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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
         DECEMBER 31, 1998
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
                          COMMISSION FILE NO. 0-23856
                            ------------------------
 
                       TRANSACTION NETWORK SERVICES, INC.
 
             (Exact name of Registrant as specified in its charter)
 
                  DELAWARE                             54-1555332
        (State or other jurisdiction                (I.R.S. Employer
     of incorporation or organization)           Identification Number)
     1939 ROLAND CLARKE PLACE, RESTON,                    20191
                  VIRGINIA                             (zip code)
  (Address of principal executive offices)
 
       Registrant's telephone number, including area code: (703) 453-8300
                            ------------------------
 
        Securities registered pursuant to Section 12(b) of the Act: None
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                         COMMON STOCK, $0.01 PAR VALUE
 
                                (Title of Class)
 
    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
 
    Based on the closing price on March 1, 1999, the aggregate market value of
the voting stock held by non-affiliates of the Registrant was $211,299,980. The
number of shares outstanding of the Registrant's Common Stock, $0.01 par value,
was 12,940,555 on March 1, 1999.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Part III, Items 10, 11, 12 and 13 are incorporated by reference from the
Company's Proxy Statement related to the Annual Meeting of Stockholders to be
held on April 22, 1999.
 
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                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL OVERVIEW
 
    Transaction Network Services, Inc. (the "Company" or "TNS") was incorporated
in August 1990 to build and operate a communications network focused on the
network services needs of the POS (Point-of-Sale/ Point-of-Service) transaction
processing industry through its POS division. The Company currently operates
four divisions: (1) the POS Division which includes the Company's
TransXpress-Registered Trademark- network services for the POS transaction
processing industry, (2) the Telecom Services Division ("TSD") which includes
the Company's CARD*TEL-Registered Trademark- telephone call billing validation
and fraud control services and other services targeting primarily the
telecommunications industry, (3) the Financial Services Division ("FSD") which
provides integrated data and voice services including the TNS
FastLink-Registered Trademark- Data Service in support of the Financial
Information eXchange ("FIX") messaging protocol and other transaction oriented
trading applications primarily to the financial services industry, and (4) the
International Systems Division ("ISD") which markets the Company's products and
services internationally.
 
    In September 1998, the Company significantly expanded its POS Division
through a $64.3 million acquisition of the rights to provide services under
certain customer service contracts relating to AT&T Corp.'s ("AT&T") Transaction
Access Service ("TAS"). AT&T's TAS service provided services similar to the
Company's POS network services. Additionally, in 1998, the Company expanded the
service offerings of its POS division through the acquisitions of certain assets
of Suntech Processing Systems, LLC ("Suntech") and OmniLink Communications
Corporation ("OmniLink"). Suntech's proprietary host-interface processing
technology allows for leased line automated teller machines ("ATM's") to be
converted into dial-up ATM's. OmniLink develops, manufactures and markets modems
and ISDN terminal adaptors for electronic commerce, Internet access,
telecommuting and advanced office communications. The Company has transferred
its dial-up modem technology acquired from Suntech to OmniLink.
 
    In June 1994, the Company acquired Fortune Telecommunications, Inc. ("FTI")
of Ft. Lauderdale, Florida and formed the Company's Telecom Services Division.
TSD provides customers in the telecommunications industry with telephone call
fraud control, billing validation, Signaling System No. 7 ("SS7") services, and
other services.
 
    In March 1997, the Financial Services Division was created to serve the data
communications needs of the financial services industry. The TNS financial
services network provides a secure, independent, Internet Protocol ("IP")
Extranet for transacting securities trading orders and associated data
electronically between brokerage firms and financial institutions. In January
1999, the Company acquired Transline Communications, Inc. ("Transline") in a
transaction structured to be accounted for as a pooling of interests.
Transline's core business is comprised of managed private, secure voice and data
services provided to financial institutions for futures, options, and
commodities trading.
 
    In June 1996, the Company formed Transaction Network Services Limited
("TNSL"), a majority-owned subsidiary. TNSL provides POS network services in
Ireland and serves as TNS' European technology and marketing center to support
current and future European operations. In October 1997, through TNSL, the
Company acquired a majority interest in Pronoma Systems AB which has been
renamed Transaction Network Services TNS AB ("TNSAB") and operates as a TNSL
subsidiary located in Stockholm, Sweden. In April 1998, the Company, through
TNSL, acquired a 50% interest in ATOS Ireland Limited ("Atos"). Atos has been
renamed Switchtran Limited ("Switchtran") and provides processing services,
primarily for cash withdrawals, for a network of ATMs located throughout
Ireland. In September 1998, the Company entered into a 60% owned joint venture
in the United Kingdom ("UK"). The joint venture is named Transaction Network
Services UK Limited ("TNSUK") and operates as a TNS subsidiary located in
Sheffield, England. In November 1998, the Company, through TNSL, formed
Transaction Network Services, Societe Anonyme. ("TNSSA"). TNSSA operates as a
TNS subsidiary located in Paris, France. TNSL, TNSAB, TNSUK, Switchtran and
TNSSA utilize the Company's network technology to provide POS and other
transaction services in their respective countries.
 
    The majority of the Company's revenues are derived from the transmission of
POS transactions (predominantly credit and debit card transactions) which are
processed electronically by a small number of third party
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POS transaction processors. The Company's TransXpress-Registered Trademark-
network services utilize proprietary technology that provides a fast
communications link between the merchant site and the transaction processor at a
cost generally lower than current alternatives. The Company was the first
provider of "950" service to third party POS transaction processors and
currently provides "950" service in 170 local access transport areas ("LATAs"),
which cover approximately 98% of the United States population. In June 1991, the
Company transmitted its first POS transaction, and since then has increased its
average daily transaction volume from approximately 17,000 in the third quarter
of 1991 to more than 16.4 million in the fourth quarter of 1998. The Company
markets its TransXpress-Registered Trademark- network services directly to third
party POS transaction processors, who in turn resell the Company's network
services as a part of the processors' own services. Of the ten leading third
party POS transaction processors in the nation, eight (First Data Corporation,
Electronic Payment Services, Inc., Alliance Data Systems, Paymentech Inc.,
National Data Corporation, American Express, NOVUS Services, Inc. and Vital
Processing Services) purchase the Company's network services.
 
    The Company's principal executive offices are located at 1939 Roland Clarke
Place, Reston, Virginia 20191, and its telephone number at that location is
(703) 453-8300. The Company's Internet website address is http://www.tnsi.com.
 
POS SERVICES BACKGROUND
 
    Until the 1980s, most POS credit card transactions were processed manually,
using paper-based systems. During the 1980s, major changes in POS equipment and
telecommunications technology, together with financial incentives offered by the
credit card associations VISA and MasterCard, led to the development of
automated systems that authorized and processed transactions electronically.
Electronic authorization involves the use of a POS terminal that reads the
cardholder's account information from the card's magnetic stripe and combines
this information with the amount of the sale entered via a keypad on the
terminal. The terminal electronically transmits this transaction information
over a communications network to an authorization computer data center and then
displays the returned authorization or verification response on the POS
terminal.
 
    The processing of a typical POS credit card transaction involves several
parties: the consumer, the merchant, the merchant bank, the credit card issuing
bank and, in most cases, a third party POS transaction processor. Historically,
merchant banks processed almost all POS credit card transactions. As the market
evolved, merchant banks reduced their discount rates (fees charged for
completing credit card transactions) to attract additional merchants, and
larger, more sophisticated merchants began to demand lower discount rates more
aggressively. As competitive pressures further reduced discount rates, merchant
banks were required to process a higher volume of transactions to operate
profitably. Many merchant banks could not compete in this environment and
contracted with third party POS transaction processors. The third party POS
transaction processors maintain the large host computer processing capability
and transaction volume necessary to process credit card transactions efficiently
for merchant banks. Third party POS transaction processors have become the major
provider of POS transaction processing services. The POS transaction processing
industry has become highly concentrated, with ten third party processors
accounting for a substantial majority of transaction volume.
 
    The electronic processing of POS credit card transactions requires the use
of a communications network that links merchant POS terminals to transaction
processing host computers. The need to link merchants and POS transaction
processors has been met primarily by one of two alternatives: dedicated leased
lines and dial-up services. Dedicated leased lines offer high speed data
transmission, but involve significant fixed monthly charges, making them
economically viable only in high-volume merchant locations such as department
stores and supermarkets. As a result, a majority of electronically processed POS
transactions are transmitted using dial-up services. Prior to the Company's
entrance into this market, dial-up services included those offered by "800"
service providers, including AT&T, Sprint and MCI. While both of these
traditional alternatives had certain attributes that were attractive to the
transaction processing industry, neither was optimal for POS transaction data
communications. The "800" service providers offered reverse call billing and
wide geographic coverage, but such services could be slow and expensive on a per
transaction basis. Public data networks were often faster and less expensive
than "800" services, but were not as widely available as "800" services and did
not
 
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offer reverse call billing, resulting in service charges to merchants in some
areas. As the POS processing industry has become more sophisticated and
competitive, both merchants and third party POS transaction processors have
increasingly demanded faster service, lower cost and value-added features from
their transaction automation systems and network services suppliers.
 
    In response to the growth of the POS transaction processing market, the
Company developed the TNS network, a data communications network designed
specifically to provide high speed, low cost, reliable and widely accessible
network transmission services for POS transaction processing. The Company's
TransXpress-Registered Trademark- network services include the reverse call
billing and wide geographic coverage of traditional "800" services, while
delivering transactions at speeds and levels of reliability that are often
greater than public data networks and at a cost per transaction that typically
is lower than these traditional alternatives. The Company's services offer both
"950" and "800" dial access with proprietary network routing technology that
provides faster call connection and more efficient network utilization than
previous dial-up alternatives. In addition, the proprietary TNS network software
provides the Company's customers with dynamic rerouting and several value-added
features such as real-time call tracking and trouble shooting.
 
TELECOM SERVICES BACKGROUND
 
    Following the divestiture by AT&T of the regional Bell operating companies
and the advent of tariffed "equal access" to the local telephone exchange
facilities during the 1980's, the telecommunications industry became open to
growing competition among numerous market entrants, including interexchange
carriers, operator service providers and pay telephone operators. In providing
their telecommunications services to consumers, these companies connected
increasing volumes of "0+" calls, or calls which were being billed to accounts
other than the originating phone, such as commercial credit cards, telephone
company calling cards and the billable line numbers used for third party or
collect calls. To process these calls without incurring a significant exposure
to fraud and uncollectible accounts, the need developed among the numerous
competitors in the telecommunications marketplace for real-time validation and
fraud control screening services.
 
    Real-time validation databases contain information regarding the status of
accounts that allow carriers connecting "0+" calls to validate the current
status of the billed account. These databases are known as Line Information
Databases, or "LIDBs," and are maintained by local exchange carriers and other
telecommunications companies with direct end-user telephone account information.
Each LIDB can be accessed directly by telecommunications carriers through
specialized data communications network connections, however, the cost of
connecting to all of the databases, which is necessary to obtain the full
benefit of such databases, is prohibitive for smaller companies. As a result,
gateway providers have evolved to access LIDBs economically by aggregating LIDB
traffic from many smaller carriers. Positive validation from one or more LIDBs,
however, does not guarantee a collectible bill. Consequently, fraud control
services that supplement LIDB access have been developed.
 
    In June 1994, the Company acquired Fortune Telecommunications, Inc. ("FTI"),
a provider of telephone call billing validation and fraud control services to
the telecommunications industry through its CARD*TEL-Registered Trademark-
service offering. The Company's Telecom Services Division now offers the
CARD*TEL-Registered Trademark- service, which provides the telecommunications
customer with an integrated service that combines real-time access to LIDB
validation information along with the Company's proprietary fraud control
technology and databases. This sophisticated fraud control system assists
customers in the detection of fraudulent or unbillable calls. The Company has
developed a line of Signaling System No. 7 ("SS7") services that can provide
fast, cost-efficient access to LIDBs as well as connectivity for call
processing.
 
    In late 1997 and 1998 the Company developed several new service offerings
for the telecommunications industry. These include the Company's
LEConnect-Registered Trademark- Data Service, Local Number Portability Service
and a Dial Around Service Offering. These new service offerings are described
below.
 
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FINANCIAL SERVICES BACKGROUND
 
    In March 1997, the TNS Financial Services Division was created to serve the
data communications needs of the financial services industry. The TNS financial
services network provides a secure, independent, IP Extranet for transacting
securities trading orders and associated data electronically between brokerage
firms and financial institutions.
 
INTERNATIONAL SERVICES BACKGROUND
 
    The technology developed by the Company to serve the customers of the POS,
Telecom Services, and Financial Services Divisions has direct applicability
around the world. The International Systems Division was formed to introduce the
products and services from the Company's domestic operating divisions to the
international marketplace. In Canada, the Company has entered into a technology
transfer arrangement whereby TNS provides POS network equipment and receives
royalty payments based upon transaction volumes. The Company presently has the
following international subsidiaries: TNSL and Switchtran which are located in
Dublin Ireland, TNSAB which is located in Stockholm, Sweden, TNSUK which is
located in Sheffield, England, TNS-Transline Ltd. (a wholly-owned subsidiary of
Transline), which is located in London England, and TNSSA which is located in
Paris, France. The Company has identified pilot customers in certain countries
in which it expects to first offer its services in 1999, including Asia,
Australia, the Caribbean and additional European countries.
 
TNS STRATEGY
 
    The Company's future growth and profitability will depend, in part, upon the
further expansion of the POS transaction network services market, the
telecommunications services market, and the financial services market, as well
as the emergence of other markets for electronic transaction network services
including the ability to provide existing services internationally. Future
growth and profitability is also dependent upon the ability to successfully
integrate acquired assets and businesses into the Company's existing operations.
Further market expansion is dependent upon, in part, the continued growth in the
number of transactions and the continued automation of traditional paper-based
processing systems.
 
    The Company's primary objective is to enhance its position as a leading
provider of transaction-oriented data services. The specific elements of the
Company's strategy to meet this objective include the following:
 
    INCREASE NETWORK USAGE
 
    While the Company expects to benefit from the overall growth of the
electronic transaction processing market, the Company has implemented certain
programs designed to enhance network usage. The Company intends to increase TNS
network usage by encouraging existing customers to increase their connections to
its networks and by attracting new customers. Additionally, in order to maintain
a high level of network utilization, the Company works closely with its existing
customers to identify opportunities for further network expansion and additional
service offerings.
 
    MAINTAIN TECHNICAL LEADERSHIP
 
    The Company's network has been specifically designed to address transaction
processing applications, and the Company's management, technical and sales
personnel have been assembled for their experience in this industry. The Company
intends to maintain the technical leadership it has established by continuing to
enhance network performance and respond to customer needs. The Company's
proprietary network software provides customers with many value-added features,
including multiple network protocol and message format support and conversion as
well as real-time call tracking. The Company has ongoing development programs to
support new technologies to enhance local access, such as support for higher
speed modem rates.
 
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    IDENTIFY STRATEGIC ACQUISITIONS
 
    AT&T CORP.'S TRANSACTION ACCESS SERVICE  On September 10, 1998, the Company
acquired from AT&T, the right to provide services under certain customer service
contracts relating to AT&T's TAS service. This acquisition is expected to
effectively double the transaction volume and revenue of the Company's POS
division. The Company is in the process of transitioning the TAS customers off
of AT&T's TAS network and onto the Company's network.
 
    SUNTECH AND OMNILINK  In 1998, the Company acquired selected assets and the
technology of Suntech and OmniLink. OmniLink develops, manufactures and markets
both ISDN terminal adaptors and modems for electronic commerce, Internet access,
telecommuting and advanced office communications. The Company has transferred
its dial-up modem technology acquired in the acquisition of certain assets of
Suntech to OmniLink. OmniLink has integrated the Suntech modem technology into
the OmniLink terminal adaptors. This development effort is intended to support
the Company's strategy to offer dial-up ISDN access services to both domestic
and international customers. These customers have traditionally relied upon more
expensive leased line communications to process transactions originated at both
point-of-sale locations as well as automated teller machines.
 
    FORTUNE TELECOMMUNICATIONS, INC.  In June 1994, the Company acquired Fortune
Telecommunications, Inc. ("FTI"), a provider of telephone call billing
validation and fraud control services to the telecommunications industry through
its CARD*TEL-Registered Trademark- service offering. TNS has strengthened the
competitive position of its CARD*TEL-Registered Trademark-telecommunications
services by replacing FTI's former network service providers with TNS's SS7
network capability, which leverages key elements of the Company's backbone
network.
 
    TRANSLINE COMMUNICATIONS, INC.  In January 1999, the Company acquired
Transline whose core business is comprised of managed private, secure voice and
data services provided to financial institutions for futures, options, and
commodities trading primarily in the United States, United Kingdom, and other
countries in Europe and South America. This transaction enables the Company to
offer its existing customers a wider range of services and access to more
international financial centers. The Company also expects to benefit from the
addition of new trading applications, such as options and commodities, as an
adjunct to the futures applications currently transported over the financial
services network.
 
    DEVELOP NEW SERVICES
 
    TNS FASTLINK-REGISTERED TRADEMARK- DATA SERVICE.  In 1997, in response to
the developing demand within the financial services industry for a reliable,
secure network solution for the electronic exchange of trading information
between brokerage firms, financial institutions and the securities markets the
Company began offering its TNS FastLink-Registered Trademark- Data Service. This
service offers a secure private Extranet for the electronic communication of
indications of interest, orders, and execution reports that are normally phoned
between traders or transmitted via proprietary systems.
 
    LECONNECT-REGISTERED TRADEMARK- DATA SERVICE.  The Company provides
interexchange carriers ("IXC's") and information service providers a fast,
reliable digital message transport of billing and collection information to and
from Local Exchange Carrier ("LEC") data centers over the Company's secure IP
data network. The LEConnect-Registered Trademark- Data Service replaces the
current system which previously required the numerous IXC's and information
service providers to send billing data via magnetic data tapes to the LECs. The
LEC then processes the IXC's billing data and includes the service providers'
charges on the LEC bill to the appropriate consumer for collection. The Company
believes that the LEConnect-Registered Trademark- Data Service minimizes the
data transmission errors and time lags associated with the current approach.
 
    LOCAL NUMBER PORTABILITY SERVICE.  The Federal Communications Commission
("FCC") has adopted an order which requires incumbent local exchange carriers to
implement permanent local number portability ("LNP") allowing to switch local
service providers without changing their phone numbers. Due to LNP,
 
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telecommunications providers need access to the information resident in the
regional number portability administration centers ("NPAC's") in order to
accurately process and bill for calls to numbers that have been ported to an
alternative carrier. The Company has combined its expertise in dedicated data
transmission and SS7 networking with its own proprietary network architecture
and in-house software engineering to design what the Company believes to be a
dependable LNP solution. The Company acts as an independent transport service
provider for both wireline and wireless carriers and offers connectivity to the
NPACs as well as providing the information necessary for call completion and
billing to complement its fraud control and other telecommunications services.
 
    DIAL AROUND COMPENSATION SERVICE.  As part of the Telecommunications Act of
1996 (the "1996 Act"), the FCC was authorized to mandate a payment scheme
pursuant to which pay telephone operators are "fairly compensated" for all
access code calls, debit card calls, subscriber 800 and other toll-free calls
which originate on the pay phone service providers' facilities, but which are
routed to telecommunications carriers other than those pre-subscribed by the
telephone proprietor ("dial-around compensation", or, "DAC"). In October 1997,
the FCC established a rate per call as the default per-call compensation rate
for subscriber 800 and access code calls made from payphones. After the first
two years of per-call compensation, a payphone's market-based local coin rate,
as adjusted for certain costs, will become the default rate. While it is
uncertain what impact the new rules will have on "dial-around" usage and
therefore on demand for traditional TNS telecommunications service offerings,
many industry observers believe that the use of "dial-around" services will
continue to grow at the expense of the traditional pay telephone long distance
services upon which the Company's customer base for fraud control and billing
validation services relies. Recently, LECs have furthered this trend by
introducing proprietary calling cards which utilize "dial-around" 800 access.
 
    The Company has developed a DAC service offering for both the payphone
owners and carriers. As a result of DAC, the payphone owner will require an
accurate accounting of all calls eligible for the per call compensation.
Carriers will want to ensure that the per call payment is made only for calls
that require this payment. In certain instances both the payphone owner and
carrier may wish to outsource this data collection process. The Company's DAC
service is intended to provide auditing, call tracking and other services to
both payphone owners and carriers associated with the per call compensation
mandate. While there can be no assurance of the Company's success in new
marketing efforts, the Company believes that this new service will take
advantage of the continuing trend toward the use of "dial-around" services and
provide its customer base with a desirable service.
 
    PENETRATE NEW MARKETS
 
    ELECTRONIC BENEFITS TRANSFER PROGRAMS.  The application of the Company's
network services to electronic benefits transfer ("EBT") programs, including
food stamps and Aid to Families with Dependent Children, provides another growth
opportunity for the Company. The Federal government has mandated that all states
move to an electronic delivery system for EBT programs by 2002. The Company
currently carries EBT transactions for 31 of the 32 active online state
programs.
 
    HEALTHCARE PROCESSING.  The Company believes that healthcare processing
presents another opportunity for its future growth. The Company currently
provides network services for healthcare eligibility verification and intends to
provide network services to customers involved in the healthcare eligibility,
payment, and claims processing industry.
 
    INTERNATIONAL EXPANSION.  The Company continues to seek new international
markets through joint ventures, technology transfers, licensing arrangements,
and the establishment of subsidiaries. The Company has completed agreements to
provide its technology and network design in Canada, Ireland, Sweden, the United
Kingdom and France. The Company's majority-owned subsidiaries in Ireland (TNSL),
Sweden (TNSAB), the UK (TNSUK) and France (TNSSA) provide transaction processing
and other services in their respective countries. The Company is currently
negotiating to provide its proprietary network technology for use in other
markets including additional European expansion. The Company has identified
pilot customers in certain
 
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countries in which it expects to first offer its services in 1999, including
Asia, Australia, the Caribbean and additional European countries.
 
    OTHER RELATED MARKETS.  The Company currently provides network services to
customers in other emerging transaction processing markets, such as home
banking, secure credit card transactions over the Internet, and other
telecommunications database services which leverage the Company's network,
industry relationships and expertise.
 
    Management believes it has substantially obtained the current available
transaction volume from many of its existing customers. As a result, revenue
growth will be dependent on the ability to add new customers, transaction growth
from existing customers through their intrinsic growth and acquisitions, overall
market growth and the ability to develop new services.
 
