<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 June 30, 1999

                         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 August 11, 1999
               13,162,617 Shares of Common Stock, $0.01 par value


                               Page 1 of 19





<PAGE>

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                      June 30,        December 31,
                                                        1999             1998
                                                      ----------      ----------
                                                        (Unaudited)
                                     ASSETS
CURRENT ASSETS:
<S>                                                    <C>             <C>
      Cash and cash equivalents                        $ 13,940        $ 12,339
      Short-term investments                              1,216           3,092
      Accounts receivable, net                           30,049          28,836
      Other current assets                                6,390           5,477
                                                      ----------      ----------
          Total current assets                           51,595          49,744
                                                      ----------      ----------
EQUIPMENT, at cost:
      Network equipment                                  56,727          47,296
      Office equipment                                   11,733           7,381
      Less - Accumulated depreciation                   (26,892)        (20,897)
                                                      ----------      ----------
                                                         41,568          33,780
                                                      ----------      ----------
INTANGIBLE ASSETS:
      Software and intangibles                           98,083          93,404
      Less - Accumulated amortization                   (13,295)         (8,989)
                                                      ----------      ----------
                                                         84,788          84,415
                                                      ----------      ----------
OTHER  ASSETS                                             1,837           1,142
LONG-TERM INVESTMENTS                                     3,347           3,404
INVESTMENT IN UNCONSOLIDATED AFFILIATE                        -           2,374
                                                      ----------      ----------
                                                      ----------      ----------
          Total assets                                $ 183,135       $ 174,859
                                                      ----------      ----------
                                                      ----------      ----------

                                 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Accounts payable and accrued expenses            $ 24,386        $ 28,532
LONG-TERM DEBT                                           62,946          59,325
OTHER                                                       402             402
MINORITY INTEREST                                         2,596           2,423
                                                      ----------      ----------
          Total liabilities                              90,330          90,682
                                                      ----------      ----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY :
      Common stock, $0.01 par value,
          20,000 shares authorized,
          13,120 and 12,803 shares issued,
          respectively                                      131             128
      Additional paid-in capital                         62,866          57,487
      Unearned compensation                                  (1)            (16)
      Retained earnings                                  30,680          26,523
      Foreign currency translation                         (871)             55
                                                      ----------      ----------
          Total stockholders' equity                     92,805          84,177
                                                      ----------      ----------
          Total liabilities and stockholders'
          equity                                       $ 183,135       $ 174,859
                                                      ----------      ----------
                                                      ----------      ----------

 The accompanying notes are an integral part of these consolidated statements.

</TABLE>



<PAGE>

<TABLE>
<CAPTION>


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


                                                               Three Months Ended                Six Months Ended
                                                                     June 30,                         June 30,
                                                         -----------------------------   -----------------------------
                                                              1999              1998           1999            1998
                                                         -----------       -----------   -------------   -------------

<S>                                                        <C>               <C>             <C>             <C>
Revenues                                                   $ 42,662          $ 20,433        $ 80,827        $ 38,510
Cost of network services                                     24,965            11,167          50,900          21,874
                                                         -----------       -----------   -------------   -------------

Gross profit                                                 17,697             9,266          29,927          16,636
                                                         -----------       -----------   -------------   -------------

Other operating expenses:
      Engineering & development                               1,435             1,141           2,927           2,168
      Selling, general & administrative                       4,887             2,670           9,020           5,185
      Depreciation                                            2,638             1,593           5,080           2,987
      Amortization of intangibles                             2,107               641           4,186           1,092
      Impairment of AMNEX assets (Note 2)                       919                 -             919               -
                                                         -----------       -----------   -------------   -------------

Total other operating expenses                               11,986             6,045          22,132          11,432
                                                         -----------       -----------   -------------   -------------

Income from operations before provision for
      income taxes, equity in earnings of
      affiliate and minority interest                         5,711             3,221           7,795           5,204

Interest expense                                               (973)                -          (1,925)              -
Interest income and other                                       455               365             874             856
                                                         -----------       -----------   -------------   -------------
Income before provision for income taxes                      5,193             3,586           6,744           6,060

Provision for income taxes                                    1,918             1,430           2,552           2,395

Equity in earnings of unconsolidated affiliate                    0                81              93              81
Minority interest in net income of
      consolidated subsidiary                                  (145)                -            (128)              -
                                                         -----------       -----------   -------------   -------------

Net income                                                 $  3,130          $  2,237        $  4,157        $  3,746
                                                         -----------       -----------   ------------    -------------
                                                         -----------       -----------   ------------    -------------


 Diluted earnings per common share                         $   0.23          $   0.17        $   0.30        $   0.29
                                                         -----------       -----------   ------------    -------------
                                                         -----------       -----------   ------------    -------------

 Basic earnings per common share                           $   0.24          $   0.18        $   0.32        $   0.30
                                                         -----------       -----------   ------------    -------------
                                                         -----------       -----------   ------------    -------------

 Weighted average shares - diluted                           13,864            13,307          13,692          13,123
                                                         -----------       -----------   ------------    -------------
                                                         -----------       -----------   ------------    -------------

 Weighted average common shares - basic                      13,069            12,647          13,028          12,519
                                                         -----------       -----------   ------------    -------------
                                                         -----------       -----------   ------------    -------------


  The accompanying notes are an integral part of these consolidated statements.


