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

                                    FORM 10-Q
(Mark One)

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

                For the quarterly period ended September 30, 1997

                                       or

[ ]  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 Identification No.)
Incorporation or Organization

 6 Nevada Drive, Lake Success, New York                                 11042
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (516) 326-2540
--------------------------------------------------------------------------------
               Registrant's Telephone Number, Including Area Code

 101 Park Avenue, Suite 2507, New York, New York                        10178
--------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

     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. (X) Yes ( ) No

                APPLICABLE ONLY TO ISSUERS 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  Sections  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 ISSUERS:

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock,  as of the latest  practicable  date:  Common Stock,  $.001 par
value: 34,044,729 shares at September 30, 1997.


<PAGE>
<TABLE>
                                   AMNEX, INC.
                           Consolidated Balance Sheets
                                 (In thousands)



<CAPTION>
                                                                              September 30,
                                                                                 1997           December 31,
                                                                               (unaudited)          1996
Assets
Current assets:
<S>                                                                         <C>                 <C>       
   Cash                                                                     $     1,236         $    4,947
   Trade receivables, less allowance for doubtful accounts of $4,579
         as of September 30, 1997 and $2,757 as of December 31, 1996             21,945             19,311
   Parts inventory                                                                1,032               739
   Deferred income taxes                                                          1,791             1,791
   Customer advances                                                              1,028             2,414
   Deposits and other current assets                                              1,182               861
                                                                            -----------------------------------
Total current assets                                                             28,214             30,063

Investment in unconsolidated subsidiary                                           5,091               ---
Property and equipment, net                                                      24,410             23,851
Deposits and other                                                                3,399             1,543
Intangible assets, net                                                            9,680             5,947
Goodwill, net                                                                    29,130             29,955





Total assets                                                                $    99,924          $  91,359
                                                                            ===================================
</TABLE>











                                       F-1

<PAGE>



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

<CAPTION>
                                                                              September 30,
                                                                                  1997           December 31,
                                                                               (unaudited)          1996
                                                                            ----------------- -----------------

Liabilities and shareholders' equity Current liabilities:
<S>                                                                         <C>               <C>          
   Short-term debt                                                          $       15,307      $   11,498
   Accounts payable                                                                  8,700           3,651
   Accrued expenses                                                                  6,628           7,733
   Accrued network expenses                                                          2,247           1,975
   Accrued commissions                                                               2,155           3,169
   Accrued taxes payable                                                             1,523           1,406
   Due to related party                                                              2,498           1,198
   Current portion of capital lease obligations                                      1,829           2,179
   Current portion of long-term debt                                                 2,418           2,248
                                                                            ----------------- -----------------
Total current liabilities                                                           43,305          35,057

Capital lease obligations                                                            1,530           2,668
Long-term debt                                                                      26,617          13,530
Minority interest                                                                      428              10
Compensation payable                                                                   805             894
Obligations under non-compete agreement                                              1,314           2,630
Common stock subject to redemption                                                   3,250           3,250

Commitments and contingencies

Shareholders' equity:
   Voting Preferred Stock,  $.001 par;  authorized  5,000,000  shares:  Series B
     Preferred Stock, authorized 356,000 shares, issued and
       outstanding zero shares at September 30, 1997 and 72,450
       shares at December 31, 1996 (liquidation preference $362)                       -0-             362
     Series D Preferred Stock, authorized 1,413,337 shares, issued and
       outstanding zero shares at September 30, 1997 and 1,413,337
       shares at December 31, 1996 (liquidation preference $3,533)                     -0-           3,533
     Series E Preferred Stock, authorized 1,085,000 shares, issued and
       outstanding zero shares at September 30, 1997 and 1,035,000
       shares at December 31, 1996 (liquidation preference $2,911)                     -0-           2,911
     Series F Preferred Stock, authorized 415,250 shares, issued and
       outstanding zero shares at September 30, 1997 and 415,250
       shares at December 31, 1996 (liquidation preference $2,076)                     -0-           2,076
     Series G Preferred Stock, authorized 145,000 shares, issued and
       outstanding  zero  shares at  September  30,  1997 and  78,750  shares at
       December 31, 1996 (liquidation preference $1,575 at
       December 31, 1996)                                                              -0-           1,179
   Common stock, $.001 par; authorized 70,000,000, issued 34,062,979
     at September 30, 1997 and 26,897,892 shares at December 31,                        34              27
     1996
   Capital in excess of par value                                                   65,477          56,093
   Accumulated deficit                                                             (42,360)        (32,385)
                                                                            ----------------- -----------------
                                                                                    23,151          33,796
Less 18,250 common shares held in treasury, at cost                                   (476)           (476)
                                                                            ----------------- -----------------
Total shareholders' equity                                                          22,675          33,320
Total liabilities and shareholders' equity                                  $       99,924       $  91,359
                                                                            ================= =================
See accompanying notes.
</TABLE>

                                       F-2

<PAGE>



<TABLE>
                                   AMNEX INC.
                      Consolidated Statements of Operations
         For the Three and Nine Months Ended September 30, 1997 and 1996
                      (In thousands, except per share data)
                                   (Unaudited)


