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, 1996.

[ ]     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,  29,917,446  shares  outstanding as of November 7,
1996.


<PAGE>



                             TEL-SAVE HOLDINGS, INC.
                                    FORM 10-Q
                               September 30, 1996

                                TABLE OF CONTENTS




PART I - FINANCIAL INFORMATION

  Item 1.    Financial Statements

             Consolidated Balance Sheets as of September 30, 1996
               and December 31, 1995                                          3

             Consolidated Statements of Income for the three
               and nine months ended September 30, 1996 and 1995              4

             Consolidated Statement of Stockholders' Equity for the
               nine months ended September 30, 1996                           5

             Consolidated Statements of Cash Flows for the nine
               months ended September 30, 1996 and 1995                       6

             Notes to Consolidated Financial Statements                       7

  Item 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        9

PART II - OTHER INFORMATION

  Items 1 - 6                                                                17

  Signatures                                                                 18


                                       -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>


                                                                               SEPTEMBER 30,      DECEMBER 31,
                                                                                    1996              1995
---------------------------------------------------------------------------------------------------------------
                                                                                (UNAUDITED)
<S>                                                                              <C>                 <C>    
ASSETS:
CURRENT:
   Cash and cash equivalents                                                     $160,226            $41,211
   Marketable securities                                                           12,737                  -
   Accounts receivable, trade net of allowance for uncollect
      ible accounts of $931 and $804, respectively                                 21,952             19,088
   Advances to partitions and note receivables                                     14,833              3,563
   Due from broker                                                                      -              1,100
   Prepaid  expenses and other current assets                                       2,389                194
--------------------------------------------------------------------------------------------------------------
        TOTAL CURRENT ASSETS                                                      212,137             65,156
Property and equipment, net of accumulated depreciation of
   $398 and $250, respectively                                                     22,527              2,667
Intangibles, net of accumulated amortization of $3,159 and
   $1,574, respectively                                                             2,793              1,490
Note receivable from stockholder                                                        -              2,075
Other assets                                                                        1,921                  -
--------------------------------------------------------------------------------------------------------------
        TOTAL ASSETS                                                             $239,378            $71,388
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses:
   Trade and other                                                               $ 19,296            $12,622
   Partitions                                                                       4,740              3,047
   Sales and excise taxes payable                                                   1,211              1,406
   Other                                                                              996                514
Securities sold short, at cost to purchase                                              -              1,100
Income taxes payable                                                                2,340              2,375
Note payable to stockholder - current                                                   -              5,921
--------------------------------------------------------------------------------------------------------------
        TOTAL CURRENT LIABILITIES                                                  28,583             26,985
Deferred credits                                                                      400                280
Deferred income taxes payable                                                       2,599              2,809
--------------------------------------------------------------------------------------------------------------
        TOTAL LIABILITIES                                                          31,582             30,074
--------------------------------------------------------------------------------------------------------------
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 autho
      rized; 29,049,000 and 19,500,000 issued and outstand
      ing, respectively                                                               290                195
   Additional paid-in capital                                                     187,710             37,245
   Retained earnings                                                               18,341              3,874
   Unrealized gain on marketable securities                                         1,455                  -
--------------------------------------------------------------------------------------------------------------
        TOTAL STOCKHOLDERS' EQUITY                                                207,796             41,314
--------------------------------------------------------------------------------------------------------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $239,378            $71,388
==============================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                       -3-