TNS SERVICES
 
    The Company's network services are designed specifically for the
transmission of transaction and other data. The Company's primary services are
offered through its TransXpress-Registered Trademark- network services, which
are currently used predominantly for POS credit and debit card authorizations
and its CARD*TEL-Registered Trademark- telecommunications services, which are
used predominantly for validation and fraud control services. The Company also
provides other data transmission services, primarily for the telecommunications
and financial services industries. The Company's continued success will depend,
in part, on its ability to enhance its existing services, successfully integrate
acquired assets and businesses, and the ability to develop and introduce, on a
timely and cost-effective basis, new services.
 
    POS SERVICES
 
    TRANSXPRESS-REGISTERED TRADEMARK- NETWORK SERVICES  The Company's
TransXpress-Registered Trademark- network services utilize "950" service
obtained from local exchange carriers and supplemental "800" service obtained
from interexchange carriers to provide access to its network. The Company
believes that its TransXpress-Registered Trademark- network services offer
several advantages resulting from the proprietary technology and architecture of
the TNS network. The Company contracts with multiple interexchange carriers to
provide "800" access to supplement its "950" service. In the latter part of
1998, the Company began to deploy its own "800" access network.
 
    ENHANCED ATM SERVICES AND TRANSXPRESS-REGISTERED TRADEMARK- MODEMS  The
Company has combined the technology it acquired in the Suntech and OmniLink
transactions into an enhanced ATM solution. This solution enables financial
institutions and ATM processors to rapidly deploy new ATMs and replace costly
leased line networks that support existing ATM machines. By combining
telecommunications access methods such as dial-up, ISDN, and wireless with the
TNS network and a processing module at the host, TNS customers may reduce their
telecommunications costs through the elimination of high-cost dedicated leased
lines. TransXpress-Registered Trademark- modems replace the existing lease line
modem at the ATM. While leased lines are fixed in cost and are the traditional
communication method to support a polled ATM environment, the Company believes
that they are also expensive, unreliable, and difficult to install. The TNS ATM
solution makes use of more reliable and cost-effective standard dial-up phone
lines, ISDN, or wireless service without sacrificing functionality or security.
 
    TSD SERVICES
 
    CARD*TEL-REGISTERED TRADEMARK- TELECOMMUNICATIONS SERVICES  The Company's
CARD*TEL-Registered Trademark- telecommunications services utilize proprietary
fraud control technology and database access to provide real-time telephone call
billing validation and fraud control services to the telecommunications
industry. The Company's customers for these services include long distance
telephone companies, operator services providers, information services providers
and private pay telephone companies. By providing access to both negative and
positive files maintained on databases throughout the country,
CARD*TEL-Registered Trademark-telecommunications services can help
telecommunications customers determine whether telephone company calling cards,
bank credit cards, travel and entertainment
 
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cards and telephone company line numbers are likely to constitute valid accounts
and billable line numbers. Fraud control services involve the use of various
databases, algorithms and computer modeling techniques to detect fraud based on
transaction irregularities and predetermined parameters. The customers of the
CARD*TEL-Registered Trademark- telecommunications services also benefit from the
advanced fraud control technology and database management that distinguishes
CARD*TEL-Registered Trademark- telecommunications services from its competitors.
 
    SIGNALING SYSTEM 7 ("SS7") NETWORK SERVICES  The Company has developed a
line of SS7 services that provide smaller telecommunications companies, LECs,
with an affordable alternative to costly network enhancements. The Company's SS7
network is a special purpose, packet-switched data network designed to provide
call processing information that can support a variety of applications,
including number translation, billing verification, calling number
identification, call set-up information, busy/idle station status, maintenance,
and control information. An SS7 system, unlike conventional telephone switching
that transmits call processing information via normal voice trunk circuits using
traditional "in-band" multifrequency ("MF") signaling, is an "out-of-band"
digital signaling protocol that carries information over data links separate
from the voice trunk network. By storing information such as call routing data,
billing information and technical system data and controls, an SS7 network
allows call set-up and routing to be accomplished by way of independent voice
circuits, thus enabling a faster, more efficient transmission of
telecommunications signaling.
 
    LOCAL NUMBER PORTABILITY SERVICES.  The Company has combined its expertise
in dedicated data transmission and SS7 networking with its own proprietary
network architecture and in-house software engineering to design what the
Company believes to be a dependable LNP solution. The Company acts as an
independent transport service provider for both wireline and wireless carriers
and offers connectivity to the NPACs as well as providing the information
necessary for call completion and billing to complement its fraud control and
other telecommunications services.
 
    LECONNECT-REGISTERED TRADEMARK- DATA SERVICES.  The Company's
LEConnect-Registered Trademark- Data Service replaces the current system which
previously required the numerous IXC's and information service providers to send
billing data via magnetic data tapes to the LECs. The LEC then processes the
IXC's billing data and includes the service providers' charges on the LEC bill
to the appropriate consumer for collection.
 
    DIAL AROUND COMPENSATION SERVICES.  The Company has developed DAC service
offering for both the payphone owners and carriers. The Company's DAC service
provides auditing, call tracking and other services to both payphone owners and
carriers associated with the per call compensation mandate.
 
    FSD SERVICES
 
    TNS FASTLINK-REGISTERED TRADEMARK- DATA SERVICE The TNS
FastLink-Registered Trademark- Data Service offers a private Extranet for
transacting securities trading orders and associated data electronically between
brokerage firms and financial institutions. The TNS
FastLink-Registered Trademark- Data Service routes Financial Information
Exchange ("FIX") protocol messaging over a secure TCP/IP network developed,
operated, and maintained by the Company. FIX is an open communication messaging
protocol that enables a high-speed electronic exchange of trading information in
a common language between brokerage firms, financial institutions, and
securities markets. The FIX protocol facilitates the electronic communication of
indications of interest, orders, and execution reports that are normally
exchanged by telephone between traders or transmitted via proprietary systems.
 
    TRANSLINE COMMUNICATIONS, INC.  Transline's business is comprised of managed
private, secure voice and data services to financial institutions for futures,
options, and commodities trading. The Company will integrate these complementary
communications services into its financial services division product line to
expand its existing network capabilities.
 
TNS NETWORK
 
    The TNS network is designed specifically for the requirements of the
transaction processing industry to provide fast call connection times, a high
level of system redundancy, dynamic rerouting, wide geographic
 
                                       8
<PAGE>
coverage and value-added features, at a low cost per transaction. While the TNS
network was originally designed for POS transaction processing, the TNS network
serves as the infrastructure for the Company's expansion into new transaction
processing markets including its telecommunications and financial services. The
TNS network consists primarily of the Company's hardware and software located at
various sites, or points-of-presence ("POPs"), around the United States and
leased digital transmission circuits which interconnect the Company's service
areas.
 
    During 1997, the Company established an additional network infrastructure in
support of the Financial Services Division. The financial services network is
Internet Protocol ("IP") based and leverages the Company's existing POPs and
operational structure. This network consists of hardware and software located at
various sites around the United States and leased digital transmission circuits
that interconnect the Company's service areas.
 
    During 1998, the Company significantly expanded its backbone and access
network capacity in order to ensure adequate capacity and an appropriate network
architecture for expected significant increases in network traffic primarily
related to the TAS transaction but to also accommodate increasing volumes from
its base business. These costs included the Company's continued investment in
the expansion of its own "800" access service. During 1999, the Company plans to
continue to expand it's own "800" access and its SS7 capabilities. The
installation costs of "800" service are significantly more expensive compared to
"950" installation costs. However, the Company's own "800" service reduces the
recurring cost of providing "800" access service since the variable cost per
transaction associated with the Company's own "800" service is significantly
less than those of third party providers. Additionally, the Company's own "800"
access service reduces the Company's reliance upon third party service
providers. Management also believes that the Company's own "800" access service
reduces a barrier to entry in obtaining additional transaction volumes from the
Company's existing customers and from new customers by facilitating a customer's
conversion from another service provider to the Company. Generally, when a POS
terminal is reprogrammed it requires physical changes at the terminal location.
An "800" terminal may be switched to the TNS "800" service utilizing "800"
portability at virtually no cost to the customer. The Company expects to make
further significant expenditures associated with network expansion in 1999
including its own "800" network.
 
    NETWORK ARCHITECTURE
 
    The Company believes that it has configured the network's major equipment
components with fully redundant hardware subsystems and/or complete backup
systems in order to eliminate any single point-of-failure in the network. The
financial services network infrastructure has been designed and implemented with
a high level of system redundancy, dynamic routing, and sophisticated
engineering techniques to support the financial services industry. This has been
accomplished to date with commercially available hardware and software. The main
equipment components which comprise the Company's financial services network
include IP router hardware and software, and UNIX hosts.
 
    The main equipment components that comprise the Company's network are as
follows:
 
    - Company-developed Automatic Call Distributors ("ACDs") which efficiently
      route incoming calls from the local exchange carriers in certain
      geographic areas served by the Company's network to available ports on the
      Company's network access controllers;
 
    - Network Access Controllers ("NACs") which convert the format of incoming
      calls into the X.25 data format used on the Company's backbone data
      communications network by its POS services customers;
 
    - Signal Transfer Points ("STPs") which are packet switches that provide
      routing and screening functions used for SS7 packet switching;
 
    - Company-developed network interface processors ("NIPs") which connect the
      Company's network to the customer's host computer. The NIPs provide many
      of the value-added features offered by the Company to its POS customers
      and are specifically designed to satisfy each customer's unique data
      communications requirements;
 
                                       9
<PAGE>
    - Security access routers deployed at customer subscriber sites which use
      sophisticated encryption and authorization technology to control access to
      the Company's TCP/IP network;
 
    - Company-developed PC-based computer systems which are used for network
      control and administration;
 
    - Company-developed micro-STPs ("mSTPs") which serve as SS7 link
      concentrators.
 
    The X.25 and SS7 packet switching devices together with leased digital
transmission lines and circuit management equipment form the backbone data
communications network that the Company utilizes for X.25 and SS7 packet
switching. This backbone network provides circuit redundancy, automatic circuit
reconnection, dynamic rerouting and several levels of traffic priority.
 
    The Company houses its ACDs, NACs, integrated packet-circuit switches and
TCP/IP routers in over 40 point-of-presence facilities ("POPs") located
throughout the U.S and in the countries where the Company has international
operations. These facilities are either owned and maintained by the Company's
several telecommunications circuit providers or are leased by the Company. The
facilities provide environments comparable to public telephone company
facilities, with battery back-up and emergency generator power systems. The
Company coordinates the physical routing of circuits with its digital
telecommunications circuit suppliers in order to ensure diverse paths for its
network and thereby increase network reliability. Company personnel work with
interexchange carriers and local exchange carriers to order and coordinate the
acquisition of leased digital transmission circuits and local access service.
 
    NETWORK OPERATIONS
 
    The Company provides 24-hour, seven days a week network control coverage
through its primary network control center located in Reston, Virginia. The
Company also maintains a network control center in Ft. Lauderdale, Florida,
which serves as the backup network control center. The major equipment
components of the network have their own monitoring and control systems, or
network management systems, which allow network technicians to control the
equipment and troubleshoot hardware, software or circuit problems. These network
management systems allow Company technicians not only to react to problems but
also to be proactive in the maintenance of the various network components.
 
    The Company maintains multiple remote PC-based computer systems with
proprietary software to collect accounting information. These systems provide
for subsequent file transfer procedures to move the data to the Company's
primary network control center. Should an interruption occur at the Company's
primary network control center, these remote accounting collection processors
would still record network billing data.
 
    Because of the redundancy of network components and because the equipment is
located primarily at manned facilities, minor problems do not require the
immediate intervention of a Company technician. Most problems can be
independently identified and corrected remotely by the Company's technicians or
by coordinating activities with on-site telecommunications services providers or
customer personnel.
 
    NETWORK ENGINEERING AND DEVELOPMENT
 
    The Company's network incorporates several proprietary features that, the
Company believes, address the particular needs of its customers and distinguish
its services and performance from its competitors. Value-added features provided
by the Company include:
 
    - Multiple network protocol and message format support and conversion, which
      makes costly POS terminal and customer host computer re-programming,
      network enhancements and software upgrades unnecessary;
 
    - Real-time call tracking, which allows for fast resolution of host,
      terminal or network problems and which facilitates proactive Company input
      and suggestions for the overall improvement of customers' systems;
 
                                       10
<PAGE>
    - Secure, independent IP services which provide a high-performance,
      cost-effective data transport solution for brokerage firms and financial
      institutions;
 
    - Telecommunications and processing expertise to assist customers in solving
      networking and processing issues.
 
    All of these value-added features are incorporated in software that is
primarily developed internally or, in certain cases, written by vendors to
Company specifications. The Company believes that these features allow
customers' host computers to process a greater volume of transactions than by
using alternative dial-up network providers, and thus increase the capacity of
the most expensive capital item in many customers' operations.
 
    The Company acts as a systems integrator by incorporating off-the-shelf
components and the Company's internally developed software applications into an
industrial grade PC chassis. The Company's systems development department
developed the NAC, ACD, NIP, a message switch, the real-time accounting
collector, the network management system and the mSTP, which are deployed in the
Company's network.
 
    The equipment and software applications used in the TNS network, whether
developed internally or by outside vendors, are subjected to rigorous quality
assurance testing and certified for use by the Company's network engineering
department prior to their deployment. The network engineering department is
responsible for the overall system integrity and capacity of the Company's
network design.
 
CUSTOMERS
 
    The Company's major customers are primarily third party POS transaction
processors. Other customers include regional debit card processors, healthcare
eligibility processors, electronic benefits transfer processors, ATM transaction
processors, long distance telephone companies, operator services providers,
information services providers, private pay telephone companies, financial
institutions, and brokerage firms.
 
    Sales to First Data Corporation, National Data Corporation and its
affiliated entities, Electronic Payment Systems, Inc., Alliance Data Systems,
and Paymentech, Inc., including revenues from these customers associated with
the TAS transaction, accounted for approximately 16%, 9%, 9%, 5% and 5%
respectively, of the Company's total revenues for the year ended December 31,
1998. Many of the Company's major customers use other network service providers
for some portion of their total transaction processing traffic. The Company,
including contracts acquired in the TAS transaction, has multi-year contracts
with minimum monthly commitments from all five of its largest customers. These
contracts expire between August 1999 and May 2002. The loss of any of these
customers would have a material adverse impact on the Company. There can be no
assurance that these contracts will be renewed.
 
    Certain of the Company's telecommunications services customers have long
term contracts while others have extended beyond their contract term or do not
have long term contracts. Many of the Company's telecommunications services
customers have limited resources. Accordingly, revenues from these customers are
subject to a higher degree of credit risk than is the case for the Company's POS
services customers. Management believes the Company is adequately reserved for
the credit risk associated with this customer base.
 
SALES AND MARKETING
 
    POS SERVICES
 
    The Company markets its TransXpress-Registered Trademark- network services
directly to third party POS transaction processors, who in turn resell the
Company's TransXpress-Registered Trademark- network services as a part of the
processors' own services, and to other transaction processing customers through
its POS sales representatives. The market for third party POS transaction
processing is highly concentrated. Consequently, the Company has been able to
sustain a successful marketing effort within the POS transaction processing
industry with a relatively small sales force and has been able to establish high
level contacts with all of its customers and many of its potential customers.
The POS transaction processing industry is extremely competitive, and large
merchant retailers and certain
 
                                       11
<PAGE>
merchant banks have significant influence over third party POS transaction
processors in their choice of network alternatives. Thus, the Company believes
that greater industry awareness of the advantages of the Company's
TransXpress-Registered Trademark- network services will result in greater
customer pressure on third party POS transaction processors to choose the
Company over alternative network services. In connection with the TAS
acquisition, the Company entered into a customer referral arrangement with AT&T.
Under the referral arrangement the Company has agreed to compensate AT&T based
upon future revenues generated by referrals of sales prospects to the Company by
AT&T.
 
    TELECOM SERVICES
 
    The Company markets its CARD*TEL-Registered Trademark- telecommunications
services, SS7 network services, Local Number Portability Services, LEConnect
Data Services-Registered Trademark-, and DAC Service, to the telecommunications
industry both directly through its Telecom Services Division sales
representatives and also through telecommunications services resellers. The
market for these services is broad and consists of a wide variety of
telecommunications companies, such as interexchange carriers, operator services
providers, information services providers and private pay telephone companies.
 
    FINANCIAL SERVICES
 
    The Company markets its FastLink-Registered Trademark- Data Service and the
service offerings acquired in the acquisition of Transline, to the financial
services industry both directly through its Financial Services Division sales
representatives as well as through specific arrangements with third party
service providers who already maintain relationships with potential customers.
The market for these services consists primarily of the securities trading
groups within brokerage firms and financial institutions. In its marketing
efforts, the Company emphasizes the fact that its FastLink-Registered Trademark-
Data Service and Transline services are independent service offerings focused
upon the financial services industry and unbundled from additional application
services such as proprietary news and information services.
 
    INTERNATIONAL SERVICES
 
    The Company markets its international products and services in Europe
directly through TNSL and TNUK. The Company is marketing its international
products and services in Canada, the United Kingdom and other regions either
directly through its own sales personnel or through the use of consulting firms.
The Company seeks expansion into global markets where there is, or soon will be,
an open, deregulated and competitive telecommunications environment and where
the marketplace for the Company's services includes multiple transaction
processing companies. The Company has identified pilot customers in certain
countries in which it expects to first offer its services in 1999, including
Asia, Australia, the Caribbean and additional European countries.
 
COMPETITION
 
    POS SERVICES
 
    The Company's POS Division competes on the basis of price, transaction
speed, network service quality and reliability, value-added features, customer
support, and industry knowledge. The Company's management believes that it has
developed both a technical leadership and industry expertise within the POS
transaction processing industry which will allow it to maintain its current and
acquired customer base as well as to continue to attract new customers during
the foreseeable future.
 
    The POS transaction network services market is highly competitive. The
Company's competitors include public data networks, major interexchange carriers
and customers who may elect to perform network services in-house. Several of
these competitors have, or may, introduce new products competitive with those of
the Company. Increased competition to date has resulted in price reductions and
reduced margins. Continuing competition may result in additional price
reductions, reduced margins and loss of market share, all of which
 
                                       12
<PAGE>
could materially and adversely affect the Company's business, operating results
and financial condition. Many of the Company's current and potential competitors
have significantly greater financial, technical, marketing, and other resources
than the Company. As the POS transaction network services market continues to
grow, the Company's competitors may devote greater resources to the development
and marketing of new competitive services and the marketing of existing
competitive services.
 
    The Telecommunications Act of 1996 removed current restrictions on the
ability of the regional Bell operating companies to provide inter-LATA enhanced
services, specifically including credit card verification services. Under the
legislation, the regional Bell operating companies ultimately will be permitted
to provide inter-LATA long distance telecommunications, out-of-region
immediately and in-region after satisfaction of certain network unbundling and
related requirements. As a result, TNS and its telecommunications services
customers likely will face additional competition.
 
    AT&T, Sprint, MCI/Worldcom, CompuServe and other companies market their own
"950" and/or "800" services. While these companies may be able to procure their
services at the same or lower prices than the Company, the Company believes that
it maintains several network and market advantages, including the speed provided
by the Company's proprietary routing technology and the value-added features
provided by the TNS network. In connection with the TAS acquisition the Company
entered into a limited non-competition agreement with AT&T whereby AT&T agreed
not to solicit the TAS customers to provide substantially similar services for a
period ending nine months after the term of each customer contract.
 
    Local exchange carriers are currently deploying SS7, which will improve the
connection time for "800" service. Competitors to the Company including AT&T
have begun offering "800" services that implement SS7 capabilities. The Company
has begun to deploy its own SS7 capability for POS transactions. Once SS7 is
fully deployed throughout the country, the Company will be able to improve its
call set-up times on "800" for those customers for whom the additional cost of
"800" service is warranted.
 
    Other organizations offer alternative technologies to transmit POS
transactions. Currently, transmission mediums such as satellite (VSAT) and
digital and cellular radio are being used in some form to complete POS
transactions. All of these technologies are viable, but at this time,
comparatively expensive and limited in their coverage and capabilities. While
there exist smaller applications for these technologies, the Company believes
that the high costs involved in operating and installing these technologies will
limit their growth.
 
    Another source of competition faced by the Company is the potential for
third party POS transaction processors to develop or utilize their own private
networks. Some of the major processors have the transaction volume necessary to
justify the cost of building their own private networks or utilizing their
existing networks in certain metropolitan areas. Several of the Company's
customers operate their own networks in some cities. The continued growth of
private networks by the larger third party POS transaction processors could
divert transaction volume away from the Company's network. However, these
private networks can only be justified in areas of highly concentrated
transaction volumes, and the industry trend has been the increased outsourcing
of network services to providers like TNS in order to allow processors to focus
on their core businesses. Furthermore, the pricing schedules of certain of the
Company's service contracts require increasing volume commitments from customers
as a condition of maintaining certain price per transaction levels. As a result,
the Company believes that these contracts include a financial disincentive for
the movement by these customers of traffic from the Company's network to private
networks since this movement could result in these customers paying a higher
rate for their remaining traffic.
 
    TELECOM SERVICES
 
    The Company's Telecom Services Division competes on the basis of price,
value-added database services such as its fraud control system, superior
technology, network service quality and reliability, customer support, and
industry expertise. Major competitors to the Company's
CARD*TEL-Registered Trademark- and SS7 network telecommunications services
include GTE Intelligent Network ("GTE"), and The Southern New England Telephone
Company ("SNET") and Illuminet Holdings, Inc., formerly known as Independent
Telecommunications Network, Inc.
 
                                       13
<PAGE>
("ITN"). In addition, it is possible that larger interexchange carriers that
have or are currently developing their own SS7 connectivity into the LIDBs for
internal use may decide to resell these services. The Company believes that the
CARD*TEL-Registered Trademark- validation and fraud control technology is more
sophisticated and comprehensive than these competitors' technology. Another
source of competition faced by the Company is the potential for certain of its
larger customers to develop or utilize their own fraud control systems.
 
    FINANCIAL SERVICES
 
    The Company's Financial Services Division competes on the basis of network
service quality, value-added features and emphasizes the fact that its FSD
services are independent service offerings unbundled from traditional
application services such as news and information services. The Company believes
that some of the FSD major competitors include IXnet, Thomson Financial
Services, Bridge Systems, and Trinitech Systems, Inc. which provide
communications, proprietary news and/or information services to the financial
services industry.
 