<CAPTION>
                                        Three Months Ended September 30         Nine Months Ended September 30
                                           1997                1996                1997                1996
                                           ----                ----                ----                ----

<S>                                      <C>                 <C>                 <C>                 <C>    
Revenue                                  $31,358             $37,430             $93,707             $88,188

Costs and expenses:
  Cost of sales and service               28,207              30,494              78,753              70,942
  Selling, general and administrative      5,992               3,172              11,980               9,018
  Depreciation and amortization            2,513               1,758               6,704               4,124
  Restructuring charge                       -0-                 -0-               1,400                 -0-
                                         ---------------------------------------------------------------------------
                                          36,712              35,424              98,837              84,084

Operating income (loss)                   (5,354)              2,006              (5,130)              4,104
Interest expense                           1,131                 869               2,823               1,973
                                         ---------------------------------------------------------------------------
Income (loss) before income taxes
  and minority interest                   (6,485)              1,137              (7,953)              2,131

Minority interest in income (loss)
  of subsidiaries                              3                 -0-                  (5)                -0-
                                         ---------------------------------------------------------------------------
Income (loss) before income taxes         (6,482)              1,137              (7,958)              2,131

Provision for income taxes                    75                 240                 175                 436
                                         ---------------------------------------------------------------------------
Net income (loss)                        $(6,557)            $   897            $ (8,133)            $ 1,695
                                         ===========================================================================

Preferred share dividend                 $   154             $   154            $    462             $   462
                                         ---------------------------------------------------------------------------
Net income (loss) available
  for common shares                      $(6,711)            $   743            $ (8,595)            $ 1,233
                                         ===========================================================================

Net income (loss) per common share       $  (.21)            $   .03 $              (.29)            $   .06
                                         ===========================================================================

Weighted average number of shares
  outstanding used in computing net
  income (loss) per common share:         31,597              24,666              30,081              22,014
                                         ===========================================================================

</TABLE>

See accompanying notes.





                                       F-3

<PAGE>

<TABLE>
                                   AMNEX, INC.
                 Consolidated Statement of Shareholders' Equity
                   December 31, 1996 through September 30,1997
                        (In thousands, except share data)
                                   (Unaudited)


<CAPTION>
                                             Common Stock      Preferred      Preferred     Preferred     Preferred     Preferred
                                           $.001 par value       Stock          Stock         Stock         Stock         Stock
                                         Shares      Amount     Series B      Series D      Series E      Series F      Series G
                                    ------------------------------------------------------------------------------------------------


<S>                                  <C>              <C>        <C>           <C>           <C>          <C>           <C>    
Balance, December 31, 1996           26,897,892       $27        $ 362         $ 3,533       $ 2,911      $ 2,076       $ 1,179

 Issuance of common shares            3,933,982         4
 Exercise of stock options               16,308
 Issuance of preferred shares and
    warrant for investment
 Vesting of stock grants                 24,500
 Issuance of warrants
 Exercise of warrants                   155,000
 Payment of preferred dividends
 Conversion of preferred shares       3,035,297         3         (362)                                                  (1,179)
 Repurchase of preferred shares                                                 (3,533)       (2,911)      (2,076)
 Net loss
Balance, September 30, 1997          34,062,979       $34        $ -0-         $   -0-     $     -0-      $   -0-       $   -0-
                                    ================================================================================================





<CAPTION>
                                       Preferred       Capital in                                     Total
                                         Stock         Excess of     Accumulated     Treasury     Shareholders'
                                        Series L       Par Value       Deficit         Stock         Equity
                                    -------------------------------------------------------------------------------


<S>                                   <C>                <C>           <C>             <C>          <C>    
Balance, December 31, 1996                               $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
Vesting of stock grants                                       56                                         56
Issuance of warrants                                         400                                        400
Exercise of warrants                                         100                                        100
Payment of preferred dividends                                           (1,842)                     (1,842)
Conversion of preferred shares          (3,636)            5,174
Repurchase of preferred shares                                                                       (8,520)
Net loss                                                                 (8,133)                     (8,133)
Balance, September 30, 1997           $    -0-           $65,477       $(42,360)       ($476)       $22,675
                                    ===============================================================================
</TABLE>


See accompanying notes.







                                       F-4

<PAGE>
<TABLE>
                                   AMNEX, INC.
                      Consolidated Statements of Cash Flows
                  Nine months ended September 30, 1997 and 1996
                                 (In thousands)
                                   (Unaudited)



<CAPTION>
                                                                     1997               1996
                                                                   ----------------------------
Cash flows from operating activities
<S>                                                               <C>                <C>       
Net income (loss)                                                  $(8,133)           $ 1,695
Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
     Depreciation and amortization                                   6,704              4,124
       Minority interest                                               (17)
     Provision for losses on receivables                             1,822               (494)
     Changes in operating assets and liabilities:
       Trade receivables                                            (4,592)               546
       Parts inventory                                                (107)               (80)
       Note receivable                                                                  1,279
       Customer advances, deposits and other current assets            350                564
       Deposits and other assets                                    (1,169)               169
       Accounts payable and accrued expenses                         1,007             (3,888)
                                                                   ----------------------------
Net cash provided by (used in) operating activities                 (4,135)             3,915

