<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 September 30, 1997
                                           
                           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  November 10, 1997
                  12,231,811 Shares of Common Stock, $0.01 par value


                                           
                                           
                                     Page 1 of 15


<PAGE>

PART I--FINANCIAL INFORMATION 
Item 1. Financial Statements
 
                       TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARY 
                                  CONSOLIDATED BALANCE SHEETS 
                                         (in thousands)
 
<TABLE>
<CAPTION>
                                                  SEPTEMBER 30,          DECEMBER 31,
                                                       1997                  1996
                                                 ---------------         -----------
                                                   (UNAUDITED)                   
<S>                                              <C>                     <C>
ASSETS                                                                            
CURRENT ASSETS:                                                                   
  Cash and cash equivalents..................       $10,271              $   3,169
  Short-term investments.....................        17,430                 27,266
  Accounts receivable, net of allowance                                           
   for doubtful accounts of $650 and                                              
   $598, respectively........................        10,365                  9,350
  Other current assets.......................         1,201                    617
                                                     ------                 ------
    Total current assets.....................        39,267                 40,402
                                                     ------                 ------
EQUIPMENT, at cost:
  Network equipment..........................        27,999                 21,472
  Office equipment...........................         4,601                  2,688
  Less--Accumulated depreciation.............       (13,406)               (10,074)
                                                     ------                 ------
                                                     19,194                 14,086
                                                     ------                 ------
INTANGIBLE ASSETS:
  Software and intangibles...................        13,864                 13,772
  Less--Accumulated amortization.............        (4,342)                (3,186)
                                                     ------                 ------
                                                      9,522                 10,586
                                                     ------                 ------
OTHER ASSETS.................................           857                    909
LONG-TERM INVESTMENTS........................         4,699                  2,568
                                                     ------                 ------
    Total assets.............................       $73,539                $68,551
                                                     ------                 ------
                                                     ------                 ------

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses......        $7,499                 $5,551
DEFERRED INCOME TAX, net of current amount...           774                    809
                                                     ------                 ------
    Total liabilities........................         8,273                  6,360
                                                     ------                 ------
STOCKHOLDERS' EQUITY
  Common Stock, $0.01 par value, 20,000                                       
   shares authorized, 12,441 and 12,328 
   shares issued, respectively...............           124                    123
  Additional paid-in capital.................        50,602                 49,844
  Treasury Stock, 211 shares, at cost........        (2,491)                    --
  Unearned compensation......................           (54)                   (76)
  Retained Earnings..........................        17,139                 12,272
  Foreign currency translation...............           (54)                    28
                                                     ------                 ------
    Total stockholders' equity...............        65,266                 62,191
                                                     ------                 ------
    Total liabilities and stockholders' 
     equity..................................       $73,539                $68,551
                                                     ------                 ------
                                                     ------                 ------
</TABLE>
The accompanying notes are an integral part of these consolidated balance 
sheets.
                                       2

<PAGE>
                    TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARY 
                         CONSOLIDATED STATEMENTS OF OPERATIONS 
                                     (Unaudited) 
                        (in thousands, except per share amounts)
 
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED    NINE MONTHS ENDED
                                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                                        --------------------  --------------------
                                                                          1997       1996       1997       1996
                                                                        ---------  ---------  ---------  ---------
<S>                                                                     <C>        <C>        <C>        <C>
Revenues..............................................................  $  17,170  $  14,840  $  45,729  $  38,941
Cost of network services..............................................      9,540      8,166     25,562     21,539
                                                                        ---------  ---------  ---------  ---------
Gross profit..........................................................      7,630      6,674     20,167     17,402
                                                                        ---------  ---------  ---------  ---------
Other operating expenses:
  Engineering & development...........................................        921        642      2,534      2,022
  Selling, general & administrative...................................      1,998      1,913      6,196      5,650
  Depreciation........................................................      1,225      1,053      3,501      2,970
  Amortization of intangibles.........................................        388        382      1,156      1,100
                                                                        ---------  ---------  ---------  ---------
Total other operating expenses........................................      4,532      3,990     13,387     11,742
                                                                        ---------  ---------  ---------  ---------
Income from operations................................................      3,098      2,684      6,780      5,660
Interest income.......................................................        542        397      1,383      1,247
                                                                        ---------  ---------  ---------  ---------
Income before provision for income taxes..............................      3,640      3,081      8,163      6,907
Provision for income taxes............................................      1,384      1,214      3,296      2,668
                                                                        ---------  ---------  ---------  ---------
Net income............................................................  $   2,256  $   1,867  $   4,867  $   4,239
                                                                        ---------  ---------  ---------  ---------
                                                                        ---------  ---------  ---------  ---------
Net income per common and equivalent share............................  $    0.18  $    0.15  $    0.39  $    0.34
                                                                        ---------  ---------  ---------  ---------
                                                                        ---------  ---------  ---------  ---------
Weighted average common and equivalent shares outstanding.............     12,755     12,618     12,641     12,605
                                                                        ---------  ---------  ---------  ---------
                                                                        ---------  ---------  ---------  ---------
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                       3