    INTERNATIONAL SERVICES
 
    The International Systems Division competes for market share based on the
following variables: price, transaction speed, network service quality and
reliability, value-added features, customer support and industry knowledge. The
Company's primary competition in the international markets is the existing
telecommunications infrastructure of the transaction processors that often
include the major telecommunication carriers. The International Systems Division
strategy has been to enter a foreign market through either a partnership
agreement with a local company or through the creation of a majority-owned
subsidiary. The Company's management believes that it has developed both a
technical leadership and expertise within the transaction processing industry
that can be exported to emerging overseas markets.
 
GOVERNMENT REGULATION
 
    Although the FCC retains general regulatory jurisdiction over the Company's
sale of interstate services, the Company, as a provider of enhanced
communications services, is not required to maintain a certificate of public
convenience and necessity with the FCC or to file tariffs with the FCC covering
its services. State regulators may regulate purely intrastate enhanced services
and may regulate mixed intrastate/interstate enhanced services to the extent
their regulation does not impede federal policies. The Company does not believe
that it currently is subject to state regulations for its existing services, and
believes that even if subjected to state regulation the Company could obtain all
necessary approvals. FCC and state regulations can affect the costs of business
for the Company and its competitors by changing the rate structure for access
services purchased from the local exchange carriers to originate and terminate
calls.
 
    In May 1997, pursuant to the Telecommunications Act of 1996 (the "1996
Act"), the FCC implemented rules and regulations referred to as Access Charge
Reform ("Access Reform"). Access Reform seeks to reform the system of interstate
access charges and make it compatible with the competitive paradigm established
by the 1996 Act. The initial phase of Access Reform was implemented in July
1997. The initial phase of Access Reform resulted in a decrease in certain
components of the Company's variable cost per transaction, and as a result,
lowered the Company's network costs. The second and third phases of Access
Reform were implemented in January and July 1998, respectively. These phases of
Access Reform resulted in an additional decrease in certain components of the
Company's variable cost per transaction; however, they increased certain of the
Company's fixed monthly recurring charges and instituted certain new fixed
charges. The changes in access charges instituted by the third phase of Access
Reform resulted in an increase in fixed charges which more than offset the
reduction in variable costs per transaction. Further changes to access charges
due to Access Reform are scheduled to be implemented in 1999 and 2000. The
Company believes that future revisions may reduce its network costs because the
Company believes the increased charges are not in accordance with the spirit of
Access Reform that is intended to reduce overall access charges. However, there
can be no assurance that the
 
                                       14
<PAGE>
future phases of Access Reform will result in reductions to the Company's
network costs and, in fact, they may increase.
 
    In addition, through certain recent acquisitions, subsidiaries of the
Company provide services to markets that involve the provision of voice-grade or
data common carrier telecommunications services. Accordingly, these subsidiaries
are required to comply with applicable FCC and/or state regulations. These
regulations can affect the costs of the impacted businesses of the Company. The
Company believes that these subsidiaries comply with such regulations in all
material respects.
 
PROPRIETARY RIGHTS
 
    The Company's success is heavily dependent upon its proprietary technology.
The Company relies principally upon trade secret and copyright law to protect
its proprietary technology, including a copyright on the
CARD*TEL-Registered Trademark- fraud control software. The Company enters into
confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to and distribution of its
software, documentation and other proprietary information. There can be no
assurance that these measures will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States.
 
    The Company is subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights. There can be no assurance that
third parties will not assert infringement claims in the future with respect to
the Company's current or future products or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation. While the Company believes that it currently has all licenses
necessary to conduct its business, no assurance can be given that additional
licenses will not be required in the future. Furthermore, no assurance can be
given that, if any additional licenses are required, such licenses could be
obtained on commercially reasonable terms.
 
    Although the Company continues to implement protective measures and intends
to vigorously defend its proprietary rights, there can be no assurance that
these measures will be successful. The Company believes, however, that because
of the rapid pace of technological change in the data communications industry,
the legal protections for its products are less significant factors in the
Company's success than the knowledge, ability and experience of the Company's
employees and the timeliness and quality of services provided by the Company.
 
EMPLOYEES
 
    As of December 31, 1998, the Company employed 221 persons worldwide, of whom
153 were engaged in systems operation, development and maintenance and 68 were
engaged in sales, finance, management and administration. None of the Company's
employees is currently represented by a labor union. The Company has not
experienced any work stoppages and considers its relationship with its employees
to be good.
 
RISK FACTORS
 
    INTEGRATION OF TAS BUSINESS.  In September 1998, TNS acquired from AT&T the
right to provide services under certain customer service contracts relating to
AT&T's Transaction Access Service ("TAS"). In connection with this transaction,
TNS also entered into a communication services agreement with AT&T (the
"Communication Services Agreement") under which TNS agreed to purchase a minimum
of $10 million in communications services per year from AT&T during the two-year
period beginning February 1, 1999.
 
    Under the Asset Purchase Agreement, TNS entered into an arrangement where
TNS purchases transitional communication services and other transitional
services (including network operation, engineering support and billing services)
from AT&T (the "Transition Services"), until the TAS customers are migrated from
the TAS network to TNS's network. The pricing for Transition Services will
determine TNS's cost per transaction until
 
                                       15
<PAGE>
the associated TAS transactions are migrated from the TAS network and onto TNS's
network. These rates increase at periods specified in the Asset Purchase
Agreement and are greater than the rates TNS separately negotiated with AT&T
under the Communication Services Agreement, the rates the Company has contracted
with other vendors, and the rates incurred when utilizing TNS's own network. TNS
believes that it will experience a cost of network services above historical
levels while these transactions remain on the TAS network and TNS continues to
incur communication costs at these transitional rates. Once the TAS customers
are transitioned off of the TAS network and onto TNS's network, the cost per
transaction for the TAS contracts will be determined by the communication rates
included in the Communication Services Agreement with AT&T, TNS's service
agreements with other vendors, and the costs associated with TNS's own network
depending upon which network is utilized to carry the transaction. There are
significant uncertainties with respect to this transaction and the ultimate
impact of the transitional rates for communications and other services is
dependent upon many variables including: (a) TNS's ability to successfully
transition the TAS customers from the TAS network to its network facilities and
realize planned synergies; (b) capacity on TNS's network and TNS' ability to
quickly attain the necessary increased capacity; (c) customer cooperation and
retention; (d) successful testing and implementation of certain transaction
protocols not previously carried by TNS's network; and (e) the extent to which
the TAS business will meet TNS's expectations and operate profitably. There can
be no assurance that one or more of these uncertainties will not have a material
adverse effect on TNS's business and financial results.
 
    RELIANCE ON MAJOR CUSTOMERS.  For the year ended December 31, 1998
approximately 44% of TNS's total revenues were derived from five major
customers. The loss of any one or more of these customers would have a material
adverse effect on TNS. TNS has multi-year contracts with these customers that
expire between August 1999 and May 2002. There can be no assurance that these
contracts will be renewed.
 
    DEPENDENCE ON MARKET EXPANSION AND ON EXPANSION INTO NEW MARKETS.  Although
TNS has grown rapidly since becoming operational in June 1991, its future growth
and profitability will depend, in part, upon the further expansion of the
Point-of-Sale/Point-of-Service ("POS") transaction network services market, the
telecommunications services market, the financial services industry, the
emergence of other markets for electronic transaction network services, services
for ATM processing, healthcare claims processing and electronic benefits
transfer, and TNS's ability to penetrate these other markets both domestically
and internationally. Further market expansion is dependent upon the continued
growth in the number of transactions and the continued automation of traditional
paper-based processing systems. There can be no assurance that markets for TNS's
network and telecommunications services will continue to expand and develop or
that TNS will be successful in its efforts to penetrate new markets.
 
    COMPETITION.  The POS transaction network services market and the
telecommunications services market are highly competitive, and TNS expects
competition in each of these businesses to increase. TNS's competitors include
public data networks and major interexchange carriers such as MCI/WorldCom,
Sprint and AT&T. Several of these competitors have recently introduced new
products competitive with those of TNS. Increased competition could result in
price reductions, reduced margins and loss of market share, all of which could
materially and adversely affect TNS's business, operating results and financial
condition. Many of TNS's current and potential competitors have significantly
greater financial, technical, marketing and other resources than TNS. As the POS
transaction network services market and the telecommunications services market
continue to grow, TNS's competitors may devote greater resources to the
development and marketing of new competitive services and the marketing of
existing competitive services. Recent federal legislation relaxes current
regulations that restrict the regional Bell operating companies from competing
in this industry. There can be no assurance that TNS will be able to compete
successfully with existing or new competitors or that competitive pressure faced
by TNS will not materially and adversely affect its business, operating results
and financial condition.
 
    TECHNOLOGICAL CHANGE AND NEED TO DEVELOP NEW SERVICES.  The markets for
TNS's services are characterized by rapidly changing technology and frequent new
service offerings. The introduction of services utilizing new technologies can
render existing services obsolete or unmarketable. TNS's continued success will
depend
 
                                       16
<PAGE>
on its ability to enhance its existing services and to develop and introduce, on
a timely and cost-effective basis, new services that keep pace with
technological developments and address increasingly sophisticated customer
requirements. There can be no assurance that TNS will be successful in
identifying, developing and marketing service enhancements or new services that
respond to technological change, that TNS will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
service enhancements or new services, or that its service enhancements and new
services will adequately meet the requirements of the marketplace and achieve
market acceptance. TNS's business, operating results and financial condition
could be materially and adversely affected if TNS were to incur delays in
developing service enhancements or new services or if such service enhancements
or new services were to not gain market acceptance.
 
    DEPENDENCE ON KEY PERSONNEL.  TNS's success depends to a significant extent
upon a number of key technical and management employees, including its President
and Chief Executive Officer, John J. McDonnell, Jr. The loss of the services of
any of TNS's key employees could have a material adverse effect on TNS. TNS
maintains a $1 million key-man life insurance policy on the life of Mr. John J.
McDonnell, Jr. Employees generally do not enter into non-competition agreements
with TNS, but every employee enters into a confidentiality agreement. TNS's
success also depends in large part upon its ability to attract and retain
highly-skilled managerial, sales and marketing personnel, and TNS believes that
it will need to hire additional technical personnel in order to enhance its
existing services and to develop new services. However, competition for highly
skilled technical, managerial, sales and marketing personnel is intense, and if
TNS is unable to hire the necessary personnel, the development of service
enhancements and new services would likely be delayed or prevented. Furthermore,
certain of TNS's senior management personnel have recently joined TNS. There can
be no assurance that TNS will be successful in retaining its key personnel and
in attracting and retaining the personnel it requires to continue its growth
strategy.
 
    DEPENDENCE ON PROPRIETARY RIGHTS.  TNS's success is heavily dependent upon
its proprietary technology. TNS relies principally upon trade secret and
copyright law to protect its proprietary technology. TNS enters into
confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to and distribution of its
software, documentation or other proprietary information. There can be no
assurance that these measures will be adequate to prevent misappropriation of
its technology or that TNS's competitors will not independently develop
technologies that are substantially equivalent or superior to TNS's technology.
In addition, the laws of some foreign countries do not protect TNS's proprietary
rights to the same extent as do the laws of the United States. TNS is subject to
the risk of adverse claims and litigation alleging infringement of intellectual
property rights. There can be no assurance that third parties will not assert
infringement claims in the future with respect to TNS's current or future
services or that any such claims will not require TNS to enter into royalty
arrangements or result in costly litigation. While TNS believes that it
currently has all licenses necessary to conduct its business, no assurance can
be given that additional licenses will not be required in the future.
Furthermore, no assurance can be given that, if any additional licenses are
required, such licenses could be obtained on commercially reasonable terms.
 
    DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS AND ABSENCE OF SUPPLY
CONTRACTS.  Certain key components used in TNS's network are currently available
only from limited sources. TNS does not have long-term supply contracts with
these or any other limited source vendors and purchases this network equipment
on a purchase order basis. The inability to obtain sufficient quantities of
limited source equipment as required, or to develop alternative sources as
required in the future, could result in delays or reductions in TNS's
development and deployment of network equipment, which could adversely affect
TNS's business, operating results and financial condition.
 
    GOVERNMENT REGULATION.  Although the FCC retains general regulatory
jurisdiction over TNS's sale of interstate services, TNS, as a provider of
enhanced communications services, is not required to maintain a certificate of
public convenience and necessity with the FCC or to file tariffs with the FCC
covering its services. State regulators may regulate purely intrastate enhanced
services and may regulate mixed intrastate/interstate
 
                                       17
<PAGE>
enhanced services to the extent their regulation does not impede federal
policies. With the exception of certain carrier related services, TNS is not
currently subject to any state regulation for its existing services but believes
that even if subjected to state regulation TNS could obtain all necessary
approvals. However, FCC and state regulations can affect the costs of business
for TNS and its competitors by changing the rate structure for access services
purchased from local exchange carriers to originate and terminate calls.
 
    Pursuant to the 1996 Act, the FCC instituted a rulemaking Access Reform that
seeks to reform the current system of interstate access charges. The initial
phase of Access Reform was implemented in July 1997. The initial phase of Access
Reform resulted in a decrease in certain components of TNS's variable cost per
transaction and as a result, lowered its network costs. The second and third
phase of Access Reform took place in January and July 1998 and resulted in an
additional decrease in certain components of TNS's variable cost per
transaction; however, both phases increased certain of TNS's fixed monthly
recurring charges and instituted certain new fixed monthly recurring charges.
The changes in access charges instituted by the third phase of Access Reform
resulted in an increase in fixed charges that more than offset the reduction in
variable costs per transaction. Further changes to access charges due to Access
Reform are scheduled to be implemented in 1999 and 2000.
 
    TNS believes that future revisions may reduce its network costs because TNS
believes that the increased charges are not in accordance with the spirit of
Access Reform, which is intended to reduce overall access charges. However,
there can be no assurance that the future phases of Access Reform will result in
reductions to TNS's network costs and, in fact, they may increase network costs.
 
    The 1996 Act also removes current restrictions on the ability of the
regional Bell operating companies to provide inter-LATA enhanced services,
specifically including credit card verification services. Under the legislation,
the regional Bell operating companies ultimately will be permitted to provide
inter-LATA long distance telecommunications, out-of-region immediately and
in-region after satisfaction of certain network unbundling and related
requirements. As a result, TNS and its telecommunications services customers
likely will face additional competition. In addition, TNS is considering an
expansion of its services into markets that may involve the provision of
voice-grade or data common carrier telecommunications services. To the extent
that TNS enters into any such service offerings, it will be required to comply
with applicable FCC and/or state authorization and tariffing regulations.
 
    SEASONALITY AND POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS.  Merchant
credit card transactions account for a major percentage of the transaction
volume processed by TNS's customers. The volume of such transactions on TNS's
network is expected to be greater in the fourth quarter holiday season that
during the rest of the year. Consequently, revenues and earnings from merchant
credit card transactions in the first quarter generally are expected to be lower
than revenues and earnings from merchant credit card transactions in the fourth
quarter of the immediately preceding year. Although the financial services,
healthcare claims processing and electronic benefits transfer markets, as well
as other potential markets targeted by TNS for future expansion, are anticipated
to be less seasonal, TNS expects that its operating results in the foreseeable
future will be significantly affected by seasonal trends in its merchant credit
card transaction market. Quarterly results can be affected by a number of
factors, including costs incurred for network expansion, the impact of Access
Reform on network costs, general economic conditions, acquisitions, weather and
changes in pricing policy by TNS and its competitors.
 
    MANAGEMENT OF GROWTH.  TNS is currently experiencing a period of rapid
growth and expansion. Certain of TNS's key employees have not had experience in
managing companies of TNS's size or larger. In addition, certain of TNS's senior
management personnel have recently joined TNS. TNS's ability to manage growth
successfully will require TNS to continue to improve its operational, management
and financial systems and controls. If TNS's management is unable to manage
growth effectively, TNS's business, results of operations and financial
condition could be materially and adversely affected.
 
                                       18
<PAGE>
    YEAR 2000 ISSUE.  No one knows the extent of the potential impact of the
Year 2000 issue generally, and TNS cannot predict the likelihood that Year 2000
issues will cause a significant disruption in TNS's business, or in the economy
as a whole.
 
    POSSIBLE VOLATILITY OF STOCK PRICE.  Future announcements concerning TNS or
its competitors, quarterly variations in operating results, technological
innovations, the introduction of new services or changes in pricing policies by
TNS or its competitors, proprietary rights or changes in earning estimates by
analysts, among other factors, could cause the market price of the TNS Common
Stock to fluctuate substantially. In addition, stock prices for many technology
companies fluctuate widely for reasons which may be unrelated to operating
results. These fluctuations, as well as general economic, political and market
conditions, such as recessions or military conflicts, may materially and
adversely affect the market price of the TNS Common Stock.
 
    EFFECT OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS.  Certain provisions
of Delaware law and of TNS's Certificate of Incorporation could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of TNS. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of TNS Common Stock. Certain of these provisions could make it more
difficult for stockholders to effect certain corporate actions or could also
have the effect of delaying or preventing a change in control of TNS.
 
ITEM 2. PROPERTIES
 
    The Company's principal executive offices and primary network control center
are located in Reston, Virginia and consist of approximately 44,500 square feet
of office space near Dulles International Airport under a lease expiring in
February 2008. The Company maintains additional office space as well as its
backup network control center in facilities located in Ft. Lauderdale, Florida,
consisting of approximately 4,600 square feet under a lease expiring in
September 1999. The Company's European technology and marketing center (TNSL) is
located in Dublin, Ireland and consists of approximately 14,500 square feet of
office space under a lease expiring in January 2022. The Company subleases a
significant portion of this office space to unaffiliated third parties. TNSUK's
headquarters and network control center are located in Sheffield, England and
consist of approximately 1,800 square feet of office space under a lease
expiring in August 2007. Transline's headquarters and network control center
which is located in Prairie View, Kansas consists of approximately 940 square
feet of office space under a lease expiring in September 2000. In connection
with the OmniLink acquisition the Company assumed the lease for the OmniLink
facility. This office space is located in Lansing, Michigan and includes 9,900
square feet of office space under a lease expiring in February 2000. The Company
also leases and occupies regional sales offices in various cities. The Company
houses its remote network switching equipment both in facilities owned and
maintained by certain of the Company's digital telecommunications circuit
providers and also in its own "point-of-presence" facilities, or "POPs," located
in various cities pursuant to leases with unaffiliated third parties. These
leases total approximately 14,765 square feet and expire on dates ranging from
April 1999 to January 2007. All of the Company's leases are with unaffiliated
third parties. The Company believes that its existing and planned facilities are
adequate to meet current requirements and that suitable additional space will be
available as needed to accommodate the expansion of its operations and
development.
 
ITEM 3. LEGAL PROCEEDINGS
 
    None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
                                       19
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The Company's Common Stock trades on The NASDAQ Stock Market ("NASDAQ")
under the symbol "TNSI". The following table reflects the range of high and low
closing prices for each period indicated as reported by NASDAQ. This table
reflects inter-dealer prices, without retail mark-up, mark-down or commission.
 
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1998                                                                HIGH        LOW
-----------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                              <C>        <C>
First quarter ended March 31, 1998.............................................................  $   21.75  $   16.00
Second quarter ended June 30, 1998.............................................................  $   24.00  $   15.06
Third quarter ended September 30, 1998.........................................................  $   33.75  $   14.00
Fourth quarter ended December 31, 1998.........................................................  $   32.25  $   12.00
</TABLE>
 
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997                                                                HIGH        LOW
-----------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                              <C>        <C>
First quarter ended March 31, 1997.............................................................  $   14.63  $    9.63
Second quarter ended June 30, 1997.............................................................  $   16.50  $    9.88
Third quarter ended September 30, 1997.........................................................  $   18.38  $   13.00
Fourth quarter ended December 31, 1997.........................................................  $   22.50  $   15.13
</TABLE>
 
    As of March 1, 1999, there were 106 stockholders of record of the Company's
Common Stock, excluding shares held in street name by various brokerage firms.
The Company estimates that there are approximately 2,200 beneficial owners of
the Company's Common Stock.
 
    The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings for future growth
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. Under the Company's Credit Agreement, the Company is subject to
restrictions on paying dividends.
 
                                       20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
    The selected financial data for each of the three years ended December 31,
1998 and as of December 31, 1998 and 1997 have been derived from the Company's
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K which have been audited by Arthur Andersen LLP, independent public
accountants, whose report thereon is also included elsewhere in this report. The
selected financial data for the years ended December 31, 1995 and 1994, and as
of December 31, 1996, 1995, and 1994 have been derived from the consolidated
audited financial statements of the Company not included in this Annual Report
on Form 10-K. No dividends have been paid on the Common Stock in any of the
periods shown. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K.
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                            ------------------------------------------------------
                                                             1998(2)      1997       1996       1995      1994(1)
                                                            ----------  ---------  ---------  ---------  ---------
<S>                                                         <C>         <C>        <C>        <C>        <C>
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA AND TRANSACTION
                                                                                    DATA)
  STATEMENT OF OPERATIONS DATA:
  Revenues................................................  $  101,906  $  63,344  $  52,291  $  41,365  $  26,526
  Cost of network services................................      62,796     35,322     28,771     21,819     14,200
                                                            ----------  ---------  ---------  ---------  ---------
  Gross profit............................................      39,110     28,022     23,520     19,546     12,326
                                                            ----------  ---------  ---------  ---------  ---------
  Other operating expenses:
    Engineering & development.............................       5,565      3,431      2,692      2,241      1,575
    Selling, general & administrative.....................      12,474      7,941      7,491      5,697      3,842
    Depreciation..........................................       6,693      4,793      4,068      3,081      1,830
    Amortization of intangibles...........................       4,090      1,570      1,485      1,138        566
                                                            ----------  ---------  ---------  ---------  ---------
      Total other operating expenses......................      28,822     17,735     15,736     12,157      7,813
                                                            ----------  ---------  ---------  ---------  ---------
  Income from operations..................................      10,288     10,287      7,784      7,389      4,513
  Interest income, net....................................         327      1,939      1,670        918        220
                                                            ----------  ---------  ---------  ---------  ---------
  Income before income taxes..............................      10,615     12,226      9,454      8,307      4,733
  Provision for income taxes..............................       4,425      4,840      3,640      3,157      1,491
  Equity in earnings of unconsolidated affiliate..........         356         --         --         --         --
  Minority interest in net loss of consolidated
    subsidiary............................................         319         --         --         --         --
                                                            ----------  ---------  ---------  ---------  ---------
  Net income..............................................  $    6,865  $   7,386  $   5,814  $   5,150  $   3,242
                                                            ----------  ---------  ---------  ---------  ---------
                                                            ----------  ---------  ---------  ---------  ---------
  Diluted earnings per common share.......................  $     0.52  $    0.59  $    0.46  $    0.45  $    0.33
                                                            ----------  ---------  ---------  ---------  ---------
                                                            ----------  ---------  ---------  ---------  ---------
  Weighted average shares--diluted........................      13,279     12,619     12,591     11,534      9,947
                                                            ----------  ---------  ---------  ---------  ---------
                                                            ----------  ---------  ---------  ---------  ---------
POS TRANSACTION VOLUME (IN MILLIONS)......................       3,696      2,386      1,900      1,218        824
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 1998       1997       1996       1995       1994
                                                               ---------  ---------  ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
  Cash and cash equivalents..................................  $  12,339  $  18,516  $  14,735  $  18,681  $   7,313
  Working capital............................................     21,212     33,230     34,851     25,779      7,749
  Total assets...............................................    174,859     76,109     68,551     61,348     30,835
  Long term debt.............................................     59,325         --         --         --         18
  Total stockholders' equity.................................     84,177     68,475     62,191     54,593     24,733
</TABLE>
 
------------------------
(1) Includes the results of Fortune Telecommunications, Inc. from June 6, 1994,
    the closing date of its acquisition by the Company, through December 31,
    1994.
 
