UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2007            
|OR                                                           
|o                                                             | 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: 001-32033

TNS, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or jurisdiction of incorporation or organization) |  | 36-4430020(I.R.S. Employer Identification Number)
|---------------------------------------------------------------- |  | -------------------------------------------------

11480 Commerce Park Drive, Suite 600
Reston, VA 20191(Address of principal executive offices)

(703) 453-8300
(Registrant's telephone number, including area code)

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

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

Large
accelerated filer o            Accelerated
filer ý            Non-accelerated filer o

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

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.

|Shares Outstanding as of October 1, 200724,222,470 Shares of Common Stock, $0.001 par value
|-------------------------------------------------------------------------------------------



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TNS, INC.

INDEX

|                              |  |                                                                                                                 |  | Page
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|Part I: FINANCIAL INFORMATION |  |                                                                                                                
|Item 1.                       |  | Condensed Consolidated Financial Statements (Unaudited)                                                         |  | 3   
|                              |  | Condensed Consolidated Balance Sheets as of December 31, 2006 and September 30, 2007                            |  | 3   
|                              |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2007 |  | 4   
|                              |  | Condensed Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2007          |  | 5   
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2007           |  | 6   
|                              |  | Notes to Condensed Consolidated Financial Statements                                                            |  | 7   
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 18  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 32  
|Item 4.                       |  | Controls and Procedures                                                                                         |  | 32  
|Part II: OTHER INFORMATION    |  |                                                                                                                
|Item 1.                       |  | Legal Proceedings                                                                                               |  | 33  
|Item 1A.                      |  | Risk Factors                                                                                                    |  | 33  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 33  
|Item 3.                       |  | Default Upon Senior Securities                                                                                  |  | 33  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                             |  | 33  
|Item 5.                       |  | Other Information                                                                                               |  | 33  
|Item 6.                       |  | Exhibits                                                                                                        |  | 33  

2

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PART IFINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

TNS, INC.  CONDENSED CONSOLIDATED BALANCE SHEETS  (dollars in thousands, except share and per share data)

|                                       |                                                                                                                                                                                                        | December 31,
2006 |                                            | September 30,
2007 |  
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | ------------------------------------------ | ------------------ | -
|
|ASSETS                                 |                                                                                                                                                                                                        |                   |                                            |                    |  
|Current assets:                        |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       | Cash and cash equivalents                                                                                                                                                                              |                   | $                                          | 17,322             |  
|                                       | Accounts receivable, net of allowance for doubtful accounts of $6,435 and $3,379, respectively                                                                                                         |                   |                                            | 64,985             |  
|                                       | Prepaid expenses                                                                                                                                                                                       |                   |                                            | 4,931              |  
|                                       | Deferred tax assets                                                                                                                                                                                    |                   |                                            | 2,875              |  
|                                       | Other current assets                                                                                                                                                                                   |                   |                                            | 10,232             |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       |                                                                                                                                                                                                        |                   | Total current assets                       |                    |  
|Property and equipment, net            |                                                                                                                                                                                                        |                   | 58,376                                     |                    |  
|Identifiable intangible assets, net    |                                                                                                                                                                                                        |                   | 192,700                                    |                    |  
|Goodwill                               |                                                                                                                                                                                                        |                   | 12,043                                     |                    |  
|Deferred tax assets, net               |                                                                                                                                                                                                        |                   | 13,096                                     |                    |  
|Other assets                           |                                                                                                                                                                                                        |                   | 5,117                                      |                    |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       |                                                                                                                                                                                                        |                   | Total assets                               |                    | $
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                                                                                                                        |                   |                                            |                    |  
|Current liabilities:                   |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       | Current portion of long-term debt                                                                                                                                                                      |                   | $                                          | 1,650              |  
|                                       | Accounts payable, accrued expenses and other current liabilities                                                                                                                                       |                   |                                            | 51,751             |  
|                                       | Deferred revenue                                                                                                                                                                                       |                   |                                            | 15,115             |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       |                                                                                                                                                                                                        |                   | Total current liabilities                  |                    |  
|Long-term debt, net of current portion |                                                                                                                                                                                                        |                   | 121,663                                    |                    |  
|Deferred tax liability                 |                                                                                                                                                                                                        |                   | 6,440                                      |                    |  
|Other liabilities                      |                                                                                                                                                                                                        |                   | 5,793                                      |                    |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       |                                                                                                                                                                                                        |                   | Total liabilities                          |                    |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|Commitments and contingencies          |                                                                                                                                                                                                        |                   |                                            |                    |  
|Stockholders' equity:                  |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       | Common stock, $0.001 par value; 130,000,000 shares authorized; 24,145,804 shares issued and 24,113,434 shares outstanding and 24,224,672 shares issued and 24,222,470 shares outstanding, respectively |                   |                                            | 24                 |  
|                                       | Treasury stock, 32,370 shares and 2,202 shares, respectively                                                                                                                                           |                   |                                            | (605               | )
|                                       | Additional paid-in capital                                                                                                                                                                             |                   |                                            | 218,099            |  
|                                       | Accumulated deficit                                                                                                                                                                                    |                   |                                            | (41,463            | )
|                                       | Accumulated other comprehensive income                                                                                                                                                                 |                   |                                            | 3,210              |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       |                                                                                                                                                                                                        |                   | Total stockholders' equity                 |                    |  
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  
|                                       |                                                                                                                                                                                                        |                   | Total liabilities and stockholders' equity |                    | $
|                                       |                                                                                                                                                                                                        |                   |                                            |                    |  

See
accompanying notes to condensed consolidated financial statements (unaudited).

3

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TNS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)  (dollars in thousands, except share and per share data)

|                                                                                                                                                   |                                                                         | Three months ended
September 30, |                          | Nine months ended
September 30, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------- | ------------------------ | ------------------------------- | -
|
|Revenues                                                                                                                                           |                                                                         | $                                | 73,187                   |                                 | $
|Operating expenses:                                                                                                                                |                                                                         |                                  |                          |                                 |  
|                                                                                                                                                   | Cost of network services, exclusive of the items shown separately below |                                  |                          | 37,442                          |  
|                                                                                                                                                   | Engineering and development                                             |                                  |                          | 5,269                           |  
|                                                                                                                                                   | Selling, general, and administrative                                    |                                  |                          | 20,985                          |  
|                                                                                                                                                   | Depreciation and amortization of property and equipment                 |                                  |                          | 5,574                           |  
|                                                                                                                                                   | Amortization of intangible assets                                       |                                  |                          | 5,459                           |  
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|                                                                                                                                                   |                                                                         |                                  | Total operating expenses |                                 |  
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|(Loss) income from operations                                                                                                                      |                                                                         |                                  | (1,542                   | )                               |  
|Interest expense                                                                                                                                   |                                                                         |                                  | (2,466                   | )                               |  
|Interest income                                                                                                                                    |                                                                         |                                  | 143                      |                                 |  
|Other income, net                                                                                                                                  |                                                                         |                                  | 688                      |                                 |  
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|(Loss) income before income tax benefit, equity in net loss of unconsolidated affiliates and cumulative effect of a change in accounting principle |                                                                         |                                  | (3,177                   | )                               |  
|Income tax benefit                                                                                                                                 |                                                                         |                                  | 2,240                    |                                 |  
|Equity in net (loss) income of unconsolidated affiliates                                                                                           |                                                                         |                                  | (904                     | )                               |  
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|(Loss) income from continuing operations before cumulative effect of a change in accounting principle                                              |                                                                         |                                  | (1,841                   | )                               |  
|Cumulative effect of a change in accounting principle, net of tax provision                                                                        |                                                                         |                                  |                         |                                 |  
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|Net (loss) income                                                                                                                                  |                                                                         | $                                | (1,841                   | )                               | $
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|Basic and diluted net (loss) income per common share:                                                                                              |                                                                         |                                  |                          |                                 |  
|(Loss) income from continuing operations before cumulative effect of a change in accounting principle                                              |                                                                         | $                                | (0.08                    | )                               | $
|Cumulative effect of a change in accounting principle, net of tax provision                                                                        |                                                                         |                                  |                         |                                 |  
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|Net (loss) income                                                                                                                                  |                                                                         | $                                | (0.08                    | )                               | $
|                                                                                                                                                   |                                                                         |                                  |                          |                                 |  
|Basic weighted average common shares outstanding                                                                                                   |                                                                         |                                  | 24,105,525               |                                 |  
|Diluted weighted average common shares outstanding                                                                                                 |                                                                         |                                  | 24,105,525               |                                 |  
|Dividends declared per common share                                                                                                                |                                                                         | $                                |                         |                                 | $

See accompanying notes to condensed consolidated financial statements (unaudited).

4

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TNS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)  (dollars in thousands)

|                                                                |  | Common Stock |   |   |    |  |   |       |   | Accumulated
other
comprehensive
income |         |   |  
|--------------------------------------------------------------- |  | ------------ | - | - | -- |  | - | ----- | - | -------------------------------------- | ------- | - | -
|
|
|
|Balance, December 31, 2006                                      |  | 24,145,804   |   | $ | 24 |  | $ | (605  | ) | $                                      | 218,099 |   | $
|Issuance of common stock upon vesting of restricted stock units |  | 149,426      |   |   |   |  |   |      |   |                                        |        |   |  
|Exercise of employee stock options                              |  | 3,320        |   |   |   |  |   |      |   |                                        | 51      |   |  
|Purchase of treasury stock                                      |  |             |   |   |   |  |   | (720  | ) |                                        |        |   |  
|Stock compensation expense                                      |  |             |   |   |   |  |   |      |   |                                        | 9,234   |   |  
|Foreign currency translation                                    |  |             |   |   |   |  |   |      |   |                                        |        |   |  
|Net loss                                                        |  |             |   |   |   |  |   |      |   |                                        |        |   |  
|Special cash dividend declared, $4 per common share             |  |             |   |   |   |  |   |      |   |                                        | (98,294 | ) |  
|Retirement of treasury stock                                    |  | (73,878      | ) |   |   |  |   | 1,295 |   |                                        | (1,295  | ) |  
|                                                                |  |              |   |   |    |  |   |       |   |                                        |         |   |  
|Balance, September 30, 2007                                     |  | 24,224,672   |   | $ | 24 |  | $ | (30   | ) | $                                      | 127,795 |   | $
|                                                                |  |              |   |   |    |  |   |       |   |                                        |         |   |  

See accompanying notes to condensed consolidated financial statements (unaudited).

