SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K/A
                                 AMENDMENT NO. 1
    

(Mark One)
  (x) ANNUAL  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995

  ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934 For the transition period from         to

                         Commission file number   0-17158

                                   AMNEX, INC.
             (Exact name of registrant as specified in its charter)
      New York                                           11-2790221
 (State or other jurisdiction of                        (I.R.S Employer
  incorporation or organization)                        Identification No.)

 101 Park Avenue, New York, New York                      10178
 ----------------------------------------------------------------
 (Address of principal executive offices)               (Zip Code)

Registrant's telephone number:    (212) 867-0166

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class            Name of each exchange on which registered
            None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of class)

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.( )

         State  the  aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  computed by  reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days: $52,735,213 as of March 27, 1996

             (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
         Indicate by check mark whether the  registrant  has filed all documents
and reports  required  to be filed by Section 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes No .

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
         Indicate the number of shares outstanding of the registrant's common 
stock, as of the latest practicable date: 19,532,270 shares outstanding as of 
February 29, 1996

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None




          Except for those paragraphs which are indicated as revisions, all 
disclosures herein are as of the original filing date of the Annual Report on
Form 10-K.

                                     PART I

Item 1.           BUSINESS

         (a)      General Development of Business.

                  AMNEX, Inc. (the "Company"), through its wholly-owned 
subsidiaries, American Network Exchange, Inc. ("AMNEX"), Crescent Public 
Communications Inc. ("Crescent"), American Hotel Exchange, Inc. ("AHE"), and 
Hospital TeleServices, Inc. ("Hospital TeleServices"), provides a variety of 
telecommunications services for operator-assisted ("0+") and direct-dialed long
distance ("1+") telephone calls transmitted throughout the Unites States and to 
international points.

                  In October 1995, the Company acquired Crescent Communications,
Inc., a New  York-based  private pay  telephone  route  operator and customer of
AMNEX (see Items 1(c) and 13(a) hereof).

                  In  December   1995,   the  Company   underwent   an  internal
reorganization  designed to enable it to more efficiently focus on its different
lines of business.  The new business  units reflect the Company's  plan to shift
its  focus  from  its  core   operator   services   business  to  higher  margin
telecommunications   service   transactions   and   integrated   (hardware   and
telecommunications)  services. The reorganization is also intended to enable the
Company to exploit  market niches  created by the passage of  telecommunications
reform legislation in early 1996 (see Item 1(c) hereof).  The Company intends to
continue to seek consolidation opportunities for its core business.

                  Reference  is made  to Item 7  hereof  for a  discussion  of a
certain Preferred Share financing consummated by the Company during 1995.

                  The Company is a New York  corporation  which was organized on
March 15, 1985. Its principal  executive offices are located at 101 Park Avenue,
New York, New York 10178 (telephone number (212) 867-0166) (see Item 2 hereof).

         (b)      Financial Information About Industry Segments.

                  Not applicable.

         (c)      Narrative Description of Business.

   Industry Background

                  The long distance  transmission  and operator service provider
industries evolved principally as a result of the new competitive  opportunities
created by the divestiture of American  Telephone and Telegraph's  ("AT&T") Bell
Operating Companies ("BOCs").  As discussed under "Government  Regulation-Recent
Federal  Legislation," the  Telecommunications  Act of 1996 (the "1996 Act") has
further  substantially  accelerated  the  development of local and long distance
competition.







                  In 1981,  AT&T removed  tariff  restrictions  that  prohibited
resale and sharing of Message  Telecommunications  Service ("MTS") and Wide Area
Telephone  Service  ("WATS").  This led to an explosion of new entrants into the
long  distance  business  primarily as  resellers.  In 1982,  the  Department of
Justice  ("DOJ")  and AT&T  agreed  to the  terms of the  Modification  of Final
Judgment ("MFJ") under which AT&T divested itself of all its BOCs. The BOCs were
organized  into seven  separate  regions and seven  Regional  Holding  Companies
("RBOCs") were created. The BOCs, and other independent  companies which provide
local telephone service, are characterized as local exchange carriers ("LECs").

                  At  divestiture,  the United States was divided into 197 Local
Access Transport Areas  ("LATAs").  AT&T was given the right to handle interLATA
long  distance  service and was  permitted  to handle  intraLATA  long  distance
service where allowed by the applicable state regulatory authority.  Conversely,
the BOCs were given the right to handle intraLATA  service,  but were prohibited
from the interLATA market. Such  differentiation  was substantially  modified by
the 1996 Act (see "Government Regulation-Recent Federal Legislation").

                  The MFJ also required the BOCs to provide all interexchange or
long distance  carriers  ("IXCs") with access to their local telephone  exchange
facilities which is "equal in type, quality and price" to that provided to AT&T.
This was  accomplished  through  the  filing of access  tariffs  at the  Federal
Communications Commission (the "FCC") and at state public utilities commissions.
Under these access  tariffs,  all IXCs,  including AT&T, pay charges to the LECs
for access to local telephone lines at both the originating and terminating ends
of all  long  distance  calls.  Access  charges  represent  the  single  largest
component of most IXCs' cost of service.  The BOCs, and  subsequently  all other
LECs, also were required to conduct a presubscription  process allowing business
and residential  consumers to select their long distance  carrier.  The 1996 Act
continues these equal access obligations.

                  A June  1984  decision  of the  FCC  permitted  the  sale  and
installation of privately  owned and operated pay  telephones,  known as COCOTs.
Such decision  ended the 100 year  monopoly of the LECs in this area,  and paved
the way for the  development of the  independent  payphone  industry.  LECs were
required  to  provide   dial  tone   connections   for  the  COCOT  phones  and,
subsequently, blocking and screening services intended to deter fraudulent usage
of  such  phones.  As  a  result  of  the  passage  of  the  1996  Act  and  its
nondiscrimination  provisions,  the independent payphone industry is expected to
achieve  parity in cost structure  with  LEC-owned  payphones  (see  "Government
Regulation-Recent Federal Legislation").

                  An October 1988 federal  district  court (the "Court")  ruling
required the BOCs, and subsequently the GTE Operating  Companies  ("GTOCs"),  to
conduct  another  presubscription  process  for the public pay  telephones  they
owned.  Since such phones are owned by BOCs and GTOCs, the Court determined that
the owner of the  premises on which the public pay  telephone  was located  (the
"Site Owner") should select the long distance service provider.  Several non-BOC
LECs have  introduced  similar  programs,  including Site Owner selection of the
long distance service provider.

                                        2





The 1996 Act provides for the continued  participation  of the Site Owner in the
selection  process and allows for the  Company to  continue  its efforts in this
current core business.
                  The Court also ordered that,  commencing  January 1, 1989, the
BOCs  provide all IXCs,  including  operator  service  companies,  with the same
calling card  validation  data which they furnish to AT&T, on the same terms and
conditions as the BOCs furnish that data to AT&T. The FCC  subsequently  imposed
similar  obligations on LECs other than the BOCs,  thus  permitting  competitive
operator service providers to offer a full range of operator  services.  Various
provisions of the 1996 Act continue these obligations.

                  In May 1990,  the Court  required the BOCs to provide,  by May
1991, equal access for long distance calls which are paid for by coins deposited
in their public pay telephones ("1+ Coin").  To this end, the BOCs were directed
to file equal  access  plans with the DOJ and the 1984  waiver  under which such
calls were being routed  automatically  to AT&T was to be terminated  within one
year. Under the terms of the equal access plans,  AT&T was permitted to continue
to accept 1+ Coin service directly from the public pay telephones  presubscribed
to other interexchange  carriers,  but only until such time as the presubscribed
carrier designated either itself or another carrier to handle the traffic. Based
on this ruling,  AMNEX is entitled to receive the 1+ Coin sent paid traffic from
all public pay  telephones for which it provides "0+" services and any other IXC
may designate  AMNEX (instead of AT&T) to carry the 1+ Coin traffic  originating
at public  telephones  for which it is the  presubscribed  carrier.  This market
niche,  which is  currently  being  exploited  by AMNEX as it deploy its 1+ Coin
service nationally, will continue to be available under the 1996 Act.