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>

                                                              FOR THE THREE MONTHS                    FOR THE NINE MONTHS
                                                               ENDED SEPTEMBER 30,                    ENDED SEPTEMBER 30,
                                                        -------------------------------          ------------------------------
                                                            1996                  1995               1996                1995
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                   <C>               <C>                 <C>     
Sales                                                    $60,079               $48,366           $168,159            $129,711
Cost of sales                                             51,756                42,696            145,617             112,555
-------------------------------------------------------------------------------------------------------------------------------
Gross profit                                               8,323                 5,670             22,542              17,156
Selling, general and adminis
   trative                                                 2,452                 1,662              7,244               4,080
-------------------------------------------------------------------------------------------------------------------------------
Operating income                                           5,871                 4,008             15,298              13,076
Other income, net                                          5,416                   191              7,923                 210
-------------------------------------------------------------------------------------------------------------------------------
Income before provision for
   income taxes                                           11,287                 4,199             23,221              13,286
Provision for income taxes                                 4,255                 7,145              8,754               7,145
-------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                        $ 7,032             $ (2,946)           $ 14,467          $    6,141
===============================================================================================================================
PRO FORMA:
   Income before provision for
      income taxes                                                            $  4,199                              $  13,286
   Pro forma provision for in
      come taxes                                                                 1,680                                  5,314
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME                                                          $  2,519                                $ 7,972
===============================================================================================================================
NET INCOME PER SHARE -
   PRIMARY                                              $    .22             $     .16        $       .53           $     .51
================================================================================================================================
WEIGHTED AVERAGE COMMON
   AND COMMON EQUIVALENT
   SHARES OUTSTANDING - PRIMARY                           31,699                15,928             27,269              15,567
===============================================================================================================================
NET INCOME PER SHARE - FULLY
   DILUTED                                              $    .22             $     .16        $       .52           $     .51
===============================================================================================================================
WEIGHTED AVERAGE COMMON          
   AND COMMON EQUIVALENT
   SHARES OUTSTANDING - FULLY
   DILUTED                                                32,370                15,937             28,089              15,581   
================================================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                       -4-

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
                                   (Unaudited)
                                 (In thousands)



<TABLE>
<CAPTION>

                                                Common Stock                                      Unrealized
                                            ----------------------- Additional                      Gain on
                                                                      Paid-in         Retained     Marketable
                                              Shares        Amount    Capital         Earnings     Securities              Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>       <C>            <C>              <C>            <C>      
Balance, January 1, 1996                      19,500          $195      $  37,245      $ 3,874          $       -      $  41,314
Net income                                         -             -              -       14,467                  -         14,467
Issuance of warrants to partitions                 -             -          1,077            -                  -          1,077
Sale of common stock                           8,534            85        138,984            -                  -        139,069
Exercise of common stock options               1,015            10          4,461            -                  -          4,471
Income tax benefit related to  exercise of
common stock options                               -             -          5,943            -                  -          5,943
Unrealized gain on marketable securities           -             -              -            -              1,455          1,455
--------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996                   29,049          $290       $187,710      $18,341             $1,455       $207,796
================================================================================================================================
</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,
                                                                                               ------------------------------
                                                                                                    1996                1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                  <C>   
Cash flows from operating activities:
Net income                                                                                       $14,467              $6,141
Adjustment to reconcile net income to net cash provided
   by (used in) operating activities:
   Unrealized loss (gain) on securities sold short and mar
   ketable securities                                                                                  2                (149)
   Provision for bad debts                                                                            23                 (18)
   Depreciation and amortization                                                                   1,733                 769
   Deferred credits                                                                                  120                 120
   (Increase) decrease in:
      Accounts receivable - trade                                                                 (2,991)             (5,804)
      Advances to partitions and note receivables                                                (11,270)               (996)
      Prepaid expenses and other current assets                                                   (2,195)              1,432
      Other assets                                                                                (1,921)                  -
   Increase (decrease) in:
      Accounts and partition payables and accrued expenses                                         8,757               6,605
      Income taxes payable                                                                         4,914               7,146
----------------------------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities                                                 11,639              15,246
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Acquisition of intangibles                                                                     (1,811)               (457)
   Capital expenditures                                                                          (20,006)               (939)
   Securities sold short                                                                          (1,100)                749
   Due from broker                                                                                 1,100                (600)
   Loans to stockholder                                                                           (3,034)                  -
   Repayments of stockholder loans                                                                 5,109                   -
   Purchase of marketable securities                                                             (10,501)                  -
----------------------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                                                    (30,243)             (1,247)
----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Payments to related parties                                                                         -              (1,725)
   Loans to stockholder                                                                           (5,921)             (1,042)
   Proceeds from sale of common stock                                                            139,069              37,061
   Proceeds from exercise of common stock options                                                  4,471                   -
   Distribution to stockholders                                                                        -             (13,200)
   Stock redemption                                                                                    -              (4,500)
----------------------------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities                                                137,619              16,594
----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                                        119,015              30,593
Cash and cash equivalents, at beginning of period                                                 41,211                  11
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period                                                     $160,226             $30,604
============================================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.

