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 June 30, 1997.

[ ]     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.

Common Stock,  $.01 par value,  65,268,823  shares  outstanding as of August 13,
1997.



<PAGE>


                             TEL-SAVE HOLDINGS, INC.
                                    FORM 10-Q
                                  JUNE 30, 1997

                                TABLE OF CONTENTS




PART I - FINANCIAL INFORMATION

     Item 1. Financial Statements

          Consolidated Balance Sheets as of June 30, 1997 and December
           31, 1996                                                         3

          Consolidated  Statements of Operations for the three and six
           months ended June 30, 1997 and 1996                              4

          Consolidated  Statement of Stockholders'  Equity for the six
           months ended June 30, 1997                                       5

          Consolidated  Statements  of Cash  Flows for the six  months
           ended June 30, 1997 and 1996                                     6

          Notes to Consolidated Financial Statements                        7

     Item 2.  Management's   Discussion   and  Analysis  of  Financial
               Condition and Results of Operations                         11

PART II - OTHER INFORMATION

     Items 1 - 6                                                           22

     Signatures                                                            23


                                       -2-

<PAGE>



PART I - FINANCIAL INFORMATION
   ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

                                                                         JUNE 30,      December 31,
                                                                           1997            1996
--------------------------------------------------------------------  -------------- --------------
                                                                       (UNAUDITED)
<S>                                                                        <C>            <C>      
ASSETS:
CURRENT:
   Cash and cash equivalents                                               $  43,146      $   8,023
   Marketable securities                                                           -        149,237
   Accounts receivable, trade net of allowance for uncollect
      ible accounts of $1,804 and $987, respectively                          39,788         19,971
   Advances to partitions and note receivables                                27,639         13,410
   Due from broker                                                                 -            867
   Prepaid AOL marketing costs-current                                        60,086              -
   Prepaid  expenses and other current assets                                  9,849         10,377
--------------------------------------------------------------------  -------------- --------------
        TOTAL CURRENT ASSETS                                                 180,508        201,885
Property and equipment, net of accumulated depreciation of
   $1,648 and $499, respectively                                              45,194         30,097
Intangibles, net of accumulated amortization of $1,467 and
   $3,787, respectively                                                       23,479         21,102
Prepaid AOL marketing costs                                                   35,212              -
Other assets                                                                   5,880          3,924
--------------------------------------------------------------------  -------------- --------------
        TOTAL ASSETS                                                        $290,273       $257,008
====================================================================  ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable and accrued expenses:
   Trade and other                                                          $ 29,005        $17,812
   Partitions                                                                  5,081          4,398
   Sales and excise taxes payable                                              1,808          1,592
   Other                                                                       1,220          1,619
Securities sold short, at cost to purchase                                         -            867
--------------------------------------------------------------------  -------------- --------------
        TOTAL CURRENT LIABILITIES                                             37,114         26,288
--------------------------------------------------------------------  -------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
   Preferred stock, $.01 par value, 5,000,000 shares autho
      rized; no shares outstanding                                                 -              -
   Common stock - $.01 stated value, 100,000,000 authorized;
      64,668,823 and 62,237,998 issued and outstanding,
      respectively                                                               647            622
   Additional paid-in capital                                                233,465        210,616
   Retained earnings                                                          23,607         24,042
   Treasury stock                                                            (4,560)        (4,560)
--------------------------------------------------------------------  -------------- --------------
        TOTAL STOCKHOLDERS' EQUITY                                           253,159        230,720
--------------------------------------------------------------------  -------------- --------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $290,273       $257,008
====================================================================  ============== ==============
</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 SIX MONTHS
                                         ENDED JUNE 30,            ENDED JUNE 30,
                                    -----------------------   -----------------------
                                       1997         1996         1997         1996
----------------------------------  -----------  ----------   -----------  ----------
<S>                                  <C>          <C>          <C>          <C>      
SALES                                $   75,032   $  57,015    $  146,192   $ 108,080
COST OF SALES                            84,296      49,628       146,081      93,861
----------------------------------  -----------  ----------   -----------  ----------
GROSS PROFIT (LOSS)                     (9,264)       7,387           111      14,219
SELLING, GENERAL AND ADMINIS                                              
   TRATIVE                                4,660       2,505         7,953       4,792
----------------------------------  -----------  ----------   -----------  ----------
OPERATING INCOME (LOSS)                (13,924)       4,882       (7,842)       9,427
OTHER INCOME, NET                         4,309       1,634         7,128       2,507
----------------------------------  -----------  ----------   -----------  ----------
INCOME (LOSS) BEFORE PROVISION                                            
   FOR INCOME TAXES                     (9,615)       6,516         (714)      11,934
PROVISION (BENEFIT) FOR INCOME                                            
   TAXES                                (3,750)       2,458         (279)       4,499
----------------------------------  -----------  ----------   -----------  ----------
NET INCOME (LOSS)                    $  (5,865)   $   4,058    $    (435)   $   7,435
==================================  ===========  ==========   ===========  ==========
NET INCOME (LOSS) PER SHARE -                                             
   PRIMARY                           $    (.09)   $     .07    $    (.01)   $     .15
==================================  ===========  ==========   ===========  ==========
WEIGHTED AVERAGE COMMON AND                                               
   COMMON EQUIVALENT SHARES                                               
   OUTSTANDING - PRIMARY                 66,881      58,766        66,367      50,050
==================================  ===========  ==========   ===========  ==========
NET INCOME (LOSS) PER SHARE -                                             
FULLY DILUTED                        $    (.09)   $     .07    $    (.01)   $     .14
==================================  ===========  ==========   ===========  ==========
WEIGHTED AVERAGE COMMON             
  AND COMMON EQUIVALENT                                                   
   SHARES OUTSTANDING - FULLY                                             
   DILUTED                               66,898      59,864        66,479      53,034
==================================  ===========  ==========   ===========  ==========
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                       -4-