5

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TNS, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  (dollars in thousands)

|                                                                                |                                                                                | Nine months ended
September
30, |                                                    
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                                           |                                                                                |                                 |                                                    
|Net loss                                                                        |                                                                                | $                               | (3,237                                             
|                                                                                |                                                                                |                                 |                                                    
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                                                |                                 |                                                    
|                                                                                | Non-cash and working capital items                                             |                                 |                                                    
|                                                                                |                                                                                |                                 |                                                    
|                                                                                |                                                                                |                                 | Net cash provided by operating activities:         
|                                                                                |                                                                                |                                 |                                                    
|Cash flows from investing activities                                            |                                                                                |                                 |                                                    
|                                                                                | Purchases of property and equipment                                            |                                 |                                                    
|                                                                                | Proceeds from sale of property and equipment                                   |                                 |                                                    
|                                                                                | Cash paid for business acquisitions, net of cash acquired                      |                                 |                                                    
|                                                                                | Proceeds from sale of unconsolidated affiliates                                |                                 |                                                    
|                                                                                |                                                                                |                                 |                                                    
|                                                                                |                                                                                |                                 | Net cash used in investing activities:             
|                                                                                |                                                                                |                                 |                                                    
|Cash flows from financing activities                                            |                                                                                |                                 |                                                    
|                                                                                | Proceeds from issuance of long-term debt, net of issuance costs of $3,501      |                                 |                                                    
|                                                                                | Borrowings under 2005 amended and restated senior secured credit facility, net |                                 |                                                    
|                                                                                | Repayments of long-term debt                                                   |                                 |                                                    
|                                                                                | Proceeds from stock option exercises, inclusive of tax benefit                 |                                 |                                                    
|                                                                                | Payment of special dividend, $4 per common share                               |                                 |                                                    
|                                                                                | Purchase of treasury stock                                                     |                                 |                                                    
|                                                                                |                                                                                |                                 |                                                    
|                                                                                |                                                                                |                                 | Net cash provided by (used in) financing activities
|                                                                                |                                                                                |                                 |                                                    
|Effect of exchange rates on cash and cash equivalents                           |                                                                                |                                 | (903                                               
|                                                                                |                                                                                |                                 |                                                    
|Net (decrease) increase in cash and cash equivalents                            |                                                                                |                                 | (14,193                                            
|Cash and cash equivalents, beginning of period                                  |                                                                                |                                 | 26,628                                             
|                                                                                |                                                                                |                                 |                                                    
|Cash and cash equivalents, end of period                                        |                                                                                | $                               | 12,435                                             
|                                                                                |                                                                                |                                 |                                                    
|Supplemental disclosures of cash flow information:                              |                                                                                |                                 |                                                    
|                                                                                | Cash paid for interest                                                         |                                 | $                                                  
|                                                                                |                                                                                |                                 |                                                    
|                                                                                | Cash paid for income taxes                                                     |                                 | $                                                  
|                                                                                |                                                                                |                                 |                                                    

See
accompanying notes to condensed consolidated financial statements (unaudited).

6

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.     Description of Business and Basis of Presentation

TNS, Inc. (TNS or the Company) is a Delaware corporation. TNS is an international provider of networking, data communications, and value added services to
many of the world's leading retailer, banks/processors, telecommunication companies, and financial markets. TNS' data communication services enable secure and reliable transmission of
time-sensitive, transaction-related information critical to its customers' operations. The Company's customers outsource their data communication requirements to TNS because of the
Company's expertise, comprehensive customer support, and cost-effective services. TNS provides services to customers in the United States and increasingly to customers in 28 countries,
including Canada and countries in Europe, Latin America and the Asia-Pacific region.

The
Company provides its services through its multiple data networks, each designed specifically for transaction applications. These networks support a variety of widely accepted
communications protocols, are designed to be scalable and are accessible by multiple methods, including dial-up, dedicated, wireless and Internet connections.

The
Company has four business divisions: (1) the point-of-sale/point-of-service (POS) division, which provides data communications
services to payment processors in the U.S. and Canada, (2) the telecommunication services division (TSD), which provides call signaling services and database access services targeting primarily
the telecommunications industry, (3) the financial services division (FSD), which provides data and voice communications services to the financial services community in support of the Financial
Information eXchange (FIX) messaging protocol and other transaction-oriented trading applications, and (4) the international services division (ISD), which markets the Company's POS and
financial services in countries outside of the United States and Canada.

The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim
financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in the annual
financial statements, required by GAAP, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the
information presented not misleading.

In
the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect adjustments (all of which are of a normal and recurring nature) that are
necessary for fair presentation of the periods presented. The results of operations for the three and nine months ended September 30, 2007 are not necessarily indicative of the results to be
expected for any subsequent interim period or for the fiscal year. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the Company's annual
report on Form 10-K filed with the SEC on March 16, 2007, which includes consolidated financial statements and the notes thereto for the year ended December 31, 2006.

Dividends and Recapitalization

On March 28, 2007, the Company's board of directors declared a special dividend of $4.00 per common share, which was paid on April 12, 2007. Also,
on March 28, 2007, the Company entered into a secured credit facility, which consists of two facilities: a senior secured term loan facility in an aggregate principal amount of
$225 million (the Term Facility) and a senior secured revolving credit facility in an aggregate principal amount of $15 million (the Revolving Facility). The Company used approximately
$98.3 million of the proceeds from the Term Facility to pay the special dividend. The remainder of the proceeds from the Term Facility was used to refinance existing debt, to pay fees

7

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related
to the senior secured credit facility and the special dividend and for general corporate purposes. The payment of the special dividend and the closing on the secured credit facility reflect
the completion of the Company's recapitalization plan.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Significant estimates affecting the consolidated financial statements include
management's judgments regarding the allowance for doubtful accounts, future cash flows from long-lived assets, accrued
expenses for probable losses, estimates of the fair value of assets and liabilities assumed and estimates related to the fair value of employee stock options, including volatility, expected term and
estimates of forfeitures in future periods. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an agreement exists, the terms are fixed and determinable, services are performed, and collection is
probable. Cash received in advance of revenue recognition is recorded as deferred revenue. POS services revenue is derived primarily from per transaction fees paid by the Company's customers for the
transmission of transaction data, through the Company's networks, between payment processors and POS or ATM terminals. TSD revenue is derived primarily from fixed monthly fees for call signaling
services and per query fees charged for database access and validation services. FSD revenue is derived primarily from monthly recurring fees based on the number of customer connections to and through
the Company's networks. Incentives granted to new customers or upon contract renewals are deferred and recognized ratably as a reduction of revenue over the contract period to the extent that the
incentives are recoverable against the customer's minimum purchase commitments under the contract. In addition, the Company receives installation fees related to the configuration of the customers'
systems. Revenue from installation fees is deferred and recognized ratably over the customer's contractual service period, generally three years. The Company performs periodic evaluations of its
customer base and establishes allowances for estimated credit losses.

Cost of Network Services

Cost of network services is comprised primarily of telecommunications charges, which include data transmission and database access charges, leased digital
capacity charges, circuit installation charges and activation charges. The cost of data transmission is based on a contract or tariff rate per minute of usage in addition to a prescribed rate per
transaction for certain vendors. The costs of database access, circuits, installation, and activation charges are based on fixed fee contracts with local exchange carriers and interexchange carriers.
The cost of network services also includes salaries, equipment maintenance and other costs related to the ongoing operation of the Company's data networks. These costs are expensed by the Company as
incurred. The Company recognizes a liability for telecommunications charges based upon network services utilized at historical invoiced rates. Depreciation expense on network equipment and
amortization expense on developed technology are excluded from cost of network services and included in depreciation and amortization of property and equipment and amortization of intangible assets in
the accompanying consolidated statements of operations.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statements of Financial Accounting Standards (SFAS) No. 123R "Share Based Payment", using the
modified prospective transition method. SFAS No. 123R requires that all stock-based compensation to employees be measured at fair value and

8

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expensed
over the requisite service period and also requires an estimate of forfeitures when calculating compensation expense. The Company recognizes compensation cost on awards with graded vesting on
a straight-line basis over the requisite service period for the entire award. Share-based expenses for all non-vested awards outstanding as of January 1, 2006, are being
recognized based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation" and in accordance with SFAS No. 123R
for all awards granted or modified after January 1, 2006.

The
Company recognized $2.5 million and $3.8 million of stock-based compensation for the three months ended September 30, 2006 and 2007, respectively. The Company
recognized $5.6 million and $9.2 million of stock based compensation for the nine months ended September 30, 2006 and 2007, respectively. During the nine months ended
September 30, 2006 the Company granted 467,495 stock options and 175,999 restricted stock units at weighted average estimated fair values of $10.44 and $20.47 respectively. During the nine
months ended September 30, 2007 the Company granted 342,824 stock options and 615,693 restricted stock units at weighted average estimated fair values of $6.28 and $14.10, respectively. As of
September 30, 2007, there was a total of $15.6 million of deferred compensation cost related to share based awards, which is expected to be recognized over a weighted average period of
approximately two years.

In
May 2007 the Company put in place a long-term performance based stock compensation plan (the 2007 Equity Performance Plan). Performance-based stock options and restricted stock units
are tied to the Company's annual performance against pre-established internal budget targets for revenues and adjusted earnings per share. Under the Company's 2007 Equity Performance Plan, the actual
payout under these awards may vary from zero to 200% of an employee's target payout, based upon the Company's actual performance during the fiscal year. The Company uses the Black Scholes option
pricing model to determine the grant date fair value of any performance-based stock options. Compensation expense is based on the expected payout level that will be achieved and is adjusted in
subsequent periods as changes in the estimates occur until the performance criteria have been satisfied.

The
total number of awards that would be issued assuming that the target payout level was achieved would be 425,848 stock options and 149,544 restricted stock units. The weighted average
grant date fair value of performance-based stock options and restricted stock units granted during the nine months ended September 30, 2007 was $6.23 and $12.39, respectively. The Company
recognized expense of $1.0 million and $1.2 million related to such stock options and restricted stock units, respectively, during the nine months ended September 30, 2007, which
is included in the $9.2 million of stock-based
compensation mentioned above. As of September 30, 2007, there was a total of $4.3 million of deferred compensation expense related to these performance based awards, which is expected to
be recognized over a weighted average period of approximately two years. The Company recognizes compensation cost on these performance based awards using an accelerated attribution method.

