<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION


                             Washington, D.C. 20549


                                    FORM 10-Q


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

                  For the quarterly period ended March 31, 1998

                         Commission File Number: 0-23856

                       Transaction Network Services, Inc.
             (Exact name of registrant as specified in its charter)

                                    Delaware

            (State or jurisdiction of incorporation or organization)

                                   54-1555332
                     (I.R.S. Employer Identification Number)

                            1939 Roland Clarke Place
                                Reston, VA 20191
                    (Address of principal executive offices)

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

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

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

                      Shares Outstanding as of May 10, 1998
               12,655,733 Shares of Common Stock, $0.01 par value

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                          March 31,                December 31,
                                                                            1998                       1997
                                                                       ----------------           ---------------
                                                                         (Unaudited)


<S>                                                                        <C>                        <C>       
                                              ASSETS

CURRENT ASSETS:
        Cash and cash equivalents                                          $     9,987                $   18,516
        Short-term investments                                                   5,224                     9,899
        Accounts receivable, net of allowance for doubtful
          accounts of $565 and $530, respectively                               12,202                    10,618
        Other current assets                                                     2,093                     1,453
                                                                       ----------------           ---------------
               Total current assets                                             29,506                    40,486
                                                                       ----------------           ---------------
EQUIPMENT, at cost:
        Network equipment                                                       33,481                    30,101
        Office equipment                                                         5,471                     4,802
        Less - Accumulated depreciation                                        (15,635)                   (14,314)
                                                                       ----------------           ---------------
                                                                                23,317                    20,589
                                                                       ----------------           ---------------
INTANGIBLE ASSETS:
        Software and intangibles                                                23,494                    14,119
        Less - Accumulated amortization                                         (5,243)                   (4,742)
                                                                       ----------------           ---------------
                                                                                18,251                     9,377
                                                                       ----------------           ---------------
OTHER  ASSETS                                                                      823                       877
LONG-TERM INVESTMENTS                                                            5,786                     4,780
ASSETS HELD FOR SALE                                                             8,250                         -
                                                                       ----------------           ---------------
               Total assets                                                 $   85,933                $   76,109
                                                                       ----------------           ---------------
                                                                       ----------------           ---------------

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
        Accounts payable and accrued expenses                               $   10,044               $     7,256
DEFERRED INCOME TAX, net of current amount                                         378                       378
                                                                       ----------------           ---------------
               Total liabilities                                                10,422                     7,634
                                                                       ----------------           ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY :
        Common stock, $0.01 par value, 20,000 shares authorized,
            12,604 and 12,476 shares issued, respectively                          126                       125
        Additional paid-in capital                                              54,375                    51,292
        Treasury stock, none and 211 shares, at cost                                 -                    (2,491)
        Unearned compensation                                                     (39)                       (46)
        Retained earnings                                                       21,167                    19,658
        Foreign currency translation                                             (118)                       (63)
                                                                       ----------------           ---------------
               Total stockholders' equity                                       75,511                    68,475
                                                                       ----------------           ---------------
               Total liabilities and stockholders' equity                   $   85,933                $   76,109
                                                                       ----------------           ---------------
                                                                       ----------------           ---------------

</TABLE>

<PAGE>

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                             Three Months Ended
                                                                March 31,
                                                --------------------------------------
                                                     1998                   1997
                                                ----------------       ---------------
                                                                     (Unaudited)

<S>                                                    <C>                   <C>     
Revenues                                               $ 18,077              $ 13,115
Cost of network services                                 10,707                 7,408
                                                ----------------       ---------------
Gross profit                                              7,370                 5,707
                                                ----------------       ---------------
Other operating expenses:
        Engineering & development                         1,027                   786
        Selling, general & administrative                 2,515                 2,077
        Depreciation                                      1,394                 1,103
        Amortization of intangibles                         451                   384
                                                ----------------       ---------------
Total other operating expenses                            5,387                 4,350
                                                ----------------       ---------------
Income from operations                                    1,983                 1,357
Interest income                                             491                   409
                                                ----------------       ---------------
Income before provision for income taxes                  2,474                 1,766
Provision for income taxes                                  965                   764
                                                ----------------       ---------------
Net income                                            $   1,509             $   1,002
                                                ----------------       ---------------
                                                ----------------       ---------------