<PAGE>
                       TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARY 
                            CONSOLIDATED STATEMENTS OF CASH FLOWS 
                                       (Unaudited) 
                                     (in thousands)
 
<TABLE>
<CAPTION>
                                                                                                   NINE MONTHS
                                                                                               ENDED SEPTEMBER 30,
                                                                                               --------------------
                                                                                                 1997       1996
                                                                                               ---------  ---------
<S>                                                                                            <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income.................................................................................  $   4,867  $   4,239
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization............................................................      4,657      4,070
    Stock option compensation................................................................         22         22
    Loss on disposals of equipment...........................................................         55         16
    Deferred income taxes....................................................................        (35)        --
  Changes in assets and liabilities:
      Accounts receivable....................................................................     (1,015)    (2,425)
      Other current assets...................................................................       (584)        35
      Other assets...........................................................................         52        419
      Accounts payable and accrued expenses..................................................      1,948        618
                                                                                               ---------  ---------
        Net cash provided by operating activities............................................      9,967      6,994
                                                                                               ---------  ---------
                                                                                                       
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of equipment...................................................................     (8,664)    (5,148)
    Purchases of intangible assets...........................................................       (100)    (1,636)
    Proceeds from disposals of equipment.....................................................         --         33
    Collection of note receivable............................................................         --      3,600
    Maturities (purchases) of short-term investments.........................................      9,836    (14,840)
    Purchases of long-term investments.......................................................     (2,131)      (211)
                                                                                               ---------  ---------
      Net cash used in investing activities..................................................     (1,059)   (18,202)
                                                                                               ---------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from options and employee stock purchase plan...................................        759        570
    Purchases of treasury stock..............................................................     (2,491)        --
    Repayment of equipment notes and capital leases..........................................         --        (18)
                                                                                               ---------  ---------
      Net cash (used in) provided by financing activities....................................     (1,732)       552
                                                                                               ---------  ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH......................................................        (74)    --
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS.................................................................................      7,102    (10,656)
CASH AND CASH EQUIVALENTS, beginning of period...............................................      3,169     15,539
                                                                                               ---------  ---------
CASH AND CASH EQUIVALENTS, end of period.....................................................  $  10,271  $   4,883
                                                                                               ---------  ---------
                                                                                               ---------  ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Common Stock issued for 401k matching contribution.......................................  $      --  $     165
    Cash paid for income taxes...............................................................      3,231      2,250
</TABLE>

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

                                       4

<PAGE>
                   TRANSACTION NETWORK SERVICES, INC. AND SUBSIDIARY
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  SEPTEMBER 30, 1997
                                     (Unaudited)
                                           
1.  OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

               Transaction Network Services, Inc. (the "Company" or "TNS") was
incorporated on August 20, 1990, in the state of Delaware and is a nationwide
communications network company specializing in transaction-oriented data
services.  The Company currently addresses four primary markets through its
service offerings: (1) the domestic point-of-sale/point-of-service ("POS")
transaction market through its TransXpress-Registered Trademark-network
services, (2)  the domestic telephone call billing validation and fraud control
market through its CARD*TEL-Registered Trademark- telecommunications services,
(3) international markets for the Company's products and services, and (4)
network service in support of the Financial Interface eXchange ("FIX") messaging
protocol through its TNS FASTlink-Registered Trademark- Data Services. 

               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 management, 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 nine month periods ended September 
30, 1997 and 1996 are not necessarily indicative of the results to be 
expected for the full year.
                

