UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

[X]  QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15 (D) OF THE  SECURITIES  AND
     EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.

[ ]  TRANSACTION  REPORT  PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND
     EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM            TO         
                               ----------    ---------

COMMISSION FILE NUMBER 0 - 26728

                             TEL-SAVE HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                    DELAWARE
         (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

                                   23-2827736
                      (I.R.S. EMPLOYER IDENTIFICATION NO.)

                       6805 ROUTE 202, NEW HOPE, PA 18938
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES - ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 215 - 862 - 1500


FORMER  NAME,  FORMER  ADDRESS AND FORMER  FISCAL  YEAR,  IF CHANGES  SINCE LAST
REPORT.

INDICATE BY CHECK 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

                APPLICABLE ONLY TO ISSUERS 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 ISSUERS:  INDICATE THE NUMBER OF SHARES OUTSTANDING
OF EACH OF THE ISSUER'S  CLASSES OF COMMON STOCK,  AS OF THE LATEST  PRACTICABLE
DATE.

AS OF  NOVEMBER  13,  1998,  48,910,491  SHARES OF COMMON  STOCK WERE ISSUED AND
OUTSTANDING, WHICH NUMBER REFLECTS AS HELD IN TREASURY AND NO LONGER OUTSTANDING
ALL SHARES OF COMMON STOCK THAT HAD BEEN PURCHASED FOR THE COMPANY'S  ACCOUNT AS
OF NOVEMBER  13, 1998 AND FOR WHICH THE COMPANY HAS PAID,  NOTWITHSTANDING  THAT
DELIVERY OF SUCH SHARES TO THE COMPANY MAY NOT HAVE BEEN MADE.


<PAGE>



                             TEL-SAVE HOLDINGS, INC.
                                    FORM 10-Q
                               SEPTEMBER 30, 1998


                                TABLE OF CONTENTS




PART I  -  FINANCIAL INFORMATION

           Item 1. Financial Statements

                  Consolidated Balance Sheets as of September 30, 1998
                       and December 31, 1997

                  Consolidated Statements of Operations for the three and nine
                       months ended September 30, 1998 and 1997

                  Consolidated Statement of Stockholders' Equity (Deficit) for
                       the nine months ended September 30, 1998

                  Consolidated Statements of Cash Flows for the nine
                       months ended September 30, 1998 and 1997

                  Notes to Consolidated Financial Statements

           Item 2.  Management's Discussion and Analysis of Financial Condition
                       and Results of Operations

PART II -  OTHER INFORMATION

           Items 1-6

             Signatures


                                       2

<PAGE>



PART I - FINANCIAL INFORMATION
         ITEM 1. FINANCIAL STATEMENTS

                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30,       DECEMBER 31,
                                                                             1998               1997
------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>     
ASSETS:
CURRENT:
   Cash and cash equivalents                                                 $23,199         $316,730
   Marketable securities                                                     168,595          212,269
   Accounts receivable, trade net of allowance for uncollectible
     accounts of $8,088 and $2,419, respectively                              53,125           44,587
   Advances to partitions and note receivables                                 5,317           26,110
   Due from broker                                                                --           21,087
   Prepaid AOL marketing costs - current                                       9,100           30,857
   Deferred taxes - current                                                       --           30,916
   Prepaid expenses and other current assets                                  13,236            8,495
------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT ASSETS                                                  272,572          691,051
Property and equipment, net                                                   60,602           55,835
Intangibles, net                                                              10,331           10,590
Prepaid AOL marketing costs                                                   15,900           32,722
Other assets                                                                  90,207           24,693
------------------------------------------------------------------------------------------------------------
       TOTAL ASSETS                                                         $449,612         $814,891
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
   Margin account indebtedness                                              $107,323         $      -
   Accounts payable and accrued expenses:
      Trade and other                                                         55,987           16,858
      Partitions                                                               3,183            7,740
      Interest and other                                                      11,429           10,578
   Securities sold short, at cost to purchase                                     --           21,087
------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT LIABILITIES                                             177,922           56,263
Convertible debt                                                             389,424          500,000
Deferred revenue                                                              30,250           35,800
Other liabilities                                                              1,559                -
------------------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                                     599,155          592,063
------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $.01 par value, 5,000,000 shares authorized; no                                             
     shares outstanding                                                            -                -
   Common stock - $.01 par value, 100,000,000 shares authorized;                                            
     66,934,635 and 67,249,635 issued, respectively                              669              672
   Additional paid-in capital                                                276,475          291,952
   Retained earnings (accumulated deficit)                                  (176,586)           3,097
   Unrealized loss on marketable securities                                  (16,730)               -
   Treasury stock                                                           (233,371)         (72,893)
------------------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                 (149,543)         222,828
============================================================================================================
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                 $449,612         $814,891
============================================================================================================
</TABLE>
                    See accompanying notes to consolidated financial statements.


                                       3

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                                          FOR THE THREE MONTHS              FOR THE NINE MONTHS
                                                          ENDED SEPTEMBER 30,               ENDED SEPTEMBER 30,
                                                      -----------------------------  ------------------------------
                                                           1998          1997               1998           1997
------------------------------------------------------------------------------------------------------------------

<S>                                                    <C>              <C>              <C>              <C>      
SALES                                                  $ 122,525        $  80,314        $ 324,769        $ 226,506

COST OF SALES                                             99,789           67,442          269,427          199,157
                                                       ---------        ---------        ---------        ---------

GROSS PROFIT                                              22,736           12,872           55,342           27,349

GENERAL AND ADMINISTRATIVE EXPENSES                       10,822            5,340           30,645           13,293

PROMOTIONAL, MARKETING AND ADVERTISING
     EXPENSES - PRIMARILY AOL                            107,653           10,775          192,592           25,141

RESEARCH AND DEVELOPMENT COSTS                               308               --           21,903               --
                                                       ---------        ---------        ---------        ---------

OPERATING LOSS                                           (96,047)          (3,243)        (189,798)         (11,085)

INVESTMENT AND OTHER INCOME (EXPENSE), NET                 3,751            4,425              (59)          11,554
                                                       ---------        ---------        ---------        ---------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES          (92,296)           1,182         (189,857)             469

