,  Inc.  ("AII"),  the TelCom Division also provides  international
operator  services,  provides  long  distance  transmission  services  in Mexico
(currently  as a sales  representative  for  InvestCom)  and acts as a carriers'
carrier or international gateway providing bulk transport of traffic between the
United States and international  points. The PubCom Division,  through Crescent,
Sun Tel and American Hotel Exchange, Inc. ("AHE"), owns and operates private pay
telephones  and  provides  telecommunications  products  and network  management
services  to the  hospitality  industry.  The  Billing  Division,  through  NBE,
provides  billing and collection  services to  telecommunications  companies for
telecommunications-related transactions.

         TelCom Division

              Domestic

     The TelCom  Division is  responsible  for developing  and  maintaining  the
Company's  domestic   telecommunications  services  businesses  described  under
"Business  Units" above.  In 1996,  this division had revenues of  approximately
$91,200,000  derived from operator services provided at payphone and hospitality
locations and from its 1+ direct-dial long distance  products.  The following is
the   approximate   breakdown  of  1996  revenue  from  the  provision  of  such
telecommunciations services:

                           Payphones           $71,000,000
                           Hospitality          11,000,000
                           1+ Direct Dial        9,200,000
                                                ----------
                           TOTAL               $91,200,000
                                                ==========


                                        6

<PAGE>


                  Marketing and Customers

     Domestic  operations have experienced a decrease in revenue since 1995 from
the IPP and LEC base primarily due to slow sales growth throughout the industry.
This  industry-wide  slowdown is due to market  uncertainties and an increase in
"dial  around"  calling (as  discussed  below).  Sales  efforts and  promotional
advances  which have  traditionally  driven new sales growth were  substantially
reduced by the industry in 1996, due in large part to the uncertainty created by
the   threat   of   FCC   rate   caps   being   implemented   (see   "Government
Regulation-Federal     Regulation-    Domestic    Operations-Other    Applicable
Regulations").  This had the effect of flattening  domestic  operations  growth.
However,  hospitality  operations continued to reflect improved results in 1996,
even though "dial around" and other competitive pressures have slowed growth.

     Given  the  current  market  conditions  and the more  stable  state of the
regulatory  environment (see "Government  Regulation-Federal  Regulation"),  the
Company is planning to implement a targeted  IPP sales  program  which  includes
advances and faster  commission  payments to the IPPs than its competitors.  The
Company  believes  this will enable it to capture new market share in this area,
but no assurances can be given in regard thereto.

     "Dial around" calling  programs such as  1-800-CALL-ATT  and  1-800-COLLECT
continued  to take  calls  away  from the  Company's  existing  phone  base (see
"Competition-TelCom  Division-Domestic").  In 1994,  calls  per  phone per month
averaged 13; by 1995 calls per phone per month were 12; in 1996, calls per phone
per  month  had  dropped  to 10.  Alternative  dialing  plans  such  as  carrier
proprietary  calling  cards and prepaid  cards are expected to continue to apply
pressure on the calls generated per phone. ANEI has itself begun providing "dial
around"  services in markets in which  "dial  around"  calling has had  negative
effects.  The Company  anticipates  these new services will result in a shift of
revenues  in future  periods,  although  no  assurances  can be given  that such
efforts will be successful.

     The TelCom  Division's  operator  services  are being  marketed  to private
payphone  owners,  Site  Owners  and  RBOCs,  as  well  as  to  hotels,  motels,
condominium developments, health care institutions, educational institutions and
correctional  facilities,  primarily in areas where it has  established  network
facilities. ANEI currently has originating access available in part or all of 31
of the 48 contiguous states plus the District of Columbia. ANEI has arrangements
in place to provide its services on a nationwide basis, by using other carriers,
such as MCI,  to  originate  calls in  areas  where  ANEI  does not have its own
network  facilities.  Such standard  practice in the 1+ industry  allows ANEI to
provide its own services where  technologically and economically feasible and to
otherwise  resell the  facilities  of other IXCs (see  "Switching  Equipment and
Network").

     ANEI and CNSI  market  their  services  through  a  nationwide  network  of
independent   sales  agents  and  dealers  with  whom  they  have  entered  into
contractual  arrangements  as well as through  their own direct  combined  sales
force.  Such arrangements with agents and dealers afford them the opportunity to
receive  commissions  based on a percentage  of revenues  generated by the calls
routed over the Company's network by the agent's or dealer's subscribers.

                                        7

<PAGE>


     ANEI's and CNSI's revenues are subject to seasonal variations.  Many of the
payphones located in the Southeast produce  substantially higher call volumes in
winter months than at other times during the year,  while the payphones  located
in the  Northeast  and Midwest  produce  their  highest call volumes  during the
summer months.  In an effort to reduce the effects of  seasonality  and properly
utilize network capacity,  the TelCom Division has focused its marketing efforts
on  obtaining  a  better  geographic  balance  for its  payphone  business,  and
increasing its hospitality and  condominium  customer bases,  which tend to have
calling volumes that are less subject to seasonal variation.

     The TelCom  Division  also markets its services  through  participation  in
trade shows and advertisements in trade publications.

     During the fiscal year ended December 31, 1996,  ANEI's customer,  National
Telecom USA, Inc.  ("National"),  and its affiliate,  The Keystone  Corporation,
collectively   accounted  for  approximately  21%  of  the  Company's  revenues.
Reference is made to Item 13(a) hereof for a discussion of an agreement  entered
into in February 1997 between ANEI and National  pursuant to which,  among other
matters,  ANEI was  selected as the  exclusive  provider  of  telecommunications
services to phones owned, leased or otherwise  controlled by National during the
ten year term of the agreement.

                  Operator Services

     ANEI  provides  24  hour,  seven-day-a-week  live  and  automated  operator
services  for  telephone  calls placed over its network.  These  services  allow
transient  users at pay  telephones  and at  locations  such as hotels,  motels,
condominium developments, health care institutions, educational institutions and
correctional  facilities  to  complete  calls  on  a  collect,  third  party  or
person-to-person  basis, or to charge such calls to a commercial  credit card or
telephone company calling card.

     ANEI's   switching  system  receives  all  "0"  dialed  calls  from  phones
subscribed to its network and completes the calls over a state-of-the-art leased
communications network (see "Switching Equipment and Network"). ANEI's equipment
and  personnel  at its switch and  operator  center  sites  furnish all operator
functions, both live and automated,  necessary to complete and bill a particular
call. In providing such services,  ANEI utilizes  Signaling System Seven ("SS7")
which  speeds  call  processing  for its  customers.  ANEI's  ability  to  offer
customized  greetings,  such as through its bilingual  operator  staff,  further
enhances its service offerings. ANEI has retained an unaffiliated third-party to
validate  billing  numbers prior to call  completion to reduce the risk of fraud
(see "Revenues; Billing Arrangements").

     ANEI also provides live and automated operator services for CNSI's domestic
and international operator-assisted traffic.


                                        8

<PAGE>





                  Direct Dial

     As  a  long  distance   provider,   ANEI  solicits  small  to  medium-sized
businesses,  pay phone owners,  hotels and hospitals and competes with providers
such as AT&T,  MCI,  Sprint and a number of regional  carriers.  ANEI's  product
offerings are competitively  priced,  with higher volume and long-term  contract
customers receiving greater discounts.

     In 1996,  ANEI expanded sales to other IXCs. It is  contemplated  that this
wholesale  market  segment  will  continue to be expanded in 1997 with  targeted
carriers,   debit  card  providers  and  international  calling  companies.  The
infrastructure of network,  customer service, billing and collection is in place
to support  new growth.  The  wholesale  market  segment  generates  lower gross
margins than ANEI's  traditional  service  offerings;  however,  since  selling,
general and  administrative  expenses  with regard to the  wholesale  market are
substantially lower, operating profits are generally comparable.

     ANEI's message telecommunications  services ("MTS") include both flat rated
and  mileage  sensitive  rate  plans and can be  accessed  on a 1+ basis,  or by
dialing 10XXX, 950 or 800 numbers. In lieu of call by call dialing,  950 and 800
access can also be  achieved  through  either the  installation  of a high speed
dialer or the  programming of other  customer  premise  equipment.  Such process
allows calls to access the ANEI network via its 10XXX,  950 or 800 numbers.  The
customer's  multi-digit  security  code is then passed on to a local ANEI switch
for call  clearance.  ANEI's 800 service  allows its  customers to offer inbound
toll free calling to their own customers.

                  Telephone Travel Card

     ANEI offers an enhanced travel card service  marketed as the AMNEX Edge(R),
which has been  designed  to meet the  needs of the  business  and  non-business
traveler. The card allows the customer to access the ANEI network from any touch
tone phone in the United  States and Canada by dialing an 800  number.  Once the
authorization  code associated with the travel card has passed  validation,  the
customer  can  select  from a menu  of  basic  and  enhanced  calling  features,
including  direct-dialed calling,  conference calling,  message delivery service
and an  array  of  informational  services.  Live  operator  assistance  is also
available,  if required by the caller.  Various  levels of fraud  protection and
management  summary reports are also offered to enable the user to maintain cost
control of calling card expenses.

     In 1996, ANEI expanded its travel card program through  affinity  marketing
programs and was  successful in obtaining  contracts  with  American  Automobile
Association  of America  franchisees  throughout the country for a custom travel
card to be marketed  to its  members.  ANEI will seek to expand this  segment in
1997.



                                        9

<PAGE>



                  Switching Equipment and Network

     ANEI is a  switched  reseller,  whose  network  includes  Stromberg-Carlson
Digital  Central Office switches  located in Orlando,  Florida and New York, New
York.  The  interconnectivity  of the  network's  switches,  coupled with ANEI's
advanced  SS7  operating  technology,  ensure  uniformity  and a high  grade  of
service.  ANEI has  back-up  systems  which,  in the event of a power  outage or
equipment malfunction,  provide several layers of redundancy and route diversity
to continue call processing. These systems include back-up battery power at both
switch locations and a back-up generator system at the operator center.

     The  maintenance and repair of the network is handled by highly trained and
experienced  technicians  at each  switch  site.  The  technicians  on site  are
coordinated  and  supported  by Network  Control  Center  ("NCC")  personnel  in
Orlando,  six days a week  between 6:00 A.M.  and  midnight,  and are on call 24
hours a day, seven days a week, to handle transmission, equipment, and switching
problems.  The NCC is also capable of contacting ANEI's underlying  carriers for
trouble resolution at any time.

     The ANEI network also provides domestic  origination and termination to the
Company's other subsidiaries.

     ANEI believes that its network flexibility, and the low incremental cost to
expand  capacity,  allow it to adequately  service its customers  throughout the
country.  However,  in connection with the Company's  ongoing business plans and
decentralization  efforts,  the TelCom  Division is examining the feasibility of
outsourcing  all  or  a  significant   portion  of  its  switching  and  network
requirements to one or more unrelated third parties (see Item 7 hereof).

                  Revenues; Billing Arrangements

     Revenues  of both ANEI and CNSI  consist  of flat fees for the use of their
operator  services and per minute of usage  charges for the use of their network
services.  Their operating  expenses include the commissions  payable to agents,
IPPs and Site Owners, the transmission charges of the LECs and IXCs, validation,
billing and collection charges and operator costs.

     Both ANEI and CNSI contract with an unaffiliated third party billing agent,
OAN  Services,  Inc.  ("OAN") to  perform  billing  on their  behalf.  ANEI also
contracts  with a second  unaffiliated  third  party  billing  agent,  Zero Plus
Dialing,  Inc.  ("ZPDI").  ANEI and CNSI calculate the charges for calls carried
over their shared  network and forward the call  records to the billing  agents.
The records are then processed and forwarded to the appropriate billing LEC. The
billing LECs  collect the amount due from the end user and remit  payment to the
billing agents,  which, in turn, remit payment to ANEI or CNSI. Such payments to
ANEI or CNSI are net of billing and collection fees charged by the LECs, as well
as a provision  for  uncollectible  accounts and a per  transaction  fee for the
billing  agent's  services.  During 1997, the Company intends to consolidate all
billing services through NBE's billing  agreements.  Such action would result in
reduced costs in 1998 and better control and management of the billing process.

                                       10

<PAGE>




     ANEI utilizes a combination of in-house and outsourced  billing  systems to
bill and collect calls made by its 800,  travel card and direct dial  customers.
This direct billing  process was designed to bill known customers with recurring
monthly direct dial and travel card services.

              International

     The TelCom Division's  international operations are conducted through CNSI,
its subsidiaries and AII. CNSI is currently  deriving  revenues from hospitality
services in Mexico and, to a  substantially  lesser  degree,  the  Caribbean and
Europe.  AII is a newly-formed  international  carrier  operation which seeks to
enter  into  direct   agreements  with  other  carriers  for  the  transport  of
international voice and data traffic.

     Mexico is one of the largest  telecommunications  partners  with the United
States.  It is also a critical arena for the Company.  Through CNSI, the Company
services  over  1,500   locations  in  Mexico  by  providing   hospitality-based
telecommunications   services  primarily  to  American  and  Canadian  customers
traveling  abroad.  CNSI's  subsidiary,  CNM,  intends to market 1+ domestic and
international  long distance service in Mexico to CNSI's existing customer base.
The  Company  believes  that  it can  effectively  sell  newly-deregulated  long
distance  services  to its  existing  customer  base and  also to new  customers
throughout Mexico.

     AII, a licensed  international  carrier,  has  reached  an  agreement  with
InvestCom,  one of eight  authorized  carriers in Mexico,  for the  carriage and
transportation  of international  traffic in and out of Mexico.  This will allow
CNSI to sell, and AII to carry,  Mexican-originated  long distance  domestic and
international traffic.

     As  with  the  TelCom   Division's   domestic   revenues,   the  division's
international revenues consist of flat fees for the use of its operator services
and per minute of usage charges for the use of its network  services.  Operating
expenses  include the commissions  payable to its agents,  IPPs and Site Owners,
the  transmission  charges  of the local  Mexican  and United  States  carriers,
validation,  billing  and  collection  charges  and  operator  costs.  CNSI also
contracts  with OAN to  perform  billing  on its  behalf  for  calls  originated
overseas but billed in the United States and Canada.

                  Marketing and Customers

     CNSI markets its  international  services  through a network of independent
sales agents with whom it has entered into  contractual  arrangements as well as
through its own direct sales force.  Such  arrangements  with agents afford them
the  opportunity  to  receive  commissions  based on a  percentage  of  revenues
generated  by the calls routed over CNSI's  network by the agent's  subscribers.
Since a majority of CNSI's subscribers are hotels in tourist areas, revenues are
affected by seasonal  variations.  Many of the hotels  serviced by CNSI  produce
substantially higher call volumes in winter months (when tourism in Mexico is at
its peak) than at other times during the year.

                                       11

<PAGE>


     Several countries are experiencing telecommunication reform similar to that
which  has  transpired  in  the  United  States.   Many  of  these  new  foreign
telecommunication  competitors  will, in all likelihood,  be looking to secure a
United  States  partner  that can provide  expertise  to enhance  entry in their
domestic markets.  Mexico and Europe, in the early stages of  telecommunications
reform,  have large markets and provide the Company the ability to become a true
international  carrier.  The Company  intends to find ways to leverage  domestic
capabilities to provide similar services in foreign countries. Additionally, the
Company expects to sell international voice service to both second tier carriers
and direct customers.

         PubCom Division

     The PubCom  Division is  developing  the  Company's  premise  equipment and
services  business.  The unit seeks to integrate  the delivery of the  hardware,
local dial tone,  telecommunications  network  management  and calling  services
required to service  the needs of  specific  vertical  markets.  Currently,  the
division is pursuing two markets:  the  hospitality  business  (through AHE) and
private pay telephones  (through  Crescent and Sun Tel). The PubCom Division has
recently been expanded to include ANEI's 1+ Coin business.

     Typically, IPPs deploy payphones and sell calling services to the public at
a profit. By owning both the instrument and the network, the Company derives the
benefits of being both an IPP and a network  provider.  Revenue and earnings are
derived from both the ownership of the  payphones  and the network.  Controlling
the customer  location helps eliminate  customer  turnover and the high expenses
usually   associated  with  sales,   marketing  and  responding  to  competitive
pressures. The same is true for the hospitality market.

     Recent regulatory decisions opening up the local exchange market complement
the Company's plans for this area of its operations and provide opportunities to
further  reduce  costs  and  add  local  service  minutes  to the  network  (see
"Government  Regulation - Federal Regulation-  Domestic  Operations-1996  Act").
These  changes  were  anticipated  and played an early role in  formulating  the
Company's PubCom Division strategy.

                  PBX/Program

     Started in 1994, the Company's PBX program,  provided through the Company's
AHE subsidiary,  has shown steady growth.  The PBX program was the first attempt
by the Company to secure  long-term  control of  telecommunications  services at
hotel  and  other   hospitality   properties.   AHE  supplies   the   equipment,
telecommunications  network management and calling services for all of the hotel
property's  needs on an exclusive  basis.  By controlling the dial tone, AHE can
secure the telecommunications  revenue from its customer's locations for various
business  units of the Company.  Additional  services,  including  payphones and
debit cards, also can be deployed at these hotels, if desirable.



                                       12

<PAGE>


     AHE has primarily marketed its services to small to medium-sized hotels (20
to 150  rooms).  The PBX  program  is now in place in over 600  hotel  and motel
properties  in New York,  New  Jersey,  Florida,  Colorado  and  California.  By
utilizing refurbished telephone systems and purchasing in large quantities,  the
Company is able to enjoy low  capital  costs when  equipping  a location  with a
relatively  fast pay back.  ANEI is  currently  providing  0+  service  to these
properties,  but  expects to provide  all  telecommunications  services to these
properties  (including local service)  beginning in 1997. Since hospitality room
occupancy levels are at a historic high, AHE's revenues should benefit.

                  Private Payphones

     In 1995, the Company  acquired  Crescent,  an owner and operator of private
payphones,  in order to obtain  private pay  telephone  locations  and thus gain
control  of such  locations'  telecommunications  services  and reduce the costs
associated with paying  commissions to private payphone owners.  The acquisition
included  approximately  1,850 telephones.  In November 1996,  Crescent acquired
certain  assets  of  Coastal  Telecom,  Garden  State,  and BEK  Tel,  including
approximately  4,300  phones.  Additionally,  certain  assets of  several  other
companies  were  subsequently  acquired which  contributed  an additional  1,300
phones. As a result of these acquisitions,  at March 31, 1997, the Company owned
and operated a total of  approximately  7,500 phones in the New York, New Jersey
and Philadelphia corridor as well as in Florida.

     Most PubCom  Division  management  functions are  centrally  located in the
Company's  Lake Success,  New York facility (see Item 2 hereof).  Technicians at
the data center continually monitor payphone  functionality,  alarms,  operating
statistics,  revenue  production and other  diagnostic  data.  Expansion  within
existing service areas results in significant reductions in selling, general and
administrative expenses as a result of consolidating newly-acquired operations.

     The  centralized  facility  also allows for the  efficient  and  economical
provision of back office  functions  such as the  analysis of  telephone  bills,
inventory    control,    equipment    refurbishing   and   ordering,    accounts
payable/accounts  receivable,   sales,  acquisition  analysis,  training,  field
dispatch and customer service.  Field technical and coin handling  functions are
performed at regional dispatch centers located  strategically in close proximity
to the concentration of phones they support.

     The Company  intends to continue to expand its payphone  base,  with growth
expected  to be focused on the  Northeast,  Southeast  and  Mid-Atlantic  areas.
Regional  concentrations  of  traffic  allow  the  Company  to use  its  network
efficiently and provide a strong  competitive  advantage for Crescent over other
IPPs.

     In addition to growth through  acquisitions,  Crescent regularly identifies
and evaluates new sites for private payphones,  or COCOTs. Typical locations for
COCOTs include hotels, motels, health care institutions,  airports,  educational
institutions, dining establishments, office and government buildings, and retail
stores and shopping  malls.  Crescent  seeks to enter into a long-term  location
agreement  (generally five to ten years) with the business owner or site manager
pursuant to which the Location Owner would supply the space and  electricity for
the  COCOT and would be  entitled  to  receive a  commission  based  upon  phone
utilization.  Crescent installs,  maintains and repairs the equipment,  collects
the coins from the phone coin  vaults  and pays phone line  charges.  Crescent's
services  are  marketed  through  an  internal  sales  force as well as  through
independent representatives.

                                       13

<PAGE>


     As  an  IPP,  Crescent  derives  commission   revenues  and  "dial  around"
compensation (see "Government  Regulation-Federal  Regulation-PubCom  Division")
from the long  distance  and  operator-assisted,  non-coin  calls  made from its
phones.  ANEI  provides  its  operator-assisted  and  interexchange  services at
Crescent's phones.

                  1+ Coin Service

     ANEI has entered into  agreements with most RBOCs which allow it to process
interexchange  coin  calls  placed  from any LEC  payphone  at which ANEI is the
presubscribed interLATA carrier. The agreements allow ANEI to provide these same
services  at phones  served by other IXCs that  designate  ANEI as their 1+ Coin
carrier.  At  present,  the service  encompasses  six RBOC  regions  covering 31
states.  ANEI expects full deployment of the 1+ Coin service by the end of 1997.
ANEI  began to  deploy  its 1+ Coin  service  for  interLATA  calls in the third
quarter of 1995, a service which previously only AT&T provided.

     The  Company's  strategy  in this  market  niche  has been to offer 1+ Coin
service to those IXCs that currently  provide long distance services to the site
where  LEC pay  telephones  are  located.  ANEI has  already  signed  definitive
agreements with the two largest operator service  providers  ("OSPs") in the LEC
pay phone market as well as with  substantially all other IXCs operating in that
marketplace. ANEI currently has 600,000 LEC payphones under contract for 1+ Coin
service with  approximately  one-half of such  payphones  located in areas where
ANEI currently provides such service.

         Billing Division

     NBE is  currently a  value-added  reseller  of OAN  billing and  collection
services (see  "Revenues;  Billing  Arrangements").  NBE has been  positioned to
become a direct  provider of billing and collection  services in the LEC, direct
and credit card billing environments.  In order to accomplish this goal, NBE has
re-engineered  its out-clearing and remittance  accounting  software to meet the
increased  requirements  of  providing  direct  services.   Additional  software
programming with regard to the systems is being undertaken.

     NBE has grown fairly rapidly over the past six months,  particularly in the
1+ area. This is due in part to the  implementation of special service messaging
("SSM") in the areas  serviced by the GTOCs and Pacific Bell. SSM service allows
enhanced  telecommunications  services ( e.g.,  paging  charges,  Internet usage
charges or monthly  service fees) to be billed on the local telephone bill. This
service is provided through direct LEC contracts and not through OAN. As part of
its marketing plan, NBE intends to market the service,  as well as the provision
of billing for Internet,  paging,  cellular and other similar services.  NBE has
also  developed  and  deployed  the systems  necessary  to support a new billing
technology  called  invoice  ready  billing  ("IRB") that  greatly  enhances the
presentation of the billing  information for its clients.  NBE intends to market
its IRB  product to  paging,  Internet,  cellular  and  personal  communications
services  companies.  The Company intends to use NBE to provide billing services
to its other  operating  divisions in order to reduce its own billing  costs and
enhance NBE's profitability through economies of scale.

                                       14

<PAGE>


     NBE is positioned well for growth in the next few years (as billing becomes
more  complex)  due to the  changing  number  and  nature of  telecommunications
services providers. The long-term strategy of the Company is for NBE to become a
universal  billing  provider,  providing  direct billing to the end user for new
full service providers,  utilities and cable companies, as well as providing LEC
and credit card billing.

     Competition

         TelCom Division

              Domestic

     The Company experiences  formidable  competition from AT&T, which dominates
the long distance and operator service businesses,  as well as from MCI, Sprint,
LDDS  WorldCom and various other third tier  carriers  providing  both 1+ and 0+
services.  AT&T and others currently  provide long distance operator services on
calls  from BOC and  GTOC-owned  pay  phones and have,  and can be  expected  to
retain,  a significant  share of this market.  Further,  the Company is aware of
numerous  other  companies  engaged in the operator  services  business,  either
directly or through other  entities,  some of which have  significantly  greater
resources  than the Company.  Carriers other than ANEI and AT&T are also free to
enter the 1+ Coin market,  although the Company  does not  anticipate  that they
will expend the capital and strategic  resources  necessary to enter this market
niche.

     In addition to AT&T,  the LECs have  significantly  greater  resources  and
experience than the Company and may find  opportunities in the operator services
business that would adversely  affect the Company.  For instance,  several RBOCs
offer their operator  services on a wholesale  basis to other  operator  service
providers.  In  addition,  the  1996 Act  allows  them to  enter  the  interLATA
marketplace over time (see "Government  Regulation- Federal  Regulation-Domestic
Operations-1996  Act")  and,  subject  to  FCC  review,  to  participate  in the
selection of the  interLATA and intraLATA  carrier at their own  payphones.  The
BOCs  can  be  expected  to  aggressively  market  their  operator  services  in
competition  with ANEI,  CNSI and other providers as early as the second quarter
of 1997.

     Finally,  some IXCs,  notably  MCI and AT&T,  have  introduced  specialized
operator service products such as 1-800-COLLECT and 1-800-CALL ATT which compete
with a portion of ANEI's and CNSI's domestic  operator services  offerings.  The
Company believes that these "dial around" services have had an adverse impact on
its revenues;  however, since the payphone operator is entitled to receive "dial
around" compensation from the long distance service provider on certain types of
calls,  the Company's  payphone  operations  receive a revenue stream from these
types  of  calls   (see   "Government   Regulation-Federal   Regulation-Domestic
Operations-1996 Act").