Cash flows from investing activities
Purchase of businesses, net of cash acquired                        (1,032)
Purchase of phones                                                  (1,106)              (150)
Expenditures for property and equipment                             (1,607)            (1,840)
Acquisition of Teleplus Dealer Agreement                                               (1,500)
Cash received from acquisition                                                            910
Phone contracts purchased                                                                (579)
Proceeds from sale of assets                                                              867
                                                                   ----------------------------
Net cash used in investing activities                               (3,745)            (2,292)

Cash flows from financing activities
Proceeds from the exercise of common stock options                      45                136
Proceeds from related party                                          1,300
Borrowings under revolving credit, net                               4,309               (621)
Proceeds from long term debt                                        15,750
Payment of debt issuance costs                                      (1,622)
Long term debt payments                                             (3,763)              (703)
Principal payments under capital lease obligations                  (1,488)              (927)
Preferred dividends paid                                            (1,842)
Purchase of preferred stock                                         (8,520)
Proceeds from sale of preferred shares                                                  2,000
Proceeds from the sale of common stock                                                    225
Payment of stock registration rights                                                      (20)
                                                                   ----------------------------
Net cash provided by financing activities                            4,169                 90
                                                                   ----------------------------

Net increase (decrease) in cash                                     (3,711)             1,713
Cash at beginning of period                                          4,947                 94
                                                                   ----------------------------
Cash at end of period                                              $ 1,236            $ 1,807
                                                                   ============================
</TABLE>

See accompanying notes.


                                       F-5

<PAGE>


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

Nine months ended September 30, 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  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 24,500 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 $2,857 was paid.
11.  Income taxes of approximately $674 were paid.

Nine months ended September 30, 1996:

1.   In  January  1996,  the  holder of an  aggregate  of  50,000  shares of the
     Company's  Series E  Preferred  Stock  elected to convert  such shares into
     50,000 shares of the Company's Common Stock.
2.   Interest of approximately $1,601 was paid.
3.   Income taxes of approximately $244 were paid.
4.   Capital lease  obligations  incurred to acquire property and equipment were
     approximately $1,548.
5.   The Company  issued  4,099,086  Common Shares upon  acquisition  of Capital
     Network System, Inc.
6.   The Company  issued  550,725  Common  Shares upon  acquisition  of National
     Business Exchange, Inc.
7.   The Company holds  1,052,336  issuable Common Shares for the acquisition of
     the Teleplus, Inc. Dealer Agreement.
8.   The Company issued 44,643 Common Shares  pursuant to the conversion of $150
     of debt plus accrued interest thereon.
9.   The  Company  issued  54,340  Common  Shares  for  the  acquisition  of pay
     telephones.




                                       F-6

<PAGE>



                                   AMNEX, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   Basis of Presentation

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with generally  accepted  accounting  principles for
     interim financial information in response to the requirements of Article 10
     of Regulation S-X. Accordingly,  they do not include all of the information
     and footnotes  required by generally  accepted  accounting  principles  for
     complete  financial   statements.   In  the  opinion  of  management,   the
     accompanying   unaudited  consolidated  financial  statements  contain  all
     adjustments  (consisting of normal recurring accruals) necessary to present
     fairly  the  financial  position  as of  September  30,  1997;  results  of
     operations for the three and nine months ended September 30, 1997 and 1996;
     cash flows for the nine  months  ended  September  30,  1997 and 1996;  and
     changes in  shareholders'  equity for the nine months ended  September  30,
     1997. For further  information,  refer to AMNEX's financial  statements and
     notes  thereto  included  in the  Company's  Form  10-K for the year  ended
     December  31, 1996.  The  December 31, 1996 balance  sheet has been derived
     from AMNEX's audited  financial  statements as of that date.  Certain prior
     year  amounts  were   reclassified  to  conform  with  the  current  period
     presentation.

2.   Recently Issued Accounting Standards

     In February  1997, the FASB issued SFAS No. 128 "Earnings Per Share," which
     is  effective  for  financial  statements  issued for periods  ending after
     December 15, 1997. This pronouncement  establishes  standards for computing
     and presenting  earnings per share ("EPS") for entities with  publicly-held
     common stock or potential  common stock.  SFAS 128 simplifies the standards
     for computing EPS and makes them comparable to international EPS standards.
     Early application of this statement is not permitted.

     In February 1997,  the FASB issued SFAS No. 129,  Disclosure of Information
     about Capital  Structure,  which is applicable  to all  companies.  Capital
     structure disclosures required by SFAS 129 include liquidation  preferences
     of preferred stock,  information  about the pertinent rights and privileges
     of the outstanding  equity  securities,  and the redemption amounts for all
     issues of capital stock that are redeemable at fixed or determinable prices
     on  fixed  or  determinable  dates.  SFAS 129 is  effective  for  financial
     statements for periods ending after December 15, 1997.

     In June, 1997, the FASB issued SFAS No. 131,  Disclosures About Segments of
     an Enterprise and Related Information,  which significantly changes the way
     public companies report segment information in annual financial  statements
     and also requires those companies to report selected segment information in
     interim  financial  reports to shareholders.  SFAS No. 131 is effective for
     periods beginning after December 15, 1997.