PROVISION FOR INCOME TAXES                                    --              461           40,388              183
                                                       ---------        ---------        ---------        ---------

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                  (92,296)             721         (230,245)             286

EXTRAORDINARY GAIN                                        50,562               --           50,562               --
                                                       ---------        ---------        ---------        ---------

NET INCOME (LOSS)                                      $ (41,734)       $     721        $(179,683)       $     286
                                                       =========        =========        =========        =========

BASIC EPS:

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                $   (1.58)       $    0.01        $   (3.69)       $      --

EXTRAORDINARY GAIN                                          0.87               --             0.81               --
                                                       ---------        ---------        ---------        ---------

NET INCOME (LOSS)                                      $   (0.71)       $    0.01        $   (2.88)       $      --
                                                       =========        =========        =========        =========

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - BASIC                                  58,376           64,666           62,317           63,675
                                                       =========        =========        =========        =========

DILUTED EPS:

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                $   (1.58)       $    0.01        $   (3.69)       $      --

EXTRAORDINARY GAIN                                          0.87               --             0.81               --
                                                       ---------        ---------        ---------        ---------

NET INCOME (LOSS)                                      $   (0.71)       $    0.01        $   (2.88)       $      --
                                                       =========        =========        =========        =========

WEIGHTED AVERAGE COMMON AND COMMON  EQUIVALENT SHARES
     OUTSTANDING - DILUTED                                58,376           68,966           62,317           67,239
                                                       =========        =========        =========        =========
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                       4

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             RETAINED      UNREALIZED    
                                   COMMON STOCK              ADDITIONAL      EARNINGS        LOSS ON     
                             --------------------------       PAID-IN       (ACCUMULATED   MARKETABLE    
                               SHARES         AMOUNT          CAPITAL        DEFICIT)      SECURITIES    
                             -----------    -----------    -------------    ------------ -------------
                                                                            
<S>              <C>           <C>             <C>          <C>             <C>           <C>         
Balance, January 1, 1998       67,250          $672         $291,952        $    3,097    $      --   
  Net loss                         --            --               --          (179,683)          --   
  Issuance of warrants to                                                                             
     AOL                           --            --           33,086               --            --   
  Exercise of common stock                                                                            
     warrants                      --            --           (3,620)              --            --   
  Exercise of common stock                                                                            
     options                       --            --          (37,041)              --            --   
  Purchase of treasury                                                                                
     shares                        --            --               --               --            --   
  Exercise of AOL warrants         --            --           (7,693)              --            --   
  Retirement of common                                                                                
     stock                       (315)           (3)          (1,467)              --            --   
  Common stock issued for                                                                             
     bonuses                       --            --             (257)              --            --   
  Issuance of common stock                                                                            
     options for                                                                                      
     compensation                  --            --            1,500               --            --   
  Conversion of                                                                                       
     convertible debt              --            --               15               --            --   
  Unrealized loss on                                                                                  
     marketable securities         --            --               --               --       (16,730)  
============================ ===========    ===========    =============    ============ =============
Balance, September 30, 1998    66,935          $669         $276,475        $(176,586)     $(16,730)  
============================ ===========    ===========    =============    ============ =============



<CAPTION>                    
                             
                                      TREASURY STOCK                           
                              ---------------------------                      
                                  SHARES         AMOUNT          TOTAL         
                              ------------   ------------    -----------       
                                                                               
<S>              <C>            <C>          <C>             <C>               
Balance, January 1, 1998        (3,608)      $ (72,893)       $222,828          
  Net loss                          --              --        (179,683)         
  Issuance of warrants to                                                      
     AOL                            --              --          33,086          
  Exercise of common stock                                                     
     warrants                      250           5,053           1,433          
  Exercise of common stock                                                     
     options                     2,378          48,847          11,806          
  Purchase of treasury                                                         
     shares                    (16,031)       (224,112)       (224,112)         
  Exercise of AOL warrants         381           7,693              --          
  Retirement of common                                                         
     stock                          --              --          (1,470)         
  Common stock issued for                                                      
     bonuses                        97           1,956           1,699          
  Issuance of common stock                                                     
     options for                                                               
     compensation                   --              --           1,500          
  Conversion of                                                                
     convertible debt                4              85             100          
  Unrealized loss on                                                           
     marketable securities          --              --         (16,730)         
============================  ============   ============    ===========       
Balance, September 30, 1998    (16,529)      $(233,371)      $(149,543)        
============================  ============   ============    ===========       
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                       5