                                       15

<PAGE>


     The Company  believes  that the primary area of  competition  with AT&T and
others relates to the  commissions and surcharges paid to Site Owners or lessors
of telephone  locations for interstate calls, the enhanced services available to
users at such locations,  the quality of service  provided and the rates charged
to end users (see "Government Regulation").

              International

     There  are  currently  hundreds  of  United  States  carriers   terminating
international  traffic on a resale basis.  Previously,  most of this traffic was
carried over the networks of the larger  facilities-based  carriers,  AT&T, MCI,
Sprint, and LDDS WorldCom.  However,  the international  switched voice and data
environment is changing rapidly.  Operating agreements between facilities- based
United States carriers and their  international  counterparts  historically have
controlled  both the flow of  traffic  and rates for the IMTS  market.  Parallel
accounting rates and settlements were set by the FCC and international  treaties
in a monopoly  environment and prevented both foreign and United States carriers
from  negotiating  cost-based  agreements.  With the  advent of  competition  in
foreign  countries,  however,  new carriers  have  emerged.  These  carriers are
seeking  United  States  partners  capable of  terminating  United  States-bound
traffic in a cost effective  manner.  Since the existing  dominant  carriers are
reluctant to deal with these new carriers and  sacrifice  the high revenues they
enjoy from the current arrangement, opportunities exist for new entrants.

     Numerous companies  currently compete with CNSI in the Mexican  hospitality
industry,  and major carriers such as MCI, AT&T and several RBOCs have received,
or are partners in companies which have received, licenses to carry intra-Mexico
traffic.  As in the domestic market,  these carriers have significantly  greater
resources  than the  Company  and may find  opportunities  that would  adversely
affect  operating   results.   Nevertheless,   the  Company  believes  that  the
opportunities   are   large   enough   that  it   will  be  able  to  sell   the
newly-deregulated  services  to its  existing  base and  build on its  strategic
relationship with InvestCom.

         PubCom Division

     Crescent competes primarily with the LECs in its service territories in the
identification of new sites for private  payphones.  However,  a number of other
IPPs also  market  competitive  services in  Crescent's  current  market  areas.
Crescent  believes  that  the  primary  area  of  competition   relates  to  the
commissions paid to the Site Owners and the quality of service provided.

         Billing Division

     The market is currently dominated by three major clearinghouses: OAN, ZPDI,
and Integretel. These companies provide billing of 1+, 0+, and 900 services, and
limited billing for enhanced  services.  The investment in  infrastructure,  LEC
contracts and systems to provide these  services has been high and has generally
been  a  barrier  to  entry.   Moreover,   the  approach   taken  by  the  major
clearinghouses  has  limited  their  processing  capabilities  to  message-based
billing. Thus, the contracts currently held by the clearinghouses are inadequate
to function in the emerging  marketplace of IRB/SMS billing.  By contrast,  with
its  multi-product  platform,  NBE is positioned  to process  current and future
marketplace  transactions  in  addition to  addressing  the needs of the IRB/SMS
marketplace.

                                       16

<PAGE>



     While the major  companies  such as AT&T, MCI and the RBOCs are expected to
provide their own billing services, the emerging competitive  marketplace should
provide   opportunities  for  clearinghouses,   such  as  NBE,  that  can  offer
state-of-the-art,  customized billing services to new entrants and others,  such
as cable and electric  companies,  that lack  experience  in  telecommunications
billing forms and inquiry operations.

     Government Regulation

         Federal Regulation

              Domestic Operations

     Long  distance and  operator  service  companies  such as ANEI and CNSI are
considered interstate common carriers by the FCC and are, therefore,  subject to
the  jurisdiction  of the FCC under the  Communications  Act of 1934 (the  "1934
Act") and 1996 Act.  Under the 1934 Act,  long  distance  and  operator  service
companies  must  charge  just  and   reasonable   rates  and  cannot  engage  in
unreasonable practices or unreasonable  discrimination.  Commencing in 1983, the
FCC  substantially   deregulated  the  interstate   activities  of  non-dominant
interexchange  resellers such as ANEI and CNSI. As discussed below, the 1996 Act
continues  this trend,  giving the FCC new powers to deregulate the industry and
open new markets.

                  1996 Act

     The 1996 Act,  signed  into law on February  8, 1996,  represents  the most
significant reform of the 1934 Act undertaken by Congress since the original law
was adopted.

     First and foremost to the Company,  the 1996 Act gives the private payphone
industry the parity it has long sought with the payphones  provided by the BOCs.
In response to IPP concerns,  the statute  prohibits a BOC from (1)  subsidizing
its own payphone  services with revenues from its local exchange  services,  and
(2) discriminating  between BOC-provided and  independently-provided  payphones.
Furthermore,  the 1996 Act required the FCC to complete a rulemaking  proceeding
addressing  payphone  issues within nine months from the date of enactment.  The
legislation  broadened  the scope of previous  compensation  proceedings  in two
respects:  first,  compensation must apply to all payphone providers,  including
LECs, not just to private  payphone  providers as before;  second,  the FCC must
adopt  compensation  rules  including all types of calls  (except  emergency and
telecommunications relay service calls) to ensure payphone providers are "fairly
compensated  for each and  every  completed  intrastate  and  interstate  call."
Previously, the FCC had ordered compensation only for "access code" calls (e.g.,
1-800, 10XXX, etc.).

                                       17

<PAGE>

     Another  significant issue the FCC was required to address was the right of
the BOCs to  solicit  Site  Owners  to select  the  carrier  that  will  provide
interLATA  services  from the  payphone.  Prior to the 1996 Act,  this issue was
irrelevant  because the BOCs were prohibited from offering  interLATA  services.
Now, with the  possibility of BOC entry into the interLATA  market,  whether and
how a BOC may provide  service at its own  payphones  is an issue.  The 1996 Act
grants the BOCs "the same right that  independent  payphone  providers  have" to
negotiate with the Site Owner, but enables the FCC to eliminate this right if it
is not in the public  interest.  The statute makes it clear,  however,  that the
Site Owner is the ultimate decision-maker with respect to the interLATA carrier.
Nothing  in the 1996  Act,  however,  impairs  existing  contracts  relating  to
payphone services.

     As a result of the above statutory requirements,  and in a series of orders
released  in the fourth  quarter  of 1996,  the FCC  established  a new rate and
mechanism for "dial around" compensation.  During the one year period commencing
November  6, 1996,  IPPs are  entitled  to  receive  $45.85 per phone per month.
During the following one year period,  they will be entitled to receive $.35 per
call on all  originating  access  code  calls  as well  as all  toll-free  calls
originating at their payphones. Thereafter, IPPs will be entitled to receive the
market-based  rate  established at the time for local calls.  The foregoing will
positively impact Crescent's operations.

     In  order  to fund  these  payments,  however,  the FCC has  ordered  IXCs,
including ANEI, to contribute the additional "dial around"  compensation for the
IPPs.  During the first year, only carriers with 1995 revenues in excess of $100
million  (including ANEI) are required to contribute to the  compensation  pool.
Since the obligation is based on relative  revenues,  ANEI's share is $0.0689597
per phone per month. After the first year, each IXC, regardless of revenue, will
be  obligated  to pay on a  per-call  basis.  LECs  will  also be  eligible  for
compensation once they have terminated the subsidies for their payphones and had
their comparably efficient interconnection ("CEI") plans approved by the FCC. In
spite of the  payments  required to be made by ANEI,  and viewed in terms of the
current base of  approximately  7,500  phones,  "dial  around"  compensation  is
anticipated  to have a substantial  positive  impact on the Company's  earnings.
However, if a substantial number of LECs are eligible for payphone  compensation
during the year while per phone compensation is in place, the difference between
the amount  received by Crescent  and paid by ANEI will  decrease,  although the
Company believes the net result will still be materially positive.

     Once per call compensation is in place, carriers to whom payphone calls are
routed will be  responsible  for tracking  each  compensable  call and remitting
per-call  compensation  to the IPP. The carrier has the option of performing the
function itself or contracting  out these functions to another party,  such as a
LEC  or  clearinghouse.  The  FCC  placed  certain  reporting  and  verification
requirements on the carrier for the first two years.



                                       18

<PAGE>



     In addition,  the FCC ordered states to ensure that payphone competition is
promoted.  To this end,  each  state was  required  to  examine  and  modify its
regulations  applicable to payphones and IPPs,  removing,  in particular,  those
rules that  impose  market  entry or exit  requirements.  In the one year period
before per-call compensation is effective,  states may continue to set the local
coin  rate.  After  this  interim  period,  however,  local  coin  rates will be
deregulated and IPPs may charge market-based prices.

     Since  subsidies from basic exchange and exchange  access  revenues will be
discontinued,  incumbent  LEC  payphones  will be  treated  as  deregulated  and
detariffed equipment.  The FCC concluded that such equipment should be unbundled
from  LEC  underlying   transmission   service  in  order  to  prevent  improper
cross-subsidization,  but LECs do not have to provide their payphones  through a
structurally  separate  affiliate.  AT&T must similarly  detariff its payphones.
Once the BOCs  reclassify  their phones and terminate all subsidies,  so long as
they  do not  otherwise  receive  compensation  for 0+  calls  made  from  their
payphones,  they may receive per call compensation;  thus, ANEI will be required
to pay per-call compensation on all 0+ calls originating from LEC phones.

     In an order released in September 1996 and affirmed in November,  1996, the
FCC also  granted  the BOCs the right to  negotiate  with the Site Owner for the
selection of the interLATA carriers for their payphones effective when their CEI
plans have been  submitted  to and  approved by the FCC.  In so ruling,  the FCC
denied the  petitions  for  reconsideration  filed by IXCs  urging  that the FCC
exercise  its right  under the 1996 Act to find  that BOC  participation  in the
selection of an interLATA carrier was not in the public interest.  Instead,  the
FCC  affirmed  its  earlier  decision  that,  since  the  payphone  industry  is
competitive  and   characterized  by  low  barriers  to  entry,  the  BOCs  were
effectively  prevented from exercising market power in the provision of payphone
services. The FCC found that allowing BOCs to participate in the selection would
not be equivalent to providing long distance service,  as its order granted them
no more than the right to  participate as a contractual  intermediary  between a
Site Owner and a third party interLATA carrier. The FCC also indicated that many
long-term  agreements  currently  exist between the Site Owner and the OSP, like
ANEI,  and that  the  existence  of these  enforceable  agreements  will  ensure
continued  availability of choice.  Finally,  the FCC affirmed that the 1996 Act
grandfathers all contracts in effect as of February 8, 1996, and emphasized that
the Site Owner's right to choose the carrier should be protected from unjust and
unreasonable  practices,  including interference with pre-existing  arrangements
between Site Owners and OSPs, as well as conduct which is unduly coercive of the
Site Owner's right to choose the carrier for the payphones on its premises. As a
result of the FCC's order,  the BOCs, and in particular Bell South, are expected
to begin to  negotiate  with Site Owners for the  selection  of a long  distance
carrier beginning in the third quarter of 1997.

     Based upon the FCC's  ruling,  local call rates in most  jurisdictions  are
expected  to rise in  October  1997.  Moreover,  the  required  removal of local
exchange  subsidiaries from the LEC payphone  operations,  including the monthly
line  charges paid by  Crescent,  are  expected to result in lower  monthly line
costs  and  usage  charges  by the  end of  1997.  This  is  expected  to have a
materially positive impact on the PubCom Division's earnings.  However,  several
IXCs, as well as some state public  utility  commissions,  have  challenged  the
FCC's decision in court,  arguing both that the "dial around"  compensation rate
level is too high,  and that the FCC exceeded its authority by preempting  state
regulation of the local coin rate. There can be no assurance that the court will
affirm  the  FCC's   decision  in  all  respects  and  that  the  "dial  around"
compensation  rate levels and regulatory  structure put in place by the FCC will
be the final rate structure applicable to the Company's operations.


                                       19

<PAGE>



     Equally  important  are the 1996 Act's  provisions  for the  opening of the
intraLATA  market  to full  competition.  The new law  prohibits  state or local
requirements  that may have the effect of prohibiting or precluding  competitive
entry of a  telecommunications  service provider into the local market. The 1996
Act also enables RBOCs to enter interLATA  markets,  within and outside of their
existing service regions. The RBOCs were authorized to begin providing interLATA
services in markets  outside of their current regions upon enactment of the law.
The RBOCs must still obtain state  authority,  as  discussed  below,  to provide
intrastate,  interLATA  services  in  the  same  way as  any  other  prospective
competitors, including ANEI.

     Before providing in-region services, the RBOCs must first overcome a number
of legal  and  regulatory  hurdles.  At a  minimum,  an RBOC  must  fulfill  the
requirements of a competitive checklist for interconnection.  Additionally,  the
RBOC must  demonstrate  to the FCC that, in each state where it seeks to provide
interLATA service, it has entered into one or more binding agreements,  approved
by the state, to provide interconnection to a competing facilities-based service
provider  serving  both  commercial  and  residential  subscribers.  The  FCC is
required to make a  determination  that RBOC  interLATA  market  entry is in the
public interest.  In reaching its  determination,  the FCC must consult with the
DOJ whose input will have "substantial" though not "preclusive" effect, and with
the relevant state. Upon receipt of interLATA  authority,  the RBOC must provide
interLATA services through a structurally  separate affiliate for a period of at
least three years from the time authority is granted.

     The  1996  Act  also  allows  the FCC to  forebear  from  applying  certain
regulations  to  some  classes  of  telecommunications  carriers.  Prior  to the
enactment of the 1996 Act, the FCC's  forbearance  policies suffered a series of
setbacks as the Federal  courts  concluded on several  occasions  that the FCC's
policy exceeded its 1934 Act authority. Therefore, the 1996 Act is a significant
step  forward  for the FCC because it not only  permits the FCC to forbear,  but
mandates forbearance under certain circumstances. Since passage of the 1996 Act,
the FCC has already begun to exercise this authority, adopting rules eliminating
tariffs  for many  domestic  services  and  proposing  changes to  expedite  and
streamline  the  complaint  process.  Although the FCC's  detariffing  order was
appealed  and a stay  issued,  this will  have  little  practical  impact on the
Company since all tariffs are still in place and effective.

     The 1996 Act also gave the FCC six months from  enactment to promulgate the
interconnection  and  access  rules  necessary  to  open  the  local  market  to
competition.  Each  state  may  continue  to adopt  and  enforce  its own  local
interconnection and access rules, so long as the rules are not inconsistent with
the 1996 Act.  The  statute  relies on  negotiated  interconnection  and  access
agreements between incumbent LECs and new entrants, but maintains a role for the
states to approve  interconnection  agreements  and arbitrate  settlements if so
requested.

     In August 1996,  the FCC  completed the required rule making under the 1996
Act which  established  the standards for  interconnection  of the incumbent LEC
networks with those of the new competitors.  Among other things, the FCC adopted
uniform,  nationwide  pricing rules and required that  competitors be allowed to
purchase  unbundled network service elements and combine them in any manner they
choose in order to  provide  local  exchange  service.  The FCC ruled  that such
interconnection rates should be based on total element long run incremental cost
("TELRIC"),  a forward looking cost methodology that does not generally  include
the embedded  costs  associated  with  monopoly  service.  In addition,  the FCC
adopted certain proxy rates,  including resale discount rates,  that states were
required to apply in arbitration  and  interconnection  proceedings in the event
they were unable to, or chose not to, engage in the cost studies required by the
TELRIC methodology.

                                       20

<PAGE>


     The FCC's order was appealed by various state public utility commissions as
well as LECs, and the associated request for stay of the FCC's rules was granted
by the United States Court of Appeals for the Eighth Circuit.  As a result,  the
FCC's  pricing rules and the so-called  "pick and choose"  provisions  have been
stayed  pending  final  decision of such court.  A decision is expected in 1997.
Despite the stay,  most states and state  arbitrators  have  followed  the FCC's
preferred  pricing  methodology and adopted resale  discounts  comparable to the
proxy  rates  announced  by the FCC.  Thus,  the stay has had  little  practical
negative  effect on the economics of the local service  market for new entrants.
However, there can be no assurance given as to the final decision of the appeals
court and any reversal by such court of the FCC's  pro-competitive  policy could
have a material adverse effect on the Company's ability to effectively enter the
local exchange market.

                  Other Applicable Regulations

     In 1990, the Telephone  Operator Consumer Services  Improvement Act of 1990
("TOCSIA") was signed into law. TOCSIA amended the 1934 Act by imposing a number
of  requirements  on  all  carriers  providing   interstate  operator  services,
including ANEI, CNSI, AT&T and the LECs. These requirements include, among other
matters,  the identification of the OSP and the end user's right to access other
carriers. In 1992, the FCC advised Congress of its determination that no further
regulation of the operator  service  industry,  including rate  regulation,  was
necessary at that time.

     As discussed under "Industry Background", in 1988, the Court held that Site
Owners  should be  permitted  to  select  the  presubscribed  IXCs for all calls
originated by dialing "0" from such telephones.  However,  some industry members
are supporting adoption of billed party preference whereby all calls of the type
handled  by ANEI and CNSI  would be  routed  directly  to the IXC of the  billed
party, and not through OSPs. Since 1992, the FCC has been considering whether or
not to adopt such a system for all payphones and has sought public comments on a
variety of issues  related to its  implementation  and costs.  The  majority  of
parties filing comments opposed the  implementation  of billed party preference,
citing its high costs, long (two to three year)  implementation  time, technical
drawbacks,  consumer  inconvenience and potential network disruptions as factors
which  outweighed  any perceived  benefits.  Although the FCC is not expected to
adopt this proposal,  if adopted, it would have a material adverse effect on the
Company's operator service business.


                                       21

<PAGE>



     In February  1995, the National  Association  of Attorney  Generals filed a
Petition for Rulemaking with the FCC, proposing  additional branding disclosures
by some OSPs. Comments on this petition were consolidated with comments on an ex
parte filing made by a broad industry  coalition  proposing that the FCC adopt a
rate ceiling on 0+ calls.  The proposal would adopt a benchmark rate on a simple
per minute basis,  without  regard to time of day,  distance or whether the call
was  handled  on an  automated  or live  basis,  or made with a calling  card or
collect. This ceiling was proposed as an alternative to billed party preference,
contending that it could be implemented more quickly and much less expensively.

     In October 1996, the FCC requested  additional  comment in this proceeding,
this time seeking comment on still a different  proposal which would require all
providers of operator  services at aggregator  locations to disclose orally,  to
the party to be billed,  the rate for the call before  connecting the call. Most
industry commentors agreed that it was not technically  feasible to disclose the
specific rate for the call, but it was feasible to disclose the  availability of
a rate quote and how to obtain one. This proposal is still pending, although FCC
action is expected in April or May 1997.

     The Company believes the adoption of a disclosure mechanism along the lines
proposed  by the  industry  would  not have an  adverse  impact  on the  overall
profitability  of  its  operator  services  product.  However,  there  can be no
assurances the FCC will not adopt specific  disclosure  requirements or rate cap
levels  which would  adversely  affect the volume  and/or  profitability  of the
Company's interstate operator services.

     In December,  1996, the FCC instituted a rulemaking  proceeding designed to
comprehensively revise the rate structure for, and pricing of, interstate access
services.  The  proceeding  looks at both the access charge and price cap rules.
The  rulemaking  offers two possible  approaches  for reducing  access  charges,
establishing a transition to more cost-based charges and deregulating  incumbent
LEC services as competition develops. The first approach would rely on potential
and actual  competition to drive down access prices; the FCC would not prescribe
any particular  reductions and would relax the existing access pricing and price
cap rules in response to the development of competition.  The second approach is
a  prescriptive  one under which the FCC would  specify the nature and timing of
changes to the existing rate levels.  Specific  proposals are  requested,  as is
comment  on whether  the two  approaches  should be  combined.  The notice  also
includes  proposals for a series of reforms to the access charge rate  structure
rules,  including  changes to the common line,  local  switching  and  transport
elements.  Finally,  while  refusing  to take any  action at this time to impose
access charges on  information  service  providers or the Internet,  the FCC did
issue a notice of inquiry on whether it should,  in  addition  to access  charge
reform,  also  consider  actions  related  to these  users.  In  particular,  it
requested  comment on how to effectively  create incentive for the deployment of
services and facilities to allow efficient transport of data traffic.

     While  the   industry   attempts  to   influence   the  final   design  and
implementation of access charges, it is anticipated the Company will enjoy lower
access costs in the future.  However,  there can be no  assurances  that the FCC
will not adopt  access  charge  rules which might have an adverse  impact on the
Company. The FCC plans to adopt final rules in this area in April 1997.

                                       22

<PAGE>




              International Operations

     Despite its  deregulation  of a  substantial  portion of the domestic  long
distance market,  the FCC has continued to assert more rigorous  regulation over
international   telecommunications  services,  requiring  that  carriers  obtain
certificates of public convenience and necessity and file tariffs.  In addition,
United  States  carriers  were  required to comply with the FCC's  International
Settlements Policy ("ISP") which specified certain bilateral accounting rates to
which   carriers   must  adhere.   The  ISP  prevents   foreign   carriers  from
discriminating  among United States  carriers and requires the equal division of
accounting  rates,  non-discriminatory  treatment of United States  carriers and
proportionate  return of inbound  traffic.  The  fundamentals of this regulatory
structure  had not changed even after the entry of United  States  carriers into
the IMTS market.

     In December  1996,  the FCC  adopted  rules  intended  to  introduce a more
flexible  framework for  regulating  accounting  rules,  relying on  competitive
forces to determine  termination costs and efficient resource  allocation,  when
appropriate.  Specifically, the FCC authorized United States carriers to propose
methods to pay for terminating international calls other than by the traditional
prescribed method of bilateral  accounting rates. Subject to certain competitive
safeguards,  the FCC will now  permit  carriers  to enter into  alternative  pay
arrangements with foreign carriers in countries (currently, only Canada, Sweden,
New Zealand and the United Kingdom) that satisfy the FCC's so-called  equivalent
competitive  opportunities ("ECO") test.  Alternative  arrangements will also be
considered in non-ECO  countries where the United States carrier can demonstrate
that the deviation will promote  market-oriented  pricing and competition  while
precluding abuse of market power by the foreign  carrier.  The FCC's approach is
intended to stimulate competition,  allow United States carriers to respond more
rapidly to changing  conditions  in the global  telecommunications  market,  and
reduce call termination  costs. The Company's  associations with carriers in ECO
countries or ECO-candidate countries are intended to position it to take maximum
advantage  of these new  regulatory  initiatives  and  enable it to enjoy  those
benefits on an immediate basis.

     In another  late 1996 order,  the FCC  proposed  revisions  to its existing
accounting  rate  benchmark  ranges.  Such revisions were intended to update the
benchmarks to reflect recent  technological  improvements  and their  associated
cost reductions, as well as recognize market structure changes. The FCC believes
that, as long as accounting rates remain above costs,  foreign countries will be
reluctant to introduce competition. Thus, the proposed revisions to and updating
of the published  accounting rate benchmarks are intended to achieve rates which
more closely reflect costs and reinforce the FCC's commitment to the development
of global IMTS competition.

         PubCom Division

     Current federal  regulations  require that IPPs offer  unrestricted  access
from their phones by unblocking  all major forms of access to other OSPs (10XXX,
950-XXXX  and  1-800-  NXX-XXXX).  Additional  regulatory  requirements  include
provisions  which require the posting of certain  consumer  information  and the
prompt  routing of emergency  calls,  and prohibit the payment of commissions by
OSPs at locations which block unrestricted access.

                                       23

<PAGE>





     The FCC has also  adopted  rules  pursuant  to which IPPs are  entitled  to
receive  compensation  for  some  "dial  around"  calls  that  are made to other
operator or long  distance  service  providers  through the dialing of an access
code.  The 1996 Act reinforced  these rules,  and required the FCC to expand the
scope of such  rules and take  certain  actions  to ensure  the  termination  of
subsidies to LEC-owned payphone  operations (see "Government  Regulation-Federal
Regulation- Domestic Operations-1996 Act").

     State Regulation

         TelCom Division

     ANEI and CNSI are currently authorized to provide intrastate  interexchange
telecommunications  services  on  a  resale  basis  in  45  states  pursuant  to
certificates  of public  convenience  and necessity  obtained from various state
public  utility  commissions,  or  commerce  departments,  or  because  no  such
certificate  is  required.  Rate caps are in effect in most states in which they
provide  services.  Rate caps are expected to be introduced in New Jersey during
the second quarter of 1997. In addition, virtually all the states which regulate
the provision of operator services have their own set of guidelines,  similar to
those required on the federal level, with which providers must comply.

     The passage of the 1996 Act should open up new intrastate opportunities for
ANEI and CNSI in that it will force those  states that  currently  prohibit  the
provision  of  intraLATA  services  and/or  which  have found the  provision  of
competitive  operator services not to be in the public interest to open up these
markets.  In fact,  the FCC has  already  preempted  the State of  Connecticut's
prohibition  on private  payphones  and  similar  petitions  are  expected to be
favorably viewed.

     All states will now have to consider the  introduction  of competition  for
the provision of local  exchange  services.  Many states are moving to order the
implementation of intraLATA  presubscription  (1+ intraLATA equal access).  Most
states have already ordered the implementation of this technology,  and more are
expected to follow suit in the next year.

     Further,  from time to time,  various  state  legislatures  may  consider a
variety  of  regulatory  measures  which  could  affect  the  manner,  terms and
conditions under which ANEI or CNSI could provide service in such states.  While
no  major  initiatives  are  known to be  currently  underway,  there  can be no
assurances  that such proposals will not be considered or adopted in the future.
If implemented  in particular  states,  such  proposals  could have a materially
adverse impact on the profitability of the Company's service in such states.