On
March 28, 2007 the Company's Board of Directors decided to allow the outstanding restricted stock units to receive dividend equivalent payments. As a result of this decision,
the Company recorded $1.5 million of stock-based compensation, which is included in the $9.2 million of stock-based compensation mentioned above. The $1.5 million charge related
to this decision is reported as follows in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2007: $0.1 million is included in cost
of network services, $0.4 million is included in engineering and development and $1.0 million is included in selling, general and administrative expenses.

9

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Income Taxes

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109" (FIN 48), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken, or expected to be taken, in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. The adoption of FIN 48 did not result in a cumulative adjustment to the Company's accumulated earnings. As of the date of adoption, the Company's unrecognized tax benefits totaled
$2.1 million, of which $1.5 million would impact the annual effective income tax rate. The Company paid approximately $0.4 million to settle uncertain tax positions during the
nine months ended September 30, 2007. As of September 30, 2007, the Company's unrecognized tax benefits totaled $1.7 million, of which $1.5 million would impact the annual
effective income tax rate.

The
Company or one of its subsidiaries is subject to taxation in the U.S. and in various state, local and foreign jurisdictions. The Company remains subject to examination by U.S.
Federal, state, local and foreign tax authorities for tax years 2003 through 2006. With the exception of Spain and Australia, which have longer statutes of limitation than the U.S., the Company is no
longer subject to U.S. Federal, state, local or foreign tax examinations for the tax years 2002 and prior.

It
is reasonably possible that the amount of unrecognized benefit with respect to the Company's unrecognized tax positions will increase or decrease in the next 12 months. The
Company expects the
unrecognized tax benefits to decrease $0.2 million in the fourth quarter as result of the expiration of certain statutes of limitation.

The
Company records interest and penalties related to income taxes as components of the income tax provision, which totaled $59,000 for the nine months ended September 30, 2007.
The Company's accrual for potential interest and penalties associated with uncertain tax positions was $346,000 as of September 30, 2007. To the extent interest and penalties are not assessed
with respect to uncertain tax positions, amounts accrued will be reversed and reflected as a reduction of the overall income tax provision.

The
Company's income tax benefit for the nine months ended September 30, 2006 differs from the U.S. Federal statutory rate primarily due to an increase in valuation allowance and
profits of our international subsidiaries being taxed at rates different than the U.S. statutory rate. The Company's income tax benefit for the nine months ended September 30, 2007, differs
from the U.S. Federal statutory rate primarily due to stock-based compensation expense not deductible for income tax purposes and profits of our international subsidiaries being taxed at rates
different than the U.S. statutory rate.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2007, the FASB issued SFAS No. 159,
"The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Both
SFAS No. 157 and SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the potential impact, if any, that the adoption
of SFAS No. 157 and SFAS No. 159 may have on its financial statements.

10

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2.     Acquisition and Long-term Investments

Dialect Payment Technologies, Pty Limited Acquisition

On June 8, 2007, the Company acquired all of the outstanding shares of Dialect Payment Technologies Pty Limited (Dialect), an Australian provider of
internet payment gateway services to the "card-not-present' transaction market, for a purchase price of $4.2 million, plus direct acquisition costs of approximately
$0.4 million. The purchase price includes approximately $0.9 million, currently in escrow, that may be refundable to the Company based on the costs incurred related to one customer
contract assumed in the purchase. If such amount is refunded to the Company, it will result in a corresponding decrease in goodwill. The Company purchased Dialect primarily to expand its current suite
of POS product offerings. The purchase price for Dialect was allocated, on a preliminary basis, as follows (in thousands):

Current assets

$
580Accounts receivable


964Property and equipment


866Developed technology


5,454Customer relationships


5,319Tradename


186Non-compete agreements


1,063Goodwill


2,210Accounts payable, accrued expenses and other liabilities


(1,985
)Deferred revenue


(6,465
)Deferred tax liability


(3,606
)Net assets acquired

$
4,586


The
amounts allocated to the customer relationships and developed technology are being amortized over their estimated useful life of seven years. The amounts allocated to the
non-compete agreements and tradename are being amortized over their estimated useful life of three years and two years, respectively. The goodwill of $2.2 million is not deductible
for income tax purposes. Unaudited pro forma results of operations are not provided because the historical operating results were not significant and pro forma results would not be significantly
different from reported results for the periods presented. The Company's results of operations include the operating results of this acquisition beginning June 8, 2007.

WAY Systems Investment

In August 2004, the Company made an investment in WAY Systems, Inc. (WAY), which provides mobile POS transaction infrastructure and solutions for
mobile merchants. The Company purchased 5,952,381 shares or 38.5 percent of WAY's Series B convertible preferred stock for $2.5 million and became entitled to representation on
WAY's board of directors. The Company accounted for its investment under the equity method of accounting as the Company had significant influence over the financing and operating activities of WAY
through its representation on the board of directors. In March 2005, the Company made an additional investment of $0.8 million to purchase 1,910,401 shares of WAY's Series B
convertible preferred stock representing an additional 1.9 percent of WAY's outstanding shares. In July 2005, the Company made an additional investment of $0.7 million in exchange
for a convertible note bearing interest at a rate of 8 percent per annum and due January 1, 2009. In September 2005, the Company exercised its option on the convertible note to
convert the outstanding principal and accrued interest of approximately $0.8 million to 1,185,085 shares of WAY's Series C convertible preferred stock and made an additional investment
of $1.1 million to purchase 1,676,429 shares of WAY's Series C convertible preferred stock. As of December 31, 2006, the

11

---



Company
owned approximately 17.2 percent of WAY's total outstanding shares. During December 2006, in conjuction with management's decision to not advance additional capital to WAY and
continuing and projected operating losses from WAY, the Company determined its WAY investment was impaired and recorded a $1.3 million charge to reduce the carrying value of its WAY investement
to zero. In June 2007, the Company sold all of its WAY shares for $625,000. This amount is included in equity in net (loss) income of unconsolidated affiliates for the nine months ended
September 30, 2007.

AK Jensen Investment

In September 2004, we made an investment in AK Jensen Group, Limited (AKJ), a company that provides order-routing systems and integrated electronic trading
solutions to financial software companies and end-clients. We purchased 94,429 common shares or 8.4% of AKJ's total outstanding shares for $1.0 million and obtained representation on AKJ's
board of directors. We are accounting for this investment under the equity method of accounting as the Company has significant influence
through its representation on the board of directors. Due to timing of the receipt of AKJ's financial statements, we are accounting for the income or loss in this equity method investment on a
one-month lag. For the years ended December 31, 2004, 2005 and 2006 we recognized a net loss in the equity of an unconsolidated affiliate of approximately $35,000, $124,000 and $15,000,
respectively. As of September 30, 2007, the carrying value of our AKJ investment was approximately $0.9 million. In August 2007, the Company sold 10% of its holding in AKJ for a gain of
$135,000. This amount is included in equity in net (loss) income of unconsolidated affiliates for the three months ended September 30, 2007.

3.     Long-term Debt

On March 28, 2007, the Company entered into a $240.0 million senior secured credit facility (2007 Credit Facility) to finance the special cash
dividend and to refinance its 2005 amended and restated senior secured credit facility (2005 Credit Facility). The 2007 Credit Facility consists of a senior secured term loan facility in an aggregate
principal amount of $225.0 million (Term Facility) and a senior secured revolving credit facility in an aggregate principal amount of $15.0 million (Revolving Facility), under which
there were no borrowings as of September 30, 2007. The Revolving Facility matures March 27, 2013. Payments on the Term Facility are due in quarterly installments over the seven year term
beginning June 30, 2007, with the remainder payable on March 28, 2014. Voluntary prepayments on the Term Facility are applied as directed by the Company. The Company made voluntary
pre-payments on the Term Facility totaling $14.5 million during the nine months ended September 30, 2007.

As
of September 30, 2007, the total scheduled remaining payments on the Term Facility are as follows (in thousands):

Three months ending December 31, 2007

$
2008


2009


2010


2011


Thereafter


210,500$
210,500


Interest
on the outstanding balances under the Revolving Facility is payable, at the Company's option, at a rate equal to the higher of the Wall Street Journal published "base rate on
corporate loans posted by at least 75% of the nation's largest banks" or the federal funds rate plus 50 basis points (the

12

---



"Base
Rate"), in each case, plus a margin of 0.75% or at the London Interbank Offered Rate ("LIBOR"), plus a margin of 1.75%. Interest on the outstanding balances under the Term Facility are payable,
at the Company's option, at the Base Rate plus a margin of 1.0%, or at LIBOR plus a margin of 2.0%. The Revolving Credit Facility is subject to an annual commitment fee in an amount equal to 0.5% per
annum multiplied by the amount of funds available for borrowing under the Revolving Facility. Interest payments on the 2007 Credit Facility are due biweekly, monthly, bimonthly or quarterly at the
Company's option.

The
terms of the 2007 Credit Facility require the Company to make an annual prepayment in an amount that may range from 0% to 50% of the Company's "excess cash flow" (as such term is
defined in the Credit Agreement) depending on the Company's Leverage Ratio for any fiscal year. Prepayments are also required to be made in other circumstances, including upon asset sales.

The
terms of the 2007 Credit Facility require the Company to comply with financial and nonfinancial covenants, including maintaining a specified leverage ratio at the end of each fiscal
quarter and complying with specified annual limits on capital expenditures. As of September 30, 2007, the Company was required to maintain a leverage ratio of less than 4.1 to 1.0. The leverage
ratio continues to decline over the term of the 2007 Credit Facility. The Company's leverage ratio as of September 20, 2007 was 3.1 to 1.0. The 2007 Credit Facility also contains nonfinancial
covenants that restrict some of the Company's corporate activities, including its ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments, make capital
expenditures and engage in specified transactions with affiliates. Noncompliance with any of the financial or nonfinancial covenants without cure or waiver would constitute an event of default under
the 2007 Credit Facility. An event of default resulting from a breach of a financial or nonfinancial covenant may result, at the option of the lenders, in an acceleration of the principal and interest
outstanding, and a termination of the Revolving Facility. The 2007 Credit Facility also contains other customary events of default (subject to specified grace periods), including defaults based on
events of bankruptcy and insolvency, nonpayment of principal, interest or fees when due, breach of specified covenants, change in control and material inaccuracy of representations and warranties. The
Company was in compliance with the financial and non-financial covenants of the 2007 Credit Facility as of September 30, 2007.