2.  TREASURY STOCK PURCHASES

               In December 1996, the Board of Directors authorized the 
Company to purchase up to 1,000,000 shares of its issued and outstanding 
common stock, such purchases to be effected from time to time on the Nasdaq 
National Market  and/or by block purchases, as determined by the officers of 
the Company. Purchased shares will be held in treasury for use in funding the 
Company's stock option program, or such other uses as the Board may approve. 
During 1997, the Company purchased a total of 211,500 shares for 
approximately $2.5 million. 

3.  OTHER INVESTMENTS 

               In the third quarter of 1997,  in connection with obtaining 
new customers for the Company's service offerings, the Company made certain 
strategic investments. 
               
                The Company obtained a five year exclusive network data mover 
agreement and joint marketing agreement from a customer.  The Company 
invested $2.0 million in this customer in the form of subordinated 
convertible debt. Interest is payable each August, beginning in August 1998. 
Alternatively,  the customer may issue an additional note equal to the 
accrued interest on terms and with rights identical to the original $2.0 
million note. At any time, the Company may convert all or any portion of the 
principal plus accrued interest into a minority interest in the customers' 
common stock.  The customer may redeem up to 50% of the debt at any time up 
until August 1999 at a specified annual internal rate of return.  The 
principal and any unpaid accrued interest matures in August 2005, and as a 
result, the investment is  recorded as a long-term investment in the 
accompanying consolidated balance sheet.

                                          5
<PAGE>

               The Company obtained  agreements to provide 
CARD*TEL-Registered Trademark-services for a five year period from a 
customer.  The Company paid this customer $500,000 for a software license to 
use the customers' proprietary call monitoring and screening system and 
related databases along with an option (the "Option") to purchase a minority 
ownership interest in the customer.  The Option is exercisable beginning in 
June 1998 and expires in June 2002.  The customer may cancel a portion of the 
Option at an escalating call price.  The Company is amortizing the cost of 
the software license over five years.  The Company also loaned the customer  
$250,000 as a term loan (the "Term Loan") and $1.2 million under a secured 
revolving credit agreement (the "Revolver").  All amounts due under the 
Revolver were repaid with accrued interest in October 1997 when the Revolver 
was canceled.  As a result, the Revolver is classified as a short-term 
investment in the accompanying consolidated balance sheet.  The Term Loan is 
secured by certain collateral, interest is payable monthly, and principal 
payments are due in three annual payments on the next three loan anniversary 
dates. 
               
               The Company also loaned a customer $500,000 under a secured 
term loan. Interest is payable monthly and principal is due no later than 
February 1998. As a result, this investment is recorded as a short-term 
investment in the accompanying consolidated balance sheet.

4.  ACQUISITION
               
               In October 1997, the Company acquired a majority interest in 
Pronoma Systems AB through its majority owned Irish subsidiary for an 
immaterial amount of cash in an acquisition to be accounted for as a 
purchase.  Accordingly, the operating results of Pronoma will be included in 
the Company's operating results from the date of acquisition.  The new 
company will be named Transaction Network Services AB and will operate as a 
TNS subsidiary located in Stockholm, Sweden.
               

RECENT AUTHORITATIVE PRONOUNCEMENTS

               On March 3, 1997 the Financial Accounting Standards Board 
("FASB") released Statement No. 128, "Earnings Per Share."  Statement No. 128 
requires a dual presentation of basic and diluted earnings per share on the 
face of the income statement for all periods presented.  Basic earnings per 
share excludes dilution and is computed by dividing income available to 
common stockholders by the weighted-average number of common shares 
outstanding for the period.  Diluted earnings per share reflects the 
potential dilution that could occur if securities or other contracts to issue 
common stock were exercised or converted into common stock. Diluted earnings 
per share is computed similarly to fully diluted earnings per share pursuant 
to Accounting Principles Bulletin No. 15. The Company has not presented fully 
diluted earnings per share as the difference between these amounts and 
primary earnings per share was not material. Statement No. 128 is effective 
for fiscal years ending after December 15, 1997 and, when adopted will 
require restatement of prior years' earnings per share.

               The Company anticipates that upon implementing Statement No. 
128, diluted earnings per share will approximate previously reported primary 
earnings per share under the Company's current capital structure.  Basic 
earnings per share under Statement No. 128 may be greater than amounts 
previously presented as primary earnings per share due to the exclusion of 
common stock equivalents (stock options) from shares outstanding.  The 
pro-forma impact of Statement No. 128 on previously reported third quarter 
1997 and 1996 earnings per share is shown below.