                  Equally  significant,  the 1996 Act, as well as recent actions
on both the federal and state levels, will eventually open up the local exchange
(intraLATA) market to full competition, both in the provision of originating and
terminating  access for  competitive  IXCs such as AMNEX and in the provision of
local exchange services in competition with the LECs. Although these initiatives
are still in progress,  the FCC has already ordered expanded  interconnection to
LEC interstate switched and special access services. More than 18 states already
allow  facilities-based  local  service  providers  to offer  some  form of both
intraLATA  toll and local  exchange  services,  including  basic local  switched
services in some cases. As a result of the 1996 Act, all states will be required
to adopt rules  establishing  local competition and the LECs will be required to
open their networks to competitors,  including the  implementation  of intraLATA
presubscription  (1+ intraLATA equal access) (see "Government  Regulation-Recent
Federal Legislation").

  Organization and Structure; Business Direction

                  The Company, through its operating subsidiaries, is a provider
of  telecommunications  services for "0+" and "1+" calls transmitted  throughout
the  United  States  and  to  international  points.  Approximately  90%  of the
Company's revenues for the fiscal year ended December 31, 1995 were derived from
its provision of operator  services at public and private pay telephones and 10%
of revenues was derived from its provision of other services.


                                        3





                  During 1995, the Company took certain steps to shift the focus
of its future  direction  away from its core  operator  services  business.  The
Company  determined  that,  due to the  increasing  incidence  of "dial  around"
activity  (see  "Competition  - AMNEX"),  it should begin to provide its various
services  on a wholesale  basis with a reduced  dependence  on an outside  sales
force.  The Company  believes  that such strategy  eventually  will result in it
being  viewed as a  transaction  provider,  as opposed to an  operator  services
company,  and,  although its revenue  growth may be adversely  affected,  profit
margins should improve.

                  In addition,  during 1995, the Company determined to focus its
efforts to a greater  degree in other markets,  such as 1+ Coin,  which generate
lower revenue per call than operator services, but have higher profit margins.

                  To better  manage  this  transition,  in  December  1995,  the
Company  reorganized  its operations  into three business units to carry out its
plans for 1996:  Telecom Services,  Integrated  Services,  and Network Services.
Each of the units, which are discussed below, has profit and loss responsibility
for specific  business  operations of the Company.  The Telecom  Services  Unit,
through AMNEX,  provides operator services,  long distance transmission services
and travel card  services to  telephone  users.  In addition,  through  Hospital
TeleServices,  the unit provides billing  services to hospitals.  The Integrated
Services  Unit,  through  Crescent  and  AHE,  owns  and  operates  private  pay
telephones and provides  telecommunications  products and management services to
the hospitality industry. The Network Services Unit, through AMNEX, provides the
Telecom  Services and  Integrated  Services  Units with cost  effective  network
components  and also sells  transmission  services  to other  IXCs.  Through the
Network Services Unit, AMNEX also provides 1+ Coin services and seeks to exploit
certain wireless technology.

   Business Units

         Telecom Services Unit

                  Operator Services

                  AMNEX,  in  fulfilling  its Telecom  Services  Unit  function,
provides 24 hour,  seven-  day-a-week live and automated  operator  services for
telephone calls placed over its  transmission  facilities.  These services allow
transient  users at pay  telephones  and at  locations  such as hotels,  motels,
condominium developments, health care institutions, educational institutions and
correctional  facilities  to  complete  calls  on  a  collect,  third  party  or
person-to-person  basis, or to charge such calls to a commercial  credit card or
telephone company calling card.

                  AMNEX's  switching  system  receives all "0" dialed calls from
phones subscribed to its network and completes the calls over a state-of-the-art
leased  communications  network (see "Network  Services-Switching  Equipment and
Network").  AMNEX's  equipment and  personnel at its switch and operator  center
sites  furnish all operator  functions,  both live and  automated,  necessary to
complete and bill a particular call. In providing such services,  AMNEX utilizes
Signaling System

                                        4





   
Seven ("SS7") which speeds call processing for its customers. AMNEX's ability to
offer  customized  greetings,  such as through  its  bilingual  operator  staff,
further enhances its service offerings. AMNEX historically has provided operator
services  through its own employees;  however,  it currently also routes some of
its "0+"  calls  to a Bell  Atlantic  operator  center  as a means of  improving
operating  efficiencies.  AMNEX has  retained  an  unaffiliated  third-party  to
validate  billing  numbers  prior to call  completion  (see  "Revenues;  Billing
Arrangements").
    

                  Direct Dial

                  As  a  long  distance   provider,   AMNEX  solicits  small  to
medium-sized  businesses,  pay phone  owners,  hotels and hospitals and competes
with providers such as AT&T, MCI, U.S. Sprint and a number of regional carriers.
AMNEX's  product  offerings  are  competitively  priced,  with higher volume and
long-term contract customers receiving greater discounts.

                  AMNEX's  MTS  services  include  both flat  rated and  mileage
sensitive  rate plans and can be accessed on a "1+" basis,  or by dialing 10XXX,
950 or 800 numbers. In lieu of call by call dialing, 950 and 800 access can also
be  achieved  through  either the  installation  of a high  speed  dialer or the
programming of other customer  premise  equipment.  Such process allows calls to
access the AMNEX  network  via its 10XXX,  950 or 800  numbers.  The  customer's
multi-digit  security  code is then passed on to a local  AMNEX  switch for call
clearance. AMNEX's 800 service allows AMNEX customers to offer inbound toll free
calling to their own customers.

                  Telephone Travel Card

                  AMNEX offers an enhanced  travel card service  marketed as the
AMNEX  Edge(R),  which has been  designed to meet the needs of the  business and
non-business  traveler.  The card allows the customer to access the features and
functionality  of the AMNEX  network from any touch tone phone by dialing an 800
number.  Once the authorization  code associated with the travel card has passed
validation,  the customer  can select from a menu of basic and enhanced  calling
features,  including direct dialed calling, conference calling, message delivery
service and an array of informational services. Live operator assistance is also
available,  if required by the caller.  Various  levels of fraud  protection and
management  summary reports are also offered to enable the user to maintain cost
control  of  calling  card  expenses.  AMNEX has  recently  signed  co-marketing
agreements with a regional  American  Automobile  Association  (AAA) and a heart
association  pursuant  to  which  Edge(R)  cards  will  be  distributed  to  the
associations' members.

                  Hospital TeleServices

                  During 1995,  Hospital  TeleServices began to market a billing
service  specifically  for the  hospital  market.  The  service  provides a cost
effective and reliable way for the hospital to bill patients for daily telephone
and television rental charges, which has a high bad debt history. AMNEX, through
its existing billing agreements,  has arranged to bill and collect these charges
from the LECs by  having  them  place the  transactions  on the  patient's  home
telephone bill. Such billing

                                        5





process has  resulted in  substantially  higher  rental  charge  collection  for
Hospital  TeleServices  customers.  Although Hospital  TeleServices has marketed
this service on a limited basis,  due to  anticipated  high profit  margins,  it
expects to substantially increase its efforts in this regard during 1996.

                  Revenues; Billing Arrangements

                  AMNEX's  revenues  consist  of  flat  fees  for the use of its
operator  services  and per minute of usage  charges  for the use of its network
services.  AMNEX's  operating  expenses  include the commissions  payable to its
agents,  dealers and Site Owners, the transmission charges of the LECs and IXCs,
validation, billing and collection charges and operator costs.

                  AMNEX  contracts  with two  unaffiliated  third party  billing
agents, OAN Services,  Inc. ("OAN"),  and Zero Plus Dialing,  Inc. ("ZPDI"),  to
perform  billing on its behalf.  AMNEX rates calls  carried over its network and
forwards  the rated call  records to the  billing  agents.  The records are then
processed and forwarded to the appropriate billing LEC. The billing LECs collect
the amount due from the end user and remit payment to the billing agents, which,
in turn,  remit payment to AMNEX.  Such payment to AMNEX is net of a billing and
collection  fee charged by the LECs,  as well as a provision  for  uncollectible
accounts and a per transaction fee for the billing agent's services.

                  AMNEX  primarily  uses its own  in-house  billing  system  and
personnel to bill and collect calls made by its 800, travel card and direct dial
customers.  Such system is designed to bill  customers  with  recurring  monthly
services  provided by AMNEX for direct dial and travel card  services and is not
transferable to the transient users of AMNEX's operator-assisted services.