(2) Includes the results of the Company's Suntech, OmniLink and TAS acquisitions
    from the closing dates of February 27, 1998, July 1, 1998 and September 10,
    1998, respectively.
 
                                       21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
FORWARD LOOKING STATEMENTS
 
    Certain information included in this document may be deemed to be "forward
looking statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. All statements, other than
statements of historical facts, that address activities, events or developments
that the Company intends, expects, projects, believes or anticipates will or may
occur in the future are forward looking statements. Such statements are
characterized by terminology such as "believe," "anticipate," "should,"
"intend," "plan," "will," "expects," "estimates," "projects," "positioned,"
"strategy," and similar expressions. These statements are based on assumptions
and assessments made by the Company's management in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes to be appropriate. These forward
looking statements are subject to a number of risks and uncertainties, including
but not limited to, continuation of the Company's long standing relationships
with major customers and vendors, the Company's ability to integrate acquired
businesses and purchased assets into its operations and realize planned
synergies, the extent to which acquired businesses and assets are able to meet
the Company's expectations and operate profitably, technological and customer
related issues associated with the migration of acquired businesses to the
Company's networks, the impact of future revisions to the cost of the Company's
network services under the Telecommunications Act of 1996, the impact of the
agreement with AT&T for providing communication and other services during the
transition of the TAS business to the Company's network, competition,
technological change, the ability to develop new services, dependence on
proprietary rights, dependence on key employees, changes in government
regulation, the impact of the Year 2000 issue, seasonality and fluctuations in
quarterly results. In addition, the Company is subject to risks and
uncertainties that affect the technology sector generally including, but not
limited to, economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices. Any
such forward looking statements are not guarantees of future performances and
actual results, developments and business decisions may differ from those
envisaged by such forward looking statements. The Company disclaims any duty to
update any forward-looking statements, all of which are expressly qualified by
the foregoing.
 
GENERAL OVERVIEW
 
    The Company operates four divisions: (1) the POS Division which includes the
Company's TransXpress-Registered Trademark- network services for the POS
transaction processing industry, (2) the Telecom Services Division ("TSD") which
includes FTI's CARD*TEL-Registered Trademark- telephone call billing validation
and fraud control services and other services targeting primarily the
telecommunications industry, (3) the Financial Services Division ("FSD") which
provides the TNS FastLink-Registered Trademark- Data Service in support of the
Financial Information eXchange ("FIX") messaging protocol and other
transaction-oriented trading applications primarily to the financial services
community, and (4) the International Systems Division ("ISD") which markets the
Company's products and services internationally.
 
    The Company achieved revenue per employee of approximately $533,000 in 1998
and $524,000 in 1997 on a weighted average employee basis.
 
POS SERVICES OVERVIEW
 
    The Company's POS services revenues are derived primarily from the
transmission through its network of transaction information between merchant or
service provider POS terminals and transaction-processing computer centers.
Revenues associated with the September 10, 1998 TAS acquisition were derived
from transactions carried on the TAS network which will continue until those
transactions are transitioned to the Company's network. The Company charges for
using its base POS services a set price per transaction and an additional
"excess seconds" charge for transactions which utilize the Company's network
facilities greater than a specified period of time. The TAS customer contracts
provide for a per call charge and fees based upon minutes of usage.
 
                                       22
<PAGE>
POS services revenue also includes other revenues composed primarily of fixed
monthly fees charged to customers for the use of digital transmission circuits.
 
    The Company's transaction volume and revenue growth to date has resulted
primarily from increasing the Company's transaction volumes from existing
customers, from attracting new customers to the TNS network, and from the TAS
acquisition. To a lesser extent, the Company has benefited from the growth in
electronic transaction processing markets. This growth has resulted primarily
from an increase in the number of credit and debit card transactions and growth
in the number of healthcare, ATM and EBT transactions.
 
TELECOM SERVICES OVERVIEW
 
    Telecommunications services revenue is derived primarily from providing
fraud control and billing validation services to telecommunications carriers.
Revenues from these activities are derived primarily from a per query fee
charged to the Company's customers for each processed fraud control and billing
validation query. Telecommunications services revenue also includes fixed
monthly fees charged to customers for the use of transmission circuits, network
equipment or access ports on the Company's computer and communications
facilities and revenues from the Company's SS7, LEConnect, DAC and LNP service
offerings.
 
    Customers for the Company's current telecommunications services primarily
include long-distance telephone carriers, operator services providers,
information services providers and private pay telephone companies. Management
believes it has substantially obtained the current available transaction volume
from existing customers. As a result, revenue growth will be dependent on the
ability to add new customers, transaction growth from existing customers through
their intrinsic growth and acquisitions, overall market growth, and the ability
to develop new services.
 
    TSD has grown through the addition of new customers, through the Company's
acquisition of contract rights and other intangible assets, through customers of
the Company's services acquiring customers who used another service provider,
and through the provision of new service offerings. Many of the Company's core
customers in the fraud control and billing validation services market have not
achieved growth rates comparable with those experienced by many of the Company's
POS customers, and in some cases have experienced erosion in call and query
volumes and revenues. The reduction in call and query volumes is primarily
related to so-called "dial-around", cellular, and pre-paid calling card services
which route telephone calls made from pay phones, hotel phones, or other public
use telephones to long distance carriers other than those chosen by the
telephone proprietor. These "dial-around" offerings effectively divert telephone
calls away from the Company's traditional customer base for fraud control and
billing validation services (primarily operator services providers and pay
telephone providers) to other telecommunications companies with proprietary
billing validation databases (in many cases MCI/Worldcom and AT&T).
 
    The Company has developed a dial-around compensation service offering for
both the payphone owners and carriers. While there can be no assurance of the
Company's success in new marketing efforts, the Company believes that this new
service will take advantage of the continuing trend toward the use of
"dial-around" services and may provide some offset to the impact of "dial
around" on the Company's telecommunications services.
 
FINANCIAL SERVICES OVERVIEW
 
    In March 1997, the Company announced the building of a new network- the
financial services network-- and a new product line--the TNS
FastLink-Registered Trademark- Data Service--offered by its Financial Services
Division. This new line of services offers a secure private Extranet for
executing securities trading orders electronically between brokerage firms and
financial institutions. The TNS FastLink-Registered Trademark- Data Service
routes FIX protocol messaging over a secure TCP/IP network--an IP backbone
network. FIX is an open communication messaging protocol that enables a
high-speed electronic exchange of trading information in a common language
between brokerages, institutions, and securities markets. The FIX protocol
facilitates the electronic communication of indications of interest, orders, and
execution reports that are normally exchanged by telephone between traders
 
                                       23
<PAGE>
or proprietary systems. The financial services network was engineered and
developed by the Company. TNS' FastLink-Registered Trademark- Data Service
revenue consists of a one-time installation fee and fixed monthly recurring
revenues thereafter based on the number of network connections. FSD customers
include numerous "buy-side" and "sell-side' financial institutions. The January
1999 Transline transaction enables the Company to offer its existing customers a
wider range of services and access to more international financial centers. The
Company also expects to benefit from the addition of new trading applications,
such as options and commodities, as an adjunct to the futures applications
currently transported over the financial services network.
 
INTERNATIONAL SERVICES OVERVIEW
 
    In June 1996, the Company formed TNSL, a majority-owned subsidiary. TNSL
provides POS network services in Ireland and serves as TNS' European technology
and marketing center to support current and future European operations. In
October 1997, through TNSL, the Company acquired a majority interest in TNSAB.
TNSAB operates as a TNS subsidiary located in Stockholm, Sweden. In April 1998
the Company, through TNSL, acquired a 50% interest Switchtran. Switchtran
provides processing services, primarily for cash withdrawals, for a network of
ATM's located throughout Ireland. In September 1998, the Company entered into a
60% owned joint named Transaction Network Services UK Limited ("TNSUK"). TNSUK
operates as a TNS subsidiary located in Sheffield, England. In November 1998,
the Company, through TNSL, formed TNSSA. TNSSA operates as a TNS subsidiary
located in Paris, France. TNSL, TNSAB, Switchtran, TNSUK and TNSSA utilize the
Company's network technology to provide POS and other transaction services in
their respective countries.
 
RESULTS OF OPERATIONS
 
    The following table sets forth the applicable percentage of total revenues
for the periods indicated.
 
<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                           -------------------------------
                                                                                             1998       1997       1996
                                                                                           ---------  ---------  ---------
<S>                                                                                        <C>        <C>        <C>
Revenues.................................................................................      100.0%     100.0%     100.0%
Cost of network services.................................................................       61.6       55.8       55.0
                                                                                           ---------  ---------  ---------
Gross profit.............................................................................       38.4       44.2       45.0
                                                                                           ---------  ---------  ---------
Other operating expenses:
  Engineering & development..............................................................        5.5        5.4        5.1
  Selling, general & administrative......................................................       12.2       12.5       14.3
  Depreciation...........................................................................        6.6        7.6        7.8
  Amortization of intangibles............................................................        4.0        2.5        2.8
                                                                                           ---------  ---------  ---------
    Total other operating expenses.......................................................       28.3       28.0       30.1
                                                                                           ---------  ---------  ---------
Income from operations...................................................................       10.1       16.2       14.9
Interest income, net.....................................................................        0.3        3.1        3.2
                                                                                           ---------  ---------  ---------
Income before provision for income taxes.................................................       10.4       19.3       18.1
Provision for income taxes...............................................................        4.3        7.6        7.0
Equity in earnings of unconsolidated affiliate...........................................        0.3         --         --
Minority interest in net loss of consolidated subsidiary.................................        0.3         --         --
                                                                                           ---------  ---------  ---------
    Net income...........................................................................        6.7%      11.7%      11.1%
                                                                                           ---------  ---------  ---------
                                                                                           ---------  ---------  ---------
</TABLE>
 
1998 COMPARED TO 1997
 
REVENUES
 
    Total revenues increased by 61% to $101,906,000 in 1998 from $63,344,000 in
1997.
 
                                       24
<PAGE>
    POS services revenue increased by 58% to $67,415,000 from $42,565,000 in
1997. The growth in POS services revenue resulted primarily from the transaction
volume and the $18.4 million of revenue associated with the September 10, 1998
TAS acquisition and an increase in transaction volume and associated revenue
from the Company's base POS customers. POS transaction volume increased by 54%
to 3.7 billion transactions in 1998 from 2.4 billion transactions in 1997. The
TAS acquisition contributed 913 million transactions to POS transaction volume.
The Company's five largest POS customers represented 67% of total POS revenues
in 1998 and 70% of total POS revenues in 1997. As the Company increases its
market share, its historical rate of POS services revenue growth is not likely
to continue.
 
    POS transaction revenue per transaction was $0.017 for 1998 and $0.016 for
1997. POS transaction revenue per transaction for the TAS transactions was
$0.019. The Company's revenue per transaction varies between a "950"
transaction, an "800" transaction and other types of transactions (e.g. ATM,
EBT). The revenue per transaction for a "950" transaction is generally less than
that for an "800" transaction and the revenue per transaction for an ATM
transaction (and other types of transactions) are generally greater than both
POS and EBT transactions. The Company is anticipating an increase in the
percentage of "800" transactions from its base (pre-TAS) business and an
increase in other types of transactions, and as a result, the revenue per
transaction on its base customers may increase. The transactions associated with
the TAS acquisition included only "800" transactions. Accordingly, "800"
transactions as a percentage of the Company's total transactions will
significantly increase in 1999. Certain TAS customers may elect to convert
certain of their existing "800" TAS transactions to the Company's "950" service
offering, given the generally lower price per transaction for the Company's
"950" service. Future average revenue per POS transaction will depend on the
relative contribution to total transaction volume from each of the Company's
sources of POS transactions, increasing competition to obtain new business and
retaining acquired customers.
 
    Telecommunications services revenue increased by 50% to $29,480,000 in 1998
from $19,609,000 in 1997. The growth in revenue was primarily due to growth in
queries processed for the Company's telecommunications customers and from an
increase in other telecommunications services revenues, including primarily
LEConnect-Registered Trademark- Data Services and SS7 services revenue.
 
    The Financial Services Division was formed in March 1997. Financial services
revenue increased by 685% to $2,095,000 in 1998 versus $267,000 for 1997. The
growth in revenue was due to growth in the number of customers and the
associated connections to the Company's financial services network.
 
    International revenue increased by 227% to $2,916,000 in 1998 from $893,000
in 1997. The increase is primarily due to approximately $1.0 million in 1998
revenues recorded by TNSUK. Currently, TNSL's consolidated losses are being
absorbed and consolidated with the Company's operating results. TNSL's
consolidated results include the results of TNSAB, Switchtran, and TNSSA. In
April 1998, the Company, through TNSL, acquired a 50% interest in Switchtran.
Switchtran is accounted for under the equity method of accounting. Accordingly,
the Company records its 50% share of Switchtran's net income, which was $356,000
for 1998, as "Equity in Earnings of Unconsolidated Affiliate". TNSL's
consolidated losses were approximately $650,000 for 1998 compared to $932,000 in
1997.
 
COST OF NETWORK SERVICES AND GROSS PROFIT
 
    The cost of network services represents the majority of the Company's
operating expenses. The cost of network services is primarily composed of five
elements: (1) usage costs charged by local exchange carriers for local access to
the TNS network and by interexchange carriers for their "800" service; (2) per
transaction costs charged by local exchange carriers and others for access to
information from line information databases ("LIDBs"); (3) recurring costs for
salaries, benefits and expenses related to the personnel responsible for
managing, operating and servicing the network and computer facilities; (4)
recurring monthly charges including charges for digital transmission circuits
for network access and backbone capacity, site co-location fees, and recurring
charges related to the Company's computer facilities; and (5) network expansion
charges. The Company expenses network expansion charges when incurred.
 
                                       25
<PAGE>
    Cost of network services increased by 78% to $62,796,000 in 1998 from
$35,322,000 in 1997. This growth resulted primarily from increases in usage
charges and charges for billing validation information resulting from increased
transaction and query volumes, including transactions associated with the TAS
acquisition. Gross profit represented approximately 38% of total revenues for
1998 compared to 44% for 1997. The decrease in gross profit as a percentage of
total revenues is largely attributed to the transitional communications services
rates, described below, associated with the TAS acquisition and the Company's
efforts to accommodate the TAS traffic. These efforts included increases in
headcount and network capacity, each of which increased the cost of network
services primarily in the fourth quarter of 1998. The Company has experienced,
and will continue to incur, a cost of network services above historical levels
while the TAS transactions remain on the TAS network. The decrease in gross
margin percentage was also attributed to costs associated with the Company's
expansion of its own "800" access service and the impact of certain fixed
charges instituted in the third phase of Access Reform. Except for capital
expenditures, the Company expenses all of its network expansion and operating
costs as they are incurred.
 
    In connection with the TAS acquisition, the Company entered into an
arrangement where the Company purchases transitional communication services and
other transitional services (including network operation, engineering support
and billing services) from AT&T (the "Transition Services"). The cost of network
services associated with the TAS transactions will be largely determined by the
Transition Services rates until the TAS customers are migrated from the TAS
network to the Company's network. These rates increase at specified periods,
which will further reduce the gross margin for those transactions which remain
on the TAS network. The Company also entered into a communication services
agreement with AT&T (the "Communication Services Agreement") to provide "800"
services and other communication services. The Transition Services rates are
significantly greater than the rates the Company separately negotiated with AT&T
under the Communication Services Agreement, the rates the Company has contracted
with its other vendors, and the rates incurred when utilizing the Company's own
network. Accordingly, the Company has experienced, and will continue to incur, a
cost of network services above historical levels while these transactions remain
on the TAS network. Once a TAS customer is transitioned off of the TAS network
and onto the Company's network, the cost per transaction is determined by the
rates included in the Communication Services Agreement with AT&T, the Company's
service agreements with other vendors, and the costs associated with the
Company's own network. The cost per transaction ultimately depends upon which
network is utilized to carry the associated transactions.
 
    The ultimate impact of the Transition Services and the Company's ability to
successfully transition the TAS customers from the TAS network to its network
facilities is dependent upon many variables. These variables include, among
others: the Company's ability to increase capacity on its network, customer
retention and cooperation including providing the necessary customer resources
to assist in the transition effort, successful coordination with the vendors
required to provide necessary network equipment and capacity, the cooperation of
AT&T, the ability of the Company to develop and test the software and equipment
necessary to accommodate the significant increase in transaction volume and the
ability of the Company to develop and test the software and equipment necessary
to accommodate transaction protocols not previously carried by the Company's
network. The Company expects to transition all of the TAS customers to its
network no later than the second quarter of 1999. However, there are many
variables involved in the transition process including many that are outside of
the Company's control and certain variables are unknown at this time. As a
result, there can be no assurance that the transition will be completed in this
time frame.
 
    In May 1997, pursuant to the Telecommunications Act of 1996 (the "1996
Act"), the FCC implemented rules and regulations referred to as Access Charge
Reform ("Access Reform"). Access Reform seeks to reform the system of interstate
access charges and make it compatible with the competitive paradigm established
by the 1996 Act. The initial phase of Access Reform was implemented in July
1997. The initial phase of Access Reform resulted in a decrease in certain
components of the Company's variable cost per transaction, and as a result,
lowered the Company's network costs. The second and third phases of Access
Reform were implemented in January and July 1998, respectively and resulted in
an additional decrease in certain components of the Company's variable cost per
transaction; however, both phases increased certain of the Company's fixed
 
                                       26
<PAGE>
monthly recurring charges and instituted certain new fixed charges. The changes
in access charges instituted by the third phase of Access Reform resulted in an
increase in fixed charges which more than offset the reduction in variable costs
per transaction. Further changes to access charges due to Access Reform are
scheduled to be implemented in 1999 and 2000. The Company believes that future
revisions may reduce its network costs because the Company believes the
increased charges are not in accordance with the spirit of Access Reform that is
intended to reduce overall access charges. However, there can be no assurance
that the future phases of Access Reform will result in reductions to the
Company's network costs and, in fact, they may increase. The ultimate impact of
Access Reform is dependent upon, among other things 1) the ability to increase
transaction volumes, which benefits the Company when lower variable costs are
instituted, 2) the nature and amount of fixed charges, 3) any other future
actions by the FCC, 4) the ability of the Company to modify its network design
to react to pricing revisions, and 5) the ability of the Company to successfully
defend and receive credits for improperly billed charges. Accordingly, the
impact of Access Reform on the Company's future network access costs is unknown,
and the Company cannot predict the timing, outcome or effects of the FCC's
regulations or of any future tariff matters.
 
    During 1998, the Company significantly expanded its backbone and access
network capacity in order to ensure adequate capacity and appropriate network
architecture for expected significant increases in network traffic primarily
related to the TAS acquisition, but to also accommodate increasing volumes from
its base business. These costs included the Company's continued investment in
the expansion of its own "800" access service. The installation costs of "800"
services are significantly more expensive compared to installation costs for its
"950" access services. The Company considers the availability of its own "800"
access service necessary to continue to increase transaction volumes on its
network and to maintain its profitability. The Company's own "800" access
service is expected to provide the Company with an opportunity to offer more
competitive pricing due to the lower variable cost per transaction. Management
also believes that the Company's own "800" access service reduces a barrier to
entry in obtaining additional transaction volumes from the Company's existing
customers and from new customers. The Company's own "800" access service
facilitates the customers' conversion to the Company's network from another
service provider because an "800" terminal may be switched to the TNS "800"
service utilizing "800" portability at virtually no cost to the customer. The
costs of establishing an "800" access service are expected to negatively impact
gross margins until the installation costs are offset by an increase in
transaction volumes. After a certain transaction volume level, the Company
believes that gross margins will increase due to a significantly lower variable
cost per transaction from the Company's own "800" access service versus the
variable cost charged by third party service providers. The Company's own "800"
access service also reduces the Company's reliance upon these third party
service providers. The ultimate impact on the Company's gross margin percentage
will primarily depend upon the timing and success of the roll-out of the
Company's own "800" access service, competitive pricing pressures, transaction
volumes and the transition of the TAS customers from the TAS network to the
Company's network.
 
    Certain new services offered by the Telecom Services Division (including
LNP, LEConnect-Registered Trademark-, and DAC) will also result in additional
network costs. The Company believes that the gross margin percentage on these
new service offerings may be greater than the gross margin percentage on
traditional TSD and POS services. The impact future gross margins will be
largely dependent upon the Company's ability to successfully market these
additional services and competitive pricing pressures.
 
    Future gross profit margin percentages depend on a number of factors
including the ability to successfully migrate the TAS transactions from the TAS
network and onto the Company's network in a timely manner, total transaction and
query volume growth, the relative growth and contribution to total transaction
volume of each of the Company's customers, the success of the Company's new
service offerings including recent acquisitions, the timing and extent of the
Company's network expansion and the timing and extent of any network cost
reductions. In addition, any significant loss or significant reduction in the
growth of transaction volume could lead to a decline in gross margin since
significant portions of network costs are fixed costs. As a result,
 
                                       27
<PAGE>
maintaining historical gross margin levels depends in part on growth in
transaction volume generating economies of scale. The Company expects to make
further significant expenditures associated with network expansion in 1999
including the expansion of its own "800" network and SS7 capabilities.
 