 Diluted earnings per common share                       $ 0.12                $ 0.08
                                                ----------------       ---------------
                                                ----------------       ---------------

 Basic earnings per common share                         $ 0.12                $ 0.08
                                                ----------------       ---------------
                                                ----------------       ---------------
</TABLE>

<PAGE>

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                             Three Months Ended
                                                                                                  March 31,
                                                                                           1998                1997
                                                                                      ----------------    ---------------
                                                                                                   (Unaudited)
<S>                                                                                        <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net Income                                                                           $    1,509          $   1,002
      Adjustments to reconcile net income to net cash
           provided by operating activities:
           Depreciation and amortization                                                        1,845              1,487
           Unearned compensation                                                                    7                  7
           Loss on disposals of equipment                                                           -                 49
      Changes in assets and liabilities, net of effects of acquisition:
               Accounts receivable                                                             (1,424)             1,648
               Other current assets                                                              (608)              (382)
               Other assets                                                                        54                 47
               Accounts payable and accrued expenses                                            1,808                 57
                                                                                      ----------------    ---------------
                   Net cash provided by operating activities                                    3,191              3,915
                                                                                      ----------------    ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
           Purchases of equipment                                                              (3,409)            (2,181)
           Purchases of intangible assets                                                          (7)                 3
           Payment for acquisition, net                                                       (12,243)                 -
           Proceeds from disposals of equipment                                                     -                 12
           Maturities (purchases) of short-term investments, net                                4,675               (589)
           Purchases of long-term investments, net                                             (1,006)                 -
           Maturities of long term investments                                                      -               2,518
                                                                                      ----------------    ---------------
               Net cash used in investing activities                                          (11,990)              (237)
                                                                                      ----------------    ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
           Proceeds from options and employee stock purchase plan                                 325                 58
                                                                                      ----------------    ---------------
               Net cash provided by financing activities                                          325                 58
                                                                                      ----------------    ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                           (55)               (25)
NET (DECREASE) INCREASE IN CASH AND CASH
               EQUIVALENTS                                                                     (8,529)              3,711
CASH AND CASH EQUIVALENTS, beginning of period                                                 18,516              14,735
                                                                                      ----------------    ---------------
CASH AND CASH EQUIVALENTS, end of period                                                   $    9,987            $ 18,446
                                                                                      ----------------    ---------------
                                                                                      ----------------    ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
           Cash paid for income taxes                                                     $       638         $      470
           Fair value of assets acquired                                                  $    19,639                  -
           Less:  cash paid                                                                   (12,243)                 -
                     value of stock issued                                                     (5,250)                 -
                                                                                      ----------------    ---------------
                                                                                      ----------------    ---------------
           Liabilities assumed                                                             $    2,146         $        -
                                                                                      ----------------    ---------------
                                                                                      ----------------    ---------------

</TABLE>

<PAGE>

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (Unaudited)

1.  GENERAL

         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. In June 1994, the Company 
acquired Fortune Telecommunications, Inc. ("FTI") of Ft. Lauderdale, Florida, 
which provides customers in the telecommunications industry with telephone 
call fraud control, billing validation, and other services. In June 1996, the 
Company formed Transaction Network Services Limited ("TNSL"), a 
majority-owned subsidiary located in Dublin, Ireland. 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. This company has been renamed Transaction Network 
Services TNSAB ("TNSAB") and operates as a TNS subsidiary located in 
Stockholm, Sweden.

         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 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 TNS FastLink-Registered 
Trademark- Data Services 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 condensed consolidated financial statements included herein have 
been prepared by the Company, without audit, pursuant to the rules and 
regulations of the Securities and Exchange Commission ("SEC") and include, in 
the opinion of the Company, all adjustments, consisting of normal recurring 
adjustments, necessary for a fair presentation of interim period results. 
Certain information and footnote disclosures normally included in financial 
statements prepared in accordance with generally accepted accounting 
principles have been condensed or omitted pursuant to such rules and 
regulations. The Company believes that its disclosures are adequate to make 
the information presented not misleading. These condensed financial 
statements should be read in conjunction with the financial statements and 
notes thereto included in the Company's Annual Report on Form 10-K. The 
results of operations for the three month periods ended March 31, 1998 and 
1997 are not necessarily indicative of the results to be expected for the 
full year.