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       FOR THE NINE MONTHS
                                                                                       ENDED SEPTEMBER 30,
                                                                                 -----------------------------
                                                                                     1998           1997
---------------------------------------------------------------------------------------------- ---------------
<S>                                                                              <C>             <C>    
Cash flows from operating activities:
   Net income (loss)                                                             $(179,683)      $   286
   Adjustment to reconcile net income (loss) to net cash used in
     operating activities:
   Unrealized gain on securities                                                        --          (324)
   Provision for bad debts                                                           6,130         1,952
   Depreciation and amortization                                                     4,145         4,466
   Vested AOL warrants and amortization of prepaid AOL marketing costs              71,665        25,141
   Charge for customer acquisition costs                                                --        11,550
   Purchased research and development                                               21,034            --
   Deferred revenue                                                                 (5,550)           --
   Compensation charges                                                              1,500            --
   Valuation allowance for deferred tax assets                                      40,388            --
   Extraordinary gain                                                              (50,562)           --
   Income tax benefit related to exercise of options and warrants                       --        14,623
   (Increase) decrease in:
     Accounts receivable, trade                                                    (14,207)      (26,494)
     Advances to partitions and note receivables                                    20,794       (27,158)
     Prepaid expenses and other current assets                                      (4,741)      (14,910)
     Prepaid AOL marketing costs                                                        --      (100,564)
     Other assets                                                                  (67,578)      (10,794)
   Increase (decrease) in:
     Accounts and partition payables and accrued expenses                           35,485        13,109
     Other liabilities                                                              (1,592)           --
-------------------------------------------------------------------------------- ------------- ---------------
       Net cash used in operating activities                                      (122,772)     (109,117)
-------------------------------------------------------------------------------- ------------- ---------------
Cash flows from investing activities:
   Acquisition of intangibles                                                         (285)       (4,328)
   Acquisition of Symetrics Industries, Inc.                                       (26,707)           --
   Capital expenditures                                                             (8,369)      (27,427)
   Securities sold short                                                           (21,087)         (867)
   Due from broker                                                                  21,087           867
   Purchase of STF notes                                                                --      (155,409)
   Sale of securities, net                                                          26,942       142,895
-------------------------------------------------------------------------------- ------------- ---------------
       Net cash used in investing activities                                        (8,419)      (44,269)
-------------------------------------------------------------------------------- ------------- ---------------
Cash flows from financing activities:
   Proceeds from margin account indebtedness                                       107,323            --
   Proceeds from sale of convertible debt                                               --       300,000
   Acquisition of convertible debt                                                 (57,320)           --
   Proceeds from exercise of options and warrants                                   13,238        15,865
   Retirement of common stock                                                       (1,470)           --
   Purchase of common stock warrants                                                    --        (4,400)
   Acquisition of treasury stock                                                  (224,111)
-------------------------------------------------------------------------------- ------------- ---------------
       Net cash (used in) provided by financing activities                        (162,340)      311,465
-------------------------------------------------------------------------------- ------------- ---------------
Net (decrease) increase in cash and cash equivalents                              (293,531)      158,079
Cash and cash equivalents, at beginning of period                                  316,730         8,023
================================================================================ ============= ===============
Cash and cash equivalents, at end of period                                      $  23,199      $166,102
================================================================================ ============= ===============
</TABLE>
                    See accompanying notes to consolidated financial statements.


                                       6

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basic Presentation

     The  consolidated  financial  statements  include the  accounts of Tel-Save
Holdings, Inc. and its wholly-owned  subsidiaries,  and have been prepared as if
the entities had operated as a single  consolidated group since their respective
dates of  incorporation.  All intercompany  balances and transactions  have been
eliminated.

     The  consolidated  financial  statements  and related  notes  thereto as of
September  30, 1998 and for the three and nine months ended  September  30, 1998
and 1997 are presented as unaudited but in the opinion of management include all
adjustments necessary to present fairly the information set forth therein. These
adjustments  consist  solely  of normal  recurring  accruals.  The  consolidated
balance  sheet  information  for  December 31, 1997 was derived from the audited
financial  statements  included in the Company's  Form 10-K,  as amended.  These
interim  financial  statements should be read in conjunction with that Form 10-K
report.  The interim results are not  necessarily  indicative of the results for
any future periods.

     Certain  reclassifications of prior period's data have been made to conform
to  the  current  period's  classifications.   The  promotion,  advertising  and
marketing  expenses  related  to  the  Company's   Telecommunications  Marketing
Agreement  (the "AOL  Agreement")  dated as of February 22,  1997,  with America
Online, Inc. ("AOL"),  as amended,  have been reclassified from cost of sales to
promotional,   marketing  and  advertising  expenses  -  primarily  AOL  in  the
statements of operations for the three and nine months ended September 30, 1997,
in order to conform to the current period's classifications.

2.   Acquisition  of ADS Holding  Corporation  (formerly  Symetrics  Industries,
     Inc.)

     In January  1998,  the Company  acquired  all of the  outstanding  stock of
Symetrics Industries,  Inc.  ("Symetrics"),  a manufacturer of digital telephone
switching  equipment  and systems  (the  "Telephone  Business")  and  electronic
equipment for the U.S.  Department of Defense (the "Defense Business") for $26.7
million.  The transaction has been accounted for under the purchase method.  The
Company has completed  the sale of the Defense  Business for  approximately  $10
million (including assumed liabilities).  In connection with the sale, Symetrics
Industries, Inc. changed its name to ADS Holding Corporation ("ADS").

     The Company's purpose for purchasing Symetrics was to obtain the technology
for the digital  switch  manufactured  by the  Telephone  Business . The Company
believes that the digital switch  requires  substantial  development in order to
provide state of the art features which would make the digital switch attractive
for use by local telephone companies operating in smaller cities and rural areas
and competitive  local exchange  carriers  operating in metropolitan  areas. The
Company  plans to use the digital  switch in its own  operation as a competitive
local exchange  carrier and in its planned entry into the college and university
telecommunication business. The net purchase price of $18.6 million exceeded the
book deficit of the  Telephone  Business by  approximately  $22.8  million.  The
majority of this excess has been  recorded by the Company as purchased  research
and development  and included in research and  development  expense in the first
quarter of 1998.  The Company is still in the  process of valuing the  purchased
research  and  development  and  approximately  $21.0  million  is  its  current
estimate. The operations of the Telephone Business,  which resulted in a loss in
1997 and 1996, are not material.

3.   Other Assets

     In connection with the Company entering into a Telecommunications  Services
Agreement   ("TSA")   dated  May  20,  1998  with   Communications   Telesystems
International   d/b/a   WorldXChange   Communications   ("WXC")   a   California
corporation,  the Company has advanced  $56.2  million to WXC,  which is due and
payable on November 30, 2000 ("WXC Notes").  The Company  recorded the WXC Notes
in other  assets  in the  consolidated  balance  sheet at  September  30,  1998.
Interest on the WXC Note is payable quarterly  commencing November 25, 1998 at a
rate of 12.5%  per  annum.  The  Company  can  purchase  from WXC  international
termination telecommunication services pursuant to the TSA.

4.   Income Taxes


                                       7

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The Company had  recorded  net deferred tax assets at December 31, 1997 and
March 31, 1998  primarily  representing  net operating loss  carry-forwards  and
other  temporary  differences  because the Company  believed  that no  valuation
allowance  was  required  for these  assets due to future  reversals of existing
taxable  temporary  differences and  expectation  that the Company will generate
taxable income in future years.