                                          6
<PAGE>
<TABLE>
<CAPTION>

                                        Quarter Ended        Nine Months Ended
                                               September 30,              September 30,
                                            1997          1996           1997          1996      
                                          ---------     ---------      ---------     ---------
<S>                                      <C>          <C>          <C>       <C>
Weighted average shares outstanding          
 (basic earnings per share)...........    12,229,186    12,283,227     12,325,394     12,239,453
Stock option equivalents..............       525,671       334,873        315,320        365,908
                                          ----------    ----------     ----------     ----------

Weighted average shares and equivalents 
 (diluted earnings per share).........    12,754,857    12,618,100     12,640,714     12,605,361
                                          ----------    ----------     ----------     ----------
                                          ----------    ----------     ----------     ----------
                    
Basic earnings per share............. .      $0.18         $0.15          $0.39         $0.35   
Diluted earnings per share............       $0.18         $0.15          $0.39         $0.34
</TABLE>
                             
               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. 130 requires the Company 
to present an aggregate amount of "comprehensive income" and the components 
of "other comprehensive income" in its December 31, 1998 financial statements 
and/or notes thereto.  The Company's only component of "other comprehensive 
income" consists of foreign currency translation adjustments and has not been 
material. Statement No. 131 will require the Company to disclose segment 
information using a "management approach" beginning with its December 31, 
1998 financial statements. 

6.  LINE OF CREDIT ARRANGEMENT

               In July 1997, the Company obtained a $5.0 million line of 
credit arrangement which expires in 1998.  Outstanding borrowings accrue 
interest at the prime rate.  The Company has had no borrowings under this 
facility.

                                          7
<PAGE>
 
Item 2.

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

               The Company 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 1991 the Company transmitted its first POS transaction, and since then 
has increased its average daily transaction volume from approximately 17,000 
in the third quarter of 1991 to more than 6.8 million in the third quarter of 
1997. 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 and billing 
validation services. In June 1996, the Company formed Transaction Network 
Services Limited ("TNSL"), a majority-owned subsidiary, to provide POS 
network services in Ireland. In October 1997, the Company acquired a majority 
interest in Pronoma Systems AB through TNSL. This company will be renamed 
Transaction Network Services AB ("TNSAB") and will operate as a TNS 
subsidiary located in Stockholm, Sweden.
               
The Company is organized around its four primary markets/product offerings: 

     (1)  POS services include the Company's domestic TransXpress-Registered
          Trademark-network services for the POS transaction processing
          industry.  
     (2)  Telecom services include FTI's CARD*TEL-Registered Trademark-domestic
          telephone call billing validation and fraud control services and other
          services targeted primarily to the telecommunications industry. 
     (3)  International activities - The Company continues to actively market
          its products and services to potential international customers through
          TNSL, TNSAB and its technology transfer arrangements.
     (4)  TNS  FASTLink-Registered Trademark-Data Services-  This new line of
          services is currently being deployed and will initially offer domestic
          network services in support of the Financial Interface eXchange
          ("FIX") messaging protocol between brokerage firms and financial
          institutions. The Company does not expect to generate significant
          revenues from this new service during 1997.


FORWARD LOOKING STATEMENTS

               Statements in "Management's Discussion and Analysis of 
Financial Condition and Results of Operations" and elsewhere in this 
quarterly report that are not descriptions of historical fact may be forward 
looking statements that are subject to risks and uncertainties. Actual 
results could differ materially from those currently anticipated due to a 
number of factors, including but not limited to, the Company's reliance on a 
limited number of major suppliers and customers, dependence on market 
expansion, competition, technological change, the ability to develop new 
services, dependence on proprietary rights, changes in government regulation, 
seasonality and fluctuations in quarterly results.