                  Marketing and Customers

   
                  AMNEX's  operator  services  are  being  marketed  to  private
payphone  owners  and Site  Owners,  as well as to hotels,  motels,  condominium
developments,   health   care   institutions,   educational   institutions   and
correctional  facilities,  primarily in areas where it has  established  network
facilities.  AMNEX currently has originating  access available in part or all of
30 of the 48 contiguous states plus the District of Columbia,  Hawaii and Puerto
Rico.  The  Company  has  arrangements  in place to provide  its  services  on a
nationwide  basis, by using other  carriers,  such as MCI, to originate calls in
areas where AMNEX does not have its own  facilities.  Such standard  practice in
the "1+" industry allows AMNEX to provide its own services where technologically
and economically feasible and to otherwise resell the facilities of other IXCs.
    

                  AMNEX  markets its services  through a  nationwide  network of
independent  sales agents and dealers with whom it has entered into  contractual
arrangements  as  well as  through  its  own  small  direct  sales  force.  Such
arrangements  with agents and dealers  afford  them the  opportunity  to receive
commissions based on a percentage of revenues generated by the calls routed over
AMNEX's network by the agent or dealer's subscribers. Due to intense competitive
pressures, the amount of

                                        6





commissions  paid by AMNEX, as a function of revenue,  had been  increasing.  As
indicated  above,  in order to improve profit margins,  in 1995,  AMNEX began to
reduce its  dependence  on  independent  sales agents and dealers.  Accordingly,
operator  services are increasingly  being marketed by AMNEX directly to premise
owners and/or  businesses under  compensation  arrangements that are less costly
than those offered to agents and dealers.

                  Since a majority of AMNEX's  subscribers are private  payphone
owners  and Site  Owners,  revenues  are  affected  by  seasonal  variations  to
different  degrees.  Many of the  payphones  serviced by AMNEX in the  Southeast
produce  substantially  higher call volumes in winter months than at other times
during the year,  while the  payphones  located  in the  Northeast  and  Midwest
produce their  highest call volumes  during the summer  months.  In an effort to
reduce the effects of seasonality and properly utilize network  capacity,  AMNEX
has focused its marketing efforts on obtaining a better  geographic  balance for
its payphone business,  and increasing its hospitality and condominium  customer
bases, which locations are less affected by seasonality.

                  AMNEX also markets its services through participation in trade
shows and advertisements in trade publications.

                  During  the fiscal  year  ended  December  31,  1995,  AMNEX's
customer,  National  Telecom  U.S.A.,  Inc.,  and its  affiliate,  The  Keystone
Corporation, collectively accounted for 41% of the Company's revenues.

         Integrated Services Unit

                  The  Integrated  Services  Unit is  developing  the  Company's
premise  equipment  and  services  business.  The unit  seeks to  integrate  the
delivery of the hardware,  local dial tone,  telecommunications  management  and
calling  services  required to service the needs of specific  vertical  markets.
Currently, the Integrated Services Unit is pursuing two markets: the hospitality
business (through AHE) and private pay telephones (through Crescent).

                  American Hotel Exchange, Inc.

                  Started in 1994, the Company's AHE subsidiary has shown steady
growth.  AHE was the first attempt by the Company to secure long term control of
telecommunications  services  at hotel and  other  hospitality  properties.  AHE
supplies the equipment,  telecommunications  management and calling services for
all of the hotel property's needs on an exclusive basis. By controlling the dial
tone,  AHE  can  secure  the  telecommunications  revenue  from  its  customer's
locations  for  various  business  units of the  Company.  Additional  services,
including  payphones and debit cards,  also can be deployed at these hotels,  if
desirable.

                  AHE  has   primarily   marketed   its  services  to  small  to
medium-sized  hotels. Based upon AHE's success to date, it intends to expand its
marketing  efforts  nationally  over the next two years,  and target  additional
related market segments. Possible new markets could include hospitals,

                                        7





universities  and military  bases.  AHE purchases  some of the services it sells
from the  Network  Services  Unit,  and  receives  commissions  from the Telecom
Services Unit, on a competitive  basis. No governmental  regulation is currently
applicable to AHE's operations.

         Crescent Public Communications Inc.

                  In 1995, the Company established  Crescent in order to acquire
private  pay  telephone   routes  and  thus  gain  control  of  the   location's
telecommunications   services  and  reduce  the  costs  associated  with  paying
additional  commissions  to the route  operator.  In October 1995,  the Company,
through Crescent, acquired Crescent Communications, Inc., a New York-based COCOT
route operator and customer of AMNEX.  The  acquisition  included  approximately
1,850 COCOT telephones in the New York metropolitan  area.  Crescent is actively
seeking to acquire additional COCOT routes (see Item 13(a) hereof).

                  In addition to growth through acquisitions, Crescent regularly
identifies  and  evaluates  new sites for COCOTs.  Typical  locations for COCOTs
include  hotels,  motels,  health  care  institutions,   airports,   educational
institutions, dining establishments, office and government buildings, and retail
stores and shopping  malls.  Crescent  seeks to enter into a long-term  location
agreement  (generally  5 to 10 years) with the  business  owner or site  manager
pursuant to which the location owner would supply the space and  electricity for
the  COCOT and would be  entitled  to  receive a  commission  based  upon  phone
utilization.  Crescent installs,  maintains and repairs the equipment,  collects
the coins from the phone coin vaults and pays phone line charges.  Substantially
all of the  COCOTs  serviced  by  Crescent  are  owned or  leased by it with the
balance being owned by various non-affiliated entities.

                  As a COCOT owner,  Crescent derives  commission  revenues from
the long distance and  operator-assisted,  non-coin  calls made from its phones.
AMNEX provides its  operator-assisted  and interexchange  services at Crescent's
phones. Crescent's services are marketed through an internal sales force as well
as through independent representatives.

         Network Services Unit

                  The  Network   Services  Unit  provides  both  the  Integrated
Services and Telecom Services Units with the cost effective  network  components
they each need to provide their individual products.  Additionally,  the Network
Services Unit sells its products to other IXCs.

                  Switching Equipment and Network

                  AMNEX  is  a  switched   reseller,   whose  network   includes
Stromberg-Carlson  Digital Central Office switches  located in Orlando,  Florida
and New York, New York. The interconnectivity of the network's switches, coupled
with AMNEX's  advanced SS7 operating  technology,  ensure  uniformity and a high
grade of  service.  AMNEX has  back-up  systems  which,  in the event of a power
outage or equipment malfunction, provide several layers of redundancy and

                                        8





route  diversity to continue  call  processing.  These systems  include  back-up
battery  power at both switch  locations and a back-up  generator  system at the
operator  center.  AMNEX  believes  that its  network  flexibility,  and the low
incremental  cost  to  expand  capacity,  allow  it to  adequately  service  its
customers  throughout  the  country.  The  maintenance  and  repair of the AMNEX
network is handled by highly trained and  experienced  technicians at each AMNEX
switch site. The  technicians on site are  coordinated  and supported by AMNEX's
Network Control Center ("NCC") personnel in Orlando, six days a week between 6AM
and  midnight,  and are on call 24 hours a day,  seven  days a week,  to  handle
transmission,  equipment,  and  switching  problems.  The NCC is also capable of
contacting AMNEX's underlying carriers for trouble resolution at any time.

                  AMNEX's  switching  facilities are engineered for an effective
grade of service of P.01,  which means that 99.9% of all calls are  completed in
the busy hour.  AMNEX's  operator  center  complies  with all industry  standard
answer time  requirements,  i.e.,  90% of all  operator-assisted  calls answered
within 10  seconds  during  the busy  hour,  or an  average  answer  time of 2.5
seconds.  AMNEX  also  utilizes  a Bell  Atlantic  operator  center  located  in
Pennsylvania  pursuant to the terms of an effective Bell Atlantic  tariff.  This
arrangement  gives AMNEX yet another level of redundancy  and reduced  operating
costs.

                  AMNEX's  ability to provide  its  service in a  cost-efficient
manner also depends upon its ability to purchase  digital  fiber optic and other
state-of-the-art network facilities from other common carriers, either on a bulk
or per minute basis.  AMNEX connects with these  carriers via dedicated  digital
facilities and retains the  flexibility to re-route  traffic to obtain the least
costly and most efficient path available. Multiple connections and redundancy of
facilities ensure  continuing  service in the case of a major facility outage or
the failure of one underlying carrier's network.