2. ACQUISITIONS AND OTHER INVESTMENTS

         In April 1998, the Company, through TNSL, acquired a 50% interest in 
Atos Ireland Limited ("Atos") for approximately $1.8 million. Prior to the 
acquisition Atos was a wholly owned subsidiary of Sligos Payment Services PLC 
("SPS"), which in turn is a majority-owned subsidiary of the Atos Group, a 
computer services company based in France. Atos provides processing services, 
primarily for cash withdrawls, made from a network of automated teller 
machines ("ATMs") located throughout Ireland. The Company believes that Atos, 
focusing initially on the Irish market, will exploit opportunities to provide 
transaction processing services to banks, other financial institutions and 
government agencies. Atos will deploy the TNS network technology, which the 
Company believes will optimize the transport of ATM and other transactions. 
SPS will provide Atos with ATM transaction processing and other services. SPS 
has an option (the "Option') to sell its 50% interest in Atos to the Company 
for approximately $1.0 million. The Option may be exercised between February 
1, 1999 and March 31, 1999.

                                       6

<PAGE>

         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 after 
arm's-length negotiations 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. Prior to the acquisition, SunTech primarily was engaged in the 
business of providing transaction processing services for automated teller 
machines ("ATMs") and developing additional communications technologies for 
ATMs. The Company acquired the dial-up ATM transaction processing segment of 
SunTech 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 is being accounted for as a purchase. The 
Company is in the process of negotiations for the potential disposition of 
Suntech's processing segment. As a result, the net assets of the processing 
segment are segregated as "Assets Held for Sale" in the accompanying balance 
sheet. The fair value allocated to the assets held for sale includes the 
anticipated net operating results to be derived from these operations while 
owned by the Company. Amounts allocated to intangible assets (including 
customer contracts, non-compete agreements, software and goodwill) in the 
purchase accounting are being amortized on a straight-line basis over periods 
ranging from 2 to 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. The results of the HIP 
technology segment are included in the consolidated financial statements 
since the date of acquisition.

         The unaudited pro forma information for the periods set forth below 
gives effect to the transaction as if it had occurred at the beginning of 
each period. The 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 acquisition been consummated 
as of that time (unaudited, 000's omitted):

<TABLE>
<CAPTION>

                                 Three Months  Ended        Year Ended
                                 March  31, 1998            December 31, 1997
                                 ---------------            -----------------
<S>                               <C>                       <C>    
Revenues                          $17,927                    $62,885
Net income                          1,198                      6,086
Diluted earnings per share          $0.09                      $0.47
Basic earnings per share            $0.10                      $0.49

</TABLE>


         In November 1997, the Company loaned a vendor $500,000. The vendor 
develops, manufactures and markets modems for electronic commerce, Internet 
access, telecommuting and advanced office communications. In 1998, the 
Company loaned the vendor an additional $1,025,000. Interest accrues at 13% 
and the principal is due in November 1998. In connection with these loans the 
Company received the exclusive European distribution rights to the vendor's 
products used in connection with the provision of POS and automated teller 
machine services. A limited partnership (the "Partnership"), controlled by 
the Company's Chief Executive Officer, and a venture capital firm, one of 
whose managing partners is also a director of the Company, are each minority 
shareholders of the vendor and are holders of notes issued by the vendor. 
These notes, and the vendor's other debt obligations, are subordinated to the 
Company's loans. The Partnership has guaranteed the vendor's payment of the 
loans. In April 1998, the Company entered into a letter of intent to acquire 
substantially all of the assets of the vendor, subject to certain approvals 
and conditions, for approximately $2.5 million plus the assumption of 
approximately $400,000 of trade accounts payable and accrued liabilities. The 
proposed terms also include a per unit royalty payment to the vendor based 
upon future product sales. The royalty is subject to limitations in duration 
and amount. The Company, subject to certain conditions, has agreed to advance 
up to an additional $250,000 to the vendor pending the closing of such 
acquisition. If the transaction is consummated, the Company's outstanding 
loan balance including interest (approximately $1.6 million at April 30, 
1998), will be credited towards the purchase price.