</TABLE>


<PAGE>

<TABLE>
<CAPTION>


               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)
                                                                                              Six Months
                                                                                            Ended June 30,
                                                                                       --------------------------
                                                                                          1999           1998
                                                                                       -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                       <C>            <C>
     Net Income                                                                           $ 4,157        $ 3,746
     Adjustments to reconcile net income to net cash
         provided by operating activities:
         Depreciation and amortization                                                      9,266          4,079
         Stock option compensation                                                             15             15
         Equity in earnings of unconsolidated affiliate                                       (93)           (81)
         Income applicable to minority interest                                               128              -
         Loss on disposals                                                                    145              -
         Impairment of AMNEX intangible assets (Note 2)                                       919              -
     Changes in assets and liabilities, net of impact of acquisitions:
            Accounts receivable                                                               (18)        (3,841)
            Other current assets                                                             (679)          (358)
            Other assets and liabilities                                                       55             63
            Accounts payable and accrued expenses                                          (8,187)         1,621
                                                                                       -----------    -----------
                Net cash provided by operating activities                                   5,708          5,244
                                                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchases of equipment                                                           (10,673)        (6,925)
         Purchases of intangible assets                                                         -            (20)
         Acquisitions, net of cash acquired                                                 2,214        (12,243)
         Investment in affiliate                                                                -         (1,999)
         Maturities of short-term investments                                               1,876          4,090
         Purchases of long-term investments                                                     -         (1,006)
                                                                                       -----------    -----------
            Net cash used in investing activities                                          (6,583)       (18,103)
                                                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from options and employee stock purchase plan                             1,290            985
         Repayment of long-term debt                                                       (5,563)             -
         Proceeds from long-term debt borrowings                                            7,675              -
                                                                                       ------------    ----------
            Net cash provided by  financing activities                                      3,402            985
                                                                                       ------------    ----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                      (926)           (63)
NET  INCREASE (DECREASE) IN CASH AND CASH
            EQUIVALENTS                                                                     1,601        (11,937)
CASH AND CASH EQUIVALENTS, beginning of period                                             12,339         18,516
                                                                                       -----------    -----------
                                                                                       -----------    -----------
CASH AND CASH EQUIVALENTS, end of period                                                 $ 13,940        $ 6,579
                                                                                       -----------    -----------
                                                                                       -----------    -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
         Cash paid for income taxes                                                       $ 1,303         $2,548
                                                                                       -----------    -----------
                                                                                       -----------    -----------
         Cash paid for interest                                                             $ 842            $ -
                                                                                       -----------    -----------
                                                                                       -----------    -----------
         Fair value of assets acquired                                                    $ 7,496       $ 19,639
         Less:  cash paid, net                                                              2,214        (12,243)
                value of stock issued                                                      (4,160)        (5,250)
                                                                                       -----------    -----------
                                                                                       -----------    -----------
         Liabilites assumed                                                               $ 5,550        $ 2,146
                                                                                       -----------    -----------
                                                                                       -----------    -----------

 The accompanying notes are an integral part of these consolidated statements.

</TABLE>

                                      4

<PAGE>


               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1999
                                   (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. The Company
currently operates four divisions: (1) the POS Division which includes the
Company's TransXpress(R) network services for the POS transaction processing
industry, (2) the Telecom Services Division ("TSD") which includes the
Company's CARD*TEL(R) 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(R) 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
and six month periods ended June 30, 1999 are not necessarily indicative of the
results to be expected for the full year.


2. ACQUISITIONS AND OTHER ASSETS

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 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 was primarily engaged in the business of providing
transaction processing services for automated teller machines ("ATMs") and
developing additional communications technologies for ATMs. 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. On July 23,
1998, the Company sold the Processing Business for $6.0 million in cash and
other assets. The SunTech acquisition is being accounted for as a purchase.
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.

                                   5

<PAGE>



SWITCHTRAN LIMITED

         In April 1998, the Company, through its majority owned Irish subsidiary
Transaction Network Services Limited ("TNSL"), acquired a 50% interest in Atos
Ireland Limited for approximately $2.0 million. Atos Ireland Limited has been
renamed Switchtran Limited ("Switchtran"). Switchtran provides processing
services, primarily for cash withdrawals, made from a network of ATM's located
throughout Ireland. Prior to the acquisition, Atos Ireland Limited 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. Under the terms of the acquisition, SPS was granted an option to sell
its 50% interest in Switchtran to TNSL. In March 1999, SPS notified TNSL that
they had elected to exercise their option. The exercise price was approximately
$1.7 million and effective April 1, 1999 the Company began consolidating the
results of Switchtran. The Switchtran acquisition is being accounted for as a
purchase. Amounts allocated to intangible assets (goodwill) in the purchase
accounting are being amortized on a straight-line basis over a period of 10
years. Prior to the Company's acquisition of SPS' 50% interest, Switchtran was
accounted for under the equity method of accounting.