     The Company  intends to adopt the provisions of these standards in 1998 and
     does  not  expect  their  application  to  have a  material  impact  on the
     financial statements of the Company.

3.   Related Party Transactions

     Pursuant  to a Stock  Exchange  Agreement,  dated as of  January  7,  1997,
     between the Company and Francesco  Galesi,  a Director of the Company,  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,
     (i) Mr. Galesi was issued 100,000 Series L Preferred Shares




                                       F-7

<PAGE>



AMNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


     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  of ECI are at least  $12,500,000);
     (iii)  Mr.  Galesi  was  granted  certain  registration  rights  under  the
     Securities  Act with regard to the  Conversion  Shares and Warrant  Shares;
     (iv) Peter M. Izzo, Jr., then Chief Executive  Officer of the Company,  was
     elected a Director  of ECI;  (v) Mr.  Galesi was  elected a Director of the
     Company;  (vi) Mr.  Galesi  agreed  that he would  utilize  ECI as his sole
     vehicle  with  regard to the  conduct of  international  telecommunications
     business;  (vii) Mr. Galesi agreed to a two year lock-up with regard to any
     securities  acquired  from the  Company  pursuant to the  transaction;  and
     (viii) Mr.  Galesi  granted the  Company  certain  "tag along"  rights with
     regard to the sale of the ECI capital stock acquired.

     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  connection  with  the  Friedli  Client  Repurchases,  (see  Convertible
     Subordinated  Notes footnote),  pursuant to a Note Purchase Agreement dated
     as of June 10, 1997,  Mr. Galesi  acquired from certain  clients of Friedli
     Corporate Finance AG certain convertible promissory notes of the Company in
     the aggregate  principal amount of $404,000 for an aggregate purchase price
     of $3,863,000,  and, pursuant to the terms of the acquired notes, converted
     the principal  amounts  thereof,  together with accrued interest thereon of
     approximately  $139,000,  into 2,717,326  Common Shares.  The Common Shares
     acquired by Mr. Galesi are subject to a one year lock-up agreement with the
     initial purchaser of the Convertible Subordinated Notes.

     On June 3, 1997,  the  Company  borrowed  $2,000,000  for  working  capital
     purposes  from  an  irrevocable  trust  established  by  Mr.  Galesi.   The
     promissory  note  evidencing  the loan provided for interest at the rate of
     10% per annum and the payment of the  principal  amount  thereof  within 15
     days  following  receipt of demand for  payment.  The  Company's  repayment
     obligation  was  secured  by  a  security   interest  in  certain  accounts
     receivable  of  certain  of its  subsidiaries.  This  note  was  repaid  in
     September  1997 with the proceeds of a $5,000,000  revolving line of credit
     obtained on September 10, 1997 from the CIT Group/Credit Finance, Inc.

     On September 18, 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 on September  18, 1998.  Payment of the $500,000
     Note is secured by a security interest in certain payphones owned by one of
     the Company's subsidiaries.

     On September 30, 1997,  the Company  borrowed an  additional  $800,000 from
     Rotterdam  for use in  satisfying a portion of certain  claims  against the
     Company by National Telecom USA, Inc. ("National"). The note evidencing the
     loan is unsecured and provides for interest at the rate of 6% per annum and
     the payment of the principal amount thereof on September 30, 1998.




                                       F-8

<PAGE>



AMNEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


     In October 1997 the Company borrowed  $900,000 for working capital purposes
     from  Rotterdam  under an  unsecured  demand  promissory  note which  bears
     interest at the rate of 10% per annum.

4.   Convertible Subordinated Notes

     On September 30, 1997, the Company issued 8 1/2%  Convertible  Subordinated
     Notes  due  2002  (the  "Notes")  in  the  aggregate  principal  amount  of
     $15,000,000.  The issuance was made to certain  institutional  investors in
     the United  States and certain  investors  outside the United  States.  The
     Notes will be convertible, at the option of the holder, into common shares,
     after  December  29, 1997 at a conversion  price of $2.7844 per share.  The
     securities offered were not registered under the Securities Act of 1933, as
     amended,  and  may not be  offered  or sold  in the  United  States  absent
     registration or an applicable exemption from the registration requirements.
     The Company has agreed to grant certain registration rights with respect to
     the resale of the Notes and the  underlying  Common  Shares.  A substantial
     portion of the net proceeds of the offering was used to repurchase  certain
     outstanding  convertible  promissory  notes  and  preferred  shares  of the
     Company and to repay certain  other debt of the Company,  in each case held
     by  clients  of  Friedli   Corporate   Finance  AG  (the  "Friedli   Client
     Repurchases").






                                       F-9

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

          Three and Nine Months Ended September 30, 1997 Compared With
                 Three and Nine Months Ended September 30, 1996

Results of Operations

     For the three months ended September 30, 1997, the Company's operating loss
totaled  $5,354,000  with  revenues of  $31,358,000,  compared to  $2,006,000 in
operating  income  with  revenues  of  $37,430,000  in the prior year  September
quarter. The reduction in revenue in the third quarter of 1997 was primarily due
to lower  operator  service  revenue,  partially  offset by  increased  payphone
revenues. The current quarter loss is primarily attributable to reduced revenue,
increased network costs associated with international operator services revenue,
a $2,158,000  write-off related to a joint venture  investment and $1,310,000 in
charges  related to local  exchange  carriers  and customer  receivables,  and a
$1,315,000  provision  established for dial around  compensation (see Regulatory
Developments section following).

