<PAGE>

                       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, 1998

   ( ) 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.)


145 Huguenot Street, New Rochelle, New York                10801
-------------------------------------------             ----------
 (Address of principal executive offices)               (Zip Code)

Registrant's telephone number 914-235-1003

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]

     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: $10,122,737 as of March 22, 1999

             (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: 45,494,271 shares outstanding as of February
26, 1999.
                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


<PAGE>
                               EXPLANATORY NOTE

Timing of Filing

         Prior to the close of business on March 31, 1999, the Company filed a
Form 12b-25 with the Securities and Exchange Commission (the "Commission")
extending the filing date for the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "Form 10-K") until April 15, 1999. The
Company, however, was unable to obtain an executed report from its independent
public accountants, Ernst & Young, on its financial statements as required to be
included in the From 10-K, by April 15, 1999. In addition, the Company was
unable to obtain the related consent from Ernst & Young by April 15, 1999.
Accordingly, the Company did not file its Form 10-K by the April 15, 1999 filing
date. Each time the Company believed that the Form 10-K was ready for filing the
independent public accountants disagreed and asked for further revisions of the
report. Eventually this prompted the Company to attempt to obtain in writing a
definitive and complete list of required revisions from Ernst & Young. Attached
are copies of this correspondence (6 letters covering the period from April 26,
1999 through June 29, 1999) which did not achieve its desired purpose: to learn
all of the specific information and/or revisions required in order to satisfy
these requirements and obtain the consent of the independent public accountants
and then file the Form 10-K.

         Consequently, this Form 10-K contains all required items other that the
executed report of Ernst & Young on the Company's financial statements contained
in Part II, Item 8 of this Form 10-K and the related consent of Ernst & Young.

Recent Developments

         As disclosed in Part II, Item 5, Market for Registrant's Common Stock
and Related Stockholder Matter; Part II, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Liquidity and
Capital Resources; and in Note 1 of the Notes to Consolidated Financial
Statements, the Company had been experiencing continuing operating losses, and
was not in compliance with the criteria required for continued listing of its
common stock on the NASDAQ SmallCap Market (during which time its shares were
trading on an exception basis under the symbol "AMXIC"), pending the outcome of
certain actions planned in an effort to cause the Company to be able to maintain
the listing of its common stock. On or about March 25, 1999, the Company, as
guarantor, received notice from Jackson National Life Insurance Company ("JNL"),
that an Event of Default had occurred concerning certain covenants under the
Loan and Security Agreement that the Company's wholly-owned subsidiary Crescent
Public Communications Inc. ("Crescent") and Crescent's 80% owned subsidiary, Sun
Tel North America, Inc. ("Sun Tel") are party to with JNL (the "JNL Loan
Agreement"). JNL had granted the Company waivers of the default concerning such
covenants, and on April 15, 1999, the Company and JNL were in the process of
negotiating an amendment to the underlying loan agreement which would have
enabled the Company to continue borrowings under the JNL Loan Agreement.

         In order to attempt to comply with the listing requirements of the
NASDAQ SmallCap Market and to obtain the liquidity required to continue
operations, the Company sought to implement a plan which included, among other
proposed actions, the sale of certain non-strategic assets, the concentration of
business activities on core businesses, cost reductions, and the negotiation of
an amendment to the JNL Loan Agreement. In addition, the Company hired a
financial advisor to assist in the sale of its public payphone business.


<PAGE>

         The Company signed a non-binding Letter of Intent with a prospective
purchaser of its public payphone business on March 18, 1999. The proposed
purchase would have provided the Company with sufficient cash to pursue the
completion of its strategic plan, and to meet its operating and financial
obligations.

         The proposed potential purchaser of the public payphone business which
entered into the non-binding Letter of Intent withdrew its offer on April 20,
1999, due to, among other reasons, the failure of the Company to provide audited
financial statements on a timely basis for the year ended December 31, 1998. As
described above, the Company was unable to provide these financial statements
because it had not received an executed audit report from Ernst & Young.

         Separately, NASDAQ notified the Company that its common stock was
delisted as of April 27, 1999, as a result of its failure to file its 10-K for
the year ended December 31, 1998 on a timely basis. The delisting triggered an
obligation of the Company to offer to purchase its $15.0 million 8 1/2%
Convertible Subordinated Notes due 2002 (the "Subordinated Notes") at a purchase
price equal to 101% of principal amount. In addition, on April 30, 1999, holders
of all of the Company's outstanding Series M Preferred Shares (the "Preferred
Shares") exercised a mandatory redemption right, also triggered by the
delisting, demanding the payment of approximately $6.8 million or, in the
alternative, a controlling ownership interest in the Company.

         The Company did not have sufficient liquidity to repurchase the
Subordinated Notes or redeem the Preferred Shares. In addition, the Company
continued to experience a decline in its operating results, which made it
difficult to meet both its operating and financial obligations.

         As a result of these events and the resulting liquidity shortfall, the
Company decided to seek protection from its creditors under Chapter 11 of the
U.S. Bankruptcy Code. The Company filed on May 5, 1999 its petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York. Also on May 5, American
Network Exchange, Inc. ("ANEI"), the operating subsidiary of the majority of the
Company's domestic Integrated Services Group activities, filed its petition for
reorganization under Chapter 11 of the Bankruptcy Code. The Company and ANEI
have been operating as debtors-in-possession since that date.

         The Company intended to commence its reorganization efforts for itself
and certain of its subsidiaries by obtaining initial interim financing necessary
to satisfy its operating requirements from coin collections from its payphone
business until other financing sources could be obtained. The use of revenue
from coin collections was restricted under the terms of the JNL Loan Agreement
negotiated, although JNL did not hold a security interest in such cash revenue.

         The Company intended to propose that Crescent and Sun Tel, in their
then anticipated Chapter 11 cases, grant to JNL a post-petition lien on future
coin collections. On May 3, 1999, the Company notified JNL of its intention to
file and cause the filing of petitions under Chapter 11 for the Company and ANEI
and certain other subsidiaries, including Crescent, and to further securitize
JNL's position in exchange for additional loans and advances by using Crescent's
coin revenue as described above. The Company and JNL scheduled a meeting for May
4, 1999 for the purpose of discussing whether, and the terms under which, JNL
would provide debtor-in-possession financing to the Company.


<PAGE>

         JNL refused to negotiate with the Company and thereafter took control
of the Company's common stock in Crescent, voted in new directors and new
management for Crescent, and seized possession and operating control of Crescent
and its operations. The Company then commenced action necessary to cause
Crescent to file its petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code on May 10, 1999. On May 11, 1999, the Company obtained a
temporary restraining order in the U.S. Bankruptcy Court which returned control
of Crescent to the Company. On May 19, 1999, the Company won a preliminary
injunction, confirming its ability to continue to maintain control over Crescent
and ousting JNL from possession and control. The Company is now using the coin
revenue from Crescent to fund Crescent's operations.

         Both creditors which were providing receivables financing to ANEI
ceased remitting proceeds from the transactions they processed under funding
agreements with the Company. The Company has begun negotiation with each of
these entities, and the U.S. Bankruptcy Court has authorized limited funding
from one of these creditors from the factoring of ANEI's receivables. The
shortfall in funding has resulted in ANEI having limited liquidity to meet
post-petition obligations. In addition, ANEI was unable to negotiate a new
agreement with MCI Worldcom, the primary long distance network provider to ANEI.
The U.S. Bankruptcy Court permitted MCI Worldcom to terminate service to ANEI
and, as a result, on June 9, 1999, ANEI ceased operations, as did certain other
of the Company's subsidiaries (other than Crescent and Sun Tel) whose operations
were unprofitable or dependent upon ANEI. The Company has decided to proceed
with an orderly shut down under Chapter 11 for ANEI, as well as for the other
entities which constitute its Integrated Network Services business segment. The
Company expects this process to be completed in the third quarter of 1999.

         The Company believes that cash generated from the operations of
Crescent and Sun Tel will be sufficient to permit Crescent and the Company to
continue to operate under Chapter 11 protection until Crescent is either
reorganized and emerges from Chapter 11 proceedings, or is sold as the basis for
a liquidating Chapter 11 plan.

         There can be no assurance that the Company will emerge from Chapter 11
proceedings and have the ability to continue operations, and even if it does
emerge from Chapter 11 proceedings, there can be no assurance that the common
stock of the Company currently held by stockholders will have any value.


<PAGE>

AMNEX


June 29, 1999


                     VIA FAX (212) 773-6348 AND U.S. MAIL

Mr. Roger Savell
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019

Reference: Audit

Dear Roger:

         Your letter of June 23, 1999 in response to our letter of June 21 is
not adequate. We still require a comprehensive and SPECIFIC list of unresolved
issues. It is impossible for us to address something as vague as, for example,
"Various legal letter responses". Further your use of the phrase "among those"
suggests that there are items you have not included in your letter.

         At your request, your letter of June 23, 1999 will be submitted to
the Securities and Exchange Commission.



Yours truly,



Vincent H. Catrini
Chief Financial Officer

cc.:     David Landau, Rosenman & Colin LLP 212-940-8776
         Anne Jones
         Jones Yorke
         Guy Longobardo
         Alan Rossi



                                 AMNEX, INC.

         145 Huguenot Street Suite 401 New Rochelle, NY 10801 (914) 235-1003
         Fax (914)235-1339

<PAGE>

ERNST & YOUNG LLP          787 Seventh Avenue              Phone: 212-773 3000
                       New York, New York  10019



June 23, 1999

Mr. Vincent Catrini
Chief Financial Officer
Amnex, Inc.
6 Nevada Drive, Building C
Lake Success, New York  11042

Dear Vincent:

In response to your letter of June 21, 1999, I am confirming that these items
listed below, which we have previously discussed with you, are among those
that were unresolved at the time of our last discussion in April and remain
unresolved as of today.

1.   Audit evidence to substantiate the Company's valuation of its investment
     in Elektra, including the audited financial statements of the investee on
     which KPMG rendered its opinion, as promised by Mr. Rossi.
2.   Various legal letter responses.
3.   Supporting schedules for the cash flow statement.
4.   Representation letter.

Our receipt and auditing of the aforementioned items may result in further
questions and necessitate additional auditing. Furthermore, the issuance of
our report at this time would require the updating of all our post review
procedures. We once again reiterate that due to the incomplete nature of the
audit we do not consent to the use of our audit report in any filing with the
Securities Exchange Commission.

In light of your reference to us in your letter of June 21, 1999 to the
Commission, we request that you provide a copy of this letter to the
Commission.

                                                           Very truly yours,


                                                           Roger Savell
                                                           Partner

RS/bff

      Ernst & Young LLP is a member of Ernst & Young International, Ltd


<PAGE>

AMNEX



June 21, 1999

                     VIA FAX (212) 773-6348 AND U.S. MAIL



Mr. Roger Savell
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019

Reference: Audit

Dear Roger:

We have received your letter to Mr. Catrini dated June 17, 1999. Please advise
us by Wednesday June 23 and in writing as to the issues that have not been
resolved to your satisfaction.

As noted in Mr. Catini's letter of June 16, 1999 to you, we plan to file the
Form 10-K for the year ended December 31, 1998 with the Securities and
Exchange Commission. The filing will include a Recent Developments section
updating events that have occurred since April 15, 1999 and be accompanied by
a letter to the SEC substantially in the form of the enclosure. The final text
of the letter to the SEC will depend on whether you consent to the filing or
not. We have drafted the letter assuming that you will not alter your position
of the past two months. Regardless of your final decision I must reaffirm my
request that you inform us in writing of the issues which you claim have
prevented you from completing your audit.

Yours Sincerely,



Alan Rossi
Chief Executive Officer

cc:    David Landau, Rosenman & Colin LLP   212-940-8776
       Anne Jones                           301-229-6349
       Jones Yorke                          212-508-1376
       Vincent Catrini
       Guy Longobardo
       Roy Schiele



                                 AMNEX, INC.
      145 Huguenot Street , Suite 401 - New Rochelle. NY 10801 - (914) 235-1003
      Fax (914)235-1339


<PAGE>


ERNST & Young LLP               787 Seventh Avenue          Phone: 212-773-3000
                             New York, New York 10019


June 17, 1999


Mr. Vincent Catini
Chief Financial Officer
Amnex, Inc.
6 Nevada Drive
Building C
Lake Success, New York, 11042


Dear Vincent:


In response to your letter of June 16, 1999 I would like to point out that
certain of your statements are not accurate.  While we were concerned about
unpaid invoices related to the audit we were not and have not completed our
audit because certain issues have not been resolved to our satisfaction.
Accordingly, we do not consent to the inclusion of our report in any filing with
the Securities and Exchange Commission.



                                                     Very truly yours



                                                     Roger Savell
                                                     Partner


      Ernst & Young LLP is a member of Ernst & Young International, Ltd.


<PAGE>

Mr. Roger Savell
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019


June 14, 1999

                          V I A F A X and U.S. MAIL

Dear Roger:

         It remains our intention to file the Form 10-K report for Amnex for the
year ended December 31, 1998. We have not communicated on this subject since
late April, when, in my letter to you of April 26, 1999, I advised you that we
had incorporated all of your remaining recommended changes to the report. Also,
we forwarded the final report to you by fax and overnight mail on that date.

         Upon receipt of the document, you advised me by phone that Ernst &
Young would do no further work on the document until such time as your fees were
paid in full. As Amnex has not paid the remainder of the fees, you have not
completed your review of the few remaining changes, and therefore, have not
granted your consent to file. It is Amnex's position that the report is complete
and ready to file.

         You are aware that Amnex filed Chapter 11 on May 5, 1999. We are
being advised on this matter by the law firm of Rosenman & Colin LLP. The SEC
practice counsel at Rosenman has advised us that we must continue to file the
required SEC reports including the 1998 10-K and the March 31, 1999 10-Q. We
informed him of the status of the 10-K, and he advised us that the report must
be filed. This means that the report will be filed with your participation and
consent, or that we will file it without your consent and explain the situation
accordingly.

         Our plan is to leave the report as is, which is the version that was
sent to you on April 26, and add to it an addendum which explains in detail
the events since that date. Our advisor at Rosenman agrees that this is an
acceptable approach. We plan to complete this process and file the report by
June 30, 1999.

         In order to do this, we need to know how Ernst & Young intends to
proceed. From Amnex perspective, we would appreciate your participation in
completing the report. Please advise me of your decision at your earliest
convenience. Thank you.

Respectfully,


Vincent H. Catrini
Chief Financial Officer

Cc:      Alan Rossi
         A. Jones Yorke
         David Landau, Rosenman & Colin LLP


<PAGE>

AMNEX



Mr. Roger Savell
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019

April 26, 1999

                                   VIA FAX

Dear Roger:


         I spoke with Alan Rossi this morning concerning the filing of our 10-K.
He told me that he spoke with you on Friday, April 23, and that you advised him
that the 10-K wasn't ready for filing because we had not yet processed Ernst &
Young's recommended changes.

         We have now incorporated all of your recommended changes. Per my
discussions with you last week, the information that John Gruber faxed to me on
April 21 included the last remaining items.

         I am forwarding to you today by fax and overnight mail, the completed
10-K document. Please advise me promptly as to when we can expect to receive
your consent to file it. Thank you.



Sincerely,



Vincent H. Catrini
Chief Financial Officer


cc:      Alan Rossi







                       AMERICAN NETWORK EXCHANGE, INC.
100 W. Lucerne Circle . Orlando, FL 32801 - (407) 246-1234 / FAX: (407) 246-0006


<PAGE>


                                     PART I


                        FORWARD-LOOKING STATEMENT NOTICE

         When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27a of the Securities Act of 1933 and Section 21e of the
Securities Exchange Act of 1934 regarding events, conditions, and financial
trends that may affect the Company's future plans of operations, business
strategy, operating results, and financial position. Persons reviewing this
report are cautioned that any forward-looking statements are not guarantees of
future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors. Such factors are discussed under the
headings "Item 1. Description of Business," and "Item 6. Management's Discussion
and Analysis of Financial Condition and Results of Operations," and also include
general economic factors and conditions that may directly or indirectly impact
the Company's financial condition or results of operations.

Item 1. BUSINESS

General

         AMNEX, Inc. ("AMNEX") and its consolidated subsidiaries, (collectively,
the "Company") is organized into three business units: AMNEX Integrated Services
("Integrated Services") is a sales and marketing group which targets various
markets in the operator services industry to provide operator and related
services in the U.S. AMNEX Public Communications ("Public Communications") is an
asset management group focused on payphone ownership in the northeastern
corridor of the U.S. AMNEX International ("International") is a sales and
marketing group dedicated to operator services opportunities between the
Caribbean and Latin America, and the U.S. The International group develops
business by exporting AMNEX's know-how to developing markets with strong U.S.
affinity.

         The Company is a New York corporation that was organized in 1985. Its
principal executive offices are located at 145 Huguenot Street, New Rochelle,
New York.

         Since 1996, the Company has been acquiring payphone routes throughout
the northeastern corridor of the U.S. and Florida, bringing its total payphone
ownership to 11,138 payphones at December 31, 1998. AMNEX's wholly-owned
subsidiary, Crescent Public Communications Inc. ("Crescent") completed a number
of payphone acquisitions in 1998, including the acquisition of 740 payphones in
New York in February 1998; of 2,300 payphones primarily located in New Jersey,
New York and Pennsylvania in July 1998; and of 230 payphones in New York in
October 1998. AMNEX's 80%-owned subsidiary, Sun Tel North America, Inc. ("Sun
Tel") acquired 28 payphones in Florida in February 1999.



                                       3
<PAGE>


         In June 1996, the Company acquired all of the outstanding stock of
Capital Network System, Inc. ("CNSI"), a company primarily engaged in the
provision of operator services to United States and Canadian tourists traveling
in the Caribbean and Mexico. CNSI was also engaged in the provision of operator
services in the United States. In 1997, the domestic operations of CNSI were
absorbed into the American Network Exchange, Inc. (ANEI) subsidiary of AMNEX.

         In September 1996, AMNEX acquired 80% of the outstanding stock of
National Billing Exchange, Inc. ("NBE"), which provides various billing and
collection services to telecommunications companies. In December 1998 and March
1999, the Company sold the major assets of this subsidiary and access to its
customer base to OAN Services, Inc., a major billing clearing house and
implemented a plan to discontinue NBE's operations.

         In January, 1997, the Company acquired a minority equity position in
Elektra Communication, Inc. ("ECI"), formerly Galesi Telecom International,
Inc., a privately owned telecommunications holding company with operations in
Sweden.

Business Segments

         The Company operates in one business segment.

Industry Overview

         A series of legislative and regulatory actions over the past 30-plus
years have dramatically altered the telecommunications industry in the United
States. Today's telecommunications market evolved principally as the result of
the court-ordered divestiture by AT&T of its local Bell operating companies (the
"RBOCs") and the Telecommunications Act of 1996 (the "1996 Act"). Both these
events have accelerated the development of local and long distance competition
in the telecommunications markets.

         In 1982, the Department of Justice ("DOJ") and AT&T agreed to the terms
of the Modification of Final Judgement ("MFJ") under which AT&T divested itself
of all of the RBOCs. As part of the divesture, the RBOCs were organized into
seven companies, each serving its own geographically distinct region. At
divestiture of the RBOCs, the United States was divided into 197 Local Access
Transport Areas ("LATAs"). AT&T and other long distance providers, or
interexchange carriers (IXCs), were given the right to handle service between
the LATAs ("interLATA service") and were permitted to handle within LATA
("intraLATA") long distance service where allowed by the applicable public
services or utilities commissions of the various states (each a "PUC").
Conversely, the RBOCs were given the right to handle intraLATA service, but were
prohibited from the interLATA market. This differentiation was substantially
modified by the 1996 Telecommunications Act.