In
connection with the closing of the 2007 Credit Facility, the Company incurred approximately $3.1 million in financing costs. These financing costs were deferred and are being
amortized using the effective interest method over the life of the 2007 Credit Facility. In connection with the repayment of the 2005 Credit Facility in March 2007, the Company
wrote-off approximately $1.4 million in unamortized deferred financing costs related to the 2005 Credit Facility. Such
write-off has been included in interest expense in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2007.

4.     Comprehensive (Loss) Income

The components of comprehensive (loss) income, net of tax effect are as follows (in thousands):

|                                         |  | Three months ended
September 30, |        | Nine months ended
September 30, |  
|---------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | -
|
|Net (loss) income                        |  | $                                | (1,841 | )                               | $
|Foreign currency translation adjustments |  |                                  | 264    |                                 |  
|                                         |  |                                  |        |                                 |  
|Total comprehensive (loss) income        |  | $                                | (1,577 | )                               | $
|                                         |  |                                  |        |                                 |  

13

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5.     Net Income (Loss) Per Common Share

SFAS No. 128, "Earnings Per Share", requires the presentation of basic and diluted earnings per share. Basic earnings (loss) per common share is computed
by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. The diluted earnings (loss) per common share data is computed
using the weighted average number of common shares outstanding plus the dilutive effect of common stock equivalents, unless the common stock equivalents are anti-dilutive. During the three
and nine months ended September 30, 2006, the treasury stock effect of options to purchase 1,824,537 shares of common stock and 447,868 restricted stock units were not included in the
computation of diluted income (loss) per common share as their effect would have been anti-dilutive. During the nine months ended September 30, 2007, the treasury stock effect of
options to purchase 1,973,367 shares of common stock and 803,651 restricted stock units were not included in the computation of diluted income (loss) per common share as their effect would have been
anti-dilutive.

|                                                                                                      |  | Three months ended
September 30, |            | Nine months ended
September 30, |  
|----------------------------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | -
|
|(Loss) income from continuing operations before cumulative effect of a change in accounting principle |  | $                                | (1,841     | )                               | $
|Cumulative effect of a change in accounting principle, net of tax provision                           |  |                                  |           |                                 |  
|                                                                                                      |  |                                  |            |                                 |  
|Net (loss) income                                                                                     |  | $                                | (1,841     | )                               | $
|Weighted average common share calculation:                                                            |  |                                  |            |                                 |  
|Basic weighted average common shares outstanding                                                      |  |                                  | 24,105,525 |                                 |  
|Treasury stock effect of unvested restricted stock units                                              |  |                                  |           |                                 |  
|                                                                                                      |  |                                  |            |                                 |  
|Diluted weighted average common shares outstanding                                                    |  |                                  | 24,105,525 |                                 |  
|                                                                                                      |  |                                  |            |                                 |  
|Basic and diluted net (loss) income per common share:                                                 |  |                                  |            |                                 |  
|(Loss) income from continuing operations before cumulative effect of a change in accounting principle |  | $                                | (0.08      | )                               | $
|Cumulative effect of a change in accounting principle, net of tax provision                           |  |                                  |           |                                 |  
|                                                                                                      |  |                                  |            |                                 |  
|Net (loss) income                                                                                     |  | $                                | (0.08      | )                               | $
|                                                                                                      |  |                                  |            |                                 |  

6.     Segment Information

The Company's reportable segments are strategic business units that offer different products and services. The Company classifies its business into four segments:
POS, TSD, FSD and ISD. However, the Company's management only evaluates revenues for these four segments. A significant portion of the Company's North American operating expenses are shared between
the POS, TSD and FSD segments, and therefore, management analyzes operating results for these three segments on a combined basis.

Management
evaluates the North American and ISD performance on EBITDA before stock compensation expense because operating expenses are distinguishable between North American and ISD
operations. The Company defines EBITDA before stock compensation expense as income from

14

---



operations
before depreciation, amortization and stock compensation expense. EBITDA before stock compensation expense is not a generally accepted accounting principle measure, but rather a measure
employed by management to view operating results adjusted for major noncash items. The Company's definition of EBITDA before stock compensation expense may not be comparable to similarly titled
measures used by other entities. Assets are not segregated between reportable segments, and management does not use asset information by segments to evaluate segment performance. As such, no
information is presented related to fixed assets by reportable segment and capital expenditures for each segment.

Revenue
for the Company's four business units is presented below (in thousands):

|               |  | Three months ended
September 30, |        | Nine months ended
September 30,
|-------------- |  | -------------------------------- | ------ | -------------------------------
|
|ISD            |  | $                                | 27,130 |                                
|POS            |  |                                  | 21,726 |                                
|TSD            |  |                                  | 15,503 |                                
|FSD            |  |                                  | 8,828  |                                
|               |  |                                  |        |                                
|Total revenues |  | $                                | 73,187 |                                
|               |  |                                  |        |                                

EBITDA
before stock compensation expense for the North American and ISD operations is reflected below (in thousands):

|                                               |  | Three months ended
September 30, |        | Nine months ended
September 30,
|---------------------------------------------- |  | -------------------------------- | ------ | -------------------------------
|
|ISD                                            |  | $                                | 10,282 |                                
|North America                                  |  |                                  | 1,721  |                                
|                                               |  |                                  |        |                                
|Total EBITDA before stock compensation expense |  | $                                | 12,003 |                                
|                                               |  |                                  |        |                                

EBITDA
before stock compensation expense differs from (loss) income before income taxes and equity in net loss of unconsolidated affiliate reported in the condensed consolidated
statements of operations as follows (in thousands):

|                                                                                                                                                                   |  | Three months ended
September 30, |         | Nine months ended
September 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------- | ------------------------------- | -
|
|EBITDA before stock compensation expense                                                                                                                           |  | $                                | 12,003  |                                 | $
|Reconciling items:                                                                                                                                                 |  |                                  |         |                                 |  
|Depreciation and amortization of property and equipment and intangible assets                                                                                      |  |                                  | (11,033 | )                               |  
|Stock compensation expense                                                                                                                                         |  |                                  | (2,512  | )                               |  
|Interest expense                                                                                                                                                   |  |                                  | (2,466  | )                               |  
|Interest income and other income, net                                                                                                                              |  |                                  | 831     |                                 |  
|                                                                                                                                                                   |  |                                  |         |                                 |  
|(Loss) income before income taxes, equity in net loss of unconsolidated affiliates and cumulative effect of a change in accounting principle, net of tax provision |  | $                                | (3,177  | )                               | $
|                                                                                                                                                                   |  |                                  |         |                                 |  

15

---



Goodwill
and intangible assets are located in the following reporting segments (in thousands):

December 31,
2006

September 30,
2007POS

$
127,051

$
118,598ISD


49,594


59,671TSD


4,890


4,043FSD


23,208


21,617Total goodwill and identifiable intangible assets, net

$
204,743

$
203,929


Geographic Information

The Company sells its services through foreign subsidiaries in Australia, Austria, Canada, Colombia, France, Germany, India, Ireland, Italy, Japan, Mexico, the
Netherlands, New Zealand, Poland,
Romania, South Korea, Spain, Sweden, Thailand and the United Kingdom. Information regarding revenues and long-lived tangible assets attributable to each geographic region is stated below.

The
Company's revenues were generated in the following geographic regions (in thousands):

|               |  | Three months ended
September 30, |        | Nine months ended
September 30,
|-------------- |  | -------------------------------- | ------ | -------------------------------
|
|North America  |  | $                                | 46,057 |                                
|Europe         |  |                                  | 24,162 |                                
|Asia-Pacific   |  |                                  | 2,968  |                                
|               |  |                                  |        |                                
|Total revenues |  | $                                | 73,187 |                                
|               |  |                                  |        |                                

Revenues
from the Company's subsidiaries in the United Kingdom were $15.3 million and $43.2 million for the three and nine months ended September 30, 2006,
respectively. Revenues from the Company's subsidiaries in the United Kingdom were $18.1 million and $50.5 million for the three and nine months ended September 30, 2007,
respectively.

The
Company's long-lived assets, including goodwill and intangible assets, were located as follows (in thousands):

December 31,
2006

September 30,
2007North America

$
216,688

$
211,716Europe


60,198


53,464Asia-Pacific


4,446


22,367Total long-lived assets

$
281,332

$
287,547


7.     Restructuring Costs

In August 2006, the Company implemented a plan to reduce its cost structure and improve operating efficiencies by reducing its workforce and implementing
productivity improvement initiatives and expense reduction measures (2006 Restructuring Plan). In connection with the 2006 Restructuring Plan, the Company incurred approximately $5.6 million of
severance associated with its workforce reduction, of which $4.2 million was included in selling, general and administrative expense, $0.8 million was included in engineering and
development expense and $0.6 million was included in cost of network services in the three months ended September 30, 2006. Of the total $5.6 million in

16

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severance,
$5.0 million related to the Company's U.S. operations and $0.6 million related to its ISD operations.

During
2007 the Company has incurred an additional $2.0 million in severance and benefits charges as it continues to streamline its operations. Of the total $2.0 million in
severance and benefits, $1.9 million is included in selling, general and administrative expense and $0.1 million is included in engineering and development expense in the accompanying
condensed consolidated statement of operations for the nine months ended September 30, 2007.

A
summary of the liability for the Company's severance and benefits obligation is as follows (in thousands):

Balance as of January 1, 2007

$
4,778Severance and benefits from executive departures


2,033Accretion of liability due to the passage of time


34Effects of foreign currency translation


24Cash paid


(2,987
)Balance as of September 30, 2007

$
3,882


The
remaining cash expenditures relating to the severance and benefits will be paid through 2009. As of September 30, 2007, $3.4 million of the total $3.9 million
liability for severance and benefits was classified as accounts payable, accrued expenses and other liabilities and the remaining $0.5 million was classified as other liabilities in the
accompanying condensed consolidated balance sheet.

8.     Litigation and Claims

The Company, John J. McDonnell, Jr., the Company's former Chief Executive Officer, and Henry H. Graham, Jr., the Company's Chief Executive Officer, are defendants
in a putative class action lawsuit filed in connection with the Company's public offering of common stock in September 2005 ("Secondary Offering"). The Cement Masons and Plasterers Joint
Pension Trust, purportedly on behalf of itself and
others similarly situated, filed the putative class action lawsuit captioned Cement Masons & Plasterers Joint Pension Trust v. TNS, Inc., et al., Case No. 1:06 CV 363, CMH/BRP, on
April 4, 2006 in the United States District Court for the Eastern District of Virginia.