                                       -6-

<PAGE>



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


<TABLE>
<CAPTION>

<S>                                            <C>                                                                  
       1.Basis of Presentation                 The consolidated financial statements include the accounts of Tel-
                                               Save Holdings, Inc. and its two wholly-owned subsidiaries, Tel-Save,
                                               Inc. and TS Investment Corporation, 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, 1996 and for the three and nine months ended
                                               September 30, 1996 and 1995 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, 1995 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 February 16, 1996, the Company's Board of Directors approved
                                               a three-for-two split of the common stock in the form of a 50% stock
                                               dividend. The additional shares resulting from the stock split were
                                               distributed on March 15, 1996, to all stockholders of record at the
                                               close of business on February 29, 1996.  The consolidated balance
                                               sheet as of December 31, 1995 reflects the recording of the stock
                                               split as if it had occurred on December 31, 1995.  Further, all
                                               references in the consolidated financial statements to average number
                                               of shares outstanding and related prices, per share amounts, warrant
                                               and stock option data have been restated for all periods to reflect the
                                               stock split.


       3.Income Taxes                          On June 1, 1991, the Company, with the consent of its stockholders,
                                               elected to be taxed as an S Corporation.  As a result of the election,
                                               all earnings of the Company were taxed directly to the stockholders.
                                               On September 19, 1995, the Company terminated its S Corporation
                                               status.  Pro forma tax provisions have been calculated as if the
                                               Company's results of operations were taxable as a C Corporation
                                               under the Internal Revenue Code for the three and nine months ended
                                               September 30, 1995.






                                       -7-

<PAGE>




<CAPTION>

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


       4.Marketable Securities                  Marketable securities as of September 30, 1996 consist primarily of
                                                equity securities classified as available-for-sale.  Available-for-sale
                                                securities are stated at fair value, and unrealized holding gains and
                                                losses, net of the related deferred tax effect, are reported as a
                                                component of stockholders' equity.  Realized gains and losses are
                                                determined on the basis of the specific securities sold.

       5.Other Income                           Other income was $5.4 million in the third quarter of 1996 versus
                                                $191,000 for the third quarter of 1995.  Other income for the quarter
                                                includes two nonrecurring gains:  a $1.4 million gain on the sale of
                                                securities of another long distance company and a $1.5 million gain
                                                on the sale of short term U.S. Treasury securities.  The remainder of
                                                other income consists primarily of 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.


                                       -8-
</TABLE>

<PAGE>

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. The Company is
          in the process of completing the deployment of its own nationwide long
          distance network, One Better Net ("OBN").

          The Company's  sales to date have been derived from the resale of long
          distance services. The Company's cost of sales consists principally of
          charges  for  bundled  long  distance  services,  as  charged by AT&T,
          partition charges,  net of usage and other discounts,  which are based
          on the usage of  partitions,  and end user  billing and  support.  The
          Company  believes that,  historically,  the  competitive  terms of its
          contract  tariffs  with AT&T and its ability to manage and  distribute
          data are the primary  reasons for its sales  increases.  In 1992,  the
          Company  negotiated  a contract  tariff with AT&T,  resulting in lower
          rates than its previous  contract  tariffs.  In July 1994, the Company
          obtained  two new  contract  tariffs  with AT&T,  resulting in further
          reduced rates for the AT&T-SDN service and competitive  terms for AT&T
          800  Service,  which the  Company  then began to market  actively. 