         The MFJ also required the RBOCs to provide all domestic 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 FCC and at the PUCs. Under these access tariffs,
all IXCs, including AT&T, pay charges to the local exchange carriers



                                       4
<PAGE>


("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 Telecommunications Act
continued these equal access obligations but substantially modified the methods
whereby the LECs charge for this access.

         These and related developments changed the competitive long distance
industry in the U.S. During this time, a number of companies initiated the
provision of operator assistance services as an alternative to the LECs and
major IXCs' operator service offerings. To date, these alternative operator
service providers serve primarily the operator assistance needs of the payphone
and hospitality industries.

         A June 1984 decision of the FCC permitted private (non-LEC) ownership
and operation of payphones. This decision ended the 100 year monopoly of the
LECs in this area, and permitted the development of the independent payphone or
payphone service provider ("PSP") industry. LECs were required to provide
dial-tone connections for private payphones and, subsequently, blocking and
screening services intended to deter fraudulent usage of private payphones.

         In a series of ruling beginning in 1996, the FCC established per call
compensation payments to payphone owners by IXCs. These payments, designed to
compensate payphone owners for toll free (800 or 888) and other calls placed
from payphones for which payphone owners previously received no compensation,
were set at $.24 per call in a February 1999 FCC ruling.


                                       5
<PAGE>



The Company's Businesses

The Company is organized into three operating groups: Public Communications,
Integrated Services and International plus NBE. The revenues generated from the
Company's operations are as follows:

                                  AMNEX, INC.
                             Year Ended December 31
                                 (in thousands)

                                          1998           1997           1996
                                          ----           ----           ----

Public Communications Group
     Private payphones                  $ 18,700       $ 15,632      $   6,642
     Hotel PBX Services                    4,321            246            245

Integrated Services Group
     Domestic operator services           29,165         60,916         83,687
     1+ Coin services                      6,419          7,219          4,218
     Long distance services                5,662          7,647          9,200

International Group                        8,544         20,788         11,116

Billing                                    3,924          3,607            534

Other Revenue                                 97            443          1,500
                                        --------       --------       --------
Total Revenue                           $ 76,842       $116,498       $117,142
                                        ========       ========       ========


Public Communications Group

         The Public Communications Group (i) owns and operates pay telephones
("payphones") in the United States and (ii) provides private branch exchange
("PBX") systems and long distance services to the hospitality market in the
United States (i.e., hotels and motels).

Private Payphones

         The Company obtains contracts, either through acquisitions or internal
growth, from site owners to install and operate private payphones. The payphones
are installed in properties where significant demand exists for private payphone
services, such as at educational institutions, airports, shopping malls,
convenience stores, service stations, grocery stores, restaurants, truck stops
and bus terminals, at no cost to the site owner. The Company then services and
collects money from these private payphones and pays the site owner a share of
the private payphone's



                                       6
<PAGE>

revenues. In addition to the coin revenue generated from the payphones, the
Company receives compensation from two other sources:

     (i)  The Company is compensated for certain operator-assisted collect,
          calling card, credit card, and third party billed calls placed from
          these phones. This compensation is in the form of surcharges and
          commissions paid by the operator service provider based on revenue
          collected for these calls.

     (ii) The Company receives compensation from providers of long distance
          services for "dial around" calls. Dial around is a term used to
          describe calls placed from payphones that bypass the IXC presubscribed
          to that payphone such as toll free (800, 888) calls. See "Government
          Regulation".

         During the past three years the Company has expanded its payphone base
in the Northeast and Southeast U.S. regions, primarily through acquisitions. In
addition to growth through acquisitions, the Company's sales activities
regularly seek to secure new private payphone sites.

         As of December 31, 1998, the Company owned and operated 11,138
installed private payphones in New York, New Jersey, Pennsylvania and Florida.
As a domestic IXC services provider, AMNEX's Integrated Services Group is the
primary presubscribed IXC for the Company's payphones, thereby generating
incremental revenue.

         On March 18, 1999, the Company entered into a non-binding letter of
intent for the sale of its private payphone division. The sale is subject to,
among other things, completion of due diligence, financing, and the execution of
definitive documentation.

Hospitality PBX Systems

         The Company provides and maintains PBX systems in hotels and motels in
consideration for the exclusive right to provide the hospitality site's
telecommunications services, including payphones and IXC services.

         The Company markets its services primarily to small and medium-sized
hotels (20 to 120 rooms). The domestic PBX systems are in place at hotel and
motel properties in New York, New Jersey, Florida, Colorado and California. The
Company has exclusive contracts with each hospitality site owner, the original
terms of which are five or ten years.

Integrated Services Group

         The Integrated Services Group provides operator assisted and related
long distance telecommunications services in the U.S. As an IXC and operator
services provider, the Company has traditionally served the private payphone and
hospitality markets. In 1998 the Company reorganized and upgraded its service
delivery systems in order to better serve the market consisting of the operator
services requirements of CLEC's, LEC's and IXCs. The market estimated at $13
billion, has now become the Company's strategic market in the U.S.



                                       7
<PAGE>


The service portfolio of the Integrated Services Group consists of operator
services, calling card services, long distance coin call services ("1+Coin") for
calls made on LEC-owned payphones, and direct dial long distance services, sold
through its distributors and agents and directly to end users.

Domestic Operator Services

         The Company provides operator-assisted services for other carriers,
private payphones, LEC-owned payphones and hospitality sites. The Company's
operator services are accessed when calls requiring operator assistance are
placed from a phone connected to its network or are forwarded to the Company's
network by another carrier. The services use live or automated operators to
receive, validate and complete calls. The Company processes collect, third
party, person-to-person, calling card, and credit card calls.

         The Company owns and operates its own operator center in Orlando,
Florida. The Company provides live and automated operator services 24 hours per
day, 365 days per year.

         The Company processes all of its operator calls through one of its two
switches and uses its own transmission facilities whenever possible to reduce
costs. The Company validates the calling card, credit card or telephone number
to be billed and then processes and completes the call over its network.

         The Company believes customer churn is common in the domestic operator
services industry due to increased competition. Furthermore, increased dial
around calls and use of debit cards and cellular and PCS phones have resulted in
fewer operator-assisted calls primarily at the Company's private and LEC-owned
payphone bases. To reduce its dependence on revenues generated by its
traditional domestic operator services base, the Company has been emphasizing
expansion of its private payphone base, growth of its 1+ Coin service business,
and provision of operator services to other telecommunications carriers.
Recently the Company has taken specific steps to increase its market share of
the operator services market by offering its services, as a subcontractor, to
other carriers who no longer wish to be engaged in operator services activities
but need to provide these services to their customers.

1+ Coin Services

         The Company provides long distance 1+ Coin services for direct dialed,
inter-LATA, coin calls placed at LEC-owned coin operated payphones that require
centralized processing (referred to as coin supervision). The Company markets
the service to LEC payphone groups and to IXCs that are presubscribed carriers
of such payphones. Pricing and coin control functions are performed remotely by
the Company. Records for completed calls are forwarded by the Company to the
appropriate LEC payphone owner for payment. The LEC subsequently collects the
coins from its payphones and remits payment to the Company within 30 to 60 days
depending on the agreement with the relevant LEC. Currently, the only other
provider of this service of which the Company is aware is AT&T.


                                       8
<PAGE>

Long Distance Services

         The Company's direct dial services include both flat-rated and mileage
sensitive rate plans. The Company's 800 service allows its customers to offer
inbound toll free calling to their own customers. Calling card services allow
travelers to communicate employing the Company's telecommunications services.
The Company generally offers its direct dial services to payphone owners and
hospitality property operators in conjunction with its operator services
offering. Additionally, the Company addresses opportunities in specific market
segments, and sells to end users and other carriers, directly. The Company
competes with providers such as AT&T, MCI Worldcom, Sprint and a number of other
IXCs.

Revenues; Billing Arrangements

         Revenues of the Integrated Services Group 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 agents,
payphone service providers (PSPs), and site owners, network costs, validation,
billing and collection charges and operator costs.

         For most of its revenue, the Integrated Services Group currently
contracts with unaffiliated third party billing clearinghouses to perform
billing on its behalf. The Company calculates charges for calls carried over its
network and forwards the call records to the billing clearinghouses. The records
are then processed and forwarded to the appropriate billing LEC. The billing
LECs place the charges on the end users' telephone bill, collect the amount due
from the end user, and remit payment to the billing clearinghouses, which, in
turn, remit payment to the Company. These payments are net of billing and
collection fees charged by LECs, as well as provisions for uncollectible calls
and a per transaction fee for the billing clearinghouse's services.

         Additionally, the Company employs in-house billing systems to bill and
collect calls made by its 800, calling card and direct dial customers.

Marketing and Customers

         The Integrated Services Group markets the Company's services throughout
the U.S. The Company currently has originating access available in 32 states and
the District of Columbia and has arranged to provide its services on a
nationwide basis, by using other carriers to originate calls in areas where the
Company does not have network facilities. Such standard practices in the
telecommunications industry allow the Company to provide services nationally.

         The Company markets its services through a nationwide network of
independent sales agents and dealers with whom it has entered into contractual
arrangements as well as through its own direct sales force. These arrangements
with agents and dealers afford the agent or dealer 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 customers.


                                       9
<PAGE>


International Group

         International operations derive revenues from hospitality-based and
other cross-border operator services primarily in Mexico and the Caribbean.

Mexico

         Mexico is one of the largest telecommunications partners of the United
States. The Company markets its services in the most popular tourist sites and
rural areas. The Company has an interconnect agreement with Bestel, S.A. de C.V,
one of the largest long distance carriers in Mexico, and resells Bestel's toll
free service in Mexico to provide cross-border operator assisted collect and
calling card calls to the U.S. These services are provided to guests in hotels
and to the general public in rural areas of Mexico.

Caribbean

         The Company provides operator-assisted collect and calling card calls
from selected Caribbean countries to the U.S. These services are generally
offered to guests in hotels and resorts and to the public through marketing
agreements with telephone companies. The Company currently provides services in
Jamaica and the Dominican Republic and is expanding service to other Caribbean
countries.

NBE

         NBE provides billing and collections services primarily for
unaffiliated third-party telecommunications service providers. In 1998, the
Company made a strategic decision to exit the billing and collection business
and, in March 1999, sold the major assets and the customer base of NBE to OAN
Services, Inc., another billing clearinghouse.

The Network

         The Company is a facilities-based switched service IXC, with a network
that includes Company-owned switches located in Orlando and New York City and
leased, dedicated transmission facilities. The Company's network is engineered
to ensure objective performance levels and reliable service. The Company has
back-up systems that, in the event of a power outage or equipment malfunction,
provide several layers of redundancy and route diversity to continue call
processing. The Company believes that its network flexibility, and the low
incremental cost to expand capacity, allow it to adequately service its
customers.

Seasonality

         The Company's revenues are subject to seasonal variations. The Company
typically experiences its lowest call volume and revenue in November and
December with peak call volume and revenue occurring in the summer months.


                                       10
<PAGE>


Competition

Public Communications Group

         The Public Communications Group competes with the LECs and with other
PSPs in its service territories in the identification of new sites for
payphones. The Company believes that competition relates primarily to the
quality of service provided, commissions paid to the site owners and end user
rates.

Integrated Services Group

         The Company experiences domestic competition in operator services and
other long distance services from AT&T, MCI Worldcom, Sprint and a number of
smaller carriers. AT&T and others currently provide long distance operator
services on calls from RBOC and other LEC-owned payphones and have, and can be
expected to retain, a significant share of this market.

         In addition, some IXCs, notably MCI Worldcom and AT&T, have introduced
specialized operator service products such as 1-800-COLLECT and 1-800-CALL-ATT
which compete with the Company's domestic operator services offerings. The
Company believes that these dial around services have had an adverse impact on
its operator services revenues. (However, the Company's Public Communications
Group is entitled to receive dial around compensation from the IXC on such calls
made on its payphones.)

         The Company believes that AT&T is its only competitor in the provision
of 1+ Coin long distance services, although other carriers are free to enter the
market for 1+ Coin services. The Company does not anticipate that others will
expend the capital and strategic resources necessary to enter this small niche
market.

International

         Numerous companies currently compete with the Company in the Caribbean
and Mexican hospitality industry, and major IXCs, such as MCI Worldcom and AT&T,
and several RBOCs are partners with companies that have received licenses to
carry intra-Mexico traffic. As in the domestic market, these carriers have
significantly greater resources than the Company and may exploit opportunities
that would adversely affect the International Group's operating results.

Government Regulation

Federal Regulation - Domestic Operations

         The independent payphone provider ("IPP") industry has been
strengthened by the Telecom Act, which affirmed U.S. District Court decisions
from the mid-1980s that permitted private (non-LEC) ownership and operation of
payphones. Specifically, the Telecom Act ordered the removal of LEC subsidies
from payphone service, provided for nondiscriminatory



                                       11
<PAGE>



access to LEC bottleneck facilities, and ensured that all payphone service
providers ("PSPs"), both IPPs and LEC-owned payphones, would receive fair
compensation for all completed calls.

         A U.S. District Court decision in October 1988 ordered the RBOCs to
begin equal access presubscription of payphones to allow IXCs to compete for the
business from RBOC payphones. Under this decision, premise owners were allowed
to choose presubscribed 0+ carriers for the RBOC payphones on their premises.
The RBOCs were barred from participation in the presubscription selection
process. Subsequently, the Telecom Act has given the RBOCs the right to the 0+
Carrier. Nonetheless, contracts existing at the time of the Telecom Act's
enactment in February 1996 were grandfathered, and these contracts (made without
RBOC participation in the presubscription process) still govern many of the RBOC
payphones.

         The Company also participates in the market for 1+ coin sent paid
interexchange traffic. A U.S. District Court decision in May 1990 allowed
LEC-owned payphones to presubscribe to carriers other than AT&T for 1+ coin
sent-paid interexchange traffic. This decision established that there were two
presubscribed carrier selections to be made for each payphone: a 1+ for direct
dialed long distance calls and a 0+ for operator-assisted calls. The Company is
the only entity other than AT&T that has developed the ability to handle this
traffic from LEC payphones.

         In connection with its rulemaking obligations under the Telecom Act,
the FCC established a new rate and mechanism for the compensation of completed
dial-around calls, i.e., access code and 800 calls from payphones. Marked by
controversy and court challenge, dial around compensation rules still remain the
subject of FCC review and reconsideration. The 1996 Payphone First Report and
Order, which included the Commission's first attempt at this topic, set a per
call rate of 35 cents (the prevailing local rate) to commence October 7, 1997.
In response to challenges to this per call rate, the U.S. District Court ruled
that it was clear from the record in the proceeding that coin calls had greater
costs than dial-around calls, that the Commission had erred, and remanded the
matter to the Commission for further action. The FCC's second attempt at per
call compensation, in the October 1997 Second Report and Order, set the amount
at 28.4 cents, based on subtracting coin costs from the market based prevailing
local rate of 35 cents. The U.S. District Court, in response to a challenge from
MCI, remanded the matter back to the FCC, asking the agency to explain how it
could arrive at a compensation rate by subtracting costs from revenues. The
FCC's third decision on per call compensation, the February 1999 Third Report
and Order, and Order on Reconsideration of the Second Report and Order, added up
the costs incurred by the completion of a dial-around call. The 24-cent per call
rate therein established has not yet become effective. Its effective date is
anticipated to be in April or May 1999, on the thirtieth day following the
rules' publication in the Federal Register. The FCC anticipates that the 24-cent
rate will be in effect at least until January 31, 2002. Expressing the FCC's
strong preference for a market-based compensation plan involving negotiation
between IXCs and PSPs and the use of targeted call-blocking capabilities by
IXCs, the Third Report and Order states that the Commission will not entertain
petitions asking for a modification of the per call rate or mechanism until
January 31, 2002. Nonetheless, it appears that representatives of both PSPs and
IXCs are preparing to challenge the FCC's decision again in U.S. District Court.


                                       12
<PAGE>


         The Third Report and Order states that the FCC will postpone
determining the amount that IXCs owe PSPs for the period from November 7, 1996
through October 6, 1997, known as the "interim period" between the effective
date of the First Report and Order and the commencement of per-call
compensation. During this period, the FCC had mandated that compensation be set
at the rate of $45.85 per phone per month and was to be paid by those IXCs with
annual toll revenues in excess of $100 million. That future determination,
according to the FCC, will include a consideration of the way in which IXCs may
recover overpayments from the newly established 24-cent rate.

         The 24-cent default compensation rate will apply retroactively for the
period between October 7, 1997 and the effective date of the Third Report and
Order. For purposes of calculating overpayments (from IXCs to PSPs) during this
interim period, the FCC stated that the compensation amount would be 23.8 cents,
reflecting a two-tenths of one-cent reduction for FLEX ANI costs.

         In August 1996, pursuant to the mandate of the Telecom Act, the FCC
adopted uniform, nationwide, interconnection and associated 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 rules require that interconnection rates 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
the 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.

         The Commission's Order was appealed by various state PUCs and LECs, and
the FCC's pricing rules were stayed on October 21, 1996, pending a final
decision of the U.S. Court of Appeals for the Eighth Circuit. Although the
Eighth Circuit Court of Appeals found, in July 1997, that the FCC lacked
jurisdiction to impose the TELRIC pricing standard for facilities and services
provided by incumbent LECs ("ILECs") to competitive LECs ("CLECs"), state PUCs
have generally adopted TELRIC or similar forward-looking methodologies in their
supervision of interconnection agreements between ILECs and CLECs. Accordingly,
the judicial delay in enforcement of the FCC's pricing rules has not resulted in
the imposition of embedded-cost based rates on CLECs for unbundled network
elements, resold ILEC services and transport and termination of local traffic
exchanged between ILECs and CLECs.

         More recently, the U.S. Supreme Court reversed the decision of the
Eighth Circuit Court of Appeals and confirmed the jurisdiction of the FCC to
impose pricing rules under the local competition provisions of the Telecom Act.
At the same time, the Supreme Court vacated the FCC's list of facilities and
functionality's that ILECs must provide to CLECs as unbundled network elements.
The ILECs generally have indicated to the FCC, however, that they will continue
to provide the unbundled network elements presently furnished to CLECs pending
the FCC's further proceedings on remand. Accordingly, it is not anticipated that
the court's decision would impede or delay any entity's plans to enter the local
exchange market and provide local exchange telecommunications services.


                                       13
<PAGE>


Other Applicable Regulations

         The Telephone Operator Consumer Services Improvement Act of 1990
("TOCSIA") amended the 1934 Communications Act by imposing a number of
requirements on all IXCs that provide interstate operator services. These
requirements include, among others, the right of the consumer to select other
IXCs. In 1992, the Commission advised Congress that in its opinion no further
regulation of the operator service industry, including rate regulation, was
necessary.

         Federal regulations require IPPs to offer unrestricted access from
their payphones by unblocking all major forms of access to other operator
service providers ("OSPs"). Additionally, IPPs must post certain consumer
information at each payphone and promptly route all emergency calls. IPPs that
fail to provide unrestricted access are not entitled to receive commissions due
from OSPs.

         Since 1992, the FCC has been considering a proposal concerning the
handling of operator-assisted calls from payphones, known as billed party
preference ("BPP"). Under BPP, calls would be routed directly to an IXC chosen
by the billed party and not through the presubscribed IXC. In a January 1998
Report and Order, the Commission adopted rules requiring all IXCs providing
operator services ("operator service providers" or "OSPs") to orally disclose to
consumers how to obtain the total cost of a call, including any surcharge
imposed by the payphone provider or the premise owner, before an interstate call
is connected and billed. The Commission also adopted rules governing the filing
of "informational tariffs" by OSPs. The new rules became effective on July 1,
1998. Importantly, the FCC declined to adopt a prescription of maximum rates,
the setting of "safe-harbor" benchmarks, or a BPP system that automatically
would have routed all calls to the consumer's preferred long-distance carrier.