After
denying the Company's motion to dismiss September 12, 2006, the Court ordered the parties to conduct discovery in the case. In March 2007, the parties agreed to stay
further discovery in the case with the Court's approval pending a mediation designed to reach a settlement resolving the lawsuit. However, no assurance can be given regarding the eventual outcome of
this matter. The Company intends to continue to take appropriate steps to defend against the lawsuit, the outcome of which could have a material affect on the financial condition or future operating
results of the Company. During the three months ended March 31, 2006, the Company accrued legal costs of approximately $0.5 million, representing management's estimate of the probable
legal costs to defend itself in this matter not otherwise covered by the D&O insurance carrier. These legal costs are included in selling, general and administrative expense in its consolidated
statement of operations for the nine months ended September 30, 2006.

17

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of the financial condition and results of operations of TNS, Inc. in conjunction with the consolidated financial
statements and the related notes included in our annual report on Form 10-K filed with the SEC on March 16, 2007 and available directly from the SEC at www.sec.gov and the
condensed consolidated financial statements and the related notes of TNS, Inc., included elsewhere in this quarterly report.

There
are statements made herein which may not address historical facts and, therefore, could be interpreted to be forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results
to differ materially from those set forth in, or implied by, the forward-looking statements. The Company has attempted, whenever possible, to identify these forward-looking statements using words such
as "may," "will," "should," "projects," "estimates," "expects," "plans," "intends," "anticipates," "believes," and variations of these words and similar expressions. Similarly, statements herein that
describe the Company's business strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differ materially from those
indicated by such forward-looking statements as a result of various important factors, including: the Company's reliance upon a small number of customers for a significant portion of its revenue;
competitive factors such as pricing pressures; our customer's ability to direct their data communications from the Company's networks to other networks; the Company's ability to grow its business
domestically and internationally by generating greater transaction volumes, acquiring new customers or developing new service offerings; fluctuations in the Company's quarterly results because of the
seasonal nature of the business and other factors outside of the Company's control; the Company's substantial debt could adversely affect its financial health because the Company may be unable to
obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes, the Company may not generate sufficient cash flow to repay the debt on a timely
basis or to pre-pay the debt, and a significant portion of the Company's cash flow from operations will be dedicated to the repayment or servicing of indebtedness, thereby reducing the
amount of cash available for other purposes; the Company's ability to identify, execute or effectively integrate acquisitions; the Company's ability to identify, execute or effectively integrate
future acquisitions; increases in the prices charged by telecommunication providers for services used by the Company; unfavorable foreign exchange movements; the Company's ability to adapt to changing
technology; additional costs related to compliance with the Sarbanes-Oxley Act of 2002, any revised New York Stock Exchange listing standards, SEC rule changes or other corporate governance issues;
and other risk factors described in the Company's annual report on Form 10-K filed with the SEC on March 16, 2007. In addition, the statements in this quarterly report are
made as of the date of this filing. The Company expects that subsequent events or developments will cause its views to change. The Company undertakes no obligation to update any of the forward-looking
statements made herein, whether as a
result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent
to the date of this filing. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act and 21E of the
Exchange Act.

Overview

We are an international provider of networking, data communications, and value added services to many of the world's leading retailer, banks/processors,
telecommunication companies, and financial markets. We are also a leading provider of secure data and voice network services to the global financial services industry. We operate one of the largest
Signaling System No. 7 networks in the United States capable of providing services nationwide, and we utilize this network to provide call

18

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signaling
and database access services to the domestic telecommunications industry. Our data communications services enable secure and reliable transmission of time-sensitive,
transaction-related information critical to our customers' operations. Our customers outsource their data communications requirements to us because of our substantial expertise, comprehensive customer
support and cost-effective services. We provide services to customers in the United States and increasingly to international customers in 28 countries, including Canada and countries in
Europe, Latin America and the Asia-Pacific region.

We
provide services through our multiple data networks, each designed specifically for transaction applications. Our networks support a variety of widely accepted communications
protocols and are designed to be scalable and accessible by multiple methods, including dial-up, dedicated, wireless and Internet connections.

We
generate revenues through four business divisions:



Our
most significant expense is cost of network services, which is comprised primarily of telecommunications charges, including data transmission and database access, leased digital
capacity charges, circuit installation charges and activation charges. The cost of data transmission is based on a contract or tariff rate per minute of usage in addition to a prescribed rate per
transaction for some vendors. The costs of database access, circuits, installation charges and activation charges are based on fixed fee contracts with local exchange carriers and interexchange
carriers. The cost of network services also includes salaries, equipment maintenance and other costs related to the ongoing operation of our data networks. Depreciation expense on our network
equipment and amortization of developed technology are excluded from our cost of network services and included in depreciation and

19

---



amortization
of property and equipment and amortization of intangible assets in our consolidated statements of operations.

Our
engineering and development expenses include salaries and other costs related to product development, engineering, hardware maintenance and materials. The majority of these costs are
expensed as incurred, including costs related to the development of internal use software in the preliminary project, the post-implementation and operation stages. Development costs we
incur during the software application development stage are capitalized and amortized over the estimated useful life of the developed software.

Our
selling, general and administrative expenses include costs related to sales, marketing, administrative and management personnel, as well as external legal, accounting and consulting
services.

Dividends and Recapitalization

On March 28, 2007, our board of directors declared a special dividend of $4.00 per common share which was paid on April 12, 2007. Also, on
March 28, 2007, we entered into a secured credit facility, which consists of two facilities: a senior secured term loan facility in an aggregate principal amount of $225 million (the
"Term Facility") and a senior secured revolving credit facility in an aggregate principal amount of $15 million (the "Revolving Facility"). We used approximately $98.3 million of the
proceeds from the Term Facility to pay the special dividend. The remainder of the proceeds from the Term Facility were used to refinance existing debt, to pay fees related to the senior secured credit
facility and the special dividend and for general corporate purposes. No amount was drawn on the Revolving Facility at closing and the full principal amount of the Revolving Facility remained
available to us as of September 30, 2007. The payment of the special dividend and the closing on the secured credit facility reflect the completion of our recapitalization plan.

20

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Results of Operations

The following table sets forth, for the periods indicated selected statement of operations data (dollars in thousands):

|                                                                                                                                                   |                                                                         | Three months ended
September 30, |        | Nine months ended
September 30, |       
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------- | ------ | ------------------------------- | ------
|
|Revenues                                                                                                                                           |                                                                         | $                                | 73,187 |                                 | $     
|Operating expenses:                                                                                                                                |                                                                         |                                  |        |                                 |       
|                                                                                                                                                   | Cost of network services, exclusive of the items shown separately below |                                  |        | 37,442                          |       
|                                                                                                                                                   | Engineering and development                                             |                                  |        | 5,269                           |       
|                                                                                                                                                   | Selling, general, and administrative                                    |                                  |        | 20,985                          |       
|                                                                                                                                                   | Depreciation and amortization of property and equipment                 |                                  |        | 5,574                           |       
|                                                                                                                                                   | Amortization of intangible assets                                       |                                  |        | 5,459                           |       
|                                                                                                                                                   |                                                                         |                                  |        |                                 |       
|                                                                                                                                                   |                                                                         | Total operating expenses         |        |                                 | 74,729
|                                                                                                                                                   |                                                                         |                                  |        |                                 |       
|(Loss) income from operations                                                                                                                      |                                                                         |                                  | (1,542 | )                               |       
|Interest expense                                                                                                                                   |                                                                         |                                  | (2,466 | )                               |       
|Interest income                                                                                                                                    |                                                                         |                                  | 143    |                                 |       
|Other income, net                                                                                                                                  |                                                                         |                                  | 688    |                                 |       
|                                                                                                                                                   |                                                                         |                                  |        |                                 |       
|(Loss) income before income tax benefit, equity in net loss of unconsolidated affiliates and cumulative effect of a change in accounting principle |                                                                         |                                  | (3,177 | )                               |       
|Income tax benefit                                                                                                                                 |                                                                         |                                  | 2,240  |                                 |       
|Equity in net (loss) income of unconsolidated affiliates                                                                                           |                                                                         |                                  | (904   | )                               |       
|                                                                                                                                                   |                                                                         |                                  |        |                                 |       
|(Loss) income from continuing operations before cumulative effect of a change in accounting principle                                              |                                                                         |                                  | (1,841 | )                               |       
|Cumulative effect of a change in accounting principle, net of tax provision                                                                        |                                                                         |                                  |       |                                 |       
|                                                                                                                                                   |                                                                         |                                  |        |                                 |       
|Net (loss) income                                                                                                                                  |                                                                         | $                                | (1,841 | )                               | $     
|                                                                                                                                                   |                                                                         |                                  |        |                                 |       

Three months ended September 30, 2007 compared to the three months ended September 30, 2006

Revenues.Total revenues increased $11.3 million, or 15.5%, to $84.5 million for the
three months ended September 30, 2007, from $73.2 million for the three months ended September 30, 2006. We generate revenues through four operating divisions.

International services division.Revenues from the international services division increased
$10.8 million, or 39.9%, to $37.9 million for the three months ended September 30, 2007, from $27.1 million for the three months ended September 30, 2006. On a
constant dollar basis, revenue for the three months ended September 30, 2007 would have increased $8.1 million, or 29.6% to $35.2 million. Included in the international services
division revenues for the three months ended September 30, 2007 were $0.7 million of pass-through revenues compared to none for the three months ended September 30,
2006. Excluding the benefit of foreign exchange and increase in pass-through revenues, international services division revenues increased primarily though the inclusion of a full quarter
of revenue from the Dialect acquisition, higher transaction volumes from POS customers in Europe and Asia Pacific, and the migration of JPG Telecom, SAS customer traffic onto our network in France.
Revenues from our U.K. subsidiaries increased $2.8 million, or 18.2%, to $18.1 million for the three months ended September 30, 2007, from $15.3 million for the three
months ended September 30,

21

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2006.
Future revenue growth in the international services division depends on a number of factors including the success of our POS and FSD products in countries we have recently entered, the success
of our new product offerings and the successful integration of our recent acquisitions, including our recent acquisition of JPG Telecom and Dialect.