ENGINEERING AND DEVELOPMENT EXPENSES
 
    Engineering and development ("E&D") expenses increased by 62% to $5,565,000
in 1998 from $3,431,000 in 1997. E&D expenses increased primarily from an
increase in employees and related expenses required to support the Company's
revenue growth and from employees and related costs associated with the OmniLink
acquisition. E&D expenses represented approximately 5% of revenues for 1998 and
1997. The Company believes that future E&D expenses as a percentage of revenues
may decline due to the anticipated increase in revenues associated with the TAS
acquisition without a corresponding proportional increase in E&D expenses. This
impact will be partially offset by an increase in E&D expenses associated with
the OmniLink acquisition. OmniLink develops, manufactures and markets modems and
ISDN terminal adaptors for electronic commerce, Internet access, telecommuting
and advanced office communications. The Company has transferred the dial-up
modem technology acquired in the Suntech transaction to OmniLink. OmniLink has
integrated the Suntech modem technology into the OmniLink modems. This
development effort is intended to support the Company's strategy to offer
dial-up ISDN access services to both domestic and international customers. These
customers have traditionally relied upon more expensive leased line
communications to process transactions originated at both point-of-sale
locations as well as automated teller machines.
 
    Effective January 1, 1999, the Company is required to adopt Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", ("SOP 98-1"). SOP 98-1 requires the Company to
capitalize internal computer software costs that the Company has historically
expensed as incurred. SOP 98-1 is applied to all projects in progress upon the
initial application of the SOP. A significant percentage of the Company's
historical E&D expenses have related to costs that are now required to be
capitalized under SOP 98-1. Accordingly, the Company expects SOP 98-1 to have a
material impact by reducing the Company's 1999 E&D expenses.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
    Selling, general and administrative ("SG&A") expenses increased by 57% to
$12,474,000 for 1998 from $7,941,000 for 1997. SG&A expenses increased primarily
from an increase in employees and related expenses required to support the
Company's revenue growth and from the employees and the related costs associated
with the OmniLink acquisition. SG&A expenses represented 12% of revenues 1998
and 13% of revenues for 1997. SG&A expenses for 1998 included approximately
$825,000 of management fees paid to the 40% minority owner of TNSUK in exchange
for transitional services provided by the minority owner to TNSUK. There are no
such management fees for 1999, and TNSUK will replace the services provided by
the minority owner at substantially lower rates. The Company believes that
future SG&A expenses as a percentage of revenues may decline due to the
anticipated increase in revenues associated with the TAS acquisition without a
corresponding proportional increase in SG&A expenses. This impact will be
partially offset by an increase in SG&A expenses associated with the OmniLink
acquisition.
 
DEPRECIATION
 
    Depreciation expense increased by 40% to $6,693,000 for 1998 from $4,793,000
for 1997. Depreciation expense increased primarily as a result of the
acquisition of capital equipment for network expansion to support the growth in
the Company's business. Depreciation expense represented 7% of revenues 1998 and
8% of revenues for 1997. The Company believes that future depreciation expense
as a percentage of revenues may further decline due to the anticipated increase
in revenues associated with the TAS acquisition without a corresponding
proportional increase in depreciation expense.
 
                                       28
<PAGE>
    The Company purchased approximately $18 million of equipment in 1998.
Approximately $6.5 million of this amount occurred in the fourth quarter and
these purchases were made primarily to support the TAS business. While certain
of the Company's network equipment will become fully depreciated in 1999,
depreciation expense is expected to increase in absolute dollars due to the
deployment of the equipment necessary to support the TAS acquisition, the
continued expansion of the Company's own "800" access service, and to a lesser
extent, due to the Company's plans for international network expansion.
 
AMORTIZATION OF INTANGIBLES
 
    The amortization of intangible assets increased by 161% to $4,090,000 for
1998 from $1,570,000 in 1997. The increase is attributable to the amortization
of intangible assets associated with the TAS, Suntech, and OmniLink
transactions. Amortization expense is expected to be approximately $2.0 million
per quarter over the next several years with approximately $1.1 million of this
amount relating to the TAS acquisition.
 
INTEREST INCOME, NET
 
    Net interest income decreased by 83% to $327,000 for 1998 from $1,939,000
for 1997. This decrease relates primarily to approximately $1.2 million of
interest expense associated with borrowing $64.3 million in connection with the
TAS acquisition and a reduction in invested funds.
 
INCOME TAXES
 
    The effective tax rate increased from 40% in 1997 to 42% for 1998. The
increase is the result of an increase in the losses incurred by the Company's
international operations (before minority interests and equity in earnings of
unconsolidated affiliate) from approximately $932,000 in 1997 to approximately
$1.3 million in 1998. The 1998 loss from the Company's international operations
included approximately $825,000 of management fees paid to the 40% minority
owner of TNSUK in exchange for transitional services provided by the minority
owner to TNSUK. There are no such management fees for 1999, and TNSUK will
replace the services provided by the minority owner at substantially lower
rates. The Company has not recorded a tax asset for these losses due to the
brief operating history of the Company's international operations, including
TNSL and TNSUK. If TNSL becomes profitable, TNSL may cause a reduction in the
effective tax rate due to a lower effective tax rate in Ireland than in the
United States.
 
EARNINGS PER SHARE
 
    Diluted earnings per share decreased by 12% to $0.52 for 1998 from $0.59 for
1997. Basic earnings per share decreased by 10% to $0.54 for 1998 from $0.60 for
1997. The weighted-average number of shares outstanding used to calculate
diluted earnings per share increased by 5% to 13,279,000 for 1998 from
12,619,000 for 1997. The weighted-average number of shares outstanding used to
calculate basic earnings per share increased by 3% to 12,620,000 for 1998 from
12,256,000 for 1997. The weighted-average number of basic shares outstanding
increased primarily because of 287,474 shares issued on February 27, 1998, in
connection with the Suntech acquisition, which included the issuance of 211,500
shares of the Company's common stock purchased for treasury in the second
quarter of 1997. The weighted-average number of shares outstanding used to
calculate diluted earnings per share further increased because of an increase in
outstanding options for the Company's common stock.
 
1997 COMPARED TO 1996
 
REVENUES
 
    Total revenues increased by 21% to $63,344,000 in 1997 from $52,291,000 in
1996.
 
    POS services revenue increased by 16% to $42,565,000 in 1997 from
$36,744,000 in 1996. The growth in POS services revenue resulted primarily from
an increase in transaction volume and associated revenue from
 
                                       29
<PAGE>
the Company's existing POS customers. POS transaction volume increased by 26% to
2.4 billion from 1.9 billion in 1996. The Company's five largest POS customers
represented 70% of total POS revenues in 1997 and 74% of total POS revenues in
1996.
 
    The transaction volume growth rate exceeded the revenue growth rate
primarily because the average revenue per transaction declined approximately 11%
from $0.018 in 1996 to $0.016 in 1997. During 1996, the Company re-negotiated
contracts with most of its largest customers. These contracts, following the
re-negotiation, call for a primarily flat rate basic price structure with
increasing volume commitments during the life of the contract, rather than
volume discounts that became effective only after certain volume thresholds were
met. In exchange for extending the term of these contracts, the customers
received significant price reductions. The majority of these customers benefited
from the re-negotiated contracts during 1996; however, the remaining contracts
took effect on January 1, 1997. Accordingly, the full effect of the 1996
contract re-negotiations was reflected in the average revenue per POS
transaction during the first quarter of 1997. The decline in POS revenue per
transaction stabilized in 1997 and revenue per POS transaction was relatively
constant for all of 1997.
 
    Telecommunications services revenue increased by 41% to $19,609,000 in 1997
from $13,891,000 in 1996. The growth in revenue was primarily due to growth in
queries processed for the Company's existing telecommunications customers as
well as the successful introduction of new services.
 
    The Company began offering its FastLink-Registered Trademark- Data Service
in 1997 through its Financial Services Division. Financial services revenue was
$267,000 in 1997.
 
    International revenue was $893,000 in 1997 and $1,656,000 for 1996. The
significant decline in international revenue was due to approximately $1,100,000
of equipment sales in 1996 that did not recur in 1997. Recurring international
revenue (revenue excluding equipment sales) was approximately $700,000 in 1997
and $550,000 in 1996.
 
COST OF NETWORK SERVICES
 
    Cost of network services increased by 23% to $35,322,000 in 1997 from
$28,771,000 for 1996. This growth resulted primarily from increases in usage
charges and charges for billing validation information resulting from increased
transaction and query volumes.
 
GROSS PROFIT
 
    Gross profit represented 44% and 45% of total revenues for 1997 and 1996,
respectively. The decrease in gross profit as a percentage of total revenues
reflects the fact that the reduction in average revenue per POS transaction over
the periods was not fully offset by local access rate reductions and network
efficiencies.
 
ENGINEERING AND DEVELOPMENT EXPENSES
 
    Engineering and development expenses increased by 28% to $3,431,000 in 1997
from $2,692,000 in 1996 as a result of the growth of the Company.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
    Selling, general and administrative expenses increased by 6% to $7,941,000
in 1997 from $7,491,000 in 1996. Selling, general and administrative expenses
includes sales, marketing, finance, accounting and administrative costs. The
increase in these expenses is attributable to growth of the Company.
 
                                       30
<PAGE>
DEPRECIATION
 
    Depreciation expense increased by 18% to $4,793,000 in 1997 from $4,068,000
in 1996. Depreciation expense increased primarily as a result of the acquisition
of capital equipment for network expansion to support growth in the Company's
business.
 
AMORTIZATION OF INTANGIBLES
 
    The amortization of intangible assets was increased by 6% to $1,570,000 in
1997 from $1,485,000 in 1996.
 
INCOME TAXES
 
    The effective tax rate increased to 40% in 1997 from 39% in 1996. The
increase is primarily a result of the losses related to the Company's activities
in Ireland.
 
NET INCOME AND EARNINGS PER SHARE
 
    Net income increased by 27% to $7,386,000 in 1997 from $5,814,000 in 1996.
Diluted earnings per share grew 28% to $0.59 in 1997 from $0.46 in 1996. The
weighted average number of shares outstanding used to calculate diluted earnings
per share increased to 12,619,000 during 1997 from 12,591,000 in 1996. Shares
outstanding increased primarily because of an increase in outstanding options
for the Company's common stock. This effect was partially offset by the
Company's purchase of 211,500 shares of its common stock during the second
quarter of 1997. Basic earnings per share was $0.60 for 1997 and $0.47 in 1996.
Basic earnings per share was greater than diluted earnings per share by $0.01
for 1997 and 1996 due to the dilutive impact of stock options.
 
QUARTERLY RESULTS
 
    The following table presents certain unaudited operating results for each of
the eight fiscal quarters in the two year period ended December 31, 1998. This
information has been prepared by the Company on the same basis as the audited
financial statements and includes all adjustments necessary to present this
information fairly when considered in conjunction with the Company's audited
consolidated financial statements and notes thereto. Quarterly information may
not total to annual amounts in some cases due to rounding.
 
<TABLE>
<CAPTION>
                                                                            QUARTER ENDED
                                        --------------------------------------------------------------------------------------
                                        MAR. 31,   JUNE 30,   SEPT. 30,  DEC. 31,   MAR. 31,   JUNE 30,   SEPT. 30,  DEC. 31,
                                          1997       1997       1997       1997       1998       1998       1998       1998
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues..............................  $  13,115  $  15,444  $  17,170  $  17,615  $  18,077  $  20,433  $  25,582  $  37,814
Income from operations................      1,357      2,325      3,098      3,507      1,983      3,221      3,049      2,035
Income before income taxes............      1,766      2,757      3,640      4,063      2,474      3,586      3,103      1,452
Net income............................      1,002      1,609      2,256      2,519      1,509      2,237      2,099      1,020
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Diluted earnings per share............  $    0.08  $    0.13  $    0.18  $    0.20  $    0.12  $    0.17  $    0.16  $    0.08
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Shares used in diluted per share
  computations........................     12,556     12,560     12,755     12,841     12,389     13,306     13,470     13,571
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Basic earnings per share..............  $    0.08  $    0.13  $    0.18  $    0.21  $    0.12  $    0.18  $    0.17  $    0.08
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Shares used in basic per share
  computations........................     12,343     12,256     12,229     12,236     12,973     12,647     12,690     12,747
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                        ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>
 
                                       31
<PAGE>
YEAR 2000
 
    The Company operates and utilizes various date-sensitive computer
applications and systems throughout its networks and businesses. The Company has
been cognizant of the Year 2000 issue for several years and has continually
attempted to maintain and/or upgrade its networks and computer systems to
recognize the Year 2000 and associated issues. The Company also recognizes that
there are risks with respect to embedded systems that are not necessarily part
of the Company's network or computer systems but contain microprocessor chips
that may not function properly with the change of the date to the Year 2000. The
management of the Company has formed an internal review team to resolve and
address Year 2000 issues. The Company defines "Year 2000 Compatible" to mean
that the product or service will accurately receive, process, and provide date
data from, into, and between the twentieth and twenty-first centuries, including
the years 1999 and 2000, and make leap year calculations, provided that all
other products (whether hardware, software, or firmware) used in or in
combination with the product or service properly exchange data with it.
Procedures have been developed and are in place for assessing exposure and risk
which include testing current and future applications and systems, upgrading and
replacing non-compliant equipment and software and obtaining Year 2000
Compatibility statements from the Company's significant third parties including
material vendors and suppliers. However, the Company, is not seeking statements
from its customers. If the Company's current or future customers fail to achieve
Year 2000 Compatibility or if they divert technology expenditures to address
Year 2000 Compatibility problems, the Company's finances or business prospects
may be impaired. Any diversion of TAS customer resources from the transition
from the TAS network to the Company's network will also have a negative impact
on the Company's gross margin percentage and cash flows. The Company has
provided certain customers with statements of readiness on the Year 2000.
 
    At this time the cost of replacement systems and modifications is not
expected to be material and has been incorporated into system upgrades scheduled
to take place in 1999. The Company has not yet fully developed a comprehensive
contingency plan to address situations that may result if it is unable to
achieve Year 2000 readiness of its critical operations. A comprehensive
contingency plan is expected to be completed by the second quarter of 1999.
 
    The Company's internal systems include both information technology ("IT")
and non-IT systems. The Company has completed a baseline assessment of its
material internal IT systems (including both its own software products and
third-party software and hardware technology) and its non-IT systems (such as
security systems, building equipment, and embedded micro-controllers) and is
beginning implementation (including remediation, upgrading, and replacement).
The Company may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in its internal IT and
non-IT systems.
 
    To the extent that the Company is not able to test the technology provided
by its vendors, the Company is seeking assurances from such vendors that their
systems are Year 2000 Compatible. Not all of the Company's significant vendors
and third parties have provided the Company with Year 2000 compatibility
statements. Despite the Company's testing and whatever assurances the Company
may receive from developers of products incorporated into the Company's products
and service offerings, the Company's products and service offerings may contain
undetected errors or defects associated with Year 2000 date functions. Based
upon its assessment and testing to date, the Company believes that its
mission-critical applications, including its networks and computer systems which
execute primary business processes are Year 2000 Compatible, however, there can
be no assurances that the Company has identified every factor or component which
may render its product or service not Year 2000 Compatible. Known or unknown
errors or defects in the Company's products or service offerings could result in
delay or loss of revenue, diversion of development resources, damage to the
Company's reputation, or increased service and warranty costs, any of which
could impair the Company's finances or business prospects.
 
    The Company is aware that Switchtran is providing service through a
processing platform that is currently not Year 2000 Compatible. The joint
venture arrangement and the related agreements include provisions which require
the Company's joint venture partner, who is also a service provider to
Switchtran, to either develop a
 
                                       32
<PAGE>
new processing platform which is Year 2000 Compatible or modify the existing
platform to be Year 2000 Compatible. The Company's joint venture partner has
informed the Company that it has devoted adequate resources to both of these
alternative projects so that at least one will be in place by the Year 2000.
Based upon the assurances and representations of its partner, the Company
believes that at a minimum, the modifications to the existing Switchtran
platform will be completed by September 30, 1999, however, there can be no
assurances that either the new processing platform or the modifications to the
existing platform will be completed by this target date or that Switchtran's
customers will not seek an alternative service provider while these alternatives
are implemented.
 
    The activities involved in the Company's Year 2000 project necessarily
involve estimates and projections, as described above, of activities and
resources that will be required in the future. These estimates and projections
may be revised as work progresses on this project. Disruptions with respect to
the computer systems of vendors or customers, which are outside the control of
the Company, could impair the ability of the Company to obtain services or
conduct business. If any of the Company's significant third parties are not Year
2000 Compatible and/or the Company fails to identify or replace non-compatible
equipment or software and non-compatibility causes a material disruption to the
business of the Company, the Company's revenues and financial position could be
materially adversely affected. There can be no assurance that the actions taken
by the Company with respect to its network, computer systems, products, or
embedded systems will eliminate the numerous and varied risks associated with
the Year 2000 date change. Further, there can be no assurance that the Company
will not be adversely affected by any Year 2000-related difficulties encountered
by vendors or customers or by any downturn in the economy in general and there
can be no assurance that the Year 2000 will not have a material adverse effect
on the Company's financial position or results of operations.
 
EURO CURRENCY
 
    The participating member countries of the European Union agreed to adopt the
European Currency Unit (the "Euro") as the common legal currency beginning
January 1, 1999. On that same date they established fixed conversion rates
between their existing sovereign currencies and the Euro. The Company has
defined "Euro Compliant" to mean that its product is capable of processing and
reporting any data denominated in the Euro in the same manner as processing and
reporting data denominated in the national currency units that comprise the
currencies of those member states that adopt the Euro without any loss of
functionality or interoperability or degradation in performance. The Company
does not believe that the Euro will have a material impact on the Company's
results of operations or financial condition and believes that its primary
network and computer systems are Euro Compliant.
 
SEASONALITY
 
    Merchant credit card and credit card transactions from retailers and to a
much lesser extent gasoline stations account for a significant percentage of the
transaction volume processed by the Company's POS customers. The volume of such
transactions on the Company's network is expected to be weakest in the first
quarter, stronger in the second quarter, greater still in the third quarter high
travel season and peak in the fourth quarter holiday season. The Company
generally adds network capacity and associated recurring monthly costs during
the year in order to handle expected fourth quarter peak volumes. As a result of
these typical seasonal patterns, revenues, earnings and gross profit margins
from POS credit card transactions in the first quarter, when revenues are lower
and network utilization is lower, are expected to be lower relative to the
fourth quarter of the immediately preceding year, when revenues and network
utilization are high. To date, the strong underlying growth of the Company's POS
business has alleviated this seasonal effect to some extent, but the Company
expects that its operating results in the foreseeable future will be affected by
seasonal trends.
 
    The Company's revenues from calling card transactions from its TSD customers
tend to be greatest during the second and third quarters, although this revenue
composes a smaller percentage of total revenues than does POS services revenue.
 
                                       33
<PAGE>
    The Company is expecting to incur significant non-recurring network
expansion costs as well as a significant increase in certain recurring network
costs during the first and second quarters of 1999 in order to accommodate the
significant increase in traffic primarily associated with the TAS acquisition. A
significant portion of these costs are associated with the Company's roll out of
its own "800" access service, TAS transition costs, and circuits required for
increases in transaction volumes. Since the TAS acquisition, the Company has
experienced, and will continue to experience a gross margin percentage which is
below the Company's historical levels. This effect will continue until the TAS
transactions are migrated from the TAS network to the Company's network. The
Company expects to transition all of the TAS customers to its network no later
than the second quarter of 1999, however, there are many variables involved in
the transition process including many that are outside of the Company's control
and certain variables are unknown at this time. As a result, there can be no
assurance that the transition will be completed in time frame. As a result of
all of these factors, significant variability in quarterly earnings may occur
and is expected.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    At December 31, 1998, the principal sources of liquidity were cash and cash
equivalents of $12,339,000, short-term investments of $3,092,000 and
availability under the Revolver. At December 31, 1998, approximately $4.0
million of cash and cash equivalents were held by TNSUK--a majority owned
subsidiary. Non-marketable securities were approximately $3.7 million at
December 31, 1998. The Company invests in non-marketable securities after
consideration of the financial condition of the borrower and the overall
business relationship. Non-marketable securities mature on the following dates,
$300,000 in 1999, $350,000 in 2000, $150,000 in 2001, $600,000 in 2002 and $2.3
million in 2005.
 
    In March 1999, and due to market conditions, the Company and the Company's
primary lender agreed to temporarily reduce the Revolver from $75 million to $62
million until June 30, 1999 while the primary lender seeks an additional bank to
participate in the syndication. Accordingly, the current amount available for
additional borrowings under the Revolver is approximately $2.7 million. Should
an additional bank elect to participate in the syndication, the Revolver will be
increased to its previous $75 million limitation. If an additional bank is not
located, the Revolver will be permanently reduced to $60 million.
 
    Net cash provided by operating activities was $16,131,000 for 1998, an
increase from $12,302,000 for 1997. The increase is primarily related to an
increase in depreciation and amortization. TAS receivables accounted for $13
million of the $18.7 million increase in accounts receivable. During 1998, AT&T
continued to prepare the TAS customer billings. Accordingly, the December 1998
TAS revenue was not billed until mid-January. Amounts due to AT&T for
transitional services while the TAS customers remain on the TAS network
accounted for $15 million of the $20.0 million increase in accounts payable and
accrued expenses.
 
    Investing activities used $85,190,000 for 1998 as compared to a use of
$7,389,000 for 1997. The significant increase primarily relates to $64.3 million
paid for the TAS acquisition, $6.2 million paid for the acquisition of certain
Suntech assets and $600,000 paid for certain assets of OmniLink, plus the
associated direct costs of these acquisitions. The Company purchased $17,935,000
of equipment in 1998 up from $11,365,000 for 1997. The increase was primarily
due to purchases to increase network capacity related to the TAS acquisition and
transaction increases from existing customers, the expansion of the Company's
"800" network and the capital expenditure requirements of new service offerings.
In April 1998, the Company paid approximately $2.0 million for a 50% interest in
Switchtran, which is identified as "Investment in Unconsolidated Affiliate" on
the accompanying statement of cash flows. The Company has provided its joint
venture partner in Switchtran the right to put their 50% interest to the Company
at approximately $2.0 million. The put provisions related to Switchtran are
exercisable between February 1, 1999 and March 31, 1999. The net proceeds from
the maturities of short and long-term investments were $6,278,000 for 1998 and
$4,355,000 for 1997.
 