Imposition of Presubscribed Interexchange Carrier Charges on Payphone Lines

         The FCC's Access Charge proceeding, as reflected in the May 1997 Report
and Order, is silent with respect to the imposition of presubscribed
interexchange carrier charges ("PICCs") on payphone lines. PICCs are assessed by
LECs on IXCs. It is at the discretion of the IXC to pass on the PICC to end user
subscribers. Notwithstanding the absence of any rules concerning the imposition
of PICCs on payphone lines, the RBOCs and many LECs assess the multi-line
business PICC, which is $2.75 per line per month, on all payphone lines, both
LEC and non-LEC. As there are two presubscribed interexchange carriers ("PICs")
on each payphone line, the question arises as to whether the 1+ (presubscribed
IXC) or 0+ (presubscribed OSP) should pay. LECs assert that they only impose one
PICC per payphone line. There is no evidence in the record to dispute the LECs'
assertion that no "double dipping" occurs. The Company generally passes through
to the PSP the PICCs that are assessed on the Company by the LECs. However, the
Company only passes through $0.50 of the PICC to non-LEC payphone service
providers. For other payphone classifications, the Company passes through to the
PSP a maximum of $2.00 of any charge above $2.00.

         A number of RBOCs assess the PICC on the 0+ carrier, taking the
position that under their tariffs the 0+ provider is responsible for selecting
the 1+ carrier for LEC payphone lines.


                                       14
<PAGE>


Other LECs charge the PICC to the 0+ carrier on "dumb" payphone lines. On lines
used by "smart" payphones, which are typically employed by independent PSPs,
many LECs impose the PICC on the 1+ carrier since the 0+ PIC is programmed into
the payphone itself.

         In response to the controversy, the FCC issued a Public Notice in May
1998 soliciting public comment on payphone PICC issues. More than a score of
comments and reply comments were filed in response. The Company urged that the
PICC should be charged directly to the PSP, rather than the IXC or OSP. Further,
the Company emphasized that the single line PICC should be used for payphones,
rather than the multi-line charge, noting that the LECs treat payphones as
single-business lines for order and administrative purposes. The Company further
urged the Commission to recognize the unfairness of placing the PICC on the 0+
carrier in a regulatory environment where any caller can dial around the
presubscribed IXC. The FCC has no timetable for reaching a decision on these
matters.

Federal Regulation - International Operations

         The United States became a signatory to the Basic Telecommunications
Services Agreement concluded by the World Trade Organization. This Agreement,
which became effective February 5, 1998, was concluded among 69 countries that
account for 95 percent of the global market for basic telecommunications
services. The Agreement's intent is to open these markets to foreign
competition. In implementing the Agreement, the FCC adopted new rules that make
it substantially easier for foreign carriers to enter into, and invest in, all
U.S. telecommunications markets. We believe the Agreement will increase
opportunities for the Company and its competitors.

         Effective January 1, 1998, the FCC implemented new, lower benchmarks on
international settlement rates. Settlement rates are the per-minute fees paid by
U.S.-licensed facilities based carriers to foreign carriers for terminating
calls originated in the U.S. The Commission benchmarks seek to move the
settlement rates closer to cost and thereby promote competition in the
international services market, resulting in significantly higher telephone
traffic volumes. The U.S. Court of Appeals for the District of Columbia Circuit
upheld the FCC's benchmark rules on January 12, 1999. Petitions for
reconsideration of the FCC's decision are still pending at the FCC and parties
could appeal the Circuit decision to the Supreme Court. To the extent the
Company begins providing facilities based service, the benchmarks decision
should lower such costs.

Employees

         As of December 31, 1998, the Company had 416 full-time employees, none
of whom are subject to a collective bargaining agreement.


                                       15
<PAGE>



Item 2. PROPERTIES

         The Company's corporate headquarters are located in New Rochelle, New
York where the Company leases approximately 8,244 square feet of space pursuant
to a lease that expires in April 2003. The Company leases this space from an
affiliate of Mr. Francesco Galesi, a director of the Company, under the terms of
a lease that is no less favorable to the Company then could have been obtained
from another third party in an arms-length transaction.

         The Public Communication Group's general office and operations, are
located in Lake Success, New York where the Company leases approximately 23,300
feet of space under a lease expiring in 2007.

         The Company's finance and accounting, data processing operations and
Florida switch site are located in Orlando, Florida where it occupies
approximately 8,532 square feet. The leases for the general office and data
processing operations expire August 1999; the lease for the switch site expires
in 2003.

         The Company's operator center, network group, customer relations
operations and human resources group are located in Orlando, Florida where the
Company occupies approximately 19,907 square feet of space pursuant to a lease
which expires in September 1999.

         In November 1998, the Company entered into a lease agreement under
which the Company will lease approximately 30,750 square feet at a new facility
in Orlando. The Company will relocate its operator center and other Orlando
based functions to this new facility in 1999.

         Certain of the Company's customer relations functions were located in
Boca Raton, Florida where the Company leased approximately 4,800 square feet of
space pursuant to a lease expiring in March 2002. In January through March 1999,
these functions were relocated to Orlando and the lease for the Boca Raton
facility will be terminated in the first half of 1999.

         The New York switch site is located at 60 Hudson Street, New York, New
York where the Company leases 10,700 square feet of space pursuant to a lease
that expires in 2001. A substantial portion of this space is currently being
subleased by the Company at market rates.

         NBE's operations are located in Austin, Texas, where the Company has
leased approximately 21,500 square feet of space under a lease which expires in
2000. With the wind down of NBE's operation in 1999, the Company expects to
terminate this lease.

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


                                       16
<PAGE>




Item 3. LEGAL PROCEEDINGS

Manghir

         On July 2, 1997, D. Faye Manghir, the holder of a 50% equity interest
in the joint venture company formed by Community Network Services, Inc.,
MicroTel Communications Corp. and the Company (which holds the remaining 50%
equity interest), filed suit against the Company in the Supreme Court of the
State of New York (the "Suit"). The Suit alleges, among other things, that the
Company made certain misrepresentations and committed certain breaches under the
joint venture agreement among the parties, and seeks rescission of such
agreement, compensatory damages in the sum of $10,000,000, punitive damages in
the sum $25,000,000, and attorneys' fees. The Company filed a motion to dismiss
or in the alternative to stay the proceeding pending arbitration and the court
issued an order staying the lawsuit pending arbitration. The plaintiff has never
initiated an arbitration proceeding. In February 1999, a preliminary conference
was noticed by the court, at which neither the plaintiff nor plaintiff's counsel
appeared. In 1998, the plaintiff had proposed a settlement under which there
would be a mutual release of all claims followed by a discontinuation of the
suit and while the Company had decided to accept this offer, actual settlement
has been impeded by plaintiff's failure to retain new counsel after its previous
counsel had withdrawn.

King, et. al.

         On September 25, 1997, Brian King and his affiliates, National Telecom
U.S.A., Inc., The Keystone Corporation, Coastal Telecom Payphone Company, Inc.,
BEK Tel, Inc., Garden State Telephone Installation & Service Co., Inc. and
National Hospitality USA (collectively "National") filed suit against the
Company and its subsidiaries, ANEI and American Hotel Exchange, Inc. alleging
breaches of various contracts, negligence, misappropriation of trade secrets,
conversion of various assets, fraud, negligent misrepresentations and promissory
estoppel, and seeking rescission of certain claims, specific performance of
other claims, damages in the amount of $6,300,000, punitive damages and
attorneys' fees. On September 30, 1997, the Company and National reached an
agreement of settlement of certain of the claims. Pursuant to this settlement,
on September 30, 1997, the Company paid National $1,000,000 in cash and
delivered a note in the principal amount of $840,000 for liabilities previously
accrued. Thereafter, the Company filed a motion to dismiss and compel
arbitration, which the Court granted in its entirety.

         Upon dismissal of its state court action, National served the Company
with an arbitration demand, incorporating the previously described state court
claims. In July 1998, the parties engaged in two days of arbitration hearings
before a panel of the American Arbitration Association in New York. Following
these hearings, the parties initiated settlement discussions, which resulted in
agreement in principle on a number of matters at issue. However no final
settlement was reached and arbitration hearings are scheduled for June 1999.


                                       17
<PAGE>


Rowland

         In connection with the Company's June 1996 acquisition of CNSI, CNSI
issued a promissory note in favor of Robert A. Rowland, a principal shareholder
of the Company, in the principal amount of $1,197,700 payable on July 31, 1997
with interest due on the unpaid principal balance at a rate of 10.5% per annum.
On July 11, 1997, Mr. Rowland filed suit against the Company. He asserted
several causes of action against the Company, including enforcement of an
alleged settlement agreement regarding indemnification claims, and sought
damages in the amount of the principal and interest due under the note,
attorneys' fees and exemplary damages in an unstated amount. The causes of
action asserted by Mr. Rowland against CNSI related to monies allegedly due
under a consulting agreement, and damages claimed included attorneys' fees. The
Company sought appellate review of the denial of its motion to compel
arbitration and pleaded to abate the action and moved to amend its answer to
assert an affirmative defense of fraud against Mr. Rowland. On February 13,
1998, the Court denied a motion for summary judgment by Mr. Rowland.

         On March 23, 1998, the Company filed a complaint in federal district
court in Manhattan, charging Robert Rowland with: (i) fraudulently inducing the
Company to purchase CNSI, (ii) breaching the contract of sale with the Company
for the purchase of CNSI, and (iii) violating Rule 10b-5 in connection with the
sale of CNSI's stock to the Company. The complaint sought $3.5 million in
compensatory damages, as well as punitive damages and attorney's fees.
Thereafter, the Company amended the complaint to join as co-defendants Donald D.
Simmons and Carl Michael Moehle, the two next largest shareholders in CNSI at
the time of the acquisition (after Mr. Rowland). In July 1998, defendants moved
to dismiss the amended complaint on the grounds that the Rule 10b-5 claim was
time barred, and that the other claims should have been brought in Texas. On
November 2, 1998, the district court granted this motion. On March 17, 1999, the
Company reached an agreement of settlement with Mr. Rowland, which involves the
payment of $1,000,000 over a five month period, the delivery to Mr. Rowland of
60% of certain Shares held in escrow in connection with the Company's purchase
of CNSI, and reciprocal releases by Mr. Rowland and the Company. The Company
also reached an agreement of settlement with Mr. Moehle and Mr. Simmons pursuant
to which the Company agreed to release to each of them 60% of certain Shares
held in escrow in connection with the Company's purchase of CNSI and reciprocal
releases by each of Mr. Moehle and Mr. Simmons on the one hand and the Company
on the other.


Transaction Network Services, Inc.

         On July 29, 1998, Transaction Network Services, Inc. ("TNS") filed a
demand for arbitration against ANEI and the Company alleging breaches by ANEI
and the Company of a consulting agreement, services agreement and asset purchase
agreement relating to TNS's purchase from ANEI of certain computer hardware and
software in 1996 and the provision of validation and fraud control services and
consulting services in respect thereof. TNS sought damages in excess of
approximately $2.0 million in respect of the agreements and also sought
injunctive relief with respect to certain exclusivity and non-compete provisions
of the




                                       18
<PAGE>

agreements, as well as attorney's fees. The Company and ANEI filed an answer
denying TNS's claims, as well as a counterclaim against TNS.

         On January 25, 1999, the Company and ANEI reached an agreement of
settlement with TNS pursuant to which the Company will pay TNS a total of
$2,230,000, with two initial installments of $265,000 each and the remaining
$1,700,000 bearing interest at 10% and payable over a 24 month period. In
connection with the settlement each of TNS and the Company executed a mutual
release of claims.

Dolphin USA, Inc.

         In September 1996, Dolphin USA, Inc. ("Dolphin") filed suit in the
District Court of Harris County, Texas alleging that CNSI breached an agreement
to pay commissions and service charges to Dolphin in exchange for certain long
distance telephone accounts. Dolphin also alleged negligence, fraud and
violations of the Texas Deceptive Trade Practices Act. On January 30, 1998,
Dolphin amended its compliant, adding the Company as a defendant. Dolphin also
alleged that ANEI had assumed CNSI's obligations under the agreement and that
ANEI and CSNI are alter egos of the Company. In September 1998, Dolphin further
amended its complaint to increase the amount of damages sought to in excess of
$2.7 million in actual damages, treble damages under the Texas Deceptive Trade
Practices Act, and exemplary damages of at least $250,000. CNSI, ANEI, and the
Company filed answers and a counterclaim for amounts owed by Dolphin.

         On March 12, 1999, Dolphin and the Company, ANEI and CNSI reached a
settlement pursuant to which the Company agreed to pay Dolphin $250,000 to
settle any and all claims that were or may have been brought by either party in
the lawsuit.

AT&T

         On November 5, 1998, AT&T Corp., filed suit in the United States
District Court for the Middle District of Florida, against the Company and two
of its subsidiaries, ANEI and CNSI. AT&T alleges that defendants owe AT&T
approximately $12,300,000 "for telephone calls and service provided by AT&T" on
two accounts, and demand payment of this amount on several different legal
theories including breach of contract, and quantum meruit.

         Following service of the complaint, AT&T filed a motion, in which the
Company joined, to have the case transferred to the United States Court for the
Southern District of New York, where it now is pending. A preliminary conference
has been scheduled for April 22, 1999, at which time a schedule for the
discovery process should be established. At the same time, the parties have
opened informal discussions, not connected with the litigation process, aimed at
settling the litigation.

         Should these informal discussions fail to produce a settlement the
Company intends to vigorously oppose AT&T's suit and believes that its liability
to AT&T is limited to an amount greatly reduced from that asserted by AT&T.



                                       19
<PAGE>


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

                                     PART II

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

         Market Information

         AMNEX's Common Shares are traded in The Nasdaq SmallCap Market (Nasdaq
Symbol: AMXIC). 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
                              ------         ------
1997 Calendar Year
First Quarter                 $ 4.19         $ 2.56
Second Quarter                  3.31           1.44
Third Quarter                   3.00           2.00
Fourth Quarter                  2.44           0.84

1998 Calendar Year
First Quarter                 $ 2.53         $ 1.00
Second Quarter                  2.38           1.06
Third Quarter                   1.41           0.44
Fourth Quarter                  0.66           0.28


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

         AMNEX's Common Shares are listed on The Nasdaq SmallCap Market via an
exception from NASDAQ's net tangible assets and minimum bid price continued
listing requirements. While AMNEX failed to meet the net tangible assets
requirements as of August 14, 1998, and subsequently failed to meet the bid
price requirement, AMNEX has been granted a temporary exception from these
standards subject to AMNEX's meeting certain conditions. The exception will
expire on April 30, 1999. In the event that AMNEX is deemed to have met the
terms of the exception, it shall continue to be listed on The Nasdaq SmallCap
Market. There can be no assurance that the Company will meet these conditions.
If at some future date the Company's

                                       20
<PAGE>


Common Shares cease to be listed on the Nasdaq Small Cap Market, they may
continue to be listed on the OTC Bulletin Board. A delisting of the Common
Shares from the Nasdaq SmallCap Market would trigger mandatory repurchase of the
Company's $15,000,000 8 1/2% Subordinated Notes Due 2002 (the "Notes") at the
option of the holders thereof at a repurchase price equal to 101% of their
principal amount. In addition, delisting would also trigger mandatory redemption
of the Company's outstanding Series M Preferred Shares at prices significantly
in excess of the current trading price. The Company does not currently have the
cash resources or access to capital sufficient to support repurchase of the
Notes or the Series M Preferred Shares.

         Holders

         As of February 26, 1999, there were 1,020 holders of record of Common
Shares of AMNEX.

         Dividends

         AMNEX has neither declared nor paid any dividends on its Common Shares
since inception, and the Board of Directors of the Company (the "Board of
Directors") does not contemplate the payment of dividends in the foreseeable
future. Any decision as to the 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 January 1998, the Company issued 750 Series M Preferred Shares.
There are currently 535 Series M Preferred Shares outstanding. The holders of
the Series M 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 5% of the Stated Value per annum. To date,
no dividends have been paid to the holders of the Series M Preferred Shares.

         Recent Sales of Unregistered Securities

         During the quarter ended December 31, 1998, the Company neither issued
nor sold, equity securities other than in transactions registered under the
Securities Act of 1933, as amended (the "Securities Act").




                                       21
<PAGE>


Item 6. SELECTED FINANCIAL DATA

         The following selected financial data has been derived from the
Company's consolidated financial statements. The selected financial data should
be read in conjunction with the financial statements and notes thereto included
elsewhere in this Annual Report and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations".


                             Selected Financial Data
                             Year Ended December 31
                      (In thousands, except for share data)

<TABLE>
<CAPTION>

                                  1998         1997          1996          1995         1994
                               ---------     ---------     --------      ---------    ---------
<S>                            <C>           <C>           <C>           <C>          <C>
Operating data:
Revenue                        $  76,842     $ 116,498     $ 117,142     $ 105,890    $ 108,737
Net income (loss) (1)            (44,664)      (13,310)       (4,248)        1,431          541
Net income (loss) available
for common
shareholders (2)                 (44,729)      (13,772)       (5,264)          888          250
Basic earnings (loss) per
common share                       (1.07)        (0.45)        (0.23)         0.05         0.02
Diluted earnings (loss) per
common share                       (1.07)        (0.45)        (0.23)         0.04         0.02

Balance sheet data:
Total assets                      68,939        91,587        91,359        49,580       39,773
Working capital
(deficiency)                     (60,150)      (20,062)       (4,994)          531       (3,114)
Capital lease
obligations                          468         3,239         4,847         2,926          896
Total longterm
indebtedness                      20,420        26,545        16,198         6,302          767
Shareholders' equity              (9,805)       18,558        33,320        20,392       12,870

</TABLE>

(1)  For the year ended December 31, 1998 includes $19,957,000 (CNSI) and
     $1,495,000 (NBE) related to the write down of Goodwill , fixed assets and
     intangible assets related to the implementation of SFAS 121 "Accounting for
     Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
     of". See "Management's


                                       22
<PAGE>

     Discussion and Analysis of Financial Condition and Results of
     Operations--Year ended December 31, 1998 compared with Year Ended December
     31, 1997". Also included for the year ended December 31, 1998 are legal
     settlements totaling $3,900,000.

(2)  Gives effect in the years ended December 31, 1998, 1997, 1996, 1995, and
     1994 to $65,000, $462,000, $616,000, $543,000, and $291,000 in Preferred
     Share dividend accruals. Also gives effect in the year ended December 31,
     1996 to $400,000 in deemed dividends with respect to the Series G Preferred
     Shares


                                       23
<PAGE>



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


Overview

         Trends in the domestic operator services industry continue to show
weakness due to increases in the number of consumers who use "dial around"
services (the use of access numbers to reach their carrier of choice, rather
than dialing "0+) and debit cards. Additionally, the industry is characterized
by increasing competition associated with providing service to PSP's (privately
owned and operated pay telephones), and presubscribed public phones (in which
the Site Owner preselects the long-distance service provider).

         Recognizing that its PSP and presubscription public phone businesses
would continue to decline, the Company, in addition to expanding its private
payphone base has been emphasizing the development of its 1+ Coin service
business during 1998 and the provision of operator services as a subcontractor
to other carriers. The Company plans to continue these efforts in 1999.

         Additionally, in 1998, the Company's business in Mexico declined
substantially due to the adverse regulatory climate and increased competition
from Telmex and other operator service providers. In addressing these issues,
the Company made a number of changes in its business approach in order to enable
it to regain market share.

         In 1998, the Company made a strategic decision to exit the billing and
collection business, in which it has been participating through its National
Billing Exchange (NBE) subsidiary. In December 1998 the Company entered into an
agreement to license certain of its proprietary billing and collection system
software to OAN Services, Inc., another billing clearinghouse, and in March 1999
sold additional assets and its customer base to OAN.