OMNILINK COMMUNICATIONS CORPORATION

         On July 1, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of OmniLink Communications Corporation
("OmniLink"), a Michigan corporation. 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. The
consideration paid to OmniLink, after arm's-length negotiations, was $2.5
million which was composed of (a) approximately $600,000 in cash, and (b)
approximately $1.9 million by cancellation of a note payable from OmniLink to
the Company. The OmniLink acquisition is being accounted for as a purchase.
Amounts allocated to intangible assets (goodwill) in the purchase accounting are
being amortized on a straight-line basis over a period of 10 years

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
after arm's-length negotiations 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") obtained in connection with
this transaction. The Company has been purchasing and will continue to purchase
communication and other transitional services from AT&T until all of the TAS
customers are migrated from the TAS network to the TNS network.

         The TAS acquisition is being accounted for as a purchase. Amounts
allocated to intangible assets (including customer contracts, a non-compete
agreement, and goodwill) in the purchase accounting are being 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.

                                  6

<PAGE>



TRANSLINE COMMUNICATIONS, INC.

         In December 1998, the Company entered into an agreement and plan of
merger with TransLine Communications, Inc. ("TransLine"), which closed on
January 13, 1999. TransLine's core business is comprised of managed private,
secure voice and data services provided to financial institutions in connection
with futures, options, and commodities trading. Under the agreement the
TransLine shares were exchanged for approximately $4.1 million in TNS common
stock, or 207,529 shares of TNS common stock based upon the closing price of TNS
shares ten days prior to the closing. An additional 5,112 shares were issued as
consideration for certain transaction fees.

         The TransLine acquisition is being accounted for as a purchase. Amounts
allocated to intangible assets (including customer contracts and goodwill) in
the purchase accounting are being amortized on a straight-line basis over
periods ranging from 5 to 15 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.

PRO FORMA FINANCIAL INFORMATION

         The unaudited pro forma information set forth below gives effect to the
SunTech, OmniLink, TAS and TransLine transactions as though each had occurred on
January 1, 1998. The results of TransLine for the period from January 1, 1999
until closing on January 13, 1999, and the impact of the Switchtran transaction
were not material. 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 acquisitions been consummated as
of that time (unaudited, 000's omitted):
<TABLE>
<CAPTION>

                                                Six-Months Ended
                                                 June 30, 1998
                                               -----------------
<S>                                                     <C>
         Revenues                                       $69,169
         Net income                                       6,367
         Diluted earnings per share                       $0.47
         Basic earnings per share                         $0.50
</TABLE>

IMPAIRMENT OF AMNEX ASSETS

         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. 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 beginning in March
1999. Approximately $255,000 of these amounts were paid in 1999. In May 1999,
AMNEX filed for bankruptcy protection. Management concluded that the remaining
AMNEX assets were impaired and the Company reserved the net assets related to
AMNEX remaining on its balance sheet. This reserve resulted in a pre-tax
non-cash accounting charge of $919,000 recorded during the three months ended
June 30, 1999.

                                7

<PAGE>


3. CREDIT AGREEMENT

       In March 1999, due to market conditions, the Company and the Company's
primary lender agreed to temporarily reduce its Revolving Credit Facility (the
"Revolver") from $75 million to $62 million. In June 1999, the Revolver was
increased to its previous $75 million limitation. 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 Revolver. The
interest rate at June 30, 1999 was 6.0% and the weighted-average interest rate
for the three-month period ended June 30, 1999 was 6.1%. The LIBOR loan
outstanding at June 30, 1999 expires in July 1999 and the Revolver matures in
September 2001. Fair value approximated book value at June 30, 1999 due to the
short-term maturity of the amount outstanding.

4. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

                                                    Three Months Ended                  Six Months Ended
                                                          June 30,                           June 30,
                                                     1999               1998           1999         1998
                                                   --------------------------       -----------------------
<S>                                                <C>             <C>              <C>          <C>
Weighted average shares outstanding - basic        13,069,451      12,647,299       13,027,923   12,518,978
Dilutive effect of  stock options                     794,477         659,233          663,831      604,287
                                                   --------------------------       -----------------------
Weighted average shares - dilutive                 13,863,928      13,306,532       13,691,754   13,123,265
                                                   --------------------------       -----------------------
Diluted earnings per share                             $ 0.23          $ 0.17            $0.30        $0.29
Basic earnings per share                               $ 0.24          $ 0.18            $0.32        $0.30
</TABLE>



5.  COMPREHENSIVE INCOME

The total of net income and all other non-owner changes in equity consists of
(unaudited, 000's omitted):

<TABLE>
<CAPTION>

                                                         Three Months Ended               Six Months Ended
                                                              June 30,                        June 30,
                                                       1999            1998               1999         1998
                                                     -----------------------            ----------------------
<S>                                                  <C>             <C>                <C>            <C>
                  Net Income                         $ 3,130         $ 2,237            $ 4,157        $3,746
                  Other Comprehensive Income:
                  Currency Translation                 (613)             (6)               (926)           (63)
                                                     -----------------------            ----------------------
                  Comprehensive Income               $ 2,517         $ 2,231             $ 3,231       $ 3,683
                                                     -----------------------            ----------------------

</TABLE>

                                      8

<PAGE>



6. SEGMENT INFORMATION

         The Company's reportable segments are strategic business units that
offer different products and services. The Company classifies its business
into four segments: the POS Division ("POS"), the Telecom Services Division
("TSD"), the 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 included
in the Company's 1998 Form 10-K. The Company evaluates performance based upon
income from operations before amortization and depreciation. Interim
information on the Company's business segments for the three and six months
ended June 30, 1999 and 1998 is presented below:

<TABLE>
<CAPTION>

------------------------------------------------------------- ---------------------- ----------------------
                                                               Three Months Ended     Three Months Ended
                                                                  June 30, 1999          June 30, 1998
------------------------------------------------------------- ---------------------- ----------------------
Revenue:
------------------------------------------------------------- ---------------------- ----------------------
<S>                                                                         <C>                    <C>
 POS                                                                        $29,496                $12,009
------------------------------------------------------------- ---------------------- ----------------------
TSD                                                                           9,113                  7,274
------------------------------------------------------------- ---------------------- ----------------------
All others                                                                    4,053                  1,150
------------------------------------------------------------- ---------------------- ----------------------
     Total Revenue                                                          $42,662                $20,433
------------------------------------------------------------- ---------------------- ----------------------

------------------------------------------------------------- ---------------------- ----------------------
Operating profit:
------------------------------------------------------------- ---------------------- ----------------------
POS                                                                          $7,658                 $4,109
------------------------------------------------------------- ---------------------- ----------------------
TSD                                                                           3,416                  1,754
------------------------------------------------------------- ---------------------- ----------------------
All others                                                                      301                  (408)
------------------------------------------------------------- ---------------------- ----------------------
     Total                                                                  $11,375                 $5,455
------------------------------------------------------------- ---------------------- ----------------------
</TABLE>
<TABLE>
<CAPTION>


------------------------------------------------------------- ---------------------- ----------------------
                                                                Six Months Ended       Six Months Ended
                                                                  June 30, 1999          June 30, 1998
------------------------------------------------------------- ---------------------- ----------------------
Revenue:
------------------------------------------------------------- ---------------------- ----------------------
<S>                                                                         <C>                    <C>
 POS                                                                        $57,126                $22,990
------------------------------------------------------------- ---------------------- ----------------------
TSD                                                                          16,973                 13,815
------------------------------------------------------------- ---------------------- ----------------------
All others                                                                    6,728                  1,705
------------------------------------------------------------- ---------------------- ----------------------
     Total Revenue                                                          $80,827                $38,510
------------------------------------------------------------- ---------------------- ----------------------

------------------------------------------------------------- ---------------------- ----------------------
Operating profit:
------------------------------------------------------------- ---------------------- ----------------------
POS                                                                         $11,907                 $7,324
------------------------------------------------------------- ---------------------- ----------------------
TSD                                                                           6,131                  3,146
------------------------------------------------------------- ---------------------- ----------------------
All others                                                                     (58)                (1,187)
------------------------------------------------------------- ---------------------- ----------------------
     Total                                                                  $17,980                 $9,283
------------------------------------------------------------- ---------------------- ----------------------
</TABLE>


                                       9

<PAGE>


Item 2.

               TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARIES
                     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 and infrastructure, 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.

RESULTS OF OPERATIONS

REVENUES

         Total revenues increased by 109% to $42,662,000 for the three-month
period ended June 30, 1999 from $20,433,000 for the same period in 1998 and by
110% to $80,827,000 for the first six months of 1999 from $38,510,000 for the
same period in 1998.

         POS services revenue increased by 146% to $29,496,000 from $12,009,000
for the three months ended June 30, 1999 versus the comparable period in 1998
and by 148% to $57,126,000 from $22,990,000 for the first six months of 1999
versus the same period in 1998. The growth in POS services revenue resulted
primarily from the transaction volume and associated revenue related to the
September 1998 acquisition of AT&T Corp's ("AT&T") Transaction Access Service
("TAS") as well as an increase in transaction volume and associated revenue from
the Company's historical POS customers. POS transaction volume increased by 135%
to 1.6 billion transactions for the second quarter of 1999 from 681 million
transactions in the second quarter of 1998. POS transaction revenue per
transaction was $0.018 for the three months ended June 30, 1999 and $0.016 for
the comparable period in 1998. The increase in transaction revenue per
transaction is primarily attributed to the TAS acquisition as the transaction
revenue per transaction under the TAS contracts is greater than the Company's
average transaction revenue per transaction for its historical POS customers.

         Telecommunications services revenue increased by 25% to $9,113,000 from
$7,274,000 for the three months ended June 30, 1999 versus the comparable period
in 1998 and by 23% to $16,973,000 from $13,815,000 for the first

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<PAGE>


six months of 1999 versus the same period in 1998. 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 revenues from the Company's LEConnect-Registered
Trademark-, SS7 and
local number portability services.

         Financial Services Division revenue increased by 371% to $1,836,000 for
the three months ended June 30, 1999 versus $390,000 for the same period in 1998
and by 431% to $3,307,000 from $623,000 for the first six months of 1999 versus
the same period in 1998. The growth in revenue was due to growth in the number
of customers and the associated connections to the Company's financial services
network and from revenues associated with the January 1999 TransLine
acquisition. The TransLine acquisition contributed $853,000 of revenues for the
three months ended June 30, 1999 and $1,618,000 for the first six months of
1999.