                                          8
<PAGE>

 
RESULTS OF OPERATIONS

 Revenues

               Total revenues increased by 15.7% to $17,170,000 for the three 
month period ended September 30, 1997 from $14,840,000 for the same period in 
1996 and by 17.4% to $45,729,000 for the first nine months of 1997 from 
$38,941,000 for the same period in 1996.  Of the increase for the three and 
nine month periods, $1,285,000 and $4,148,000, respectively, was due to the 
increased usage of the TNS network by the Company's POS services customers 
and $1,971,000 and $3,606,000, respectively, was due to an increase in 
revenues from telecommunications service customers.  International revenues 
declined to $200,000 from $1,205,000 from the comparable 1996 quarter, and to 
$498,000 from $1,603,000 for the comparable nine month periods.  The decrease 
was mainly due to $1,100,000 of certain equipment sales completed in the 
third quarter of 1996. TNS FASTLink-Registered Trademark- Data Services 
revenues were relatively immaterial for all periods presented. TNS 
FASTLink-Registered Trademark-Data Services revenues will consist of a 
one-time installation fee and fixed monthly recurring revenues thereafter 
based on the number of connections.

               POS services revenue increased by 13.0% to $11,145,000 from 
$9,860,000 for the three months ended September 30, 1997 versus the 
comparable period in 1996 and by 15.4% to $31,016,000 from $26,868,000 for 
the first nine months of 1997 versus the same period in 1996. 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 19.9% to 626 million transactions for the 
third quarter of 1997 from 522 million transactions in the third quarter of 
1996. 

               The POS transaction volume growth rate exceeded the revenue 
growth rate for the comparable quarter primarily because the average revenue 
per POS transaction declined by approximately 10% for the comparable three 
month periods. During 1996, the Company re-negotiated contracts with most of 
its largest customers. Several of these contracts call for a single flat rate 
basic price structure with increasing volume commitments during the life of 
the contract, rather than volume discounts which become effective only after 
certain volume thresholds are met.  In exchange for extending the term of 
these contracts, the customers received significant price reductions. The 
majority of these customers benefited from the re-negotiated contracts during 
1996; however, the remaining contracts took effect January 1, 1997.  The full 
anticipated effect of the 1996 contract re-negotiations was reflected in the 
average revenue per POS transaction during the first quarter of 1997. The 
decline in POS revenue per transaction has stabilized in 1997 and revenue per 
POS transaction has been relatively constant for all of 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 52.2% to 
$5,746,000 from $3,775,000 for the three months ended September 30, 1997 and 
by 34.4% to $14,076,000 from $10,470,000 for the first nine months of 1997 
versus the same period in 1996. The growth in revenue was primarily due to 
growth in queries processed for the Company's telecommunications customers. 

               Since its acquisition in 1994, the Company's Telecom Services 
Division has grown through the addition of new customers, increasing queries 
from existing customers, the acquisition of contract rights and other 
intangible assets, and the provision of new service offerings. The market for 
third party billing validation and fraud control services has been adversely 
affected by so-called "dial-around" and pre-paid calling card services which 
use 800 WATS services to route telephone calls originating from pay phones, 
hotel phones, or other public use telephones to long distance carriers other 
than those chosen by the telephone proprietor.  These "dial-around" offerings 
effectively divert telephone calls away from the Company's traditional 
customer base for fraud control and billing validation services (primarily 
operator services providers and pay telephone providers) to other 
telecommunications companies with separate billing validation databases (in 
many cases MCI and AT&T).  As a result, "dial-around" offerings may continue 
to have a negative impact on Telecom Services Division revenues.

                                     9

<PAGE>

As part of the Telecommunications Act of 1996 (the "1996 Act"), the Federal 
Communications Commission ("FCC") was authorized to mandate a payment scheme 
pursuant to which pay telephone operators are "fairly compensated" for all 
access code calls, debit card calls, subscriber 800 and other toll-free calls 
which originate on the pay phone service providers' facilities but which are 
routed to telecommunications carriers other than those pre-subscribed by the 
telephone proprietor ("dial-around compensation"). In October 1997, the FCC 
established a rate of $0.284 as the default per-call compensation rate for 
subscriber 800 and access code calls made from payphones during the next two 
years.  After the first two years of per-call compensation, a payphone's 
market-based local coin rate adjusted for certain costs will become the 
default rate.  While it is uncertain what impact the new rules will have on 
"dial-around" usage and therefore on demand for traditional TNS Telecom 
services offerings, many industry observers believe that the use of 
"dial-around" services will continue to grow at the expense of the 
traditional pay telephone long distance services upon which the Company's 
customer base for fraud control and billing validation services relies.  
Recently, several Local Exchange Carriers ("LECs") have furthered this trend 
by introducing proprietary calling cards which utilize "dial-around" 800 
access.  While there can be no assurance of the Company's success in new 
marketing efforts, the Company is currently pursuing several business 
opportunities from which it could take advantage of the continuing trend 
toward the use of "dial-around" services by providing fraud control and/or 
billing validation services to several potential vendors of "dial-around" 
services.