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 1997
                                   (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                           Common Stock         Additional                      Treasury Stock               
                                 --------------------------      Paid-in        Retained     -----------------------  
                                    Shares        Amount         Capital         Earnings      Shares      Amount       Total
-------------------------------  ------------  ------------  ----------------  ------------  ---------  ------------  ----------
<S>              <C>                <C>             <C>           <C>            <C>            <C>        <C>         <C>     
BALANCE, JANUARY 1, 1997            62,238          $622          $210,616       $24,042        (428)      $(4,560)    $230,720
                                                                                                                    
NET LOSS                                 -             -                 -         (435)            -            -         (435)
                                                                                                                      
ISSUANCE OF WARRANTS TO                                                                                               
   AOL                                   -             -             9,100             -            -            -        9,100
                                                                                                                      
ISSUANCE OF COMMON STOCK               141             1             2,217             -            -            -        2,218
                                                                                                                      
EXERCISE OF COMMON STOCK                                                                                              
   WARRANTS                          1,065            11             5,065             -            -            -        5,076
                                                                                                                      
EXERCISE OF COMMON STOCK                                                                                              
   OPTIONS                           1,225            13             5,485             -            -            -        5,498
                                                                                                                      
PURCHASE OF COMMON STOCK                                                                                              
   WARRANTS                              -             -           (4,400)             -            -            -       (4,400)
INCOME TAX BENEFIT RELATED                                                                                            
    TO EXERCISE OF COMMON                                                                                             
    STOCK OPTIONS AND WAR                                                                                             
    RANTS                                -             -             5,382             -            -            -        5,382
-------------------------------  ------------  ------------  ----------------  ------------  ---------  ------------  ----------
                                                                                                                      
BALANCE, JUNE 30, 1997              64,669          $647          $233,465       $23,607        (428)      $(4,560)    $253,159
===============================  ============  ============  ================  ============  ======= ===============  ==========
</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 SIX MONTHS
                                                                         ENDED JUNE 30,

                                                                       1997        1996
-------------------------------------------------------------------  ---------  -----------
<S>                                                                  <C>          <C>      
Cash flows from operating activities:                                          
Net income (loss)                                                    $    (435)   $   7,435
Adjustment to reconcile net income to net cash (used in)                       
   provided by operating activities:                                           
   Unrealized loss on securities sold short and marketable                     
   securities                                                                -          216
   Provision for bad debts                                                1025           11
   Depreciation and amortization                                         2,994        1,135
   Non-cash charge for customer acquisition costs                       11,550            -
   AOL marketing costs                                                  14,366            -
   Deferred credits                                                          -         (240)
   Income tax benefit related to warrants                                5,382            -
   (Increase) decrease in:                                                     
      Accounts receivable - trade                                      (20,635)        (719)
      Advances to partitions and note receivables                      (14,228)      (3,086)
      Prepaid expenses and other current assets                         (8,697)      (1,430)
      Prepaid AOL marketing costs                                     (100,564)           -
      Other assets                                                      (1,956)      (1,149)
   Increase (decrease) in:                                                     
      Accounts and partition payables and accrued expenses              11,483        9,058
      Income taxes payable                                                   -          673
-------------------------------------------------------------------  ---------  -----------
        Net cash (used in) provided by operating activities            (99,715)      11,904
-------------------------------------------------------------------  ---------  -----------
Cash flows from investing activities:                                          
   Acquisition of intangibles                                           (4,328)        (796)
   Capital expenditures                                                (16,246)     (17,911)
   Securities sold short                                                  (867)         895
   Due from broker                                                         867       (1,111)
   Loans to stockholder                                                      -       (3,034)
   Repayment of stockholder loans                                            -        5,109
   Sale (purchase) of marketable securities                            149,238     (164,464)
-------------------------------------------------------------------  ---------  -----------
        Net cash provided by (used in) investing activities            128,664     (181,312)
-------------------------------------------------------------------  ---------  -----------
Cash flows from financing activities:                                          
   Proceeds from sale of common stock                                        -      139,069
   Proceeds from exercise of options and warrants                       10,574        4,471
   Purchase of common stock warrants                                    (4,400)           -
   Payment of note payable to stockholder                                    -       (5,921)
-------------------------------------------------------------------  ---------  -----------
        Net cash provided by financing activities                        6,174      137,619
-------------------------------------------------------------------  ---------  -----------
Net increase (decrease) in cash and cash equivalents                    35,123      (31,789)
Cash and cash equivalents, at beginning of period                        8,023       41,211
-------------------------------------------------------------------  ---------  -----------
Cash and cash equivalents, at end of period                          $  43,146  $     9,422
===================================================================  =========  ===========
</TABLE>
                                                                              
                    See accompanying notes to consolidated financial statements.

                                       -6-

<PAGE>


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



1.    Basis of 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
                                   June  30,  1997  and  for the  three  and six
                                   months  ended  June  30,  1997  and  1996 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,
                                   1996 was derived  from the audited  financial
                                   statements  included  in the  Company's  Form
                                   10-K.  These  interim  financial   statements
                                   should  be  read  in  conjunction  with  that
                                   report.   The   interim   results   are   not
                                   necessarily indicative of the results for any
                                   future periods.

2.   Stock Split                   On January 3, 1997,  the  Company's  Board of
                                   Directors approved a two-for-one split of the
                                   common  stock  in the  form  of a 100%  stock
                                   dividend.  The  additional  shares  resulting
                                   from the  stock  split  were  distributed  on
                                   January  31,  1997,  to all  stockholders  of
                                   record at the close of  business  on  January
                                   17, 1997. The  consolidated  balance sheet as
                                   of December 31, 1996  reflects the  recording
                                   of the stock  split as if it had  occurred on
                                   December 31, 1996. Further, all references in
                                   the  consolidated   financial  statements  to
                                   average  number of shares  out  standing  and
                                   related  prices,  per share amounts,  warrant
                                   and stock option data have been  restated for
                                   all periods to reflect the stock split.