     In June 1998, the Company decided to make  substantial  expenditures in the
third and fourth quarters for marketing services to customers.  As a result, the
Company  anticipated a significant  loss in those quarters and for 1998. In view
of those anticipated losses, the intense  competition in the  telecommunications
industry and the lack of any assurance that the Company would realize any of the
tax  benefits,  the  Company  decided in June 1998 to  provide a 100%  valuation
reserve for the $78 million of previously  recorded deferred tax benefits and to
provide a 100%  valuation  reserve for the current and future tax benefits which
may result from the anticipated 1998 loss.

5.   Litigation

         On June 16, 1998, a purported shareholder class action was filed in the
United States District Court for the Eastern  District of  Pennsylvania  against
the Company and certain of its officers  alleging  violation  of the  securities
laws in connection  with certain  disclosures  made by the Company in its public
filings and seeking unspecified damages. Thereafter,  additional lawsuits making
substantially  the same  allegations  were filed by other plaintiffs in the same
court. At this point, no classes have been certified.  The Company  believes the
allegations  in the  complaints  are  without  merit and  intends  to defend the
litigations  vigorously.  The Company also is a party to certain  legal  actions
arising in the ordinary course of business.

     The Company  believes that the ultimate  outcome of the  foregoing  actions
will not result in liability  that would have a material  adverse  effect on the
Company's financial condition or results of operations.

6.   Comprehensive Income

     As  of  January  1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting  Standards No. 130, Reporting  Comprehensive Income ("SFAS 130"). The
adoption  of  this  Statement  had  no  impact  on the  Company's  net  loss  or
stockholders'  equity.  SFAS 130 requires that all  components of  comprehensive
income and total  comprehensive  income be reported on one of the  following:  a
statement  of income and  comprehensive  income,  a statement  of  comprehensive
income or a statement of stockholders' equity. Comprehensive income is comprised
of net  income and all  changes to  stockholders'  equity,  except  those due to
investments by owners (changes in paid in capital) and  distributions  to owners
(dividends).  For interim reporting  purposes,  SFAS 130 requires  disclosure of
total comprehensive income.

Comprehensive income (loss) and its components consist of the following:

<TABLE>
<CAPTION>
                                                      FOR THE THREE MONTHS ENDED         FOR THE NINE MONTHS ENDED
                                                             SEPTEMBER 30,                     SEPTEMBER 30,
                                                     ------------------------------    -------------------------------
                                                        1998              1997             1998             1997
                                                     ------------     -------------    -------------    --------------
<S>                                                   <C>                  <C>           <C>                <C> 
Net income (loss)                                     $(41,734)            $721          $(179,683)         $286
     Other comprehensive loss:
     Unrealized  loss on  marketable  securities                                                                      
        available for sale                             (10,000)              --            (16,730)           --
                                                     ------------     -------------    -------------    --------------
Comprehensive income (loss)                           $(51,734)            $721          $(196,413)         $286
                                                     ------------     -------------    -------------    --------------
</TABLE>


                                       8

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS

     The following tables set forth for the periods  indicated certain financial
data as a percentage of sales:

<TABLE>
<CAPTION>
                                                                                FOR THE THREE MONTHS ENDED
                                                                                       SEPTEMBER 30,
                                                                            ----------------------------------
                                                                                1998                1997
                                                                                ----                ----
<S>                                                                            <C>                 <C>   
Sales                                                                          100.0%              100.0%
Cost of sales                                                                   81.4                84.0
                                                                               -----               -----
Gross profit                                                                    18.6                16.0
General and administrative expenses                                              8.8                 6.6
Promotional, marketing and advertising expenses - primarily AOL                 87.9                13.4
Research and development costs                                                   0.3                  --
                                                                               -----               -----
Operating loss                                                                 (78.4)               (4.0)
Investment and other income, net                                                 3.1                 5.5
                                                                               -----               -----
Income (loss) before income taxes                                              (75.3)                1.5
Provision for income taxes                                                        --                 0.6
                                                                               -----               -----
Income (loss) before extraordinary gain                                        (75.3)                0.9
Extraordinary gain                                                              41.2                  --
                                                                               -----               -----
Net income (loss)                                                              (34.1)%               0.9%
                                                                               =====               =====
</TABLE>

<TABLE>
<CAPTION>
                                                                                  FOR THE NINE MONTHS ENDED
                                                                                        SEPTEMBER 30,
                                                                            -----------------------------------
                                                                                 1998                1997
                                                                                 ----                ----
<S>                                                                             <C>                 <C>   
Sales                                                                           100.0%              100.0%
Cost of sales                                                                    83.0                87.9
                                                                                -----               -----
Gross profit                                                                     17.0                12.1
General and administrative expenses                                               9.4                 5.9
Promotional, marketing and advertising expenses - primarily AOL                  59.3                11.1
Research and development costs                                                    6.7                  --
                                                                                -----               -----
Operating loss                                                                  (58.4)               (4.9)
Investment and other income, net                                                   --                 5.1
                                                                                -----               -----
Income (loss) before income taxes                                               (58.4)                0.2
Provision for income taxes                                                       12.5                 0.1
                                                                                -----               -----
Income (loss) before extraordinary gain                                         (70.9)                0.1
Extraordinary gain                                                               15.6                  --
                                                                                -----               -----
Net income (loss)                                                               (55.3)%               0.1%
                                                                                =====               =====
</TABLE>



                                       9

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

THREE MONTHS ENDED  SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 1997

     Sales.  Sales  increased by 52.6% to $122.5 million in the third quarter of
1998 from $80.3  million in the third  quarter of 1997.  The  increase  in sales
resulted primarily from the Company's  marketing campaign directed at generating
new customers  under the AOL Agreement that was conducted in the late second and
early third quarters of 1998. This AOL-related  sales increase offset a decrease
in the  Company's  non-AOL  sales,  which  decrease  was due  primarily to price
competition,  which has a greater effect on non-AOL sales,  and reflected,  to a
lesser extent, the Company's focus on marketing under the AOL Agreement.