                                       7

<PAGE>

3.    EARNINGS PER SHARE

             The following reconciles the shares used in the calculations of
basic and diluted earnings per share:

<TABLE>
<CAPTION>

                                                   Three Months Ended
                                                 March 31,
                                                 1998               1997
                                                ----------          ----------
<S>                                             <C>                 <C>       
Weighted average shares outstanding
       (basic earnings per share)               12,389,232          12,343,117
Stock option equivalents                           584,159             212,735
                                                  ----------------------------
Weighted average shares and equivalents
     (diluted earnings per share)               12,973,391          12,555,852
                                                ------------------------------
Basic earnings per share                           $0.12            $0.08
Diluted earnings per share                         $0.12            $0.08

</TABLE>

4.  RECENT AUTHORITATIVE PRONOUNCEMENTS

                   In July, 1997, the FASB issued Statement No. 130 
"Reporting Comprehensive Income" and Statement No. 131 "Disclosures About 
Segments of an Enterprise and Related Information." Statement No. 131 will 
require the Company to disclose segment information using a "management 
approach" beginning with its December 31, 1998 financial statements. 
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 total of net income 
and all other nonowner changes in equity as required by Statement No. 130 
consists of (unaudited, 000's omitted):

<TABLE>
<CAPTION>

                                                     Three Months Ended                 Three Months Ended
                                                     March 31, 1998                     March 31, 1997
                                                     --------------                     --------------
<S>                                                  <C>                                <C>   
                  Net Income                         $1,509                             $1,002
                  Other Comprehensive Income:
                           Currency Translation        (55)                                (25)
                                                     ---------                          --------
        Comprehensive Income                         $1,454                               $977
                                                     ---------                          --------
</TABLE>

5.  SUBSEQUENT EVENT

                   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, a joint-marketing agreement and a warrant agreement giving the 
Company the right to purchase 100,000 shares of AMNEX Common Stock. The 
Company paid approximately $1.5 million in cash for these assets. The Company 
amortizes the cost of these assets over five to ten years. Under a consulting 
agreement dated December 22, 1997, AMNEX agreed to make an initial consulting 
payment as well as monthly payments to the Company through June 30, 2002, in 
exchange for certain revisions to the exclusive service agreement.

         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. In conjunction with the delivery of this notice of default, the 
Company has ceased providing validation services to AMNEX. The Company may 
seek enforcement of a direction to pay provision in the exclusive service 
agreement and consulting agreement whereby AMNEX has agreed to direct its 
billing and collections agent to remit funds directly to the Company. AMNEX 
has also represented to the Company that a pending $80 million financing may 
provide funds sufficient to pay these past due amounts and to cure this 
breach. As of March 31, 1998, the Company has recorded net assets of 
approximately $1.8 million (including accounts receivable and intangible 
assets) related to AMNEX. The Company is currently evaluating the default and 
the potential impairment to the fair value of these assets but cannot 
determine the impairment, if any, at this time. Any adjustment to the fair 
value of these assets would result in a non-cash accounting charge. 

                                       8
<PAGE>

Item 2.

                TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARY
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

         Certain information included or incorporated by reference 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 relationship with major customers 
and vendors, customer and vendor performance under contractual obligations, 
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, the impact of future revisions to the cost of the 
Company's network services under the Telecommunications Act of 1996, 
competition, technological change, the ability to develop new services, 
dependence on proprietary rights, dependence on key employees, changes in 
government regulation, 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.

RESULTS OF OPERATIONS

 Revenues

         Total revenues increased by 38% to $18,077,000 for the three month 
period ended March 31, 1998 from $13,115,000 for the same period in 1997.

         POS services revenue increased by 17% to $10,981,000 from $9,353,000 
for the three months ended March 31, 1998 versus the comparable period in 
1997. The growth in POS services revenue resulted primarily from an increase 
in transaction volume and associated revenue from the Company's existing POS 
customers. POS transaction volume increased by 15% to 599 million 
transactions for the first quarter of 1998 from 519 million transactions in 
the first quarter of 1997. POS revenue per transaction was $0.016 for both the
three months ended March 31, 1998 and for the comparable period in 1997. 
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 and increasing competition.