                                       -7-

<PAGE>


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


3.   AOL Agreement                 In conjunction  with the previously  reported
                                   Telecommunications  Marketing  Agreement (the
                                   "AOL  Agreement")  with America Online,  Inc.
                                   ("AOL"), the Company paid AOL a total of $100
                                   million  and issued two  warrants to purchase
                                   shares of the  Company's  stock,  one warrant
                                   (the  "First  Warrant")  to  purchase,  at an
                                   exercise  price of $15.50  per  share,  up to
                                   5,000,000 shares, which vests as to 2,500,000
                                   shares  on  the   earlier  of  the  time  the
                                   Company's  service under the AOL Agreement is
                                   first made generally  available to the public
                                   (the "Com mercial  Launch Date") and February
                                   22,  1998,  and  as to  2,500,000  shares  on
                                   February  22, 1998 if the AOL  Agreement  has
                                   not terminated,  and one warrant (the "Second
                                   Warrant") to purchase,  at an exercise  price
                                   of $14.00 per share, up to 7,000,000  shares,
                                   which  will  vest,  commencing  December  31,
                                   1997,  based on the number of  subscribers to
                                   the Company's service and would vest fully if
                                   there   are  at  least   3.5   million   such
                                   subscribers at any one time. The initial term
                                   of the AOL  Agreement  runs to June 30, 2000,
                                   and the AOL  Agreement  provides  for  annual
                                   extensions by AOL of its term thereafter.

                                   After  discussions  with  the  Staff  of  the
                                   Securities  and  Exchange   Commission   (the
                                   "SEC"),  the Company has determined to change
                                   the originally described accounting treatment
                                   for the AOL  Agreement and to account for the
                                   $100 million cash  payment,  the value of the
                                   First Warrant,  as described  below, and $0.6
                                   million  of   agreement   related   costs  as
                                   follows: (i) $35.9 million will be charged to
                                   expense  ratably  over  the  period  from the
                                   signing of the AOL  Agreement to December 31,
                                   1997,  as  payment  for  certain  exclusivity
                                   rights for that  period;  (ii) $13.2  million
                                   will be treated as production of  advertising
                                   costs and will be  charged  to expense on the
                                   Commercial Launch Date, currently anticipated
                                   to be in September  1997; and (iii) the $60.6
                                   million, the balance of the cash payment, the
                                   value of the First  Warrant and AOL Agreement
                                   related costs,  represents the combined value
                                   of advertising and exclusivities which extend
                                   over the term of the AOL  Agreement  and will
                                   be recognized  ratably  after the  Commercial
                                   Launch  Date  as  advertising   services  are
                                   received.  Accordingly,  during the three and
                                   six months ended June 30,  1997,  the Company
                                   recognized  $10.8 million and $14.4  million,
                                   respectively,  related to the exclusivity, as
                                   discussed in (i) above.

                                   While the First Warrant has been valued by an
                                   independent  investment  bank at $9.1 million
                                   at  its  date  of  grant,   the   Company  is
                                   continuing   to  discuss  with  the  SEC  the
                                   valuation  of this  First  Warrant, and  such
                                   amount could  change prior to the  Commercial
                                   Launch  Date,  which would  affect the amount
                                   charged  to expense  over the  balance of the
                                   initial term of the AOL Agreement. The Second
                                   Warrant will be valued and charged to expense
                                   as and  when  subscribers  to the Com  pany's
                                   services under the AOL Agreement  sign-up and
                                   the shares under the Second Warrant vest.


                                       -8-

<PAGE>


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


                                   The AOL Agreement also provides for marketing
                                   payments to AOL based on the "pre-tax profit"
                                   (as  defined  in the AOL  Agreement)  in each
                                   calendar quarter from the  telecommunications
                                   services provided by the Company. AOL's share
                                   of the  pre-tax  profit will vary from 50% to
                                   70%,  depending  upon the  level of  revenues
                                   from such services. The Company will withhold
                                   a  portion  of  AOL's  share  of the  pre-tax
                                   profit  as a  recovery  of the  initial  $100
                                   million   cash   payment.   The   Company  is
                                   permitted  to withhold up to $4.3  million in
                                   each of the 10 quarters ending after December
                                   31, 1997 and to  withhold  33% of AOL's share
                                   of the  pre-tax  profits  for  every  quarter
                                   ending  after June 30,  2002 until the entire
                                   $100 million cash payment has been recovered.
                                   AOL's  share of pre-tax  profits in excess of
                                   the $4.3 million and 33% will be  distributed
                                   as earned.

                                   The AOL Agreement also provides for the grant
                                   to AOL of additional  warrants to purchase up
                                   to an  aggregate  of 2 million  shares if AOL
                                   extends   its   obligations   under  the  AOL
                                   Agreement  beyond  June  30,  2000.  Any such
                                   additional  warrants  that may be  granted to
                                   AOL will be  valued  at that time and will be
                                   charged   as  an   expense   in  the   income
                                   statement.

4.   Customer Acquisition          The Company has changed its direct  marketing
                                   Costs  efforts to producing new end users for
                                   the Company's long distance  services through
                                   the  use  and   management   of   independent
                                   telemarketing  agents that solicit  customers
                                   primarily  on behalf of  Company  partitions.
                                   The Company  determined in the second quarter
                                   to deemphasize the use of direct marketing to
                                   solicit  customers  for  the  Company  as the
                                   carrier  and to  focus  the  majority  of its
                                   existing   direct   marketing   resources  on
                                   customer   service   and   support   for  the
                                   marketing    operations    of   its   carrier
                                   partitions,  on  a  fee  basis.  The  Company
                                   recognized fees of $2.7 million,  included in
                                   other  income,   from  the  services  net  of
                                   related  costs  of $8.7  million  during  the
                                   second quarter of 1997.

                                   The  Company  recorded  a  one-time  non-cash
                                   charge of $11.5  million in the quarter ended
                                   June 30, 1997,  primarily million as a result
                                   of the Company  changing its  accounting  for
                                   customer acquisition costs to expense them in
                                   the  period  incurred  versus  the  Company's
                                   prior  treatment  of  capitalizing   customer
                                   acquisition  costs and amortizing them over a
                                   six month period.

 5.  Recent Accounting             In February  1997,  the Financial  Accounting
      Pronouncement                Standards  Board  issued  Statement  No. 128,
                                   "Earnings  Per Share," which is effective for
                                   fiscal  years ended after  December 15, 1997.
                                   The Company will adopt  Statement No. 128 for
                                   the  year  ended   December  31,  1997.   The
                                   adoption of this  standard is not expected to
                                   have  a  material  impact  on  the  Company's
                                   consolidated financial statements.