                                       24

<PAGE>

         PubCom Division

     New  York,  New  Jersey,  Florida  and  Pennsylvania,  the  states in which
Crescent  operates,  currently  regulate the provision of telephone service from
COCOTs.  Such  regulation  includes  quality  of  service  standards,  reporting
requirements  and caps on  rates  for  local  and long  distance  calls  made by
depositing coins. COCOT owners are also subject to certain posting  requirements
relating to the provision of consumer information,  including a number which can
be  called  to obtain a refund  for lost  coins and to report an out of  service
condition.  While Crescent believes that it is in compliance with all such rules
and that compliance with any  requirements  adopted by the state commission will
have no material  adverse impact on its  operations,  there can be no assurances
that the regulatory  agencies will not adopt additional  regulations  which will
adversely  affect the  profitability  of its services.  In  particular,  the New
Jersey Board of Regulatory  Commissioners  is expected to implement new rules in
May 1997 which will,  among  other  things,  limit the rates to be charged  from
payphones.  However, given the Company's vertical structure, the availability of
a hardship waiver and the Board's stated  intention to address  concurrently the
issues  surrounding  removal of subsidies  from the line charges and usage rates
paid by IPPs to the LECs, the  limitations are not expected to have a materially
adverse impact, although no assurances can be given in this regard.

     In late 1995,  the City of New York  adopted  legislation  relating  to the
registry, permitting and franchising of all pay telephones installed on the city
streets.  Implementing  regulations  were adopted by the New York  Department of
Information  Technology and  Telecommunications in March 1996. The rules require
that all payphones  installed on the city streets,  including payphones owned by
NYNEX,  comply with certain siting,  maintenance  and operational  requirements.
These include provisions  requiring that "0-" calls, i.e. calls dialed with only
the digit "0", be directed to an OSP certified to handle  emergency  calls (such
as ANEI). The rules contain  monetary  penalties in the event of certain classes
of violations and provide for removal of the phone under certain  circumstances.
Most significantly,  however, the rules contain a grandfather provision relating
to the siting requirements for already installed phones.

     Crescent has already made the requisite interim permit and registry filings
and paid all applicable  fees for the  approximately  1,680 phones it has on the
city streets.  The majority of Crescent's  phones  qualified for the grandfather
provisions  and no  additional  work is expected to be needed to bring them into
compliance with the new rules.  Crescent believes that any deficiencies relating
to  phones  whose  installations  were  not  grandfathered  have  been  cured by
rerunning wires or obtaining requisite  approval.  Crescent has also applied for
the necessary  city  franchise and permanent  permit  authority.  While Crescent
believes that all its phones are in compliance with the new regulations and that
it will be issued a franchise,  there can be no assurances  given in this regard
and failure to obtain the necessary  franchise and permits for a large number of
Crescent's phones would have a material adverse effect on its operations.

     In addition,  several  municipalities  in New Jersey currently require that
IPPs obtain a franchise for certain of their phone locations.  Crescent believes
that it is currently in compliance with any applicable rules.

                                       25

<PAGE>

     Employees

     As of March 22,  1997,  the  Company  had 397  full-time  employees  and 25
part-time employees, including 146 telephone operators. In addition, the Company
hires certain support staff through temporary  employment agencies and currently
employees 25 such  workers at its  operator  center in Orlando and 38 in Mexico.
None of the Company's employees is subject to a collective bargaining agreement.

     Reference  is  made  to  Item  7  hereof  for  a  discussion  of a  certain
restructuring  plan pursuant to which certain of the  Company's  core  operating
functions would be realigned or outsourced.

     (d) Financial  Information About Foreign and Domestic Operations and Export
Sales.

         Not applicable.

Item 2.  PROPERTIES

     The  executive  offices of the Company are located at 101 Park Avenue,  New
York, New York where approximately 4,200 square feet of space are rented under a
sublease  expiring in October 1997. The approximate  base annual rental for such
premises is $128,000.  The Company  anticipates  seeking other space in New York
City upon the expiration of the sublease.

     ANEI's corporate office, data processing operations and Florida switch site
are located at 100 West  Lucerne  Circle,  Orlando,  Florida,  where it occupies
approximately 28,000 square feet of space pursuant to various leases. Certain of
such leases  expire  between  1998 and 1999;  others have  expired and are being
renegotiated.  The approximate aggregate base annual rental for such premises is
currently $540,000.

     The Florida  operator  center is located at 1516 Colonial  Drive,  Orlando,
Florida where ANEI occupies  approximately  13,400 square feet of space pursuant
to a lease which expires in 1998.  The lease  provides for a current base annual
rental of approximately $185,000.

     ANEI's New York switch site is located at 60 Hudson  Street,  New York, New
York  where  the  Company  occupies  approximately  5,700  square  feet of space
pursuant to a lease that  expires in 2001 and provides for a current base annual
rental of $171,000.  The Company is renting an  additional  5,000 square feet of
space at the same location,  pursuant to leases that expire in 2001. The current
annual rental for the  additional  space is  approximately  $107,000.  Such rent
increases  periodically  to  a  yearly  maximum  of  approximately  $116,000.  A
substantial  portion of the above  space is  currently  being  subleased  by the
Company at market rates.

     Crescent's  corporate  office and operations are located at 6 Nevada Drive,
Lake Success, New York where it rents approximately 23,300 feet of space under a
lease  expiring  in 2007 and  providing  for a  current  base  annual  rental of
approximately  $128,000 (with a fixed increase of approximately  $5,800 per year
for the term of the lease).

                                       26

<PAGE>





     CNSI's and NBE's  operations are currently  located at 600 Congress Avenue,
Austin,  Texas, where CNSI has rented  approximately 40,400 square feet of space
under a lease  which  expires in 2000 and  provides  for a current  base  annual
rental of $153,300.  CNSI and NBE occupy approximately 21,500 square feet of the
total  leased  premises.  The  remaining  space  has been or is  intended  to be
subleased at market rates. The lease contains an option to renew for a five year
term with certain specified  increases in the base annual rental. The Company is
currently  considering whether certain CNSI functions can be performed at ANEI's
Orlando, Florida facility (see Item 7 hereof).

     The Company believes that its premises are adequate to meet its needs.

Item 3.  LEGAL PROCEEDINGS

         Not applicable.

Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         Not applicable.

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     (a) Market Information.

     AMNEX's  Common  Shares are traded in the Nasdaq  SmallCap  Market  (Nasdaq
Symbol:  AMXI). The following table sets forth, for the periods  indicated,  the
high and low bid prices for AMNEX's Common Shares, as reported by Nasdaq:

                                           High                Low
1995 Calendar Year

First Quarter                              $3.75              $2.50
Second Quarter                              3.06               2.38
Third Quarter                               5.63               2.56
Fourth Quarter                              4.94               3.25

1996 Calendar Year

First Quarter                              $4.31              $2.88
Second Quarter                              4.12               3.25
Third Quarter                               3.88               2.81
Fourth Quarter                              3.63               2.56

                                       27

<PAGE>


     The above quotations  represent  interdealer prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.

     (b) Holders.

     As of  December  31,  1996,  there were  1,075  holders of record of Common
Shares of AMNEX.

     (c) Dividends.

     AMNEX has neither  declared  nor paid any  dividends  on its Common  Shares
since  inception and the Board of Directors does not  contemplate the payment of
dividends in the  foreseeable  future.  Any decision as to the future payment of
dividends will depend on the earnings and financial  position of the Company and
such other factors as the Board of Directors deems relevant.

     In February  1993,  AMNEX issued  356,000  Series B Preferred  Shares.  The
holders of the Series B Preferred  Shares,  in  preference to the holders of the
Common  Shares,  are  entitled to receive,  when and as declared by the Board of
Directors,  cumulative dividends at the rate of $.40 per share per annum, and no
more.  Subject to the requirements of applicable law,  dividends on the Series B
Preferred  Shares are payable annually in cash or, at the option of the Board of
Directors,  but subject to the requirements of applicable law, in Common Shares.
AMNEX has paid dividends to the holders of the Series B Preferred Shares through
the period ended April 30, 1995.  There are currently  72,450 Series B Preferred
Shares issued and  outstanding,  the remainder having been converted into Common
Shares.

     In August  1994,  AMNEX issued  1,413,337  Series D Preferred  Shares.  The
holders of the Series D Preferred  Shares,  in  preference to the holders of the
Common  Shares,  are  entitled to receive,  when and as declared by the Board of
Directors,  cumulative dividends at the rate of $.25 per share per annum, and no
more.  Subject to the requirements of applicable law,  dividends on the Series D
Preferred  Shares are payable annually in cash or, at the option of the Board of
Directors,  but subject to the  requirements of applicable law, in Common Shares
of AMNEX.  To date,  no dividends  have been paid to the holders of the Series D
Preferred  Shares and no such  holders  have  converted  such shares into Common
Shares.

     Between  April 1995 and June 1995,  AMNEX  issued an aggregate of 1,085,000
Series E Preferred  Shares.  The holders of the Series E  Preferred  Shares,  in
preference to the holders of the Common  Shares,  are entitled to receive,  when
and as declared by the Board of Directors,  cumulative  dividends at the rate of
$.225  per  share  per  annum,  and no  more.  Subject  to the  requirements  of
applicable law,  dividends on the Series E Preferred Shares are payable annually
in cash  or,  at the  option  of the  Board of  Directors,  but  subject  to the
requirements of applicable law, in Common Shares of AMNEX. To date, no dividends
have  been paid to the  holders  of the  Series E  Preferred  Shares.  There are
currently  1,035,000  Series E  Preferred  Shares  issued and  outstanding,  the
remainder having been converted into Common Shares.

                                       28

<PAGE>


     In September  1996,  AMNEX issued  100,000 Series G Preferred  Shares.  The
holders of the Series G Preferred  Shares,  in  preference to the holders of the
Common  Shares,  are  entitled to receive,  when and as declared by the Board of
Directors, cumulative dividends at the rate of $1.00 per share per annum, and no
more.  Subject to the requirements of applicable law,  dividends on the Series G
Preferred Shares are payable at the time of conversion of the Series G Preferred
Shares,  in cash or, at the option of AMNEX,  but subject to the requirements of
applicable law, in Common Shares or additional  Series G Preferred Shares (which
AMNEX is  required  to  immediately  convert  into  Common  Shares).  There  are
currently 16,250 Series G Preferred Shares issued and outstanding, the remainder
having been converted into Common Shares.

     (d) Recent Sales of Unregistered Securities.

     During the fiscal year ended  December 31,  1996,  AMNEX issued or sold the
following  equity  securities  other than in transactions  registered  under the
Securities Act of 1933, as amended (the "Securities Act"):

          (i)  Effective  January  1996,  AMNEX issued  50,000  Common Shares to
     Trinkaus & Burkhardt  (Schweiz)  AG upon  conversion  of an equal number of
     Series E Preferred  Shares.  Such Common Shares were issued pursuant to the
     exemption from  registration  provided by Section 3(a)(9) of the Securities
     Act as the  Common  Shares  were a  security  exchanged  by AMNEX  with its
     existing preferred  shareholder and no commission or other remuneration was
     paid or given, directly or indirectly, for soliciting such exchange.

          (ii) Effective May 1996, AMNEX issued 245,000 Common Shares to certain
     executive officers (see Item 11(a) hereof) and a consultant pursuant to its
     1996  Restricted  Stock Grant Plan. Such Common Shares were issued pursuant
     to  the  exemption  from  registration  provided  by  Section  4(2)  of the
     Securities  Act as a  transaction  by an issuer  not  involving  any public
     offering.

          (iii)  Effective June 1996, in connection  with the acquisition of all
     the issued and outstanding  capital stock of CNSI,  AMNEX issued to various
     individuals  4,099,086 Common Shares and two-year warrants for the purchase
     of an aggregate of 400,000  Common Shares at an exercise price of $4.51 per
     share.  Such  Common  Shares  and  warrants  were  issued  pursuant  to the
     exemption from registration  provided by Section 4(2) of the Securities Act
     as a transaction by an issuer not involving any public offering.

          (iv) Effective July 1996,  AMNEX issued 44,643 Common Shares to Spring
     Technology  Corp.  upon  conversion  of a  certain  promissory  note in the
     principal amount of $150,000,  together with accrued interest thereon. Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided by Section 3(a)(9) of the Securities Act as the Common Shares were
     a security exchanged by AMNEX with its existing  promissory  noteholder and
     no  commission  or  other  remuneration  was  paid or  given,  directly  or
     indirectly, for soliciting such exchange.

                                       29

<PAGE>





          (v) Effective August 1996, in consideration of certain  consulting and
     advisory  services  rendered,  AMNEX granted to Robb, Peck McCooey Clearing
     Corporation  a three-year  warrant for the purchase of 50,000 Common Shares
     at an exercise price of $3.0625 per share. Such warrant was issued pursuant
     to  the  exemption  from  registration  provided  by  Section  4(2)  of the
     Securities  Act as a  transaction  by an issuer  not  involving  any public
     offering.

          (vi) Effective  September 1996,  AMNEX sold 100,000 Series G Preferred
     Shares to Southbrook  International  Investments,  Ltd. ("Southbrook") at a
     purchase  price of $20.00 per  share.  The  Series G  Preferred  Shares are
     convertible into Common Shares at a conversion price generally equal to the
     lesser of $3.5125 per share or 80% of the average  per share  market  value
     for  the  five   trading  days   immediately   preceding   conversion.   In
     consideration   of  the   purchase  of  the  Series  G  Preferred   Shares,
     concurrently  therewith,  AMNEX  issued  to  Southbrook  and  its  designee
     five-year  warrants for the purchase of 225,000 and 50,000 Common Shares at
     exercise prices of $5.29 and $3.53 per share,  respectively.  Such Series G
     Preferred  Shares and warrants were issued  pursuant to the exemption  from
     registration   provided  by  Section  4(2)  of  the  Securities  Act  as  a
     transaction by an issuer not involving any public offering.

          (vii) Effective  September 1996,  AMNEX issued an aggregate of 550,725
     Common Shares to James E.  Everingham and Daryl A. Frame in connection with
     its acquisition of 80% of the outstanding capital stock of NBE. Such Common
     Shares were issued pursuant to the exemption from registration  provided by
     Section  4(2) of the  Securities  Act as a  transaction  by an  issuer  not
     involving any public offering.

          (viii)  Between  September  1996 and  December  1996,  AMNEX issued an
     aggregate of 245,742  Common Shares to designees of Coastal  Communications
     of America,  Inc.  ("CCOA") in connection  with  Crescent's  acquisition of
     certain  assets of CCOA.  Such Common  Shares  were issued  pursuant to the
     exemption from registration  provided by Section 4(2) of the Securities Act
     as a transaction by an issuer not involving any public offering.

          (ix) Effective  October 1996, AMNEX sold an aggregate of 75,000 Common
     Shares to certain individuals, including Kenneth G. Baritz, Chairman of the
     Board of the Company  (25,000 Common  Shares),  and other  employees,  at a
     purchase  price of $3.00 per share,  such price  being  equal to the market
     value of the  Common  Shares at the time of the  purchase  agreement.  Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided  by Section  4(2) of the  Securities  Act as a  transaction  by an
     issuer not involving any public offering.

          (x) Effective  November  1996,  AMNEX issued an aggregate of 2,098,373
     shares  to  designees  of  Coastal  Telecom,  Garden  State  and BEK Tel in
     connection with the  acquisition of certain assets of such companies.  Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided  by Section  4(2) of the  Securities  Act as a  transaction  by an
     issuer not involving any public offering.

                                       30

<PAGE>





          (xi) Effective  December  1996,  AMNEX issued 195,808 Common Shares to
     Southbrook  upon the conversion of 21,250 Series G Preferred  Shares.  Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided by Section  3(a)(9) of the  Securities  Act as such Common  Shares
     were a security exchanged by AMNEX with its existing preferred  shareholder
     and no  commission  or other  remuneration  was paid or given,  directly or
     indirectly, for soliciting such exchange.

Item 6.  SELECTED FINANCIAL DATA

     The  following  financial  information  with  respect to the  Company as of
December 31, 1996,  1995,  1994,  1993 and 1992 and for the years then ended has
been derived from the Company's audited  consolidated  financial  statements for
such years.  The  consolidated  balance sheets as of December 31, 1996 and 1995,
the related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994 and auditor's  report
with regard thereto are included in Item 14(a) hereof.

     Effective August 1992, the business of Eastern Pay Phones, Inc. ("Eastern")
was sold. In addition,  in October 1992,  the  operations of AMNEX  Interactive,
which had previously taken over the operations of  Communications  Technologies,
Inc. ("COMTEC"), were discontinued.  Accordingly,  the operations of Eastern and
COMTEC  are  reflected  in the  Statement  of  Operations  Data as  discontinued
operations.

     Effective  October 4, 1995,  the  Company  purchased  all of the issued and
outstanding  common  shares  of  Crescent  Communications,  Inc  ("CCI"),  which
subsequently  merged with Crescent.  The acquisition was accounted for using the
purchase  method of  accounting.  Accordingly,  the  results of  operations  for
Crescent have been included in the Statement of Operations Data from the date of
acquisition.

     Effective June 30, 1996, the Company acquired all of the outstanding common
shares of CNSI. The  acquisition  was accounted for using the purchase method of
accounting. Accordingly, the results of operations of CNSI have been included in
the Statement of Operations Data from the date of acquisition.

     Effective  September 30, 1996, the Company  acquired 80% of the outstanding
common  shares of NBE.  The  acquisition  was  accounted  for using the purchase
method of accounting.  Accordingly,  the results of operations for NBE have been
included in the Statement of Operations Data from the date of acquisition.


                                       31

<PAGE>
     Effective  November 20, 1996,  Crescent acquired certain assets,  including
approximately 4,300 pay telephones,  from Coastal Telecom,  Garden State and BEK
Tel. The  acquisition was accounted for using the purchase method of accounting.
Accordingly,  the Statement of Operations Data includes  operating  results from
the date of acquisition.

     The  information  set forth below  should be read in  conjunction  with the
consolidated  financial  statements of the Company and related notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included as Item 7 hereof.

                          Statement of Operations Data
                       (in thousands, except share data)

<TABLE>
                                                    Year Ended December 31,
<CAPTION>
                                   1996            1995          1994          1993          1992
                                   ----            ----          ----          ----          ----

<S>                             <C>              <C>           <C>           <C>            <C>    
Revenues                        $117,142         $105,890      $108,737      $55,519        $38,799

Income (loss) from
continuing operations             (4,248)           1,431           541           98         (3,814)

Income from discontinued
operations                            --              ---           ---          ---            190(1)

Net income (loss)                 (4,248)           1,431           541           98         (3,623)

Net income (loss)
available for Common
Shares (2)                        (5,264)             888           250          (36)        (3,623)

Net income (loss) per
Common Share from
continuing operations
available for Common
Shares:

Primary (2)                         (.23)             .05           .02         (.01)         (1.79)

Fully Diluted                       (.23)             .05           .02         (.01)          (.69)

Net income per Common
Share from discontinued
operations:

Primary                              ---              ---           ---          ---            .09(1)

Fully Diluted                        ---              ---           ---          ---            .03(1)

Net income (loss)
available for
Common Shares
per Common
Share:                        

Primary (2)                         (.23)             .05           .02         (.01)         (1.70)

Fully Diluted                       (.23)             .05           .02         (.01)         (0.66)

Weighted average number of
shares outstanding:

Primary                       23,274,219       19,416,497    13,522,815    6,915,449      2,136,668

Fully Diluted                 23,274,219       19,416,497    13,522,815    6,915,449      5,528,913
</TABLE>

                                       32
<PAGE>

<TABLE>
                                               Balance Sheet Data
                                                 (in thousands)

<CAPTION>
                                                            December 31,

                                   1996            1995          1994          1993          1992
                                   ----            ----          ----          ----          ----

<S>                              <C>            <C>            <C>           <C>           <C>    
Total assets                     $90,515        $49,580        $39,773       $27,815       $19,182

Working capital
(deficiency)                      (4,994)           531         (3,114)       (6,420)      (12,034)

Long-term
obligations                       22,972          6,302            767           642         1,558

Shareholders'
equity (deficit)                  33,320         20,392         12,870         6,477          (935)
</TABLE>

(1)      Includes $1,307 net gain on disposal of discontinued operations.
(2)      Gives effect in 1996, 1995, 1994 and 1993 to $616, $543, $291 and $134,
         respectively,  in Preferred Share dividend accruals.  Also gives effect
         in 1996 to $400 in  deemed  dividends  with  respect  to the  Series  G
         Preferred Shares.


                                       33

<PAGE>



Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The following discussion and analysis provides information which management
believes  is  relevant  to an  assessment  and  understanding  of the  Company's
consolidated  operations and financial condition.  The discussion should be read
in conjunction with the Company's  consolidated  financial  statements and notes
thereto.  The consolidated balance sheets of the Company as of December 31, 1996
and 1995 and the related  consolidated  statements of operations,  shareholders'
equity and cash flows for the years ended  December 31, 1996,  1995 and 1994 are
included in Item 14(a) hereof.

Results of Operations

     Year Ended  December 31, 1996  compared  with Year Ended  December 31, 1995
Future Realizable Value of Certain Assets; Contemplated Plan of Restructuring

     During the fourth  quarter of 1996, the Company began to analyze the future
realizable  value of certain  assets,  including (i) certain  receivables,  (ii)
certain  intangible  assets  relating to certain  customer  agreements and (iii)
certain  investments.  The Company has determined that the value of these assets
has been  permanently  impaired  substantially  due to changes in the  Company's
industry  resulting  from the  enactment  of the 1996 Act and  other  regulatory
action. The charges resulting from such determination,  which totaled $7,248,000
before  income  taxes,  give  effect  to the  implementation  of  SFAS  No.  121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of"  ($3,716,000)  and a write down to estimated  future  realizable
value of customer advances and other receivables ($3,532,000).

     In addition and as part of an overall Company  reorganization,  the Company
embarked  in the  first  quarter  of  1997  on a  plan  of  restructuring.  This
restructuring  plan,  which resulted from an extensive  strategic  review of the
Company's  assets,  product  offerings and competitive  position in light of the
1996 Act and related  regulatory action, is designed to streamline the Company's
provision  of  telecommunication  services,  improve  efficiencies  and increase
competitiveness.  Such plan contemplates the closure of certain of the Company's
facilities and the payment of employee termination benefits.  The implementation
of  the  Company's  restructuring  plan  will  in  all  likelihood  result  in a
significant reduction in selling,  general and administrative expenses, but also
the  incurrence  of a  significant  restructuring  charge.  The  Company is also
examining the  feasibility  of outsourcing  all or a significant  portion of its
switching and network requirements to one or more unrelated third parties.

                  Operational Results

     Total Company revenues increased from approximately $105,890,000 in 1995 to
approximately  $117,142,000 in 1996, an increase of 10.6%. Current trends in the
domestic  operator services industry continue to show weakness as discussed more
fully in the prior year's  analysis below and as reflected in a decrease in such
revenues  from  approximately   $96,700,000  (91.5%  of  revenues)  in  1995  to
approximately   $82,000,000  (70.0%  of  revenues)  in  1996.  Because  of  this
historical  and  anticipated  future  trend,  the Company  continued its planned
revenue shift by developing  and  acquiring  revenue  sources from product lines
other than domestic operator services.  During 1996,  development of the 1+ Coin
operations  continued  and this  service  produced  revenues  of  $4,200,000  in
contrast with  insignificant  revenues  during 1995. In addition,  revenues from
acquisitions,  described under "Acquisitions" below, offset declines in revenues
from domestic operator  services as follows:  (i) revenues for the six months of
CNSI's  operations  were  approximately  $11,200,000;  (ii) NBE revenues for the
three  months of  operations  in 1996  were  approximately  $534,000;  and (iii)
revenues  from the 4,300 pay  phones  purchased  in the  November  1996  Coastal
Telecom/Garden  State/BEK Tel  acquisition  were  approximately  $1,000,000.  In
addition,  revenues from other business lines increased as follows: (i) Crescent
had  revenues of  $5,600,000  in 1996  compared to  $1,400,000  during the three
months of  operations  included in 1995;  (ii) AHE had revenues of $1,600,000 in
1996 compared with $1,500,000 in 1995; and (iii) 1+ long distance  revenues were
$9,200,000 in 1996 compared to $5,500,000 in 1995.

                                       34

<PAGE>


     Cost of sales,  as a percentage  of  revenues,  was 80.1% and 81.9% for the
years  ended  December  31,  1996  and  1995,  respectively.  This  decrease  is
attributable  for the most  part to  reduced  bad  debts,  collection  costs and
operator  center costs.  For 1996,  there was 29.8%  decrease in the cost of bad
debts and  collections  due to a shift to the customer of the burden of bad debt
risk and a 16.7% decrease in operator center costs primarily due to synergies of
combining  the  operations  of the two  operator  centers  of CNSI and ANEI.  In
addition,  the decrease  reflects the Company's  reduced  dependence on domestic
operator  service  revenues  and  relatively  high costs  associated  therewith.
Commission  expense increased by 14.8% in 1996 as compared to a revenue increase
of 10.6%. This was due to the payment of relatively high commissions on domestic
operator  services  which the Company  determined  was  required to maintain its
domestic operator services base of customers.