POS division.Revenues from the POS division decreased $0.9 million, or 4.3%, to
$20.8 million for the three months ended September 30, 2007, from $21.7 million for the three months ended September 30, 2006. Revenues from the POS division increased
marginally during the three month period ended September 30, 2007, from the three month period ended June 30, 2007, due to higher volumes from traditional dial up products and additional
endpoints from our broadband service offering. POS dial-up transaction volumes decreased 5.2% to 1.52 billion transactions for the three months ended September 30, 2007, from
1.60 billion transactions for the three months ended September 30, 2006. Included in POS revenue for the three months ended September 30, 2007 is $0.7 million in
pass-through revenues compared with $0.6 million for the three months ended September 30, 2006. POS division revenue decreased as a result of lower transaction counts
slightly offset by an increase in revenues from our broadband service offerings. Growth in the POS division depends upon a number of factors including the success of our new broadband, wireless and
vending service offerings as well as the total number of POS dial-up transactions we transport.

Telecommunication services division.Revenues from the telecommunication services division decreased
$0.1 million, or 0.5%, to $15.4 million for the three months ended September 30, 2007, from $15.5 million for the three months ended September 30, 2006. Included in
telecommunications services revenues for the three months ended September 30, 2007 and 2006 were approximately $1.2 million and $1.4 million, respectively, of
pass-through revenues. Excluding the decrease in pass-through revenues, revenues increased 1.2% through the migration onto our network of new cable customer traffic which was
partially offset by lower database query volumes.

In
2006, one of our largest telecommunications services division customers completed multiple acquisitions in its industry, including acquisitions of several of our other
telecommunications services division customers. In September 2006, we negotiated a contract renewal with this significant customer in which we agreed to a pricing discount. Future revenue
growth in the telecommunication services division depends on a number of factors including the number of database access queries we transport, the number of call signaling routes our customers
purchase and the success of our new product offerings, which potentially may be offset by customers seeking pricing discounts due to industry consolidation or other reasons.

Financial services division.Revenues from the financial services division increased
$1.6 million, or 17.6%, to $10.4 million for the three months ended September 30, 2007, from $8.8 million for the three months ended September 30, 2006. The increase
in revenues was due to increases in new customer endpoint installations as well as increases in connectivity between existing customers and increased demand for greater bandwidth connectivity which
results in higher average revenue per customer endpoint. Future revenue growth in the financial services division depends on a number of factors including the number of connections to and through our
networks as well as the success of our new product offerings. We have begun to see an increased demand from our customers for larger bandwidth connections to our network and while these connections
create greater revenue per physical endpoint, they require longer sales and installation lead times.

Cost of network services.Cost of network services increased $4.7 million, or 12.5%, to
$42.1 million for the three months ended September 30, 2007, from $37.4 million for the three months ended September 30, 2006. Cost of network services were 49.8% of
revenues for the three months ended September 30, 2007, compared to 51.2% of revenues for the three months ended September 30, 2006. The increase in cost of network services resulted
from higher volumes in our international

22

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services
division, increases in customer connections in our financial services division, and increases in telecommunication charges within our POS division.

Future
cost of network services depends on a number of factors including total transaction and query volumes, the relative growth and contribution to total transaction volume of each of
our customers, the success of our new service offerings, the timing and extent of our network expansion and the timing and extent of any network cost increases or reductions. Due to an increase in the
fourth quarter of
2006 in the rates charged for telecommunication services used by the POS division, we anticipate that the cost of network services associated with the POS division will increase between
$4 million and $5 million for the year ended December 31, 2007 as compared to the year ended December 31, 2006. During the three months ended September 30, 2007 this
increase was $1.2 million compared to the three months ended September 30, 2006. During the second and third quarters of 2007, we entered into agreements with alternate providers of
telecommunication services for the POS division. As a result, we anticipate reductions in our telecommunication charges in the last quarter of 2007.

Gross
profit represented 50.2% of total revenues for the three months ended September 30, 2007, compared to 48.8% for the three months ended September 30, 2006. Excluding
$2.6 million and $1.9 million in total pass-through revenues for the three months ended September 30, 2007 and 2006, respectively, gross margin would have been
approximately 51.8% compared to 50.1%. The improvement in gross margin from last year is a result of increased contribution from our international services and financial services divisions, our
highest gross margin divisions, which offset margin declines in the POS division as a result of increased telecommunication charges, as discussed above.

Engineering and development expense.Engineering and development expense increased
$1.6 million, or 31.8%, to $6.9 million for the three months ended September 30, 2007, from $5.3 million for the three months ended September 30, 2006. Engineering
and development expense represented 8.2% of revenues for the three months ended September 30, 2007 and 7.2% of revenues for the three months ended September 30, 2006. Included in
engineering and development expense for the three months ended September 30, 2007 and 2006 is stock compensation expense of $0.5 million and $0.4 million, respectively. Excluding
the increase in stock compensation expense, engineering and development expense increased primarily as a result of the employees added from our acquisition of Dialect in Australia, the expense related
to our investment in our product development initiatives and from decreases in the amount of internal software development expenses capitalized.

Selling, general and administrative expense.Selling, general and administrative expenses decreased
$0.9 million, or 4.2%, to $20.1 million for the three months ended September 30, 2007, from $21.0 million for the three months ended September 30, 2006. Selling,
general and administrative expenses represented 23.8% of revenues for the three months ended September 30, 2007, compared to 28.7% of revenues for the three months ended September 30,
2006. Included in selling, general and administrative expenses for the three months ended September 30, 2007 and 2006 is $3.0 million and $1.8 million of stock compensation
expense, respectively. The increase in stock compensation expense relates primarily to additional grants during the year. Included in selling, general and administrative expenses for the three months
ended 30 September 2007 is $1.1 million in severance expenses as we continue to streamline our operations. Included in selling, general and administrative expenses for the three months
ended September 30, 2006 is $3.6 million in severance expenses associated with a corporate restructuring event and approximately $0.7 million of fees related to the special
committee of our board of directors. Excluding these items, selling, general and administrative expenses increased $1.1 million primarily from the expenses required to support our revenue
growth, mainly within the international services and financial services divisions. Excluding the items mentioned above, selling, general and administrative expenses were 18.9% of revenues for the
three months ended September 30, 2007 compared to 20.1% of revenues for the three months ended September 30, 2006. This decrease is a result of the cost reduction initiatives and
continued focus on cost control.

23

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Depreciation and amortization of property and equipment.Depreciation and amortization of property
and equipment increased $0.4 million, or 7.2%, to $6.0 million for the three months ended September 30, 2007, from $5.6 million for the three months ended
September 30, 2006. Depreciation and amortization of property and equipment represented 7.1% of revenues for the three months ended September 30, 2007, compared to 7.6% of revenues for
the three months ended September 30, 2006. Depreciation expense increased primarily due to capital expenditures made to support our revenue growth.

Amortization of intangible assets.Amortization of intangible assets increased $0.8 million,
or 15.1%, to $6.3 million for the three months ended September 30, 2007, from $5.5 million for the three months ended September 30, 2006. The amortization of intangible
assets for the three months ended September 30, 2007 and 2006 relates solely to the intangible assets resulting from acquisitions. The increase was primarily attributable to acquisitions we
completed during 2006 and 2007. For purposes of measuring and recognizing impairment of long-lived assets including intangibles, we assess whether separate cash flows can be attributed to
an individual asset. For our customer relationship intangible assets, we recognize and measure impairment upon the significant loss of revenue from a customer. Based upon our contract with one of our
major customers, we believe that revenues and related transaction volumes from this customer will continue to decline in 2007 and may decline further thereafter. The intangible asset value
attributable to this customer relationship was approximately $21.1 million as of September 30, 2007. We assessed the recoverability of this customer relationship asset based upon
undiscounted anticipated future cash flows and concluded no impairment existed as of September 30, 2007.

Interest expense.Interest expense increased $1.8 million to $4.3 million for the three
months ended September 30, 2007, from $2.5 million for the three months ended September 30, 2006. Interest expense
increased due to higher debt levels incurred as a result of our recapitalization supporting our special dividend.

Interest income.Interest income was $0.2 million for the three months ended
September 30, 2007 compared to $0.1 million for the three months ended September 30, 2006. The increase in interest income is primarily due to higher outstanding average cash
balances during the three months ended September 30, 2007.

Other income, net.Other income, net was $1.1 million for the three months ended
September 30, 2007 compared to $0.7 million for the three months ended September 30, 2006. Included in other income, net for the three months ended September 30, 2007 is a
gain on foreign currency translation of approximately $1.2 million due to fluctuations in the value of the U.S. dollar as compared with foreign currencies, principally, the pound sterling, euro
and Australian dollar, versus a gain on foreign currency translation of $0.7 million for the three months ended September 30, 2006.

Income tax benefit.For the three months ended September 30, 2007, our income tax benefit was
approximately $0.1 million compared to $2.2 million for the three months ended September 30, 2006. The decrease is due to higher income in profitable foreign jurisdictions as
compared to higher losses in the U.S. during 2007 and an increase in nondeductible stock compensation expense.

24

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Equity in net income (loss) of unconsolidated affiliates.For the three months ended
September 30, 2007, our equity in net income of unconsolidated affiliates was $0.1 million compared to a loss of $0.9 million for the three months ended September 30, 2006.
During the three months ended September 30, 2007 we sold 10% of our investment in AK Jensen, Inc., resulting in a gain of $0.1 million. During the three months ended
September 30, 2006 we recorded losses on our investments in WAY Systems Inc., IP Commerce Inc., and AK Jensen. As of September 30, 2007, the carrying value of our
investment in AK Jensen, Inc. was $0.9 million. We disposed of our investment in Way Systems, Inc. in May 2007 and our investment in IP Commerce, Inc. was written
down to zero in December 2006.

Nine months ended September 30, 2007 compared to the nine months ended September 30, 2006

Revenues.Total revenues increased $24.8 million, or 11.7%, to $236.6 million for the
nine months ended September 30, 2007, from $211.8 million for the nine months ended September 30, 2006. We generate revenues through four operating divisions.