     For the nine month period  ended  September  30,  1997,  the Company had an
operating  loss of $5,130,000  with  revenues of  $93,707,000  versus  operating
income of $4,104,000 with revenues of $88,188,000  for the comparable  period in
1996.  In addition to the effect of the third  quarter  costs and charges  noted
above,  the 1997 nine month period  includes a $1,400,000  restructuring  charge
recorded  in the first  quarter of 1997.  This charge  related to the  Company's
plan,  which is substantially  complete,  to close certain of its facilities and
eliminate  redundant  functions.  The benefits expected by the Company from this
restructuring  are reduced  costs in  subsequent  quarters.  The nine month 1996
results include a $1,500,000 gain from the sale of certain assets related to the
validation and fraud management of the Company's operator services revenue base.

<TABLE>
     The table below sets forth the Company's revenues by product line.

<CAPTION>
                                        Three months ended                 Nine months ended
                                          September 30,                      September 30,
                                    1997               1996            1997               1996
                                    -----------------------------------------------------------
                                         (in thousands)                     (in thousands)

<S>                                 <C>              <C>              <C>              <C>    
Domestic operator services          $17,022          $25,286          $49,662          $66,993

International operator services       4,569            6,524           18,124            6,524

Long distance services                1,928            2,659            5,861            6,503

1+ Coin services                      2,132            1,582            5,583            2,917

Payphone ownership and operation      5,901            1,520           15,071            4,084

PBX program services                    509              620            1,341            1,307

Billing services                      1,020              -0-            2,324              -0-
                                    ---------       -----------      ---------        ---------
                                     33,081           38,191           97,966           88,328

Other revenue                                                                            1,500

Intercompany                         (1,723)            (761)          (4,259)          (1,640)
                                    ----------      -----------      ----------       ---------

                                    $31,358          $37,430          $93,707          $88,188
                                    ==========      ===========      ==========       =========
</TABLE>

     The decrease in domestic and  international  operator  services  revenue is
principally  attributable  to increased dial around usage and a reduction in the
number of phones under contract.  The Company recognized that such services will
not contribute to the growth of the Company and,  therefore,  has made strategic
acquisitions in 1996 and 1997 related to the payphone and billing businesses.




                                      F-10

<PAGE>



     Cost of sales and services increased to 90% of revenue for the three months
ended September 30, 1997 versus 81% for the same period last year, and increased
to 84% of revenue for the nine months  ended  September  30, 1997 versus 80% for
the 1996 period. The increase is primarily attributable to increased network and
billing-related costs associated with traffic in Mexico related to international
telecommunications  services.  This  was  partially  offset  by a  reduction  in
commissions  expense,  which is considerably less in the international  business
than the domestic business.

     Selling,  general  and  administrative  expenses,  exclusive  of the  joint
venture  investment  write-off  of  $2,158,000  and  provision  for dial  around
compensation  of  $1,315,000  represented  8% of revenues for both the September
1997 and 1996 quarters,  and, for the nine month period,  represented 9% in 1997
versus 10% in 1996.

     Interest  expense  increased  from $869,000 in the third quarter of 1996 to
$1,131,000  for the current  quarter and from  $1,973,000 to $2,823,000  for the
year to date due to increased  borrowings primarily related to CNSI and payphone
acquisitions during the later part of 1996.

Liquidity and Capital Resources

     The Company had a working  capital  deficiency of  $15,091,000 at September
30, 1997 versus a $4,994,000  deficiency  at December 31, 1996.  The increase is
primarily  due to increased  borrowings  and  operating  losses.  The Company is
currently  pursuing  alternate and additional  financing from several  different
sources and believes  additional  financing will be obtained to meet its current
and future obligations.

     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 76% of the gross
amount  thereof.  The Company pays interest  under this  agreement at prime plus
1.5% per annum.  At September 30, 1997,  the amount due under this agreement was
$11,965,000. The lending agreement extends through February 2000.

     On September 10, 1997, the Company obtained a $5,000,000  revolving line of
credit from The CIT Group/Credit Finance, Inc. (the "Line of Credit").  The Line
of Credit provides for 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.  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. The amount outstanding under this line
of credit was $2,501,000 at September 30, 1997.

Regulatory Developments

     Provision for Dial-Around Compensation:  On September 20, 1996, the Federal
Communications  Commission (the "FCC") adopted rules in a docket entitled In the
Matter of Implementation of the Pay Telephone  Reclassification and Compensation
Provisions of the Telecommunications Act of 1996, FCC 96-388 (the "1996 Payphone
Order"),   implementing   the  payphone   provisions   of  Section  276  of  the
Telecommunications  Act of 1996 ("Telecom Act"). The 1996 Payphone Order,  which
became effective November 7, 1996, initially mandated  dial-around  compensation
for both access code calls and 800 subscriber calls at a flat rate of $45.85 per
payphone per month (131 calls multiplied by $0.35 per call).  Commencing October
7, 1997 and ending October 6, 1998 the $45.85 per payphone per month rate was to
transition to a per-call  system at the rate of $0.35 per call.  Several parties
filed petitions for judicial review of certain of the FCC regulations  including
the  dial-around  compensation  rate. On July 1, 1997, the U.S. Court of Appeals
for the District of Columbia Circuit (the "Court")  responded to appeals related
to  the  1996  Payphone  Order  by  remanding  certain  issues  to the  FCC  for
reconsideration.  These issues included, among other things, the manner in which
the FCC established the dial-around  compensation  for 800 subscriber and access
code calls, the manner in which the FCC