                  1+ Coin Service

                  In 1995,  AMNEX  entered into  agreements  with several  RBOCs
which  allow  AMNEX to  process  interexchange  coin calls  placed  from any LEC
payphone at which AMNEX is the presubscribed  interLATA carrier.  The agreements
allow AMNEX to provide  these same  services at phones  served by other IXCs who
designate  AMNEX as their  "1+" coin  carrier.  AMNEX  expects  to have  similar
agreements in place with the other RBOCs by the end of 1996.

                  In the second  quarter of 1995,  AMNEX  began to deploy its 1+
Coin service for interLATA calls, a service which previously only AT&T provided.
AMNEX's  strategy in this market  niche has been to offer this  service to those
IXCs that currently  control the site where LEC pay telephones are located.  The
Company has already signed  definitive  agreements with the two largest operator
service  providers in the LEC pay phone market.  Agreements are currently  being
negotiated with the other  providers in this market,  with the goal that AMNEX's
1+ Coin service will be used by substantially  all IXCs, other than AT&T, by the
end of 1996.



                                        9





                  Wireless Technology

                  In late 1994,  the Company  obtained  the  exclusive  right to
market a new wireless communications technology throughout Florida, parts of the
Caribbean and the  Metropolitan  New York area referred to as LATA 132 (New York
City, Long Island, and parts of Westchester). This technology could dramatically
improve the throughput of existing  telephone  facilities and is being developed
to  operate  at line  speeds  from 64 Kb/s  to 45  Mb/s  over  wire or  wireless
facilities  (i.e., at the DSO, DS1 and DS3 levels).  The technology uses a noise
sustain  approach to transmit  signals  over  frequencies  that are  unusable by
conventional  transmission  systems and is  virtually  immune to noise,  weather
conditions  and other  interference.  In  addition  to its uses as an overlay to
existing wire infrastructures, the technology can be used on a wireless basis in
many of the same  applications.  It is expected that this  technology  will have
applications  in  both  the   interexchange   and  local  exchange  markets  for
transmission of voice and data to the home/office,  and the delivery of enhanced
voice,  data  and  video  services  over  twisted  pair  wire.  In the  event of
successful  completion of testing,  AMNEX expects to utilize this  technology to
reduce   certain   of  its   fixed   transmission   costs   and  to  enter   new
telecommunications  markets.  No  assurances  can be given as to the efficacy or
commercial  viability  of the  technology  and AMNEX  does not  expect  that the
license  it holds  will  generate  any  revenues  in 1996.  AMNEX has no ongoing
financial obligations related to the development of this technology.

   Competition

         AMNEX

                  AMNEX  experiences  formidable  competition  from AT&T,  which
dominates the long  distance and operator  service  businesses,  as well as from
MCI, U.S.  Sprint,  LDDS and various other third tier  carriers  providing  "0+"
services  either  as an  adjunct  to their  "1+"  business  or as their  primary
business.

                  In 1995,  after several  intermediate  steps,  the FCC finally
declared AT&T to be a non- dominant carrier, thereby granting it a wide range of
pricing, tariff and operational  flexibility.  However, AT&T still does not have
as much flexibility as is granted to non-dominant  resale carriers such as AMNEX
(see "Government Regulation - Federal Regulation").

                  AT&T and  others  currently  provide  long  distance  operator
services  on calls  from BOC and  GTOC-owned  pay  phones  and have,  and can be
expected to retain,  a  significant  share of this market,  notwithstanding  the
ability  of the  Site  Owners  to  select a new  operator  service  provider  as
described  previously and the  introduction of intraLATA  competition.  Carriers
other  than AMNEX and AT&T are also free to enter the 1+ Coin  market,  although
AMNEX does not  anticipate  that they will  expend  the  capital  and  strategic
resources necessary to enter this market niche.

                  In  addition  to AT&T,  the LECs  have  significantly  greater
resources and experience than AMNEX and may find  opportunities  in the operator
services business that would adversely

                                       10





affect AMNEX's growth potential.  Several RBOCs have filed tariffs for and begun
offering their operator  services on a wholesale basis to other operator service
providers. The 1996 Act allows them to enter the interLATA marketplace over time
(see "Government  Regulation-Recent  Federal  Legislation")  and, subject to FCC
review,  to participate in the selection of the interLATA and intraLATA  carrier
at their own payphones.  The BOCs can be expected to  aggressively  market their
operator  services in competition with AMNEX and other  providers.  In addition,
most major IXCs,  including MCI and U.S. Sprint,  and certain major non-BOC LECs
have entered the operator services business. Further, AMNEX is aware of numerous
other companies  engaged in the operator services  business,  either directly or
through other entities,  some of which have significantly greater resources than
AMNEX.

                  Finally,  some IXCs,  notably  MCI and AT&T,  have  introduced
specialized  operator service products such as 1-800-COLLECT  and 1-800-CALL ATT
which  compete  with a portion of AMNEX's  operator  services  offerings.  AMNEX
believes  that these "dial around"  services  have had an adverse  impact on its
revenues;  however,  the payphone  operator is entitled to receive "dial around"
compensation  from the long distance service provider on certain types of calls,
thus ensuring the operator a revenue stream from its telephones (see "Government
Regulation-Federal   Regulation").  This  "dial  around"  compensation  will  be
expanded  in the  future  to  include  more  types  of  calls  (see  "Government
Regulation-Recent Federal Legislation").

                  AMNEX believes that the primary area of competition  with AT&T
and others  relates to the  commissions  and  surcharges  paid to Site Owners or
lessors of telephone  locations  for  interstate  calls,  the enhanced  services
available to users at such  locations,  the quality of service  provided and the
rates charged to end-users (see "Government Regulation").

         Crescent

                  Crescent competes  primarily with NYNEX in the  identification
of new sites  for  COCOTs.  However,  a number of other  companies  also  market
competitive  services in Crescent's current market area.  Crescent believes that
the primary area of competition  relates to the commissions paid to the business
owners and the quality of service provided.

   Government Regulation

         Federal Regulation

                  AMNEX

                  As discussed under "Recent Federal  Legislation," the 1996 Act
will  require  the  FCC to  implement  no  less  than  50  different  rulemaking
proceedings.  Together with the required state  proceedings,  these  initiatives
will define the  regulatory  structure of the industry for the future,  shifting
the focus of  regulators  from  regulation  of monopolies to the creation of the
predicates for

                                       11





full and fair competition in all markets,  local and long distance. For the most
part, these  initiatives  continue rather than reverse the direction already set
by the FCC and many state commissions.

                  Long distance and operator service  companies,  such as AMNEX,
are considered interstate common carriers by the FCC and are, therefore, subject
to the  jurisdiction  of the FCC  under  the  Communications  Act of  1934  (the
"Communications Act"), as amended by the 1996 Act. Under the Communications Act,
long distance and operator  service  companies  must charge just and  reasonable
rates   and   cannot   engage  in   unreasonable   practices   or   unreasonable
discrimination.  Commencing  in  1983,  the FCC  substantially  deregulated  the
interstate activities of non-dominant  interexchange  resellers,  such as AMNEX.
Under this FCC regulatory  scheme, no tariff filing  requirements were in effect
for domestic  "1+"  services.  However,  a November  1992  appeals  court ruling
invalidated the FCC's prior policy and  re-instituted  the requirement  that the
"1+"  services of all  carriers be tariffed.  This  decision was affirmed by the
United States  Supreme  Court in 1994.  At its March 21, 1996  meeting,  the FCC
proposed  to  utilize  its  new  forbearance   authority  (see  "Recent  Federal
Legislation")  to reinstate  the prior policy.  The FCC has always  required the
filing of  tariffs  for  international  service  but has  recently  proposed  to
streamline such requirements by, among other things,  allowing tariffs to become
effective on one day's notice. While AMNEX has the requisite tariffs on file and
is in  compliance  with the  pertinent  tariff  requirements,  the  proposed FCC
actions  will  have a  positive  effect  on AMNEX  by  reducing  the  regulatory
requirements with which it must comply.