                                       24
<PAGE>


The table below sets forth the Company's revenues:


                             Years Ended December 31
                                 (in thousands)

                                          1998           1997           1996
                                          ----           ----           ----

Public Communications Group
     Private payphones                  $ 18,700       $ 15,632      $   6,642
     Hotel PBX Services                    4,321            246            245

Integrated Services Group
     Domestic operator services           29,165         60,916         83,687
     1+ Coin services                      6,419          7,219          4,218
     Long distance services                5,662          7,647          9,200

International Group                        8,544         20,788         11,116

Billing                                    3,924          3,607            534

Other Revenue                                 97            443          1,500
                                        --------       --------       --------
Total Revenue                           $ 76,842       $116,498       $117,142
                                        ========       ========       ========


                                       25
<PAGE>

Results of Operations

Year Ended December 31, 1998 as compared with Year Ended December 31, 1997

         The Company's revenues totaled $76,842,000 for the year ended December
31, 1998 compared to $116,498,000 for 1997, a decrease of approximately 34%. The
reduction in 1998 revenues is primarily attributable to the impact of increased
competition, the impact of the increasing use of "dial around" services and
debit cards on domestic operator services revenue, as well as the adverse
regulatory climate and increased competition from other larger, more established
service providers in Mexico. This was partially offset by increased payphone
revenue reflecting the continuing implementation of the Company's strategy to
acquire payphones in the Bell Atlantic service area.

         In 1998 the Company's business in Mexico declined substantially. The
Company experienced a major drop in operator services revenue from Mexico in the
second quarter of 1998 due to unanticipated adverse changes in regulatory
requirements and increased competition. In the latter part of 1998, the Company
addressed these issues and restructured its business in Mexico, so as to enable
it to pursue the recapture of market share.

         Cost of sales were $60.5 million, or 78.7% percent of revenues in 1998
as compared to $100.1 million or 85.9% of revenues in 1997. The decrease is
attributable to decreased network costs associated with international operator
services revenue and decreased credit and collection costs in both the domestic
and international operator services businesses. In 1998, the Company began to
reduce its international network costs, including a change to more
cost-effective service providers, and also expanded its efforts to reduce its
credit and collection costs.

         Selling, general and administrative expenses totaled $21.8 million in
1998 versus $15.0 million in 1997 and represented 28.4% of revenue in 1998
versus 12.9% in 1997. Included in selling, general and administrative expenses
are costs of $3.9 million associated with the Company's settlement of certain
pending litigation actions, which were settled in the first quarter of 1999,
(see "Item 3 - Legal Proceedings - Rowland", "-- Dolphin USA, Inc.," and "-
Transaction Network Services, Inc."), as well as increased legal expenses
associated with those settlements, settlement of prior years' New York State
excise tax liabilities, and increased compensation costs due to changes in
senior management.

         Interest expense was $4,821,000 and $3,913,000 for the years ended
December 31, 1998 and 1997, respectively. The increase in 1998 was primarily due
to increased borrowings which were used to fund to payphone acquisitions.

          The Company's operating loss totaled $37.6 million in 1998 compared to
$9.1 million in 1997. The increased loss is primarily attributable to
$21,452,000 in charges related to the implementation of SFAS 121 "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
(see Note 1 of the Notes to the Company's Consolidated Financial Statements,
Impairment Loss on Long-Lived Assets). Increased depreciation associated with
the acquisition of over 3,000 payphones in 1998 also contributed to the higher
operating loss.


                                       26
<PAGE>


         In addition, in August 1998 the Company entered into a $40,000,000
asset-based lending facility with Jackson National Life Insurance Company. In
connection with this financing, the Company retired existing debt subject to an
early termination charge. This charge, in the amount of $585,000, is included as
an extraordinary item.

Year Ended December 1997 as compared with Year Ended December 1996

         Revenues decreased from $116,498,000 in 1997 to $117,142,000 in 1996, a
decrease of less than 1%. The decrease is attributable to the decline in the
domestic operator services business. In addition revenues generated from the
1996 CNSI and payphone acquisitions contributed to continued revenue growth.

         Cost of sales increased to $100,064,000 in 1997 from $93,863,000 in
1996, due in part to a increase in network costs associated with increased
international operator services revenue. As a percentage of revenues, cost of
sales was 85.9% and 80.1% for the years ended December 31, 1997 and 1996,
respectively.

         Selling, general and administrative expenses, as a percentage of
revenues, were 12.9% and 14.1%, respectively, for the years ended December 31,
1997 and 1996. The decrease in 1997 from 1996 related primarily to costs
associated with the acquisition of CNSI.

         Interest expense was $3,913,000 and $2,730,000 for the years ended
December 31, 1997 and 1996, respectively. The increase in 1997 over 1996 was due
to additional capital lease obligations related to PBX systems and debt incurred
in connection with the Crescent acquisition in October 1995.

         The Company had a $9,130,000 operating loss in 1997 versus operating
income of $2,964,000 in 1996. The 1997 loss was partially attributable to
increased network costs associated with international operator services,
increased credit and collection costs in both the domestic and international
operator services businesses, the restructuring charge, the joint venture
write-off and the dial around reserve.

 Liquidity and Capital Resources

         The Company had a working capital deficiency of $60.2 million at
December 31, 1998 versus a $20.1 million deficiency at December 31, 1997. This
increase was primarily due to the reclassification of the Company's $15.0
million 8.5% Convertible Subordinated Notes due 2002, and of the balances
outstanding under its Loan and Security Agreement with Jackson National Life
Insurance Company (JNL) consisting of Revolving Loans of $18.4 million and Term
Loans of $5.4 million, and operating losses.

         The Convertible Subordinated Notes contain a provision that should the
Company's Common Shares fail to be listed on a national securities exchange or
approved for trading on an established automated over-the-counter trading
market, the Company is required to repurchase the Notes, at the option of the
holder thereof, at a repurchase price of 101% of their principal



                                       27
<PAGE>

amount. It is likely that the Company will not meet the criteria for continued
listing on NASDAQ. The Company currently is not in compliance with those
criteria, but has received an exemption from the NASDAQ Listing Qualifications
Panel pending the completion of certain actions, including the attainment of a
certain level of Net Tangible Assets, as defined by NASDAQ. See "Part II, Item 5
- Market for Registrant's Common Stock and Related Stockholders Matters."

         The Company failed to meet certain of the technical covenants under its
Loan and Security Agreement with Jackson National Life as of February 28, 1999,
which, according to the terms of the agreement, constitutes an Event of Default,
as defined. The Company has received a waiver from JNL from these conditions and
is currently in negotiations to amend the terms of the Agreement so as to be in
compliance.

         In addition to the above, the Company continues to experience operating
losses, reduced revenue and a reduction in associated accounts receivable which
necessitate increased borrowings. During the first half of 1998, the Company
completed several private equity financings raising a total of $6,374,000 in
cash. In addition Francesco Galesi, a director of the Company, to whom the
Company was indebted under several note agreements, converted $3,200,000
outstanding under these notes into 2,758,620 Common Shares of the Company. In
connection therewith, and as consideration for the financing, the Company also
issued Mr. Galesi warrants to purchase 750,000 Common Shares of the Company at
$1.50 per share. Certain restrictions were placed on the resale of these shares
for a one-year period from the date of issuance.

         In September 1998, Mr.Galesi converted $1,514,250 in unpaid notes and
accrued interest into 1,211,400 common shares of the Company.

         In 1998, Mr. Galesi and an affiliate, Rotterdam Ventures, Inc., loaned
the Company $3,400,000 under several promissory note agreements.

         Subsequent to December 31, 1998, Mr. Galesi and Rotterdam Ventures,
Inc., have loaned the Company $3,630,000 under several promissory note
agreements.

         The Company has in place a lending agreement with one of its billing
and collection agents under which advances of up to $21,000,000 are provided
based on eligible receivables. Such receivables are purchased by the billing and
collection agent, with recourse, at the approximate rate of 72% of the gross
amount thereof. The Company pays interest under this agreement at prime plus
1.5% per annum. At December 31, 1998, the amount due under this agreement was
$2,649,000 versus $6,678,000 at December 31, 1997. The lending agreement extends
through February 2000.

         In September 1997, the Company obtained a $5,000,000 revolving line of
credit (the "Line of Credit"). The Line of Credit provides borrowings based on a
percentage of eligible receivables (between 50% and 85%) and interest at a rate
equal to the prime rate plus 1% per annum. At December 31, 1998, the amount due
under this agreement was $1,808,000 versus $3,465,000 at December 31, 1997.



                                       28
<PAGE>

         Management has taken a number of steps to address this situation and
enable it to focus on its core competency of providing operator services and
related services to domestic and transborder telephone companies.

         In 1998, the Company made a strategic decision to exit the billing and
collection business, in which it has been participating through its National
Billing Exchange (NBE) subsidiary. In December 1998 the Company entered into an
agreement to license certain of its proprietary billing and collection system
software to OAN Services, Inc., another billing clearinghouse, and in March 1999
sold additional assets and its customer base to OAN.

         Between January and March 1999, the Company closed its Boca Raton,
Florida facility and transferred the customer service activity to its Orlando
facility, thereby improving operating efficiency and reducing costs by
concentrating all domestic operator services functions into one location.

         During the second half of 1998, the Company completed the process of
building a new management team with the hiring of new senior executives for
Marketing, Sales and Finance.

         During the second half of 1998, the Company implemented a new plan
which changed its business approach in Mexico so as to enable it to regain
market share. In the first quarter of 1999 revenue is growing again. The
Company's Caribbean revenue stream continues to grow primarily in Dominican
Republic and Jamaica pursuant to its market development strategies.

         In the fourth quarter of 1998 the Company hired management that is
highly experienced in network engineering, and a plan has been developed which
the Company expects will result in a significant reduction to the Company's
network costs. Implementation of this plan is beginning in the second quarter of
1999.

         The Company has begun implementation of its long-term strategy to focus
its domestic operator services activities towards the needs of CLECs, the LECs
and IXCs. Consistent with this strategy, the Company signed its first contract
with Bell Atlantic in the fourth quarter of 1998. Since then, the Company has
become a service provider to a second RBOC and is currently in discussions with
four other large local telephone companies. The successful implementation of
this strategy will transform the Company's customer base to one which has fewer
customers with significantly higher revenues per customer, enabling increased
operating efficiencies and higher margins.

         In the fourth quarter of 1998 the Company received an unsolicited offer
for the purchase of its payphone business. In March 1999 the Company entered
into a non-binding letter of intent for the sale of this business. The
transaction is subject to, among other things, completion of due diligence,
financing and the execution of definitive documentation. The Company's strategy
had originally called for it to continue to build its business primarily through
acquisitions, and then make a decision whether to sell or spin off the business
or to continue to grow it. However, given the timing of this unsolicited offer,
the Company has decided to pursue the sale of the business. Although there can
be no assurance that the transaction presently contemplated will be



                                       29
<PAGE>

completed, upon the closing of the transaction the Company will realize
sufficient proceeds to enable it to fund its operations for the foreseeable
future.

         In March 1999, the Company received a notice from the lender to its
payphone subsidiary, Jackson National Life Insurance Company (JNL), that the
Company's subsidiary, Crescent Public Communications, Inc. (Crescent) was in
default of certain covenants under the Loan and Security Agreement between
Crescent and JNL. JNL has granted a temporary waiver with respect to the Event
of Default and the Company and JNL are in the process of negotiating an
amendment to the Loan and Security Agreement in order to modify the terms of the
covenants and cure the Event of Default.

Year 2000

         The Company has been reviewing its computer systems and applications to
determine the remediation required for Year 2000. In addition, the company has
been assessing its non-information technology systems to determine repairs
necessary, if any, to make these systems Year 2000 compliant. The Company has
identified various computer systems and applications that require remediation to
become Year 2000 compliant. Nearly one third of these systems have been upgraded
and are now Year 2000 compliant. The Company estimates that the remaining
systems will be compliant by mid year 1999. The Company is also reviewing its
third party relationships to assess and address Year 2000 issues with respect to
these third parties.

         The Company has begun to develop a contingency plan, and in conjunction
therewith an assessment of its risks with respect to the Year 2000. Based on its
assessment efforts, the Company does not believe that Year 2000 issues will have
a material adverse effect on its financial condition or results of operations.
However, The Company's Year 2000 issues and any potential business
interruptions, costs, damages or losses related thereto, are dependent, to a
significant degree, upon the Year 2000 compliance of third parties.
Consequently, the Company is unable to determine at this time whether year 2000
failures will materially affect the Company. The Company believes that its
compliance efforts have and will reduce the impact on the Company of any such
failures.

         The costs of Year 2000 compliance to the Company to date have been
nominal and the Company believes that the remaining costs will not be material
to it's operating results or financial position.

Other

         The National Association of Securities Dealers ("NASD") has informed
the Company that it does not meet certain of the NASD's criteria for continued
listing on the NASDAQ Small Cap Market. Such criteria include minimum levels of
tangible assets, net income, market capitalization and price of the Company's
common stock. The Company has requested continued listing on the NASDAQ Small
Cap Market and has been granted an exemption by the NASDAQ Listing
Qualifications Panel pending the completion of certain actions, including the
attainment of a certain level of Net Tangible Assets, as defined by NASDAQ. It
is likely that the


                                       30
<PAGE>


Company will not meet the criteria for continued listing on NASDAQ. See "Part
II, Item 5 - Market for Registrant's Common Stock and Related Stockholders
Matters."


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL 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,
1998.



                                       31
<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
         ----                      ---       --------

         Alan J. Rossi             50        Chairman of the Board and Chief
                                             Executive Officer
         Vincent H. Catrini        50        Chief Financial Office
         Guy A. Longobardo         37        General Counsel, V.P of Corporate
                                             Development and Corporate Secretary
         Roy Schiele               56        Executive Vice President and
                                             Chief Operations Officer
         Francesco Galesi          67        Director
         Anne P. Jones             64        Director
         Harry R. Thompson         69        Director
         A. Jones Yorke            67        Director


         Alan J. Rossi has served as Chairman of the Board and Chief Executive
Officer of the Company since May 1997. Mr. Rossi has served since July 1996 as
President of ECI, a telecommunications company with principal operations in
Europe. From 1994 to February 1996, he was Group President of Andrew Telecom, a
telecommunications operator that focused its business on Russia and Eastern
Europe as a division of Andrew Corporation. From 1992 to 1994, Mr. Rossi was
Vice President and General Manager of Sprint's global value-added services
business, with operations located principally in Japan, the United States and
Western Europe. Prior to this, he served as President of the Argo Group, a
United States long distance telephone company that specialized in serving the
needs of large business telecommunications users, and as ITT Corp's senior
telecommunications executive for Central America. Mr. Rossi holds an MBA degree
from the University of London and BS and MS degrees in Electrical Engineering
from Purdue University. Mr. Rossi has also served on the policy board and
faculty of the Center for Advanced Technology in Telecommunications of the
Polytechnic University, New York, and the National University of Engineering,
Peru.

         Vincent H. Catrini has served as the Company's Chief Financial Officer
since August 1998. From April 1996 until July 1998 he was managing partner of
KDC & Company, a consulting firm specializing in providing advice to start ups
and turn arounds. From July 1995 until March 1996 he was Vice President and
Chief Financial Officer of USCI, Inc., a provider of activation services to the
wireless communications industry. From 1992 until 1995 he was Vice President and
Controller of Porta Systems Corp., a supplier of connection and protection
equipment and operations support systems to U.S. and foreign telephone operating
companies and between 1988 and 1992 he was Vice President and Chief Financial


                                       32
<PAGE>

Officer for TDS Healthcare Services Corp., a provider of software to major
hospitals in the U.S. and Europe, and for BroadBan technologies, Inc., a
supplier of fiber optic transmission systems. From 1970 until 1987, Mr. Catrini
was at ITT Corp., where he held various financial management positions, the last
of which was Vice President and Group Comptroller for ITT Telecom North America.
Mr. Catrini is a Certified Public Account and holds both a BA in Economics and
an MBA from New York University.

         Guy A. Longobardo has served as General Counsel, Vice President of
Corporate Development and Corporate Secretary of the Company since March 1998.
From February 1995 until joining the Company, Mr. Longobardo was employed by
HSBC Securities, Inc., the U.S. securities subsidiary of HSBC Holdings plc,
where he most recently served as a Managing Director and Head of Corporate
Finance in its Investment Banking Division. From 1985 through February 1994, he
was an attorney in the Corporate Department of the law firm of Milbank, Tweed,
Hadley & McCloy. Mr. Longobardo holds a BA degree in Economics from Williams
College and a JD from the Columbia University School of Law.

         Roy L. Schiele has served as Chief Operations Officer of the Company
since January 1998. From 1991 until joining the Company, Mr. Schiele was the
President of Western Associates, Inc., an international telecommunications
consultancy serving corporate clients and telecommunications carriers. From 1983
to 1991, he served as President and Chief Operating Officer of Voicemail
International, Inc., and as Vice-President of Operations for Argo Communications
Corp., a long distance carrier. Previously, Mr. Schiele spent 14 years at AT&T
companies, where he held a variety of engineering and operations positions. He
served as Captain in the U.S. Army prior to entering the Bell System. Mr.
Schiele holds both a BS and MS in Electrical Engineering from Gonzaga University
and Oregon State University, respectively.

         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, each of whose
shares are publicly traded. Mr. Galesi also serves on the Board of Directors of
a number of privately held companies. See "Certain Relationships and Related
Transactions."

         Anne P. Jones has served as a Director of the Company since March 1998,
and has been a telecommunications consultant in Washington D.C. since 1994. She
served as a Commissioner of the Federal Communications Commission from 1979 to
1983, when she became a partner in the law firm of Sutherland, Asbill & Brennan,
specializing in communications law and regulatory issues. She was a partner at
Sutherland, Asbill & Brennan from 1983 through 1994. Ms. Jones had earlier
served as General Counsel of the Federal Home Loan Bank Board (1978-1979) and as
a Director of the Division of Investment Management of the Securities and
Exchange Commission (1976-1978). She is a Director of C-Cor Electronics, Inc.,
the IDS Mutual Fund Group, and Motorola, Inc. She holds BS and LLB degrees from
Boston College and its Law School, respectively.


                                       33
<PAGE>


         Harry R. Thompson has served as a Director of the Company since July
1997. Mr. Thompson has served as Managing Director of Swiss Army Brands, Inc.,
since December 1994 and previously served as its Chairman from 1989. Since 1985,
Mr. Thompson has been President of the Strategy Group, a business and marketing
consulting firm. Prior to 1985, he served as Director of, and consultant to,
Telus Communications, a long distance telecommunications company. He also served
in senior executive capacities with the Interpublic Group of Companies, Inc., a
leading marketing and communications organization. Mr. Thompson also serves as a
director of Schwinn/GT Corp.

         A. Jones Yorke has served as a Director of the Company since July 1997.
Since December 1998, Mr. Yorke has served as Chairman of Auerbach Financial
Corp., a financial holding company. Mr. Yorke served from March 1997 to May 1998
as Chairman of the Board of Weatherly Securities Corp., a securities brokerage
firm. Between November 1995 and March 1997, he served as President of Coleman &
Company Securities, Inc. From October 1994 to November 1995, Mr. Yorke was
Chairman of the Board of Auerbach Pollack & Richardson, Inc., an
investment-banking firm. Between 1989 and 1995, Mr. Yorke served as President of
Asset Channels, Inc., an investment company. He was formerly the Executive
Director of the Securities and Exchange Commission and has previously served as
President of Paine Webber Jackson & Curtis, Inc. Mr. Yorke also serves as
Director of Davel Communications Group, Inc., an IPP.

         Each Director will hold office until the next annual meeting of
shareholders and until his or her successor is elected and qualified or his or
her 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.