                                      F-11

<PAGE>



established the interim  dial-around  compensation plan and the basis upon which
interexchange carriers ("IXCs") would be required to compensate payphone service
providers  ("PSPs").  The  Court  remanded  the  issue  to the FCC  for  further
consideration,  and clarified on September 16, 1997 that it had vacated  certain
portions  of  the  FCC's  1996  Payphone   Order,   including  the   dial-around
compensation  rate.  Specifically,  the  Court  determined  that the FCC did not
adequately  justify (i) the per-call  compensation  rate for  subscriber 800 and
access code calls at the  deregulated  local coin rate of $0.35,  because it did
not  sufficiently  justify its conclusion that the costs of local coin calls are
similar  to  those  of  subscriber  800 and  access  code  calls;  and  (ii) the
allocation of the payment obligation among the IXCs for the period from November
7, 1996 through October 6, 1997.

     In accordance with the Court's mandate, on October 9, 1997, the FCC adopted
and  released its Second  Report and Order in the same  docket,  FCC 97-371 (the
"1997 Payphone Order").  This order addressed the per-call compensation rate for
subscriber  800 and access code calls that  originate from payphones in light of
the  decision of the Court which  vacated and remanded  certain  portions of the
FCC's  1996  Payphone  Order.  The FCC  concluded  that the  rate  for  per-call
compensation  for  subscriber  800 and access code calls from  payphones  is the
deregulated local coin rate adjusted for certain cost differences.  Accordingly,
the FCC established a rate of $0.284 ($0.35 - $0.066) per call for the first two
years of per-call  compensation  (October 7, 1997 through October 6, 1999).  The
IXCs are required to pay this  per-call  amount to PSPs,  including the Company,
beginning October 7, 1997. After the first two years of per-call  compensation,
the market-based local coin rate,  adjusted for certain costs defined by the FCC
as $0.066 per call, is the surrogate  for the per-call rate for  subscriber  800
and access code  calls.  These new rule  provisions  were made  effective  as of
October 7, 1997.

     In addition,  the 1997 Payphone Order  tentatively  concluded that the same
$0.284  per call rate  adopted  on a  going-forward  basis  should  also  govern
compensation obligations during the period from November 7, 1996 through October
6, 1997,  and that PSPs are  entitled  to  compensation  for all access code and
subscriber 800 calls during this period. The FCC stated that the manner in which
the payment  obligation of the IXCs for the period from November 7, 1996 through
October  6,  1997  will be  allocated  among  the IXCs  will be  addressed  in a
subsequent order.

     Based on the FCC's  tentative  conclusion in the 1997 Payphone  Order,  the
Company has adjusted the amounts of dial-around compensation previously recorded
related to the period from November 7, 1996 through  September 30, 1997 from the
initial  $45.85 rate to $37.20 ($0.284 per call  multiplied by 131 calls).  As a
result of this  adjustment,  the  provision  recorded  in the third  quarter for
reduced dial-around compensation is approximately $1,315,000.

     The Company's Counsel, Morrison & Foerster, LLP, is of the opinion that the
Company is legally  entitled  to fair  compensation  under the  Telecom  Act for
dial-around  calls the Company  delivered to any carrier  during the period from
November 7, 1996 through October 6, 1997.  Based on the  information  available,
the  Company  believes  that  the  minimum  amount  it is  entitled  to as  fair
compensation  under the Telecom Act for the period from November 7, 1996 through
October 7, 1997 is $37.20 per payphone  per month and the Company,  based on the
information  available  to it, does not believe that it is  reasonably  possible
that the amount  will be  materially  less than $37.20 per  payphone  per month.
While the amount of $0.284 per call  constitutes  the Company's  position of the
appropriate level of fair compensation,  certain IXCs have asserted in the past,
are  asserting  and are  expected to assert in the future  that the  appropriate
level of fair compensation  should be lower than $0.284 per call. In a letter to
the FCC dated August 15,  1997,  AT&T stated its  intention to make  dial-around
payments  to PSPs  based on its  imputed  rate of $0.12  per call  until the FCC
issues a new order setting the level of fair compensation.






                                      F-12

<PAGE>



Claims and Contingencies

     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 of
$25,000,000,  and  attorneys'  fees. The Company filed a motion to dismiss or in
the alternative to stay. The Company believes that the claims of D. Faye Manghir
are without merit and that it will ultimately prevail, resulting in dismissal of
the suit or referral to arbitration.