                                   In  June  1997,   the  Financial   Accounting
                                   Standards Board issued Statement of Financial
                                   Accounting   Standards  No.  130,   Reporting
                                   Comprehensive   Income   (SFAS  130),   which
                                   establishes   standards   for  reporting  and
                                   display   of   comprehensive    income,   its
                                   components    and    accumulated    balances.
                                   Comprehensive  income is  defined  to include
                                   all changes in equity except those  resulting
                                   from investments by owners and  distributions
                                   to owners. Among other disclosures,  SFAS 130
                                   requires  that all items that are required to
                                   be  recognized   under   current   accounting
                                   standards  as  components  of   comprehensive
                                   income be reported  in a financial  statement
                                   that is displayed with the same prominence as
                                   other financial statements.

                                   SFAS   130   is   effective   for   financial
                                   statements   for  periods   beginning   after
                                   December  15, 1997 and  requires  comparative
                                   information for earlier years to be restated.
                                   Because  of  the  recent   issuance  of  this
                                   standard, management has been unable to fully
                                   evaluate the impact, if any, the standard may
                                   have   on    future    financial    statement
                                   disclosures.   Results  of   operations   and
                                   financial   position,    however,   will   be
                                   unaffected   by    implementation   of   this
                                   standard.

                                   In  June  1997,   the  Financial   Accounting
                                   Standards   Board   issued   SFAS  No.   131,
                                   Disclosures  about  Segments of an Enterprise
                                   and  Related  Information,  (SFAS  131) which
                                   supersedes  SFAS No 14,  Financial  Reporting
                                   for Segments of a Business  Enterprise.  SFAS
                                   131  establishes  standards  for the way that
                                   public  companies  report  information  about
                                   operating   segments   in  annual   financial
                                   statements and requires reporting of selected
                                   information   about  operating   segments  in
                                   interim  financial  statements  issued to the
                                   public.  It also  establishes  standards  for
                                   disclosures  regarding products and services,
                                   geographic  areas and major  customers.  SFAS
                                   131 defines operating  segments as components
                                   of a company about which  separate  financial
                                   information  is  available  that is evaluated
                                   regularly  by the  chief  operating  decision
                                   maker in deciding  how to allocate  resources
                                   and in assessing performance.

                                   SFAS   131   is   effective   for   financial
                                   statements   for  periods   beginning   after
                                   December  15, 1997 and  requires  comparative
                                   information for earlier years to be restated.
                                   Because  of  the  recent   issuance  of  this
                                   standard, management has been unable to fully
                                   evaluate  the impact,  if any, it may have on
                                   future   financial   statement   disclosures.
                                   Results of operations and financial position,
                                   however, will be unaffected by implementation
                                   of this standard.

                                       -9-

<PAGE>


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


6.   Subsequent Event              As of July 16, 1997,  the  Company,  a wholly
                                   owned  subsidiary  of  the  Company  ("Merger
                                   Sub") and Shared Technologies Fairchild, Inc.
                                   ("STF") entered into an Agreement and Plan of
                                   Merger (the "Merger Agreement"),  pursuant to
                                   which  STF  would,  by  merger  with and into
                                   Merger  Sub (the  "Merger"),  become a wholly
                                   owned  subsidiary  of  the  Company  and  the
                                   shares of STF common stock would be exchanged
                                   for shares of the Company's common stock.

                                   Pursuant   to  the   terms   of  the   Merger
                                   Agreement,  each  share of STF stock  will be
                                   converted  into the  number  of shares of the
                                   Company  common stock  calculated by dividing
                                   $11.25 by the  average  closing  price of the
                                   Company  common  stock over a  15-trading-day
                                   period  prior  to  the  closing  date  of the
                                   Merger,  provided  that  the  exchange  ratio
                                   shall not be greater than 1.125 shares of the
                                   Company's  common  stock  for a share  of STF
                                   common  stock  and  that,   if  such  average
                                   closing  price is greater than $20 per share,
                                   the  exchange  ratio  will be  calculated  by
                                   dividing  the  sum of  (a)  $11.25  plus  the
                                   product  of .3 times the amount by which such
                                   average closing price exceeds $20 by (b) such
                                   average  closing  price.   STF's  outstanding
                                   convertible preferred stock will be exchanged
                                   for  preferred  stock  of  the  Company  with
                                   substantially  identical  terms or for shares
                                   of the Company's common stock.

                                   The  consummation of the Merger is subject to
                                   the approval of the  stockholders of both the
                                   Company  and STF  (including,  in the case of
                                   the Company,  approval of an amendment to the
                                   Company's  certificate  of  incorporation  to
                                   increase   the   number   of  the   Company's
                                   authorized  shares of common stock),  as well
                                   as  other  conditions,   including  antitrust
                                   clearance,  applicable   federal   and  state
                                   regulatory   approvals  and   consents,   the
                                   Merger's qualifying as a pooling of interests
                                   transaction for accounting purposes and other
                                   customary closing conditions.


                                      -10-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


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

          INTRODUCTION

          The Company was founded in 1989 as a switchless  reseller of AT&T long
          distance services to small and medium-sized businesses,  currently has
          over 500,000 end users. In 1997, the Company  commenced the deployment
          of its own  nationwide  telecommunications  network,  One  Better  Net
          ("OBN"),   consisting  of  five   Company-owned,   AT&T  (now  Lucent)
          manufactured   5ESS-2000   switches  connected  by  AT&T  transmission
          facilities. OBN currently provides service to approximately 150,000 of
          the  Company's  end users,  and a vast  majority of the  Company's new
          outbound end users are now being provisioned to OBN.