         International Systems Division revenue increased by 192% to $2,217,000
in the second quarter of 1999 compared to $760,000 for the same period in 1998
and by 216% to $3,421,000 from $1,082,000 for the first six months of 1999
versus the same period in 1998. The increase is due to revenues associated with
Transaction Network Services (UK) Limited ("TNSUK"), revenues from Switchtran
Limited ("Switchtran"), and increases in royalties and software license fees.
TNSUK, formed in September 1998, utilizes the Company's network technology,
along with technology acquired in the acquisition of certain assets of SunTech
and OmniLink, to provide point-of-sale and other transaction services in the
United Kingdom. TNSUK contributed $1,363,000 of revenue for the second quarter
of 1999, and $2,309,000 for the first six months of 1999. Effective April 1,
1999 the Company began consolidating the results of Switchtran after obtaining
100% ownership through a put arrangement with the joint venture partner.
Switchtran contributed approximately $507,000 of revenues for the second quarter
of 1999. From the Company's April 1998 investment in Switchtran until March 31,
1999, Switchtrans' financial results were accounted for under the equity method
of accounting.

COST OF NETWORK SERVICES AND GROSS PROFIT

         Cost of network services increased by 124% to $24,965,000 for the
  second quarter of 1999 from $11,167,000 for the second quarter of 1998 and by
  133% to $50,900,000 from $21,874,000 for the first six months of 1999 versus
  the same period in 1998. This growth resulted primarily from increases in
  communication and usage charges resulting from increased transaction and query
  volumes, including transactions associated with the TAS acquisition. Gross
  profit represented approximately 41% of total revenues for the second quarter
  of 1999 compared to 45% for the second quarter of 1998 and 37% for the first
  six months of 1999 versus 43% for the same period in 1998. The decrease in
  gross profit as a percentage of total revenues is largely attributed to the
  transitional communications services rates associated with the TAS acquisition
  and the Company's efforts to accommodate the TAS traffic. These efforts
  included increases in employees and network capacity, each of which increased
  the cost of network services. The decrease in gross margin percentage was also
  attributed to costs associated with the Company's expansion of its own
  on-network "800" access service and the impact of certain fixed charges
  instituted in the third phase of Access Reform.

         In connection with the TAS acquisition, the Company entered into an
arrangement where the Company purchases transitional communication services and
other transitional services from AT&T (the "Transition Services Agreement"). The
cost of network services associated with each TAS transaction is determined by
the Transition Services Agreement until that TAS customer is migrated from the
TAS network to the Company's 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
communication rates included in the Transition Services Agreement are
significantly greater than the rates the Company separately negotiated with AT&T
under the Communication Services Agreement, the rates the Company has contracted
for similar services with other vendors, and the rates incurred when utilizing
the Company's own "800" network. Accordingly, the Company has experienced, and
will continue to incur, a cost of network services above historical levels for
the transactions that remain on the TAS network. Once a TAS customer is
transitioned off of the TAS 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.

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<PAGE>



         The ultimate impact of the Transition Services Agreement and the
Company's ability to successfully transition the TAS customers from the TAS
network to its network facilities is dependent upon many factors. These factors
include, among others: the Company's ability to increase capacity on its
network, customer 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 carried approximately 80% of the TAS
transactions on its network during the second quarter of 1999. On June 30, 1999,
approximately 94% of the TAS transactions were transitioned off of the TAS
network and onto the Company's network facilities. As of July 31, 1999
approximately 97% of the TAS transactions were transitioned off of the TAS
network and onto the Company's network facilities. However, there may be
disproportionate fixed expenses associated with the operation of the TAS Network
until 100% of the TAS traffic is migrated onto the Company's network. The
Company expects to transition the remaining TAS transactions to its network no
later than the third quarter of 1999. There also are many variables involved in
the transition process including those 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 of every remaining customer and transaction 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"). The initial phase of Access Reform, implemented in
July 1997, 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. The second and third phases of Access Reform
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 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, and 4) the ability of the Company to modify its
network design to react to pricing revisions. 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 and 1999, 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 on-network "800" access service. The
Company considers the availability of its own on-network "800" access service
necessary to continue to increase transaction volumes on its network and to
increase its gross margins. 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 per transaction charged by third party
service providers.

         Future gross profit margin percentages depend on a number of factors
including the ability to successfully complete the migration of the remaining
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, including it own "800"
access service and the

                                    12

<PAGE>


impact of Access Reform. 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,
maintaining historical gross margin levels depends in part on growth in
transaction volume generating economies of scale. The Company believes that its
gross margin percentage in the third quarter and remainder of 1999 will be
greater than the percentage experienced in the first and second quarter of 1999
primarily due to the transition of the TAS transactions to the Company's network
facilities and off of the TAS network.