     Pursuant to the terms of the  February 28, 1997  Renewal  Agreement,  as of
June 30,  1997,  approximately  $1,500,000  was due and  owing to  National.  In
addition, as of such date, approximately an additional $370,000 was owed but not
yet payable to National.  On September  25, 1997,  National and its  affiliates,
Keystone  Corporation,  Coastal Telecom Payphone Company,  Inc., BEK Tel., Inc.,
Garden State  Telephone  Installation  & Service  Co.,  Inc.,  National  Telecom
Hospitality  USA and  Brian E. King  filed  suit  against  the  Company  and its
subsidiaries,  American Network Exchange,  Inc., Crescent Public  Communications
Inc. 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 attorney's fees.

     On September 30, 1997, the Company and National  reached an agreement as to
a  settlement  of certain  of the above  claims as they  relate to the  National
Renewal  Agreement.  Pursuant to this  agreement,  on September  30,  1997,  the
Company paid  National  $1,000,000 in cash and delivered a note in the principal
amount of $840,000 (the "National Note"),  representing the remaining balance of
the amounts  referred to above and certain  other  amounts due to National.  The
National Note provides for interest at the rate of 12% per annum and will mature
in four months.

     The other items raised in the lawsuit remain unresolved and the Company has
filed a motion to dismiss and compel arbitration or, in the alternative, to stay
pending arbitration. The Company believes the unsettled claims are without merit
and intends to vigorously defend the lawsuit. However, there can be no assurance
that the Company will prevail in the litigation.

     In connection with the Company's June 1996 CNSI acquisition,  CNSI issued a
promissory note in favor of Robert A. Rowland (the "Rowland  Note"), 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
and CNSI in the District Court of Travis  County,  Texas.  Mr.  Rowland  asserts
several causes of action against the Company including enforcement of an alleged
settlement agreement regarding  indemnification claims, and seeks 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 relate to monies  allegedly  due under a  consulting
agreement,  and damages claimed include attorneys' fees. On August 11, 1997, the
Company  received a letter from counsel to Mr.  Rowland which  demanded that the
Board of Directors conduct an investigation  into certain matters,  specifically
(i) the  propriety of certain  transactions  with Mr.  Galesi and (ii)  possible
mismanagement  of the  Company,  particularly  in regard to CNSI's  business  in
Mexico. Counsel to Mr. Rowland demanded that suit be brought against any officer
or Director of the Company for wrongdoing, fraud, breach of fiduciary duty, self
dealing,  gross mismanagement or under any other theory of liability and further
stated that if his demand is refused,  Mr. Rowland will take appropriate action,
including  possibly a shareholder's  derivative  action. On August 29, 1997, the
Company advised counsel to Mr. Rowland that the outside Directors of the Company
have been requested to investigate the assertions made.



                                      F-13

<PAGE>




Risks and Uncertainties

     Except for  historical  information  contained  herein,  this  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contains forward-looking statements that are subject to risks and uncertainties,
including  seasonal  variations in revenues,  shifts in Company's business focus
from core domestic operator  services,  regulatory and legislative  uncertainty,
technological  change  and  new  service,  competition,  risks  associated  with
international  operations,  service interruptions and equipment failures, change
in economic conditions of the various markets the Company serves, as well as the
other risks  detailed in the Company's Form 10-K for the year ended December 31,
1996 filed with the Securities and Exchange Commission on April 15, 1997.






                                      F-14

<PAGE>



                                     PART II
                                OTHER INFORMATION


Item 1.  Legal Proceedings.

     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 of
$25,000,000,  and  attorneys'  fees. The Company filed a motion to dismiss or in
the alternative to stay. The Company believes that the claims of D. Faye Manghir
are without merit and that it will ultimately prevail, resulting in dismissal of
the suit or referral to arbitration.

     Pursuant to the terms of the  National  Renewal  Agreement,  as of June 30,
1997, approximately $1,500,000 was due and owing to National. In addition, as of
such date,  approximately an additional $370,000 was owed but not yet payable to
National.   On  September  25,  1997,   National  and  its  affiliates  Keystone
Corporation,  Coastal Telecom Payphone  Company,  Inc., BEK Tel.,  Inc.,  Garden
State Telephone  Installation & Service Co., Inc.,  National Telecom Hospitality
USA and Brian E. King filed  suit  against  the  Company  and its  subsidiaries,
American  Network  Exchange,  Inc.,  Crescent  Public  Communications  Inc.  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 attorney's fees.

     The Company and National  have  reached an agreement as to a settlement  of
certain of the above  claims as they relate to the National  Renewal  Agreement.
Pursuant to this agreement,  on September 30, 1997, the Company paid to National
$1,000,000 in cash and delivered a note in the principal amount of $840,000 (the
"National Note"),  representing the remaining balance of the amounts referred to
above and certain other amounts due to National.  The National Note provides for
interest at the rate of 12% per annum and will mature in four months.

     The other items raised in the lawsuit remain unresolved and the Company has
filed a motion to dismiss and compel arbitration or, in the alternative, to stay
pending arbitration. The Company believes the unsettled claims are without merit
and intends to vigorously defend the lawsuit. However, there can be no assurance
that the Company will prevail in the litigation.