     Selling,  general and administrative expenses, as a percentage of revenues,
were 14.1% and 11.5%,  respectively,  for the years ended  December 31, 1996 and
1995. The increase in 1996 over 1995 related directly to the acquisition of CNSI
which had significant redundant selling, general and administrative expenses. As
part of the CNSI  consolidation and integration  plan, a significant  portion of
these costs, which approximated $1,500,000 per annum, were specifically targeted
for  reduction or  elimination.  In  addition,  professional  fees  increased by
$600,000 between 1995 and 1996 and are attributable to the 1996 acquisitions and
the significant growth of the Company. These costs are expected to be reduced in
1997.

     Interest expense was $2,730,000 and $2,044,000 for the years ended December
31,  1996 and  1995,  respectively.  The  increase  in 1996 over 1995 was due to
additional  capital lease  obligations of the integrated  services product lines
and loans obtained in connection with the Crescent  acquisition in October 1995.
Furthermore,   it  reflects   approximately   $462,000  of  interest  for  CNSI,
represented  by  short-term  and  long-term  borrowing  assumed  as part of that
acquisition.


                                       35

<PAGE>



     Year Ended December 31, 1995 compared with Year Ended December 31, 1994

     Revenues  declined  by 3% from 1994 to 1995  primarily  due to the  current
trends impacting the operator services industry,  including (i) increases in the
number of consumers  who use "dial  around"  services,  i.e.,  the use of access
numbers to reach their carrier of choice, rather than dialing "0+" and utilizing
the services of the operator  services  company who services the  telephone  and
(ii) the  continued  efforts by  governmental  regulatory  agencies to establish
maximum rates which may be charged for 0+ calls.  During 1995,  the Company also
implemented  stricter fraud control measures which resulted in reduced revenues.
Such measures,  however,  resulted in increased profits through the reduction of
bad debt and related costs. The total number of calls processed increased by 11%
in 1995 to 26,300,000  while the minutes billed increased by 1.5% to 125,000,000
in 1995. Revenues did not increase  correspondingly  since the increase in calls
and minutes related to 1+ calls which have lower rates than 0+ calls.

     In order to combat the effects of "dial  around" and rate caps,  as well as
the high commission expenses associated with operator services, during 1995, the
Company's management  established goals to strategically position the Company in
new  businesses  which will lower its cost of sales,  improve profit margins and
secure its customer  base.  As a result,  the Company began to shift its selling
focus to new  higher  profit  margin  services  while it  converts  its  current
operator  services  offering to the  provision of  transaction-based,  wholesale
services in the COCOT business and  presubscription  business (in which the Site
Owner preselects the long-distance service provider).  These new services, which
were  offered  initially  during  1995,  include  hospital   services,   network
management  services,  and 1+ Coin  services.  Although  growth in the number of
COCOT and presubscription  phones providing operator services leveled out during
1995 as a result of this process, the Company's income before taxes increased to
approximately  $1,760,000  for 1995, a 44% increase over 1994. In addition,  the
Company's return on revenues (income before taxes divided by revenues) increased
to 1.7% in 1995 from 1.1% in 1994.

     Cost of sales, as a percentage of revenues, decreased by approximately 1.6%
(from 83.5% to 81.9%) between 1994 and 1995.  Such decrease was due primarily to
a reduction in commission expense which, as a percentage of revenues,  decreased
from 50.2% to 47.5%. Network costs increased,  as a percentage of revenues, from
13.0% to 14.5% between 1994 and 1995.  Commission expenses decreased as a result
of the  Company's  shifting  into new higher  profit  margin  services for which
commissions,  as a  percentage  of  revenue,  are  lower,  as well as due to the
renegotiation of unprofitable  customer commission  agreements.  Network expense
increased  due to an increase in fixed  network  costs  resulting  from a slight
increase  in fixed  network  cost rates and the  expansion  of the 1+ Coin fixed
network.

     Selling,  general and administrative costs decreased approximately $490,000
between  1994 and 1995  due to the  change  in mix of  business  activities  and
management's  cost reduction  initiatives,  and remained fairly  consistent as a
percentage of revenues at 11.6% and 11.5%, respectively.


                                       36

<PAGE>



     Interest  expense  for 1995 was  approximately  $2,044,000  as  compared to
approximately  $1,793,000 for 1994.  This increase was due primarily to the cost
of financing for equipment  procured for AHE and for the acquisition of Crescent
in the fourth quarter.

Liquidity and Capital Resources

     The  Company  had  a  net  working  capital   deficiency  of  approximately
$4,994,000 as of December 31, 1996 as compared to a working  capital  surplus of
approximately  $531,000 as of December 31, 1995.  This change was  primarily the
result of increases  in the  short-term  portion of  long-term  debt and capital
leases  associated  with the  CNSI  and  Coastal  Telecom/Garden  State/BEK  Tel
acquisitions. In addition, costs related to acquisitions,  both paid and accrued
during 1996, negatively impacted working capital during the second half of 1996.
These net  working  capital  deficiencies  were  offset by  certain  financings,
including  the sale and issuance of Preferred  Shares  during 1996 and long-term
debt financing (each as discussed below).

     Trade  receivables at December 31, 1996 were  approximately  $19,311,000 as
compared to approximately  $17,080,000 at December 31, 1995. Receivables consist
of uncollected  revenues and surcharges  which the Company bills and collects on
behalf of  itself  and its  customers  and  uncollected  revenues  for  services
provided to other IXCs. Trade receivables decreased by approximately  $8,726,000
between  December 31, 1995 and 1996 (without  giving effect to the  acquisitions
that occurred during 1996).

     The Company currently has in place lending  agreements with its billing and
collection  agents pursuant to which it is currently  provided advances of up to
$27,600,000  at any one time  based upon  eligible  receivables.  Such  eligible
receivables are purchased by the lenders, with recourse, at the approximate rate
of 76% of the gross amount thereof. The Company generally pays interest for such
advances at an  effective  rate equal to the prime rate plus 2%. At December 31,
1996, the  approximate  amount due to the lenders was  $10,898,000.  The lending
agreements expire in February 2000.

     In September 1996, the Company obtained proceeds of $2,000,000  through the
sale of an aggregate of 100,000 Series G Preferred  Shares at a price of $20 per
share.  The Series G Preferred Shares have the following rights and preferences,
among others: (i) 5% cumulative dividend payable, at the time of conversion,  in
cash or,  at the  option of the  Company  and  subject  to the  requirements  of
applicable  law, in Common  Shares or Series G Preferred  Shares of the Company;
(ii)  voting  rights,  with the  number of votes  equaling  the number of Common
Shares issuable at the original issue date of the Series G Preferred Shares upon
conversion  of such  shares;  (iii) the right to convert  each share into Common
Shares of the Company at a  conversion  price equal to the lesser of (a) $3.5125
per share and (b) 80% of the average per share market value for the five trading
days  immediately  preceding the  conversion  date,  subject to reduction  under
certain  circumstances;  and (iv) a liquidation preference of $20 per share plus
an amount equal to accrued but unpaid dividends.


                                       37

<PAGE>



     As part of the  Series  G  Preferred  Share  purchase  agreement,  up to an
additional  $8,000,000 of Preferred  Share financing is available to the Company
during the period ending  September  30, 1997,  subject to the  satisfaction  of
certain conditions. Such conditions include, without limitation, the requirement
that between June 30, 1996 and the date of funding no event shall have  occurred
which in the judgment of the  purchaser  of the Series G Preferred  Shares had a
material  adverse effect on the Company (see "Results of  Operations")  and that
Messrs. Baritz and Izzo shall have remained  substantially in their then current
function  under their then current  managerial  positions  with AMNEX  without a
material  diminution  of  managerial  responsibilities.  As discussed in Item 10
hereof,  in March 1997, Mr. Baritz replaced Mr. Izzo as Chief Executive  Officer
of AMNEX and Mr. Izzo assumed the position of President of the Company's  PubCom
Division.

     During 1996, the Company obtained debt financing in the aggregate amount of
approximately   $9,500,000,   including  approximately  $4,000,000  required  to
consummate  the  acquisition  of  Coastal  Telecom/Garden  State/BEK  Tel assets
described  below under  "Acquisitions".  The Company's  obligation to repay such
approximate  $9,500,000  in  debt  financing,   plus  an  additional  $2,500,000
refinanced during 1996, is secured by the grant of a security interest in, among
other assets,  approximately  6,000 private payphones.  As of December 31, 1996,
substantially all of such aggregate  $12,000,000 of indebtedness was outstanding
and  was  payable  over  a five  year  period,  together  with  interest  at the
approximate rate of between 10.5% and 11.9% per annum. As of March 31, 1997, the
Company had approximately 1,500 payphones not subject to such security interest.
The Company is currently  seeking  additional debt financing with regard to such
presently  unencumbered  phones.  No  assurances  can be  given  that  any  such
financing will be obtained.

     In addition,  the Company is  contemplating an offering of convertible debt
securities  in order to raise a  significant  amount of  additional  funds.  The
proceeds of any such  financing  are intended to be used to  repurchase  certain
outstanding convertible  securities,  and provide funds for acquisitions and any
short-term  working  capital  needs.  There can be no assurances  given that the
Company will undertake such offering or, if undertaken,  that it will be able to
successfully conclude such financing.  It is contemplated that, if the financing
is  undertaken,  the  securities  offered  will  not  be  registered  under  the
Securities  Act of 1933,  as amended (the  "Securities  Act"),  and neither such
securities nor the underlying Common Shares may be offered or sold in the United
States absent  registration  under the  Securities  Act or an exemption from the
registration requirements thereof.

     The Company  maintains various office,  operations and computer  facilities
under  operating  and capital  leases.  As of December 31, 1996,  the  Company's
minimum  commitments for the following 12 months under  noncancelable  operating
leases  was  approximately   $977,000.     The  Company  anticipates  that  such
commitments will be met through operating profits.

     The Company  expects that normal  recurring  capital  expenditures  will be
approximately $1,000,000 for 1997 and anticipates that cash flow from operations
and asset-based  financing will provide the funding required.  No assurances can
be given that these  sources  will  provide  adequate  funding for such  capital
expenditures or that such capital expenditures will actually be made.

                                       38

<PAGE>




Acquisitions

         CNSI

     Effective  June 30,  1996,  AMNEX  acquired all of the  outstanding  common
shares of CNSI.  Pursuant to the  acquisition  agreement,  as amended (the "CNSI
Acquisition  Agreement"),  AMNEX  issued to the former  shareholders  of CNSI an
aggregate  of  4,099,086  Common  Shares  (the "CNSI  Acquisition  Shares")  and
two-year  warrants for the purchase of an aggregate of 400,000  Common Shares of
the Company at an  exercise  price of $4.51 per share.  Of the CNSI  Acquisition
Shares, 1,861,802 are being held in escrow and will be available (i) to effect a
reduction of the purchase price in the event that the negative  working  capital
of CNSI as of the closing date and certain other amounts payable as of such date
exceeded a certain  threshold  amount as  provided  for in the CNSI  Acquisition
Agreement  and (ii) to  indemnify  AMNEX  against  certain  breaches of the CNSI
Acquisition  Agreement as set forth therein.  In March 1997, AMNEX sent a notice
seeking indemnification under the CNSI Acquisition Agreement.

     Concurrently  with  the  closing,  AMNEX  advanced  to  CNSI  cash  in  the
approximate amount of $1,000,000. Such proceeds were used by CNSI to pay certain
employee separation costs.

     The  CNSI  acquisition  enabled  the  Company  to enter  the  international
telecommunications market. See Item 1 hereof.

     The acquisition was accounted for as a purchase.  Accordingly,  the results
of operations of CNSI have been included in the financial  statements,  included
herein as Item 14(a), from the date of acquisition.

         Teleplus

     On August 31, 1996,  Teleplus assigned to AMNEX all of its rights under its
Dealer  Agreement  with CNSI in exchange for 1,052,336  Common  Shares.  Of such
shares,  526,168  were issued  effective  as of January 30, 1997 and 526,168 are
issuable on January 30, 1998. The Teleplus  transaction  was done in furtherance
of the Company's goal to reduce commission expenses payable to independent sales
agents.

         NBE

     Effective  September 30, 1996, AMNEX acquired 80% of the outstanding common
shares of NBE for 550,725  Common Shares.  The Company  believes that NBE should
provide  significant  synergies to the existing  cost  structure of ANEI,  while
providing a new and  expanding  business in the  billing  and  collection  niche
markets. See Item 1 hereof.

     The acquisition was accounted for as a purchase.  Accordingly,  the results
of operations of NBE have been  included in the financial  statements,  included
herein as Item 14(a), from the date of acquisition.

                                       39

<PAGE>


         Coastal Telecom et al.

     Effective  November 20, 1996,  pursuant to an Asset Purchase Agreement (the
"Coastal  Acquisition  Agreement"),  Crescent  acquired  certain assets owned by
Coastal Telecom, Garden State and BEK Tel (collectively,  the "Coastal Assets"),
including 4,300 pay telephones located primarily in the State of New Jersey.

     The aggregate  consideration  payable in connection with the acquisition of
the Coastal Assets was $10,410,000, payable to the extent of $3,010,000 in cash,
2,098,373  Common  Shares and the  assumption  of  approximately  $2,200,000  in
liabilities.

     Pursuant to the Coastal  Acquisition  Agreement,  the holders of the common
shares  acquired (the "Coastal  Acquisition  Shares") have been granted  certain
piggyback  registration  rights as well as certain  rights to require that AMNEX
repurchase up to $3,250,000 in market value of the Coastal Acquisition Shares in
the event  AMNEX does not file a  registration  statement  within  certain  time
periods  as set  forth in the  Coastal  Acquisition  Agreement  and the  Coastal
Acquisition Shares are not otherwise sold.

     The Coastal  Assets were acquired in  furtherance  of the Company's goal of
significantly increasing its ownership of payphone assets.

Recent Federal Legislation

     As discussed in Item 1(c) hereof, in February 1996, the 1996 Act was signed
into law. The new statute is intended to promote  competition  in both the local
and long distance  markets.  Prior to  enactment,  the RBOCs could not sell long
distance  service or  manufacture  equipment.  Although such  activities are now
permitted,  before RBOCs may enter the long  distance  market,  they must comply
with a number of  requirements  that are designed to prevent them from  unfairly
using their market power to compete against the smaller  industry  participants.
The law also calls for the FCC to further define,  implement and oversee the new
rules. The Company  believes that its current  activities are no more or less at
risk, as a result of the new law, than they were before the law was passed.  The
Company  additionally  believes that it is well  positioned to take advantage of
some of the provisions in the new law.

Subsequent Events

     On January 7, 1997,  the Company  entered into a Stock  Exchange  Agreement
with  Francesco  Galesi  pursuant  to  which  the  Company  acquired  10% of the
outstanding  capital  stock of GTI in exchange for Series L Preferred  Shares of
the Company and warrants for the purchase of Series L Preferred Shares. See Item
13(a) hereof.

                                       40

<PAGE>




     On February 25, 1997,  the Company  entered into a joint venture  agreement
with Community Network Services Inc.,  MicroTel  Communications  Corporation and
other entities related to them for the purpose of conducting  telecommunications
operations  with  regard to  international  1+  calls.  In  connection  with the
transaction, the Company converted approximately $2,250,000 of indebtedness into
preferred  shares of the joint venture entity and agreed to make working capital
loans to the joint  venture  entity in an aggregate  amount of up to  $1,200,000
during the initial six month term of the agreement.

     On February 28, 1997, the Company  entered into a Renewal and  Modification
Agreement  with  National  with  regard  to the  redefinition  of  the  customer
relationship   between  the  parties.   Under  the  terms  of  the  Renewal  and
Modification Agreement, the Company has been appointed the exclusive provider of
various services to private payphones owned,  leased or otherwise  controlled by
National. See Items 1 and 13(a) hereof.

     On March 1, 1997,  Crescent  acquired certain assets from Sun Tel Inc. (the
"Sun Tel Assets") including approximately 600 pay telephones located in Florida,
for an aggregate purchase price of $1,068,000 and the grant to a designee of Sun
Tel Inc. of a 20% equity interest in the Crescent  subsidiary that purchased the
Sun Tel Assets.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14 hereof.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

     There were no changes in accountants due to disagreements on accounting and
financial  disclosure  during the  twenty-four  month period ended  December 31,
1996.


                                       41

<PAGE>



                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Directors and Executive Officers

     The  following  persons are the  Directors  and  executive  officers of the
Company:

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

Kenneth G. Baritz      40      Chairman, Chief Executive Officer and Director

Peter M. Izzo, Jr.     45      President of PubCom Division and Director

Michael V. Dettmers    51      Chief Operating Officer and Director

Kevin D.  Griffo       36      President of TelCom Division

John Kane              44      Executive Vice President for Business Development

Amy S. Gross           41      Vice President - General Counsel and Secretary

Richard L. Stoun       40      Vice President - Finance, Treasurer and Chief
                               Accounting Officer

Francesco Galesi       66      Director

     Kenneth G. Baritz was  elected  Chief  Executive  Officer of the Company in
March 1997.  Mr. Baritz has also served as the Company's  Chairman since January
1994 and as a Director of the Company since October 1992. Mr. Baritz served from
October 1989 through  December 1993 as a Vice President of Bear,  Stearns & Co.,
Inc., an investment banking firm. From April 1987 to October 1989, he was a Vice
President of Shearson Lehman Brothers, also an investment banking firm. In 1994,
without  admitting or denying that he had committed any  violations,  Mr. Baritz
consented to a censure and a 90 day suspension  from  employment with a New York
Stock  Exchange  member firm for conduct  inconsistent  with just and  equitable
principles of trading involving certain brokerage transactions completed in 1989
and 1991. Mr. Baritz is on the Board of Directors of a number of  privately-held
companies.

     Peter M. Izzo, Jr. has served as President of the Company's PubCom Division
since March 1997 and as a Director of the Company since  October 1992.  Mr. Izzo
previously served as the Company's President from October 1992 to March 1997 and
as its Chief Executive  Officer from August 1993 to March 1997. From May 1991 to
October 1992, Mr. Izzo served as President of Peconic Communications, a provider
of pay phones and  interconnect  equipment.  He served as Vice  President of New
Product Development for the Company during 1991. Prior thereto and from 1989,

                                       42

<PAGE>

Mr. Izzo was associated with ANEI, the Company's wholly-owned  subsidiary,  last
serving as Executive Vice President - Operations. During 1987 and 1988, Mr. Izzo
was Vice President of Network  Operations at Elcotel,  a manufacturer of private
pay phones.  He previously  served as Director of Operations  for TFN,  Inc., an
interexchange  carrier,  and was employed  for 15 years with New York  Telephone
Company.

     Michael V. Dettmers was elected Chief  Operating  Officer of the Company in
March 1997 and has  served as a Director  of the  Company  since May 1994.  From
March 1995 to March 1997, Mr. Dettmers provided  consulting services to a number
of clients,  including  the Company,  in the area of  organizational  design and
development.  Prior  thereto and from  January  1988,  he served as President of
Dettmers  Industries  Inc.,  a  manufacturer  of interior  products for business
aircraft.  From 1980 to 1991,  he also served as President of Execucorp  Inc., a
management consulting firm.

     Kevin D.  Griffo  has  served  as  President  of ANEI  since  June 1996 and
President  of the  Company's  TelCom  Division  since  March  1997.  Mr.  Griffo
previously  served ANEI as its Chief  Operating  Officer from  December 1995 and
General  Manager from January 1995.  From February 1996 to September  1996,  Mr.
Griffo also served as Chief Operating  Officer of the Company.  Prior to joining
ANEI and from August 1992,  Mr.  Griffo  served as Regional  Vice  President for
LDDS, an interexchange  carrier.  From September 1983 to August 1992, Mr. Griffo
was Chief Operating Officer of Tele-Fibernet, an interexchange carrier.

     John Kane has served as the Company's Executive Vice President for Business
Development  since March 1997,  having  previously  served in such position from
February 1996 to September 1996 and in the same position for ANEI from June 1995
to February 1996. Mr. Kane served as Chief Operating Officer of the Company from
October 1996 to March 1997.  From September 1992 to May 1995, Mr. Kane served as
Senior  Vice   President  -  Operations   for  WCT   Communications,   Inc.,  an
interexchange  carrier.  He served from May 1992 to March 1993 as  President  of
Computer Calling Technology,  Inc., an interexchange  carrier. Prior thereto and
from April 1987, Mr. Kane served as Vice President and General  Manager of First
Phone of New England, Inc., an interexchange carrier.

     Amy S. Gross has served as Vice  President - General  Counsel and Secretary
of the Company since June 1992.  Prior thereto and from June 1989, she served as
General  Counsel - Regulatory  for the Company.  From 1985 until June 1989,  Ms.
Gross was  affiliated  with NYNEX  Service  Company,  serving as a member of its
legal  department  and  later  as  a  staff  director  responsible  for  product
development and regulatory planning.

     Richard L. Stoun  joined ANEI in January  1996 as Senior  Vice  President -
Finance. He was elected Vice President - Finance, Treasurer and Chief Accounting
Officer of the Company in February 1996. From November 1992 to January 1996, Mr.
Stoun  served as Senior  Vice  President - Finance and  Treasurer  of  Signature
Flight Support  Corporation  ("Signature"),  a provider of aviation services for
commercial and general aviation markets.  Prior thereto and from August 1985, he
was Vice  President  - Finance  and  Treasurer  of Page Avjet  Corp.,  a company
engaged in a business  similar to  Signature.  Mr.  Stoun is a certified  public
accountant  who  previously  served  with  the  independent  accounting  firm of
Deloitte Haskins and Sells.

                                       43

<PAGE>


     Francesco  Galesi has served as a Director  of the  Company  since  January
1997.  Since 1969, Mr. Galesi has served as Chairman of the Galesi Group,  which
includes companies engaged in telecommunications, manufacturing, real estate and
logistic  management.  Mr.  Galesi  is  also  currently  a  Director  of  Walden
Residential  Properties,  Inc., a real estate  company,  and  WorldCom,  Inc., a
telecommunications company, each of whose shares are publicly traded. Mr. Galesi
also serves on the Board of Directors of a number of  privately-held  companies.
See Item 13(a) hereof.

     Each  Director   will  hold  office  until  the  next  Annual   Meeting  of
Shareholders  and until his  successor  is elected and  qualified or his earlier
resignation  or removal.  Each  executive  officer  will hold  office  until the
meeting  of the  Board  of  Directors  following  the  next  Annual  Meeting  of
Shareholders  and  until  his or her  successor  is  elected  or  appointed  and
qualified or his or her earlier resignation or removal.

     There  is no  family  relationship  among  any of the  Company's  executive
officers and Directors.

Section 16(a) Beneficial Ownership Reporting Compliance

     To the Company's knowledge,  based solely on a review of copies of Forms 3,
4 and 5  furnished  to the Company  and  written  representations  that no other
reports were  required,  during the fiscal year ended  December  31,  1996,  all
Section  16(a)  filing  requirements   applicable  to  the  Company's  officers,
Directors and 10% shareholders were complied with.

Item 11. EXECUTIVE COMPENSATION

          (a)  Summary Compensation Table.

     The  following  table sets forth certain  information  for the fiscal years
ended December 31, 1996, 1995 and 1994  concerning the  compensation of Peter M.
Izzo, Jr., then Chief Executive  Officer of the Company,  and the Company's four
most highly compensated executive officers (other than Mr. Izzo) during the 1996
fiscal year:







                                       44

<PAGE>
<TABLE>

<CAPTION>
                                      Annual Compensation                    Long-Term Compensation
                              ------------------------------------  -------------------------------------
                                                                            Awards                Payouts
                                                                    -------------------------     -------
                                                                                    Common
                                                                     Restricted     Shares
Name and Principal                                    Other Annual     Stock       Underlying     LTIP       All Other              
  Position             Year     Salary        Bonus   Compensation    Award(s)      Options       Payouts   Compensation
------------------     ----    --------      -------  ------------    --------      -------       -------   ------------

<S>                    <C>     <C>           <C>         <C>         <C>           <C>             <C>        <C>
Peter M. Izzo, Jr.     1996    $223,424          --       --         $320,625(2)   325,000(3)       --        $2,178(4)
President and Chief    1995    $200,000      $52,083      --               --      300,000          --        $2,000(4)
Executive Officer(1)   1994    $200,204      $36,204      --               --          --           --            --

Kenneth G. Baritz      1996    $166,935          --       --         $168,750(2)   300,000(3)       --        $1,187(4)
Chairman of the        1995    $132,687      $17,601      --               --           --          --            --
Board(5)               1994    $120,061          --       --               --           --          --            --

John Kane              1996    $154,403      $23,000(8)   --          $84,375(2)   275,000(3)       --            --
Chief Operating        1995     $80,384(7)   $32,000(8)   --               --       75,000          --            --
Officer(6)             1994          --           --      --               --           --          --            --

Kevin D. Griffo        1996    $116,592           --      --          $84,375(2)   200,000(3)       --          $690(4)
President of American  1995    $110,415           --      --               --       50,000          --            --
Network Exchange, Inc. 1994          -- (9)       --      --               --           --          --            --

Richard L. Stoun       1996    $110,146           --      --               --      100,000          --       $22,500(10)
Vice President -       1995          -- (10       --      --               --           --          --            --
Finance, Treasurer     1994          --           --      --               --           --          --            --
and Chief Accounting
Officer
</TABLE>

----------

(1)       Effective  March 1997,  Mr. Izzo  assumed the position of President of
          the Company's PubCom Division.

(2)       In May 1996, the following  persons  received  awards of the following
          number of restricted  Common Shares:  Mr. Izzo - 95,000;  Mr. Baritz -
          50,000; Mr. Kane - 25,000;  and Mr. Griffo - 25,000.  Such shares vest
          to the extent of  one-tenth  thereof  each year,  subject to continued
          employment and subject to  acceleration  under certain  circumstances.
          Dividends are payable with respect to such shares.  As of December 31,
          1996,  no  restricted  shares  had  vested  and  such  shares  had the
          following  respective  values:  Mr.  Izzo -  $290,938;  Mr.  Baritz  -
          $153,125; Mr. Kane - $76,563; and Mr. Griffo - $76,563.