          The Company has continued to develop its direct  marketing  efforts to
          producing new end users for the Company's long distance services.  The
          Company has determined to change its business practice and deemphasize
          the use of  direct  marketing  to  solicit  direct  customers  for the
          Company  as the  carrier  and to  focus  the  majority  of its  direct
          marketing  resources on customer service and support for the marketing
          operation of its carrier partitions.  The Company has deemphasized its
          efforts in direct  marketing  to  businesses  in order to (i) focus on
          marketing  to  residential  and  business   customers  under  the  AOL
          Agreement,  (ii)  utilize  its direct  marketing  group to support the
          marketing  efforts of its  partitions  to  business  end users;  (iii)
          decrease  the Company's risk of association  with customer  complaints
          or  federal  or state  enforcement  actions  with  respect  to  direct
          marketing and order  verification  practices and (iv) be in a position
          to sell or provide these services to local  exchange  carriers as they
          enter the long  distance  market in other  geographical  regions.  The
          Company  expects to  continue to use its  facility  and  employees  in
          Florida for  telemarketing of its services,  but expects  gradually to
          shift such  resources  to providing  customer  service and support for
          existing customers as well as those customers  anticipated to be added
          under the AOL Agreement and other marketing programs.

          The Company  continues to expand the capacity of OBN, which  currently
          could accommodate 400,000 new residential customers without additional
          transmission facilities.  Separately,  the Company has entered into an
          agreement with AT&T to purchase its Carrier Solutions Platform ("CSP")
          service  for an  initial  period  of six  (6)  months  subject  to the
          parties' right to terminate the agreement.  The Company is negotiating
          a longer term agreement with AT & T for such service.  The CSP service
          provides OBN with  significant  additional  capacity.  The CSP service
          would enable the Company to  accommodate  large  numbers of additional
          customers on OBN by handling their peak load or overflow traffic.


                                      -11-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


          RESULTS OF OPERATIONS

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


<TABLE>
<CAPTION>

                                                                PERCENTAGE OF SALES
                                           --------------------------------------------------------------
                                            FOR THE THREE MONTHS ENDED        FOR THE SIX MONTHS ENDED
                                                     JUNE 30,                         JUNE 30,
                                           ----------------------------    ------------------------------
                                             1997               1996          1997                 1996
---------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>           <C>                  <C>   
SALES                                       100.0%             100.0%        100.0%               100.0%
COST OF SALES                               112,3               87.0          99.9                 86.8
                                           -------            -------       -------              --------
GROSS PROFIT (LOSS)                         (12.3)              13.0           0.1                 13.2

SELLING, GENERAL AND ADMINISTRATIVE           6.3                4.4           5.5                  4.5
                                           -------            -------       -------              --------
OPERATING INCOME (LOSS)                     (18.6)               8.6          (5.4)                 8.7
OTHER INCOME, NET                             5.8                2.8           4.9                  2.3
                                           -------            -------       -------              --------
INCOME (LOSS) BEFORE PROVISION FOR                                                
   INCOME TAXES                             (12.8)              11.4          (0.5)                11.0
PROVISION (BENEFIT) FOR INCOME        
   TAXES                                     (5.0)               4.3          (0.2)                 4.1
                                           -------            -------       -------              --------
NET INCOME (LOSS)                            (7.8)%              7.1%         (0.3)%                6.9%
=========================================================================================================
</TABLE>


                                      -12-
<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

    THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED JUNE 30, 1996

          Sales. Sales increased by 31.6% to $75.0 million in the second quarter
          of 1997 from $57.0 million in the second quarter of 1996. The increase
          in sales  related  primarily  to the  marketing of the  Company's  OBN
          services and the addition of new partitions.

          Although  the  Company  expects  sales  to  increase  through  the AOL
          Agreement,  the  addition  of new  partitions,  the growth of end user
          business through existing partitions,  the pending merger with STF and
          possible future  acquisitions,  in view of the intense  competition in
          this  industry,  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. The Company's cost of sales increased by 69.9% to $84.3
          million in the second quarter of 1997 from $49.6 million in the second
          quarter  of 1996.  Included  in the 1997  cost of sales  are  non-cash
          charges  (See Note 4) of $11.5  million  primarily  as a result of the
          Company's change in its accounting for customer  acquisition costs and
          $10.8 million related to the exclusivity  portion of the AOL Agreement
          (See  Note 3).  Absent  these  charges,  the  Company's  cost of sales
          increased by 25% to $62.0  million in the second  quarter of 1997 from
          $49.6 million in the second quarter of 1996.

          Prior to 1997,  network  usage  costs  consisted  solely of  "bundled"
          charges  from AT&T.  Beginning  in 1997,  the  Company  also  incurred
          "unbundled" charges,  including local access fees, associated with the
          operation of OBN. Both "bundled" and "unbundled"  charges are directly
          related to calls made by the Company's end users.

          

                                      -13-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          The Company and AOL are  working  together to prepare to begin  online
          marketing  and  billing  of long  distance  service.  Development  and
          testing is  continuing  for the systems that will be needed to support
          the offering,  but there can be no assurance that such development and
          testing  will be completed  successfully  or in a timely  manner.  The
          Company currently  estimates that between 2% and 6% of AOL's customers
          will need to sign up for the Company's long distance  service in order
          for the Company to break even on its investment in  the AOL Agreement.

          As a switchless  reseller of AT&T long distance  services and in order
          to provide  its OBN  services,  the  Company  subscribes  to  contract
          tariffs. The ability of the Company to negotiate  competitive terms of
          these contract  tariffs has been an important reason for the Company's
          success.  In  October  1996,  the  Company  subscribed  to a new  AT&T
          contract tariff, which was further revised in December 1996 and in May
          1997 and permits the Company to continue to resell AT&T long  distance
          services,  including AT&T-SDN service,  through mid-1998. The new AT&T
          contract   tariff  also  includes   other  AT&T   services   (such  as
          international long distance,  inbound and outbound services) that will
          be used in the Company's nationwide  telecommunications  network, OBN.
          The rates that the Company pays under the new AT&T contract tariff are
          more favorable to the Company than under previous tariffs.  During its
          term, the new AT&T contract tariff will enable the Company to minimize
          possible  attrition  that might result from moving  existing end users
          from the  AT&T  network  to OBN.  The new AT&T  contract  tariff  also
          permits a more  gradual  introduction  of OBN,  which has  reduced the
          expense of providing the capacity required in a more rapid phase-in of
          OBN and lessened the impact of any technical  difficulties  during the
          phase-in of OBN. The new AT&T contract  tariff  commits the Company to
          purchase  $285  million  of  service  from AT&T over the next 4 years,
          including at least $1 million per month of international  service. The
          Company can terminate  the new contract  tariff  without  liability to
          AT&T at the end of 18 months if the  Company  has  generated  at least
          $105  million  in usage  charges,  including  at least $15  million in
          international usage charges and the Company currently expects to reach
          these thresholds ($105 million and $15 million) in the  fourth quarter
          of 1997.