Section 16a. 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, 1998, all
Section 16(a) filing requirements applicable to the Company's officers,
Directors and 10% shareholders were complied with except that a Form 3 relating
to the appointment of Roy L. Schiele was not filed on a timely basis.


Item 11. EXECUTIVE COMPENSATION

    (a)  Summary Compensation Table

         The following table sets forth certain information for the fiscal years
ended December 31, 1998, 1997 and 1996 concerning executive compensation.





                                       34
<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>
      Alan J. Rossi         1998     $275,538     $50,000         --              --          200,000         --            --
  Chairman of the Board
   and Chief Executive
         Officer
                           ---------------------------------------------------------------------------------------------------------
                            1997     $158,885       --            --              --          750,000         --            --
                           ---------------------------------------------------------------------------------------------------------
                            1996        --          --            --              --            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
Peter M. Izzo, Jr.  (1)     1998     $252,069     $50,000         --              --           90,000         --         $2,500(2)
                           ---------------------------------------------------------------------------------------------------------
                            1997     $241,831     $50,000         --              --            --            --         $2,375(2)
                           ---------------------------------------------------------------------------------------------------------
                            1996     $223,424       --            --         $320,625(1)      325,000         --         $2,178(2)
------------------------------------------------------------------------------------------------------------------------------------
   Roy L. Schiele (3)       1998     $199,769     $30,000         --              --          200,000         --           $693(2)
Executive Vice President
        and Chief
   Operations Officer
                           ---------------------------------------------------------------------------------------------------------
                            1997         --         --            --              --            --            --            --
                           ---------------------------------------------------------------------------------------------------------
                            1996         --         --            --                                          --
------------------------------------------------------------------------------------------------------------------------------------
Guy A. Longobardo (4)       1998     $124,154        --            --              --         180,000         --            --
  General Counsel, V.P.
  Corporate Development
 and Corporate Secretary
                           ---------------------------------------------------------------------------------------------------------
                            1997        --          --            --              --            --            --            --
                           ---------------------------------------------------------------------------------------------------------
                            1996        --          --            --              --            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
 Vincent H. Catrini (5)     1998      $47,611       --            --              --          120,000         --            --
 Chief Financial Officer
                           ---------------------------------------------------------------------------------------------------------
                            1997        --          --            --              --            --            --            --
                           ---------------------------------------------------------------------------------------------------------
                            1996                    --            --              --                          --
------------------------------------------------------------------------------------------------------------------------------------
   Cynthia Terrell (6)      1998     $142,277     $10,000         --              --           24,000          --        $1,292(2)
    Vice President of
         Finance
------------------------------------------------------------------------------------------------------------------------------------
                            1997        --          --            --              --            --            --            --
                           ---------------------------------------------------------------------------------------------------------
                            1996        --          --            --              --            --            --            --
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       35
<PAGE>

(1)      In May 1996, Mr. Izzo received an award of the 95,000 of restricted
         Common Shares. Such shares vest to the extent of one-tenth thereof each
         year, subject to continued employment and subject to acceleration under
         certain circumstances. During each of 1997 and 1998 9,500 such shares
         vested.; As of December 31, 1998 the value of Mr. Izzo's unvested
         restricted shares was $28,500. Mr. Izzo resigned as President and as a
         Director on April 8, 1999.
(2)      Represents Company matching contributions for its 401(k) plan.
(3)      Mr. Schiele's employment with the Company commenced on February 1,
         1998.
(4)      Mr. Longobardo's employment with the Company commenced on March 9,
         1998.
(5)      Mr. Catrini's employment with the Company commenced on August 31, 1998.
(6)      On February 28, 1999, Ms. Terrell resigned.


   (b)   Option Grants Table.

         The following table sets forth certain information concerning
individual grants of stock options during the fiscal year ended December 31,
1998:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
        Name              Number of       Percent of       Exercise      Expiration      Potential Realizable Value at
                           Common            Total          Price           Date             Assumed Annual Rates of
                           Shares       Options Granted                                            Stock
                         Underlying     To Employees in                                  Price Appreciation for
                           Options        Fiscal Year                                          Option Term (1)
----------------------------------------------------------------------------------------------------------------------
                                                                                        5%                10%
----------------------------------------------------------------------------------------------------------------------
<S>                       <C>              <C>            <C>             <C>           <C>              <C>
Alan J. Rossi             200,000(2)      10.19%          $1.4063          1/27/03      $109,691         $241,884
----------------------------------------------------------------------------------------------------------------------
 Peter M. Izzo, Jr         90,000(2)        4.5%          $1.4063          1/27/03      $ 49,361         $108,848
----------------------------------------------------------------------------------------------------------------------
  Roy L. Schiele          200,000(2)       10.1%          $1.4063          1/27/03      $109,691         $241,884
----------------------------------------------------------------------------------------------------------------------
Cynthia Terrell (3)        40,000(2)        2.0%          $1.4063          1/27/03      $ 21,938         $ 48,377
                            5,000(4)         .3%          $ .5625          9/16/03      $    450         $    956
----------------------------------------------------------------------------------------------------------------------
Guy A. Longobardo         175,000(5)        8.8%          $ 2.406          3/10/03      $277,893         $618,944
                            5,000(4)         .3%          $ .5625          9/16/03      $    450         $    956
----------------------------------------------------------------------------------------------------------------------
Vincent H. Catrini        120,000(4)        6.1%          $ .5625          9/16/03      $ 10,800         $ 22,950
----------------------------------------------------------------------------------------------------------------------
</TABLE>

(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 and does not represent the Company's prediction
         of its stock price performance.
(3)      The options are exercisable to the extent of one-third thereof
         effective as of January 27, 1999, 2000 and 2001.
(3)      Mr. Izzo resigned as President and as a Director on April 8, 1999.
(4)      Ms. Terrell resigned on February 28, 1999.
(5)      The options are exercisable to the extent of one-third thereof
         effective September 16, 1999, 2000 and 2001.
(6)      The options are exercisable to the extent of one-third thereof
         effective March 10, 1999, 2000 and 2001.

   (c)   Aggregate Option Exercises in Last Fiscal Year-End Option Value Table

The following table sets forth-certain information concerning the value of
unexercised options as of December 31, 1998:


                                       36
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                Number of Common Shares Underlying Options at         Value of Unexercised in-the-Money
                                              December 31, 1998                         Options at December 31, 1998
------------------------------------------------------------------------------------------------------------------------------
          Name                            Exercisable/Unexercisable                       Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                                            <C>
      Alan J. Rossi                            383,333/566,667                                     0/0
------------------------------------------------------------------------------------------------------------------------------
 Peter M. Izzo, Jr. (1)                        516,000/199,000                                     0/0
------------------------------------------------------------------------------------------------------------------------------
     Roy L. Schiele                               0/200,000                                        0/0
------------------------------------------------------------------------------------------------------------------------------
 Cynthia I. Terrell (2)                         50,000/145,000                                     0/0
------------------------------------------------------------------------------------------------------------------------------
    Guy A. Longobardo                             0/180,000                                        0/0
------------------------------------------------------------------------------------------------------------------------------
   Vincent H. Catrini                             0/120,000                                        0/0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Mr. Izzo resigned as President and as a Director on April 8, 1999.
(2)      Ms. Terrell resigned on February 28, 1999.

         No options were exercised by any of the foregoing persons during the
fiscal year ended December 31, 1998.

   (d)   Compensation of Directors.

         Non-employee directors each receive a $2,000 monthly fee for their
services in such capacity.

         Mr. Thompson received an aggregate of $56,416 in consulting fees from
the Company for assistance in strategic planning and the development of the
Company's business plan.

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

                  Not applicable.

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 the Company based
solely upon records available to it, certain information as of February 26, 1999
regarding the beneficial ownership of AMNEX's Common Shares (i) by each person
who the Company 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:


                                                       37
<PAGE>

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
         Name of Management Person
          And Name and Address of                       Number of Shares                       Approximate
             Beneficial Owner                          Beneficially Owned                Percentage of Class (1)
-----------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                              <C>
Francesco Galesi
435 East 52nd Street                                    11,466,760(2)                             25.2%
New York, NY
-----------------------------------------------------------------------------------------------------------------
Alan J. Rossi                                              672,413(3)                              1.0
-----------------------------------------------------------------------------------------------------------------
Peter M. Izzo, Jr.                                         693,643(4)                              1.6
-----------------------------------------------------------------------------------------------------------------
Roy L. Schiele                                              66,667(5)                              *
-----------------------------------------------------------------------------------------------------------------
Cynthia I. Terrell                                         171,333(6)                              *
-----------------------------------------------------------------------------------------------------------------
Guy A. Longobardo                                             ----                                ----
-----------------------------------------------------------------------------------------------------------------
Vincent Catrini                                               ----                                  *
-----------------------------------------------------------------------------------------------------------------
Anne P. Jones                                                 ----                                ----
-----------------------------------------------------------------------------------------------------------------
Harry R. Thompson                                           55,000(7)                               *
-----------------------------------------------------------------------------------------------------------------
A. Jones Yorke                                              55,000(7)                               *
-----------------------------------------------------------------------------------------------------------------
All  present executive officers and
Directors as a group (9 persons)                        13,009,483(2)(4)(5)(7)                    28.6%
-----------------------------------------------------------------------------------------------------------------
</TABLE>

*        Less than 1%.

(1)      Except as they relate to a particular shareholder, does not give effect
         to the possible issuance of Common Shares pursuant to the exercise of
         outstanding options and warrants or the conversion of certain
         outstanding Preferred Shares or pursuant to contractual commitments.
(2)      Includes 2,250,000 Common Shares issuable pursuant to currently
         exercisable warrants. Does not include 97,500 Common Shares or warrant
         for the purchase of 500,000 Common Shares held by an irrevocable trust
         created by Mr. Galesi, of which the trustee is an employee of Rotterdam
         and the beneficiaries are members of Mr. Galesi's immediate family. Mr.
         Galesi personally does not have voting or dispositive power with
         respect to the Common Shares or the Common Shares underlying the
         warrant held by such trust and, accordingly, disclaims beneficial
         ownership of such Common Shares.
(3)      Includes 450,000 Common Shares issuable pursuant to currently
         exercisable options.
(4)      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) 546,000 Common Shares
         issuable pursuant to currently exercisable options. Mr. Izzo resigned
         as President and as a Director on April 8, 1999.
(5)      Includes 66,667 Common Shares issuable pursuant to currently
         exercisable options.
(6)      Includes 63,333 Common Shares issuable pursuant to currently
         exercisable options. Ms. Terrell resigned on February 28, 1999.
(7)      Includes 30,000 Common Shares issuable pursuant to currently
         exercisable options.
(8)      Represents Common Shares issuable pursuant to currently exercisable
         options.


Series M Preferred Shares

         The following table sets forth, to the knowledge of the Company based
solely upon records available to it, certain information as of February 28, 1998
regarding the beneficial ownership of AMNEX's Series M Preferred Shares by each
person who the Company 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 M Preferred Shares. No present Director, no person listed in
Item 11(a) hereof and no present executive officer of the Company owns Series M
Preferred Shares. Holders of Series M Preferred Shares only have voting rights
provided by the New York Business Corporation Law or the Company's Certificate
of Incorporation, with such rights primarily arising in connection with, among
other things, shareholder authorization of an action adversely affecting such
preferred shareholders' rights or involving an extraordinary event such as a
proposed dissolution of the Company or sale of substantially all of its assets.

                                       38
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
        Name of Management Person and
       Name and Address of Beneficial                      Number of Shares                     Approximate
                    Owner                               Beneficially Owned (1)              Percentage of Class
---------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                               <C>
Fourteen Hill Capital Ltd.                                       535                               100%
1700 Montgomery Street
Suite 250
San Francisco, CA
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Holders of Series M have no voting rights.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a)      Transactions with Management and Others.

Loans

         In June 1997, the Company borrowed $2,000,000 for working capital from
an irrevocable trust established by Mr. Galesi, the "Galesi Trust". The working
capital loan was due 15 days following demand for repayment, provided for
interest at 10% per annum and was secured by certain accounts receivable. This
note was repaid in September 1997.

         In consideration for the loan, the Company granted to the Galesi Trust
a warrant for the purchase of 500,000 Common Shares at an exercise price of
$2.3125 per share, such warrant being exercisable through June 2007.

         In September 1997, the Company borrowed $500,000 for working capital
purposes from Rotterdam Ventures, Inc. ("Rotterdam"), a company wholly owned by
Mr. Galesi. The note evidencing the loan ("the $500,000 Note") provides for
interest at the rate of 10% per annum and the payment of the principal amount
thereof in September 1998. Payment of the $500,000 Note is secured by a security
interest in certain payphones owned by one of the Company's subsidiaries.

         In September 1997, the Company borrowed $800,000 from Rotterdam. The
note evidencing the loan is unsecured, provides for interest at the rate of 6%
per annum and is due in September 1998.

         In October and November 1997, the Company borrowed $1,900,000 for
working capital purposes from Rotterdam under unsecured demand promissory notes
which bear interest at the rate of 10% per annum.

         In January 1998, Mr. Galesi converted $3,200,000 in unpaid notes into
2,758,620 Common Shares of the Company at the then current market price of the
Company's Common Stock. In consideration for the September, October and November
1997 loans, the Company granted to Mr. Galesi a warrant for the purchase of
750,000 Common Shares at an exercise price of $1.50 per share, such warrant
being exercisable through January 2003.

                                       39
<PAGE>

         In May 1998 the Company borrowed $750,000 from Rotterdam Ventures, an
affiliate of Mr. Francesco Galesi in the form of a Demand Promissory Note. The
Note provided for interest at the prime rate of interest plus 1%. In July 1998
the Company borrowed an additional $750,000 from Mr. Galesi under similar terms.
In September 1998 the Notes was converted into 1,211,400 shares of the Company's
common stock.

         In August 1998 the Company borrowed $500,000 from Rotterdam Ventures in
the form of a Demand Promissory Note. The Note provides for interest at the
prime rate of interest plus 2%.

         In October 1998 the Company borrowed $400,000 from Rotterdam Ventures
in the form of a Demand Promissory Note. The Note was convertible into shares of
the Company's common stock at the rate of $.656 per share. The Note provides for
interest at the prime rate of interest plus 2%. The Company also borrowed an
additional $250,000 from Mr. Galesi Ventures in the form of a Demand Promissory
Note. The Company repaid $50,000 of this Note in October. The Note provides for
interest at the prime rate of interest plus 2%.

         In November 1998 the Company borrowed $700,000 from Mr. Galesi in the
form of a Demand Promissory Note. The Note provides for interest at the prime
rate of interest plus 2%.

         In December 1998 the Company borrowed $1,000,000 from Mr. Galesi in the
form of three Demand Promissory Note in the principal amounts of $500,000,
$250,000, and $250,000 respectively. The Notes provide for interest at the prime
rate of interest plus 2%.

         Subsequent to December 31, 1998, Mr. Galesi and Rotterdam Ventures,
Inc., have loaned the Company $3,630,000 under several promissory note
agreements.

Lease

         The Company leases certain office space from an affiliate of Mr.
Galesi. See Item 2 - Properties.


                                       40
<PAGE>

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S>               <C>                                                                                 <C>
   (a)   1.       Financial Statements

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

                  Independent Auditor's Report [intentionally omitted]                                 F-1

                  Consolidated Balance Sheets as of December 31, 1998 and 1997                         F-2

                  Consolidated Statements of Operations for the years ended                            F-4
                  December 31, 1998, 1997 and 1996

                  Consolidated Statements of Shareholders' Equity for the years                        F-5
                  ended December 31, 1998, 1997 and 1996

                  Consolidated Statements of Cash Flows for the years ended                            F-7
                  December 31, 1998, 1997 and 1996

                  Notes to Consolidated Financial Statements                                           F-9

         2.       Financial Statement Schedules

                  Schedule II:     Valuation and Qualifying Accounts                                  F-24

         3.       Exhibits
</TABLE>


Exhibit Number    Description of Exhibit
--------------    ----------------------

         3.1      Restated Certificate of Incorporation, as amended. (3)

         3.2      Certificate of Amendment to Certificate of Incorporation. (10)

         3.3      By-Laws, as amended. (4)

         4.1      Indenture, dated September 29, 1997, between the Company and
                  Marine Midland Bank, as trustee. (5)

         4.2      Specimen of certificate evidencing Common Shares of AMNEX. (7)


                                       41
<PAGE>

         10.1     Employment Agreement, dated as of June 25, 1996, between AMNEX
                  and Peter M. Izzo, Jr. (2)

         10.2     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. Dettmers. (2)

         10.3     Stock Exchange Agreement, dated as of January 7, 1997, between
                  AMNEX and Francesco Galesi. (1)

         10.4     Warrant, dated January 7, 1997, issued to Francesco Galesi.
                  (1)

         10.5     Agreement, dated as of January 13, 1997, by and among AMNEX,
                  Friedli AG, Friedli Corporate Finance Inc. and Peter Friedli.
                  (1)

         10.6     Renewal and Modification Agreement, dated as of February 28,
                  1997, between ANEI and National. (1)

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

         10.8     Warrant, dated June 3, 1997, for the purchase of up to 500,000
                  Common Shares issued by the Company to the Galesi Trust. (4)

         10.9     Purchase Agreement, dated September 11, 1997, between the
                  Company and HSBC Securities, Inc. (5)

         10.10    Registration Rights Agreement, dated September 29, 1997,
                  between the Company and HSBC Securities, Inc. (5)

         10.11    Warrant Agreement, dated September 29, 1997, between the
                  Company and HSBC Securities, Inc. (5)

         10.12    Loan and Security Agreement, dated September 10, 1997, between
                  the Company and the CIT Group/Credit Finance, Inc. (5)

         10.13    Securities Purchase Agreement, dated as of December 24, 1997,
                  among AMNEX, Inc. and Pangaea Fund Ltd. (6)

         10.14    Registration Rights Agreement, dated as of December 24, 1997,
                  among AMNEX, Inc. and Pangaea Fund Ltd. (6)

         10.15    Warrant and the Form of Warrant, dated as of December 24,
                  1997, issued to Pangaea Fund Ltd. (6)

         10.16    Securities Purchase Agreement, dated as of January 26, 1998
                  between AMNEX, Inc. and Fourteen Hill Capital, L.P. (10)


                                       42
<PAGE>


         10.17    Registration Rights Agreements, dated as of January 26, 1998
                  between AMNEX, Inc. and Fourteen Hill Capital, L.P. (10)

         10.18    Warrant and Form of Warrant, dated as of January 26, 1998
                  issued to Fourteen Hill Capital, L.P. (10)

         10.19    Warrant and Form of Warrant, dated as of January 26, 1998
                  issued to Tanner Unman Securities, Inc. (10)

         10.20    Form of Stock Purchase Agreement between AMNEX, Inc. and the
                  Investor named therein, including schedule of differences
                  between such Agreement and (i) the Stock Purchase Agreement
                  dated January 16, 1998 between AMNEX, Inc. and Granite
                  Associates L.P., (ii) the Stock Purchase Agreement dated
                  January 16, 1998 among AMNEX, Inc., Victory Ventures LLC and
                  Brae Group, Inc., (iii) the Stock Purchase Agreement dated
                  January 22, 1998 between AMNEX, Inc. and Nicholas Forstmann,
                  and (iv) the Stock Purchase Agreement, dated January 26, 1998,
                  between AMNEX, Inc. and AMN Investments L.L.C. (10)

         10.21    Form of Warrant dated as of January 26, 1998, issued to
                  Francesco Galesi. (10)

         10.22    Form of Stock Purchase Agreement between AMNEX, Inc. and the
                  Investor named therein, including schedule of differences
                  between such agreement and the Stock Purchase Agreement, dated
                  February 4, 1998, among AMNEX, Inc. Alan Rossi, Peter Izzo,
                  Cynthia Terrell, Francesco Galesi, Harry Thompson and A. Jones
                  Yorke. (11)

         10.23    Demand Promissory Note, dated as of May 12, 1998, between
                  AMNEX, Inc. and Rotterdam Ventures. (12)

         10.24    Demand Promissory Note, dated July 2, 1998, between AMNEX,
                  Inc. and Francesco Galesi. (13)

         10.25    Demand Promissory Note, dated August 4, 1998, between AMNEX,
                  Inc. and Rotterdam Ventures, Inc. (13)

         10.26    Loan and Security Agreement dated as of August 20, 1998
                  between Jackson National Life Insurance Company and Crescent
                  Public Communications Inc. and Sun Tel North America, Inc.
                  (13)

         10.27    Demand Promissory Note, dated October 2, 1998 between AMNEX
                  and ANEI and Rotterdam Ventures, Inc.