(3)       Of such number of shares underlying options,  the following number are
          subject to  shareholder  approval of both an increase in the number of
          authorized  Common  Shares  generally and an increase in the number of
          Common Shares  authorized for issuance under AMNEX's 1992 Stock Option
          Plan (the "1992 Plan"): Mr. Izzo - 250,000;  Mr. Baritz - 250,000; Mr.
          Kane - 50,000; and Mr. Griffo - 100,000.

                                       45

<PAGE>

(4)       Represents Company matching contributions for its 401(k) plan.

(5)       Effective March 1997, Mr. Baritz was elected Chief  Executive  Officer
          of the Company.

(6)       Effective  March 1997, Mr. Kane assumed the position of Executive Vice
          President for Business Development.

(7)       Mr. Kane joined the Company in June 1995.

(8)       The  bonus  paid to Mr.  Kane  for  1995  and  1996  was  based on the
          development of the Company's 1+ Coin business. See Item 1(c) hereof.

(9)       Mr. Griffo joined the Company in January 1995.

(10)      Mr.  Stoun joined the Company in January  1996.  The amount under "All
          Other Compensation" for 1996 represents a "signing bonus" paid in 1997
          to Mr.  Stoun  following  his  completion  of one  year of  continuous
          employment with the Company.

          (b)  Option Grants Table.

     The following table sets forth certain  information  concerning  individual
grants of stock options during the fiscal year ended December 31, 1996:

<TABLE>
                                                                                      Potential Realizable
                                                                                    Value at Assumed Annual
                                                                                      Rates of Stock Price
                                                                                    Appreciation for Option
                                      Individual Grants                                     Term (1)
-------------------------------------------------------------------------------     -----------------------
<CAPTION>
                         Number of
                         Common
                         Shares       Percent of Total
                         Underlying   Options Granted
                         Options      to Employees in    Exercise    Expiration
     Name                Granted      Fiscal Year        Price       Date               5%         10%
     ----                -------      -----------        -----       ----               --         ---
                                     
                     
<S>                     <C>               <C>            <C>         <C>            <C>         <C>     
Peter M. Izzo, Jr.      75,000(2)         3.2%           $3.375      05/23/01        $69,934    $154,535

Peter M. Izzo, Jr.     250,000(3)        10.5%           $2.75       12/20/01       $189,944    $419,726

Kenneth G. Baritz       50,000(2)         2.1%           $3.375      05/23/01        $46,623    $103,024

Kenneth G. Baritz      250,000(3)        10.5%           $2.75       12/20/01       $189,944    $419,726

John Kane              100,000(4)         4.2%           $3.25       02/12/01        $89,792    $198,416

John Kane               25,000(5)         1.1%           $3.375      05/23/01        $23,311     $51,512

John Kane              100,000(6)         4.2%           $2.875      11/08/01        $79,431    $175,522

John Kane               50,000(3)         2.1%           $2.75       12/20/01        $37,989     $83,945

Kevin D. Griffo        100,000(7)         4.2%           $3.25       02/12/01        $89,792    $198,416

Kevin D. Griffo        100,000(3)         4.2%           $2.75       12/20/01        $75,977    $167,890

Richard L. Stoun       100,000(7)         4.2%           $3.25       02/12/01        $89,792    $198,416

</TABLE>

                                       46

<PAGE>

----------

(1)       The potential  realizable value is calculated based on the term of the
          option at the time of grant (five years).  Stock price appreciation of
          5% and 10% is assumed pursuant to rules  promulgated by the Securities
          and  Exchange  Commission  (the  "SEC")  and  does not  represent  the
          Company's prediction of its stock price performance.

(2)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective as of May 23, 1997, 1998 and 1999. See Item 11(e) hereof.

(3)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective as of December  20,  1997,  1998 and 1998 and are subject to
          shareholder approval of an increase in the number of authorized Common
          Shares  generally  and an  increase  in the  number of  Common  Shares
          authorized for issuance under the 1992 Plan. See Item 11(e) hereof.

(4)       The  options  are  exercisable  to the  extent of  one-eighth  thereof
          effective June 1, 1996, one-sixth thereof effective February 12, 1997,
          one-eighth  thereof  effective  June  1,  1997,   one-twelfth  thereof
          effective  February 12, 1998 and one-half  thereof  effective  June 1,
          1998. See Item 11(e) hereof.

(5)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective  February 12, 1998 and two-thirds thereof effective February
          12, 1999. See Item 11(e) hereof.

(6)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective  as of  November  8,  1997,  1998 and 1999.  See Item  11(e)
          hereof.

(7)       The options are exercisable to the extent of one-third effective as of
          February 12, 1997, 1998 and 1999. See Item 11(e) hereof.

          (c)  Aggregated  Option  Exercises  in Last  Fiscal  Year  and  Fiscal
               Year-End Option Value Table.

     The following table sets forth certain information  concerning the value of
unexercised options as of December 31, 1996:


<TABLE>
<CAPTION>
                             Number of Common Shares
                        Underlying Unexercised Options at        Value of Unexercised in-the-Money
                                December 31, 1996                Options at December 31, 1996

    Name                    Exercisable/Unexercisable               Exercisable/Unexercisable
    ----                    -------------------------               -------------------------

<S>                          <C>                                         <C>         
Peter M. Izzo, Jr.           415,000 / 325,000 (1)                       $60,938 / $78,125

Kenneth G. Baritz            100,000 / 300,000 (1)                        $6,250 / $78,125

John Kane                     50,000 / 300,000 (1)                       $16,406 / $50,781

Kevin D. Griffo               25,000 / 225,000 (1)                           -0- / $31,250

Richard L. Stoun                 -0- / 100,000                               -0- / -0-
</TABLE>

---------- 

(1)       The number of Common  Shares  underlying  unexercisable  options as of
          December  31, 1996  include the  following  number that are subject to
          shareholder approval of an increase in the number of authorized Common
          Shares  generally  and an  increase  in the  number of  Common  Shares
          authorized for issuance  under the 1992 Plan: Mr. Izzo - 250,000;  Mr.
          Baritz - 250,000; Mr. Kane - 50,000; and Mr. Griffo - 100,000.

                                       47

<PAGE>


     No options were exercised by any of the foregoing persons during the fiscal
year ended December 31, 1996.

          (d) Compensation of Directors.

     Directors  are not  entitled  to receive a fee for their  services  in such
capacity.  However, see Item 11(f) hereof for a discussion of certain consulting
services performed by Mr. Dettmers during 1996.

          (e)  Employment    Contracts;    Termination    of   Employment    and
               Change-in-Control Arrangements.

     AMNEX is a party to employment  agreements with Messrs.  Izzo, Baritz, Kane
and Griffo that provide for, among other matters, the following:  (i) an initial
term ending on June 25, 1997  (except that for Mr. Izzo the initial term ends on
June 25, 1998 and for Mr. Kane the initial  term ends on October 1, 1998);  (ii)
minimum  annual  compensation  as follows:  Mr. Izzo -  $240,000;  Mr.  Baritz -
$190,000; Mr. Kane - $180,000; and Mr. Griffo - $150,000;  (iii) the entitlement
by such  persons to an annual bonus as follows:  Mr. Izzo - 3% of the  Company's
consolidated  pre-tax  profits;  Mr. Baritz - 1% of the  Company's  consolidated
pre-tax profits; and Messrs. Kane and Griffo participation in a bonus pool equal
to an aggregate of 3% of the Company's consolidated pre-tax profits (but for Mr.
Kane in no event less than 1% of such profits); and (iv) the entitlement by such
persons to a  severance  payment  equal to  generally  the greater of one year's
minimum annual salary and the employee's total  compensation for the previous 12
months  (except  that,  for Mr.  Izzo,  the figures are two years and 24 months,
respectively)  in the event the  executive  officer's  employment  is terminated
without  cause,  he resigns  for good  reason or his  employment  is  terminated
following a change in control of AMNEX (as defined in the respective  employment
agreements).

     All stock options held by Messrs. Izzo, Baritz, Kane, Griffo and Stoun will
vest upon a change in control of AMNEX (as  defined  in their  respective  stock
option agreements).  Once and to the extent the options vest, whether by passage
of time or upon a change in  control,  they will not  terminate  notwithstanding
termination of employment for any reason. See Item 12 hereof.

     The restricted  Common Shares  granted to Messrs.  Izzo,  Baritz,  Kane and
Griffo in 1996  (see Item  11(a)  hereof)  will vest in the event the  executive
officer's  employment is terminated without cause, he resigns for good reason or
his employment is terminated  following a change in control of AMNEX (as defined
in AMNEX's 1996 Restricted Stock Grant Plan).

          (f) Compensation Committee Interlocks and Insider Participation.

     During the fiscal year ended  December  31,  1996,  Mr.  Dettmers  provided
management  consulting  services  to the  Company  and  received  the  following
compensation: (i) $130,000; and (ii) a stock option under the 1992 Plan (subject
to shareholder approval of an increase in the number of authorized Common Shares
generally and an increase in the number of Common Shares authorized for issuance
under the 1992 Plan) for the  purchase  of 50,000  Common  Shares at an exercise
price of $2.75 per share.

                                       48
<PAGE>

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          (a)  and (b) Security Ownership of Certain Beneficial Owners; Security
               Ownership of Management.

Common Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the  beneficial  ownership of AMNEX's Common Shares (i) by each person who AMNEX
believes may be considered  under the rules and regulations of the SEC to be the
beneficial owner of more than 5% of its outstanding Common Shares,  (ii) by each
present  Director,  (iii) by each person listed in Item 11(a) hereof and (iv) by
all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Spring Technology Corp. (2)        3,835,356 (3)(4)               12.2%

Robert A. Rowland
1122 Colorado Street
Austin, Texas                      2,474,891 (5)                   8.8%

Mellon Bank Corporation
Mellon Bank, N.A.
The Dreyfus Corporation
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA                     1,742,000(6)                    6.2%

Cofinvest 97 Ltd. (2)              1,723,617(3)(7)                 6.1%

Brian E. King
675 Morris Avenue
Springfield, New Jersey            1,682,989                       6.0%

Peter M. Izzo, Jr.                   512,040(8)                    1.8%

Kenneth G. Baritz                    359,000(9)                    1.3%

Kevin D. Griffo                      108,334(10)                    *

John Kane                             98,166(11)                    *

Richard L. Stoun                      33,334(12)                    *

Michael V. Dettmers                   15,000(12)                    *

Francesco Galesi                         -0-(13)                    -

All executive officers and
Directors as a group (8 persons)   1,188,905(8)(9)(10)             4.1%
                                            (11)(12)(13)
                                            (14)
                                                       
               ----------
 * Less  than 1%.

(1)       Except  as they  relate  to a  particular  shareholder,  does not give
          effect to the  possible  issuance  of up to  approximately  17,000,000
          Common  Shares  pursuant to the  exercise of  outstanding  options and
          warrants or the conversion of certain outstanding promissory notes and
          Preferred Shares (certain of which are exercisable or convertible only
          in the event of,  among  other  matters,  an increase in the number of
          authorized  Common  Shares  generally and an increase in the number of
          Common Shares authorized for issuance under the 1992 Plan) or pursuant
          to contractual commitments.

                                       49
<PAGE>

(2)       Address  is  c/o  Friedli   Corporate   Finance  AG  ("Friedli   AG"),
          Freigutstrausse 5, Zurich, Switzerland.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Common Shares  reflected above as being  beneficially  owned by Spring
          Technology Corp.  ("Spring") and Cofinvest 97 Ltd.  ("Cofinvest")  are
          held by  such  entities  as  nominees  for  certain  overseas  banking
          institutions  which, in turn, hold such securities as nominees for the
          benefit of others (the "Ultimate Common Beneficial Owners"). AMNEX has
          been advised further by Friedli AG that, to its knowledge, none of the
          Ultimate Common Beneficial Owners is the beneficial owner of more than
          5% of the outstanding Common Shares. See Item 13(a) hereof.

(4)       Includes  632,500 and 152,500 Common Shares  issuable  pursuant to the
          conversion of Series B Preferred Shares and Series F Preferred Shares,
          respectively,  and 2,849,480  Common Shares  issuable  pursuant to the
          conversion of outstanding  indebtedness  (including accrued interest).
          AMNEX  believes  that  Friedli  AG may  have the  right  to cause  the
          conversion  of such Series B Preferred  Shares and  indebtedness  into
          Common Shares.

(5)       Includes   222,205  Common  Shares  issuable   pursuant  to  currently
          exercisable   warrants.   Of  the   2,252,686   other  Common   Shares
          beneficially  owned by Mr.  Rowland,  1,035,250 are currently  held in
          escrow as security for  indemnification  claims that may be brought in
          connection  with  AMNEX's   acquisition  of  CNSI  and  other  related
          entities. See Item 7 hereof.

(6)       Based upon  Schedule 13G filed with the SEC.  Pursuant to the Schedule
          13G, (i) of the reported  shares,  each of Mellon Bank Corporation and
          Mellon Bank,  N.A. has sole voting power over 1,742,000  shares,  sole
          dispositive power over 42,000 shares and shared dispositive power over
          1,700,000  shares,  and The Dreyfus  Corporation has sole voting power
          and shared  dispositive power over 1,700,000  shares;  (ii) all of the
          reported shares are beneficially  owned by Mellon Bank Corporation and
          its  direct  or  indirect  subsidiaries  in  their  various  fiduciary
          capacities; (iii) no one individual account holds an interest of 5% or
          more;  and (iv) the filing of the Schedule 13G should not be construed
          as an admission that Mellon Bank Corporation or its direct or indirect
          subsidiaries  are,  for  purposes  of  Section  13(d)  or 13(g) of the
          Securities and Exchange Act of 1934,  the beneficial  owners of any of
          the reported shares.

(7)       Includes 127,402 Common Shares issuable  pursuant to the conversion of
          Series D Preferred Shares and 356,415 Common Shares issuable  pursuant
          to the  conversion  of  certain  outstanding  indebtedness  (including
          accrued  interest).  AMNEX believes that Friedli AG may have the right
          to cause the conversion of such Preferred Shares and indebtedness into
          Common Shares.

(8)       Includes (i) 95,000 Common Shares held pursuant to a restricted Common
          Share  grant  which  vests  to the  extent  of  one-tenth  each  year,
          commencing May 23, 1997,  subject to continued  employment and subject
          to acceleration under certain  circumstances,  and (ii) 415,000 Common
          Shares issuable pursuant to currently exercisable options.

(9)       Includes (i) 50,000 shares held pursuant to a restricted  Common Share
          grant which vests to the extent of one-tenth each year, commencing May
          23, 1997, subject to continued  employment and subject to acceleration
          under certain  circumstances,  and (ii) 125,000 Common Shares issuable
          pursuant to currently exercisable options and warrants.

                                       50
<PAGE>

(10)      Represents  (i) 25,000  shares held  pursuant to a  restricted  Common
          Share  grant  which  vests  to the  extent  of  one-tenth  each  year,
          commencing May 23, 1997,  subject to continued  employment and subject
          to acceleration  under certain  circumstances,  and (ii) 83,334 Common
          Shares issuable pursuant to currently exercisable options.

(11)      Includes (i) 25,000 shares held pursuant to a restricted  Common Share
          grant which vests to the extent of one-tenth each year, commencing May
          23, 1997, subject to continued  employment and subject to acceleration
          under certain  circumstances,  and (ii) 66,666 Common Shares  issuable
          pursuant to currently exercisable options.

(12)      Represents  Common Shares issuable  pursuant to currently  exercisable
          options.

(13)      Excludes  1,500,000  Common  Shares  issuable  upon the  conversion of
          100,000  outstanding  Series L  Preferred  Shares of AMNEX held by Mr.
          Galesi,  which Series L Preferred  Shares are mandatorily  convertible
          into such Common  Shares in the event AMNEX shall  increase its number
          of authorized  Common Shares to permit such conversion,  as well as to
          satisfy  other  outstanding  rights to  acquire  Common  Shares.  Also
          excludes  1,500,000  Common  Shares  issuable  upon the  exercise of a
          certain  warrant held by Mr. Galesi for the purchase of 100,000 Series
          L Preferred  Shares of AMNEX,  which  warrant is  exercisable  for the
          purchase of 1,500,000  Common  Shares in the event the  aforementioned
          increase in authorized Common Shares is theretofore accomplished.  See
          Item 13(a) hereof.

(14)      Includes (i) 25,000 shares held pursuant to a restricted  Common Share
          grant which vests to the extent of one-tenth each year, commencing May
          23, 1997, subject to continued  employment and subject to acceleration
          under certain  circumstances,  and (ii) 38,000 Common Shares  issuable
          pursuant to currently exercisable options.

Series B Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series B Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series B Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

                                       51
<PAGE>

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland                   724,500(2)                 100%

Spring Technology Corp.
c/o Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland                   632,500(3)                 87.3%

Banca Novara
Usteristrasse 9
Postfach
Zurich, Switzerland                    92,000(3)                 12.7%

Peter M. Izzo, Jr.                        -0-                      --

Kenneth G. Baritz                         -0-                      --

Kevin D. Griffo                           -0-                      --

John Kane                                 -0-                      --

Richard L. Stoun                          -0-                      --

Michael V. Dettmers                       -0-                      --

Francesco Galesi                          -0-                      --

All executive officers and Directors
as a group (8 persons)                    -0-                      --

----------

(1)       Holders of Series B  Preferred  Shares are  entitled  to ten votes for
          each Series B Preferred Share held.

(2)       AMNEX  believes  that Friedli AG or an affiliate  thereof may have the
          right  to vote  and  dispose  of,  or  otherwise  control,  all of the
          outstanding  Series B  Preferred  Shares.  Friedli AG does not own any
          Series B  Preferred  Shares of record  and AMNEX has been  advised  by
          Friedli AG that it disclaims  beneficial ownership of such shares.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series B Preferred Shares reflected above as being  beneficially owned
          by  Spring  and  Banca  Novara  are held by such  entities  either  as
          nominees for certain  overseas  banking  institutions  which, in turn,
          hold such  securities  as nominees  for the  benefit of others,  or as
          nominees for the benefit of others. See Item 13(a) hereof.

                                       52
<PAGE>

Series D Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series D Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series D Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland                 1,413,337(2)                 100%

Experta Treuhand AG
Posttach 970
Zurich, Switzerland                   365,000(3)                 25.8%

Logitech Corp. (4)                    343,334(3)                 24.3%

Barclays Bank (Schweiz) AG
Schutzengasse 21 
Zurich, Switzerland                   203,500(3)                 14.4%

Eagle Growth Ltd. (4)                 199,100(3)                 14.1%

Cofinvest 97 Ltd. (4)                 127,402(3)                  9.0%

Bordier & Cie (4)                     110,000(3)                  7.8%

Peter M. Izzo, Jr.                        -0-                      --

Kenneth G. Baritz                         -0-                      --

Kevin D. Griffo                           -0-                      --

John Kane                                 -0-                      --

Richard L. Stoun                          -0-                      --

Michael V. Dettmers                       -0-                      --

Francesco Galesi                          -0-                      --

All executive officers and Directors
as a group (8 persons)                    -0-                      --

----------

(1)       Holders of Series D  Preferred  Shares are  entitled  to six votes for
          each Series D Preferred Share held.

(2)       AMNEX  believes  that Friedli AG or an affiliate  thereof may have the
          right  to vote  and  dispose  of,  or  otherwise  control,  all of the
          outstanding  Series D  Preferred  Shares.  Friedli AG does not own any
          Series D  Preferred  Shares of record  and AMNEX has been  advised  by
          Friedli AG that it disclaims beneficial ownership of such shares.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series D Preferred Shares reflected above as being  beneficially owned
          by Experta  Treuhand AG,  Logitech Corp.  ("Logitech"),  Barclays Bank
          (Schweiz) AG, Eagle Growth Ltd.,  Cofinvest and Bordier & Cie are held
          by such  entities  either as  nominees  for certain  overseas  banking
          institutions  which, in turn, hold such securities as nominees for the
          benefit of others, or as nominees for the benefit of others.  See Item
          13(a) hereof.

(4)       Address  is c/o  Friedli  Corporate  Finance  AG,  Freigutstrausse  5,
          Zurich, Switzerland.


                                       53
<PAGE>
Series E Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series E Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series E Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)     Percentage of Class
    ----------------              --------------------      -------------------

Friedli Corporate Finance AG (2)
Freigutstrausse 5
Zurich, Switzerland                  1,035,000(2)                 100%

I.A.A.C. International
Automotive Advisors Corp.,
Panama(3)                              360,000(4)                 34.8%

Hans-Juergen Benze
100 Jericho Quad
Jericho, New York                      215,000                    20.8%

Finanzverwaltung Des Kantons Zurich
Vermogensverwaltung
Walcheplatz 1
Zurich, Switzerland                    200,000(4)                 19.3%

Infidar AG (3)                          75,000(4)                  7.2%

Experta Trustee Co., Ltd.(3)            60,000(4)                  5.8%

Stephan Wullinger
c/o Reich, a division of Fahnenstock
  and Company Inc.
780 Third Avenue
New York, New York                      55,000                     5.3%

Peter M. Izzo, Jr.                         -0-                     --

Kenneth G. Baritz                          -0-                     --

Kevin D. Griffo                            -0-                     --

John Kane                                  -0-                     --

Richard L. Stoun                           -0-                     --

Michael V. Dettmers                        -0-                     --

Francesco Galesi                           -0-                     --

All executive officers and Directors as  
a group (8 persons)                        -0-                     --
---------
(1)       Holders of Series E Preferred Shares are entitled to one vote for each
          Series E Preferred Share held.

(2)       AMNEX  believes  that Friedli AG or an affiliate  thereof may have the
          right  to vote  and  dispose  of,  or  otherwise  control,  all of the
          outstanding  Series E  Preferred  Shares.  Friedli AG does not own any
          Series E  Preferred  Shares of record  and AMNEX has been  advised  by
          Friedli AG that it disclaims beneficial ownership of such shares.

(3)       Address  is c/o  Friedli  Corporate  Finance  AG,  Freigutstrausse  5,
          Zurich, Switzerland.

(4)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series E Preferred Shares reflected above as being  beneficially owned
          by  I.A.A.C.   International   Automotive   Advisors  Corp.,   Panama,
          Finanzverwaltung  Des Kantons Zurich,  Infidar AG, and Experta Trustee
          Co.,  Ltd.  are held by such  entities  either as nominees for certain
          overseas banking  institutions which, in turn, hold such securities as
          nominees for the benefit of others,  or as nominees for the benefit of
          others. See Item 13(a) hereof.
                                       54
<PAGE>
Series F Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series F Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series F Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)   Percentage of Class
    ----------------              ------------------      -------------------

Spring Technology Corp.(2)           152,500(3)                   36.7%

Joyce Ltd.(2)                        150,000(3)                   36.1%

Logitech Corp. (2)                   105,250(3)                   25.3%

Peter M. Izzo, Jr.                       -0-                        --

Kenneth G. Baritz                        -0-                        --

Kevin D. Griffo                          -0-                        --

John Kane                                -0-                        --

Richard L. Stoun                         -0-                        --

Michael V. Dettmers                      -0-                        --

Francesco Galesi                         -0-                        --

All executive officers and Directors
as a group (8 persons)                   -0-                        --

----------

(1)       Holders of Series F Preferred Shares are entitled to one vote for each
          Series F Preferred Share held.

(2)       Address  is c/o  Friedli  Corporate  Finance  AG,  Freigutstrausse  5,
          Zurich, Switzerland.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series F Preferred Shares reflected above as being  beneficially owned
          by Spring,  Joyce  Ltd.  and  Logitech  are held by such  entities  as
          nominees for certain  overseas  banking  institutions  which, in turn,
          hold such  securities as nominees for the benefit of others.  See Item
          13(a) hereof.

                                       55
<PAGE>

Series G Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series G Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series G Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              --------------------       -------------------

Southbrook International 
  Investments Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
New York, New York                     27,500                     100%

Peter M. Izzo, Jr.                        -0-                      --

Kenneth G. Baritz                         -0-                      --

Kevin D. Griffo                           -0-                      --

John Kane                                 -0-                      --

Richard L. Stoun                          -0-                      --

Michael V. Dettmers                       -0-                      --

Francesco Galesi                          -0-                      --

All executive officers and
Directors as a
group (8 persons)                         -0-                      --

----------

(1)       Holders of Series G Preferred  Shares are  entitled  to  approximately
          5.69 votes for each Series G Preferred Share held.

Series L Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series L Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series L Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:



                                       56
<PAGE>

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Francesco Galesi
c/o Galesi Group
Rotterdam Industrial Park
Wescott Road, Building 6
Schenectady, New York                 200,000(2)                   100%

Peter M. Izzo, Jr.                        -0-                       --

Kenneth G. Baritz                         -0-                       --

Kevin D. Griffo                           -0-                       --

John Kane                                 -0-                       --

Richard L. Stoun                          -0-                       --

Michael V. Dettmers                       -0-                       --

All executive officers 
and Directors as
a group (8 persons)                   200,000(2)                   100%

----------

(1)       Holders of Series L Preferred Shares are entitled to 15 votes for each
          Series L Preferred Share held.

(2)       Includes  100,000  Series L  Preferred  Shares  issuable  pursuant  to
          currently exercisable warrants. See Item 13(a) hereof.

          (c) Changes in Control.

     Reference is made to Item 13 hereof.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          (a) Transactions with Management and Others.