    Financing activities provided $62,764,000 for 1998 as compared to use of
$1,041,000 for 1997. On September 10, 1998, the Company borrowed $64.3 million
for the TAS acquisition. The Company repaid $5.0 million of this amount in
October 1998. There were no borrowings in 1997. In 1997, the Company purchased
211,500
 
                                       34
<PAGE>
shares of its common stock for approximately $2.5 million. There were no such
purchases in 1998. Proceeds from the exercise of stock options and the Company's
employee stock purchase plan increased from $1,107,000 for 1997 to $2,135,000
for 1998.
 
    The Company believes that its existing cash, investment balances,
availability under the Revolver, and cash flows generated by operations will be
sufficient to meet the capital needs of its current business activities for the
foreseeable future.
 
NEW ACCOUNTING STANDARDS
 
    In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income". Statement No. 130 requires
the Company to present an aggregate amount of "comprehensive income" and the
components of "other comprehensive income" in its 1998 financial statements
and/or notes thereto. The Company adopted Statement No. 130 in 1998.
 
    In July 1997, the FASB issued Statement No. 131 "Disclosures About Segments
of an Enterprise and Related Information." Statement No. 131 requires the
Company to disclose segment information using a "management approach" beginning
with its December 31, 1998 financial statements. The Company adopted SFAS No.
131 in 1998.
 
    In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use", ("SOP
98-1"). SOP 98-1 requires the Company to capitalize internal computer software
costs once the capitalization criteria of the SOP are met. SOP 98-1 is effective
January 1, 1999, and is applied to all projects in progress upon the initial
application of the SOP. A significant percentage of the Company's historical
engineering and development expenses have related to costs that are now required
to be capitalized under SOP 98-1. Accordingly, the Company expects SOP 98-1 to
have a material impact by reducing the Company's 1999 engineering and
development expenses.
 
    In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 establishes accounting
and reporting standards for derivative instruments including instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The Company will be required
to adopt Statement No. 133 on January 1, 2000. Statement No. 133 will not be
applied retroactively to the financial statements of prior periods. The Company
has not yet determined the impact of adopting Statement No. 133.
 
INFLATION
 
    Inflation is not a material factor affecting the Company's business and has
not had a significant effect on the Company's operations to date.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    The Company has no financial instruments entered into for trading purposes.
The Company's primary market risk exposure is related to its marketable and
non-marketable securities, put and call arrangements with the minority
shareholders of its international subsidiaries and affiliates, foreign currency
exposure related to its international operations and its Revolver. The Company
places its marketable security investments in instruments that meet high credit
quality standards as specified in the Company's investment policy guidelines.
Marketable securities were approximately $2.7 million at December 31, 1998, all
of which mature in less than one year. The Company invests in non-marketable
securities after consideration of the financial condition of the borrower and
the overall business relationship. Non-marketable securities were approximately
$3.7 million at December 31, 1998. Non-marketable securities mature on the
following dates, $300,000 in 1999, $350,000 in 2000, $150,000 in 2001, $600,000
in 2002 and $2.3 million in 2005. Management believes that providing its
minority shareholders, who generally also serve as employees of the subsidiary
or affiliate, with an equity
 
                                       35
<PAGE>
interest better aligns the minority owners' interests with that of the Company.
The Company has entered into put and call arrangements with the minority owners
of its international subsidiaries and affiliates since the Company generally
prefers to ultimately own 100% of its international operations. The Company has
not entered into foreign currency exchange forward contracts or derivative
arrangements. The Company is exposed to foreign exchange rate fluctuations as
the financial results of foreign operations are translated into U.S. dollars.
The effect of foreign exchange rate fluctuations was not material for 1998 and
1997. Because foreign exchange exposure to these fluctuations increases with the
size and scope of the Company's foreign operations, the Company is anticipating
entering into a hedging program in 1999.
 
    The Revolver provides for unsecured LIBOR or base rate borrowings at the
Company's option. A margin is added to the applicable LIBOR or base rate based
upon the Company's ratio of total debt to annualized operating cash flow, as
defined in the agreement. The interest rate at December 31, 1998 was 5.95%
(LIBOR plus 75 basis points) and $59.325 million was outstanding. The weighted
average interest rate for 1998 was 6.23%. LIBOR loan maturities range from 30 to
180 days. The LIBOR loan outstanding at December 31, 1998 expires in May 1999.
Fair value approximated book value at December 31, 1998 due to the short-term
maturity of the amount outstanding. Interest on LIBOR loans is paid at
expiration or, for loans with an original maturity of greater than 90 days, both
at 90 days from inception and on expiration. Interest on base rate loans is paid
on March 31, June 30, September 30, and December 31. The Revolver matures in
September 2001 and is subject to annual renewals thereafter. Borrowings may be
repaid at any time without penalty subject to minimum repayment amounts.
 
    The table below provides information about the Company's put and call
arrangements.
<TABLE>
<CAPTION>
PUT AND CALL ARRANGEMENTS
--------------------------------------------
<S>                                           <C>                 <C>          <C>           <C>                 <C>
                                                 PUT EXERCISE         PUT          PUT         CALL EXERCISE       CALL
                   ENTITY                           PERIOD          AMOUNT       CURRENCY          PERIOD         AMOUNT
--------------------------------------------  ------------------  -----------  ------------  ------------------  ---------
Transaction Network Services Limited(a)
    Initial 80% of the put shares...........  Between 2000 and    fair         Irish pounds
                                              2002                value(b)
    Remaining 20% of the put shares.........  Between 2003 and    fair         Irish pounds
                                              2007                value(b)
    Initial 80% of the call shares..........                                                 2002                fair
                                                                                                                 value(b)
    Remaining 20% of the call shares........                                                 2007                fair
                                                                                                                 value(b)
Transaction Network Services TNASB(a)
    Put provision...........................  Between 2001 and    fair         Swedish
                                              2003                value(b)     Kronor
    Call provision..........................                                                 Between 2001 and    fair
                                                                                             2003                value(b)
Switchtran Limited(c)
    Put provision...........................  Between 2/1/99 and  1.4          Irish pounds
                                              3/31/99             million(d)
Transaction Network Services (UK) Limited(f)
    Put provision...........................  Between 2003 and    fair         British
                                              2005                value(e)     pounds
    Call provision..........................                                                 Between 2003 and    fair
                                                                                             2005                value(e)
 
<CAPTION>
PUT AND CALL ARRANGEMENTS
--------------------------------------------
<S>                                           <C>
                                                  CALL
                   ENTITY                       CURRENCY
--------------------------------------------  ------------
Transaction Network Services Limited(a)
    Initial 80% of the put shares...........
 
    Remaining 20% of the put shares.........
 
    Initial 80% of the call shares..........  Irish pounds
 
    Remaining 20% of the call shares........  Irish pounds
 
Transaction Network Services TNASB(a)
    Put provision...........................
 
    Call provision..........................  Swedish
                                              Kronor
Switchtran Limited(c)
    Put provision...........................
 
Transaction Network Services (UK) Limited(f)
    Put provision...........................
 
    Call provision..........................  British
                                              pounds
</TABLE>
 
------------------------
 
(a)  The minority shareholders own a 25% interest
 
(b) Fair value is determined by an independent valuation
 
(c)  The joint venture partner owns a 50% interest
 
(d) The put amount is the lesser of a) 1.4 million Irish pounds or b)
    approximatley 1.3 million Irish pounds plus 50% of the net profits less
    dividends paid to the joint venture partner
 
(e) Fair value is approximated by applying the earnings per share of TNSUK times
    85% of the greater of a) 20 or b) the PE multiple of TNS for the previous
    six months
 
(f)  The minority shareholder owns a 40% interest
 
                                       36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
Report of Arthur Andersen LLP, Independent Public Accountants..............................................          39
Consolidated Balance Sheets as of December 31, 1998 and 1997...............................................          40
Consolidated Statements of Operations for the years ending December 31, 1998, 1997 and 1996................          41
Consolidated Statements of Stockholders' Equity for the years ending December 31, 1998, 1997 and 1996......          42
Consolidated Statements of Cash Flows for the years ending December 31, 1998, 1997 and 1996................          43
Notes to Consolidated Financial Statements.................................................................          44
</TABLE>
 
                                       37
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Transaction Network Services, Inc.:
 
    We have audited the accompanying consolidated balance sheets of Transaction
Network Services, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1998 and 1997, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transaction Network
Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
 
<TABLE>
<S>                             <C>  <C>
                                                ARTHUR ANDERSEN LLP
</TABLE>
 
Washington, D.C.
February 10, 1999
 
                                       38
<PAGE>
              TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,   DECEMBER 31,
                                                                                          1998           1997
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
                                                      ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.........................................................   $    12,339     $  18,516
  Short-term investments............................................................         3,092         9,899
  Accounts receivable, net
    Trade accounts receivable.......................................................        15,230         9,635
    TAS receivables.................................................................        13,076        --
    Due from AMNEX..................................................................           530           389
  Other current assets..............................................................         5,477         2,047
                                                                                      -------------  -------------
    Total current assets............................................................        49,744        40,486
                                                                                      -------------  -------------
EQUIPMENT, at cost:
  Network equipment.................................................................        47,296        30,101
  Office equipment..................................................................         7,381         4,802
  Less--Accumulated depreciation....................................................       (20,897)      (14,314)
                                                                                      -------------  -------------
                                                                                            33,780        20,589
                                                                                      -------------  -------------
INTANGIBLE ASSETS:
  Goodwill and other intangibles....................................................        93,404        14,119
  Less--Accumulated amortization....................................................        (8,989)       (4,742)
                                                                                      -------------  -------------
                                                                                            84,415         9,377
                                                                                      -------------  -------------
OTHER ASSETS........................................................................         1,142           877
LONG-TERM INVESTMENTS...............................................................         3,404         4,780
INVESTMENT IN UNCONSOLIDATED AFFILIATE..............................................         2,374        --
                                                                                      -------------  -------------
    Total assets....................................................................   $   174,859     $  76,109
                                                                                      -------------  -------------
                                                                                      -------------  -------------
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable and accrued expenses.............................................   $    28,532     $   7,256
LONG-TERM DEBT......................................................................        59,325        --
DEFERRED INCOME TAX, net of current amount..........................................           402           378
MINORITY INTEREST...................................................................         2,423        --
                                                                                      -------------  -------------
    Total liabilities...............................................................        90,682         7,634
                                                                                      -------------  -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Common stock, $0.01 par value, 20,000 shares authorized, 12,803 and 12,476 shares
    issued, respectively............................................................           128           125
  Additional paid-in capital........................................................        57,487        51,292
  Treasury stock, none and 211 shares, at cost......................................       --             (2,491)
  Unearned compensation.............................................................           (16)          (46)
  Retained earnings.................................................................        26,523        19,658
  Accumulated comprehensive income:
    Foreign currency translation....................................................            55           (63)
                                                                                      -------------  -------------
    Total stockholders' equity......................................................        84,177        68,475
                                                                                      -------------  -------------
    Total liabilities and stockholders' equity......................................   $   174,859     $  76,109
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these consolidated balance
                                    sheets.
 
                                       39
<PAGE>
              TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,
                                                                                  --------------------------------
                                                                                     1998       1997       1996
                                                                                  ----------  ---------  ---------
<S>                                                                               <C>         <C>        <C>
Revenues........................................................................  $  101,906  $  63,344  $  52,291
Cost of network services........................................................      62,796     35,322     28,771
                                                                                  ----------  ---------  ---------
Gross profit....................................................................      39,110     28,022     23,520
                                                                                  ----------  ---------  ---------
Other operating expenses:
  Engineering & development.....................................................       5,565      3,431      2,692
  Selling, general & administrative.............................................      12,474      7,941      7,491
  Depreciation..................................................................       6,693      4,793      4,068
  Amortization of intangibles...................................................       4,090      1,570      1,485
                                                                                  ----------  ---------  ---------
Total other operating expenses..................................................      28,822     17,735     15,736
                                                                                  ----------  ---------  ---------
Income from operations before provision for income taxes, equity in earnings of
  unconsolidated affilliate and minority interest...............................      10,288     10,287      7,784
Interest income.................................................................       1,532      1,939      1,670
Interest expense................................................................      (1,205)    --         --
                                                                                  ----------  ---------  ---------
Income before provision for income taxes, equity in earnings of unconsolidated
  affiliate and minority interest...............................................      10,615     12,226      9,454
Provision for income taxes......................................................       4,425      4,840      3,640
Equity in earnings of unconsolidated affiliate..................................         356     --         --
Minority interest in net loss of consolidated subsidiary........................         319     --         --
                                                                                  ----------  ---------  ---------
Net income......................................................................  $    6,865  $   7,386  $   5,814
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Diluted earnings per common share...............................................  $     0.52  $    0.59  $    0.46
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Basic earnings per common share.................................................  $     0.54  $    0.60  $    0.47
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Weighted average shares--diluted................................................      13,279     12,619     12,591
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
Weighted average common shares outstanding--basic...............................      12,620     12,256     12,260
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                       40
<PAGE>
              TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
             FOR THE YEARS ENDING DECEMBER 31, 1998, 1997 AND 1996
 
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                       STOCKHOLDERS' EQUITY
                                 -------------------------------------------------------------------------------------------------
                                       COMMON STOCK        ADDITIONAL                         TREASURY STOCK           FOREIGN
                                 ------------------------    PAID-IN       UNEARNED      ------------------------     CURRENCY
                                   SHARES       AMOUNT       CAPITAL     COMPENSATION      SHARES       AMOUNT       TRANSLATION
                                 -----------  -----------  -----------  ---------------  -----------  -----------  ---------------
<S>                              <C>          <C>          <C>          <C>              <C>          <C>          <C>
BALANCE, December 31, 1995.....      12,138    $     121    $  48,120      $    (106)        --        $  --          $  --
Amortization of unearned
  compensation.................      --           --           --                 30         --           --             --
Stock issued under benefit
  plans........................         190            2          891         --             --           --             --
Tax benefit of exercise of non-
  qualified options............      --           --              833         --             --           --             --
Foreign currency translation...      --           --           --             --             --           --                 28
Net income.....................      --           --           --             --             --           --             --
                                                                                                                             --
                                 -----------         ---   -----------         -----            ---   -----------
BALANCE, December 31, 1996.....      12,328          123       49,844            (76)        --           --                 28
Total, December 31, 1996.......
Amortization of unearned
  compensation.................      --           --           --                 30         --           --             --
Stock issued under benefit
  plans........................         148            2        1,105         --             --           --             --
Purchase of treasury stock.....      --           --           --             --                211       (2,491)        --
Tax benefit of exercise of non-
  qualified options............      --           --              343         --             --           --             --
Foreign currency translation...      --           --           --             --             --           --                (91)
Net income.....................      --           --           --             --             --           --             --
                                                                                                                             --
                                 -----------         ---   -----------         -----            ---   -----------
BALANCE, December 31, 1997.....      12,476          125       51,292            (46)           211       (2,491)           (63)
Total, December 31, 1997.......
Amortization of unearned
  compensation.................      --           --           --                 30         --           --             --
Stock issued under benefit
  plans........................         251            2        2,133         --             --           --             --
Issuance of common stock for
  acquisition..................          76            1        2,758         --               (211)       2,491         --
Tax benefit of exercise of non-
  qualified options............      --           --            1,304         --             --           --             --
Foreign currency translation...      --           --           --             --             --           --                118
Net income.....................      --           --           --             --             --           --             --
                                                                                                                             --
                                 -----------         ---   -----------         -----            ---   -----------
BALANCE, December 31, 1998.....      12,803    $     128    $  57,487      $     (16)        --           --          $      55
                                                                                                                             --
                                                                                                                             --
                                 -----------         ---   -----------         -----            ---   -----------
                                 -----------         ---   -----------         -----            ---   -----------
Total, December 31, 1998.......
 
<CAPTION>
 
                                  RETAINED     COMPREHENSIVE
                                  EARNINGS        INCOME
                                 -----------  ---------------
<S>                              <C>          <C>
BALANCE, December 31, 1995.....   $   6,458      $  --
Amortization of unearned
  compensation.................      --             --
Stock issued under benefit
  plans........................      --             --
Tax benefit of exercise of non-
  qualified options............      --             --
Foreign currency translation...      --                 28
Net income.....................       5,814          5,814
 
                                 -----------        ------
BALANCE, December 31, 1996.....      12,272
Total, December 31, 1996.......                      5,842
                                                    ------
                                                    ------
Amortization of unearned
  compensation.................      --             --
Stock issued under benefit
  plans........................      --             --
Purchase of treasury stock.....      --             --
Tax benefit of exercise of non-
  qualified options............      --             --
Foreign currency translation...      --                (91)
Net income.....................       7,386          7,386
 
                                 -----------        ------
BALANCE, December 31, 1997.....      19,658
Total, December 31, 1997.......                      7,295
                                                    ------
                                                    ------
Amortization of unearned
  compensation.................      --             --
Stock issued under benefit
  plans........................      --             --
Issuance of common stock for
  acquisition..................      --             --
Tax benefit of exercise of non-
  qualified options............      --             --
Foreign currency translation...      --                118
Net income.....................       6,865          6,865
 
                                 -----------        ------
BALANCE, December 31, 1998.....   $  26,523
 
                                 -----------
                                 -----------
Total, December 31, 1998.......                  $   6,983
                                                    ------
                                                    ------
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                       41
<PAGE>
              TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                          YEARS ENDED DECEMBER 31,
                                                                                       -------------------------------
                                                                                         1998       1997       1996
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income.........................................................................  $   6,865  $   7,386  $   5,814
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization....................................................     10,783      6,363      5,553
    Unearned compensation............................................................         30         30         30
    Loss on disposals of equipment...................................................     --             39         14
    Deferred income taxes............................................................        297       (314)    --
    Equity in earnings of unconsolidated affiliate...................................       (356)    --         --
    Loss applicable to minority interest.............................................       (319)    --         --
  Changes in assets and liabilities, net of effects of acquisitions:
      Accounts receivable............................................................    (18,713)    (1,549)    (1,634)
      Other current assets...........................................................     (2,247)      (827)        13
      Other assets...................................................................       (265)      (399)       441
      Accounts payable and accrued expenses..........................................     20,056      1,573       (230)
                                                                                       ---------  ---------  ---------
        Net cash provided by operating activities....................................     16,131     12,302     10,001
                                                                                       ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of equipment.............................................................    (17,935)   (11,365)    (6,250)
  Purchases of intangible assets.....................................................     --           (227)    (1,682)
  Acquisitions, net of cash acquired.................................................    (71,515)      (182)    --
  Investment in unconsolidated affiliates............................................     (2,018)    --         --
  Proceeds from disposals of equipment...............................................     --             30        107
  Collection of note receivable......................................................     --         --          3,600
  Maturities (purchases) of short-term investments, net..............................      4,902      5,801    (11,149)
  Purchases of long-term investments.................................................     --         (4,281)      (162)
  Maturities of long-term investments................................................      1,376      2,835     --
                                                                                       ---------  ---------  ---------
    Net cash used in investing activities............................................    (85,190)    (7,389)   (15,536)
                                                                                       ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from options and employee stock purchase plan.............................      2,135      1,107        728
  Income tax benefit of deduction for income tax purposes on exercise of
    non-qualified stock options......................................................      1,304        343        833
  Purchases of treasury stock........................................................     --         (2,491)    --
  Proceeds from borrowing............................................................     64,325     --         --
  Repayment of long term debt........................................................     (5,000)    --         --
                                                                                       ---------  ---------  ---------
    Net cash provided by (used in) financing activities..............................     62,764     (1,041)     1,561
                                                                                       ---------  ---------  ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..............................................        118        (91)        28
NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS........................................................................     (6,177)     3,781     (3,946)
CASH AND CASH EQUIVALENTS, beginning of period.......................................     18,516     14,735     18,681
                                                                                       ---------  ---------  ---------
CASH AND CASH EQUIVALENTS, end of period.............................................  $  12,339  $  18,516  $  14,735
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Common Stock issued for 401k matching contribution.................................  $  --      $  --      $     165
  Cash paid for income taxes.........................................................      4,893      4,846      3,088
  Cash paid for interest.............................................................        730     --         --
  Conversion of accounts receivable to term note.....................................     --            316     --
  Fair value of assets acquired......................................................  $  77,504  $  --      $  --
  Less: Cash paid, net...............................................................    (71,515)    --
    Value of stock issued............................................................     (5,250)    --         --
                                                                                       ---------  ---------  ---------
    Liabilites assumed...............................................................  $     739  $  --      $  --
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
Cancellation of note receivable in exchange for assets...............................  $   1,905  $  --      $  --
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                       42
<PAGE>
              TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
 
    Transaction Network Services, Inc. (the "Company" or "TNS") was incorporated
in August 1990 to build and operate a communications network focused on the
network services needs of the POS (Point-of-Sale/ Point-of-Service) transaction
processing industry through its POS division. In September 1998, the Company
significantly expanded its POS network services business through a $64.3 million
acquisition of the rights to provide services under certain customer service
contracts relating to AT&T Corp.'s Transaction Access Service ("TAS").
Additionally, in 1998, the Company expanded the service offerings of its POS
division through the acquisitions of certain assets of Suntech Processing
Systems, LLC ("Suntech") and OmniLink Communications Corporation ("OmniLink").
Suntech's proprietary host-interface processing technology allows for leased
line automated teller machines ("ATM's") to be converted into dial-up ATM's.
OmniLink develops, manufactures and markets modems for electronic commerce,
Internet access, telecommuting and advanced office communications.
 
    In June 1994, the Company acquired Fortune Telecommunications, Inc. ("FTI")
of Ft. Lauderdale, Florida, which formed the Company's Telecom Services Division
("TSD"). TSD provides customers in the telecommunications industry with
telephone call fraud control, billing validation and other services.
 
    In March 1997, the TNS Financial Services Division was created to serve the
data communications needs of the financial services industry. In January 1999,
the Company acquired Transline Communications, Inc. ("Transline") in a
transaction structured to be accounted for as a pooling of interests.
Transline's core business is comprised of voice and data services provided to
financial institutions for futures, options, and commodities trading.
 