ENGINEERING AND DEVELOPMENT EXPENSES

         Engineering and development ("E&D") expense increased by 26% to
$1,435,000 for the second quarter of 1999 from $1,141,000 for the second quarter
of 1998 and by 35% to $2,927,000 from $2,168,000 for the first six months of
1999 versus the same period in 1998. E&D expenses increased primarily from the
additional employees and related expenses required to support the Company's
expanded operations. E&D expenses represented approximately 3% of revenues for
the second quarter of 1999, 6% of revenues for the second quarter of 1998, 4% of
revenues for the first six months of 1999 and 6% of revenues for the first six
months of 1998. These decreases in E&D expenses as a percentage of revenues, are
due to an increase in revenues primarily associated with the TAS acquisition,
without a corresponding proportional increase in E&D expenses and the
capitalization of software costs in 1999. The Company capitalized approximately
$750,000 of software costs in the second quarter of 1999 and $1,350,000 in the
first six months of 1999 under a new accounting standard which became effective
January 1, 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses increased by 64%
to $4,887,000 for the second quarter of 1999 from $2,670,000 for the second
quarter of 1998 and increased by 74% to $9,020,000 from $5,185,000 for the first
six months of 1999 versus the same period in 1998. SG&A expenses increased
primarily from the additional employees and related expenses required to support
the Company's revenue growth and international expansion and from the employees
and related costs associated with the OmniLink acquisition. SG&A expenses for
the Company's International Systems Division increased by 138% to $873,000 for
the second quarter of 1999 from $367,000 for the second quarter of 1998 and
increased by 133% to $1,547,000 for the first six months of 1999 from $663,000
for the first six months of 1998. SG&A expenses represented 11% of revenues for
the second quarter of 1999, 13% of revenues for the second quarter of 1998, 11%
of revenues for the first six months of 1999 and 13% of revenues for the first
six months of 1998. These decreases in SG&A expenses as a percentage of revenues
are due to an increase in revenues, primarily associated with the TAS
acquisition, without a corresponding proportional increase in SG&A expenses.
These decreases are reduced by the Company's international activities where SG&A
expenses as a percentage of revenues have been greater than Company's historical
percentages. SG&A expenses for the Company's International Systems Division
("ISD") represented 39% of ISD revenues for the second quarter of 1999, 48% of
ISD revenues for the second quarter of 1998, 45% of ISD revenues for the first
six months of 1999 and 61% of ISD revenues for the first six months of 1998.

DEPRECIATION

         Depreciation expense increased by 66% to $2,638,000 for the second
quarter of 1999 from $1,593,000 for the second quarter of 1998 and by 70% to
$5,080,000 from $2,987,000 for the first six months of 1999 versus the same
period in 1998. 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 6% of revenues for the
second quarter of 1999, 8% of revenues for the second quarter of 1998, 6% of
revenues for the first six months of 1999 and 8% of revenues for the first six
months of 1998. These decreases are due to an increase in revenues, primarily
associated with the TAS acquisition, without a corresponding proportional
increase in depreciation expenses due to increased usage of the Company's
network.

         The Company purchased approximately $5.3 million of equipment for the
second quarter of 1999 and $10.7 million for the first six months of 1999. These
amounts include approximately $750,000 of software costs capitalized in the
second quarter of 1999 and $1,350,000 of software costs capitalized in the first
six months of 1999 under a new accounting standard. While certain of the
Company's network equipment will become fully depreciated in 1999,

                                  13

<PAGE>


depreciation expense is expected to increase in absolute dollars due to the
deployment of the equipment necessary to support the TAS acquisition, and to a
lesser extent, due to the Company's plans for international network expansion.

AMORTIZATION OF INTANGIBLES

         Amortization expense increased by 229% to $2,107,000 for the second
quarter of 1999 from $641,000 for the second quarter of 1998 and by 283% to
$4,186,000 from $1,092,000 for the first six months of 1999 versus the same
period in 1998. The increase is attributable to the amortization of intangible
assets associated with the TAS, SunTech, OmniLink, TransLine and Switchtran
transactions. Amortization expense is expected to be approximately $2.1 million
per quarter over the next several years.

IMPAIRMENT OF AMNEX ASSETS

         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. 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 beginning in March 1999. Approximately $255,000 of
these amounts were paid in 1999. In May 1999, AMNEX filed for bankruptcy
protection. Management concluded that the remaining AMNEX assets were impaired
and the Company reserved the net assets related to AMNEX remaining on its
balance sheet. This reserve resulted in a pre-tax, non-cash accounting charge of
$919,000 recorded during the three months ended June 30, 1999.

INTEREST EXPENSE AND INTEREST INCOME

         Net interest resulted in an expense of $518,000 for the second quarter
of 1999 compared to interest income of $365,000 for the second quarter of 1998
and an expense of $1,051,000 for the first six months of 1999 versus interest
income of $856,000 for the same period in 1998. The Company incurred $973,000 of
interest expense in the second quarter of 1999 and $1,925,000 for the first six
months of 1999 primarily associated with borrowings made in connection with the
TAS acquisition.

INCOME TAXES

         The effective tax rate decreased from 40% for the second quarter of
1998 to 37% for the second quarter of 1999. This decrease is the result of a
lower effective tax rate for the Company's international operations than the
effective tax rate in the United States and the utilization of net operating
loss carryforwards by TNSUK. The Company's international operations resulted in
net income of $168,000 for the second quarter of 1999 compared to a loss of
$270,000 for the second quarter of 1998. The Company's future effective tax
rates will be largely dependent upon the results of the Company's international
activities. The Company has not recorded tax assets for losses incurred at
certain of its foreign subsidiaries. If these subsidiaries demonstrate sustained
profitability the Company may experience a lower effective tax rate due to the
utilization of the loss carryforwards and a lower effective tax rate in Ireland
than in the United States.