                  Galesi



                                       57
<PAGE>

     Pursuant  to a Stock  Exchange  Agreement,  dated as of  January  7,  1997,
between AMNEX and Francesco  Galesi,  AMNEX  acquired from Mr. Galesi 10% of the
outstanding  capital stock of GTI, a  telecommunications  company  controlled by
him. Pursuant to the terms of the Stock Exchange  Agreement,  (i) Mr. Galesi was
issued  100,000  Series L  Preferred  Shares of AMNEX  which have the  following
rights and  preferences:  (a) the right to receive  dividends  on an equal basis
with the holders of AMNEX's Common Shares; (b) voting rights based on the number
of Common Shares into which the Series L Preferred Shares are  convertible;  (c)
the mandatory  conversion of the Series L Preferred  Shares into an aggregate of
1,500,000  Common  Shares  (the  "Conversion  Shares")  upon  the  filing  of  a
Certificate of Amendment to the Certificate of  Incorporation  of AMNEX pursuant
to which there shall be  authorized  a  sufficient  number of Common  Shares for
issuance upon the  conversion  of the Series L Preferred  Shares as well as upon
the exercise of all outstanding purchase,  exchange or conversion rights for the
acquisition  of Common  Shares;  and (d) a liquidation  preference,  on an equal
basis with the holders of the other series of Preferred  Shares, of an aggregate
of $4,545,000;  (ii) Mr. Galesi was issued a warrant for the purchase of 100,000
Series L Preferred Shares of AMNEX (the "Warrant  Preferred Shares") (or, if the
above  Certificate of Amendment is filed,  1,500,000 Common Shares (the "Warrant
Common  Shares"))  for an aggregate  exercise  price of  $4,545,000  (subject to
reduction  to  zero  in the  event,  during  any  continuous  six  month  period
commencing   with  January  1,  1997  and  ending  on  December  31,  1999,  the
consolidated  revenues from operations of GTI are at least  $12,500,000);  (iii)
Mr. Galesi was granted certain registration rights with regard to the Conversion
Shares and Warrant Common Shares (or, if the  Certificate of Amendment shall not
have theretofore been filed, the Series L Preferred Shares and Warrant Preferred
Shares); (iv) Mr. Izzo was elected a Director of GTI; (v) Mr. Galesi was elected
a Director of AMNEX;  (vi) Mr.  Galesi  agreed that he would  utilize GTI as his
sole  vehicle  with  regard to the conduct of  international  telecommunications
business;  (vii) Mr.  Galesi  agreed to a two year  lock-up  with  regard to any
securities  acquired  from AMNEX  pursuant  to the  transaction;  and (viii) Mr.
Galesi  granted  AMNEX certain "tag along" rights with regard to the sale of GTI
capital stock acquired.

                  Friedli

     Pursuant  to an  Agreement,  dated as of January  13,  1997,  among  AMNEX,
Friedli AG, Friedli Corporate Finance Inc. and Peter Friedli (collectively,  the
"Friedli Group") (the "Friedli Agreement"),  the Friedli Group has agreed to use
its best efforts to cause certain  securityholders  of AMNEX (the  "Holders") to
sell, under certain  circumstances  and upon certain terms as set forth therein,
up to 9,000,000 Common Shares of AMNEX (either through the sale of Common Shares
held by such  securityholders  or following the conversion into Common Shares of
certain  promissory  notes and Preferred Shares of AMNEX held by them) (see Item
12 hereof).

     Pursuant  to  the  Friedli  Agreement,  AMNEX  has  agreed,  under  certain
circumstances and subject to the conditions set forth therein,  that it will (i)
repurchase any convertible securities that were subject to the provisions of the
Friedli  Agreement,  at an effective as  converted  purchase  price of $3.50 per
share,  to the extent the underlying  Common Shares are not sold pursuant to the
Friedli Agreement; (ii) pay to the holders of the Preferred Shares of AMNEX that
are subject to the provisions of the Agreement a cash payment in lieu of accrued
dividends;  (iii) pay to Friedli AG, in  settlement of any and all claims of the
Friedli Group for consulting, advisory, investment banking or similar or related
fees and  expenses,  the sum of $375,000;  (iv) agree to offer to the holders of
AMNEX's Series F Preferred Shares the right to exchange such shares for an equal
number of Series K Preferred Shares of AMNEX,  the only difference  between such
series being that the Series K Preferred Shares would have a conversion price of
$3.50 per share in contrast  with the $5.00 per share  conversion  price for the
Series  F  Preferred  Shares;  and  (v)  agree  to  redeem  certain  outstanding
promissory  notes of AMNEX in the aggregate  principal amount of $1,400,000 that
are due in October 1999 and are payable to certain  clients of the Friedli Group
in connection with AMNEX's  acquisition of Crescent.  In addition,  pursuant and
subject to the terms of the Friedli  Agreement,  the parties  agreed to exchange
mutual  general  releases  under  certain  circumstances  (the AMNEX  release to
include,  among  others,  the  Holders).  The  Friedli  Agreement  is subject to
termination under certain circumstances.


                                       58
<PAGE>

                  National

     Effective  February 28, 1997, ANEI entered into a Renewal and  Modification
Agreement (the "Renewal Agreement") with National with regard to a certain Prime
COCOT Aggregator Agreement (the "Aggregator Agreement") and a certain Settlement
Agreement  previously  entered into between the parties.  AMNEX has been advised
that  Brian E. King  ("King"),  a  principal  shareholder  of AMNEX (see Item 12
hereof), is the President and sole shareholder of National.

     Pursuant to the  Aggregator  Agreement,  National,  which  owns,  leases or
otherwise   controls  private  payphones  (the  "National  Phones")  and  is  an
aggregator  of long  distance  and  operator-assisted  traffic  generated by the
National  Phones,  engaged  ANEI as the  principal  provider of direct dial long
distance  and  operator-assisted  services  (collectively,  "Services")  to  the
National  Phones.  Pursuant to the  Settlement  Agreement,  the parties  settled
certain claims made against each other with respect to the Aggregator Agreement.

     Pursuant to the Renewal Agreement, as amended, among other matters, (i) the
term of the Aggregator Agreement was extended through February 28, 2007, subject
to earlier termination under certain circumstances, (ii) ANEI was engaged as the
exclusive  provider of  Services  to the  National  Phones;  (iii) ANEI  assumed
National's  obligation to provide certain services and  administrative  support,
and pay commissions and other compensation,  to National's customers;  (iv) ANEI
was given the exclusive right to manage the business and operations of National;
(v) ANEI agreed to pay to  National a minimum  amount of  $2,250,000;  (vi) ANEI
agreed to pay to  National a reduced  monthly  payment  equal to the  greater of
$7,500 or .5% of Billed  Revenues (as defined in the Renewal  Agreement)  during
the initial three years of the Renewal Agreement term,  subject to adjustment at
the end of such period;  (vii) ANEI was granted a right of first refusal by King
with regard to business  opportunities  for the  reselling of long  distance and
operator-assisted  traffic  generated  by  private  pay  phones;  and (viii) the
parties settled all outstanding liabilities and obligations under the Settlement
Agreement.

     Contemporaneously with the execution of the Renewal Agreement,  the Company
purchased  certain furniture and equipment from National for a purchase price of
$160,000 and entered into a five-year lease with an entity  affiliated with King
that provides for a rental of $72,000 per year.



                                       59
<PAGE>

     The Company  believes  that the terms of the Renewal  Agreement and related
transactions  were no more  favorable  to National  and King than those that the
Company would have offered to other parties.

          (b) Certain Business Relationships.

     Reference  is made to Item 11(f)  hereof for a  discussion  of a consulting
arrangement between the Company and Mr. Dettmers.

          (c) Indebtedness of Management.

     In January 1997, the Company loaned $150,000 to Kevin D. Griffo,  President
of the Company's TelCom Division. The loan is repayable,  together with interest
at the rate of  5.77%  per  annum,  to the  extent  of  one-half  of any and all
bonuses, and all amounts due upon termination of employment, that are payable to
him, but, in any event, within five years from the date of the loan. As security
for the repayment of the loan,  Mr. Griffo has pledged to the Company all of his
right,  title  and  interest  in and  to the  25,000  restricted  Common  Shares
previously  granted to him (see Item 11(a) hereof) as well as any and all Common
Shares that may be issued to him upon his  exercise of options to purchase  such
shares.

          (d) Transactions with Promoters.

     Not applicable.

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

          (a) 1. Financial Statements

     The following consolidated financial statements of the Company are included
herein:

Independent Auditor's Report                                              F1

Consolidated Balance Sheets as of December 31, 1996 and 1995              F2

Consolidated Statements of Operations for the years ended                 F4
December 31, 1996, 1995 and 1994

Consolidated Statements of Shareholders' Equity for the years        F5 - F6
ended December 31, 1996, 1995 and 1994



                                       60
<PAGE>


Consolidated Statements of Cash Flows for the years ended            F7 - F9
December 31, 1996, 1995 and 1994

Notes to Consolidated Financial Statements                           F10 - F27

          2. Financial Statement Schedules

     Schedule II: Valuation and Qualifying Accounts

          3. Exhibits

Exhibit Number        Description of Exhibit

  2.1          Amended  and  Restated  Asset  Purchase  Agreement,  dated  as of
               October 4, 1995,  among Crescent,  CCI, AMNEX and Friedli AG (the
               "Crescent Asset Purchase Agreement")1

  2.2          Letter  agreement,  dated as of  October 4,  1995,  among  AMNEX,
               Crescent,  CCI and  Friedli AG  pursuant  to which,  among  other
               matters,  the Crescent Asset Purchase Agreement was declared null
               and void1

   2.3         Letter  agreement,  dated as of  October 4,  1995,  among  AMNEX,
               Crescent, the stockholders of CCI and Friedli AG, among others1

   2.4         Stock  Purchase  Agreement,  dated as of April  26,  1996,  among
               AMNEX, Robert A. Rowland, Delajane Rowland, Donald D. Simmons, C.
               Michael Moehle,  Barbara Ann Cromwell,  Ellen E. Wood,  Daniel N.
               Matheson,   Capital   Network  System,   Inc.,   Capital  Network
               International,  Inc.,  Capital Network Mexico,  S.A. de C.V., and
               Point to Point  Communications  Company (the "CNSI Stock Purchase
               Agreement")2

   2.5         First Amendment to the CNSI Stock Purchase Agreement, dated as of
               June 28, 1996, by and among the parties thereto as well as Sirrom
               Capital  Corporation and Spectrum Global  Telecommunications  Pty
               Limited2

     --------

     1Denotes document filed as an exhibit to AMNEX's Current Report on Form 8-K
for an event  dated  October  4,  1995,  as  amended  (File  No.  0-17158),  and
incorporated  herein by  reference.

     2Denotes document filed as an exhibit to AMNEX's Current Report on Form 8-K
for  an  event  dated  June  28,  1996,  as  amended  (File  No.  0-17158),  and
incorporated herein by reference.



                                       61
<PAGE>

   2.6    Asset  Purchase  Agreement,  dated as of August 31, 1996, by and among
          Teleplus, Inc. and AMNEX3

   2.7    Asset Purchase  Agreement,  dated as of November 8, 1996, among AMNEX,
          Crescent,  Coastal  Telecom,  BEK Tel,  Garden  State  and  King  (the
          "Coastal Asset Purchase Agreement")4

   2.8    Supplement and modification  letter, dated as of November 20, 1996, to
          the Coastal Asset Purchase Agreement among the parties thereto4

   2.9    Stock Purchase Agreement, dated as of September 30, 1996, by and among
          AMNEX, National Business Exchange, Inc., James E. Everingham and Daryl
          A. Frame

   3.1    Certificate  of Amendment of  Certificate  of  Incorporation  of AMNEX
          filed December 30, 1996

   3.2    Restated Certificate of Incorporation of AMNEX, as amended

   3.3    Amendment to By-Laws of AMNEX

   3.4    By-Laws of AMNEX, as amended

   4.1    Specimen of certificate evidencing Common Shares of AMNEX5

  10.1    Agreements of Lease between AMNEX and Hudson Telegraph Associates6

  10.2    Agreement  of  Sublease,   dated  as  of  December  7,  1993,  between
          International Paper Company and AMNEX6

--------

     3Denotes  documents filed as a exhibit to AMNEX's  Quarterly Report on Form
10-Q for the period ended September 30, 1996 (File No. 0-17158) and incorporated
herein by reference.

     4Denotes  documents  filed as an exhibit to AMNEX's  Current Report on Form
8-K for an event dated  November 20, 1996 (File No.  0-17158)  and  incorporated
herein by reference.

     5Denotes document filed as an exhibit to AMNEX's Registration  Statement on
Form S-4 (File No. 33-32693) and incorporated herein by reference.

     6Denotes document filed as an exhibit to AMNEX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No. 0-17158) and  incorporated
herein by reference.



                                       62
<PAGE>

  10.3    Lease,  dated August 24, 1990,  between Global Motor Inns, Inc., d/b/a
          Lucerne Plaza and ANEI7

  10.4    Agreement of Lease,  dated December 18, 1996, between We're Associates
          Company and Crescent

  10.5    1992 Stock Option Plan, as amended

  10.6    Amended and Restated 1996 Restricted Stock Grant Plan

  10.7    Employment  Agreement,  dated as of June 25, 1996,  between  AMNEX and
          Peter M. Izzo, Jr.8

  10.8    Employment  Agreement,  dated as of June 25, 1996,  between  AMNEX and
          Kenneth G. Baritz8

  10.9    Employment  Agreement,  dated as of June 25, 1996,  between  AMNEX and
          Kevin D. Griffo

  10.10   Employment  Agreement,  dated as of October 1, 1996, between AMNEX and
          John Kane

  10.11   Provision in Stock Option  Agreements  between AMNEX and each of Peter
          M. Izzo, Jr., Kenneth G. Baritz,  John Kane, Kevin D. Griffo,  Richard
          L. Stoun and Michael V. Dettmers8

  10.12   Security  Agreement,  dated as of October  4, 1995,  by and among Lyon
          Credit Corporation ("Lyon"), ANEI and Crescent

  10.13   Amendment to Security Agreement, dated as of December 28, 1995, by and
          among Lyon, ANEI and Crescent

  10.14   Second Amendment to Security Agreement, dated as of November 15, 1996,
          by and among Lyon, ANEI and Crescent

  10.15   Consolidated,  Renewed,  and  Restated  Promissory  Note,  dated as of
          November 15,  1996,  from  Crescent and ANEI to Lyon in the  principal
          amount of $7,000,000

--------

     7Denotes document filed as an exhibit to AMNEX's Registration  Statement on
Form S-1 (File No. 33-24141) and incorporated herein by reference.

     8Denotes  document filed as an exhibit to AMNEX's  Quarterly Report on Form
10-Q for the period  ended June 30,  1996 (File No.  0-17158)  and  incorporated
herein by reference.



                                       63
<PAGE>

  10.16   Master  Lease,  dated as of  October  10,  1995,  between  Southbridge
          Financial Corp ("Southbridge") and AHE

  10.17   Convertible Preferred Stock Purchase Agreement,  dated as of September
          19, 1996, between AMNEX and Southbrook3

  10.18   Loan and Security  Agreement,  dated December 18, 1996, by and between
          Crescent and Southbridge

  10.19   Stock Exchange  Agreement,  dated as of January 7, 1997, between AMNEX
          and Francesco Galesi

  10.20   Warrant, dated January 7, 1997, issued to Francesco Galesi

  10.21   Agreement,  dated as of January 13, 1997, by and among AMNEX,  Friedli
          AG, Friedli Corporate Finance Inc. and Peter Friedli

  10.22   Renewal and  Modification  Agreement,  dated as of February  28, 1997,
          between ANEI and National

  10.23   Letter Agreement, dated as of March 1, 1997, among AMNEX, National and
          King with regard to the Renewal and Modification Agreement

  11      Statement of Computation of Per Share Earnings

  21      Subsidiaries

  23      Consent of Ernst & Young LLP

  27      Financial Data Schedule

          (b) Reports on Form 8-K

     One  report on Form 8-K was filed by AMNEX  during the three  months  ended
December 31, 1996 as follows:

     Date of Report: November 20, 1996

     Items Reported: 2 and 7




                                       64
<PAGE>
                         Report of Independent Auditors

The Board of Directors and Shareholders AMNEX, INC.

We have audited the accompanying consolidated balance sheets of AMNEX, INC. and
Subsidiaries  as of  December  31, 1996 and 1995,  and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended  December 31, 1996.  Our audit also included the
financial  statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of AMNEX,
INC.  and  Subsidiaries  at  December  31, 1996 and 1995,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1996 in  conformity  with  generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule when considered in relation to the basic financial  statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.



                                                            ERNST & YOUNG LLP

New York, New York
April 4, 1997


                                       F-1


<PAGE>
<TABLE>
                                   AMNEX, INC.
<CAPTION>
                           Consolidated Balance Sheets
                        (In thousands, except share data)

                                                                                         December 31
                                                                             ------------------------------------
<S>                                                                                 <C>               <C> 
                                                                                    1996              1995
                                                                             ------------------------------------
Assets
                                                                             
Current assets:
                                                                             
   Cash                                                                              4,947         $      94
                                                                             ------------------------------------
   Trade receivables, less allowance for doubtful accounts of $2,757 in
     1996 and $2,954 in 1995                                                        19,311            17,080
                                                                             ------------------------------------
   Parts inventory                                                                     739               289
                                                                             ------------------------------------
   Deferred income taxes                                                             1,791               121
                                                                             ------------------------------------
   Note receivable                                                                       --            1,291
                                                                             ------------------------------------
   Customer advances                                                                 2,414             3,940
                                                                             ------------------------------------
   Deposits and other current assets                                                   861               602
                                                                             ------------------------------------
     Total current assets                                                           30,063            23,417
                                                                             

                                                                             
     Property and equipment, net                                                    23,851            11,595
                                                                             ------------------------------------
     Deposits and other                                                              1,543             3,952
                                                                             ------------------------------------
     Intangible assets, net                                                          5,947             1,361
                                                                             ------------------------------------
     Goodwill, net                                                                  29,955             9,255
                                                                             ------------------------------------



Total assets                                                                      $ 91,359          $ 49,580
                                                                             ====================================


                                                    F-2
</TABLE>


<PAGE>
<TABLE>
                                                                                        December 31
                                                                                   1996              1995
                                                                            -------------------------------------
Liabilities and shareholders' equity
Current liabilities:
<S>                                                                         <C>                     <C>    
   Short-term debt                                                          $      11,498           $11,865
                                                                            -------------------------------------
   Accounts payable                                                                 3,651             4,266
                                                                            -------------------------------------
   Accrued expenses                                                                 7,733             1,488
                                                                            -------------------------------------
   Accrued network expenses                                                         1,975               904
                                                                            -------------------------------------
   Accrued commissions                                                              3,169             2,062
                                                                            -------------------------------------
   Accrued taxes payable                                                            1,406               808
                                                                            -------------------------------------
   Due to related party                                                             1,198                 --
                                                                            -------------------------------------
   Current portion of capital lease obligations                                     2,179               756
                                                                            -------------------------------------
   Current portion of long-term debt                                                2,248               737
                                                                            -------------------------------------
Total current liabilities                                                          35,057            22,886
                                                                            
Capital lease obligations                                                           2,668             2,170
                                                                            -------------------------------------
Long-term debt                                                                     13,530             4,132
                                                                            -------------------------------------
Minority interest                                                                      10                 --
                                                                            -------------------------------------
Compensation payable                                                                  894                _-
                                                                            -------------------------------------
Obligations under non-compete agreement                                             2,630                 -
                                                                            -------------------------------------
Common stock subject to redemption                                                  3,250                 -
                                                                            
Commitments and contingencies
                                                                            
Shareholders' equity:
   Voting Preferred Stock, $.001 par; authorized 5,000,000 shares:
     Series B Preferred Stock, authorized 356,000 shares, issued and outstanding
       72,450 shares in 1996 and 1995 (liquidation
       preference $362)                                                               362               362
                                                                            -------------------------------------
     Series  D  Preferred  Stock,   authorized  1,413,337  shares,   issued  and
       outstanding 1,413,337 shares in 1996 and 1995 (liquidation
       preference $3,533)                                                           3,533             3,533
                                                                            -------------------------------------
     Series  E  Preferred  Stock,   authorized  1,085,000  shares,   issued  and
       outstanding 1,035,000 shares in 1996 and 1,085,000 shares in 1995
       (liquidation preference $2,911 in 1996 and $3,052 in 1995)                   2,911             3,052
                                                                            -------------------------------------
     Series F Preferred Stock, authorized 415,250 shares, issued and outstanding
       415,250 shares in 1996 and 1995 (liquidation
       preference $2,076)                                                           2,076             2,076
                                                                            -------------------------------------
     Series G Preferred Stock, authorized 145,000 shares, issued and
       outstanding 78,750 shares in 1996 (liquidation preference $1,575)            1,179                --
                                                                            -------------------------------------
   Common stock, $.001 par; authorized 40,000,000, issued 26,897,892 in
     1996 and 19,484,030 shares in 1995                                                27                19
                                                                            -------------------------------------
   Capital in excess of par value                                                  56,093            39,963
                                                                            -------------------------------------
   Accumulated deficit                                                            (32,385)          (28,137)
                                                                            -------------------------------------
                                                                                   33,796            20,868
                                                                            -------------------------------------
Less 18,250 common shares held in treasury, at cost                                  (476)             (476)
                                                                            -------------------------------------
Total shareholders' equity                                                         33,320            20,392
                                                                            -------------------------------------
Total liabilities and shareholders' equity                                              $      91,359     $49,580
                                                                            =====================================
</TABLE>
                                      F-3
See accompanying notes.

<PAGE>
<TABLE>
                                               AMNEX, INC.

<CAPTION>
                                  Consolidated Statements of Operations
                                    (In thousands, except share data)

                                                                             Year ended December 31
                                                         
                                                                   1996                  1995                  1994
                                                         --------------------------------------------------------------------

                                                         
<S>                                                            <C>                   <C>                   <C>       
Revenues                                                       $   117,142           $  105,890            $  108,737
                                                         --------------------------------------------------------------------

                                                         
Costs and expenses:
                                                         
   Cost of sales                                                    93,863               86,766                90,831
                                                         --------------------------------------------------------------------
   Selling, general and administrative                              16,473               12,145                12,635
                                                         --------------------------------------------------------------------
   Depreciation and amortization                                     6,054                3,175                 2,252
                                                         --------------------------------------------------------------------
   Impairment of long-lived assets                                   3,716                   --                    --
                                                         --------------------------------------------------------------------
   Interest expense                                                  2,730                2,044                 1,793
                                                         --------------------------------------------------------------------
                                                                   122,836              104,130               107,511
                                                         --------------------------------------------------------------------

                                                         
Income (loss) before income taxes and
   minority interest                                                (5,694)               1,760                 1,226
                                                         --------------------------------------------------------------------
Minority interest                                                        1                   --                    --
                                                         --------------------------------------------------------------------
Income (loss) before income taxes                                   (5,693)               1,760                 1,226
                                                         --------------------------------------------------------------------
Provision (benefit) for income taxes                                (1,445)                 329                   685
                                                         --------------------------------------------------------------------
Net income (loss)                                              $    (4,248)          $    1,431            $      541
                                                         ====================================================================

                                                         
Deemed dividend on Series G Preferred                                  400                   --                    --
   Stock
                                                         
   Preferred share dividends                                           616                  543                   291
                                                         --------------------------------------------------------------------
Net income (loss) available for common                         $    (5,264)          $      888            $      250
   shares                                                ====================================================================

                                                         
   Net income (loss) per common share                          $     (0.23)          $     0.05            $     0.02
                                                         ====================================================================

Weighted average number of shares
   outstanding used in computing net income
   (loss) per common share                                       23,274,219          19,416,497            13,522,815

</TABLE>

See accompanying notes.
                                      F-4

<PAGE>
<TABLE>
                                   AMNEX, INC.
                 Consolidated Statements of Shareholders' Equity
<CAPTION>
                     Years ended December 31, 1996, 1995 and
                        1994 (In thousands, except share data)

                                              Common Stock          Preferred      Preferred    Preferred    Preferred    Preferred
                                            $.001 Par Value           Stock          Stock        Stock        Stock        Stock
                                    ------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>          <C>           <C>          <C>          <C>          <C>
                                          Shares        Amount        Series B      Series C     Series D     Series E     Series F
                                    ------------------------------------------------------------------------------------------------

Balance, December 31, 1993              10,186,523       $10.0        $1,666
 Issuance of common shares                 150,000
   Issuance of preferred share              60,099
     dividend
      Issuance of common shares            100,000
      Exercise of stock options             28,833
      Sale of preferred shares                                                      $3,000
   Issuance of preferred share
     dividend
      Exchange of preferred shares                                                  (3,000)      $3,000
      Conversion of debentures           5,629,222         6.0
      Conversion of preferred shares     2,000,000         2.0        (1,000)
      Conversion of debentures                                                                      533
      Shares issuable to customer
                                    ------------------------------------------------------------------------------------------------
      Net income
                                    ------------------------------------------------------------------------------------------------
     Balance, December 31, 1994         18,154,677        18.0           666                      3,533
                                    ------------------------------------------------------------------------------------------------
      Issuance of common shares            125,000
                                    ------------------------------------------------------------------------------------------------
      Issuance of common shares            100,000
                                    ------------------------------------------------------------------------------------------------
      Exercise of stock options            471,853
                                    ------------------------------------------------------------------------------------------------
      Conversion of preferred shares       607,500         1.0          (304)
                                    ------------------------------------------------------------------------------------------------
      Sale of preferred shares                                                                                $3,052
                                    ------------------------------------------------------------------------------------------------
      Exercise of warrants                  25,000
                                    ------------------------------------------------------------------------------------------------
   Issuance of preferred share
     dividend
                                    ------------------------------------------------------------------------------------------------
   Issuance of preferred shares for
     acquisition                                                                                                           $2,076
                                    ------------------------------------------------------------------------------------------------
 Net income
                                    ------------------------------------------------------------------------------------------------
Balance, December 31, 1995              19,484,030        19.0           362                      3,533        3,052        2,076
                                    ------------------------------------------------------------------------------------------------
   Issuance of common shares and
     warrants for acquisitions           6,993,926         7.5
                                    ------------------------------------------------------------------------------------------------
   Issuance of common shares                75,000         0.1
                                    ------------------------------------------------------------------------------------------------
   Exercise of stock options                54,485         0.1
                                    ------------------------------------------------------------------------------------------------
   Conversion of preferred shares           50,000         0.1                                                  (141)
                                    ------------------------------------------------------------------------------------------------
   Conversion of debt                       44,643
                                    ------------------------------------------------------------------------------------------------
   Issuance of preferred stock
                                    ------------------------------------------------------------------------------------------------
   Conversion of preferred shares          195,808         0.2
                                    ------------------------------------------------------------------------------------------------
   Net loss
                                    ------------------------------------------------------------------------------------------------
     Balance, December 31, 1996         26,897,892       $27.0          $362        $ -          $3,533       $2,911$      $2,076
                                    ================================================================================================
</TABLE>
                                      F-5
<PAGE>
<TABLE>
                                   AMNEX, INC.