    In June 1996, the Company formed Transaction Network Services Limited
("TNSL"), a majority-owned subsidiary. TNSL provides POS network services in
Ireland and serves as TNS' European technology and marketing center to support
current and future European operations. In October 1997, through TNSL, the
Company acquired a majority interest in Pronoma Systems AB which has been
renamed Transaction Network Services TNS AB ("TNSAB") and operates as a TNSL
subsidiary located in Stockholm, Sweden. In April 1998 the Company, through
TNSL, acquired a 50% interest in ATOS Ireland Limited ("Atos"). Atos has been
renamed Switchtran Limited ("Switchtran") and provides processing services,
primarily for cash withdrawals, for a network of ATM's located throughout
Ireland. In September 1998, the Company entered into a 60% owned joint venture
in the United Kingdom ("UK") named Transaction Network Services UK Limited
("TNSUK"). TNSUK operates as a TNS subsidiary located in Sheffield, England. In
November 1998, the Company, through TNSL, formed Transaction Network Services,
Societe Anonyme. ("TNSSA"). TNSSA operates as a TNS subsidiary located in Paris,
France. In January 1999, the Company acquired Transline Ltd.--a wholly-owned
subsidiary of Transline, located in London, England. TNSL, TNSAB, TNSUK, TNSSA
and Transline, Ltd. utilize the Company's network technology to provide POS and
other transaction services in their respective countries.
 
    The Company currently operates four segments or divisions: (1) the POS
Division which includes the Company's TransXpress-Registered Trademark- network
services for the POS transaction processing industry, (2) the Telecom Services
Division ("TSD") which includes FTI's CARD*TEL-Registered Trademark- telephone
call billing validation and fraud control services and other services targeting
primarily the telecommunications industry, (3) the Financial Services Division
("FSD") which provides the TNS FastLink-Registered Trademark- Data Service and
other transaction oriented trading applications primarily to the financial
services industry, and (4) the International Systems Division ("ISD") which
markets the Company's products and services internationally.
 
    The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.
 
    The majority of the Company's revenues are derived from the transmission of
POS transactions (predominantly credit and debit card transactions), that are
processed electronically by a small number of third party POS
 
                                       43
<PAGE>
transaction processors. The Company's TransXpress-Registered Trademark- network
services implement proprietary technology that provides a communications link
between the merchant site and the transaction processor. The Company markets its
TransXpress-Registered Trademark-network services directly to third party POS
transaction processors, who in turn resell the Company's network services as a
part of the processors' own services.
 
    The Company's CARD*TEL-Registered Trademark- telecommunications services
utilize proprietary fraud control technology and databases to provide real-time
telephone call billing validation and fraud control services to the
telecommunications industry, including long distance telephone companies,
operator services providers, information services providers and private pay
telephone companies.
 
    The TNS FastLink-Registered Trademark- Data Service includes primarily
electronic communication of indications of interest, orders and execution
reports that are normally phoned between traders or transmitted via proprietary
systems over a secure TCP/IP network developed, operated and maintained by TNS.
 
    The Company's operations are subject to certain risks and uncertainties
including, among others, reliance on major customers, rapidly changing
technology, the Year 2000, limited suppliers, current and potential competitors
with significantly greater financial, technical and marketing resources,
government regulation and the ability to successfully integrate acquired
operations.
 
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
DILUTED AND BASIC EARNINGS PER SHARE
 
    Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Options to purchase
79,800 shares of common stock in the price range of $22.63 through $25.50 per
share were outstanding during 1998 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares.
 
<TABLE>
<CAPTION>
                                                                          1998           1997           1996
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Weighted average common shares outstanding -basic...................     12,619,577     12,255,729     12,259,533
Dilutive effect of stock options....................................        658,956        362,807        331,424
                                                                      -------------  -------------  -------------
Weighted average shares--diluted....................................     13,278,533     12,618,536     12,590,957
                                                                      -------------  -------------  -------------
Diluted earnings per share..........................................  $        0.52  $        0.59  $        0.46
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
Basic earnings per share............................................  $        0.54  $        0.60  $        0.47
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>
 
RECENT AUTHORITATIVE PRONOUNCEMENTS
 
    In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income". Statement No. 130 requires
the Company to present an aggregate amount of "comprehensive income" and the
components of "other comprehensive income" in its 1998 financial statements
and/or notes thereto. The Company adopted Statement No. 130 in 1998. In July
1997, the FASB issued Statement No. 131 "Disclosures About Segments of an
Enterprise and Related Information." Statement No. 131 requires the Company to
disclose segment information using a "management approach" beginning with its
 
                                       44
<PAGE>
December 31, 1998 financial statements. The Company adopted Statement No. 131 in
1998. In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use", ("SOP
98-1"). SOP 98-1 requires the Company to capitalize internal computer software
costs once certain capitalization criteria are met. SOP 98-1 is effective
January 1, 1999 and is applied to all projects in progress upon the initial
application of the SOP. A significant percentage of the Company's historical
engineering and development expenses are costs that are now required to be
capitalized under SOP 98-1. Accordingly, the Company expects SOP 98-1 to have a
material impact by reducing the Company's 1999 engineering and development
expenses. In June 1998, the FASB issued Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 establishes
accounting and reporting standards for derivative instruments including
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company will be
required to adopt Statement No. 133 on January 1, 2000. Statement No. 133 will
not be applied retroactively to the financial statements of prior periods. The
Company has not yet determined the impact of adopting Statement No. 133.
 
FINANCIAL INSTRUMENTS
 
    The Company considers all securities purchased with an original maturity of
three months or less at the date of purchase to be cash equivalents. The Company
determines the appropriate classification of its investments at the time of
purchase and reevaluates such designation at each balance sheet date. At
December 31, 1998 and 1997, the Company's marketable securities consisted
primarily of money market accounts (classified as cash equivalents), U.S.
government and government agency securities, and investment grade corporate
bonds, all of which the Company has both the positive intent and ability to hold
until maturity. These securities are reported at amortized cost. The contractual
maturities of held to maturity securities are all less than one year.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it was practicable to estimate
that value:
 
    CURRENT ASSETS AND CURRENT LIABILITIES
 
    The carrying amount approximated fair value because of the short maturity of
these instruments.
 
    INVESTMENTS
 
    At December 31, 1998, the fair values of marketable securities based on
quoted market prices on national exchanges approximated the carrying amounts.
Certain of the Company's financial instruments included in investments have no
quoted market prices. The Company believes by reference to stated interest rates
and collateral held, the fair value of the assets would not differ materially
from their carrying values.
 
    LONG-TERM DEBT
 
    The fair value of the Company's long-term debt is based upon quoted market
prices for the same and similar issues, giving consideration to quality,
interest rates, maturity and other characteristics. At December 31, 1998, the
fair value approximated the carrying amount since the interest rate will be
reset in May 1999.
 
CREDIT RISK
 
    The Company's assets that are exposed to credit risk consist primarily of
cash equivalents, investments (including non-marketable securities of
approximately $3.7 million), and accounts receivable. The Company places its
marketable security investments in instruments that meet high credit quality
standards as specified in the Company's investment policy guidelines. Marketable
securities were approximately $2.7 million at December 31, 1998, all of which
mature in less than one year. The Company invests in non-marketable securities
after
 
                                       45
<PAGE>
consideration of the financial condition of the borrower and the overall
business relationship. Non-marketable securities were approximately $3.7 million
at December 31, 1998. Non-marketable securities mature on the following dates,
$300,000 in 1999, $350,000 in 2000, $150,000 in 2001, $600,000 in 2002 and $2.3
million in 2005. Accounts receivable consist of geographically dispersed
customers, and the Company has not experienced significant losses related to
uncollectible accounts from its POS, FSD or international customers. Revenues
from its telecommunications services customers are subject to a higher degree of
credit risk than is the case for the Company's POS services customers. The
Company reserves for the credit risk associated with this customer base. The
allowance for doubtful accounts was $558,000 at December 31, 1998 and $530,000
at December 31, 1997. The Company's 5 largest customers represented 44% of total
revenues for the year ended December 31, 1998.
 
LONG-LIVED ASSETS
 
    The Company's long-lived assets consist of network equipment and intangible
assets. The Company periodically reviews the value of its long-lived assets to
determine if an impairment has occurred. The Company considers expected cash
flows and estimated future operating results, trends, and other available
information in assessing whether the long-lived asset is impaired.
 
EQUIPMENT
 
    Network and office equipment is recorded at cost. Depreciation expense is
calculated using the straight-line method. Network equipment is depreciated over
estimated useful lives of three to seven years. Office equipment is depreciated
over estimated useful lives of three to ten years. Leasehold improvements are
amortized over the lesser of the useful life or the lease term.
 
INTANGIBLE ASSETS
 
    Intangible assets primarily consist of goodwill, contract rights,
non-compete agreements, and software. Intangible assets are amortized on a
straight-line basis over useful lives ranging from two to twenty years.
 
REVENUE RECOGNITION
 
    The Company recognizes services revenue as the related services are
performed. Advance payments for services are deferred and recognized as revenue
when earned. POS services revenue is derived primarily from the transmission
through the Company's network of transaction information between merchant or
service provider POS terminals and transaction-processing computer centers. TSD
revenue consists primarily of fees charged on a per query basis to customers for
telephone call fraud-control and billing validation services. FSD revenue is
derived primarily from monthly recurring fees. International revenue consists
primarily of POS services revenue, royalties, software license fees and
equipment sales. Revenue from equipment sales is recognized upon shipment.
Revenue from software licenses is recognized ratably over the term of the
agreement. Revenue from royalties is recognized when earned.
 
COST OF NETWORK SERVICES
 
    Cost of network services principally includes usage charges for data
transmission and database access, leased digital transmission capacity charges,
transmission capacity installation charges, activation charges, salaries,
equipment maintenance and other related network costs. These costs are expensed
by the Company as incurred. Depreciation expense on network equipment was
$5,367,000, $4,124,000 and $3,623,000 for the years ended December 31, 1998,
1997 and 1996, respectively, and is included in depreciation expense.
 
ENGINEERING AND DEVELOPMENT COSTS
 
    Expenditures for engineering and development activities are charged to
expense as incurred.
 
                                       46
<PAGE>
INCOME TAXES
 
    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under
Statement No. 109, deferred tax assets or liabilities are computed based upon
the difference between financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expense or
benefits are based upon the changes in the asset or liability from period to
period.
 
MAJORITY OWNED SUBSIDIARIES
 
    The Company has provided the minority shareholders of TNSL, TNSAB,
Switchtran and TNSUK the right to put their shares to the Company at the fair
value of the shares at the exercise date. The Company also has the right to call
the minority shares of TNSL, TNSAB and TNSUK at fair value. The put and call
provisions related to TNSL are exercisable beginning in 2000 and expire in 2007.
The put and call provisions related to TNSAB are exercisable beginning in 2001
and expire in 2003. The put provisions related to Switchtran are exercisable
between February 1, 1999 and March 31, 1999. The Switchtran put price was
approximately $2.0 million at December 31, 1998. The put and call provisions
related to TNSUK are exercisable beginning in 2003 and expire in 2005. Fair
value amounts for these puts and calls are not available as they represent an
interest in companies whose stock is not publicly traded.
 
RECLASSIFICATIONS
 
    Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
 
2.  ACQUISITIONS, INVESTMENTS AND OTHER ASSETS:
 
AMNEX, INC.
 
    On March 29, 1996, the Company completed an asset purchase from AMNEX, Inc.
("AMNEX") of AMNEX's proprietary fraud-control system and related databases used
to provide fraud control and billing validation services. The transaction also
included a ten-year exclusive service agreement and other agreements. The
Company paid approximately $1.5 million in cash for these assets.
 
    In December 1997, the Company entered into a consulting agreement with AMNEX
in exchange for certain revisions made to the exclusive service agreement. The
consulting agreement required an initial payment of approximately $180,000 and
monthly payments of approximately $33,000 through June 30, 2002. The consulting
agreement provided that, in the case of a material breach by AMNEX, the
remaining monthly payments become immediately due and payable as liquidated
damages. In May 1998, the Company delivered a notice of default to AMNEX for
non-payment of fees under the exclusive service agreement and consulting
agreement. On July 29, 1998, the Company filed arbitration proceedings with the
American Arbitration Association against AMNEX. In January 1999, prior to the
commencement of the arbitration proceedings, the parties entered into a
settlement agreement. The settlement agreement required AMNEX to pay $530,000 of
accounts receivable, which was collected in 1999. AMNEX further agreed to pay
the Company $1.7 million, with interest, in 24 equal monthly installments of
approximately $79,000 beginning in March 1999. The monthly payments are to be
made directly to the Company from AMNEX's billing agent. As of December 31 1998,
the Company has net assets related to AMNEX of approximately $1.6 million,
including accounts receivable of approximately $530,000 and intangible assets of
approximately $1.1 million.
 
CONVERTIBLE DEBT
 
    In July 1997, the Company obtained a five-year exclusive data services
agreement, a joint marketing agreement and invested $2.0 million in the form of
a subordinated convertible note with another company. Interest on the note is
payable each August, beginning in August 1998. Alternatively, under the terms of
the
 
                                       47
<PAGE>
note, the borrower may issue an additional note equal to the accrued interest on
terms and with rights identical to the original note. In August 1998, the
borrower issued a $300,000 note for the amount of interest accrued on the
original note. At any time, the Company may convert all or any portion of the
principal plus accrued interest into a minority interest in the customers'
common stock. The borrower may redeem up to 50% of the notes at any time up
until August 1999 at a specified annual internal rate of return. The notes
mature in August 2005, and as a result, the notes are recorded as long-term
investments. The notes are classified as available for sale securities due to
their conversion provisions. Fair value approximated carrying value at December
31, 1998.
 
TERM LOANS
 
    In July 1997, the Company entered into a $250,000 secured term loan with a
customer. The Company also paid this customer $500,000 for a software license to
use the customer's proprietary call monitoring and screening system and related
databases along with an option to purchase a minority interest in the customer.
Certain collateral secures the term loan, interest is payable monthly, and
principal payments are due in three annual payments on the next three loan
anniversary dates. In connection with the term loan, the Company signed a debt
subordination agreement with the customer's senior creditor. In April 1998, the
Company received notice from the senior creditor that the borrower was in
default. Under the debt subordination agreement, the Company could not receive
payments from the customer for a specified period. Management is negotiating
terms for payment of the loan. In the event that the result of these
negotiations is unsatisfactory to management, the Company will consider all
options available under the loan and applicable law. Management believes that
these assets are recoverable through future cash flows. Any adjustment to the
book value of these assets will result in a non-cash accounting charge. At
December 31, 1998, there was $250,000 outstanding under this term loan.
 
    In August 1997, the Company made a $500,000 secured term loan to a company.
Interest is payable monthly and principal was due in February 1998. The customer
repaid $100,000 of principal in 1997. In February 1998, the Company agreed to
amend the term loan to provide for equal monthly payments of principal and
interest over a 24-month period. At December 31, 1998, there was $260,000
outstanding under this term loan.
 
    In December 1997, the Company executed a $450,000 secured term loan with a
customer. The principal balance included the conversion of approximately
$316,000 of accounts receivable. Interest is payable monthly beginning February
1998. Principal is payable in 36 monthly installments beginning January 2000.
Certain collateral, including the stock of the customer, secures the loan. At
December 31, 1998, there was $450,000 outstanding under this term loan.
 
SUNTECH PROCESSING SYSTEMS, LLC
 
    On February 27, 1998, the Company acquired certain assets and assumed
certain liabilities of Suntech Processing Systems, LLC ("Suntech"), a Texas
limited liability company. The total consideration paid was $17.5 million,
composed of (a) $12.25 million in cash, and (b) 287,474 shares of the Company's
common stock valued at $5.25 million, plus direct acquisition costs. The Company
acquired Suntech's dial-up ATM transaction processing segment (the "Processing
Business") and Suntech's proprietary host-interface processing ("HIP")
technology segment, which allows for leased line ATMs to be converted into
dial-up ATMs. The Suntech acquisition was accounted for as a purchase. Amounts
allocated to intangible assets (including customer contracts, non-compete
agreements, software and goodwill) in the purchase accounting are amortized on a
straight-line basis over periods ranging from 2 to 10 years.
 
    On July 23, 1998, the Company sold the Processing Business to a customer of
the Company. Consideration received was $6.0 million in cash and the Company
retained certain equipment and accounts receivable of the Processing Business.
The terms of the sale also included: (a) a software license whereby the Company
retained a non-exclusive, perpetual right to use certain software associated
with the Processing Business at locations
 
                                       48
<PAGE>
outside the United States; and (b) an agreement whereby the customer committed,
under certain circumstances, to purchase certain modems from the Company during
a three-year period.
 
OMNILINK COMMUNICATIONS CORPORATION
 
    On July 1, 1998, the Company acquired substantially all of the assets and
assumed certain liabilities (composed principally of trade accounts payable and
accrued liabilities) of OmniLink, a Michigan corporation. The consideration paid
to OmniLink was $2.5 million which was composed of (a) approximately $600,000 in
cash, plus direct acquisition costs, and (b) approximately $1.9 million by
cancellation of a note payable from OmniLink to the Company. A limited
partnership controlled by the Company's Chief Executive Officer and a venture
capital firm, one of whose partners is a Company director, each are minority
shareholders in OmniLink. The terms of the acquisition also provide for a
royalty payment from the Company to OmniLink of up to approximately 5% of the
price per unit based upon future OmniLink product sales. The royalty agreement
will terminate upon the earlier of the date that OmniLink has received royalties
aggregating $5,000,000 or June 30, 2001. During 1998, the Company paid royalties
of $10,000. The OmniLink acquisition was accounted for as a purchase. Amounts
allocated to goodwill in the purchase accounting are amortized on a
straight-line basis over 10 years. The purchase price allocations have been
completed on a preliminary basis and are subject to adjustment, should new or
additional facts about the business become known.
 
AT&T CORP.'S TRANSACTION ACCESS SERVICE
 
    On September 10, 1998, the Company acquired from AT&T Corp. ("AT&T") the
right to provide services under certain customer service contracts relating to
AT&T's Transaction Access Service ("TAS") as well as certain equipment used by
AT&T in furnishing this service. The consideration paid for these assets was
approximately $64.3 million in cash, plus direct acquisition costs. The source
of the funds used to acquire these assets was a revolving credit facility (the
"Revolver"). The Company also entered into a service agreement ("Communication
Services Agreement") with AT&T under which the Company agreed to purchase a
minimum of $10 million in communications services per year from AT&T during the
two-year period beginning February 1, 1999.
 
    In connection with this transaction, the Company has agreed to purchase
transitional communication and other services ("Transitional Services") from
AT&T until the TAS customers are migrated from AT&T's network to the TNS
network. The rates for these Transitional Services are greater than the rates
the Company incurs when utilizing its own network, greater than the rates under
the Communication Services Agreement with AT&T and greater than the rates the
Company has contracted with its other vendors.
 
    The TAS acquisition was accounted for as a purchase. Amounts allocated to
intangible assets (including customer contracts, a non-compete agreement, and
goodwill) in the purchase accounting are amortized on a straight-line basis over
periods ranging from 3 to 20 years. The purchase price allocations have been
completed on a preliminary basis and are subject to adjustment, should new or
additional facts about the business become known.
 
    The unaudited pro forma information for the periods set forth below give
effect to the Suntech transaction and the subsequent sale of the Processing
Business, the OmniLink transaction, and the TAS transaction as if they had
occurred at the beginning of each period. The unaudited pro forma information is
presented for informational purposes only and is not necessarily indicative of
the results of operations that actually would have been achieved had the
acquisitions been consummated as of that time (in thousands):
 
<TABLE>
<CAPTION>
                                                                                YEAR ENDED         YEAR ENDED
                                                                             DECEMBER 31, 1998  DECEMBER 31, 1997
                                                                             -----------------  -----------------
<S>                                                                          <C>                <C>
Revenues...................................................................     $   142,283        $   111,807
Net income.................................................................          11,322             11,097
Diluted earnings per share.................................................     $      0.85        $      0.86
Basic earnings per share...................................................     $      0.89        $      0.88
</TABLE>
 
                                       49
<PAGE>
TRANSACTION NETWORK SERVICES (UK) LIMITED
 
    The Company purchased its 60% in TNSUK for approximately $4.0 million in
cash. General Cable, the minority partner, contributed customer contracts,
business relationships, goodwill and certain network equipment in exchange for
its 40% interest. The customer contracts and goodwill are being amortized over
10 years on a straight line basis. General Cable, which was subsequently merged
with Telewest Communications PLC, provides TNSUK certain telecommunication and
management services. TNSUK paid approximately $825,000 for these services in
1998.
 
3.  INTANGIBLE ASSETS
 
    Intangible assets consist of the following as of December 31 (in thousands).
 
<TABLE>
<CAPTION>
                                                                            1998       1997
                                                                          ---------  ---------
<S>                                                                       <C>        <C>
Goodwill................................................................  $  73,492  $   9,126
Contract rights.........................................................     12,667      1,667
Software................................................................      2,505      1,527
Non-compete agreements..................................................      3,200        500
Other...................................................................      1,540      1,299
                                                                          ---------  ---------
Total...................................................................  $  93,404  $  14,119
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
4.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
 
    Accounts payable and accrued expenses consist of the following as of
December 31 (in thousands).
 
<TABLE>
<CAPTION>
                                                                              1998       1997
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Accounts payable and accrued network costs................................  $  10,046  $   4,601
Amounts due to AT&T primarily for Transitional Services...................     16,302     --
Accrued payroll and related expenses......................................        909        649
Deferred revenue..........................................................        761        638
Other.....................................................................        514      1,368
                                                                            ---------  ---------
    Total.................................................................  $  28,532  $   7,256
                                                                            ---------  ---------
                                                                            ---------  ---------
</TABLE>
 
5.  CREDIT AGREEMENT:
 
    In connection with the TAS acquisition, the Company entered into the
Revolver. The Revolver provides for unsecured LIBOR or base rate borrowings at
the Company's option. A margin is added to the applicable LIBOR or base rate
based upon the Company's ratio of total debt to annualized operating cash flow,
as defined. The interest rate at December 31, 1998 was 5.95% (LIBOR plus 75
basis points) and the weighted average interest rate was 6.23% for 1998. The
LIBOR loan outstanding at December 31, 1998, matures in May 1999. Interest on
LIBOR loans is paid at expiration or, for LIBOR loans with an original maturity
of greater than 90 days, both at 90 days from inception and on expiration.
Interest on base rate loans is paid on March 31, June 30, September 30, and
December 31. The Revolver matures in September 2001 and is subject to annual
renewals thereafter. Borrowings may be repaid at any time without penalty
subject to minimum repayment amounts. The Revolver includes a commitment fee
based upon the average unused balance. The Revolver also includes certain
financial and non-financial restrictive covenants including minimum operating
cash flow requirements and limitations on investments, other borrowings, capital
expenditures and acquisitions. Acquisitions are subject to pro-forma covenant
compliance. Due to market conditions subsequent to year-end, the Company and its
primary lender, agreed to temporarily reduce the maximum borrowing under the
Revolver from $75 million to $62 million until June 30, 1999, while the primary
lender seeks an additional bank to participate in the
 
                                       50
<PAGE>
syndication. Accordingly, the current amount available for additional borrowings
under the Revolver is approximately $2.7 million. Should an additional bank
elect to participate in the syndication, the Revolver will be increased to its
previous $75 million limitation, however, if an additional bank is not located,
the Revolver will be permanently reduced to $60 million.
 