          OBN and the  operation of the  Company's own switches and network have
          to date and will in the future  require the  Company to incur  systems
          and  equipment  maintenance,  lease,  and network  personnel  expenses
          significantly above the levels historically experienced by the Company
          as a switchless  reseller of AT&T  services.  However,  these per call
          costs, in combination with "unbundled"  charges paid to LECs and AT&T,
          were in the quarter ended June 30, 1997 and are expected in the future
          to be less than the per call cost currently incurred by the Company as
          a switchless reseller paying "bundled" charges to AT&T. The Company is
          already   expanding  the  capacity  of  OBN,  which   currently  could
          accommodate 400,000 new residential customers. Separately, the Company
          has  entered  into an  agreement  with AT&T to  purchase  its  Carrier
          Solutions  Platform  ("CSP")  service for an initial period of six (6)
          months subject to either party's right to terminate the agreement. The
          Company is  negotiating  a longer  term  agreement  with AT&T for such
          service.  The CSP service  provides  OBN with  significant  additional
          capacity.  The CSP services  would  enable the Company to  accommodate
          large  numbers of additional  customers on OBN by handling  their peak
          load or  overflow  traffic.  CSP has been  installed,  and  testing is
          expected to be completed by  mid-October.  This  expansion of capacity
          will cost the Company  approximately  $120,000 per month. By utilizing
          CSP,  the Company  expects  that it can  operate its network  close to
          capacity,  thereby lowering  transport costs.  Further,  CSP gives the
          Company the ability to  seamlessly  migrate  traffic to OBN and reduce
          the task of forecasting demand.

                                      -14-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          Gross Margin.  Gross margin decreased to (12.3%) in the second quarter
          of 1997 from 13.0% during the second  quarter of 1996. The decrease in
          gross margin was  primarily  due to the non-cash  charges as discussed
          above.  Absent these charges,  gross margin  increased to 17.4% in the
          second  quarter of 1997 from 13.0% during the second  quarter of 1996,
          due to lower  network usage costs on the  Company's  current  contract
          tariff with AT&T and network  costs for OBN services  which were lower
          on a per call basis when compared to those paid to AT&T,  offset by an
          increase in direct marketing costs.

          Although the basic rates of the three largest long distance carriers -
          AT&T, MCI and Sprint - have consistently increased over the past three
          years,  AT&T and other  carriers  have  announced  new price plans and
          significantly   simplified  rate   structures   aimed  at  residential
          customers,  the  Company's  primary  target  audience  under  the  AOL
          Agreement, which may have the impact of lowering overall long distance
          prices. There can be no assurance that AT&T or other carriers will not
          make  similar  offerings  available  to the  small  and  medium  sized
          businesses that the Company currently serves. Although OBN is expected
          to make the Company more price competitive, further reductions in long
          distance  prices  charged  by  competitors  still may have a  material
          adverse impact on the Company's  gross margin in future  periods.  For
          example, the FCC has recently ordered LECs to lower the access charges
          they charge IXCs like the  Company,  which would lower the cost to the
          Company of providing service over OBN.  However,  it also lowers costs
          for AT&T and other IXCs, and they have publicly stated that they would
          lower their prices to consumers accordingly.

          Selling,  general and administrative  expenses.  Selling,  general and
          administrative  expenses  increased  by 86.0% to $4.7  million  in the
          second  quarter of 1997 from $2.5  million  in the  second  quarter of
          1996. The increase in selling,  general and adminis  trative  expenses
          was due  primarily  to the costs  associated  with  hiring  additional
          personnel to support the Company's  continuing growth, the development
          costs   associated  with  AOL  and  increased  fees  for  professional
          services.

          The Company expects selling,  general and  administrative  expenses to
          increase as it implements,  operates and maintains OBN and as it rolls
          out the AOL service  offering.  If the STF Merger is consummated,  the
          Company  also  anticipates  an  increase  in  such  expenses  for  the
          integration  of the  operations  of STF.  These  efforts  will require
          additional  personnel,  equipment and support. The additional selling,
          general and  administrative  expenses  may be offset by the  increased
          sales  and  profit  gained as a result  of the  implementation  of the
          components of the Company's  strategic  plan, but increased  costs may
          have an adverse  impact on results of  operations  and there can be no
          assurances of such increased sales and profits.

          Other Income.  Other income was $4.3 million in the second  quarter of
          1997 versus $1.6 million for the second quarter of 1996.  Other income
          consists  primarily of fees for  customer  service and for support for
          the  marketing  operations  of the Company's  carrier  partitions  and
          interest  income  earned  on the  Company's  cash  balances  resulting
          primarily from the unapplied proceeds of the Company's public offering
          in April 1996 and excess cash from operations.

          As a result of the $100 million cash payment to AOL,  interest  income
          for future periods is expected to be  significantly  less than amounts
          realized during the second, third and fourth quarter of 1996.

                                      -15-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          Provision for income taxes. The Company's effective tax rate increased
          to 39.0% for the three months  ended June 30, 1997 from the  effective
          tax rate of 37.7% for the three  months  ended June 30, 1996 due to an
          anticipated higher effective state tax rate in 1997.

                                      -16-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          SIX MONTHS  ENDED JUNE 30, 1997 TO THE SIX MONTHS  ENDED JUNE 30, 1996

          Sales.  Sales  increased  by 35.3% to $146.2  million in the first six
          months of 1997 from  $108.1  million  in the first six months of 1996.
          The  increase  in sales  related  primarily  to the  marketing  of the
          Company's OBN services and the addition of new partitions.