           Consolidated Statements of Shareholders' Equity (continued)
<CAPTION>
                     Years ended December 31, 1996, 1995 and
                     1994 (In thousands, except share data)

                                        Preferred       Capital in       Common                                         Total
                                          Stock         Excess of         Stock       Accumulated      Treasury      Shareholders
<S>                                     <C>             <C>             <C>             <C>              <C>            <C>
                                        Series G        Par Value       Issuable        Deficit          Stock          Equity
                                    -----------------------------------------------------------------------------------------------
Balance, December 31, 1993                               $ 34,723        $   544       $ (29,990)       $(476)         $  6,477
                                    -----------------------------------------------------------------------------------------------
 Issuance of common shares                                    507                                                           507
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred share                                225           (225)
     dividend
      Issuance of common shares                               319           (319)
      Exercise of stock options                                43                                                            43
      Sale of preferred shares                               (344)                                                        2,656
   Issuance of preferred share                                                               (75)                           (75)
     dividend
      Exchange of preferred shares
      Conversion of debentures                              1,807                                                         1,813
      Conversion of preferred shares                          998
      Conversion of debentures                                                                                              533
      Shares issuable to customer                                            375                                            375
                                    -----------------------------------------------------------------------------------------------
      Net income                                                                             541                            541
                                    -----------------------------------------------------------------------------------------------
     Balance, December 31, 1994                            38,278            375         (29,524)        (476)           12,870
                                    -----------------------------------------------------------------------------------------------
      Issuance of common shares                               375           (375)
                                    -----------------------------------------------------------------------------------------------
      Issuance of common shares                               419                                                           419
                                    -----------------------------------------------------------------------------------------------
      Exercise of stock options                               978                                                           978
                                    -----------------------------------------------------------------------------------------------
      Conversion of preferred shares                          303
                                    -----------------------------------------------------------------------------------------------
      Sale of preferred shares                               (428)                                                        2,624
                                    -----------------------------------------------------------------------------------------------
      Exercise of warrants                                     38                                                            38
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred share                                                               (44)                           (44)
     dividend
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred shares for
     acquisition                                                                                                          2,076
                                    -----------------------------------------------------------------------------------------------
 Net income                                                                                1,431                          1,431
                                    -----------------------------------------------------------------------------------------------
Balance, December 31, 1995                                 39,963                        (28,137)        (476)           20,392
                                    -----------------------------------------------------------------------------------------------
   Issuance of common shares and
     warrants for acquisitions                             14,650                                                        14,658
                                    -----------------------------------------------------------------------------------------------
 Issuance of common shares                                    225                                                           225
                                    -----------------------------------------------------------------------------------------------
 Exercise of stock options                                    137                                                           137
                                    -----------------------------------------------------------------------------------------------
 Conversion of preferred shares                               141
                                    -----------------------------------------------------------------------------------------------
 Conversion of debt                                           156                                                           156
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred stock           $1,604               396                                                         2,000
                                    -----------------------------------------------------------------------------------------------
      Conversion of preferred shares       (425)              425
                                    -----------------------------------------------------------------------------------------------
      Net loss                                                                            (4,248)                        (4,248)
                                    -----------------------------------------------------------------------------------------------
     Balance, December 31, 1996          $1,179           $56,093        $ -            $(32,385)       $(476)          $33,320
                                    ===============================================================================================
</TABLE>

See accompanying notes.
                                                       F-6
<PAGE>
<TABLE>
                                   AMNEX, INC.

                      Consolidated Statements of Cash Flows
<CAPTION>
                Years Ended December 31, 1996, 1995 and 1994 (In
                          thousands, except share data)
                                                                      1996                1995               1994
                                                               ----------------------------------------------------------
Cash flows from operating activities
<S>                                                                 <C>                <C>                <C>      
Net income (loss)                                                   $  (4,248)         $   1,431          $   541
Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
     Depreciation and amortization                                      6,054              3,175            2,252
     Compensation expense                                                  50                 --               --
     Provision for losses on receivables                               (1,539)              (259)           1,656
     Deferred income taxes                                             (1,670)              179               (97)
     Gain on sale of assets                                            (1,675)                 -                -
     Impairment of long-lived assets                                    3,716                 --               --
     Changes in assets and liabilities:
       Trade receivables                                                8,726             4,019            (9,270)
       Parts inventory                                                   (109)                9                --
       Note receivable                                                  1,291             (1,291)              --
       Customer advances, deposits and other current assets             1,587             (3,048)            (595)
       Deposits and other assets                                          379               (737)            (100)
       Accounts payable and accrued expenses                           (6,570)            (1,817)           3,162
                                                               ----------------------------------------------------------
         Net cash provided by (used in) operating activities            5,992             1,661            (2,451)
                                                               ----------------------------------------------------------
                                                               
         Cash flows from investing activities
                                                               
         Purchase of businesses, net of cash acquired                  (4,365)           (1,996)               --
                                                               ----------------------------------------------------------
         Purchase of contracts                                           (759)             (923)               --
                                                               ----------------------------------------------------------
         Proceeds on sale of assets                                     2,542                --                --
                                                               ----------------------------------------------------------
         Expenditures for property and equipment                       (2,770)           (1,743)           (3,644)
                                                               ----------------------------------------------------------
         Net cash used in investing activities                         (5,352)           (4,662)           (3,644)
                                                               ----------------------------------------------------------
                                                               
         Cash flows from financing activities
                                                               
         Proceeds from sale of Preferred Shares                         2,000             2,624             2,656
                                                               ----------------------------------------------------------
         Payments on related party debt                                  (146)               --                --
                                                               ----------------------------------------------------------
         Proceeds from the exercise of warrants                            --                38                --
                                                               ----------------------------------------------------------
         Proceeds from issuance of convertible notes and debentures        --               325                --
                                                               ----------------------------------------------------------
         Proceeds from the sale of common stock                           362               978                43
                                                               ----------------------------------------------------------
         Borrowings (repayments) under revolving credit, net           (5,543)           (3,655)            5,234
                                                               ----------------------------------------------------------
         Payments on long-term debt                                    (3,018)             (217)             (524)
                                                               --------------------------------------------------------
         Proceeds from long-term debt                                  12,000             2,757                --
                                                               ----------------------------------------------------------
         Principal payments under capital lease obligations            (1,442)             (304)             (693)
                                                               ----------------------------------------------------------
         Dividends paid                                                    --               (44)              (75)
                                                               ----------------------------------------------------------
         Net cash provided by financing activities                      4,213             2,502             6,641
                                                               ----------------------------------------------------------
                                                               
         Net increase (decrease) in cash                                4,853              (499)              546
                                                               ----------------------------------------------------------
         Cash at beginning of year                                         94               593                47
                                                               ----------------------------------------------------------
         Cash at end of year                                           $4,947          $     94           $   593
                                                               ==========================================================
See accompanying notes.
</TABLE>
                                      F-7
<PAGE>

                                   AMNEX, INC.

                Consolidated Statements of Cash Flows (continued)



Supplemental disclosure of cash flow information:
(In thousands, except share data)

Year ended December 31, 1996

1.   The  holder of an  aggregate  of 50,000  shares of the  Company's  Series E
     Preferred  Stock  elected to convert such shares into 50,000  shares of the
     Company's  Common Stock. 
2.   The Company issued 6,993,926 Common Shares and warrants to purchase 400,000
     Common Shares upon acquisitions.
3.   The Company issued 44,643 Common Shares  pursuant to the conversion of $150
     of debt plus accrued interest thereon.
4.   The Company  issued  195,808  Common Shares  pursuant to the  conversion of
     21,250 Series G Preferred Shares.
5.   Interest of approximately $2,646 was paid.
6.   Income taxes of approximately $465 were paid.
7.   Capital lease  obligations  incurred to acquire property and equipment were
     approximately $1,978.

Year ended December 31, 1995

1.   The Company  issued  607,500  Common Shares  pursuant to the  conversion of
     60,750 Series B Preferred Shares.

2.   The  Company  issued   415,250   Series  F  Preferred   Shares  as  partial
     consideration for the acquisition of CCI.

3.   Convertible   Promissory   Notes  for   $1,550   were   issued  as  partial
     consideration for the acquisition of CCI.

4.   The  Company  issued  225,000  Common  Shares  under  equity  participation
     agreements  of which  125,000  Common  Shares were issuable at December 31,
     1994.

5.   Interest of $2,076 was paid.

6.   Income taxes of approximately $302 were paid.

7.   Capital lease  obligations  incurred to acquire property and equipment were
     $2,334.

                                      F-8


<PAGE>


                                   AMNEX, INC.

                Consolidated Statements of Cash Flows (continued)



Year ended December 31, 1994
(In thousands, except share data)

1.   $700 of principal of the Company's  debentures  was converted  into 280,000
     Common Shares.

2.   The Company issued  2,000,000  Common Shares  pursuant to the conversion of
     200,000 Series B Preferred Shares.

3.   $900 of principal and $166 of interest of notes payable were converted into
     5,330,555 Common Shares.

4.   $700 of principal and $47 of interest of notes payable were  converted into
     298,667 Common Shares.

5.   $500 of principal and $33 of interest of notes payable were  converted into
     213,314 Series D Preferred Shares.

6.   125,000 Common Shares were issuable under equity participation agreements.

7.   Interest of approximately $1,836 was paid.

8.   Income taxes of approximately $0 were paid.

9.   Capital lease  obligations  incurred to acquire property and equipment were
     $732.



See accompanying notes.


                                      F-9


<PAGE>


                                   AMNEX, INC.

                   Notes To Consolidated Financial Statements
                  Years ended December 31, 1996, 1995 and 1994
                        (In Thousands, except share data)



1.   Summary of Significant Accounting Policies

Organization and Business

AMNEX, INC., through its wholly-owned  subsidiaries,  American Network Exchange,
Inc. (ANEI), American Hotel Exchange, Inc. (AHE), Crescent Public Communications
Inc.  (Crescent)  including the operations of Coastal,  Capital Network Systems,
Inc. (CNSI), and Hospital TeleServices, Inc., and its majority-owned subsidiary,
National Billing Exchange, Inc. (NBE),  (collectively,  the Company), provides a
variety of telecommunications  services including  operator-assisted  (0+), long
distance (1+) and local pay phone services,  primarily in the northeastern  part
of the U.S.  and in  Mexico.  ANEI and CNSI are  subject  to  regulation  by the
Federal  Communications  Commission  (FCC) and the various State Public  Utility
Commissions (PUCS) for a majority of the services it provides.

Basis of Presentation

The consolidated  financial  statements include the accounts of the Company, its
wholly-owned  subsidiaries and its majority-owned  subsidiary.  All intercompany
balances and transactions have been eliminated.

Revenue Recognition

The Company records revenues as calls are placed. It submits billing information
related to operator assisted calls to its billing and collection agents which in
turn submit the records to the telephone  companies with which they have billing
arrangements.

Parts Inventory

Inventory, which consists primarily of pay phone equipment replacement parts, is
stated at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment are stated at cost.  Depreciation  and  amortization  are
provided for using the  straight-line  method.  Leased  equipment  and leasehold
improvements  are  amortized  over the  shorter  of the life of the lease or the
service lives of the equipment and improvements.

Estimated  useful lives are as follows:  equipment,  furniture  and  fixtures--5
years,   installed  telephone  and  related   equipment--10   years,   leasehold
improvements--5 years, and leased equipment--5 or 7 years.


                                      F-10


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


1.   Summary of Significant Accounting Policies (continued)

Intangibles and Goodwill

In connection  with the  acquisitions  of pay telephone  businesses  and through
various   other   agreements   entered  into,   certain   contracts  to  provide
telecommunications  services to pay phones,  covenants not to compete and dealer
agreements  were  obtained.  The contracts and the covenants are amortized  over
their estimated remaining lives.  Accumulated  amortization at December 31, 1996
and 1995 was approximately $907 and $117, respectively.

Goodwill  represents the excess of the purchase price over the fair value of net
assets  acquired and is being  amortized on a straight line basis over 15 years.
Amortization expense for 1996, 1995 and 1994 was approximately  $1,500, $758 and
$720,  respectively.  Accumulated amortization at December 31, 1996 and 1995 was
approximately $5,700 and $4,200, respectively.

Impairment Loss on Long-Lived Assets

In accordance  with FASB  Statement No. 121,  "Accounting  for the Impairment of
Long- Lived Assets and Assets to be Disposed of", the Company records impairment
losses on  long-lived  assets used in operations  when events and  circumstances
indicate  that the assets  might be  impaired  and the  undiscounted  cash flows
estimated to be  generated by those assets are less than the carrying  amount of
those assets.

In connection with the enactment of the Telecommunications Act of 1996 and other
regulatory actions,  the Company evaluated the ongoing value of certain existing
contracts  and  agreements  to provide  telecommunications  services,  and other
investments.  Based on this  evaluation,  the Company  determined  that  certain
assets,  substantially  related  to rights  acquired  to provide  long  distance
services to certain pay phones,  with a carrying  amount if $3,176 were impaired
and, accordingly, were written off in the fourth quarter of 1996. Fair value was
based on estimated  future cash flows to be  generated,  discounted  at a market
rate of interest.

Fair Value of Financial Instruments

The  Company's  management  believes  the  carrying  amounts  of cash  and  cash
equivalents,  accounts  receivable and short-term and long-term debt approximate
their fair values.

Concentration of Credit Risk

Financial  instruments which potentially subject the Company to concentration of
credit risk are primarily cash and accounts  receivable.  The Company places its
cash in accounts with several major  financial  institutions.  Concentration  of
credit risk with respect to accounts receivable are generally diversified due to
a large number of customers comprising the Company's

                                      F-11


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

customer base. Accordingly,  the Company believes that their accounts receivable
credit risk exposure is limited and appropriately provided for.

Stock Options

The  Company  accounts  for  its  stock  compensation   arrangements  under  the
provisions of APB 25,  "Accounting for Stock Issued to Employees".  However,  as
more fully  described in Note 10, pro forma  information  as required under FASB
Statement  No.  123,  "Accounting  for  Stock  Based  Compensation",   has  been
determined as if the Company had accounted for its employee  stock options under
the fair value method of that Statement.

Net Income (Loss) per Common Share

Net income  (loss) per Common  Share is  computed  on the basis of the  weighted
average number of Common Shares outstanding, including Common Share equivalents.
In connection with the Company's sale of Series G Preferred Shares, in 1996, the
Company has  recorded a deemed  preferred  dividend  as a reduction  in earnings
available to common  shareholders  (see Note 9). The effect of the conversion of
Preferred Shares and conversion of notes on the calculation of net income (loss)
per share is  anti-dilutive  and therefore  excluded from the computation of net
income (loss) per share.

Statements of Cash Flows

For  purposes  of the  Statements  of Cash  Flows,  the  Company  considers  all
short-term  investments  with a maturity of three  months or less at the date of
purchase to be cash equivalents.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Prior Year Amounts

Certain  prior year amounts were  reclassified  to conform with the current year
presentation.


                                      F-12

<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

2. Acquisitions

Effective October 4, 1995, Crescent purchased 100% of the issued and outstanding
common stock of CCI, a company which owned,  operated and maintained pay phones,
for total consideration of $5,884, as follows:  (i) a 10% promissory note in the
amount of $1,550 (the "Note") with interest  payable  semi-annually,  commencing
December  31,  1995,  and  the  balance  due on  October  4,  1999  (subject  to
acceleration  in the event of a change in control of the Company,  as defined in
the Note);  (ii) 415,250  Series F Preferred  Shares of the  Company;  and (iii)
$2,258  in cash.  The  purchase  price  exceeded  the fair  value of the  assets
acquired by approximately $2,295, which was recorded as goodwill.

Effective June 30, 1996, the Company  acquired 100% of the common stock of CNSI,
a  telecommunications  company  engaged in the  business of providing 0+ calling
services primarily in Mexico. The purchase price aggregated  $18,034,  including
cash of $1,094, 4,099,086 shares of unregistered common stock valued at $10,401,
and warrants  valued at $380, and  liabilities  assumed of $6,159.  The purchase
price exceeded the book value of net assets acquired by $20,439,  which has been
recorded as goodwill.

Effective  September 30, 1996,  the Company  acquired 80% of the common stock of
NBE, a  provider  of  billing  and  collection  services  to  telecommunications
companies,  for 550,725  shares of  unregistered  Common Stock having a value of
$1,330.  The purchase  price exceeded net assets  acquired by $1,641,  which has
been recorded as goodwill.

Effective November 20, 1996, pursuant to an Asset Purchase Agreement with, among
others,  Coastal Telecom Payphone Company, Inc.  (collectively  "Coastal"),  the
Company acquired, among other assets, approximately 4,300 pay telephones located
primarily in New Jersey.  The Asset Purchase Agreement provides for an aggregate
consideration  of  $10,410,  including  cash of $3,010 and  2,098,373  shares of
unregistered  common stock valued at $5,200, and liabilities  assumed of $2,200.
The total purchase price was allocated to net assets acquired.  The Company also
granted certain piggyback  registration  rights for the shares issued as well as
certain  rights to require  that the Company  repurchase  up to $3,250 in market
value of the  shares  in the  event  the  Company  does not file a  registration
statement  within a certain  period of time.  Such  amount has been  recorded as
common stock subject to redemption.

The  aforementioned   acquisitions  have  been  included  in  the  Statement  of
Operations from their  respective dates of acquisition.  The  acquisitions  were
accounted for under the purchase method.

The pro forma  unaudited  results  of  operations  for the twelve  months  ended
December 31, 1996, 1995 and 1994 assuming the consummation of the aforementioned
1996  acquisitions as of the beginning of 1996 and 1995 and the 1995 acquisition
as of the beginning of 1994 are as follows:


                                      F-13

<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

2.   Acquisitions (continued)
                                                 
                                          1996        1995       1994
                                        --------------------------------

Revenues                                $151,245    $148,592   $113,373
Net income (loss)                         (5,433)       (561)       657
Net income (loss) per common share       $(0.23)      $(0.03)     $0.03


During 1996, the Company  acquired other unrelated pay telephones in a series of
acquisitions and issued 245,742 of its unregistered Common Stock valued at $597.
The  effect of these  acquisitions  was not  deemed  material  to the  unaudited
proforma results of operations presented above.

In addition to the acquisitions  above, on August 31, 1996, Teleplus assigned to
the  Company  its  Dealer   Agreement   with  CNSI  in  exchange  for  cash  and
unregistered, issuable common stock aggregating $4,130, including cash of $1,500
and 1,052,336 shares valued at $2,630. The unregistered common stock is issuable
to  Teleplus  as  follows:  526,168  issuable  on January  30,  1997 and 526,168
issuable on January 30,  1998.  The total  purchase  price has been  included in
intangibles  and  recorded  as  an  obligation  under   non-compete   agreement,
representing  the sellers  obligation  to the  Company  prior to issuance of the
common shares.

3. Note Receivable and Customer Advances

The Company has advances due from  customers  for amounts  advanced to customers
for usage of the Company's  services prior to delivery of service.  The advances
are recouped as deductions from commissions  otherwise payable to customers over
the life of the applicable customer agreement.

Included in "Deposits  and other  assets" at December 31, 1995 are the long-term
portion of advances to customers of approximately $492.

4. Property and Equipment, Net

Property and equipment, at cost, consists of the following at December 31:

                                               1996                1995
                                             ----------------------------------
Equipment, furniture and fixtures              $10,341          $    9,684
                                             ----------------------------------
Installed telephone and related equipment       18,704               3,414
                                             ----------------------------------
Leasehold improvements                             933                 750
                                             ----------------------------------
Leased equipment                                 6,354               7,049
                                             ----------------------------------
                                                36,332              20,897
                                             ----------------------------------
Accumulated depreciation and amortization       12,481               9,302
                                             ----------------------------------
Property and equipment, net                    $23,851          $   11,595
                                             ==================================


                                      F-14


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

5. Short-Term Debt

Short-term debt consists of the following at December 31:

                                          ==================================
                                             1996                1995
                                          ----------------------------------

                                          ----------------------------------
Asset based lending agreements (a)          $10,898            $11,365
                                          ----------------------------------
10% Notes payable (b)                           500                500
                                          ----------------------------------
11% Note payable (c)                            100                 --
                                          ----------------------------------
                                            $11,498            $11,865
                                          ==================================

(a)  The  Company  has  credit  facilities  in the form of asset  based  lending
     agreements  with its  billing  and  collection  agents,  which  provide for
     advances up to $27,600 (with recourse) based upon eligible operator service
     and  direct  dial  receivables.  Interest  is at prime  (8.25%  and 8.5% at
     December 31, 1996 and 1995, respectively) plus 2%. The agreements expire in
     February 2000.

(b)  During 1992 and 1993,  the Company  borrowed  $1,500 from certain  overseas
     investors.  The notes  payable are due on demand,  bear interest at 10% per
     annum and are convertible  including accrued  interest,  at $.20 per share.
     The Company may repay the loans, subject to the payment of a 10% premium of
     the  principal  amount  repaid and  subject to the right of the  holders to
     exercise their  conversion  right. In May 1993, an aggregate of $100 of the
     loan was converted into 500,000 shares of Common Stock.  In September 1994,
     $900 principal  amount and $166 of accrued  interest  thereon was converted
     into 5,330,555 Common Shares.  These notes are collateralized by all of the
     outstanding shares of ANEI.

(c)  In connection  with the  acquisition of CNSI,  the Company  assumed a note.
     Interest at 11% is payable  monthly.  The  outstanding  principal  balance,
     together with any unpaid or accrued interest is due January 1997.

Substantially all of the Company's assets serve as collateral under the terms of
the short and long-term debt agreements and capital lease obligations.


                                      F-15

<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

6. Long-Term Debt

<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31:

                                                                         =======================================
<S>                                                                              <C>                <C> 
                                                                                 1996               1995
                                                                         ---------------------------------------
10.52% Secured Promissory Note, with interest and
   principal payments of $151 payable in 60 monthly
   installments commencing January 1, 1997 (b)                               $    6,910          $       --
                                                                         ---------------------------------------
11.91% Secured Promissory Note, with interest and
   principal payments of $111 in 60 monthly installments
   commencing February 1, 1997                                                    5,000                  --
                                                                         ---------------------------------------
10% Convertible Promissory Notes, due October 1999
   with interest payable semi-annually on June 30 and
   December 31, convertible at $3.50 per common share                             1,400               1,550
   (a)
                                                                         ---------------------------------------
12.5% Secured Promissory Note, with interest only
   payable monthly; principal due November 30, 1998                               1,000                  --
                                                                         ---------------------------------------
12.5% Secured Promissory Note, with interest only
   payable monthly; principal due January 31, 1999                                1,000                  --
                                                                         ---------------------------------------
8% Convertible Promissory Note, due May 1997 with interest payable 
   semi-annuallyon June 30 and December 31, convertible at $2.8125
   per Common Share                                                                 325                 325
                                                                         ---------------------------------------
Auto loans with interest rate ranging from 7.47% to
   10.25%; maturing March 1997 through October 1997                                  72                  --
                                                                         ---------------------------------------
13% Note Payable, with interest and principal payments
   of $2 payable in 50 monthly installments commencing
   March 1, 1996                                                                     71                  --
                                                                         ---------------------------------------
9.97% Senior Secured Note Payable, with interest and
   principal payments of $63 payable in 48 monthly
   installments commencing November 1995 (b)                                         --               2,371
                                                                         ---------------------------------------
9.97% Senior Secured Note Payable, with interest and
   principal payments of $13 payable in 48 monthly
   installments commencing February 1996 (b)                                         --                 500
                                                                         ---------------------------------------
12% Note Payable to stockholder; consists of an
   unsecured note with interest and principal of $21 due                             --                 123
   quarterly
                                                                         ---------------------------------------
                                                                                 15,778               4,869
                                                                         ---------------------------------------
Less current maturities                                                           2,248                 737
                                                                         ---------------------------------------
                                                                              $  13,530            $  4,132
                                                                         =======================================
</TABLE>


                                      F-16


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

6. Long-Term Debt (continued)

(a)  During 1996, $150 of the Promissory  Note, plus accrued  interest  thereon,
     was converted to 44,643 Common Shares at $3.50 per share.
(b)  During 1996, contemporaneously with the Coastal acquisition,  certain notes
     payable were refinanced with the 10.52% secured promissory note.