                  On October 17, 1990, the Telephone  Operator Consumer Services
Improvement  Act of 1990  ("TOCSIA")  was signed  into law.  TOCSIA  amended the
Communications  Act by  imposing  a  number  of  requirements  on  all  carriers
providing  interstate  operator  services,  including AMNEX,  AT&T and the LECs.
These  requirements  include,  among other matters,  the  identification  of the
operator service provider and the end user's right to access other carriers. The
legislation  further required the filing of an informational  tariff at the FCC.
In November 1992, the FCC advised Congress of its determination  that no further
regulation of the operator  service  industry,  including rate  regulation,  was
necessary at this time. In March, 1996 the FCC adopted some additional rules and
clarified others with regard to the provision of interstate  operator  services.
AMNEX was already in compliance with such requirements and expects the new rules
to have no material affect on its operations.  AMNEX believes that it is in full
compliance with both TOCSIA and the FCC's rules.

                  In 1991,  the FCC also initiated a proceeding to determine the
obligations  of LECs  (other  than the BOCs and  GTOCs) to provide  billing  and
validation  data to carriers  other than AT&T. In April 1992,  the FCC concluded
that such  information,  including the information  associated with some calling
cards previously  claimed to be proprietary to AT&T, should be made available to
competitive  carriers,  including  AMNEX.  As they  relate to  validation,  such
services are further  required to be provided on a tariffed basis.  The FCC also
determined  that all LECs must stand ready to enter into  mutual  card  honoring
agreements  with all requesting IXCs if they enter into such agreements with one
IXC. LECs must also provide  certain billing name and address  information  (but
not necessarily billing and collection) for their calling cards.


                                       12





                  The FCC has also  concluded  a  proceeding  investigating  the
status of the proprietary  AT&T Card Issuer  Identifier  ("CIID") calling cards.
These cards  contain an account  number that  cannot be  validated  or billed by
carriers other than AT&T. However,  since customers can use this card by dialing
"0+",  carriers other than AT&T receive such calls from phones on which they are
the presubscribed carrier. In November 1992, the FCC decided not to require AT&T
to permit  validation  and billing of such cards.  Instead,  it required AT&T to
take certain remedial steps and proposed that operator service providers such as
AMNEX be compensated  for the costs they incur in handling "0+" dialed CIID card
calls which reach their networks in error.  This compensation has had a positive
effect on  AMNEX's  operations  to the  extent it has  allowed  AMNEX to recover
previously unrecoverable operating expenses.

                  Consideration  of the terms  and  conditions  under  which the
above billing and validation  obligations  are to be fulfilled and how they will
apply to new  entrants in the local  market is expected to be included in one or
more proceedings initiated by the FCC as a result of the 1996 Act.

                  As discussed under "Industry Background," in October 1988, the
Court held that Site Owners should be permitted to select the presubscribed IXCs
for all calls  originated  by dialing "0" from such  telephones.  However,  some
industry  members  are  supporting  adoption  of a new  system of  billed  party
preference  whereby  all  calls of the type  handled  by AMNEX  would be  routed
directly  to the IXC of the  billed  party,  and not  through  operator  service
companies.  In 1992,  1994 and again in 1995, the FCC proposed to adopt a system
of billed party  preference  for both BOC and non-BOC  phones and sought  public
comments on a variety of issues  related to its  implementation  and costs.  The
majority of parties filing comments opposed the  implementation  of billed party
preference,  citing  its  high  costs,  long  (2-3  year)  implementation  time,
technical drawbacks, consumer inconvenience and potential network disruptions as
factors which  outweighed any perceived  benefits.  Although the matter is still
pending  before the FCC, given the age of the  proceeding,  the record before it
and the new mandate of the 1996 Act,  the FCC is not  expected  to adopt  billed
party  preference.  However,  there can be no assurances in this regard and such
proposal,  if adopted,  would have a material adverse effect on AMNEX's operator
service business.

                  In 1995, the FCC began several new proceedings relating to the
provision of operator  services.  In February 1995, the National  Association of
Attorney  Generals  filed a Petition  for Rule  Making  with the FCC,  proposing
additional  branding  disclosures  by  some  operator  service  providers.  This
disclosure  would inform the consumer  that the call may not be carried by their
regular phone company and to provide a number they could call to find out how to
access their carrier of choice.  The FCC has sought comment on this petition but
has not proposed any rules adopting its  suggestions.  Comments on this petition
have been  consolidated  with  comments  sought on an ex parte  filing made by a
broad industry coalition proposing that the FCC adopt a rate ceiling on operator
assisted calls. The proposal would adopt a benchmark rate on a simple per minute
basis,  without regard to time of day,  distance or whether the call was handled
on an  automated  or live basis,  or made with a calling  card or  collect.  The
petitioners propose this ceiling as an alternative

                                       13





to billed party preference, contending that it could be implemented more quickly
and much less expensively.

                  AMNEX believes that adoption of the rate ceilings  proposed by
the coalition would not have an adverse impact on the overall  profitability  of
its operator services business. However, there can be no assurances that the FCC
will not adopt rate cap levels  different  from those  proposed by the coalition
which would adversely affect the  profitability of AMNEX's  interstate  operator
services.  Similarly,  there  can be no  assurances  that the FCC will not adopt
additional  disclosure  requirements  which  would  adversely  affect the volume
and/or profitability of AMNEX's interstate operator services.

                  The FCC is also engaged in a comprehensive  review of the rate
structure for, and pricing of,  interstate  access services.  In September 1992,
the FCC  adopted an  interim  plan,  which  plan is still in effect.  While this
structure has resulted in an increase in AMNEX's  access costs,  AMNEX  believes
that  it  has  been  able  to   minimize   these   increases   through   network
reconfigurations designed to optimize network efficiencies and take advantage of
available  volume  discounts.  AMNEX  believes  that  the  overall  impact  this
structure on its access costs is within the third tier average percentage impact
estimated  by the FCC and that this  structure  has not had a  material  adverse
impact on its operations, network costs or profitability.  However, there can be
no assurances  that the FCC will not adopt a permanent rate  structure  which is
different  than the interim  structure  and which will  result in a  substantial
increase in the access costs paid by AMNEX and other competitive  carriers.  The
FCC has indicated it expects to conclude its review of the access rate structure
in tandem with its other proceedings under the 1996 Act.

                  In  1991,  the FCC  initiated  a  proceeding  to  adopt  rules
governing  competitive  carrier  interconnection  to LEC interstate  special and
switched   access   services.   In  1992,   the  FCC  mandated   special  access
interconnection for competitive access providers, including physical co-location
with LEC facilities.  The requirement for physical  co-location was overruled by
an  appeals  court in 1994,  but the  requirement  for  virtual  interconnection
remains.  In August 1993,  the FCC adopted rules opening LEC switched  transport
services  for  competition.  These  rules  mirror the rules  adopted for special
access  services.  The FCC is also  considering a proposal to allow  competitive
tandem switched transport  services.  These FCC actions have enabled competitive
carriers  to connect to the BOCs'  local  networks  to provide  originating  and
terminating  interstate  access services in competition with the BOCs, and local
exchange  service  where  authorized  by the  relevant  state  commission.  This
development  has  had a  positive  impact  on  AMNEX's  operations.  Proceedings
required by the 1996 Act,  as well as the market  entry  requirements  contained
therein,   are  expected  to  hasten  the   creation  of  such   interconnection
arrangements.

                  Crescent

                  Current  federal  regulations  require that COCOT owners offer
unrestricted access from their phones by unblocking all major forms of access to
other  operator  service   providers  (10XXX,   950-XXXX  and   1-800-NXX-XXXX).
Additional regulatory requirements include provisions which

                                       14





require the posting of certain  consumer  information  and the prompt routing of
emergency  calls,  and prohibit the payment of commissions  by operator  service
providers at locations which block unrestricted access. The FCC has also adopted
rules  pursuant to which COCOT owners are entitled to receive  compensation  for
"dial  around" calls that are made to other  operator or long  distance  service
providers  through  the  dialing  of an access  code.  This  decision  has had a
positive effect on Crescent.  Moreover, the provisions of the 1996 Act regarding
pay telephone services (see "Recent Federal Legislation") should have a positive
impact on  Crescent's  operations  by  reducing  access  and local  line  costs,
increasing the number of calls for which  compensation  is available and, to the
extent the LECs increase their coin rates as a result of the  implementation  of
the new requirements, allowing Crescent to charge higher rates for its services.