                                       43
<PAGE>

         10.28    Demand Promissory Note, dated October 16, 1998 between AMNEX
                  and ANEI and Francesco Galesi.

         10.29    Demand Promissory Note, dated November 3, 1998 between AMNEX
                  and ANEI and Francesco Galesi.

         10.30    Demand Promissory Note, dated December 1, 1998 between AMNEX
                  and ANEI and Francesco Galesi.

         10.31    Demand Promissory Note, dated as of December 10, 1998 between
                  AMNEX and ANEI and Rotterdam Ventures, Inc.

         10.32    Demand Promissory Note, dated December 23, 1998 between AMNEX
                  and ANEI and Francesco Galesi.

         10.33    Demand Promissory Note, dated December 24, 1998 between AMNEX
                  and ANEI and Francesco Galesi.

         10.34    Demand Promissory Note, dated January 12, 1999 between AMNEX
                  and ANEI and Francesco Galesi.

         10.35    Demand Promissory Note, dated January 25, 1999 between AMNEX
                  and ANEI and Rotterdam Ventures, Inc.

         10.36    Demand Promissory Note, dated February 4, 1999 between AMNEX
                  and ANEI and Francesco Galesi.

         10.37    Demand Promissory Note, dated February 19, 1999 between AMNEX
                  and ANEI and Francesco Galesi.

         10.38    Demand Promissory Note, dated March 1, 1999 between AMNEX and
                  ANEI and Francesco Galesi.

         10.39    Demand Promissory Note, dated March 5, 1999 between AMNEX and
                  ANEI and Francesco Galesi.

         10.40    Demand Promissory Note, dated March 15, 1999 between AMNEX and
                  ANEI and Francesco Galesi.

         10.41    Demand Promissory Note, dated March 23, 1999 between AMNEX and
                  ANEI and Francesco Galesi.

         10.42    Demand Promissory Note, dated March 23, 1999 between AMNEX and
                  ANEI and Francesco Galesi.

         10.43    Demand Promissory Note, dated March 25, 1999 between AMNEX and
                  ANEI and Francesco Galesi.

                                       44
<PAGE>

         10.44    Agreements of Lease between AMNEX and Hudson Telegraph
                  Associates. (8)

         10.45    Lease, dated August 24, 1990, between Global Motor Inns, Inc.,
                  d/b/a Lucerne Plaza and ANEI. (9)

         10.46    Agreement of Lease, dated December 18, 1996, between We're
                  Associates Company and Crescent. (1)

         10.47    1992 Stock Option Plan, as amended. (1)

         10.48    Amended and Restated 1996 Restricted Stock Grant Plan. (1)

         21       Subsidiaries. (14)

         23       Consent of Ernst & Young LLP. [intentionally omitted]

         27       Financial Data Schedule.

         (b)      Reports on Form 8-K

                  None

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

         (1)      Denotes document filed as an Exhibit to AMNEX's Annual Report
                  on Form 10-K for the period ended December 31, 1996.

         (2)      Denotes document filed as an Exhibit AMNEX's Quarterly Report
                  on Form 10-Q for the period ended June 30, 1996.

         (3)      Denotes document filed as an Exhibit to AMNEX's Quarterly
                  Report on Form 10-Q for the period ended March 31, 1997.

         (4)      Denotes document filed as an Exhibit to AMNEX's Quarterly
                  Report on Form 10-Q for the period ended June 30, 1997.

         (5)      Denotes document filed as an Exhibit to AMNEX's Quarterly
                  Report on Form 10-Q for the period ended September 30, 1997.

         (6)      Denotes document filed as an Exhibit to AMNEX's Current Report
                  on Form 8-K filed on January 27, 1998.

         (7)      Denotes document filed as an Exhibit to AMNEX's Registration
                  Statement on Form S-4.



                                       45
<PAGE>

         (8)      Denotes document filed as an Exhibit to AMNEX's Annual Report
                  on Form 10-K for the period ended December 31, 1993.

         (9)      Denotes document filed as an Exhibit to AMNEX's Registration
                  Statement on Form S-1.

         (10)     Denotes document filed as an Exhibit to AMNEX's Current Report
                  on Form, 8-K for January 28, 1998

         (11)     Denotes document filed as an Exhibit to AMNEX's Current Report
                  on Form 8-K for February 4, 1998

         (12)     Denotes document filed as an Exhibit to AMNEX's Quarterly
                  Report on Form 10-Q for the period ended June 30, 1998.

         (13)     Denotes document filed as an Exhibit to AMNEX's Quarterly
                  Report on Form 10-Q for the period ended September 30, 1998

         (14)     Denotes document filed as an Exhibit to AMNEX's Annual Report
                  on Form 10-K for the period ended December 31, 1997.



                                       46
<PAGE>

Report of Independent Auditors


                           [intentionally omitted]




                                      F-1

<PAGE>
                                   AMNEX, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)


                                                                December 31
                                                             1998         1997
                                                            -------      -------
 Assets
 Current assets:
  Cash                                                      $ 1,925      $ 1,309
  Trade receivables, less allowance for
    doubtful accounts of $2,483 in 1998
    and $3,784 in 1997                                       11,748       15,749
  Parts inventory                                             1,548          936
  Deferred income taxes                                        --          1,665
  Customer advances                                             328          631
  Prepaid expenses and other current assets                   1,249          832
                                                            -------      -------
Total current assets                                         16,798       21,122

Investment in unconsolidated subsidiary                       5,091        5,091
Property and equipment, net                                  25,319       24,004
Intangible assets, net                                        7,392        9,655
Goodwill, net                                                11,757       28,599
Other assets                                                  2,582        3,116
                                                            -------      -------
Total assets                                                $68,939      $91,587
                                                            =======      =======


                                      F-2


<PAGE>





                                   AMNEX, INC.
                     CONSOLIDATED BALANCE SHEETS (continued)
                        (In thousands, except share data)

                                                               December 31
                                                            1998        1997
                                                         ---------    ---------
 Liabilities and shareholders' equity (deficit)
 Current liabilities:
   Short-term debt                                       $  25,398    $  11,020
   Accounts payable                                          8,983        8,291
   Accrued expenses                                         11,013        6,139
   Accrued network expenses                                  2,534        2,115
   Accrued commissions                                       1,192        2,006
   Accrued taxes payable                                     1,353        1,788
   Due to related party                                      4,598        4,397
   Current portion of capital lease obligations              1,457        1,882
   Current portion of long-term debt                        20,420        3,546
                                                         ---------    ---------
Total current liabilities                                   76,948       41,184

Capital lease obligations                                      468        1,357
Long-term debt                                                 523       25,188
Minority interest                                              493          424
Compensation payable                                           312          312
Obligations under non-compete agreement                       --          1,314
Common stock subject to redemption                            --          3,250

Shareholders' equity (deficit)
   Series M Preferred Stock, authorized
     2,000 shares, issued and outstanding
     1,005 shares (1998) and 1,000 shares (1997)
     (liquidation preference $1,000)                         1,005          940
   Common stock, $.001 par; authorized 70,000,000,
     issued 44,746,982 (1998) and 34,083,129
     shares (1997)                                              45           34
Capital in excess of par value                              81,798       65,597
Accumulated deficit                                        (92,166)    (147,537)
                                                         ---------    ---------
                                                            (9,318)      19,034
Less 18,219 common shares hold in treasury, at cost           (487)        (476)
                                                         ---------    ---------
Total shareholders' equity (deficit)                        (9,805)      18,558
                                                         ---------    ---------
Total liabilities and shareholders' equity (deficit)     $  68,939    $  91,587
                                                         =========    =========



See accompanying notes.


                                      F-3

<PAGE>





                                   AMNEX, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                        Years Ended December 31
                                                     1998         1997         1996
                                                  ---------    ---------    ---------

<S>                                               <C>          <C>          <C>
Revenue                                           $  76,842    $ 116,498    $ 117,142
Costs and expenses:
   Cost of sales                                     60,480      100,064       93,863
   Selling, general and administrative               21,858       14,991       16,473
   Depreciation and amortization                     10,662        9,173        6,054
   Impairment of long-lived assets                   21,452         --          3,716
   Restructuring charge                                --          1,400         --
                                                  ---------    ---------    ---------
                                                    114,452      125,628      120,106
Operating loss                                      (37,610)      (9,130)      (2,964)
Interest expense                                      4,821        3,913        2,730
                                                  ---------    ---------    ---------
Loss before income taxes and minority
   interest                                         (42,431)     (13,043)      (5,694)
Minority interest                                        69           13            1
                                                  ---------    ---------    ---------
Loss before income taxes and extraordinary item     (42,362)     (13,030)      (5,693)
Provision (benefit) for income taxes                  1,717          280       (1,445)
                                                  ---------    ---------    ---------
Loss before extraordinary item                      (44,079)     (13,310)      (4,248)
Extraordinary item                                     (585)        --           --
                                                  ---------    ---------    ---------
Net loss                                          $ (44,664)   $ (13,310)   $  (4,248)
                                                  =========    =========    =========
Deemed dividend on Series G Preferred Stock            --           --            400
Preferred share dividends                                65          462          616
                                                  =========    =========    =========
Net (loss) attributable to
   common shareholders                            $ (44,729)   $ (13,772)   $  (5,264)
                                                  =========    =========    =========
Basic and diluted loss per common share:          $   (1.06)   $   (0.45)   $   (0.23)
  extraordinary item                              $   (0.01)   $    --      $    --
                                                  ---------    ---------    ---------
Basic and diluted loss per common share           $   (1.07)   $   (0.45)   $   (0.23)
                                                  =========    =========    =========
</TABLE>

See accompanying notes.


                                      F-4

<PAGE>
                                   AMNEX, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
                        (In thousands, except share data)
<TABLE>
<CAPTION>


                                                       Common Stock
                                                     $.001 Par Value         Preferred       Preferred     Preferred      Preferred
                                               ---------------------------    Stock           Stock         Stock          Stock
                                                    Shares        Amount     Series B        Series D      Series E       Series F
                                               -------------------------------------------------------------------------------------
<S>                                              <C>           <C>         <C>            <C>           <C>            <C>
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
  Issuance of common shares                        3,933,982           4.0
  Exercise of stock options                           16,458
  Issuance of preferred shares and
    warrant for investment
  Issuance of preferred shares
  Vesting of stock grants                             44,500
  Issuance of warrants
  Exercise of warrants                               155,000
  Payment of preferred dividends
  Conversion of preferred shares                   3,035,297           3.0         (362)
  Repurchase of preferred shares                                                                (3,533)       (2,911)        (2,076)
  Net loss
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1997                         34,083,129          34.0         --             --            --             --
  Issuance of common shares                        5,460,362           5.0
  Issuance of common shares and
    warrants for acquisitions
  Repurchase of common shares                        (31,000)
  Issuance of preferred shares
  Issuance of warrants
  Conversion of preferred shares                   1,264,471           2.0
  Conversion of debt                               3,970,020           4.0
  Preferred stock dividends
  Net loss
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                        44,746,982    $     45.0  $      --      $      --     $      --      $      --
                                               =====================================================================================

</TABLE>


                                      F-5

<PAGE>
                                   AMNEX, INC.
             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (cont.)
                  YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                Preferred   Preferred  Preferred  Capital in                            Total
                                                 Stock       Stock      Stock     Excess of   Accumulated  Treasury  Shareholders'
                                                Series G    Series L   Series M   Par Value     Deficit      Stock      Equity
                                         ---------------------------------------------------------------------------------------
<S>                                             <C>        <C>         <C>        <C>         <C>          <C>       <C>
Balance, December 31, 1995                                                         $39,963.0   $(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
   Issuance of common shares                                                         2,154                                2,158
   Exercise of stock options                                                            45                             $     45
   Issuance of preferred shares and
    warrant for investment                                    3,636                  1,455                                5,091
   Issuance of preferred shares                                             940                                             940
   Vesting of stock grants                                                              56                                   56
   Issuance of warrants                                                                520                                  520
   Exercise of warrants                                                                100                                  100
   Payment of preferred dividends                                                                (1,842)                 (1,842)
   Conversion of preferred shares                (1,179)     (3,636)                 5,174                                 --
   Repurchase of preferred shares                                                                                        (8,520)
   Net loss                                                                                     (13,310)                (13,310)
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                         --          --           940     65,597      (47,537)       (476)     18,558
   Issuance of common shares                                                         7,171                                7,176
   Issuance of common shares and
    warrants for acquisitions                                                        3,250                                3,250
   Repurchase of common shares                                                          11                      (11)
   Issuance of preferred shares                                             750                                             750
   Issuance of warrants                                                                375                                  375
   Conversion of preferred shares                                          (685)       684                                    1
   Conversion of debt                                                                4,710                                4,714
   Preferred stock dividends                                                                        (65)                    (65)
   Net loss                                                                                     (44,564)                (44,564)
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                      $  --      $   --      $  1,005   $ 81,798     $(92,166)   $   (487)   $ (9,805)
                                         =======================================================================================

</TABLE>


                                      F-6

<PAGE>


                                   AMNEX, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                     YEARSENDED DECEMBER 31, 1998, 1997 and
                     1996 (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                   1998        1997         1996
                                                                 --------    ---------   --------
<S>                                                              <C>         <C>         <C>
Cash flows from operating activities
Net (loss)                                                       $(44,729)   $(13,310)   $ (4,248)
 Adjustments to reconcile net (loss) to net
  cash provided by /(used in)
 operating activities:
 Depreciation and amortization                                     10,662       9,173       6,054
 Provision for losses on receivables                               (1,501)      1,027      (1,539)
 Deferred income taxes                                              1,665         126      (1,670)
 Gain on sale of assets                                              (342)        --       (1,675)
 Impairment of long-lived assets                                   21,452         --        3,716
 Changes in assets and liabilities:
  Trade receivables                                                 4,911       2,535       8,726
  Parts inventory                                                    (611)        (11)       (109)
  Customer advances, prepaid expenses and other current assets        536       1,097       1,587
  Other assets                                                        207      (1,293)        429
  Note receivable                                                      --         --        1,291
  Accounts payable and accrued expenses                             2,582       1,218      (6,570)
                                                                 --------    --------    --------
 Net cash provided by /(used in) operating activities              (5,168)        562       5,992
 Cash flows from investing activities
 Purchase of payphones                                             (9,072)     (1,090)
 Purchase of businesses, net of cash acquired                                    (150)     (4,365)
 Purchase of contracts                                                         (1,291)       (759)
 Proceeds on sale of assets                                                                 2,542
 Expenditures for property and equipment                           (3,413)     (2,214)     (2,770)
                                                                 --------    --------    --------
 Net cash used in investing activities                            (12,485)     (4,745)     (5,352)

 Cash flows from financing activities
 Proceeds from long-term debt                                      25,145      15,750      12,000
 Proceeds from (payments to) related parties                       (3,200)      3,200        (146)
 Proceeds from sale of Preferred Shares                               750         940       2,000
 Purchase of preferred stock                                                   (8,520)
 Proceeds from the exercise of warrants                                            35
 Proceeds from issuance of convertible notes and debentures
 Proceeds from the sale of common stock                             5,624                     362
 Repayments under revolving credit, net                                        (1,103)     (5,543)
 Payments on long-term debt                                        (8,827)     (4,452)     (3,018)
 Payment of debt issuance costs                                        92      (1,855)
 Preferred dividends paid                                                      (1,842)
 Principal payments under capital lease obligations                (1,315)     (1,608)     (1,442)
                                                                 --------    --------    --------
 Net cash provided by financing activities                         18,269         545       4,213
                                                                 --------    --------    --------
 Net increase (decrease) in cash                                      616      (3,638)      4,853

 Cash at beginning of year                                          1,309       4,947          94

 Cash at end of year                                             $  1,925    $  1,309       4,947
                                                                 ========    ========    ========
</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, 1998
1.   The Company issued 526,168 Common Shares pursuant to an agreement with
     Teleplus, Inc.
2.   The Company issued 2,758,620 Common Shares pursuant to the conversion of
     $3,200,000 in notes.
3.   The Company issued 1,211,400 Common Shares pursuant to the conversion of
     $1,500,000 in notes, plus $14,000 in accrued interest.
4.   The Company issued 1,264,471 Common Shares pursuant to the conversion of
     685 Series M Preferred Shares.
5.   The Company issued 15,385 Common Shares pursuant to an agreement among the
     Company, National Telecom USA, Inc. and Brian E. King.
6.   Interest of $3,308 was paid.
7.   Income taxes of $403 were paid.

Year ended December 31, 1997
1.   The Company issued 100,000 Series L Preferred Shares convertible into
     1,500,000 Common Shares.
2.   The Company issued 810,797 Common Shares pursuant to the conversion of
     78,750 Series G Preferred Shares.
3.   The Company issued 1,500,000 Common Shares pursuant to the conversion of
     100,000 Series L Preferred Shares.
4.   The Company issued 94,369 Common Shares for the acquisition of pay
     telephones.
5.   The Company issued 526,168 Common Shares pursuant to an agreement with
     Teleplus, Inc.
6.   The Company issued 3,341,326 Common Shares pursuant to the conversion of
     $500 of debt plus accrued interest thereon.
7.   The Company issued 155,000 Common Shares pursuant to the exercise of
     155,000 warrants.
8.   The Company issued 44,500 Common Shares pursuant to the 1996 Restricted
     Stock Grant Plan.
9.   The Company issued 724,500 Common Shares pursuant to the conversion of
     Series B Preferred Shares.
10.  Interest of approximately $3,784 was paid.
11.  Income taxes of approximately $551 were paid.

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 for 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.

                                      F-8
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

1. Summary of Significant Accounting Principles

Organization and Operations

AMNEX, Inc., through its wholly-owned subsidiaries, American Network Exchange,
Inc. (ANEI), American Hotel Exchange, Inc. (AHE), Crescent Public Communications
Inc. (Crescent) and Capital Network System, Inc. (CNSI), and its majority-owned
subsidiary, National Billing Exchange, Inc. (NBE) and Sun Tel North America,
Inc. (Sun Tel), (collectively, the Company), is an integrated payphone and
operator services telecommunications company which owns and operates payphones
and provides a variety of telecommunications and billing 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. The Company is
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.

The Company has incurred recurring losses, has a working capital deficiency, and
is currently in default of certain of its long-term debt arrangements. The
Company is also a defendant in certain litigation that, if settled unfavorably,
would materially impact the Company's financial strength. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.

Management has taken a number of steps to address these concerns. In 1998, the
Company made a strategic decision to exit the billing and collection business,
in which it has been participating through NBE. In December 1998 the Company
entered into an agreement to license certain of its proprietary billing and
collection system software to OAN Services, Inc., another billing clearinghouse,
and in March 1999 sold additional assets and its customer base to OAN.

Between January and March 1999, the Company closed its Boca Raton, Florida
facility and transferred the customer service activity to its Orlando facility,
to reduce costs by concentrating all domestic operator services functions into
one location.