               International revenue was $200,000 in the third quarter of 
1997 and $1,205,000 for the same period in 1996.  International revenue was 
$498,000 for the first nine month period of 1997 and $1,603,000 for the same 
period in 1996. International revenue primarily consisted of royalties, 
equipment sales  and software sales.  The significant decline in 
International revenue was due to $1,100,000 of equipment sales in 1996 which 
did not occur in 1997. The Company currently has significant international 
activities in Ireland, Canada and the United Kingdom ("UK").  In Canada and 
the UK, the Company has entered into technology transfer arrangements whereby 
TNS provides POS equipment and software to its international customers 
through one-time sales, but also has agreements entitling it to receive 
recurring revenues in the form of royalties, software license fees, and 
maintenance fees. 

               TNSL will provide POS network services in Ireland and will 
serve as a technology center for certain international activities. TNSL is in 
a start-up phase and has not generated significant revenue to date. TNSL 
losses were approximately $160,000 during the third quarter of 1997 and 
$600,000 for the nine months ended September 30, 1997.  These losses are 
consolidated with the Company's operating results. 

Cost of Network Services

               Cost of network services increased by 16.8% to $9,540,000 from 
$8,166,000 for the three months ended September 30, 1997 versus the same 
period in 1996, and by 18.7% to $25,562,000 from $21,539,000 for the first 
nine months of 1997 versus the same period in 1996.  This growth resulted 
primarily from increases in usage charges and charges for billing validation 
information resulting from increased transaction and query volumes. 

                                          10 
<PAGE>     
               On May 7, 1997, the FCC, pursuant to the 1996 Act, adopted 
changes to the current system of interstate access charges ("Access Charge 
Reform"). The first phase of the multi-phase process of  Access Charge Reform 
was implemented on July 1, 1997.  These changes resulted in a reduction in 
the variable component of certain of the Company's network costs.  The 
remaining phases of Access Charge Reform are scheduled to go into effect 
during 1998.  The final impact of Access Charge Reform on the Company's 
future network access costs is unknown but could have a material effect on 
the Company's current cost structure. 

Gross Profit

               Gross profit represented approximately 44% of total revenues 
for the three and nine month periods of 1997 and approximately 45% for the 
same periods in 1996. The approximate 1% decrease in gross profit as a 
percentage of total revenues reflects the fact that the reduction in average 
revenue per POS transaction over the periods was not fully offset by local 
access rate reductions and network efficiencies. The future level of the 
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 and on the impact 
of Access Charge Reform.

Engineering and Development

               Engineering and development expenses increased by 43.5% to 
$921,000 for the three months ended September 30, 1997 from $642,000 for the 
same period of 1996 and by 25.3% to $2,534,000 for first nine months of 1997 
from $2,022,000 for the same period of 1996. Engineering and development 
expenses increased as a result of the growth of the Company. Engineering and 
development expense is composed of the salaries, personnel expenses and other 
expenses related to the Company's network equipment systems integration, 
software development and technology assessment activities. The Company has 
not capitalized any costs associated with software or other development 
performed by its engineering and development groups.  Future engineering and 
development costs may increase due to additional resource requirements 
associated with the introduction of new services.  The Company does not 
anticipate incurring material costs associated with its computer systems to 
accommodate the year 2000 issue. 

Selling, General and Administrative
 
              Selling, general and administrative expenses increased by 4.4% 
to $1,998,000 for the three months ended September 30, 1997 from $1,913,000 
for the same period of 1996 and by 9.7% to $6,196,000 for the first nine 
months of 1997 from $5,650,000 for the same period in 1996.  Selling, general 
and administrative expenses include sales, marketing, finance, accounting and 
administrative costs. The increase in these expenses is attributable to 
growth of the Company.

                                          11
<PAGE>

Depreciation

               Depreciation expense increased by 16.3% to $1,225,000 for the 
three months ended September 30, 1997 from $1,053,000 for the same period in 
1996 and by 17.9% to $3,501,000 for the first nine months of 1997 from 
$2,970,000 for the same period in 1996.  Depreciation expense includes the 
depreciation of network and office equipment as well as leasehold 
improvements. Depreciation expense increased primarily as a result of the 
acquisition of capital equipment for network expansion to support growth in 
the Company's business. 