         Telecommunications services revenue increased by 83% to $6,541,000 
from $3,566,000 for the three months ended March 31, 1998 versus the 
comparable period 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.

                                       9
<PAGE>

         In March 1997, the Company announced the building of a new network 
-the Financial Services Network and a new product line - TNS FastLink-Registered
Trademark- Data Services - offered by its Financial 
Services Division. TNS FastLink-Registered Trademark- Data Services revenues 
consist of a one-time installation fee and fixed monthly recurring revenues 
thereafter based on the number of network connections. The Financial Services 
Division contributed $233,000 to revenues in the first quarter of 1998 
compared to $11,000 in the first quarter of 1997 when the division was formed.

         International revenue increased by 74% to $322,000 in the first 
quarter of 1998 from $185,000 for the same period in 1997. International 
revenue consists primarily of royalties, equipment sales and software license 
revenues. In April 1998, the Company, through TNSL, acquired a 50% interest 
in Atos Ireland Limited ("Atos") for approximately $1.8 million. Atos 
provides processing services, primarily for cash withdrawls, made from a 
network of automated teller machines ("ATM's") located throughout Ireland. 
Management believes that Atos, focusing initially on the Irish market, will 
exploit opportunities to provide transaction processing services to banks, 
other financial institutions and government agencies.

         TNSL provides POS network services in Ireland and will serve as 
TNSL's European technology and marketing center. Currently, TNSL's 
consolidated losses are being absorbed and consolidated with the Company's 
operating results. TNSL's consolidated losses were approximately $247,000 for 
the first quarter of 1998 and $216,000 for the first quarter of 1997.

Cost of Network Services

         Cost of network services increased by 45% to $10,707,000 from 
$7,408,000 for the three months ended March 31, 1998 versus the comparable 
period in 1997. This growth resulted primarily from increases in usage 
charges and charges for billing validation information resulting from 
increased transaction and query volumes.

         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") that seek 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 phase of 
Access Reform took place in January 1998. The second phase of Access Reform 
resulted in an additional decrease in certain components of the Company's 
variable cost per transaction; however, the second phase increased certain of 
the Company's fixed monthly recurring charges and instituted certain new 
fixed charges. As a result, the Company believes that it may experience an 
increase in its network costs at least until the next phase of Access Reform is 
instituted in July 1998. The Company believes that future revisions may reduce
its network costs because the Company believes that it is not subject to certain
of the new charges instituted by Access Reform and that in any event 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 the 
Company's network costs and, in fact, they may increase. The ultimate impact 
of Access Reform on the Company's cost of network services 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 based upon the number of connections in the 
Company's network, which increases network costs, 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.

                                       10

<PAGE>

Gross Profit

         Gross profit represented approximately 41% of total revenues for the 
first quarter of 1998 compared to 44% for the first quarter of 1997. The   
approximate 3% decrease in gross profit as a percentage of total revenues   
reflects the impact of certain fixed monthly recurring charges increased and  
instituted by Access Reform, costs associated with the Company's development 
of its own on-network "800" access service, costs incurred in connection with 
the TNS Financial Services Network and increases in employees in the 
Companies' network control center to support increasing transaction volumes 
and to support new service offerings. The future level of the Company's gross 
profit margin depends on a number of factors including total transaction and 
query volume growth, the relative growth and contribution to total transaction
volume of each of the Company's customers, 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 because 
a significant portion of network costs are fixed costs. As a result, 
maintaining historical gross margin levels depends in part on growth in 
transaction volume generating economies of scale. The Company believes that 
the gross margin percentage on certain of the Company's new service offerings 
may be greater than those on traditional Telecommunications and POS services. 
The impact on 1998 and future gross margins will be largely dependent upon the 
Company's ability to successfully market these additional services.

Engineering and Development

         Engineering and development expense increased by 31% to $1,027,000 
for the three months ended March 31, 1998 versus $786,000 for the comparable 
period in 1997. Engineering and development expenses increased as a result of 
the growth of the Company. Engineering and development expenses were 6% of 
revenues for the three months ended March 31, 1998 and 6% for the same period 
in 1997.