     Since entering into the AOL Agreement in February 1997, the Company and AOL
have  had  frequent  discussions,  and have  negotiated  a  number  of  changes,
regarding the marketing of services under the AOL Agreement and  expenditures by
the Company in connection with such marketing,  particularly  off-line marketing
programs.  While  these  marketing  agreements,  principally  those  related  to
off-line marketing,  have significantly contributed to the rate of growth in the
Company's  AOL-related  business,  the Company  believes that it is necessary to
revise further the terms of these marketing  arrangements  for future  marketing
programs. Although the Company believes that its AOL-related sales will continue
to  increase,  the rate of growth will be affected by the  Company's  ability to
negotiate  further  changes in the AOL  relationship  to expand its  AOL-related
business on economic terms  acceptable to the Company.  AOL-related  sales could
also be affeted  adversely by the intense  competition in this industry and have
continued to be affected  adversly by the PIC freezes  implemented  by the local
telephone  companies.  Accordingly,  there can be no assurance  that the Company
will continue to increase sales on a quarter-to-quarter or year-to-year basis.

     Cost of Sales.  Cost of sales  increased  by 48.0% to $99.8  million in the
third  quarter  of 1998 from  $67.4  million  in the third  quarter of 1997 as a
result of increased sales.

     In April 1998, the Company entered into a new three-year contract with AT&T
that provides a wide variety of services  supporting  the  Company's  nationwide
telecommunications  network and resale  operations.  The contract  includes AT&T
Network  Connection   Services  (formerly  known  as  AT&T's  Carrier  Solutions
Platform) that enables the Company to accommodate  greater numbers of additional
customers  on OBN by  handling  their  peak load or  overflow  traffic.  The new
contract also provides most of the other services that the Company acquires from
AT&T. The new contract  includes certain  financial  commitments by the Company,
both in terms of minimum revenue commitments and a minimum percentage of certain
services that must be purchased  from AT&T if those  services are also purchased
from any other  carrier.  These  commitments  expire at any time after the first
year that total charges from services  purchased  from AT&T during the term have
reached  $110  million.  The new contract  also  specifies  various  options for
satisfying the financial  commitments in the event of a change in control of the
Company.  The Company and AT&T agreed to guidelines for describing the Company's
relationship  with AT&T and,  specifically,  how the  Company  may refer to that
relationship in the marketplace.

     Gross Margin.  Gross margin increased to 18.6% in the third quarter of 1998
from  16.0% in the third  quarter  of 1997.  The  increase  in gross  margin was
primarily  due to lower network usage costs for OBN services and lower local and
international  access  charges,  in  each  case  on  a  per  call  basis.  Price
competition continues to intensify for the Company's products and this trend can
be expected to continue to put downward pressure on gross margins.

     General and administrative  expenses.  General and administrative  expenses
increased  by 102.6% to $10.8  million  in the third  quarter  of 1998 from $5.3
million in the third quarter of 1997. The increase in general and administrative
expenses  was due  primarily  to the costs  associated  with  hiring  additional
personnel  to  support  the  Company's   continuing   growth,  the  general  and
administrative  expense incurred as a result of the acquisitions of Compco, Inc.
and ADS which were acquired in November 1997 and January 1998,  respectively and
increased  fees for  professional  services.  The Company  expects to  recognize
one-time  charges in the 1998 fourth quarter in connection  with the appointment
of a new Chairman of the Board,  Chief  Executive  Officer and  President of the
Company of and the related retirement of certain Company officers.


                                       10

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


     Promotional,  Marketing and Advertising Expense - Primarily AOL. During the
third quarter of 1998, the Company expensed  approximately $16.3 million related
to the AOL  Agreement  based on the  Company's  assessment  of the  current  and
prospective  value  of  the  advertising  and  promotion  provided  by  AOL  and
approximately  $5.9  million  for the  performance  warrants  issued to AOL that
vested on September  30,  1998.  During the third  quarter of 1997,  the Company
expensed  approximately  $10.8 million for certain  exclusivity rights under the
AOL Agreement. The Company made an initial payment of $100 million to AOL at the
signing  of the AOL  Agreement  and  issued to AOL at signing  two  warrants  to
purchase shares of the Company's Common Stock at a premium over the market value
of such stock on the issuance  date.  Under an  amendment  of the AOL  Agreement
dated as of May 14, 1998, among other things, the term of the AOL Agreement with
respect to the Company's long distance  telecommunications services was extended
by one year to June 30, 2001, and the Company issued to AOL an additional, fully
exercisable  warrant to purchase up to 1 million  Company  shares at an exercise
price of $22.25. The $11.1 million value of the new AOL warrant will be expensed
consistent  with the treatment of the initial  payment of $100  million.  Of the
prepaid  AOL  marketing  costs  (including  the values of two fully  exercisable
warrants issued to AOL),  approximately  $57.0 million was charged to expense in
1997 and  approximately  $49.7  million was charged to expense in the first nine
months of 1998.  The  remaining  portion  of the  prepaid  AOL  marketing  costs
(approximately  $25.0  million at  September  30,  1998) will be  recognized  as
advertising  services are received.  The AOL warrant for up to 7 million  shares
vests at the rate of 2 shares for each new user of the  Company's  services that
subscribes  through  AOL and will be valued  and  charged to expense as and when
subscribers to the Company's  services  under the AOL Agreement  sign-up and the
shares under such warrant vest.  Through  September 30, 1998,  approximately 2.9
million of the 7 million shares under such warrant had vested, leaving up to 4.1
million  shares  that could  still vest under this AOL warrant and be charged to
expense in the future.  The amount of such charges,  which could be significant,
will be based on the  extent  to which  such AOL  warrants  vest and the  market
prices of the Company's  Common Stock at the time of vesting and therefore  such
charges are not currently determinable.  Generally,  the higher the market price
of the Company's  Common Stock at the time of vesting,  the larger the amount of
the charge will be.

     In addition to the prepaid  AOL  marketing  costs and the warrant  vestings
that were charged to expense in the third  quarter,  the Company  incurred $76.9
million in marketing and advertising expenses,  primarily for off-line marketing
directed at generating  new  subscribers  under the AOL  Agreement.  The Company
currently  anticipates  that such  marketing  and  advertising  expenses will be
significantly  lower in the fourth quarter as compared to the third quarter.  As
noted above, the Company is currently seeking to revise further the terms of its
marketing  arrangements  with AOL. The  inability of the Company to revise these
marketing  arrangements  on terms  economically  acceptable to the Company could
have a material  adverse  effect on the Company's AOL business and its financial
condition and results of operations.