         Recent Federal Legislation

                  The 1996 Act, signed into law on February 8, 1996,  represents
the most  significant  reform of the  Communications  Act undertaken by Congress
since the original law was adopted in 1934.

                  First and  foremost,  the 1996 Act provides for the opening of
the intraLATA market to full  competition.  The new law prohibits state or local
requirements  that may have the effect of prohibiting or precluding  competitive
entry of a telecommunications service provider into the local market. The states
may continue to regulate  service  providers in a  competitively-neutral  manner
(consistent  with the 1996  Act's  provisions)  to  protect  public  safety  and
welfare, and to manage public rights of way. The FCC is given specific authority
to preempt any state or local action not in conformity with this requirement.

                  The  FCC has six  months  from  enactment  to  promulgate  the
interconnection  and  access  rules  necessary  to  open  the  local  market  to
competition.  Each  state  may  continue  to adopt  and  enforce  its own  local
interconnection and access rules, so long as the rules are not inconsistent with
the 1996 Act.  The  statute  relies on  negotiated  interconnection  and  access
agreements between incumbent LECs and new entrants, but maintains a role for the
states to approve  interconnection  agreements  and arbitrate  settlements if so
requested.

                  The 1996 Act imposes several specific requirements on all LECs
in order to  achieve  fair and  equitable  interconnection  and  access  for all
competitors. These requirements include: (1) restrictions on resale prohibition;
(2) a duty to provide number  portability  (i.e., the ability of users to retain
their current  telephone  numbers when changing local service  providers if they
continue  to be  served  by the  same  exchange);  (3)  dialing  parity  between
providers  so that all  entities  may have  non-discriminatory  access to, among
other things,  telephone numbers,  directory assistance,  operator services, and
911 emergency  services,  with no unreasonable  dialing delays; (4) unrestricted
access  to poles,  ducts  and  rights-of-way;  and (5)  reciprocal  compensation
arrangements for the transport and termination of traffic.


                                       15





                  In addition to the above  obligations,  the incumbent LECs are
further required to: (1) negotiate interconnection agreements in good faith; (2)
provide  interconnection  at any  technically  feasible  point  that is equal in
quality to that  provided to the LEC itself and at rates,  terms and  conditions
that are  cost-based  and  non-discriminatory;  (3)  provide  non-discriminatory
access to network  elements on an  unbundled  basis in a manner that enables the
requesting  provider to combine network  elements to provide  telecommunications
services  (network elements are to be priced in accordance with state commission
approved rates which are cost-based, non-discriminatory, and which may include a
reasonable  profit);  (4) resell local  services to  telecommunications  service
providers  at  wholesale  rates  which  reflect  the  LECs  "avoided"  costs  of
marketing,  billing,  collection  and other  related LEC  expenses;  (5) provide
reasonable public notice of changes in information necessary for the routing and
transmission  of services  over its  facilities;  and (6) offer  co-location  of
equipment  necessary for  interconnection  or access,  at just,  reasonable  and
non-discriminatory rates.

                  The  1996  Act also  now  enables  RBOCs  to  enter  interLATA
markets,  within and outside of their  existing  service  regions,  as discussed
below.

                  The  RBOCs  were  authorized  to  begin  providing   interLATA
services in markets  outside of their current regions upon enactment of the law.
The RBOCs must still obtain state  authority  to provide  intrastate,  interLATA
services in the same way as any other prospective competitors,  including AMNEX,
must.

                  Before  providing  in-region  services,  the RBOCs  must first
overcome a number of legal and regulatory  hurdles.  At a minimum,  an RBOC must
fulfill the requirements of a competitive  checklist for interconnection,  which
list includes, among other things, interconnection, non-discriminatory access to
network  elements,   non-discriminatory  access  to  rights-of-way,  local  loop
transmission and transport,  local switching,  911 access, directory assistance,
operator services, white pages directory listings,  signaling, number assignment
and  portability  and  local  dialing  parity.   Additionally,   the  RBOC  must
demonstrate  to the FCC that, in each state where it seeks to provide  interLATA
service,  it has entered  into one or more binding  agreements,  approved by the
state,  to  provide  interconnection  to a  competing  facilities-based  service
provider  serving  both  commercial  and  residential  subscribers.  The  FCC is
required to make a  determination  that RBOC  interLATA  market  entry is in the
public interest.  In reaching its  determination,  the FCC must consult with the
DOJ whose input will have "substantial" though not "preclusive" effect, and with
the relevant state. Upon receipt of interLATA  authority,  the RBOC must provide
interLATA services through a structurally  separate affiliate for a period of at
least three years from the time authority is granted.

                  The 1996 Act also  gives the  private  payphone  industry  the
parity it has long sought with the  payphones  provided by the BOCs. In response
to the private payphone owners'  concerns,  the statute prohibits a BOC from (1)
subsidizing  its own payphone  services with  revenues  from its local  exchange
services, and (2) discriminating between BOC-provided and independently-provided
payphones.  Furthermore,  the 1996 Act requires the FCC to complete a rulemaking
proceeding  addressing  payphone  issues  within  nine  months  from the date of
enactment,  including any reconsideration period. Such rulemaking must address a
variety of issues including compensation

                                       16





for  payphone  providers.   The  legislation  broadens  the  scope  of  previous
compensation proceedings in two respects:  first, compensation must apply to all
payphone  providers,  not just to private payphone providers as before;  second,
the FCC must address all types of calls (except emergency and Telecommunications
Relay Service calls) to ensure  payphone  providers are "fairly  compensated for
each and every completed  intrastate and interstate call."  Previously,  the FCC
had ordered compensation only for "access code" calls (1-800, 10XXX, etc.).

                  Another significant issue the FCC must address is the right of
the BOCs to solicit their payphone customers to select the long distance carrier
that will  provide  interLATA  services  from the  payphone if the user does not
select such a carrier.  Prior to the 1996 Act, this issue was irrelevant because
the BOCs  were  prohibited  from  offering  interLATA  services.  Now,  with the
possibility  of BOC entry into the interLATA  market,  whether and how a BOC may
provide  service at its own payphones is an issue.  The 1996 Act grants the BOCs
"the same right that independent  payphone providers have" to negotiate with the
Site  Owner,  but enables  the FCC to  eliminate  this right if it is not in the
public interest. The statute makes it clear, however, that the Site Owner is the
ultimate  decision-maker.  Nothing in the 1996 Act,  however,  impairs  existing
contracts relating to payphone services.

                  Other issues that will be addressed in the rule making include
the  elimination  of payphone  service  elements from  interstate and intrastate
access charges, non-structural safeguards for BOC payphone services, the ability
of location owners to select  intraLATA  carriers,  and the provision of "public
interest payphones" in low income,  rural, and other areas where there would not
otherwise be a payphone.

                  Finally,  the 1996 Act makes several other significant changes
which affect all long  distance  carriers.  First,  it prohibits  long  distance
carriers serving more than 5% of the nation's  presubscribed  lines from jointly
marketing local and long distance services until the BOCs are permitted to enter
the interLATA market. While this provision restricts the marketing activities of
AT&T, MCI and Sprint,  it presents an opportunity  for carriers such as AMNEX to
get a head start on the return of "one-stop shopping" to the  telecommunications
market.

                  Second,  it allows the FCC to forebear from  applying  certain
regulations to some classes of  telecommunications  carriers. As described above
under "Federal  Regulation",  the FCC's forbearance policies recently suffered a
series of setbacks as the Federal courts concluded on several occasions that the
FCC's policy exceeded its Communications Act authority.  Therefore, the 1996 Act
is a significant step forward for the FCC because it not only permits the FCC to
forbear, but mandates forbearance under certain circumstances.

                  While the passage of the  legislation  allowing BOC entry into
the long  distance  market will  create new and well  financed  competitors  for
AMNEX's  markets,  AMNEX  believes  that  the  final  legislation  contains  the
regulatory   safeguards  necessary  to  ensure  that  the  existing  competitive
environment  is  preserved.  In  addition,  AMNEX does not believe that such BOC
entry into the long distance market will significantly  affect its core markets.
Moreover, AMNEX's management

                                       17





believes that it has adopted a business  plan,  including  the various  services
described above, which will enable it to compete  successfully with the BOCs. In
particular,  AMNEX believes that the introduction of local competition will have
a positive effect on its current operations because it should result in a choice
of access vendors and a reduction in access costs. In addition,  the creation of
a level playing field for its payphone  operations  should increase the value of
its integration strategy.