EARNINGS PER SHARE

         Diluted earnings per share increased by 35% to $0.23 for the second
quarter of 1999 from $0.17 for the second quarter of 1998 and increased by 3% to
$0.30 for the first six months of 1999 from $0.29 for the first six months

                                    14

<PAGE>


of 1998. Basic earnings per share increased by 33% to $0.24 for the second
quarter of 1999 from $0.18 for the second quarter of 1998 and increased by 7% to
$0.32 for the first six months of 1999 from $0.30 for the first six months of
1998. The reserve for AMNEX assets reduced diluted and basic earnings per share
for the three and six months ended June 30, 1999 by $0.04.

         The weighted-average number of shares outstanding used to calculate
basic and diluted earnings per share increased by 3% for the second quarter of
1999 from the second quarter of 1998 primarily because of the issuance of
212,641 shares in connection with the January 13, 1999 TransLine acquisition.
The weighted-average number of shares outstanding used to calculate diluted
earnings per share further increased by 4% for the second quarter of 1999 from
the second quarter of 1998 because of an increase in outstanding options for the
Company's common stock.


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. The Company has not sought, and is not seeking,
Year 2000 Compatibility 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. The Company has
provided certain customers with statements of readiness on the Year 2000.

         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 in
the process of implementing its plan (including remediation, upgrading, and
replacement). At this time the cost of replacement systems and modifications is
not expected to be, and has not been, material and has been incorporated into
system upgrades taking place in 1999. However, 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 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. The
Company has completed its identification and assessment with respect to
mission-critical applications, networks and systems. 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. Remediation and testing continues
with respect to mission-critical applications, networks and systems, and the
Company is now targeting Year 2000 compatibility for its mission-critical
networks, applications and systems for on or before August 31, 1999. The full
deployment of necessary software throughout the Company's networks and systems
is targeted for no later than October 1999. Known or unknown errors or defects
in the Company's products or service

                                     15

<PAGE>


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.

         Switchtran was previously providing service through a processing
platform that was not Year 2000 Compatible. Based upon an evaluation and testing
by the Company, the Company believes that the modifications made to the existing
Switchtran platform by the former joint venture partner have been completed and
the processing platform is now Year 2000 Compatible.

         The Company is in the process of developing 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 now
expected to be completed no later than October 1999.

         The activities involved in the Company's Year 2000 projects 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 these projects. 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.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 1999, the principal sources of liquidity were cash and cash
equivalents of $13,940,000, short-term investments of $1,216,000 and $13.0
million of availability under the Revolver. In March 1999, due to market
conditions, the Company and the Company's primary lender agreed to temporarily
reduce the Revolver from $75 million to $62 million. In June 1999, the Revolver
was increased to its previous $75 million limitation. At June 30, 1999,
approximately $5.6 million of cash and cash equivalents were held by TNSUK and
TNSL - majority owned subsidiaries. Non-marketable securities were approximately
$3.6 million at June 30, 1999. 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,
$92,000 in 1999, $473,000 in 2000, $150,000 in 2001, $550,000 in 2002 and $2.3
million in 2005.

         Net cash provided by operating activities was $5,708,000 for the first
six months of 1999 and $5,244,000 for the same period in 1998. Depreciation and
amortization increased by $5,187,000 for the comparable six-month periods.
Accounts receivable, accounts payable and accrued expenses utilized $8,205,000
of cash for the first six months of 1999 versus a use of $2,220,000 for the same
period in 1998. The $8,187,000 reduction in accounts payable and

                                  16

<PAGE>


accrued expenses for the six months ended June 30, 1999 is attributed to a
decline in the amounts due to AT&T for transition services from $16,302,000 at
December 31, 1998 to $3,774,000 at June 30, 1999

         Investing activities used $6,583,000 for the first six months of 1999,
as compared to a use of $18,103,000 for the first six months of 1998. In the
first six months of 1998, the Company paid $12,243,000 for the acquisition of
Suntech and $1,999,000 to acquire a 50% interest in Switchtran. In the first six
months of 1999, the Company acquired TransLine Communications, Inc. for
approximately $4.1 million in TNS stock and acquired the remaining 50% interest
in Switchtran from its joint venture partner for approximately $1.7 million.
TransLine was acquired through the issuance of 212,641 shares of TNS common
stock and included $217,000 in acquisition costs paid in cash. The acquisitions
of Switchtran and TransLine provided $2,214,000 of cash for the six months ended
June 30, 1999 since, at acquisition, Switchtran had approximately $2.4 million
of cash and the purchase price liability assumed at acquisition was paid in July
1999. The Company purchased $10,673,000 of equipment in the first six months of
1999 and $6,925,000 in the first six months of 1998. The increase was primarily
due to equipment purchases required to increase network capacity related to the
TAS acquisition and transaction increases from existing customers, the expansion
of the Company's "800" network, international expansion and the capitalization
of $1,350,000 of software costs in the first six months of 1999. The net
proceeds from the maturities of short and long-term investments were $1,876,000
for the first six months of 1999 and $3,084,000 for the first six months of
1998.

         Financing activities provided $3,402,000 for the first six months of
1999, and $985,000 for the first six months of 1998. The Company received
$7,675,000 in proceeds for borrowings under the Revolver and repaid $5,563,000
($5.0 million under the Revolver) during the first six months of 1999. Proceeds
from the exercise of stock options and the Company's employee stock purchase
plan were $1,290,000 for the first six months of 1999 and $985,000 for the first
six months of 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 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 was
effective January 1, 1999. The Company capitalized approximately $1,350,000 of
software costs in the six-month period ended June 30, 1999 under SOP 98-1. These
costs will be amortized over the useful lives of the related projects, presently
five years. 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. In June 1999, the
FASB issued Statement No. 137 that deferred the adoption date of SFAS 133. The
Company will now be required to adopt Statement No. 133 on January 1, 2001.
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.