          Cost of Sales.  The  Company's  costs of sales  increased  by 55.6% to
          $146.1  million in the first six months of 1997 from $93.9  million in
          the first six months of 1996.  Included  in the 1997 cost of sales are
          non-cash  charges  of  $11.5  million  primarily  as a  result  of the
          Company's change in its accounting for customer  acquisition costs and
          $14.4 million related to the exclusivity portion of the AOL Agreement.
          Absent these charges,  the Company's cost of sales  increased by 28.0%
          to $120.2  million for the first six months of 1997 from $93.9 million
          for the first six months of 1996.

          Gross Margin.  Gross margin  decreased to 0.1% in the first six months
          of 1997 from 13.2%  during the first six months of 1996.  The decrease
          in gross margin was  primarily due to the non-cash  charges  discussed
          above.  Absent these charges,  gross margin  increased to 17.8% in the
          first six  months of 1997 from  13.2% in the first six months of 1996,
          due to lower  network usage costs on the  Company's  current  contract
          tariff with AT&T and network  costs for OBN services  which were lower
          on a per call basis when compared to those paid to AT&T,  offset by an
          increase in direct marketing costs.

          Selling,  general and administrative  expenses.  Selling,  general and
          administrative  expenses  increased  by 66.0% to $8.0  million  in the
          first six months of 1997 from $4.8  million in the first six months of
          1996. The increase in selling, general and administrative expenses was
          due primarily to the costs associated with hiring additional personnel
          to support the Company's  continuing  growth,  the  development  costs
          associated with AOL, and increased fees for professional services.

          Other Income. Other income was $7.1 million in the first six months of
          1997  versus  $2.5  million  for the first six  months of 1996.  Other
          income consists primarily of fees for customer service and support for
          the  marketing  operations  of the Company's  carrier  partitions  and
          interest  income  earned  on the  Company's  cash  balances  resulting
          primarily from the unapplied proceeds of the Company's public offering
          in April 1996 and excess cash from operations.

          Provision for income taxes. The Company's effective tax rate increased
          to 39.0% for the six months ended June 30, 1997 from the effective tax
          rate of  37.7%  for the six  months  ended  June  30,  1996  due to an
          anticipated higher effective state tax rate in 1997.

                                      -17-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          In  addition  to  historical  information,  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.  Important  factors that
          could cause such actual results to differ  materially  include,  among
          others,  adverse developments in the Company's relationship with AT&T,
          increased price competition for long distance services,  delays in the
          direct marketing of residential  long distance  services under the AOL
          Agreement,  attrition  in the  number of end  users,  and  changes  in
          government  policy or  regulation,  and  statements  regarding the STF
          Merger  are  based on the  consummation  of the STF  Merger,  which is
          subject to a number of conditions,  as described elsewhere herein. The
          Company  undertakes  no  obligation  to  update  its   forward-looking
          statements.

                                      -18-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          LIQUIDITY AND CAPITAL RESOURCES

          The Company  consummated  its initial  public  offering of  10,350,000
          shares of Common Stock in September  and October of 1995.  The Company
          received net proceeds  from such offering of $42.8  million,  of which
          $4.5  million was used to pay the  minority  stockholder.  The Company
          consummated a public offering of 17,068,000  shares of Common Stock in
          April and May,  1996.  The Company  received  net  proceeds  from such
          offering of approximately $139.1 million. During 1996, certain options
          and  warrants to purchase  shares of the  Company's  Common Stock were
          exercised and the Company received net proceeds of approximately  $4.9
          million and $7.4 million, respectively.  Also during 1996, the Company
          repurchased  approximately  428,000 shares, which are held as treasury
          shares,  for $4.6 million.  During the six months ended June 30, 1997,
          certain  options  and  warrants to  purchase  shares of the  Company's
          Common Stock were  exercised and the Company  received net proceeds of
          approximately  $5.5  million  and  $5.1  million,   respectively.   In
          addition, the Company purchased certain Common Stock Warrants for $4.4
          million.  The tax benefit  realized  from the options and warrants was
          approximately  $21.3  million  in 1996  and $5.4  million  for the six
          months  ended  June 30,  1997 and is  reflected  as an  adjustment  to
          additional  paid-in  capital and taxes payable.  At June 30, 1997, the
          Company  had cash,  cash  equivalents  and  marketable  securities  of
          approximately $43.1 million.

          The Company's working capital,  excluding prepaid AOL marketing costs,
          was $83.3 million and $175.6 million at June 30, 1997 and December 31,
          1996,  respectively.  The  significant  decrease in working capital is
          primarily a result of the $100  million  cash  payment  made to AOL in
          February, 1997.

          The Company invested $16.2 million in capital equipment during the six
          months  ended June 30,  1997,  of which $9.2  million was used for the
          acquisition of capital  equipment and  installation  costs relating to
          the deployment of OBN. To date, through June 30, 1997, the Company has
          invested $34.1 million for the  acquisition  of capital  equipment and
          installation costs relating to the deployment of OBN.

          If the STF Merger is consummated, the Company will issue a significant
          number of shares of its common  stock (see Note 5 to the  Consolidated
          Financial  Statements  contained herein)  (approximately  15.4 million
          shares  assuming  conversion or exercise of all  outstanding  options,
          warrants and convertible  preferred stock and an average closing price
          for the  Company's  common stock over the 15 trading days prior to the
          closing  of  $18).   In  addition,   as  of  June  30,  1997  STF  had
          approximately  $255.4  million  of  debt  and  outstanding  redeemable
          preferred  stock which is redeemable  for $28.0  million.  The Company
          plans to purchase a significant amount of telecommunications equipment
          in order to accomplish  the  objective of the STF Merger,  which is to
          take advantage of opportunities  provided to offer  telecommunications
          services using OBN to a broader market of buildings and customers than
          those currently served by STF.