         State Regulation

                  AMNEX

                  AMNEX  is   currently   authorized   to   provide   intrastate
interexchange  telecommunications  services  on a  resale  basis  in  37  states
pursuant to  certificates  of public  convenience  and  necessity  obtained from
various state public utility commissions, or commerce departments, or because no
such certificate is required.  AMNEX may provide interstate service  nationwide.
In many states in which AMNEX provides services,  rate caps are in effect and/or
the  provision  of  intraLATA   operator   assisted  calling  is  prohibited  or
restricted.  A few  states  have found the  provision  of  competitive  operator
services  not to be in the  public  interest.  Several  states  have held or are
holding generic hearings on competitive operator service providers. In addition,
virtually  all of the states that  regulate the  provision of operator  services
have their own set of  guidelines,  similar  to those  required  on the  federal
level,  with which providers must comply.  To the extent that states prohibit or
limit the provision of operator services,  the 1996 Act is expected to result in
the eventual  opening of such  markets,  which should have a positive  effect on
AMNEX.

                  In addition,  several states have lessened, or are considering
proposals to lessen, their regulation of AT&T and/or the LECs. As on the federal
level,  the  adoption of rules which  significantly free AT&T or the LECs from
regulatory  scrutiny could have a material  adverse effect on AMNEX's ability to
build a nationwide market. All states will now have to consider the introduction
of competition for the provision of local exchange services.  At least 18 states
allow facilities-based competitive local service providers to offer some form of
both intraLATA toll and local exchange services,  including basic local switched
services  in  some  cases.   In  addition,   states  are  moving  to  order  the
implementation of intraLATA  presubscription  (1+ intraLATA equal access).  More
than a dozen states have already ordered the  implementation of this technology.
These  initiatives  are  grandfathered  by the 1996 Act  even  though  intraLATA
presubscription  in other states is prohibited  until the RBOCs are allowed into
the interLATA market. States approving intraLATA presubscription include Florida
and New York where AMNEX has a large portion of its operations.
This should have a positive impact on AMNEX's business.

                  Further,  from time to time,  various state  legislatures  may
consider a variety of regulatory  measures which could affect the manner,  terms
and conditions under which AMNEX could provide service in such states.  While no
major initiatives are currently  underway,  there can be no assurances that such
proposals will not be considered or adopted in the future. If implemented

                                       18





in particular  states,  such proposals could have a materially adverse impact on
the profitability of AMNEX's service in such states.

                     Crescent

                  New  York  currently  regulates  the  provision  of  telephone
service from COCOTs.  Such  regulation  includes  quality of service  standards,
reporting  requirements and caps on rates for local and long distance calls made
by  depositing  coins.   COCOT  owners  are  also  subject  to  certain  posting
requirements  relating to the  provision  of consumer  information,  including a
number  which can be called to obtain a refund  for lost  coins and to report an
out of service  condition.  While Crescent is in compliance  with all such rules
and  believes  that  compliance  with  any  requirements  adopted  by the  state
commission will have no material adverse impact on its operations,  there can be
no assurances that the regulatory agencies will not adopt additional regulations
which will adversely affect the profitability of its services.

                  In  late  1995,  the  City  of New  York  adopted  legislation
relating to the registry,  permitting  and  franchising of public pay telephones
installed on the city streets.  Implementing regulations were adopted by the New
York Department of Information  Technology and  Telecommunications in March 1996
to take effect March 31, 1996. The rules require that all payphones installed on
the city  streets,  including  payphones  owned by NYNEX,  comply  with  certain
siting,  maintenance  and  operational  requirements.  These include  provisions
relating  to the  physical  locations  at  which  payphones  may  be  installed,
proximity  to  other  structures  or  street  furniture,  cleaning  and  service
restoration  standards,  a requirement  that free access to 911 be available and
that "0-" calls be directed to an operator service provider  certified to handle
emergency calls (such as AMNEX). The rules also require that landlord consent be
obtained for certain types of installations,  that all phones be registered, and
that the owner  apply for a city  franchise  and permit and pay a yearly  permit
fee. The rules  contain  monetary  penalties in the event of certain  classes of
violations  and provide for  removal of the phone under  certain  circumstances.
Most significantly,  however, the rules contain a grandfather provision relating
to the siting requirements for already installed phones.

                  Crescent has already  made the  requisite  interim  permit and
registry filings and paid all applicable fees for the approximately 1,680 phones
it has on the city streets.  The majority of Crescent's phones qualified for the
grandfather  provisions and no additional work is expected to be needed to bring
them into compliance with the new rules. Crescent believes that any deficiencies
relating to phones whose  installations  were not  grandfathered can be cured by
rerunning wires or obtaining landlord approval. While Crescent believes that all
its phones are or will be in  compliance  with the new  regulations  and that it
will be  issued a  franchise,  there can be no  assurances  in this  regard  and
failure to obtain the  necessary  franchise  and permits  for a large  number of
Crescent's phones would have a material adverse effect on its operations.



                                       19





   Employees

                  As of March 22, 1996, the Company had 356 full-time  employees
and 65 part-time  employees,  including  252  telephone  operators.  None of the
Company's employees is subject to a collective bargaining agreement.

   
                                     PART II
    

Item 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

Results of Operations

     Year Ended December 31, 1995 compared with Year Ended December 31, 1994

                  Revenues declined by 3% from 1994 to 1995 primarily due to the
current trends impacting the operator services industry, including (i) increases
in the number of  consumers  who dial access  numbers to reach their  carrier of
choice,  rather than  dialing  "0+" and  utilizing  the services of the operator
services  company  who  services  the  telephone  ("Dial  Around")  and (ii) the
continued efforts by governmental regulatory agencies to establish maximum rates
which may be charged for "0+" calls ("Rate Caps"). During 1995, the Company also
implemented  stricter fraud control measures which resulted in reduced revenues.
Such measures,  however,  resulted in increased profits through the reduction of
bad debt and related costs. The total number of calls processed increased by 11%
in 1995 to 26.3  million  while  the  minutes  billed  increased  by 1.5% to 125
million in 1995. Revenues did not increase correspondingly since the increase in
calls and minutes related to "1+" calls which have lower rates than "0+" calls.

   
                  In order to combat the  effects of Dial  Around and Rate Caps,
as well as the high  commission  expenses  associated  with  operator  services,
during  1995,  the  Company's  management  established  goals  to  strategically
position  the  Company  in markets  which will lower its cost of sales,  improve
profit margins and secure its customer  base. As a result,  the Company began to
shift its selling focus to new higher profit margin  services  while it converts
its current operator  services  offering to the provision of  transaction-based,
wholesale services in the COCOT and presubscription business (i.e., the business
which  relates  to  a  consumer's  preselection  of  its  long-distance  service
provider). These new services, which were offered initially during 1995, include
hospital services,  network management services, and 1+ Coin services.  Although
growth in the  number of COCOT and  presubscription  phones  providing  operator
services  leveled out during  1995 as a result of this  process,  the  Company's
income before taxes  increased to $1,760,114 for 1995, a 44% increase over 1994.
In addition,  the Company's  return on revenues  (income before taxes divided by
revenues) increased to 1.7% in 1995 from 1.1% in 1994.
    

                  Cost of sales,  as a  percentage  of  revenues,  decreased  by
approximately  1% (from 84% to 83%) between 1994 and 1995. Such decrease was due
primarily to a reduction in commission

                                       20





   
expense  which,  as a  percentage  of revenues,  decreased  from 50.2% to 47.5%.
Network  costs  increased,  as a  percentage  of  revenues,  from 13.0% to 14.5%
between  1994  and  1995.  Commission expense decreased as a result of the
Company's shifting into new higher profit margin services for which 
commissions, as a percentage of revenue, are lower, as well as due to the 
renegotiation of unprofitable customer commission agreements.  Network expense
increased due to an increase in fixed network costs resulting from a slight
increase in fixed network cost rates and the expansion of the 1+ Coin fixed
network.
    

                  Selling,  general and administrative  costs decreased $490,209
between 1994 and 1995 due to the change of business  activities and management's
cost reduction initiatives,  and remained consistent as a percentage of revenues
at 11.6% and 11.5%, respectively.