     Investment  and Other Income  (Expense),  Net.  Investment and other income
(expense), net was $3.8 million in the third quarter of 1998 versus $4.4 million
in the third quarter of 1997.  During the third quarter of 1998,  investment and
other income  (expense),  net consists  primarily of investment income offset by
interest expense related to the Company's Convertible Notes.

     Provision  for Income  Taxes.  The Company had  recorded  net  deferred tax
assets at  December  31,  1997 and March 31,  1998  primarily  representing  net
operating  loss  carry-forwards  and other  temporary  differences  because  the
Company  believed that no valuation  allowance was required for these assets due
to future  reversals of existing taxable  temporary  differences and expectation
that the Company will generate taxable income in future years.

     In June 1998, the Company decided to make  substantial  expenditures in the
third and fourth  quarters for marketing and advertising to expand the Company's
AOL and non-AOL customer bases. As a result,  the Company had a significant loss
in the third quarter and  anticipates  for 1998. In view of anticipated  losses,
the intense competition in the  telecommunications  industry and the lack of any
assurance  that the Company  will realize any of the tax  benefits,  the Company
decided  in June 1998 to provide a 100%  valuation  reserve  for the  previously
recorded  deferred tax benefits and to provide a 100% valuation  reserve for the
current and future tax benefits which may result from the anticipated 1998 loss.
The valuation reserves of approximately $78.4 million were included in provision
for income taxes in the  statements of operations  for the three and nine months
ended September 30, 1998.

     Extraordinary  gain. During the third quarter of 1998, the Company recorded
an  extraordinary  gain in  connection  with the  acquisition  of the  Company's
convertible debt at a discount.


                                       11

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997

     Sales.  Sales increased by 43.4% to $324.8 million in the first nine months
of 1998 from $226.5  million in the first nine months of 1997.  The  increase in
sales  resulted  primarily from the Company's  marketing  campaign under the AOL
Agreement which offset a decrease in the Company's non-AOL sales.

     Cost of Sales.  Cost of sales  increased by 35.3% to $269.4  million in the
first nine months of 1998 from  $199.2  million in the first nine months of 1997
as a result of increased  sales. In addition,  the 1997 cost of sales includes a
charge  of $11.5  million  primarily  related  to the  Company's  change  in its
accounting for customer acquisition costs.

     Gross Margin.  Gross margin  increased to 17.0% in the first nine months of
1998 from 12.1% in the first nine months of 1997.  The  increase in gross margin
was  primarily due to a charge of $11.5 million  (described  above)  included in
1997 cost of sales and to lower  network  usage costs for OBN services and lower
local and international access charges, in each case on a per call basis.

     General and administrative  expenses.  General and administrative  expenses
increased by 230.5% to $30.6 million in the first nine months of 1998 from $13.3
million  in the  first  nine  months  of  1997.  The  increase  in  general  and
administrative  expenses was due primarily to the costs  associated  with hiring
additional personnel to support the Company's continuing growth, the general and
administrative  expense incurred as a result of the acquisitions of Compco, Inc.
and ADS which were acquired in November 1997 and January 1998,  respectively and
increased fees for professional services.

     Promotional,  Marketing and Advertising Expense - Primarily AOL. During the
first nine months of 1998,  the Company  expensed  approximately  $49.7  million
related to the AOL Marketing Agreement based on the Company's  assessment of the
current and prospective  value of the advertising and promotion  provided by AOL
and approximately $22.0 million for the performance  warrants issued to AOL that
vested in 1998.  During  the first nine  months of 1997,  the  Company  expensed
approximately  $25.1 million for certain  exclusivity rights. In addition to the
prepaid  AOL  marketing  costs and the  warrant  vestings  that were  charged to
expense in the first nine months of 1998, the Company incurred $112.3 million in
marketing  and  advertising   expenses  directed  primarily  at  generating  new
subscribers under the AOL Agreement.

     Research  and  Development  Costs.   Research  and  development  costs  are
associated with the telephone business of ADS and include purchased research and
development costs of approximately $21.0 million (Note 2).

     Investment  and Other Income  (Expense),  Net.  Investment and other income
(expense),  net was $(0.1) million in the first nine months of 1998 versus $11.6
million in the first nine months of 1997.  During the first nine months of 1998,
investment  and other income  (expense),  net consists  primarily of  investment
income offset by interest expense related to the Company's Convertible Notes and
a loss of $3.0 million  incurred during the first quarter of 1998 on the sale of
its investment in US Wats,  Inc.,  which was  originally  acquired in connection
with the Company's proposed acquisition of another telecommunications company.


LIQUIDITY AND CAPITAL RESOURCES

     The  Company has since  September  1995 raised  capital  primarily  through
public and  private  distributions  of its  securities.  In fall 1995 and spring
1996, the Company consummated public offerings of shares of the Company's Common
Stock  and  received  net  proceeds  of  $42.8   million  and  $139.1   million,
respectively.


                                       12

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

     In  September  1997,  the  Company  privately  sold $300  million of 4 1/2%
Convertible  Subordinated  Notes which mature on  September  15, 2002 (the "2002
Convertible  Notes").  Interest on the 2002 Convertible Notes is due and payable
semiannually  on March 15 and  September 15 of each year.  The 2002  Convertible
Notes are  convertible,  at the option of the holder thereof,  at any time after
December 9, 1997 and prior to maturity,  unless previously redeemed, into shares
of the Company's  Common Stock at a conversion price of $24.61875 per share. The
2002  Convertible  Notes are  redeemable,  in whole or in part, at the Company's
option,  at any time on or after  September  15, 2000 at 101.80% of par prior to
September 14, 2001 and 100.90% of par thereafter.