The aggregate principal maturities of long-term debt at December 31, 1996 are as
follows:

                                    =======================
                                           Principal
                                          Amount Due
                                    -----------------------
Year:

   1997                                  $    2,248
                                    -----------------------
   1998                                       3,135
                                    -----------------------
   1999                                       4,784
                                    -----------------------
   2000                                       2,646
                                    -----------------------
   2001 (and thereafter)                      2,965
                                    -----------------------
                                         $   15,778
                                    =======================

7. Obligations Under Capital Leases

The Company has entered  into  various  capital  leases for the  acquisition  of
telecommunication and office equipment at interest rates varying from 12% to 13%
with terms ranging from three to five years.  The leases are  collateralized  by
the respective  equipment with a cost of $5,467 and accumulated  depreciation of
$2,567 at December 31, 1996.  Depreciation of assets under capitalized leases is
included in depreciation expense.

The  following is a schedule of future  minimum  lease  payments  under  capital
leases  together with the present value of the net minimum lease  payments as of
December 31, 1996:

                                                    
Year                                                  Amount
                                                    -----------
   1997                                              $2,569
                                                    -----------
   1998                                               1,736
                                                    -----------
   1999                                               1,090
                                                    -----------
   2000                                                  93
                                                    -----------
   Total future minimum lease payments                5,488
                                                    -----------
   Less amounts representing interest                   641
                                                    -----------
   Present value of net future minimum payments       4,847
                                                    -----------
   Less current portion                               2,179
                                                    -----------
   Noncurrent portion                                $2,668
                                                    ===========

                                      F-17



<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)





8. Income Taxes

At December 31, 1996, the Company has available net operating loss carryforwards
of  approximately  $11,987  that  expire  through  the year 2008.  Approximately
$10,500 of the net operating  loss  carryforwards  may be subject to limitations
under the change in ownership and consolidated return provisions of the Internal
Revenue  Code.  The Company has not recorded any future  benefit  related to the
utilization of this net operating loss carryforward.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.

Significant  components of the Company's  deferred tax liabilities and assets as
of December 31 are as follows:
                                                               
                                               1996                1995
                                            -----------------------------------
Deferred tax liabilities:
                                            -----------------------------------
 Tax over book depreciation                  $   (1,124)         $    (687)
                                            -----------------------------------
Deferred tax assets:
                                            -----------------------------------
 Net operating loss carryforwards                 4,555              4,660
                                            -----------------------------------
 Tax over book basis in impaired assets           2,248                 --
                                            -----------------------------------
 Amortization of intangibles                        148                106
                                            -----------------------------------
 AMT credit carryforward                            137                  -
                                            -----------------------------------
 Valuation allowance                             (4,173)            (3,958)
                                            -----------------------------------
Net deferred tax assets                      $    1,791          $     121
                                            ===================================

The provision for income taxes for the years ended  December 31, 1996,  1995 and
1994 consist of the following:


                     1996               1995               1994
                 ------------------------------------------------------
Current:
                 ------------------------------------------------------
 Federal         $        45          $    50             $   582
                 ------------------------------------------------------
 State                   180              100                 200
                 ------------------------------------------------------
                         225              150                 782
                 ------------------------------------------------------
Deferred:
                 ------------------------------------------------------
 Federal              (1,406)             160                 (97)
                 ------------------------------------------------------
 State                  (264)              19                  --
                 ------------------------------------------------------
                      (1,670)             179                 (97)
                 ------------------------------------------------------
                 $    (1,445)         $   329             $   685
                 ======================================================


                                      F-18


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)





8. Income Taxes (continued)

The  reconciliation  of income taxes computed at U.S. federal statutory rates to
income tax expense  (benefit)  for the years ended  December 31, 1996,  1995 and
1994 are as follows:

                                            1996           1995        1994
                                         ---------------------------------------

                                         ---------------------------------------
Provision at federal statutory rate of
   34%                                   $   (1,935)      $   598     $  417
                                         ---------------------------------------
Non deductible goodwill amortization            475           278        245
                                         ---------------------------------------
State income taxes, net of federal tax
   benefit                                      (55)           79        132
                                         ---------------------------------------
Other                                             3            47       (109)
                                         ---------------------------------------
Net change in valuation allowance                67             -          -
                                         ---------------------------------------
Utilization of net operating loss                 -          (673)        --
                                         ---------------------------------------
                                          $  (1,445)      $   329       $685
                                         =======================================

9. Shareholders' Equity

Common Stock

During 1993 and 1994, the Company entered into equity  participation  agreements
with  certain  customers  under which  Common  Shares  and/or  warrants  for the
purchase  of Common  Shares are issued for  achieving  and  maintaining  certain
revenue levels.  In 1994,  250,000 Common Shares were issued (valued at $3.19 to
$3.38 per share).  In 1995,  Common  Shares of 125,000  and 100,000  were issued
(valued at $3.00 and $4.1875 per share, respectively).

The value  ascribed to the Common Shares  issued under the equity  participation
agreements  were recorded as deferred  assets and  amortized  over the remaining
life of the particular  customers'  agreement.  For the years ended December 31,
1996,  1995 and 1994, the Company  charged  approximately  $442,  $249 and $165,
respectively,  to  operations  representing  a pro rata portion of the estimated
cost of the shares  issued.  In  addition,  included in the 1996  impairment  of
long-lived  assets  expense  is  $679  related  to  these  equity  participation
agreements that the Company no longer considers realizable.

In 1996,  75,000 Common Shares were issued,  at the then current market price of
$3.00 per share, to certain employees of the Company, including the Chairman.

In May 1996 the Company  committed  to issue  245,000  Common  Shares to certain
officers,  directors and a consultant to the Company.  The shares are to be held
by the Company  and  released  annually on a pro rata basis over ten years.  The
recipients  forfeit  future  releases  if they are  terminated  with  cause,  as
defined, among other matters. Any shares still held by the


                                      F-19


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

9.   Shareholders' Equity (continued)

Company are released upon a change of control, as defined. The value ascribed to
the  245,000  Common  Shares  was  $894,000,  the  market  value  at the date of
commitment,  which has been  recorded  as  unearned  compensation,  and is being
amortized on a straight-line basis over ten years.

At December 31, 1996,  approximately  15,000,000 of the Company's  Common Shares
were reserved for issuance under stock option plans, warrant agreements,  Common
Stock issuable (see below),  for  conversions of preferred stock and convertible
debt and in connection with acquisitions.

At December 31, 1996, the Company had 1,052,336  shares of Common Stock issuable
(526,168 shares in 1997 and 526,168 shares in 1998).

Preferred Shares

The holders of the Series B Preferred  Shares are entitled to ten votes for each
Series B Preferred Share held. The shares are redeemable at the Company's option
at $6.50 per share plus  cumulative  dividends in arrears  (subject to the prior
exercise of the conversion  right by the holder).  Series B Preferred Shares are
convertible  into Common Shares at a conversion rate of 10:1. The holders of the
Series B Preferred  Shares are entitled to receive  cumulative  dividends at the
rate of $.40 per share per annum.  The  Company  has the  option of paying  such
dividend in cash or in Common Shares having a value equal to the closing selling
price of the Common  Shares on the day  immediately  preceding the date on which
such dividend is declared.

In January 1994,  60,099 Common  Shares of the Company were  distributed  to the
holders of the 333,200 Series B Preferred Shares. In June 1994, the Company paid
a cash  dividend  of $75 to the  holders  of Series B  Preferred  Shares for the
period December 1, 1993 through June 30, 1994. In July 1994, 200,000 of Series B
Preferred  Shares  converted into 2,000,000  Common Shares.  In May and November
1995,  an aggregate of 60,750 of the  Company's  Series B Preferred  Shares were
converted into 607,500 shares of the Company's  Common Stock.  In June 1995, the
Company  paid a cash  dividend  of $44 to the  holders of record of the Series B
Preferred Shares for the period July 1, 1994 through April 30, 1995.

In April and May 1994, the Company received net proceeds of approximately $2,656
through the sale of an  aggregate of  1,090,910  Series C Preferred  Shares at a
purchase  price  of  $2.75  per  share.  The  Series  C  Preferred  Shares  were
convertible  into  Common  Shares in the  absolute  and sole  discretion  of the
holders at a conversion price of $2.75 per share.




                                      F-20


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

9.   Shareholders' Equity (continued)

In August  1994,  the  holders of the Series C  Preferred  Shares of the Company
exchanged  such  shares,  on a 1.1-for-1  basis,  for an  aggregate of 1,200,003
Series D Preferred Shares of the Company. Neither the Company nor the holders of
the Series D Preferred  Shares have any right of redemption with regard thereto.
The holders of the Series D Preferred  Shares are entitled to receive,  when and
as declared by the Board of Directors of the  Company,  cumulative  dividends at
the rate of 10% per annum payable in cash or Common  Shares of the Company.  The
Series D Preferred Shares have a fixed liquidation preference of $2.50 per share
and are  convertible  into  Common  Shares on a  one-for-one  basis at $2.50 per
share.  The holders of the Series D Preferred  Shares are  entitled to six votes
for each Series D Preferred  Share held.  Contemporaneously  with such exchange,
the  Company  issued  an  additional  213,334  Series D  Preferred  Shares  upon
conversion of $500  principal  amount of Notes and $33 of interest  thereon at a
conversion price of $2.50 per share.

In April and May 1995,  the Company  received  gross  proceeds of  approximately
$3,052 through the sale of an aggregate of 1,085,000  Series E Preferred  Shares
at a purchase price of $2.8125 per share. The Series E Preferred Shares have the
following rights and preferences,  among others: (i) 8% dividend payable in cash
or in Common Shares of the Company; (ii) voting rights of one vote per share and
(iii) the right to convert  each share into one Common Share of the Company at a
conversion  price  of  $2.8125  per  share,   subject  to  certain  antidilution
adjustments. In January 1996, the holder of an aggregate of 50,000 shares of the
Company's Series E Preferred Stock elected to convert such shares into 50,000 of
the Company's Common Shares.

In October 1995, the Company issued 415,250 Series F Preferred Shares (valued at
$5.00 per share) as partial consideration for the acquisition of CCI. The Series
F Preferred Shares have the following rights and preferences,  among others: (i)
dividends  on a pari passu  basis with the  holders of the Common  Shares;  (ii)
voting rights of one vote per share;  (iii) the right to convert each share into
one  Common  Share of the  Company  at a  conversion  price of $5.00 per  share,
subject  to  certain  antidilution  adjustments;   (iv)  an  adjustment  of  the
conversion  price on October  10,  1997 to the  average  market  price of Common
Shares,  as defined,  during the ten trading days prior to such time (but to not
less than $3.50 per share) if such average  market price is then below $5.00 per
share;  and (v) a liquidation  preference of $5.00 per share.  At any time,  the
Company has the right to redeem the  outstanding  Series F  Preferred  Shares on
thirty  days  notice at a  redemption  price of $5.00 per share  (subject to the
conversion rights of the holders of the Series F Preferred Shares).



                                      F-21




<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


9.   Shareholders' Equity (continued)

In September 1996, the Company  received net proceeds of $2,000 through the sale
of an  aggregate  of 100,000  Series G  Preferred  Shares at $20 per  share.  In
connection  with the  issuance  of the Series G  Preferred  Shares,  the Company
incurred costs in the form of warrants valued at $396 to purchase 275,000 Common
Shares of the Company.  The Series G Preferred  Shares have the following rights
and preferences, among others; (i) 5% cumulative dividend payable in cash or, at
the  option of the  Board of  Directors  of the  Company,  in  Common  Shares or
additional Series G Preferred Shares of the Company, only upon conversion of the
Series G Preferred Shares; (ii) voting rights, with the number of votes equaling
approximately

5.7:1  relative to Common Shares for each Series G Preferred  Share held;  (iii)
the  right to  convert  each  share  into  Common  Shares  of the  Company  at a
conversion  price generally equal to the lesser of (a) $3.5125 or (b) 80% of the
average per share market value for the five trading days  immediately  preceding
the  conversion;  and (iv) a  liquidation  preference  of $20 per share  plus an
amount equal to accrued but unpaid dividends per share.

The guaranteed discount at the date of issuance on conversion of $400 was deemed
to be a dividend  for  purposes  of  calculating  net loss  available  to common
stockholders.  The  dividend  is being  recognized  on a pro rata basis over the
period  beginning  with the  issuance  of the  shares  to the  first  date  that
conversion can occur.  Conversion was permissible  effective  December 13, 1996.
This one time,  non-cash  charge only  impacts the  calculation  of earnings per
share related to the Common Shares.

In December 1996, the holder of an aggregate of 21,250 of the Company's Series G
Preferred  Shares  elected to convert such shares into 195,808 of the  Company's
Common Shares.

Cumulative dividends in arrears at December 31, 1996 and 1995 were approximately
$1,340 and $726, respectively.

Stock Options

The Company's  1987 Stock Option Plan (the 1987 Plan)  provides for the granting
of options to employees  (including  officers and  directors)  and  non-employee
Directors of, and certain consultants and advisors to, the Company. Such options
are intended to be either incentive stock options or nonstatutory stock options.
Incentive stock options may be granted to employees of the Company. Nonstatutory
stock  options may be granted to employees  or  non-employee  Directors  of, and
certain  consultants  and advisors  to, the Company.  The total number of Common
Shares reserved for issuance under the 1987 Plan is 93,750.




                                      F-22




<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

9. Shareholders' Equity (continued)

In 1992, the Company adopted and the shareholders approved the 1992 Stock Option
Plan (the "1992 Plan" and  collectively  with the 1987 Plan,  the  "Plans").  In
1995, the shareholders  approved an increase in the number of shares  authorized
to be issued  under the 1992 Plan from  1,500,000 to  2,250,000  Common  Shares.
Subject to shareholder  approval,  in 1996 the number of shares authorized to be
issued under the 1992 Plan was increased to 4,250,000 Common Shares.

The 1992 Plan  provides  for the  granting  of options to  employees  (including
officers and directors) and non-employee  Directors of, and certain  consultants
and advisors to, the Company.  Such options are intended to be either  incentive
stock options or  nonstatutory  stock  options.  Incentive  stock options may be
granted to employees of the Company.  Nonstatutory  stock options may be granted
to employees or non-employee  Directors of, and certain consultants and advisors
to, the  Company.  As of December 31,  1996,  the total number of Common  Shares
reserved for issuance under the 1992 Plan is 3,697,130.  Approximately 1,695,000
of these shares are subject to shareholder approval.

The exercise price of all incentive stock options  granted under the Plans,  and
all  nonstatutory  stock options granted under the Plans to officers,  directors
and 10%  shareholders of the Company  (Insiders),  must be at least equal to the
fair  market  value of such  shares  on the date of the  grant or in the case of
incentive  stock  options  granted to the holder of 10% or more of the Company's
Common Shares, at least 110% of the fair market value of such shares on the date
of the grant.  The maximum exercise period for which incentive stock options may
be granted,  and nonstatutory  options may be granted to Insiders,  is ten years
(five  years  in  the  case  of  incentive   stock  options  granted  to  a  10%
shareholder).  The  option  price and  exercise  period for  nonstatutory  stock
options to persons other than Insiders shall be determined by the Board or Stock
Option Committee in its sole discretion.

The following  table  represents the changes in outstanding  stock options under
the Plans (of which approximately 618,000,  260,000 and 743,000 were exercisable
at December 31, 1996, 1995 and 1994, respectively).

                                                               
<TABLE>
                                                                       1996                1995                 1994
                                                               --------------------------------------------------------------
<S>                                                                  <C>                 <C>                   <C>  
Outstanding at beginning of year ($1.50 to $4.25
   per share)                                                         1,109,371           1,224,044             845,187
                                                               --------------------------------------------------------------
Granted ($2.25 to $4.25 per share)                                    2,370,000             480,000             417,900
                                                               --------------------------------------------------------------
Exercised ($1.50 to $3.00 per share)                                    (54,485)           (471,853)            (28,833)
                                                               --------------------------------------------------------------
Cancelled ($1.50 to $4.25 per share)                                   (156,498)           (122,820)            (10,210)
                                                               --------------------------------------------------------------
Outstanding at end of year ($1.50 to $4.25 per
   share)                                                             3,268,388           1,109,371           1,224,044
                                                               ==============================================================
</TABLE>


                                      F-23


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


9. Shareholders' Equity (continued)

Stock Based Compensation

Pro forma information  regarding net income (loss) and earnings (loss) per share
is required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following  weighted-average  assumptions  for 1995
and 1996:

                                                               
                          Assumption               1996               1995
----------------------------------------------------------------------------
Risk-free rate                                      6%                 6%
----------------------------------------------------------------------------
Dividend yield                                      0%                 0%
----------------------------------------------------------------------------
  Volatility factor of the expected market 
  price of the Company's common stock               .50                .50
Average life                                        3                  3


The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the vesting  period of the options.  The  Company's
pro forma information is as follows:

                                           1996            1995
                                         ---------------------------
Pro forma net income (loss)              $(4,446)         $1,426
Pro forma net income (loss) per share     (0.24)          0.05


The  weighted  average  fair  value of  options  granted  during  the year ended
December   31,   1996  and  1995  were  $1.27  and  $1.67,   respectively.   The
weighted-average  exercise price of options  exercisable as of December 31, 1996
was $2.75 per share. The  weighted-average  remaining  contractual life of those
options is 3.8 years.


                                      F-24


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


9. Shareholders' Equity (continued)

Warrants

In 1993, the Company  entered into an agreement with National  Telecom USA, Inc.
(NTI) which provided for, based upon the  achievement of certain revenue levels,
the issuance of a maximum of 450,000  Common  Shares and warrants to purchase up
to 725,000  Common  Shares at the market price at the date of  issuance.  During
1995,  1994 and 1993,  the Company  issued  warrants to NTI for the  purchase of
175,000, 250,000 and 300,000 Common Shares, respectively.  In November 1995, the
Company  entered  into an  agreement  with NTI,  whereby  NTI agreed to place in
escrow the  aforementioned  warrants  and granted the Company the right to cause
the sale of such warrants  whereby the first $800 of the proceeds are applied to
reduce  advances  due. As further  disclosed in Note 15, the Company in February
1997 entered into a  substantially  new contract with NTI,  whereby the warrants
were tendered to the Company in settlement of $800 of advances  outstanding from
NTI.

In June 1996, in connection with the CNSI  acquisition (see Note 2), the Company
issued  warrants  to  purchase  400,000  Common  Shares at $4.51 per share.  The
warrants are exercisable through June 1998.

In August 1996, the Company issued a warrant to purchase 50,000 Common Shares at
$3.06 per share in exchange for consulting services.  The warrant is exercisable
through August 1999.

In September 1996, in connection with the sale of the Series G Preferred Shares,
the Company  issued  warrants to purchase  225,000  Common Shares at an exercise
price of $5.29 and  50,000  Common  Shares at an  exercise  price of $3.53.  The
warrants are exercisable through September 2001.

The following table represents the changes in outstanding  warrants all of which
are exercisable:

<TABLE>
                                                                                                      
<S>                                                                    <C>                 <C>                  <C> 
                                                                       1996                1995                 1994
                                                               --------------------------------------------------------------
      Outstanding at beginning of period ($0.50 to
      $120.00 per warrant)                                         1,922,569           1,737,569             743,319
                                                               --------------------------------------------------------------
      Issued ($0.50 to $5.29 per warrant)                            725,000             210,000            1,000,000
                                                               --------------------------------------------------------------
      Exercised ($1.50 per warrant)                                       --             (25,000)                  --
                                                               --------------------------------------------------------------
      Expired/Canceled ($20.00 to $120.00 per
      warrant)                                                        (7,569)                 --              (5,750)
                                                               --------------------------------------------------------------
      Outstanding at end of period ($0.50 to
      $120.00 per warrant)                                         2,640,000           1,922,569           1,737,569
                                                               ==============================================================
</TABLE>


                                      F-25


<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


10. Related Party Transactions

During 1994, the Company  entered into a management  agreement with CCI pursuant
to which ANEI provided certain management and administrative  services on behalf
of CCI, for a fee equal to ANEI's  cost.  CCI agreed to use the services of ANEI
and was paid commissions of approximately $63 per month,  beginning in June 1994
through  the date the  Company  acquired  CCI.  The  Company  believes  that the
commission  amounts paid to CCI were no more  favorable to it than those payable
to other  customers.  The Company had been advised that the  shareholders of CCI
may be shareholders of the Company.

As part of the CNSI  acquisition,  the Company  assumed note  agreements  with a
former  majority  shareholder of CNSI who became a principal  shareholder of the
Company,  in the amounts of $1,049 and $149.  The interest on the notes are paid
monthly at a rate of 10.5%.
The notes mature on July 15, 1997 with a balloon payment.

11. Major Customers

Two customers,  controlled by the same group,  accounted for 21%, 41% and 38% of
the  Company's  revenues for the years ended  December 31, 1996,  1995 and 1994,
respectively.

12. Leases

The Company maintains office,  operations, and computer facilities under various
operating leases. The minimum annual lease payments are as follows:

1997                                      $     977
1998                                            964
1999                                            926
2000                                            926
2001                                            921
Thereafter                                      893
                                    --------------------
                                             $5,607
                                    ====================

The leases also provide for payment of real estate taxes and operating expenses.
Rent  expense  for the  years  ended  December  31,  1996,  1995  and  1994  was
approximately $1,673, $1,251 and $1,165, respectively.


                                      F-26

<PAGE>


                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


13. Retirement Plan

The Company has a retirement  plan 401(k) covering all eligible  employees.  The
annual  provisions  for the years ended  December 31,  1996,  1995 and 1994 were
approximately $62, $68 and $47, respectively.

14. Commitments and Contingencies

The Company is a party to  litigation  in the normal  course of  business  which
management  does not  believe  will  have a  material  impact  on the  financial
statements of the Company.

15. Subsequent Events

On January 7, 1997,  the Company  entered into a Stock  Exchange  Agreement with
Francesco Galesi, which involves the transfer to the Company of shares of Common
Stock of Galesi Telecom International,  Inc. ("GTI") representing ten percent of
the issued and  outstanding  capital  stock of GTI,  in  exchange  for shares of
Series L Preferred Stock and warrants to purchase Common Shares of the Company.

On February 25, 1997,  the Company  entered into a joint venture  agreement with
Community  Network  Services,  Microtel  Communications  Corporation  and  other
entities  affiliated with them (collectively  "Manghir Group"),  whereby certain
telecommunications  contracts and licenses of Manghir Group were  contributed to
the joint  venture and the  Company has  committed  financial,  operational  and
managerial assistance.

On February  28,  1997,  the  Company  entered  into a Renewal and  Modification
Agreement  with NTI with regard to  redefinition  of the  customer  relationship
between the parties. Under the terms of the Renewal and Modification  Agreement,
the Company  accepts and assumes,  among  others,  the right and  obligation  to
become the exclusive provider of various services.
The Company committed to pay NTI consideration totaling $3,050.

On March 1, 1997, the Company entered into an Asset Purchase  Agreement with Sun
Tel, Inc. with regard to the acquisition  of, among other assets,  approximately
600 pay telephones located in Florida. The Asset Purchase Agreement provides for
an aggregate  purchase price for the assets  acquired of $1,680 and the grant to
the seller of a 20% interest in Sun Tel North  America,  Inc.,  the purchaser of
the acquired assets.


                                      F-27
<PAGE>

<TABLE>
                             AMNEX, INC.Schedule II

                        Valuation and Qualifying Accounts

<CAPTION>
                  Years ended December 31, 1996, 1995 and 1994
                                 (In thousands)



Column A                               Column B                 Column C                  Column D           Column E

                                                                Additions
                                                    ---------------------------------

----------------------------------------------------------------------------------------------------------------------------

                                                                            (2)
                                                         
                                      Balance at           (1)          Charged to                            Balance at
                                      beginning        Charged to          other           Deductions           end of
                 Description          of period         costs and        accounts         described (a)         period
                                                        expenses         described
----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>              <C>                <C>                <C> 
 Allowance for doubtful accounts:
    Year ended December 31, 1996        $2,954            $7,432                             $(7,629)            $2,757
    Year ended December 31, 1995         3,213             7,328                              (7,587)             2,954
    Year ended December 31, 1994         1,557             7,854                              (6,198)             3,213
----------------------------------------------------------------------------------------------------------------------------


</TABLE>

(a)  Amounts charged off.

                                     

<PAGE>
                       
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.


                                                AMNEX, INC.


April 15, 1997                                  By: /s/ Kenneth G. Baritz
                                                    ---------------------
                                                    Kenneth G. Baritz, Chairman
                                                    and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                          Chairman and Chief Executive
                          Officer (Principal Executive and
/s/Kenneth G. Baritz      Financial Officer)                  April 15, 1997
----------------------
Kenneth G. Baritz

                          President, PubCom Division
/s/Peter M. Izzo, Jr.     and Director                        April 15, 1997
----------------------
Peter M. Izzo, Jr.

                          Chief Operating Officer
/s/Michael V. Dettmers    and Director                        April 15, 1997
----------------------
Michael V. Dettmers

                          Vice President - Finance,
                          Treasurer and Chief Accounting
                          Officer (Principal Accounting
/s/Richard L. Stoun       Officer)                            April 15, 1997
----------------------
Richard L. Stoun

/s/Francesco Galesi          Director                         April 15, 1997
----------------------
Francesco Galesi


                                      
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