6.  INCOME TAXES:
 
    The components of income tax expense (benefit) for the years ending December
31, 1998, 1997 and 1996 consist of the following (in thousands).
 
<TABLE>
<CAPTION>
                                                                     1998       1997       1996
                                                                   ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>
Current provision:
  Federal........................................................  $   4,253  $   4,649  $   3,262
  State..........................................................        469        505        378
Deferred (benefit) provision:
  Federal........................................................       (267)      (283)    --
  State..........................................................        (30)       (31)    --
                                                                   ---------  ---------  ---------
                                                                   $   4,425  $   4,840  $   3,640
                                                                   ---------  ---------  ---------
                                                                   ---------  ---------  ---------
</TABLE>
 
    The provision for income taxes results in effective rates for the years
ending December 31, 1998, 1997 and 1996, which differ from the Federal statutory
rate as follows.
 
<TABLE>
<CAPTION>
                                                                       1998       1997       1996
                                                                     ---------  ---------  ---------
<S>                                                                  <C>        <C>        <C>
Statutory Federal income tax rate..................................       35.0%      35.0%      35.0%
Impact of graduated rates..........................................       (1.0)      (1.0)      (1.0)
State income taxes, net of Federal tax benefit.....................        3.8        3.7        4.0
Effect of losses of foreign operations.............................        3.9        1.9        0.5
                                                                           ---        ---        ---
Effective rate.....................................................       41.7%      39.6%      38.5%
                                                                           ---        ---        ---
                                                                           ---        ---        ---
</TABLE>
 
    The components of the net deferred tax liability are as follows at December
31 (in thousands).
 
<TABLE>
<CAPTION>
                                                                            1998       1997
                                                                          ---------  ---------
<S>                                                                       <C>        <C>
Depreciation............................................................  $  (1,279) $    (968)
Differences between cash and accrual accounting methods.................     --           (202)
Amortization of intangibles.............................................        876        590
Other...................................................................        (65)      (185)
                                                                          ---------  ---------
Net deferred income tax liability.......................................  $    (468) $    (765)
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
7.  STOCKHOLDERS' EQUITY:
 
TREASURY STOCK
 
    In December 1996, the Board of Directors authorized the Company to purchase
up to 1,000,000 shares of its issued and outstanding Common Stock. During 1997,
the Company purchased a total of 211,500 shares for approximately $2.5 million.
These treasury shares were reissued in connection with the Suntech acquisition.
During 1999, in connection with the Transline merger (Note 11) the Board of
Directors rescinded the share repurchase program.
 
                                       51
<PAGE>
STOCK OPTION PLANS
 
    The Company has a stock option plan (the "1991 Plan") which provides for the
issuance of both qualified and nonqualified options to purchase up to 690,000
shares of Common Stock. Options may be granted under the 1991 Plan at any time
prior to December 31, 2000, and are exercisable for periods up to ten years from
the date of grant. In 1994, the Company adopted an additional stock option plan
(the "1994 Plan") similar to the 1991 Plan. In April 1998, the shares authorized
under the 1994 Plan were increased to 2,300,000. As of December 31, 1998, a
total of 4,231 shares were available for future awards under these plans.
 
    The following table summarizes the activity for the Company's stock option
plans for the three years ended December 31, 1998.
 
<TABLE>
<CAPTION>
                                                                   NUMBER OF
                                                                    SHARES           PRICE       WEIGHTED AVERAGE
                                                                 UNDER OPTION      PER SHARE      EXERCISE PRICES
                                                                 -------------  ---------------  -----------------
<S>                                                              <C>            <C>              <C>
Options outstanding, December 31, 1995.........................       662,776   $   0.13-$16.33      $    5.54
Granted (weighted average fair value $8.11)....................        10,800   $  14.25-$20.17      $   16.54
Exercised......................................................      (155,061)  $   0.13-$10.67      $    3.02
Canceled/expired...............................................       (10,500)  $    6.25            $    6.25
                                                                 -------------  ---------------         ------
Options outstanding, December 31, 1996.........................       508,015   $   0.13-$20.17      $    6.52
Granted (weighted average fair value $4.81)....................     1,209,570   $  10.00-$17.00      $   11.31
Exercised......................................................      (125,304)  $   0.13-$20.17      $    6.90
Canceled/expired...............................................       (58,139)  $   4.00-$20.17      $    9.13
                                                                 -------------  ---------------         ------
Options outstanding, December 31, 1997.........................     1,534,142   $   0.13-$20.17      $    6.82
Granted (weighted average fair value $8.45)....................       779,100   $  14.50-$25.50      $   17.72
Exercised......................................................      (229,865)  $   0.13-$16.50      $    7.96
Canceled/expired...............................................       (63,012)  $   6.25-$25.50      $   14.54
                                                                 -------------  ---------------         ------
Options outstanding, December 31, 1998.........................     2,020,365   $   0.13-$25.50      $   13.17
                                                                 -------------  ---------------         ------
                                                                 -------------  ---------------         ------
</TABLE>
 
                   OUTSTANDING AND EXERCISABLE BY PRICE RANGE
                            AS OF DECEMBER 31, 1998
 
<TABLE>
<CAPTION>
                                  WEIGHTED
                                   AVERAGE
                     NUMBER       REMAINING     WEIGHTED
                   OUTSTANDING   CONTRACTUAL     AVERAGE
RANGE OF EXERCISE     AS OF         LIFE        EXERCISE    NUMBER EXERCISABLE  WEIGHTED AVERAGE
     PRICES         12/31/98        YEARS        PRICES       AS OF 12/31/98     EXERCISE PRICES
-----------------  -----------  -------------  -----------  ------------------  -----------------
<S>                <C>          <C>            <C>          <C>                 <C>
$     0.13--$4.00      94,439          3.09     $    1.94           94,439          $    1.94
$    6.25--$10.00     844,176          7.73     $    9.81          383,894          $    9.67
$   10.38--$15.88     421,450          8.89     $   14.33           61,788          $   14.13
$   16.13--$25.50     660,300          9.25     $   18.34           15,900          $   16.94
                   -----------          ---    -----------         -------             ------
$    0.13--$25.50   2,020,365          8.25     $   13.17          556,021          $    9.06
-----------------  -----------          ---    -----------         -------             ------
-----------------  -----------          ---    -----------         -------             ------
</TABLE>
 
                                       52
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
 
    In 1994, the Company adopted an Employee Stock Purchase Plan ("ESPP").
Eligible employees may contribute up to 10% of their base earnings toward the
semi-annual purchase of Common Stock. Under the terms of the plan, 250,000
shares of authorized Common Stock were reserved for purchase at 85% of the fair
market price at the beginning or end of each six-month offering period,
whichever is lower. During 1996, employees purchased 9,124 shares at $12.18 per
share and 14,582 shares at $10.20 per share. During 1997, employees purchased
11,265 shares at $10.20 per share and 12,958 shares at $10.94 per share. During
1998, employees purchased 9,870 shares at $13.49 per share and 9,990 shares at
$17.19 per share. The weighted average fair value for shares purchased under the
ESPP was $5.68 for 1998, $3.60 for 1997and $2.79 for 1996.
 
    The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation". If compensation cost for the
Company's stock option and stock purchase plans had been determined based on the
fair value at the grant date for awards in 1998, 1997, and 1996 consistent with
the provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                     1998       1997       1996
                                                                   ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>
Net earnings (thousands)--pro forma..............................  $   5,132  $   6,667  $   5,633
Diluted earnings per share- pro forma............................  $    0.39  $    0.53  $    0.45
Basic earnings per share--pro forma..............................  $    0.41  $    0.54  $    0.46
</TABLE>
 
    The fair value is estimated on the date of grant using the Black-Scholes
option-pricing model. For 1996 grants, the following weighted-average
assumptions were used: dividend yield of 0%, expected volatility of 49%;
risk-free interest rate of 5.5%; and expected lives of approximately 3 years.
For 1997 grants, the following weighted-average assumptions were used: a
dividend yield of 0%; expected volatility of 51%; risk-free interest of 5.46%;
and expected lives of approximately 3 years. For 1998 grants, the following
weighted-average assumptions were used: dividend yield of 0%, expected
volatility of 57%; risk-free interest rate of 4.55%; and expected lives of
approximately 3 years. The effects of applying SFAS No. 123 in the proforma
disclosure are not indicative of future amounts.
 
8.  COMMITMENTS AND CONTINGENCIES:
 
OPERATING LEASES
 
    The Company leases office space under operating leases. The Company also
leases space for network equipment sites and certain office equipment under
operating leases. Future annual commitments under the Company's operating leases
are as follows (in thousands):
 
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------------------------------
<S>                                                                                           <C>        <C>
1999........................................................................................             $   1,962
2000........................................................................................                 1,727
2001........................................................................................                 1,645
2002........................................................................................                 1,652
2003........................................................................................                 1,535
Thereafter..................................................................................                 9,196
                                                                                                         ---------
                                                                                                         $  17,717
                                                                                                         ---------
                                                                                                         ---------
</TABLE>
 
    Rent expense for the years ended December 31, 1998, 1997, and 1996 was
approximately $1,957,000, $1,555,000, and $1,433,000, respectively.
 
                                       53
<PAGE>
BENEFIT PLANS
 
    The Company has a 401(k) profit sharing plan which covers eligible
employees. The Company makes discretionary matching contributions to the plan.
For 1998, 1997 and 1996, the Company approved a discretionary matching cash
contribution of approximately $160,000, $100,000 and $100,000, respectively (25%
of each eligible employee's contribution made during each year). The Company
does not offer postretirement or postemployment benefits.
 
SIGNIFICANT CUSTOMERS AND SUPPLIERS
 
    For the years ended December 31, 1998, 1997 and 1996, the Company recorded
sales to significant customers, included in the Company's POS division, as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                       1998       1997       1996
                                                                                     ---------  ---------  ---------
<S>                                                                                  <C>        <C>        <C>
Customer A.........................................................................  $  16,738  $  11,105  $   8,962
Customer B.........................................................................          *          *      6,244
Customer C.........................................................................          *          *          *
</TABLE>
 
------------------------
 
*   Revenue was less than 10% of total revenue for the period.
 
    Certain key components used in the Company's network are currently available
only from limited sources. The Company does not have long-term supply contracts
with these or any other limited source vendors and purchases network equipment
on a purchase order basis. The inability to obtain sufficient quantities of
limited source equipment as required, or to develop alternative sources as
required in the future, could result in delays or reductions in the Company's
development and deployment of network equipment, which could adversely affect
the Company's business, operating results and financial condition. As of
December 31, 1998, the Company had commitments to purchase approximately $2.4
million in capital equipment.
 
9.  QUARTERLY DATA- UNAUDITED
 
    The following quarterly financial data has been prepared from the financial
records of the Company without audit, and reflects all adjustments which, in the
opinion of management, were of a normal and recurring nature and were necessary
for a fair presentation of the results of operations for the interim periods
presented. Quarterly information may not total to annual amounts in some cases
due to rounding.
<TABLE>
<CAPTION>
                                                                                  QUARTERS ENDED
             FOR THE YEAR ENDED DECEMBER 31, 1998               --------------------------------------------------
           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)              MARCH 31     JUNE 30   SEPTEMBER 30  DECEMBER 31
--------------------------------------------------------------  -----------  ---------  ------------  ------------
<S>                                                             <C>          <C>        <C>           <C>
Revenues......................................................   $  18,077   $  20,433   $   25,582    $   37,814
Gross profit..................................................       7,370       9,266       10,407        12,067
Income from operations before interest and taxes..............       1,983       3,221        3,049         2,035
Net income....................................................       1,509       2,237        2,099         1,020
Diluted earnings per share....................................   $    0.12   $    0.17   $     0.16    $     0.08
Basic earnings per share......................................   $    0.12   $    0.18   $     0.17    $     0.08
 
<CAPTION>
                                                                                  QUARTERS ENDED
             FOR THE YEAR ENDED DECEMBER 31, 1997               --------------------------------------------------
           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)              MARCH 31     JUNE 30   SEPTEMBER 30  DECEMBER 31
--------------------------------------------------------------  -----------  ---------  ------------  ------------
<S>                                                             <C>          <C>        <C>           <C>
Revenues......................................................   $  13,115   $  15,444   $   17,170    $   17,615
Gross profit..................................................       5,707       6,830        7,630         7,855
Income from operations before interest and taxes..............       1,357       2,325        3,098         3,507
Net income....................................................       1,002       1,609        2,256         2,519
Diluted earnings per share....................................   $    0.08   $    0.13   $     0.18    $     0.20
Basic earnings per share......................................   $    0.08   $    0.13   $     0.18    $     0.21
</TABLE>
 
                                       54
<PAGE>
10. 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: The POS Division ("POS"), Telecom Services Division ("TSD"), Financial
Services Division ("FSD") and the International Systems Division ("ISD"). FSD
and ISD have not met the quantitative threshold for separate reporting. The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based upon income from operations before amortization and depreciation.
Information on the Company's business segments is presented below.
 
<TABLE>
<CAPTION>
                                                                                     1998       1997       1996
                                                                                  ----------  ---------  ---------
<S>                                                                               <C>         <C>        <C>
REVENUES:
POS.............................................................................  $   67,415  $  42,565  $  36,744
TSD.............................................................................      29,480     19,609     13,891
All others......................................................................       5,011      1,170      1,656
                                                                                  ----------  ---------  ---------
    Total Revenues..............................................................  $  101,906  $  63,344  $  52,291
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
OPERATING PROFIT:
POS.............................................................................  $   17,059  $  16,191  $  14,163
TSD.............................................................................       6,638      3,010      1,084
All others......................................................................      (2,626)    (2,551)    (1,910)
                                                                                  ----------  ---------  ---------
Total...........................................................................  $   21,071  $  16,650  $  13,337
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
IDENTIFIABLE ASSETS AT YEAR END:
POS.............................................................................  $  110,607  $  15,655  $  16,026
TSD.............................................................................      21,505     14,983     15,113
All others......................................................................       7,795      2,809        578
Corporate.......................................................................      34,952     42,662     36,834
                                                                                  ----------  ---------  ---------
Total...........................................................................  $  174,859  $  76,109  $  68,551
                                                                                  ----------  ---------  ---------
                                                                                  ----------  ---------  ---------
CAPITAL EXPENDITURES:
POS.............................................................................  $   10,033  $   3,758  $   3,923
TSD.............................................................................       3,122        547        955
</TABLE>
 
11. SUBSEQUENT EVENTS
 
    In December 1998, the Company entered into an agreement and plan of merger
with Transline Communications, Inc. ("Transline"), which closed on January 13,
1999. Under the agreement the Transline shares were exchanged for approximately
$4.0 million in TNS common stock, or approximately 210,000 shares of TNS common
stock based upon the closing price of TNS shares ten days prior to the closing.
The merger is structured to be accounted for as a pooling of interests.
Unaudited pro forma revenue as if the merger had occurred at the beginning of
1998, 1997, and 1996 is approximately $105,420,000, $66,693,000 and $54,947,000,
respectively.
 
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE
 
    None.
 
                                       55
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
 
(A) IDENTIFICATION OF DIRECTORS
 
    The information required by this Item concerning the Company's directors is
incorporated by reference from the section captioned "Election of Directors,"
contained in the Proxy Statement related to the Annual Meeting of Stockholders
to be held on April 22, 1999 (the "Proxy Statement").
 
(B) IDENTIFICATION OF EXECUTIVE OFFICERS
 
    The information required by this Item concerning the Company's executive
officers is incorporated by reference from the section captioned "Non-Director
Officers," contained in the Proxy Statement.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    The information required by this Item is incorporated by reference from the
section captioned "Compensation of Executive Officers," contained in the Proxy
Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information required by this Item is incorporated by reference from the
section captioned "Beneficial Ownership of Common Stock," contained in the Proxy
Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The information required by this Item is incorporated by reference from the
sections captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Relationships and Related Transactions," contained in the Proxy
Statement.
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
    The following documents are filed as part of this Annual Report on Form
10-K:
 
    (a)  1. Financial Statements. The following consolidated financial
       statements of the Company and Report of Independent Public Accountants
       relating thereto are filed as Item 8 of this report.
 
<TABLE>
<CAPTION>
           DESCRIPTION
           -------------------------------------------------------------------------------------------------------------
<S>        <C>
           Report of Arthur Andersen LLP, Independent Public Accountants
           Consolidated Balance Sheets as of December 31, 1998 and 1997
           Consolidated Statements of Operations for the years ending December 31, 1998, 1997 and 1996
           Consolidated Statements of Stockholders' Equity for the years ending December 31, 1998, 1997 and 1996
           Consolidated Statements of Cash Flows for the years ending December 31, 1998, 1997 and 1996
           Notes to Consolidated Financial Statements
</TABLE>
 
                                       56
<PAGE>
2.  Financial Statement Schedules. The Financial Statement Schedule described
    below is filed as part of this report.
 
<TABLE>
<S>        <C>
DESCRIPTION
---------
           Report of Arthur Andersen LLP, Independent Public Accountants
           Schedule II--Valuation and Qualifying Accounts
           (b) Reports on Form 8-K
           On November 24, 1998, the Company filed Amendment No. 1 to its Current Report on Form 8-K filed on September
           23, 1998 reporting pursuant to Item 2 the acquisition of certain assets of AT&T Corp.
</TABLE>
 
    (c) Exhibits
 
<TABLE>
<C>        <S>
      2.0  (a) Asset Purchase Agreement by and between the Company and Suntech Processing
           Systems, LLC dated February 27, 1998; (2)
           (b) Asset Purchase Agreement by and between the Company and OmniLink Communications
           Corporation dated July 1, 1998; (3)
           (c) Asset Purchase Agreement between AT&T Corp. and the Company dated September 10,
           1998. (4)
      3.1  Certificate of Incorporation of the Registrant, as amended. (1)
      3.2  Bylaws of the Registrant. (1)
      4.0  $75 Million Revolving Credit Facility with PNC Bank, National Association. (8)
     10.1  1991 Stock Option Plan, as amended. (1)
     10.2  1994 Stock Option Plan, as amended. (1)
     10.3  1994 Employee Stock Purchase Plan, as amended. (5)
     10.4  Deed of Lease dated September 21, 1995 between the Company and Pond Building, L.L.C.
           (6)
     23.1  Consent of Arthur Andersen LLP. (7)
      27.  Financial Data Schedule.
           (d) Financial Statement Schedules see Item (a)2 above.
</TABLE>
 
------------------------
 
(1) Incorporated by reference to the Company's Registration Statement on Form
    S-1 (Registration No. 33-76426).
 
(2) Incorporated by reference to the Company's Current Report on Form 8-K, dated
    February 27, 1998, and as amended by Amendment No. 1, dated May 13, 1998.
 
(3) Incorporated by reference to the Company's Current Report on Form 8-K, dated
    July 15, 1998, and as amended by Amendment No. 1, dated September 14, 1998.
 
(4) Incorporated by reference to the Company's Current Report on Form 8-K, dated
    September 23, 1998, and as amended by Amendment No. 1, dated November 24,
    1998.
 
(5) Incorporated by reference to the Company's Registration Statement on Form
    S-8 (Registration No. 33-85434).
 
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
    dated September 30, 1995.
 
(7) Filed herewith.
 
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
    dated September 30, 1998.
 
                                       57
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Transaction Network Services, Inc.:
 
    We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Transaction Network Services, Inc. (a
Delaware corporation) and subsidiaries included in this Form 10-K and have
issued our report thereon dated February 10, 1999. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in item 14(a) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
 
<TABLE>
<S>                             <C>  <C>
                                                ARTHUR ANDERSEN LLP
</TABLE>
 
Washington, D.C.
February 10, 1999
 
                                       58
<PAGE>
              TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
DESCRIPTION                                                         Balance at      Charged to                     Balance
  Allowance for doubtful accounts                                  Beginning of      Costs and                    at End of
  (deducted from accounts receivable in thousands)                    Period         Expenses      Deductions      Period
----------------------------------------------------------------  ---------------  -------------  -------------  -----------
<S>                                                               <C>              <C>            <C>            <C>
YEAR ENDED DECEMBER 31, 1998....................................     $     530       $      28                    $     558
YEAR ENDED DECEMBER 31, 1997....................................     $     598       $      60      $    (128)    $     530
YEAR ENDED DECEMBER 31, 1996....................................     $     432       $     491      $    (325)    $     598
</TABLE>
 
                                       59
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, State of Virginia, on the 15th day of March, 1999.
 
<TABLE>
<S>                             <C>  <C>
                                TRANSACTION NETWORK SERVICES, INC.
 
                                By:          /s/ JOHN J. MCDONNELL, JR.
                                     -----------------------------------------
                                               John J. McDonnell, Jr.
                                              CHIEF EXECUTIVE OFFICER
</TABLE>
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
 
<TABLE>
<CAPTION>
                     NAME                                           TITLE                             DATE
----------------------------------------------  ----------------------------------------------  -----------------
<S>                                             <C>                                             <C>
 
/s/ JOHN J. MCDONNELL, JR.                      President, Chief Executive Officer and          March 15, 1999
  --------------------------------------        Director
  John J. McDonnell, Jr.                        (Principal Executive Officer)
 
/s/ THADDEUS G. WEED                            Chief Financial Officer and Treasurer           March 15, 1999
  --------------------------------------        (Principal Financial Officer)
  Thaddeus G. Weed
 
/s/ JURGEN MANCHOT                              Director                                        March 15, 1999
  --------------------------------------
  Jurgen Manchot
 
/s/ WILLIAM N. MELTON                           Director                                        March 15, 1999
  --------------------------------------
  William N. Melton
 
                                                Director                                        March  , 1999
  --------------------------------------
  John S. McCarthy
 
/s/ HENRY R. NICHOLS                            Director                                        March 15, 1999
  --------------------------------------
  Henry R. Nichols
 
/s/ PAOLO L. GUIDI                              Director                                        March 15, 1999
  --------------------------------------
  Paolo L. Guidi
 
/s/ JOSEPH SQUARZINI JR.                        Director                                        March 15, 1999
  --------------------------------------
  Joseph Squarzini Jr.
</TABLE>
 
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