     In December 1997, the Company privately sold $200 million of 5% Convertible
Subordinated  Notes  which  mature on December  15, 2004 (the "2004  Convertible
Notes").  Interest on the 2004 Convertible Notes is due and payable semiannually
on  June 15 and  December  15 of each  year.  The  2004  Convertible  Notes  are
convertible,  at the option of the holder  thereof,  at any time after  March 5,
1998 and prior to  maturity,  unless  previously  redeemed,  into  shares of the
Company's  Common  Stock at a  conversion  price of $25.47 per  share.  The 2004
Convertible  Notes are redeemable,  in whole or in part at the Company's option,
at any time on or after  December  15,  2002 at 101.43% of par prior to December
14, 2003 and 100.71% of par thereafter.

     During  1997,  certain  options  and  warrants  to  purchase  shares of the
Company's Common Stock were exercised and the Company repurchased certain Common
Stock  Warrants,  yielding  to the Company net  proceeds  of $16.9  million.  In
addition,  during 1997 the Company repurchased  approximately 3.5 million shares
of the Company's Common Stock, which were held as treasury shares for the future
issuance  of shares  upon the  exercise of  options,  warrants  and  convertible
securities of the Company, for approximately $72.0 million.

     The  Company's  working  capital was $94.7  million  and $634.8  million at
September 30, 1998 and December 31, 1997, respectively. The significant decrease
in working capital at September 30, 1998,  when compared to historical  amounts,
is primarily a result of the  repurchase of the Company's  securities  described
below,  the advertising and marketing  expenditures  incurred in connection with
the AOL Agreement,  the advance to WXC  described  below,  and the increase in
accounts payable,  primarily reflecting recent rapid growth in the Company's AOL
business.  At September 30, 1998, the Company's marketable  securities consisted
of approximately $168.6 million (at market value) in a government bond fund. The
Company  has  recorded an  unrealized  loss of $16.7  million as a component  of
shareholders  equity. Any realized gain or loss upon the sale in the future will
be reflected in the Company's consolidated statement of operation.  In addition,
the Company incurred approximately $107.3 million of margin account indebtedness
in connection with this investment.

     During the first nine  months of 1998,  certain  options  and  warrants  to
purchase  shares of the Company's  Common Stock were  exercised  yielding to the
Company proceeds of $13.2 million.

     The Company  expended an aggregate of $281.4  million for the repurchase of
outstanding  securities during the first nine months of 1998.  Between March and
July 31, 1998, the Company repurchased  approximately 1.3 million shares, for an
aggregate of $28.9 million, pursuant to such authorization.  In August 1998, the
Company's  Board of  Directors  authorized  the  expenditure  from  time to time
thereafter  of up to an  additional  $300  million  for  the  repurchase  of the
Company's  outstanding  securities.  Through September 30, 1998, pursuant to the
$300 million repurchase  authorization,  the Company  repurchased  approximately
14.7 million shares of its Common Stock for an aggregate of $195.2  million,  as
well as $110.6 million  principal amount of the Company's  Convertible Notes for
approximately  $57.3  million.  In the fourth  quarter of 1998,  the Company has
repurchased,  through  November 15, 1998,  an additional  1.5 million  shares of
Common Stock for an aggregate of $15.8 million,  and an additional $20.7 million
principal amount of Convertible  Notes for  approximately $9 million.  The third
quarter   purchases  of  Convertible   Notes  at  a  discount   resulted  in  an
extraordinary  gain in that quarter,  and these fourth quarter  purchases of the
Convertible Notes will result in an extraordinary gain in the fourth quarter.

     The Company  invested  $8.4 million in capital  equipment  during the first
nine months of 1998.

     In connection with the Company  entering into the TSA with WXC, the Company
advanced  $56.2  million to WXC which is due and  payable on  November  30, 2000
("WXC  Notes").  Interest  on the WXC  Notes  is  payable  quarterly  commencing
November  25,  1998  at a  rate  of  12.5%  per  annum.  The  Company  purchases
international termination telecommunication services pursuant to the TSA.


                                       13

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

     The Company  generally does not have a significant  concentration of credit
risk with  respect to accounts  receivable  due to the large number of end users
comprising the Company's  customer base and their  dispersion  across  different
geographic  regions.  The Company maintains reserves for potential credit losses
and, to date, such losses have been within the Company's expectations.

     The Company believes that its current cash position,  marketable securities
and the cash flow expected to be generated from  operations,  will be sufficient
to fund its capital  expenditures,  working capital and other cash  requirements
for at least the next twelve months. Should the Company seek to raise additional
capital,  there can be no assurance that, given  current market conditions,  the
Company would be able to raise such  additional  capital on terms  acceptable to
the Company.

     YEAR 2000

     The "Year 2000 issue" refers to the potential  harm from computer  programs
that  identify  dates by the last two digits of the year  rather  than using the
full  four  digits.  As  such,  dates  on or  after  January  1,  2000  could be
misidentified,  and such programs could fail. If such a failure were to occur to
the Company's internal  computer-based systems or if the computer-based systems,
on which the Company's business depends, that are operated by third parties were
to   malfunction,   the   Company   could  be  unable  to  continue  to  provide
telecommunications  services,  to sign  up new  customers  or to  bill  existing
customers for services.  Such failures, if they occurred,  would have a material
adverse  effect on the Company's  business,  results of operations and financial
condition.  However,  because of the  complexity of the issues and the number of
parties  involved  whose actions could affect the Company and the fact that many
of the issues are outside the Company's  control,  the Company cannot reasonably
predict with certainty the nature or likelihood of such effects.

     The Company,  using its internal  staff,  has conducted a review of most of
the internal  computer-based  systems that it uses in its business.  Most of the
Company's  systems are relatively  new. Much of the software used by the Company
in its  business has been  developed  internally  and is regularly  modified and
updated to meet the changing  requirements of its business.  The Company expects
that  its  critical  internal  systems  will be able to  process  relevant  date
information  in the future to permit  the  Company to  continue  to provide  its
services  without  significant  interruption  or material  adverse effect on its
business,  results of operations and financial condition.  However, there can be
no  assurances  that the  Company  will not  experience  unanticipated  negative
consequences  caused by undetected  errors or defects in the technology  used in
its internal systems.