Amortization of Intangibles

               The amortization of intangible assets was relatively unchanged 
for all periods presented.  Amortization of all existing intangible assets is 
expected to be approximately $400,000 per quarter over the next several 
years. 

Income Taxes

               The quarterly effective tax rate has decreased from 39.4% to 
38.0% primarily as a result of a reduction in the losses related to the 
Company's activities in Ireland. 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 20.8% to $2,256,000 for the three 
months ended September 30, 1997 from $1,867,000 for the same period in 1996 
and by 14.8% to $4,867,000 for the first nine months of 1997 from $4,239,000 
from the same period in 1996.  Earnings per share grew 20% to $0.18 during 
the third quarter of 1997 from $0.15 in the comparable 1996 quarter.  The 
weighted average number of shares outstanding used to calculate earnings per 
share increased to 12,755,000 during the third quarter of 1997 from 
12,618,000 in the same period in 1996. Shares outstanding increased primarily 
because of a higher average stock price and an increase in common stock 
equivalents used in the Company's calculation of common equivalent shares 
under the treasury stock method. This effect was partially offset by the 
Company's purchase of 211,500  shares of its common stock during the second 
quarter of 1997.

LIQUIDITY AND CAPITAL RESOURCES

               At September 30, 1997, principal sources of liquidity were 
cash and cash equivalents of $10,271,000, short term investments of  
$17,430,000 and a bank line of credit of up to $5,000,000. The line of credit 
bears interest at the prime rate and has not been used in 1997.

               Net cash provided by operating activities was $9,967,000 for 
the nine month period ended September 30, 1997 up from $6,994,000 for the 
comparable period in 1996.  The increase is primarily from increases in net 
income and depreciation, a decrease in the rate of increase in accounts 
receivable, and an increase in accounts payable.

                                          12
<PAGE>

               Investing activities used $1,059,000 for the nine month period 
ended September 30, 1997 as compared to  a use of $18,202,000 for the 
comparable period in 1996.  The Company purchased $8,664,000 of equipment for 
the nine month period ended September 30, 1997, up from $5,148,000 for the 
comparable period in 1996.  The increase was primarily due to the build-out 
of the TNS FASTLink-Registered Trademark-Data Services backbone network.  
Investing activities in 1996 included the receipt of $3,600,000 in proceeds 
from the maturity of a note receivable. Investing activities in 1997 included 
approximately $4,000,000 of investments made in certain customers.  The 
remaining net difference between 1997 and 1996 results primarily from 
significant ($14,840,000) purchases of short-term investments and purchases 
of intangible assets of $1,636,000 in 1996.  Short-term investments maturing 
in 1997 totaled $9,836,000. 

               Financing activities used $1,732,000 for the nine month period 
ended September 30, 1997 as compared to  $552,000 of cash provided for the 
same period in 1996.  The Company purchased 211,500 shares of its common 
stock in 1997 for $2,491,000.  Proceeds from the exercise of stock options 
and the employee stock purchase plan provided $759,000 in 1997 and $570,000 
in 1996.

               At September 30, 1997 the Company had long-term commitments to 
purchase capital equipment in the amount of approximately $2.5 million over 
an 18 month period, of which approximately $1.2 million is contingent upon 
the vendor meeting delivery in accordance with development milestones. Except 
for these arrangements, the Company does not have long-term supply contracts 
with any of its vendors. 

               The Company believes that its existing cash, investment 
balances, 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.

                                          13
<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 "Commission") 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 Commission's rules.  TAS Group
         competes with the Company through its TransXpress-Registered
         Trademark-network services.  The complaint seeks an order requiring
         AT&T to cease and desist from engaging in the contested conduct and
         money damages for lost business opportunities.


Item 2.  Changes in Securities. - Not Applicable

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.  - None

                                          14
<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: November 10, 1997                 By:   /s/ John J. McDonnell, Jr.       
                                            ---------------------------------  
                                                  John J. McDonnell, Jr.
                                                  President and Chief
                                                  Executive Officer


Date: November 10, 1997                 By:    /s/ Thaddeus G. Weed           
                                            ---------------------------------  
                                                   Thaddeus G. Weed
                                                   Chief Financial Officer
                                                   (Principal Financial Officer)
                                           
                                          15