                  Interest  expense  for 1995 was  $2,043,722,  as  compared  to
$1,793,317  for 1994.  Such increase was due primarily to financing of equipment
procured for AHE and the acquisition of CCI in the fourth quarter.

     Year Ended December 31, 1994 compared with Year Ended December 31, 1993

                  Revenues for the year ended December 31, 1994 of  $108,737,115
were 96% greater than the revenues of  $55,519,029  for the year ended  December
31, 1993.  Such  increase  resulted from both an increase in the number of calls
processed (98%) and the number of pay phones on the Company's network (64%).

                  Costs of sales,  as a percentage of revenues,  increased 6% as
compared to the year ended  December 31, 1993. The increase was due primarily to
an increase in commission  expense paid to customers  which,  as a percentage of
revenues,  increased by  approximately 8% as compared to the year ended December
31, 1993.

                  Selling,  general and  administrative  expenses  increased  by
$3,140,138 or 33% during 1994. Approximately 55% of this increase was due to the
need for overhead to accommodate the Company's revenue growth. Such expenses, as
a percentage of revenues, decreased from 17.1% for 1993 to 11.6% for 1994.

                  Interest  expense  for the year ended  December  31,  1994 was
$1,793,317 as compared to $1,185,125  for the year ended  December 31, 1993. The
increase was due primarily to the increased lending  availability based upon the
Company's increased revenues.

Liquidity and Capital Resources

   
                  The Company has a net working  capital  surplus of $530,848 as
of December 31, 1995 as compared to a working  capital  deficiency of $3,114,062
as of December 31, 1994.  Such change was  primarily the result of the Company's
net income for 1995 of $1,431,114 and the sale and
    

                                       21





   
issuance  of  Preferred  Shares  (as  discussed  below)  during  such year which
resulted in gross proceeds to the Company of approximately $3,052,000.
    

                  Trade  receivables  at December 31, 1995 were  $17,079,718  as
compared to $20,710,945 at December 31, 1994. Receivables consist of uncollected
revenues and surcharges which the Company bills and collects on behalf of itself
and its customers and uncollected  revenues for services provided to other IXCs.
The Company  improved the average  collection  period for its receivables by 16%
from 70 days in 1994 to 59 days in 1995.  Such  improvement  was due to improved
collection efforts by the Company and its billing and collection agents.

                  The Company currently has in place lending agreements with its
billing  and  collection  agents  pursuant  to  which it is  currently  provided
advances of up to $22,600,000  at any one time based upon eligible  receivables.
Such eligible  receivables are purchased by the lenders,  with recourse,  at the
approximate  rate of 76% of the  gross  amount  thereof.  AMNEX  generally  pays
interest for such advances at an effective rate equal to the prime rate plus 2%.
At December 31, 1995, the amount due to the lenders was $11,365,024. The lending
agreements expire in February 2000.

   
                  Between April 1995 and May 1995,  the Company  obtained  gross
proceeds  of  approximately  $3,052,000  through  the  sale of an  aggregate  of
1,085,000  Series E Preferred  Shares at a purchase  price of $2.8125 per share.
Such proceeds  were used for working  capital  purposes.  The Series E Preferred
Shares have the following rights and preferences,  among others: (i) 8% dividend
payable in cash or, at the option of the Board of  Directors  of the Company and
subject to the  requirements of applicable law, in Common Shares of the Company;
(ii) voting rights of one vote per share;  (iii) the right to convert each share
into one Common Share of the Company at a conversion price of $2.8125 per share,
subject to certain  antidilution  adjustments and an adjustment downward on June
30, 1996, if the market  price,  as defined,  of the Company's  Common Shares is
less than  $2.8125 per share on the five  trading  days prior to such date;  and
(iv) a liquidation preference in the amount of $2.8125 per share.
    

                  In October  1995,  AHE obtained  approximately  $2,300,000  in
financing  through a sale and leaseback  agreement for equivalent value of fixed
assets.  Lease  payments  are  to be  made  in 48  equal  monthly  installments,
including effective interest at 12% per annum.

   
                  In  November  1995,  the  Company  entered  into a  settlement
agreement  with a  customer  in  order to  satisfy  outstanding  claims  for the
recovery of advances of  approximately  $2,400,000.  Advances  made to customers
represent cash provided to develop  business  opportunities  for the Company and
are generally  repaid by the  withholding  of  commissions  otherwise due to the
customer. In consideration for the Company compromising its claims, the customer
agreed to place into escrow certain  warrants to purchase  725,000 Common Shares
and delivered a note in the principal  amount of approximately  $1,400,000.  The
Company  has the right to cause the sale of such  warrants  and is  entitled  to
receive the initial $800,000 of the sale proceeds.
    


                                       22





                  The Company maintains various office,  operations and computer
facilities  under  operating and capital  leases.  As of December 31, 1995,  the
Company's minimum  commitments for the following 12 months under  non-cancelable
leases was approximately $814,000. The Company anticipates that such commitments
will be met through operating revenue.

   
                  The Company expects that normal recurring capital expenditures
will be  approximately  $2,500,000 for 1996 and anticipates  that cash flow from
operations  and  asset-based  financing  will provide the funding  required.  No
assurances can be given in this regard.
    

Acquisition

                  As part of the  Company's  plan to continue to diversify  into
higher margin  business,  gain a tighter control of the revenue  producing asset
and reduce its cost of sales,  effective  October 4, 1995, the Company purchased
all of the outstanding  stock of CCI, a private pay telephone  operator with its
primary  business  operations  located in the greater  New York City area.  Such
acquisition had the following effects on the Company's balance sheet at the date
of  acquisition:  working  capital  decreased by $302,921;  property,  plant and
equipment  increased by $3,578,951;  and intangibles  and goodwill  increased by
$4,050,000.  The total  purchase  price of $5,883,750  was paid as follows:  (i)
$1,550,000  four-year  promissory  note,  subject to acceleration  under certain
circumstances;  (ii) 415,250 Series F Preferred  Shares (valued at  $2,076,250);
and (iii)  $2,257,500 in cash obtained  through  financing  with an  independent
financial institution (see Item 13(a) hereof).

                  The Series F Preferred  Shares have the  following  rights and
preferences,  among others: (1) dividends on a pari passu basis with the holders
of the Common Shares;  (ii) voting rights of one vote per share; (iii) the right
to convert each share into one Common Share of the Company at a conversion price
of  $5.00  per  share,  subject  to  certain  antidilution  adjustments  and  an
adjustment downward on October 10, 1997 if the average market price, as defined,
of the  Company's  Common Shares is less than $5.00 during the ten days prior to
such date (but the conversion  price  reduction will not be to a price less than
$3.50 per share);  and (iv) a liquidation  preference of $5.00 per share. At any
time,  the  Company has the right to redeem the  outstanding  Series F Preferred
Shares on thirty days notice at a redemption  price of $5.00 per share  (subject
to the conversion rights of the holders of the Series F Preferred Shares).

                  The principal  amount of, and accrued interest on, the note is
convertible into Common Shares of the Company at a conversion price of $5.00 per
share.

Recent Federal Legislation

                  As  discussed  in Item 1(c)  hereof,  in  February  1996,  the
Telecommunications  Act of 1996 was signed into law. The new statute is intended
to promote  competition  in both the local and long distance  markets.  Prior to
enactment,  the RBOCs  could  not sell  long  distance  service  or  manufacture
equipment.  Although such  activities  will now be  permitted,  before RBOCs may
enter the long distance  market,  they must comply with a number of requirements
that are designed to

                                       23





prevent  them from  unfairly  using their  market  power to compete  against the
smaller industry participants. The law also calls for the FCC to further define,
implement  and oversee  the new rules.  The  Company  believes  that its current
activities  are no more or less at risk,  as a result of the new law,  than they
were before the law was passed.  The Company  additionally  believes  that it is
well  positioned to take  advantage of some of the provisions in the new law and
is currently  considering  which of the potential  opportunities  will offer the
best results to the Company in the future.



                                       24




                                   SIGNATURES

                  Pursuant  to the  requirements  of  Section 13 or 15(d) of the
Securities  Exchange Act of 1934,  the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.


                                       AMNEX, INC.


   
November 6, 1996                       By: /s/ Peter M. Izzo, Jr.
                                           ----------------------
                                           Peter M. Izzo, Jr., President
    





                                       25