International services division.Revenues from the international services division increased
$21.6 million, or 28.1%, to $98.5 million for the nine months ended September 30, 2007, from $76.9 million for the nine months ended September 30, 2006. On a
constant dollar basis, revenue for the nine months ended September 30, 2007 would have increased $13.8 million, or 17.9% to $90.8 million. Excluding the benefit of foreign
exchange, international services division revenues increased primarily though the inclusion of revenue from our acquisitions of JPG Telecom in France and Dialect in Australia, higher transaction
volumes from POS customers and increases in the number of FSD customer connections in Europe and Asia Pacific. Revenues from our UK subsidiaries increased $7.3 million, or 17.0%, to
$50.5 million for the nine months ended September 30, 2007, from $43.2 million for the nine months ended September 30, 2006. Future revenue growth in the international
services division depends on a number of factors including the success of our POS and FSD products in countries we have recently entered, the success of our new product offerings and the successful
integration of our recent acquisitions, including our recent acquisition of JPG Telecom and Dialect.

POS division.Revenues from the POS division decreased $0.6 million, or 1.0%, to
$61.3 million for the nine months ended September 30, 2007, from $61.9 million for the nine months ended September 30, 2006. POS dial-up transaction volumes for
the nine months ended September 30, 2007 were 4.5 billion transactions, a decrease of 0.4% compared to the nine months ended September 30, 2006. Included in POS revenue for the
nine months ended September 30, 2007 is $2.1 million in
pass-through revenues compared with $0.6 million for the nine months ended September 30, 2006. Excluding the pass-through revenues, POS division revenue decreased
$2.1 million, or 3.4%, resulting from lower POS dial-up transaction volumes and decreases in our average revenue per dial-up transaction from discounts given to
customers in 2006 partially offset by increases in revenues from our broadband service offerings. Growth in the POS division depends upon a number of factors including the success of our new
broadband, wireless and vending service offerings as well as the total number of POS dial-up transactions we transport.

Telecommunication services division.Revenues from the telecommunication services division decreased
$0.6 million, or 1.3%, to $46.5 million for the nine months ended September 30, 2007, from $47.1 million for the nine months ended September 30, 2006. Included in
telecommunications services revenues for the nine months ended September 30, 2007 and 2006 were approximately $3.8 million and $5.1 million, respectively, of
pass-through revenues. Excluding the decrease in pass-through revenues, revenues increased $0.7 million through the migration onto our network of new cable customer
traffic, partially offset by pricing compression due to customer consolidation in our call signaling business, as discussed below.

25

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In
2006, one of our largest telecommunications services division customers completed multiple acquisitions in its industry, including acquisitions of several of our other
telecommunications services division customers. In September 2006, we negotiated a contract renewal with this significant customer in which we agreed to a pricing discount. Future revenue
growth in the telecommunication services division depends on a number of factors including the number of database access queries we transport, the number of call signaling routes our customers
purchase and the success of our new product offerings, which potentially may be offset by customers seeking pricing discounts due to industry consolidation or other reasons.

Financial services division.Revenues from the financial services division increased
$4.4 million, or 17.1%, to $30.2 million for the nine months ended September 30, 2007, from $25.8 million for the nine months ended September 30, 2006. The increase
in revenues was due to increases in new customer endpoint installations as well as increases in connectivity between existing customers and increased demand for greater bandwidth connectivity. Future
revenue growth in the financial services division depends on a number of factors including the number of connections to and through our networks as well as the success of our new product offerings. We
have begun to see an increased demand from our customers for larger bandwidth connections to our network and while these connections create greater revenue per physical endpoint, they require longer
sales and installation lead times.

Cost of network services.Cost of network services increased $13.5 million, or 12.6%, to
$121.2 million for the nine months ended September 30, 2007, from $107.6 million for the nine months ended September 30, 2006. Cost of network services were 51.2% of
revenues for the nine months ended September 30, 2007, compared to 50.8% of revenues for the nine months ended September 30, 2006.
The increase in cost of network services resulted from higher volumes in our international services division, increases in customer connections in our financial services division, and increases in
telecommunication charges within our POS division.

Future
cost of network services depends on a number of factors including total transaction and query volumes, the relative growth and contribution to total transaction volume of each of
our customers, the success of our new service offerings, the timing and extent of our network expansion and the timing and extent of any network cost increases or reductions. Due to an increase in the
fourth quarter of 2006 in the rates charged for telecommunication services used by the POS division, we anticipate that the cost of network services associated with the POS division will increase
between $4 million and $5 million for the year ended December 31, 2007 as compared to the year ended December 31, 2006. During the nine months ended September 30,
2007 this increase was $4.2 million compared to the nine months ended September 30, 2006. During the second and third quarters of 2007, we entered into agreements with alternate
providers of telecommunication services for the POS division. As a result, we anticipate reductions in our telecommunication charges in the last quarter of 2007.

Gross
profit represented 48.8% of total revenues for the nine months ended September 30, 2007, compared to 49.2% for the nine months ended September 30, 2006. Excluding
$6.6 million and $5.7 million in total pass-through revenues for the nine months ended September 30, 2007 and 2006, respectively, gross margin would have been
approximately 50.2% compared to 50.4%. This margin compression is a result of declines in the gross margin of our dial-up POS product from increases in telecommunication charges, as
discussed above, as well as price compression in the telecommunications services division as a result of customer consolidation, which is partially offset by increased contribution from the
international services and financial services divisions, our highest gross margin divisions.

Engineering and development expense.Engineering and development expense increased
$4.6 million, or 30.3%, to $20.0 million for the nine months ended September 30, 2007, from $15.3 million for the nine months ended September 30, 2006. Engineering
and development expense represented 8.4% of revenues for the nine months ended September 30, 2007 and 7.2% of revenues for

26

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the
nine months ended September 30, 2006. Included in engineering and development expenses for the nine months ended September 30, 2007 and 2006 is approximately $1.7 million and
$0.8 million of stock compensation expense, respectively. Excluding the increase in stock compensation expense, engineering and development expense increased primarily to support our revenue
growth in the international services division, increases related to the addition of employees from our acquisition of Dialect, decreases in the amount of internally developed software expenses
capitalized and to a lesser extent from increased expenses related to our ongoing investment in product development.

Selling, general and administrative expense.Selling, general and administrative expenses decreased
$0.2 million, or 0.2%, to $54.9 million for the nine months ended September 30, 2007, from $55.1 million for the nine months ended September 30, 2006. Selling,
general and administrative expenses represented
23.2% of revenues for the nine months ended September 30, 2007, compared to 26.0% of revenues for the nine months ended September 30, 2006. Included in selling, general and
administrative expenses for the nine months ended September 30, 2007 are pre-tax charges to earnings of $2.0 million related to severance as we continue to streamline our
operations. Included in selling, general and administrative expenses for the nine months ended September 30, 2006 is a charge for severance of $3.7 million primarily associated with a
corporate restructuring event, a charge for expenses incurred by the special committee of our board of directors of $1.4 million and a charge related to other legal costs of approximately
$0.5 million. Included in selling, general and administrative expenses for the nine months ended September 30, 2007 and 2006 is stock compensation expense of $6.8 million and
$4.3 million, respectively. The increase in stock compensation expense is primarily related to additional grants during the year and to a lesser extent from the modification of outstanding
restricted stock units in March 2007. Excluding these items and the increase in stock compensation expense, selling, general and administrative expenses increased $1.0 million primarily
from the expenses required to support our revenue growth, mainly within the international services division and financial services division.

Depreciation and amortization of property and equipment.Depreciation and amortization of property
and equipment increased $1.3 million, or 7.9% to $17.2 million for the nine months ended September 30, 2007, from $15.9 million for the nine months ended
September 30, 2006. Depreciation and amortization of property and equipment represented 7.3% of revenues for the nine months ended September 30, 2007, compared to 7.5% of revenues for
the nine months ended September 30, 2006. Depreciation expense increased primarily due to capital expenditures made to support our revenue growth.

Amortization of intangible assets.Amortization of intangible assets increased $2.6 million,
or 16.7%, to $18.4 million for the nine months ended September 30, 2007, from $15.7 million for the nine months ended September 30, 2006. The amortization of intangible
assets for the nine months ended September 30, 2007 and 2006 relates solely to the intangible assets resulting from acquisitions. The increase was primarily attributable to acquisitions we
completed during 2006 and 2007. For purposes of measuring and recognizing impairment of long-lived assets including intangibles, we assess whether separate cash flows can be attributed to
an individual asset. For our customer relationship intangible assets, we recognize and measure impairment upon the significant loss of revenue from a customer. Based upon our contract with one of our
major customers, we believe that revenues and related transaction volumes from this customer will continue to decline in 2007 and may decline further thereafter. The intangible asset value
attributable to this customer relationship was approximately $21.1 million as of September 30, 2007. We assessed the recoverability of this customer relationship asset based upon
undiscounted anticipated future cash flows and concluded no impairment existed as of September 30, 2007.

Interest expense.Interest expense increased $5.7 million to $12.5 million for the nine
months ended September 30, 2007, from $6.8 million for the nine months ended September 30, 2006. Included

27

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in
interest expense for the nine months ended September 30, 2007 is a $1.4 million charge related to the write-off of unamortized deferred financing fees related to the
termination of the 2005 amended and restated senior secured credit facility. Excluding this charge, interest expense increased $4.3 million due to higher debt levels incurred as a result of our
recapitalization supporting our special dividend.

Interest income.Interest income was $0.9 million for the nine months ended
September 30, 2007 compared to $0.4 million for the nine months ended September 30, 2006. The increase of $0.5 million in interest income is primarily due to the restricted
cash we had on hand for the payment of the special dividend and higher outstanding average cash balances during the nine months ended September 30, 2007.

Other income, net.Other income, net was $2.3 million for the nine months ended
September 30, 2007 compared to $1.2 million for the nine months ended September 30, 2006. Included in other income, net for the nine months ended September 30, 2007 is a
gain on the sale of an asset of $0.3 million and a gain on foreign currency translation of approximately $1.9 million due to fluctuations in the value of the U.S. dollar as compared with
foreign currencies, principally, the pound sterling, Euro and Australian dollar, versus a gain on foreign currency translation of $1.2 million for the nine months ended September 30,
2006.

Income tax benefit.For the nine months ended September 30, 2007, our income tax benefit was
approximately $1.4 million compared to $2.7 million for the nine months ended September 30, 2006. The decrease in our income tax benefit is primarily related to higher income in
foreign jurisdictions that can not be offset by losses in other jurisdictions, higher losses in the U.S. during 2007, and an increase in nondeductible stock compensation expense.