The Company has begun implementation of its long-term strategy to focus its
domestic operator services activities towards the needs of Competitive Local
Exchange Carriers (CLECs), the Local Exchange Carriers (LECs) and Inter Exchange
Carriers (IXCs). Consistent with this strategy, the Company signed its first
contract with Bell Atlantic in the fourth quarter of 1998. Since then, the
Company has become a service provider to a second RBOC and is currently in
discussions with four other large local telephone companies. The successful
implementation of this strategy may transform the Company's customer base to one
which has fewer customers with significantly higher revenues per customer,
enabling increased operating efficiencies and higher margins.

In the fourth quarter of 1998 the Company received an unsolicited offer for the
purchase of its payphone business. In March 1999 the Company entered into a
non-binding letter of intent for the sale of this business. The transaction is
subject to, among other things, completion of due diligence, financing and the
execution of definitive documentation. The Company's strategy had originally
called for it to continue to build its business primarily through acquisitions,
and then make a decision whether to sell or spin off the business or to continue
to grow it. However, given the timing of this


                                      F-9
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

1. Summary of Significant Accounting Principles (continued)

unsolicited offer, the Company has decided to pursue the sale of the business.
Although there can be no assurance that the transaction presently contemplated
will be completed, upon the closing of the transaction the Company will realize
sufficient proceeds to enable it to fund its operations for the foreseeable
future.

In March 1999, the Company received a notice from the lender to Crescent,
Jackson National Life Insurance Company (JNL), that, Crescent was in default of
certain covenants under the Loan and Security Agreement between Crescent and
JNL. JNL has granted a temporary waiver with respect to the Event of Default and
the Company and JNL are in the process of negotiating an amendment to the Loan
and Security Agreement in order to modify the terms of the covenants and cure
the Event of Default.

Management believes that these actions and the sale of its payphone subsidiary
will give the company sufficient capital to continue operations and alleviate
the going concern.


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 payphone 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
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

1. Summary of Significant Accounting Principles (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. Amortization expense for 1998, 1997 and 1996
was $1,674, $1,099 and $790, respectively. Accumulated amortization at
December 31, 1998 and 1997 was $2,773 and $1,236, 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 1998, 1997 and 1996 was $2,531 , $2,410 and $1,500,
respectively. Accumulated amortization at December 31, 1998 and 1997 was $7,045
and $8,110, respectively.

Impairment Loss on Long-Lived Assets

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.

During the fourth quarter of 1998, the company experienced a significant decline
in its operating cash flows from its operations in Mexico through CNSI. Based on
this decline, the Company determined that certain fixed assets, intangible
assets and goodwill, with a carrying amount of $604, $2,294 and $17,059
respectively, were impaired and accordingly, were written off. Fair value was
based on estimated future cash flows to be generated, discounted at a market
rate of interest. Also in 1998, the Company decided to sell NBE, and as such
determined that certain intangible assets with a carrying amount of $142 and
goodwill with a carrying amount of $1,353 should be written off in 1998.

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 payphones, with a carrying amount of $3,716 were impaired
and, accordingly, were written off in the fourth quarter of 1996.

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


                                      F-11
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

1. Summary of Significant Accounting Principles (continued)

Segment Information

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "disclosures about Segments of an Enterprise and Related
Information". Statement 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, because the Company operates in one segment.

Two customers, controlled by the same group, accounted for 21% of the Company's
revenue for the year ended December 31, 1996.

Comprehensive Income

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components, however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity (deficit). Statement 130 requires
foreign currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.

Employee Stock Option Plans

In accordance with the provisions of Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," the Company may
elect to continue to apply the provisions of Accounting Principles Board's
Opinion No. 25 (ABP 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock option plans or adopt the
fair value method of accounting prescribed by SFAS 123. The Company has elected
to continue to account for its stock option plans using APB 25, and therefore is
not required to recognize compensation expense in connection with these plans.
Companies that continue to use APB 25 are required to present in the notes to
the consolidated financial statements the pro forma effects on reported net
income (loss) and earnings (loss) per share as if compensation expense had been
recognized based on the fair value of options granted (see Note 9).

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.


                                      F-12
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

1. Summary of Significant Accounting Principles (continued)

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.

2. Acquisitions

In June 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,
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 was recorded as
goodwill.

In September 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 was recorded as
goodwill.

In November 1996, pursuant to an Asset Purchase Agreement, the Company acquired
pay telephones located primarily in New Jersey, for an aggregate consideration
of $10,410, including cash of $3,010, 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 the 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 was recorded as common stock subject to redemption.
In the fourth quarter of 1998, these rights expired and the amount was
reclassified to Capital in Excess of Par.

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.
In March of 1997, the Company acquired payphones located in Florida for total
consideration of $1,688, including cash of $1,254, assumed debt of $309 and
49,604 shares of unregistered common stock valued at $125. The effect of these
acquisitions was not deemed material to the unaudited pro forma results of
operations.

In addition to the acquisitions above, in August 1996, Teleplus assigned to the
Company its Dealer Agreement with CNSI in exchange for cash of $1,500 and
1,052,336 of unregistered issuable Common Shares valued at $2,630. In January
1997, 526,168 shares were issued and an additional 526,168 shares are issuable
in January 1998. The total purchase price was 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. Such shares
were issued in January 1997 and 1998.




                                      F-13
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

2. Acquisitions (continued)

During 1998 the Company acquired the assets and assumed certain liabilities
relating to five businesses that owned and operated pay telephones. The
aggregate purchase price was $8,118, consisting of cash of $1,997 and notes of
$6,121. The aggregate purchase price, net of liabilities assumed of $171,
exceeded the fair value of the net assets acquired by $3,441, which has been
recorded as goodwill.

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 year ended December 31,
1998 assuming the consummation of the aforementioned 1998 acquisitions as of the
beginning of 1998 are as follows:

                                                 1998         1997
                                                 ----         ----

Revenues                                        $79,099     $118,755
Net loss                                       ($43,826)    ($12,472)
Net loss available  for common shareholders    ($43,891)    ($12,934)
Basic and diluted net loss per share             ($1.05)      ($0.43)



3. Property and Equipment

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


                                             1998         1997
                                             ----         ----

Equipment, furniture and fixtures           $17,582   $13,197
Installed telephone and related equipment    23,460    22,383
Leasehold improvements                        1,126     1,089
Leased equipment                              5,518     4,864
                                            -------   -------
                                             47,686    41,533


Accumulated depreciation and amortization    22,367    17,529
                                            -------   -------
Property and equipment, net                 $25,319   $24,004
                                            =======   =======

Depreciation expense totaled $5,786, $5,048 and $2,990 for the years ended
December 31, 1998, 1997 and 1996, respectively.


                                      F-14
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

4. Debt

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

<TABLE>
<CAPTION>
                                                                   1998      1997
                                                                 -------   -------
<S>                                                              <C>       <C>
8 1/2% Convertible Subordinated Notes, due
      October 2002, with interest payable semi-annually
      on March 25 and September 25, convertible at
      $2.78 per Common Share                                     $15,000   $15,000

10.52% Secured Promissory Note, with interest and
      principal payments of $151 payable in 60 monthly
      installments commencing January 1, 1997                       --       5,777

11.91% Secured Promissory Note, with interest and
      principal payments of $111 payable in 60 monthly
      installments commencing February 1, 1997                      --       4,222

14% Secured Promissory Note, with interest and
      principal payments of $13 payable in 60 monthly
      installments commencing February 1, 1998                       491      --

12.5% Secured Promissory Note, with interest
      only monthly; principal due November 30, 1998                 --       1,000

12.5% Secured Promissory Note, with interest
      only monthly; principal due January 31, 1999                  --       1,000

 8.5% Secured Term Loan, with quarterly principal and interest
      payments of due in 20003                                     1,036      --

 8.5% Secured Term Loan, with quarterly principal and interest
      payments of due in 20003                                     4,384      --

Other                                                                 32     1,735
                                                                 -------   -------
                                                                 $20,943   $28,734
Less current maturities                                           20,420     3,546
                                                                 -------   -------
                                                                    $523   $25,188
                                                                 =======   =======
</TABLE>


                                    F-15
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)


4. Debt (continued)

During 1996, $150 of the 10% Convertible Promissory Note, plus accrued interest
thereon, was converted into 44,643 Common Shares at $3.50 per share.

The aggregate principal maturities of long-term debt at December 31, 1998 are as
follows:

                             Principal
                            Amount Due
                            -----------
        1999                   $ 20,420
        2000                        523
        2001                       --
        2002                       --
        2003                       --
                            -----------
                               $ 20,943
                            ===========


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


                                              1998            1997
                                           ----------      ----------

Asset based lending agreement (a)            $ 4,456         $ 6,678
Revolving line of credit (b)                       -           3,465
Revolving line of credit (c)                  18,393               -
Other                                          2,549             877
                                           ----------      ----------
                                            $ 25,398        $ 11,020
                                           ==========      ==========

(a) As of December 31, 1998, the Company has in place a lending agreement with
one of its billing and collection agents under which advances of up to $21,000
are provided based on eligible receivables. Such receivables are purchased by
the billing and collection agent, with recourse, at the approximate rate of 76%
of the gross amount thereof. The Company pays interest under this agreement at
prime plus 1.5% per annum. The lending agreement extends through February 2000.



                                      F-16
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

4. Debt (continued)

(b) In September 1997, the Company obtained a $5,000 revolving line of credit
(the "Line of Credit"). The Line of Credit provides for borrowings based on a
percentage of eligible receivables, as defined, and bears interest at a rate
equal to the prime rate plus 1% per annum. Repayment of the Line of Credit is
secured by certain trade receivables and other assets. Any future drawdowns
against the Line of Credit are dependent upon an increase in eligible
receivables.

(c) In August 1998, the Company obtained a $40,000 credit facility with JNL (the
Loan and Security Agreement). The agreement provides for a revolving line of
credit of up to $30,000 and a term loan of up to $10,000, based on a percentage
of eligible receivables, eligible inventory, and eligible pay phones, as
defined, and bears interest at a rate equal to the prime rate plus 1/4% per
annum for the revolver portion and the prime rate plus 3/4% per annum for the
term portion. Repayment of the Loan and Security Agreement is secured by
essentially all of the accounts, inventory and payphones of the Company.

During 1997, the Company borrowed $5,200 from Francesco Galesi, a Director of
the Company, under various note agreements (see Note 11). $2,000 of the
borrowings were repaid in 1997 and in January 1998, the balance remaining on the
notes was converted into Common Stock of the Company.

In March 1999, the Company received a notice from the lender to its payphone
subsidiary (JNL), that Crescent was in default of certain covenants under the
Loan and Security Agreement between Crescent and JNL. JNL has granted a
temporary waiver with respect to the Event of Default and the Company and JNL
are in the process of negotiating an amendment to the Loan and Security
Agreement in order to modify the terms of the covenants and cure the Event of
Default.

The weighted average interest rate for short-term borrowings was 10.5% in 1998
and 9.8% in 1997.

Substantially all of the Company's assets serve as collateral under the terms of
its debt agreement with JNL and its capital lease obligations.

5. Obligations Under Capital Leases

The Company is obligated under 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 $5,518 and accumulated depreciation of
$3,783 at December 31, 1998. Depreciation of assets under capitalized leases is
included in depreciation expense.



                                      F-17
<PAGE>



                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

5. Obligations Under Capital Leases (continued)

Future minimum lease payments under capital leases at December 31, 1998 are as
follows:

                                                                    Amount
                                                                   --------
         1999                                                      $ 1,616
         2000                                                          301
         2001                                                           86
         2002                                                           46
                                                                   --------
         Total future minimum lease payments                       $ 2,049

         Less amounts representing interest                            124
                                                                   --------
         Present value of net future minimum payments              $ 1,925

         Less current portion                                        1,457
                                                                   --------
                                                                   ========
         Noncurrent portion                                        $    468
                                                                   ========


6. Income Taxes

At December 31, 1998, the Company has available net operating loss carryforwards
of approximately $47,851 that expire through the year 2013. 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.


                                      F-18
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)


6. Income Tax (continued)


Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:



                                                1998           1997
                                              --------       --------
Deferred tax liabilities:
  Tax over book depreciation                  ($ 2,229)      ($ 1,725)
  Allowance for doubtful accounts                 (187)          --
Deferred tax assets:
  Net operating loss carryforwards              18,183          8,571
  Tax over book basis in impaired assets         2,248          2,248
  Restructuring reserve                           --              532
  Amortization of intangibles                     --              118
AMT credit carryforward                            137            137
Impairment of assets and intangibles                74           --
Impairment of contracts                            872           --
Valuation allowance                            (19,098)        (8,216)
                                              --------       --------
Net deferred tax assets                       $   --         $  1,665
                                              ========       ========


                                      F-19
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)


6. Income Tax (continued)

The provision (benefit) for income taxes for the years ended December 31,
1998, 1997 and 1996 consist of the following:

                                 1998         1997          1996
                              -------      -------       -------
               Current:
                 Federal      $  --        $  (110)      $    45
                 State             52          264           180
                              -------      -------       -------
                              $    52      $   154       $   225

               Deferred
                 Federal      $ 1,665      $   110       $(1,406)
                 State           --             16          (264)
                              -------      -------       -------
                              $ 1,665      $   126       $(1,670)
                              -------      -------       -------
                              $ 1,717      $   280       $(1,445)
                              =======      =======       =======



The reconciliation of income taxes computed at U.S. federal statutory rates to
income tax expense (benefit) for the years ended December 31, 1998, 1997 and
1996 are as follows:

                                         1998           1997           1996
                                       --------       --------       --------
Provision at federal statutory
rate of 34%                            $(15,899)      $ (4,430)      $ (1,935)

Non deductible goodwill
amortization                              7,408            680            475

State income taxes, net of
federal tax benefit                          52            185            (55)

Deferred  Tax  Expense                    1,665

Other                                       129            227              3

Net change in valuation allowance         8,362          3,618             67
Utilization of net operating loss          --             --             --
                                       --------       --------       --------
                                       $  1,717       $    280       $ (1,445)
                                       ========       ========       ========


                                      F-20
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

7. Restructuring Charge

During the first quarter of 1997, the Company recorded a restructuring charge of
$1,400 in connection with a reduction of its workforce, elimination of certain
redundant functions and the closure of certain of its facilities. At December
31, 1997, the plan was substantially completed.

8. Shareholders' Equity

Preferred Stock

In June 1997, the Company entered into agreements "Company Agreements" that
provided for, among other things, the repurchase of certain outstanding
convertible Preferred Shares, and the redemption of certain outstanding
convertible promissory notes of the Company. In accordance with the Company
Agreements, in September 1997, the Company repurchased the following Preferred
Shares: (i) 1,413,337 Series D Preferred Shares at a repurchase price of $2.50
per share; (ii) 1,035,000 Series E Preferred Shares at a repurchase price of
$2.8125 per share; and (iii) 415,250 Series F Preferred Shares at a repurchase
price of $5.00 per share, for a total consideration of $8,520. The repurchase
prices for the Preferred Shares were equal to the per share liquidation values
of the respective shares. In addition, 72,450 Series B Preferred Shares were
converted into 724,500 Common Shares. The Company paid all accrued and unpaid
dividends, totaling $1,842, of the aforementioned Preferred Shares.

Pursuant to a January 1997 Stock Exchange Agreement as more fully described in
Note 11, Related Party Transactions, between the Company and Francesco Galesi, a
Director of the Company, the Company issued 100,000 Series L Preferred Shares.
In May 1997 the Series L Preferred Shares were converted into 1,500,000 Common
Shares.

During 1997 the holder of an aggregate of 78,750 shares of the Company's Series
G Preferred Stock elected to convert such shares into 810,797 of the Company's
Common Shares. In connection with the Company's sale of these shares, in 1996,
the Company recorded a deemed preferred dividend as a reduction in earnings
available to common shareholders.

In December 1997, the Company received net proceeds of $940 in connection with
the issuance of 1,000 shares of Series M Convertible Preferred Stock and the
issuance of warrants to purchase 60,000 shares of the Company's Common Stock at
$2.65 per share. The Series M Convertible Preferred Stock has the following
rights and preferences, among others: (i) 5% cumulative dividend payable
quarterly; (ii) the right to convert each share into Common Stock of the Company
at a conversion price that is the lesser of (a) the average of the lowest five
closing bid prices during the thirty trading day period before conversion notice
was sent or (b) $2.65; and (iii) a liquidation preference equal to the stated
value plus all accrued and unpaid dividends. The Series M Preferred Shareholders
have no voting rights.

In January 1998, the Company received net proceeds of $750 in connection
with the issuance of 750 shares of Series M Convertible Preferred Stock.

In 1998, from June through November, a total of 685 shares of Series M
Convertible Preferred Stock were converted into 1,264,471 shares of Common
Stock.


                                      F-21
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

8. Shareholders' Equity (continued)

Common Stock

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 of the Company. The shares are held by the
Company and will be released annually on a pro rata basis over ten years
provided the individuals continue to be employed by the Company. The recipients
forfeit future releases if they are terminated with cause, as defined, among
other matters. Any shares still held by the Company are released upon a change
of control, as defined. During 1997, 44,500 Common Shares vested and were issued
and 115,000 Common Shares were cancelled.

At December 31, 1997, 14,652,000 of the Company's Common Shares were reserved
for issuance under stock option plans, warrant agreements and for conversions of
preferred stock and convertible debt.

In January and February of 1998, the Company received $5,624 in proceeds in
conjunction with several stock purchase agreements under which the Company
issued 4,918,809 shares of its Common Stock. Also, in the first quarter of 1998,
the Company issued 526,168 shares of Common Stock pursuant to an agreement with
Teleplus, Inc. and 2,758,620 shares of Common Stock to Mr. Galesi pursuant to
the conversion of $3,200 in outstanding Promissory Notes.

In the second quarter of 1998, the Company issued 15,385 shares of Common Stock
pursuant to an agreement among the Company, National Telecom, USA, Inc. and
Brian King. Also, the Company issued 41,827 shares of Common Stock pursuant to
the conversion of 49 shares of Series M Convertible Preferred Stock.

In September of 1998, the Company issued 1,211,400 shares of Common Stock to Mr.
Galesi pursuant to the conversion of $1,514 in outstanding promissory notes and
related interest. In addition, the Company issued 635,148 shares of Common Stock
pursuant to the conversion of 388 shares of Series M Convertible Preferred
Stock.

In the fourth quarter 1998, the Company issued 629,323 shares of Common Stock
pursuant to the conversion of 248 shares of Series M Convertible Preferred
Stock.

In the Fourth quarter of 1998, the Company repurchased 31,000 shares of its
common stock for approximately $11,000 from one of its customers. These shares
are held in treasury.

Warrants

In November 1995, the Company entered into an agreement with a customer, whereby
the customer agreed to place in escrow certain warrants to purchase Common
Shares of the Company held by the customer and granted the Company the right to
cause the sale of such warrants whereby the first $800 of the proceeds were to
be applied to reduce advances due from the customer to the Company. In February
1997, the Company entered into a substantially new contract with the customer,
whereby the warrants were tendered to the Company in settlement of $800 of
advances outstanding from the customer.


                                      F-22
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

8. Shareholders' Equity (continued)

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.

In January 1997, in connection with the Company's issuance of the Series L
Preferred Shares, the Company issued warrants to purchase 1,500,000 Common
Shares at an exercise price of $3.03. The warrants are exercisable through
December 1999.

In January 1997, in connection with services to be performed by a consultant,
the Company issued warrants to purchase 500,000 Common Shares at an exercise
price of $3.00. The warrants are exercisable through January 2002.

In June 1997, in connection with a $2,000 loan from a trust established by Mr.
Galesi, the Company issued warrants to purchase 500,000 Common Shares at an
exercise price of $2.31 (see Note 12). The warrants are exercisable through June
2007.