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

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credit quality standards as specified in the Company's investment policy
guidelines. Marketable securities were approximately $1.0 million at June 30,
1999, 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 $3.6 million at June 30, 1999. Non-marketable securities mature on
the following dates, $92,000 in 1999, $473,000 in 2000, $150,000 in 2001,
$550,000 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 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. Information about the Company's put and call
arrangements is included in the Company's 1998 Form 10-K. 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 has not been material. 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 June 30, 1999 was 6.00% and
$62.0 million was outstanding. The weighted-average interest rate for the
three-month period ended June 30, 1999 was 6.10%. LIBOR loan maturities range
from 30 to 180 days. The LIBOR loan outstanding at June 30, 1999 expired in July
1999 and was renewed for a 3 month LIBOR loan at an interest rate of 6.31%. Fair
value approximated book value at June 30, 1999 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.

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                           PART II - OTHER INFORMATION


Item 1.           Legal Proceedings -  Not Applicable

Item 2.           Changes in Securities -

                           On January 13, 1999, the Company acquired 100% of the
                  common stock of TransLine Communications Corporation
                  ("TransLine"). The total consideration paid was approximately
                  $4.1 million composed of 207,529 shares of the Company's
                  common stock (and an additional 5,112 shares of the Company's
                  common stock as consideration for certain transaction fees).
                  The issuance of the common stock to TransLine 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 TransLine certain rights to registration of the common
                  stock under the Securities Act. Effective July, 30, 1999, the
                  shares granted to the TransLine shareholders were registered
                  on a Form S-3 registration statement.


Item 3.           Default Upon Senior Securities - Not Applicable

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

                  The Annual Meeting of Stockholders  was held on April 22, 1999
                  at TNS  Headquarters,  1939 Roland Clarke Place, Reston,
                  Virginia 20191.

                  The stockholders voted on the following matters as set forth
                  in the proxy statement:

                  1. ELECTION OF DIRECTORS. The stockholders voted to elect two
                  Class II directors, John J. McDonnell, Jr. and Jurgen Manchot,
                  to three-year terms expiring at the annual meeting of
                  stockholders in 2002. The voting tabulation for each nominee
                  was as follows:

                  John J. McDonnell, Jr. - 10,781,035 votes in favor of election
                  and 399,829 votes withheld.

                  Jurgen Manchot - 10,779,161 votes in favor of election and
                  401,703 votes withheld.

                  The Company has a staggered board. In addition to the two
                  Class I directors elected at the annual meeting of
                  stockholders, the board has two Class I directors whose terms
                  expires at the annual meeting in 2001: Joseph Squarzini, Jr.,
                  and Henry R. Nichols; and two Class III directors whose terms
                  expire at the annual meeting in 2000: William N. Melton and
                  Paolo L. Guidi.

                  2. INCREASE IN THE COMMON STOCK SUBJECT TO THE 1994 STOCK
                  OPTION PLAN. The stockholders approved an increase in the
                  aggregate number of shares of Common Stock authorized for
                  issuance under the Company's 1994 Stock Option Plan, as
                  amended, from 2,300,000 to 3,000,000 shares. The voting
                  tabulation was as follows: 7,217,552 votes in favor of the
                  increase; 2,479,731 votes against the increase; 27,319
                  abstentions; and 1,459,547 votes withheld.

                  3.    EXPAND 1994 STOCK OPTION PLAN TO INCLUDE SUBSIDIARY
                  EMPLOYEES. The stockholders approved an amendment to the
                  Company's 1994 Stock Option Plan, as amended, to make all
                  employees of majority-owned or controlled subsidiaries of the
                  Company eligible for option grants. The voting tabulation was
                  as follows: 9,718,484 votes in favor of the amendment;
                  1,388,391 votes against the amendment; 29,601 abstentions; and
                  44,388 votes withheld.

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                  4.   RATIFICATION OF INDEPENDENT ACCOUNTANTS. The stockholders
                  ratified the selection of Arthur Andersen LLP as the Company's
                  independent accountants for the current fiscal year. The
                  voting tabulation was as follows: 11,173,913 votes in favor of
                  the ratification; 4,450 votes against the ratification; and
                  2,501 abstentions.


Item 6.           Exhibits and Reports on Form 8-K

                  The Company filed a Current report on Form 8-K on July 29,
                  1999 reporting pursuant to Item 5 the Company's earnings
                  release for the second quarter ended June 30, 1999 as reported
                  on July 20, 1999.

                  (a.)     Exhibits.

                          1. Financial Data Schedule.

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                               SIGNATURES

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




                                              Transaction Network Services, Inc.
                                             (Registrant)



Date: August 11, 1999                            By: /s/ John J. McDonnell, Jr.
                                                    ----------------------------
                                                         John J. McDonnell, Jr.
                                                         President and Chief
                                                         Executive Officer



Date: August 11, 1999                             By: /s/ Henry H. Graham
                                                     ---------------------------
                                                         Henry H. Graham
                                                         Chief Financial Officer



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