Equity in net income (loss) of unconsolidated affiliates.For the nine months ended
September 30, 2007, our equity in net income of unconsolidated affiliates was $0.6 million compared to a loss of $2.9 million for the nine months ended September 30, 2006.
The increase was due primarily to the realized gain of $625,000 on the sale of all our outstanding shares of our investment in WAY Systems, Inc, which had a carrying value of zero resulting from the
write downs we made in the fourth quarter of 2006, as well as a realized gain of $135,000 from the sale of 10% of our holding in AK Jensen, Inc. in the third quarter of 2007. During the nine
months ended September 30, 2006 we recorded losses on our investments in WAY Systems, Inc., IP Commerce Inc. and AK Jensen, Inc. As of September 30, 2007, the
carrying value of our investment in AK Jensen, Inc. was $0.9 million. Our investment in IP Commerce, Inc. was written down to zero in December 2006.

28

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Liquidity and Capital Resources

Our primary liquidity and capital resource needs are to finance the costs of our operations, to make capital expenditures and to service our debt. Based upon our
current level of operations, we expect that our cash flow from operations, together with the amounts we are able to borrow under our 2007 senior secured revolving credit facility, will be adequate to
meet our anticipated needs for the foreseeable future. Although we have no specific plans to do so, to the extent we decide to pursue one or more significant strategic acquisitions, we will likely
need to incur additional debt or sell additional equity to finance those acquisitions.

Our
operations provided us cash of $35.3 million for the nine months ended September 30, 2007, which was attributable to a net loss of $2.3 million, depreciation,
amortization and other non-cash charges of $37.0 million and a decrease in working capital of $0.6 million. Our operations provided us cash of $24.8 million for the
nine months ended September 30, 2006, which was attributable to a net loss of $3.2 million, depreciation, amortization and other non-cash charges of $39.6 million and
an increase in working capital of $11.6 million.

We
used cash of $16.4 million in investing activities for the nine months ended September 30, 2007, which includes cash proceeds of $0.9 million from the sale of
certain equity investments and $2.1 million from the sale of non-strategic property and equipment less $4.2 million for our acquisition of Dialect and $15.3 million in capital
expenditures primarily to support our revenue growth. We used cash of $46.1 million in investing activities for the nine months ended September 30, 2006, which includes cash paid for
business acquisitions of $27.8 million and capital expenditures of $18.3 million. In addition we completed the acquisitions of CommsXL in the UK, InfiniRoute in our telecommunications
services division and Sonic in our POS division.

We
used cash of $14.8 million from financing activities for the nine months ended September 30, 2007, which includes net proceeds of $222 million from our senior
secured credit facility, of which $98.3 million was used for payment of a special dividend and $123.3 million was used to repay our 2005 amended and restated senior secured credit
facility. In addition, we made $14.5 million of voluntary pre-payments on our 2007 senior secured credit facility. We received cash of $8.1 million from financing activities
for the nine months ended September 30, 2006, which includes $8.0 million of borrowings under our 2005 amended and restated senior secured credit facility, the proceeds of which were
used to partially finance business acquisitions.

Seasonality

Credit card and debit card transactions account for a major percentage of the transaction volume processed by our customers. The volume of these transactions on
our networks generally is greater in the third and fourth quarter vacation and holiday seasons than during the rest of the year. Consequently, revenues and earnings from credit card and debit card
transactions in the first and second quarter generally are lower than revenues and earnings from credit card and debit card transactions in the third and fourth quarters of the immediately preceding
year. We expect that our operating results in the foreseeable future will be significantly affected by seasonal trends in the credit card and debit card transaction market.

29

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2007 Senior Secured Credit Facility

On March 28, 2007, we entered into a $240.0 million senior secured credit facility to finance the $4.00 per share special cash dividend, described
elsewhere in this report, and to refinance our 2005 amended and restated senior secured credit facility. The 2007 senior secured credit facility consists of a senior secured term loan facility in an
aggregate principal amount of $225.0 million and a senior secured revolving credit facility in an aggregate principal amount of $15.0 million, under which there were no borrowings as of
September 30, 2007. The senior secured credit facility matures March 27, 2013. Payments on the senior secured term loans are due in quarterly installments over the seven year term
beginning September 30, 2007, with the remainder payable on March 28, 2014. Voluntary prepayments on the senior secured term loans are applied as directed by us. We made voluntary
pre-payments on the senior secured term loans totaling $14.5 million during the nine months ended September 30, 2007.

As
of September 30, 2007, the total scheduled remaining payments on the term loan are as follows (in thousands):

Nine months ending December 31, 2007

$
2008


2009


2010


2011


Thereafter


210,500$
210,500


Interest
on the outstanding balances under the revolving credit facility is payable, at our option, at a rate equal to the higher of the Wall Street Journal published "base rate on
corporate loans posted by at least 75% of the nation's largest banks" or the federal funds rate plus 50 basis points (the "Base Rate"), in each case, plus a margin of 0.75% or at the London Interbank
Offered Rate ("LIBOR"), plus a margin of 1.75%. Interest on the outstanding balances under the senior secured term loans are payable, at our option, at the Base Rate plus a margin of 1.0%, or at LIBOR
plus a margin of 2.0%. The senior secured revolving credit facility is subject to an annual commitment fee in an amount equal to 0.5% per annum multiplied by the amount of funds available for
borrowing under the senior secured revolving credit facility. Interest payments on the 2007 senior secured credit facility are due biweekly, montly, bimonthly or quarterly at our option.

The
terms of the 2007 senior secured credit facility require us to make an annual prepayment in an amount that may range from 0% to 50% of our "excess cash flow" (as such term is defined
in the Credit Agreement) depending on our leverage ratio for any fiscal year. Prepayments are also required to be made in other circumstances, including upon asset sales.

The
terms of the 2007 senior secured credit facility require us to comply with financial and nonfinancial covenants, including maintaining a specified leverage ratio at the end of each
fiscal quarter and complying with specified annual limits on capital expenditures. As of September 30, 2007, we were required to maintain a leverage ratio of less than 4.1 to 1.0. The leverage
ratio continues to decline over the term of the 2007 senior secured credit facility. Our leverage ratio as of September 30, 2007 was 3.1 to 1.0. The 2007 senior secured credit facility also
contains nonfinancial covenants that restrict some of our corporate activities, including our ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments, make
capital expenditures and engage in specified transactions with affiliates. Noncompliance with any of the financial or nonfinancial covenants without cure or waiver would constitute an event of default
under the 2007 senior secured credit facility. An event of default resulting from a breach of a financial or nonfinancial covenant may result, at the

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option
of the lenders, in an acceleration of the principal and interest outstanding, and a termination of the revolving credit facility. The 2007 senior secured credit facility also contains other
customary events of default (subject to specified grace periods), including defaults based on events of bankruptcy and insolvency, nonpayment of principal, interest or fees when due, breach of
specified covenants, change in control and material inaccuracy of representations and warranties. We were in compliance with the financial and non-financial covenants of the 2007 senior
secured credit facility as of September 30, 2007.

In
connection with the closing of the 2007 senior secured credit facility, we incurred approximately $3.1 million in financing costs. These financing costs were deferred and are
being amortized using the effective interest method over the life of the 2007 senior secured credit facility. In connection with the repayment of the 2005 amended and restated senior secured credit
facility in March 2007, we wrote-off approximately $1.4 million in unamortized deferred financing costs related to the 2005 amended and restated senior secured credit
facility. Such write-off has been included in interest expense in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2007.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rates

Our principal exposure to market risk relates to changes in interest rates. As of September 30, 2007, we had $210.5 million outstanding under our
2007 senior secured credit facility with interest rates tied to changes in the lender's base rate or the LIBOR rate. Based upon the outstanding borrowings on September 30, 2007 and assuming
repayment of the Term Loan in accordance with scheduled maturities, each 1.0% increase in these rates could add an additional $2.1 million to our annual interest expense.

As
of September 30, 2007, we did not hold derivative financial or commodity instruments and all of our cash and cash equivalents were held in money market or commercial accounts.

Foreign currency risk

Our earnings are affected by fluctuations in the value of the U.S. dollar as compared with foreign currencies, predominately the Euro, the pound sterling and the
Australian dollar due to our operations in Europe and Australia.

We
have operations in 21 countries outside of the U.S., including the United Kingdom, Australia, Austria, Canada, Colombia, France, Germany, India, Ireland, Italy, Japan, Malaysia,
Mexico, the Netherlands, New Zealand, Poland, Romania, South Korea, Spain, Sweden and Thailand. We provide services in these countries using networks deployed in each country. We manage foreign
exchange risk through the structure of our business. In the substantial majority of our transactions, we receive payments denominated in the U.S. dollar, pound sterling, Euro or Australian dollar.
Therefore, we do not rely on international currency markets to obtain and pay illiquid currencies. The foreign currency exposure that does exist is limited by the fact that the majority of
transactions are paid according to our standard payment terms, which are generally short-term in nature. Our policy is not to speculate in foreign currencies, and we promptly buy and sell
foreign currencies as necessary to cover our net payables and receivables, which are denominated in foreign currencies. For the nine months ended September 30, 2007, we recorded a gain on
foreign currency translation of approximately $1.9 million.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

Evaluation

The Company carried out an evaluation, under the supervision, and with the participation, of the Company's management, including the Company's Chief Executive
Officer and the Company's Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of September 30, 2007. Based on the foregoing, the Company's Chief
Executive Officer and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of September 30, 2007.

There
have been no significant changes during the nine months ended September 30, 2007 covered by this report in the Company's internal control over financial reporting or in
other factors that could significantly affect the internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

Information regarding legal proceedings is contained in Note 8 to the Condensed Consolidated Financial Statements contained in this Report and is
incorporated herein by reference.

Item 1A.    Risk Factors

There were no material changes from the risk factors previously disclosed in "Item 1A. Risk Factors" included in our Annual Report on Form 10-K
for the year ended December 31, 2006.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Default Upon Senior Securities

None.

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

None.

Item 5.    Other Information

None.

Item 6.    Exhibits

(31.1)    CertificationChief
Executive Officer

(31.2)    Certification
 Chief Financial Officer

(32.1)    Written
Statement of Chief Executive Officer and Chief Financial Officer

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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.

|                       |  | TNS, Inc.
(Registrant)
|---------------------- |  | ----------------------
|                       |  |                       
|Date: November 9, 2007 |  | By:                   
|Date: November 9, 2007 |  | By:                   

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