                                      -19-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

          In June 1997, the Company  negotiated a one year unsecured,  committed
          line of credit with First Union Bank ("First  Union Credit  Facility")
          under  which  borrowings  of up to $65.0  million are  available.  The
          Company is required to pay an  availability  fee of $81,250 per annum,
          or 0.125% of the total available borrowings.  Interest on borrowing is
          payable  monthly at First Union  Bank's  prime rate less 0.5% or LIBOR
          plus 0.875%, at the Company's option. Principal is payable upon demand
          by First  Union  Bank.  Under  the  terms of the  First  Union  Credit
          Facility,  the Company must maintain certain  financial  covenants and
          adhere to certain  restrictions.  At June 30, 1997, the Company had no
          borrowings outstanding under the First Union Credit Facility.

          The  Company  has used a portion of the  proceeds  from its 1996 stock
          offering  for: (i) advances to new and existing  partitions to support
          their marketing efforts,  (ii) procurement of additional  hardware and
          software for OBN, (iii) direct  marketing  efforts,  including the ABA
          transaction,  and a direct  marketing  center in Clearwater,  Florida,
          (iv)  the  purchase  of a  new  headquarters  building  in  New  Hope,
          Pennsylvania  and (v) cash  payment of $100  million  made in February
          1997 to AOL in conjunction with the AOL Agreement. The Company intends
          to use the  remaining  proceeds:  (i) to further fund new and existing
          partitions,  and  (ii)  to take  advantage  of  growth  opportunities,
          including but not limited to, possible acquisitions. At June 30, 1997,
          excess cash was  invested  primarily  in U.S.  Treasury  Money  Market
          Funds.  Generally,  excess cash is invested  primarily  in  marketable
          securities,  short term  government  securities  and cash  equivalents
          consisting of money market accounts with major international brokerage
          firms. The Company had to spend less of the proceeds of the 1996 stock
          offering  to start  up OBN  than  originally  planned  because  of the
          current AT&T contract  tariff,  which allows the Company to avoid some
          of the costs  associated  with  moving  existing  end users to OBN and
          permits  the  Company  to phase in OBN more  cost  effectively  by not
          leasing  transmission  facilities before traffic levels are sufficient
          to fill them.

          The Company  generally  does not have a significant  concentration  of
          credit  risk with  respect  to  accounts  receivable  due to the large
          number of partitions and end users  comprising the Company's  customer
          base and their dispersion across different geographic regions. At June
          30, 1997,  one carrier  partition owed the Company  approximately  $15
          million.  The Company  maintains  reserves for potential credit losses
          and, to date, such losses have been within the Company's expectations.

          Additional financial arrangements will be necessary in connection with
          the STF debt and  redeemable  preferred  stock and may be necessary in
          connection with  telecommunications  equipment  purchase.  The Company
          believes that its current cash position,  the credit  facility and the
          cash flow expected to be generated from operations, will be sufficient
          to fund its other capital expenditures, working capital and other cash
          requirements for at least the next twelve months.

                                      -20-


<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1.        Legal Proceedings

               None

Item 2.        Changes in Securities

               In June,  1997 in  connection  with the  exercise of  outstanding
               Warrants the Company issued 315,000 shares of its common stock to
               the holder of such  Warrant  upon the  payment of  $1,470,000  in
               accordance with the terms thereof.  The Company believes that the
               issuance of such shares was exempt  from  registration  under the
               Securities  Act of 1933 ("1933  Act")  pursuant  to Section  4(2)
               thereunder.

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.

Item 5.        Other Information

               None

                                      -21-


<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

Item 6.        Exhibits and Reports on Form 8-K

               (a)   Exhibits
                     Exhibit 2        Agreement and Plan of Merger,  dated as of
                                      July 16, 1997,  among  Tel-Save  Holdings,
                                      Inc., TSH Co. Inc. and Shared Technologies
                                      Fairchild, Inc. (incorporated by reference
                                      to  Exhibit  2 to  the  Company's  Current
                                      Report on Form 8-K dated July 22, 1997).

                     Exhibit 10.1     Revolving  Credit  Agreement  dated  as of
                                      July 11,  1997  between  the  Company and
                                      First Union National Bank

                     Exhibit 10.2     Agreement,  dated as of July 16, 1997,  by
                                      and  between  Tel-Save  Holdings, Inc. and
                                      Shared   Technologies   Fairchild,    Inc.
                                      (incorporated by reference to Exhibit 10.1
                                      to the  Company's  Current  Report on Form
                                      8-K dated July 22, 1997).

                     Exhibit 10.3     Voting  Agreement  entered into as of July
                                      16, 1997, by and between  Daniel  Borislow
                                      and Shared  Technologies  Fairchild,  Inc.
                                      (incorporated by reference to Exhibit 10.2
                                      to the  Company's  Current  Report on Form
                                      8-K dated July 22, 1997).

                     Exhibit 10.4     Voting  Agreement  entered into as of July
                                      16,  1997,  by and between  RHI  Holdings,
                                      Inc.   and   Tel-Save    Holdings,    Inc.
                                      (incorporated by reference to Exhibit 10.3
                                      to the  Company's  Current  Report on Form
                                      8-K dated July 22, 1997).

                     Exhibit 10.5     Voting  Agreement  entered into as of July
                                      16,  1997, by  and   between   Anthony  D.
                                      Autorino  and  Tel-Save   Holdings,   Inc.
                                      (incorporated by reference to Exhibit 10.4
                                      to the  Company's  Current  Report on Form
                                      8-K dated July 22, 1997).
 
                     Exhibit 10.6     Voting  Agreement  entered into as of July
                                      16, 1997, by and between J.J. Cramer & Co.
                                      and Tel-Save Holdings,  Inc. (incorporated
                                      by   reference  to  Exhibit  10.5  to  the
                                      Company's Current Report on Form 8-K dated
                                      July 22, 1997).

                     Exhibit 11       Computation of Net Income (Loss) Per Share

                     Exhibit 27       Financial Data Schedule
                     

               (b)   Reports on Form 8-K

                     (1)   Current Report on Form 8-K dated July 23, 1997.

                                      -22-


<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: August 14, 1997                 TEL-SAVE HOLDINGS, INC.
                                      -----------------------
                                      (Registrant)

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

                                      By: /s/ Joseph A. Schenk
                                         ---------------------------------------
                                          Joseph A. Schenk
                                          Chief Financial Officer, Treasurer and
                                          Director

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

                                      -23-