         The Company has conducted a review of the impact of the Year 2000 on 
its products and services, as well as reviewing its impact on relationships 
with key customers and vendors. Based on this review, a plan to ensure 
minimal disruption to Company operations has been developed and is being 
implemented. The Company does not anticipate incurring material costs 
associated with its products and services to accommodate the Year 2000 issue.

Selling, General and Administrative

         Selling, general and administrative expenses increased by 21% to 
$2,515,000 for the three months ended March 31, 1998 from $2,077,000 for the 
same period of 1997. The increase in these expenses is attributable to growth 
of the Company. Selling, general and administrative expenses were 14% of 
revenues for the three months ended March 31, 1998 and 16% for the same 
period of 1997. This decrease is attributed to certain economies of scale 
attributed to revenue growth.

Depreciation

         Depreciation expense increased by 26% to $1,394,000 for the three 
months ended March 31, 1998 from $1,103,000 for the same period of 1997. 
Depreciation expense increased primarily as a result of the acquisition of 
capital equipment for network expansion to support growth in the Company's 
business.

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<PAGE>

Amortization of Intangibles

         The amortization of intangible assets increased by 17% to $451,000 
for the three months ended March 31, 1998 from $384,000 for the same period 
in 1997. The increase is attributable to the amortization of intangible 
assets associated with the SunTech acquisition on February 27, 1998. The 
Company acquired the dial-up ATM transaction processing segment of SunTech 
and SunTech's proprietary host-interface processing ("HIP") technology 
segment which allows for leased line ATM's to be converted into dial-up 
ATM's. The Company is in the process of negotiations for the potential 
disposition of SunTech's processing segment. As a result, the net assets of 
the processing segment are segregated as "Assets Held for Sale" in the 
accompanying balance sheet. The fair value allocated to the assets held for 
sale includes the anticipated net operating results to be derived from the 
processing operation while owned by the Company. Amounts allocated to 
intangible assets (including customer contracts, non-compete agreements, 
software and goodwill) in the purchase accounting are being amortized on a 
straight-line basis over periods ranging from 2 to 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. 
The results of the HIP technology segment are included in the consolidated 
financial statements since the date of acquisition. The ultimate amount of 
quarterly amortization expense associated with the SunTech acquisition will 
depend upon the final allocation of the purchase price, the sales price of 
the processing segment and the assets purchased and liabilities assumed by 
the acquirer.

         See Note 5 to Item 1.-Financial Statements for discussion of a 
subsequent event.

Income Taxes

         The quarterly effective tax rate decreased from 43% for the three 
months ended March 31, 1997 to 39.0% for the three months ended March 31, 
1998 primarily as a result of the relative reduction in TNSL's losses 
relative to the Company's anticipated annual results. The Company has not 
recorded a tax asset for these losses due to TNSL's brief operating history.

Net Income and Earnings Per Share

         Net income increased by 51% to $1,509,000 for the three months ended 
March 31, 1998 from $1,002,000 for the same period in 1997. Earnings per 
share grew 50% to $0.12 during the quarter from $0.08 in the comparable 1997 
quarter. The weighted average number of shares outstanding used to calculate 
diluted earnings per share increased to 12,973,000 during the first quarter 
of 1998 from 12,556,000 in the same period in 1997. Diluted shares outstanding
increased primarily because of the approximately 287,000 shares issued on 
February 27, 1998 in connection with the SunTech acquisition.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 1998, principal sources of liquidity were cash and cash 
equivalents of $9,987,000, short term investments of $5,224,000 (some of 
which are non-marketable securities) and a bank line of credit of up to 
$5,000,000 which expires in July 1998. The line of credit bears interest at 
the prime rate and has not been used. Management anticipates that the amount 
of cash and cash equivalents would increase upon the disposition of the 
processing segment of SunTech.

         Net cash provided by operating activities was $3,191,000 for the 
three month period ended March 31, 1998, a decrease from $3,915,000 for the 
comparable period in 1997. The decrease is primarily from increases in net 
income and depreciation and accounts payable being more than offset by a 
relative increase in accounts receivable.