In September 1997, in connection with the issuance of 8 1/2% Convertible
Subordinated Notes due 2002 in the aggregate principal amount of $15,000 the
Company issued to the initial purchaser and the international sales agent
warrants to purchase 161,615 Common Shares of Common Stock at an exercise price
of $2.78. The warrants are exercisable through September 2002.

In December 1997, in connection with the Company's issuance of the Series M
Preferred Stock, the Company issued warrants to purchase 60,000 Common Shares at
an exercise price of $2.65. The warrants are exercisable through December 2002.

In January 1998, in connection with the Company's issuance of the Series M
Preferred Stock, the Company issued warrants to purchase 45,000 shares of the
Company's Common Stock at an exercise price of $2.65. Also, in consideration for
the 1997 loan of $3,200, the Company granted Mr. Galesi a warrant for the
purchase of 750,000 Common Shares at an exercise price of $1.50 per share.



                                      F-23
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

8. Shareholders' Equity (continued)

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

<TABLE>
<CAPTION>
                                               1998             1997             1996
                                            ----------       ----------       ----------
<S>                                         <C>              <C>              <C>
Outstanding at beginning of period
($0.50 to $120.00 per warrant)               4,473,283        2,640,000        1,922,569

Issued ($0.50 to $5.29 per warrant)            795,000        2,721,615          725,000
Exercised ($1.50 per warrant)                     --           (155,000)            --
Expired/Cancelled ($20.00 to $120.00
per warrant)                                  (400,000)        (733,332)          (7,569)
                                            ----------       ----------       ----------
Outstanding at end of period ($0.50 to
$120.00 per warrant)                         4,868,283        4,473,283        2,640,000
                                            ==========       ==========       ==========
</TABLE>


9. Employee Benefit Plans

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 Company's 1992 Stock Option Plan (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.

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


                                      F-24
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

9. Employee Benefit Plans (continued)

nonstatutory stock options to persons other than Insiders shall be determined by
the Board or Stock Option Committee in its sole discretion.

At December 31, 1998 the number of Common Shares reserved for issuance under the
Plans is 5,750,000.

The following table represents the changes in outstanding stock options under
the Plans (of which 1,573,000, 1,583,000 and 618,000 were exercisable at
December 31, 1998, 1997 and 1996, respectively).

<TABLE>
<CAPTION>
                                                1998             1997             1996
                                          ----------       ----------       ----------
<S>                                       <C>              <C>              <C>
Outstanding at beginning of year
  ($0.28 to $3.63 per share)               3,513,288        3,268,388        1,109,371
Granted ($0.28 to $3.63 per share)         1,981,000        1,200,000        2,370,000
Exercised ($1.50  per share)                    --            (16,458)         (54,485)
                                                                            ----------
Cancelled ($1.50 to $3.63 per share)      (1,158,999)        (938,642)        (156,498)
                                          ----------       ----------       ----------
Outstanding at end of year
($0.28 to $3.63 per share)                 4,335,289        3,513,288        3,268,388
                                          ==========       ==========       ==========
</TABLE>


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 1996,
1997 and 1998.

          Assumption                     1998            1997            1996
--------------------------------      ------------   ------------   ------------

Risk-free rate                               6%              6%            6%
Dividend yield                               0%              0%            0%
Volatility factor of the expected
  market price of the Company's
 common stock                             0.50            0.50          0.50
Average Life                                 3               3             3

                                      F-25
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

9. Employee Benefit Plans (continued)

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:

                                            1998          1997          1996
                                          --------     ---------     ---------

Pro forma net  (loss)
  attributable to common shareholders     $(45,947)    $(14,458)      $(5,462)
Pro forma net (loss) per share
  Basic                                   $  (1.10)    $  (0.47)      $ (0.24)




The weighted average fair value of options granted during the years ended
December 31, 1998, 1997 and 1996 were $0.58, $1.04, and $1.27, respectively. The
weighted-average exercise price of options exercisable as of December 31, 1998
was $2.81 per share. The weighted-average remaining contractual life of those
options is 1.9 years.

Retirement Plans

The Company has a retirement plan 401(k) covering all eligible employees. The
annual provisions for the years ended December 31, 1998, 1997 and 1996 were
approximately $95, $84 and $62, respectively.


                                      F-26
<PAGE>


                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

10. Earnings (Loss) Per Share

The following table sets forth the computation of basic (loss) per share for the
years ended December 31, 1998, 1997 and 1996.


<TABLE>
<CAPTION>

                                                 1998               1997               1996
                                             ------------       ------------       ------------
<S>                                          <C>                <C>                <C>
Numerator:
  Loss before extraordinary item             $    (44,079)      $    (13,310)      $     (4,248)
  Preferred share dividends                           (65)              (462)            (1,016)
                                             ------------       ------------       ------------
  Numerator for basic loss
    per share before extraordinary item           (44,144)           (13,772)            (5,264)

Extraordinary item                                   (585)               --                --
                                             ------------       ------------       ------------

Numerator for basic and diluted per
  share loss available to common
  shareholders                               $    (44,729)      $    (13,772)      $     (5,264)
                                             ============       ============       ============

Denominator:
  Denominator for basic  loss
  per share-weighted-average shares            41,807,117         30,454,242         22,498,915

Basic loss per share                         $      (1.07)      $      (0.45)      $      (0.23)
</TABLE>



                                      F-27
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

11. Related Party Transactions

In January 1997, the Company and Mr. Galesi entered into a Stock Exchange
Agreement whereby the Company acquired from Mr. Galesi 10% of the outstanding
capital stock of Elektra Communication, Inc. ("ECI"), a telecommunications
company controlled by him. Pursuant to the terms of the Stock Exchange
Agreement, among other matters, (i) Mr. Galesi was issued 100,000 Series L
Preferred Shares of the Company which automatically converted in May 1997 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 the
Company pursuant to which the number of Common Shares authorized for issuance
was increased from 40,000,000 to 70,000,000; (ii) Mr. Galesi was issued a
warrant which entitles him to purchase 1,500,000 Common Shares (the "Warrant
Shares") at an exercise price of $3.03 per share (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,
as defined, of ECI are at least $12,500); (iii) Mr. Galesi was granted certain
registration rights with regard to the Conversion Shares and Warrant Shares.

The Company's 10% investment in ECI is accounted for on the cost method and the
value of the investment has been based on a preliminary estimate of the fair
value of the Series L Preferred Shares and warrant issued, based upon the market
prices of AMNEX's stock at the date of issuance, less a discount, and using the
Black-Scholes model to value the warrant.

In June 1997, in connection with the Preferred Stock Repurchases, (see Note 8),
Mr. Galesi acquired $404 principal amount 10% convertible notes for an aggregate
purchase price of $3,863 from the then current holders and, pursuant to the
terms of the acquired notes, converted the principal amounts thereof, together
with accrued interest thereon of approximately $139, into 2,717,326 Common
Shares.

In June 1997, the Company borrowed $2,000 for working capital purposes from an
irrevocable trust established by Mr. Galesi. The working capital loan was due 15
days following demand for repayment, provided for interest at 10% per annum and
was secured by certain accounts receivable. This note was repaid in September
1997.

In September 1997, the Company borrowed $500 for working capital purposes from
Rotterdam Ventures, Inc. ("Rotterdam"), a company wholly owned by Mr. Galesi.
The note evidencing the loan (the "$500 Note") provides for interest at the rate
of 10% per annum and the payment of the principal amount thereof in September
1998. Payment of the $500 Note is secured by a security interest in certain
payphones owned by one of the Company's subsidiaries.

In September 1997, the Company borrowed $800 from Rotterdam. The note evidencing
the loan is unsecured, provides for interest at the rate of 6% per annum and is
due in September 1998.

In October and November 1997, the Company borrowed $1,900 for working capital
purposes from Rotterdam under unsecured demand promissory notes which bear
interest at the rate of 10% per annum.


                                      F-28
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

11. Related Party Transactions (continued)

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 amount of $1,198. The interest on the notes are payable monthly
at a rate of 10.5%. On March 17, 1999, the Company reached an agreement of
settlement with Mr. Rowland, which involves the payment of $1,000,000 over a
five month period, the delivery to Mr. Rowland of 60% of certain Shares held in
escrow in connection with the Company's purchase of CNSI, and reciprocal
releases by Mr. Rowland and the Company. The Company also reached an agreement
of settlement with Mr. Moehle and Mr. Simmons pursuant to which the Company
agreed to release to each of them 60% of certain Shares held in escrow in
connection with the Company's purchase of CNSI and reciprocal releases by each
of Mr. Moehle and Mr. Simmons on the one hand and the Company on the other. (See
note 13).


12. Commitments and Contingencies

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

                                1999      $1,521
                                2000         279
                                2001          81
                                2002          43
                                          ------
                                          $1,924


The leases also provide for payment of real estate taxes and operating expenses.
Rent expense for the years ended December 31, 1998, 1997 and 1996 was $1,766,
$1,833 and $1,673, respectively.


                                      F-29
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

13. Legal Proceedings

During the first quarter of 1999, the Company settled a number of pending
litigations, as described below.

Rowland

     In connection with the Company's June 1996 acquisition of CNSI, CNSI issued
a promissory note in favor of Robert A. Rowland, a principal shareholder of the
Company, in the principal amount of $1,197,700 payable on July 31, 1997 with
interest due on the unpaid principal balance at a rate of 10.5% per annum. On
July 11, 1997, Mr. Rowland filed suit against the Company. He asserted several
causes of action against the Company, including enforcement of an alleged
settlement agreement regarding indemnification claims, and sought damages in the
amount of the principal and interest due under the Rowland Note, attorneys' fees
and exemplary damages in an unstated amount. The causes of action asserted by
Mr. Rowland against CNSI related to monies allegedly due under a consulting
agreement, and damages claimed included attorneys' fees. The Company sought
appellate review of the denial of its motion to compel arbitration and pleaded
to abate the action and moved to amend its answer to assert an affirmative
defense of fraud against Mr. Rowland. On February 13, 1998, the Court denied a
motion for summary judgment by Mr. Rowland.

On March 23, 1998, the Company filed a complaint in federal district court in
Manhattan, charging Robert Rowland with: (i) fraudulently inducing the Company
to purchase CNSI, (ii) breaching the contract of sale with the Company for the
purchase of CNSI, and (iii) violating Rule 10b-5 in connection with the sale of
CNSI's stock to the Company. The complaint sought $3.5 million in compensatory
damages, as well as punitive damages and attorney's fees. Thereafter, the
Company amended the complaint to join as co-defendants Donald D. Simmons and
Carl Michael Moehle, the two next largest shareholders in CNSI at the time of
the acquisition (after Mr. Rowland). In July 1998, defendants moved to dismiss
the amended complaint on the grounds that the Rule 10b-5 claim was time barred,
and that the other claims should have been brought in Texas. On November 2,
1998, the district court granted this motion. On March 17, 1999, the Company
reached an agreement of settlement with Mr. Rowland, which involves the payment
of $1,000,000 over a five month period, the delivery to Mr. Rowland of 60% of
certain Shares held in escrow in connection with the Company's purchase of CNSI,
and reciprocal releases by Mr. Rowland and the Company. The Company also reached
an agreement of settlement with Mr. Moehle and Mr. Simmons pursuant to which the
Company agreed to release to each of them 60% of certain Shares held in escrow
in connection with the Company's purchase of CNSI and reciprocal releases by
each of Mr. Moehle and Mr. Simmons on the one hand and the Company on the other.

Transaction Network Services, Inc.

     On July 29, 1998, Transaction Network Services, Inc. ("TNS") filed a demand
for arbitration against ANEI and the Company alleging breaches by ANEI and the
Company of a consulting agreement, services agreement and asset purchase
agreement relating to TNS's purchase from ANEI of certain computer hardware and
software in 1996 and the provision of validation and fraud control services and
consulting services in respect thereof. TNS sought damages in excess of
approximately



                                      F-30
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

13. Legal Proceedings (continued)

$2.0 million in respect of the agreements and also sought seeking injunctive
relief with respect to certain exclusivity and non-compete provisions of the
agreements, as well as attorney's fees. The Company and ANEI filed an answer
denying TNS's claims, as well as a counterclaim against TNS.

     On January 25, 1999, the Company and ANEI reached an agreement of
settlement with TNS pursuant to which the Company will pay TNS a total of
$2,230,000, with two initial installments of $265,000 each and the remaining
$1,700,000 bearing interest at 10% and payable over a 24 month period. In
connection with the settlement each of TNS and the Company executed a mutual
release of claims.

Dolphin USA, Inc.

     In September 1996, Dolphin USA, Inc. ("Dolphin") filed suit in the District
Court of Harris County, Texas alleging that CNSI breached an agreement to pay
commissions and service charges to Dolphin in exchange for certain long distance
telephone accounts. Dolphin also alleged negligence, fraud and violations of the
Texas Deceptive Trade Practices Act. On January 30, 1998, Dolphin amended its
compliant, adding the Company as a defendant. Dolphin also alleged that ANEI had
assumed CNSI's obligations under the agreement and that ANEI and CSNI are alter
egos of the Company. In September 1998, Dolphin further amended its complaint to
increase the amount of damages sought to in excess of $2.7 million in actual
damages, treble damages under the Texas Deceptive Trade Practices Act, and
exemplary damages of at least $250,000. CNSI, ANEI, and the Company filed
answers and a counterclaim for amounts owed by Dolphin.

On March 12, 1999, Dolphin and the Company, ANEI and CNSI reached a settlement
pursuant to which the Company agreed to pay Dolphin $250,000 to settle any and
all claims that were or may have been brought in the lawsuit.

Stroock & Stroock & Lavan

     The Company reached an agreement to settle all claims for legal fees owing
to the law firm of Stroock and Stroock for approximately $315,000.

In connection with the aforementioned litigation settlements, the Company
accrued approximately $2,700,000 relating to amounts not previously provided
for.

In addition the Company is currently party to the litigations described below.

Manghir

     On July 2, 1997, D. Faye Manghir, the holder of a 50% equity interest in
the joint venture company formed by Community Network Services, Inc., MicroTel
Communications Corp. and the Company (which holds the remaining 50% equity
interest), filed suit against the Company in the Supreme Court of the State of
New York (the "Suit"). The Suit alleges, among other things, that the Company
made certain misrepresentations and committed certain breaches under the joint
venture agreement among the parties, and seeks rescission of such agreement,
compensatory damages in the sum of $10,000,000, punitive damages in the sum
$25,000,000, and attorneys' fees. The Company



                                      F-31
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

13. Legal Proceedings (continued)

filed a motion to dismiss or in the alternative to stay the proceeding pending
arbitration and the court issued an order staying the lawsuit pending
arbitration. The plaintiff has never initiated an arbitration proceeding. In
February 1999, a preliminary conference was noticed by the court, at which
neither the plaintiff nor plaintiff's counsel appeared. In 1998, the plaintiff
had proposed a settlement under which there would be a mutual release of all
claims followed by a discontinuation of the suit and while the Company had
decided to accept this offer, actual settlement has been impeded by plaintiff's
failure to retain new counsel after its previous counsel had withdrawn.

King, et al.

     On September 25, 1997, Brian King and his affiliates, National Telecom
U.S.A., Inc., The Keystone Corporation, Coastal Telecom Payphone Company, Inc.,
BEK Tel, Inc., Garden State Telephone Installation & Service Co., Inc. and
National Hospitality USA (collectively "National") filed suit against the
Company and its subsidiaries, ANEI and American Hotel Exchange, Inc. alleging
breaches of various contracts, negligence, misappropriation of trade secrets,
conversion of various assets, fraud, negligent misrepresentations and promissory
estoppel, and seeking rescission of certain claims, specific performance of
other claims, damages in the amount of $6,300,000, punitive damages and
attorneys' fees. On September 30, 1997, the Company and National reached an
agreement of settlement of certain of the claims. Pursuant to this settlement,
on September 30, 1997, the Company paid National $1,000,000 in cash and
delivered a note in the principal amount of $840,000 for liabilities previously
accrued. Thereafter, the Company filed a motion to dismiss and compel
arbitration, which the Court granted in its entirety.

     Upon dismissal of its state court action, National served the Company with
an arbitration demand, incorporating the previously described state court
claims. In July 1998, the parties engaged in two days of arbitration hearings
before a panel of the American Arbitration Association in New York. Following
these hearings, the parties initiated settlement discussions, which resulted in
agreement in principle on a number of matters at issue. However no final
settlement was reached and arbitration hearings are scheduled for June 1999.

AT&T

     On November 5, 1998, AT&T Corp., filed suit in the United States District
Court for the Middle District of Florida, against the Company and two of its
subsidiaries, ANEI and CNSI. AT&T alleges that defendants owe AT&T approximately
$12,300,000 "for telephone calls and service provided by AT&T" on two accounts,
and demand payment of this amount on several different legal theories including
breach of contract, and quantum meruit.

     Following service of the complaint, AT&T filed a motion, in which the
Company joined, to have the case transferred to the United States Court for the
Southern District of New York, where it now is pending. A preliminary conference
has been scheduled for April 22, 1999, at which time a schedule for the
discovery process should be established. At the same time, the parties have
opened informal discussions, not connected with the litigation process, aimed at
settling the litigation.



                                      F-32
<PAGE>

                                   AMNEX, Inc.
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1998, 1997 and 1996
                        (In thousands, except share data)

13. Legal Proceedings (continued)

Should these informal discussions fail to produce a settlement the Company
intends to vigorously oppose AT&T's suit and believes that its liability to AT&T
is limited to an amount greatly reduced from that asserted by AT&T.

The Company is not certain as to the outcome of these litigation's and
accordingly has not recorded any provision for them in its operating results,
however if settled unfavorably they would have a material impact on the
Company's financial strength.


14. Subsequent Events

The Company entered into a non-binding letter of intent on March 17, 1999, to
sell its Payphone business. The transaction is subject to completion of due
diligence and satisfactory completion of documents.

The Company continues to experience a negative working capital condition as of
March 31, 1999. In order to help the Company to meet its obligations, Mr.
Francesco Galesi and one of his affiliates, Rotterdam Ventures, have loaned the
Company $3,630,000 under several promissory note agreements.



                                      F-33
<PAGE>

                                   AMNEX, INC.

                                   Schedule II
                        Valuation and Qualifying Accounts
                  Years Ended December 31, 1998, 1997 and 1996
                                 (In thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
      Column A                         Column B       Column C                       Column D       Column E
------------------------------------------------------------------------------------------------------------------
                                                      Additions
                                                      -------------------------
                                      Balance at    (1) Charged     (2) Charged
                                      beginning     to costs and     to other        Deductions      Balance at
     Description                      of period       expenses       accounts        described      end of period
                                                                     described          (a)
------------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>              <C>             <C>             <C>
Allowance for doubtful accounts:
     Year ended December 31, 1998        $3,784        $12,411                        $(13,712)      $ 2,483
     Year ended December 31, 1997         2,757          9,952                          (8,925)        3,784
     Year ended December 31, 1996         2,954          7,432                          (7,629)        2,727
------------------------------------------------------------------------------------------------------------------
</TABLE>



(a) Amounts charged off.



                                      F-34
<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.


March 31, 1999                      By: /s/ Alan J. Rossi
                                        ---------------------------------------
                                            Alan J. Rossi, Chairman of the Boar
                                            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.



/s/ Alan J. Rossi               Chairman of the Board and
--------------------------      Chief Executive Officer          March 31, 1999
Alan J. Rossi


/s/ Vincent H. Catrini          Chief Financial Officer          March 31, 1999
-------------------------
Vincent H. Catrini

/s/ Francesco Galesi            Director                         March 31, 1999
-------------------------
Francesco Galesi

/s/ Anne P. Jones               Director                         March 31, 1999
-------------------------
Anne P. Jones

/s/ Harry R. Thompson           Director                         March 31, 1999
-------------------------
Harry R. Thompson

/s/ A. Jones Yorke              Director                         March 31, 1999
-------------------------
A. Jones Yorke


                                      F-35