     However,  notwithstanding  the Company's  expectation  that its own systems
will be able to  process  Year 2000 date  information,  the  Company's  business
depends  significantly on services  provided by other parties and on the ability
of other  parties to continue to conduct  their  respective  businesses  without
significant interruption. The principal service suppliers to the Company include
AT&T, the local exchange carriers  throughout the country and AOL. Other parties
whose ability to deal with Year 2000 issues could affect the Company include the
Company's  partitions  and the credit card  companies  through which most of the
Company's  AOL  customers  are billed.  The Company has made  inquiry of some of
these parties with which the Company has direct  relationships  regarding  their
respective  levels of  preparedness  for Year 2000 issues as they may affect the
Company  and will  continue  to make such  inquiries,  as well as to monitor the
public  disclosures  of such  companies  regarding  their Year 2000 status.  The
responses to such inquiries  generally have been  non-committal  regarding their
levels  of  preparedness  or their  willingness  to  provide  assurances  to the
Company. In almost all cases, the Company is not in a position to require either
that these other  companies give assurances to the Company as to their continued
provision  of  services or that such  companies  take the  necessary  actions to
assure that they will be ready for the Year 2000. Accordingly, while the Company
has not been  advised by any of these other  companies  on which it depends that
they do not  expect to be ready  for Year  2000  issues,  the  Company  does not
believe it is in a position to project the likelihood of such parties' abilities
to provide  uninterrupted  services to the Company.  The Company has  considered
possible  contingency  plans,  should one of these  significant  suppliers fail,
including  entering into contracts with  long-distance  service  providers other
than AT&T to support its OBN network. However, given the nature of the Company's
relationships with most of these significant suppliers,  it may be impracticable
for the  Company to replace  them  should  they be unable to continue to provide
these services.  The failure of any of these companies to provide  uninterrupted
service  to the  Company  likely  would have a  material  adverse  effect on the
Company's business and its results of operations and financial condition.

     The Company does not separately  identify costs incurred in connection with
Year 2000 compliance activities.  To date, however, the Company does not believe
such costs to be significant because they generally have been incurred in normal
course activities of the Company's internal personnel in regularly modifying and
updating 



                                       14
<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

its software  programs.  Future  expenditures are not expected to be significant
and will be funded out of operating cash flows.

                                    * * * * *

     Certain   of  the   statements   contained   herein   may   be   considered
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933  and  Section  21E of the  Securities  Exchange  Act of  1934.  Such
statements  are  identified  by the use of  forward-looking  words  or  phrases,
including,   but   not   limited   to,   "estimates,"   "expects,"   "expected,"
"anticipates," and "anticipated." These forward-looking  statements are based on
the  Company's  current  expectations.  Although the Company  believes  that the
expectations reflected in such forward-looking statements are reasonable,  there
can be no  assurance  that such  expectations  will prove to have been  correct.
Forward-looking  statements  involve risks and  uncertainties  and the Company's
actual  results  could differ  materially  from the Company's  expectations.  In
addition to factors  reflected  elsewhere  herein,  important factors that could
cause such actual results to differ materially  include,  among others,  adverse
developments  in the Company's  relationship  with AT&T or AOL,  increased price
competition  for  long  distance  services,  failure  of the  marketing  of long
distance services under the AOL Agreement or the need to incur greater marketing
costs to maintain expected customer bases, attrition in the number of end users,
increased  implementation  of PIC  freezes  by local  telephone  companies,  the
occurrence of as yet generally  unidentified  problems  related to the Year 2000
problem or other like date identification issues in computer systems and changes
in government  policy,  regulation and  enforcement.  The Company  undertakes no
obligations to update its forward-looking statements.




                                       15

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

             On June 16, 1998, a purported shareholder class action was filed in
        the  United  States   District   Court  for  the  Eastern   District  of
        Pennsylvania  against the Company and certain of its  officers  alleging
        violation of the securities laws in connection with certain  disclosures
        made by the  Company  in its  public  filings  and  seeking  unspecified
        damages.  Thereafter,  additional lawsuits making substantially the same
        allegations  were filed by other  plaintiffs in the same court.  At this
        point,  no  classes  have  been  certified.  The  Company  believes  the
        allegations  in the  complaints  are without merit and intends to defend
        the litigations vigorously. The Company also is a party to certain legal
        actions arising in the ordinary course of business.

             The Company  believes  that the ultimate  outcome of the  foregoing
        actions will not result in liability that would have a material  adverse
        effect on the Company's financial condition or results of operations.

Item 2. Changes in Securities

        None.

Item 3. Defaults Upon Senior Securities

        None.

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

        (a) Not applicable.

        (b) Not applicable.

        (c) Not applicable.

        (d) Not applicable

Item 5. Other Information

        The Company  announced  on  November  16,  1998 the  appointment  of Mr.
Gabriel Battista, 54, as Chairman,  Chief Executive Officer and President of the
Company and the retirement of Mr. Daniel Borislow as the Company's  Chairman and
Chief  Executive  Officer upon Mr.  Battista's  assumption of such offices.  Mr.
Battista will commence  employment with the Company in December 1998 and he will
assume such offices as of January 4, 1999. The Company also announced the change
of its name to Tel-Save.com, Inc.

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

            Exhibit     11 Computation of Net Income Per Share
            Exhibit     27 Financial Data Schedule

        (b) Reports on Form 8-K
            Since June 30,  1998,  the Company has filed the  following  Current
            Reports on Form 8-K:
            (i)         September 18, 1998 where the Company disclosed status of
                        its  repurchase   program  and  expectations   regarding
                        operating results for 1998 third quarter.
            (ii)        October 29, 1998 where the Company  announced  estimated
                        results for the third quarter of 1998 and the resumption
                        of its authorized repurchases.


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<PAGE>



                                   SIGNATURES

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

Date:    November 16, 1998    TEL-SAVE HOLDINGS, INC.
                              (Registrant)

                             By: /s/ Daniel Borislow
                                -----------------------------------------------
                                Daniel Borislow
                                Chairman of the Board,
                                Chief Executive Officer and Director

                             By: /s/ George P. Farley
                                -----------------------------------------------
                                George P. Farley
                                Chief Financial Officer, Treasurer and Director

                             By: /s/ Kevin R. Kelly
                                -----------------------------------------------
                                Kevin R. Kelly
                                Controller



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