         Investing activities used $11,990,000 for the three month period 
ended March 31, 1998 as compared to a use of $237,000 for the same period in 
1997. The significant increase in cash used in investing activities primarily 
relates to approximately $12,243,000 paid for the acquisition of SunTech. The 
Company purchased $3,409,000 of equipment for the three month period ended, 
March 31, 1998 up from $2,181,000 for the comparable period in 

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<PAGE>

1997. The increase was primarily due to the requirements of new service 
offerings including the build-out of the TNS FASTLink-Registered Trademark- 
Data Services backbone network and the Company's own on network "800" 
service. Investing activities in 1998 included approximately $1,000,000 of a 
loan made to a vendor. The remaining net difference between the first three 
months of 1998 versus 1997 results from significant maturities ($4,675,000) 
of short-term investments in the first three months of 1998 compared to 
purchases of short-term investments of $589,000 in the same period in 1997.

         Financing activities provided $325,000 for the three month period 
ended March 31, 1998 as compared to $58,000 of cash provided for the same 
period in 1997. The increase relates to an increase in proceeds from the 
exercise of stock options and the Company's employee stock purchase plan.

              The Company believes that its existing cash, investment 
balances, availability under its line of credit 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 July, 1997, the FASB issued Statement No. 131 "Disclosures About 
Segments of an Enterprise and Related Information." Statement No. 131 will 
require the Company to disclose segment information using a "management 
approach" beginning with its December 31, 1998 financial statements.

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.




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<PAGE>

                           PART II - OTHER INFORMATION

Item 1.           Legal Proceedings. -

                  On October 28, 1997, the Company filed a formal complaint 
                  with the Federal Communications Commission (the "FCC") 
                  against AT&T Corp. ("AT&T"). The complaint alleges that 
                  AT&T, through the provision of common carrier services to 
                  its Transaction Access Services Group ("TAS Group") on 
                  terms and conditions more favorable than those listed in 
                  AT&T's tariffs, violates several provisions of the 
                  Communications Act of 1934 and the FCC's rules. TAS Group 
                  competes with the Company's TransXpress-Registered 
                  Trademark- network services. The complaint seeks an order 
                  requiring AT&T to cease and desist from engaging in the 
                  contested conduct and seeks monetary damages for lost 
                  business opportunities. The parties are in the process of 
                  taking discovery and the ultimate outcome of this action is 
                  uncertain.

Item 2.           Changes in Securities -

                  On February 27, 1998, the Company acquired certain assets and
                  assumed certain liabilities from SunTech Processing Systems,
                  LLC ("SunTech"). The total consideration paid to SunTech was
                  $17.5 million, composed of $12.25 million in cash and 287,474
                  shares of the Company's common stock. The issuance of the
                  common stock to SunTech was exempt from registration under the
                  Securities of 1933, As amended (the "Securities Act"), as a
                  transaction not involving a public offering. In connection
                  with the transaction, the Company granted SunTech certain
                  rights to registration of the common stock under the
                  Securities Act.

Item 3.           Default Upon Senior Securities. - Not Applicable

Item 4.           Submission of Matters to a Vote of Security Holders.- Not 
                  Applicable

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


                  (a.)   Exhibits.

                         Financial Data Schedule.

                  (b.)   Reports on Form 8-K.

                  The Company filed a Current Report on Form 8-K on March 9,
                  1998 reporting pursuant to Item 2 the acquisition of certain
                  assets and the assumption of certain liabilities of SunTech
                  Processing Systems, LLC as amended by Amendment No. 1 filed 
                  on May 13, 1998.


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<PAGE>

                                   SIGNATURES

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

                                  Transaction Network Services, Inc.
                                  (Registrant)

Date: May 14, 1998                By: /s/ John J. McDonnell, Jr.
                                      ----------------------------
                                      John J. McDonnell, Jr.
                                      President and Chief
                                      Executive Officer



Date: May 14, 1998                By: /s/ Thaddeus G. Weed
                                      -----------------------
                                      Thaddeus G. Weed
                                      Chief Financial Officer and Treasurer

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