     In connection with the Company's June 1996 CNSI acquisition,  CNSI issued a
promissory note in favor of Robert A. Rowland (the "Rowland  Note"), 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
and CNSI in the District Court of Travis  County,  Texas.  Mr.  Rowland  asserts
several causes of action against the Company including enforcement of an alleged
settlement agreement regarding  indemnification claims, and seeks 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 relate to monies  allegedly  due under a  consulting
agreement,  and damages claimed include attorneys' fees. On August 11, 1997, the
Company  received a letter from counsel to Mr.  Rowland which  demanded that the
Board of Directors conduct an investigation  into certain matters,  specifically
(i) the  propriety of certain  transactions  with Mr.  Galesi and (ii)  possible
mismanagement  of the  Company,  particularly  in regard to CNSI's  business  in
Mexico. Counsel to Mr. Rowland demanded that suit be brought against any officer
or Director of the Company for wrongdoing, fraud, breach of fiduciary duty, self
dealing,  gross mismanagement or under any other theory of liability and further
stated that if his demand is refused,  Mr. Rowland will take appropriate action,
including  possibly a shareholder's  derivative  action. On August 29, 1997, the
Company advised counsel to Mr. Rowland that the outside Directors of the Company
have been directed to investigate the assertions made.




<PAGE>

Item 2. Changes in Securities.

     (a)  None.

     (b)  None.

     (c)  During the quarter  ended  September 30, 1997,  the Company  issued or
          sold  the  following  equity  securities  other  than in  transactions
          registered under the Securities Act:

          (i)  On  September  30,  1997,  the Company  issued  8.5%  convertible
               subordinated   notes  in  the  aggregate   principal   amount  of
               $15,000,000.  The Notes will be convertible, at the option of the
               holder,   into  Common  Shares  after  December  29,  1997  at  a
               conversion  price of  $2.7844  per share.  The notes were  issued
               pursuant to the exemption from  registration  provided by Section
               4(2) of the Securities  Act of 1933, as amended (the  "Securities
               Act"),  as a  transaction  by an issuer not  involving any public
               offering.  In  connection  with the  issuance  of the notes,  the
               Company also issued warrants to the initial purchaser thereof and
               the  international  sales agent for the  purchase of up to 96,250
               and 65,365 Common Shares,  respectively,  at an exercise price of
               $2.7844 per share.  Such  warrants  were  issued  pursuant to the
               exemption  provided by Section  4(2) of the  Securities  Act as a
               transaction by an issuer not involving a public offering.

          (ii) Effective  September 30, 1997,  the Company issued 892,151 Common
               Shares to Francesco  Galesi upon the  conversion of certain notes
               of the Company other than in  transactions  registered  under the
               Securities  Act.  The Common  Shares were issued  pursuant to the
               exemption from  registration  provided by Section  3(a)(9) of the
               Securities  Act as  such  Common  Shares  were  exchanged  by the
               company with its existing  security  holder and no  commission or
               other remuneration was paid or given, directly or indirectly, for
               soliciting such exchange.

Item 3. Defaults Upon Senior Securities.

     (a)  None.

     (b)  None.

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

     None.

Item 5. Other Information.

     None.

Item 6. Exhibits and Reports on Form 8-K.

     (a)  Exhibits.

          3.1  Restated Certificate of Incorporation, as amended(1).

          3.2  By-Laws, as amended(2).

          4    Indenture,  dated  September  29,  1997,  between the Company and
               Marine Midland Bank, as trustee.





<PAGE>



          10.1 Purchase Agreement, dated September 11, 1997, between the Company
               and HSBC Securities, Inc.

          10.2 Registration Rights Agreement,  dated September 29, 1997, between
               the Company and HSBC Securities, Inc.

          10.3 Warrant Agreement,  dated September 29, 1997, between the Company
               and HSBC Securities, Inc.

          10.4 Loan and Security  Agreement,  dated September 10, 1997,  between
               the Company and The CIT Group/Credit Finance, Inc.

          10.5 Secured  Promissory  Note,  dated  September  18,  1997,  in  the
               principal amount of $500,000,  issued by the Company to Rotterdam
               Ventures, Inc.

          10.6 Unsecured  Promissory  Note,  dated  September  30, 1997,  in the
               principal amount of $800,000,  issued by the Company to Rotterdam
               Ventures, Inc.

          11   Statements Regarding Computation of Per Share Earnings.

          27   Financial  Data Schedule.

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

Note 1   Filed as Exhibit 3.1 to the Company's  Quarterly  Report on Form 10-Q 
         for the period ended March 31, 1997 (File No. 0-17158) and incorporated
         herein by reference.

Note 2   Filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
         the period ended June 30, 1997 (File No. 0-17158) and incorporated 
         herein by reference.

     (b)  Reports on Form 8-K.

          During the quarter ended  September 30, 1997,  two Current  Reports on
          Form 8-K filed by the Company are as follows:

          (i) Date of Report:   June 18, 1997 
              Item Reported:    5

          (ii) Date of Report:  July 30, 1997
               Item Reported:   5

                                   SIGNATURES

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

                                         AMNEX, INC.


November 19, 1997                        By:/s/ Alan J. Rossi
                                            --------------------
                                            Alan J. Rossi
                                            Chairman of the Board
                                            and Chief Executive Officer

November 19, 1997                        By:/s/ Cynthia I. Terrell
                                            -------------------------
                                            Cynthia I. Terrell
                                            Chief Financial Officer


<PAGE>