          In October 1996, the Company subscribed to a new AT&T contract tariff,
          which  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 new nationwide  long distance  network,  OBN.
          The rates that the Company will pay 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 contact  tariff also
          permits a more gradual  introduction  of OBN,  which should reduce the
          expense of providing the capacity required in a more rapid phase-in of
          OBN and  lessen the impact of any  technical  difficulties  during the
          phase-in of OBN. The more gradual  introduction of OBN, however,  will
          postpone the Company's  realization of the anticipated  benefit of the
          more  favorable  margins for OBN  service,  and the new AT&T  contract
          tariff  requires  the  Company to commit to purchase  $240  million of
          service from A&T over the next 4 years. This commitment is larger than
          any  previous  commitment  that the Company has made,  but the Company
          believes  that it can be met based on its  current  purchases  of long
          distance  service  from AT&T of  approximately  $10 million per month.
          Further,  the Company can  terminate the new contract  tariff  without
          liability to AT&T at the end of the first 18 months if the Company has
          purchased  $90  million in services  from AT&T under the new  contract
          tariff. The Company can also terminate the new contract tariff without
          liability to AT&T in the first 18 months if the Company and AT&T enter
          into  a new  contract  tariff  or  another  contract  with  a  revenue
          commitment of at least $5 million per month and a term of at least the
          difference between 18 months and the number of months that the Company
          subscribed  to the  contract  tariff,  provided  that the Company must
          purchase  or pay for AT&T  services  under the  contract  tariff of at
          least $5 million per month for the months prior to such termination.


                                       -9-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



          The Company is continuing  the  deployment of OBN, which features five
          Company-owned,   AT&T  (now  Lucent  Technologies,  Inc.,  hereinafter
          "Lucent")  manufactured  5ESS-2000  switches connected by AT&T digital
          transmission  facilities.  Installation of the transmission facilities
          and the five  switches  -- in  Jacksonville,  New York City,  Chicago,
          Dallas and San Francisco -- is substantially  complete, and testing of
          the network is being  performed by the Company and the local  exchange
          carriers ("LECs") whose local networks interconnect with the Company's
          long distance network. The Company is now in the process of activating
          access to the local areas that will be served by each switch,  and has
          begun placing end users on OBN through the  Jacksonville  switch.  OBN
          includes  echo  cancellation  equipment  purchased  from  Lucent.  The
          Company expects OBN to become functional over the next three months.

          The Company  believes that gross margins for OBN long distance service
          will be higher than for AT&T long distance service. AT&T long distance
          service is  "bundled,"  which  means that the  Company  pays a single,
          all-inclusive  price  to AT&T  for  switching,  transmission,  and LEC
          access. OBN long distance service is "unbundled," which means that the
          Company provides its own switching,  pays AT&T for  transmission,  and
          pays access fees directly to LECs. The "unbundled" charges per call on
          OBN are expected to be less than the  "bundled"  charge paid to AT&T .
          In  addition,  OBN  should  result  in  a  faster  and  more  reliable
          "provisioning"  process,  in which end users  who have  requested  the
          Company's  services  actually begin to receive those services.  

          OBN is the focus of the Company's  current direct marketing efforts to
          end users.  The  Company is also  encouraging  OBN sales  through  its
          partitions  that  purchase  the  Company's  services for resale to end
          users.  The Company  expects that by the end of the fourth  quarter of
          1996 a significant portion of its new end users will be provisioned to
          OBN. 

          OBN also will provide the local service capabilities needed to support
          the  Company's  planned  provision of  Competitive  Telecommunications
          Provider or "CTP" services. The Company intends to begin activities in
          planning and marketing CTP services,  and  purchasing,  installing and
          testing the  switching  modules  necessary to provide  such  services,
          after OBN becomes fully functional.  

          In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
          Compensation."  SFAS  No.  123  establishes  a  valuation  method  for
          accounting   for   stock-based   compensation   plans  either  through
          recognition or disclosure.  The Company  intends to adopt the employee
          stock- based compensation provisions of SFAS No. 123 by disclosing the
          pro  forma net  income  and pro forma  net  income  per share  amounts
          assuming the fair value method was adopted January 1, 1995.  While the
          adoption of this standard  will not impact the Company's  consolidated
          results  of  operations,   financial   position  or  cash  flows,  the
          implementation of this disclosure  requirement could have an impact on
          the stock valuations of public companies with options or warrants.


                                      -10-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



RESULTS OF OPERATIONS

The following tables 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 Nine Months Ended
                                                        September 30,                              September 30,
                                            --------------------------------------------------------------------------
                                                    1996              1995(A)              1996               1995(A)
                                                    ----              -------              ----               -------
----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>                 <C>                  <C>   
Sales                                               100.0%             100.0%              100.0%               100.0%
Cost of sales                                        86.1               88.3                86.6                 86.8
                                                  -------              -----               -----                -----
Gross profit                                         13.9               11.7                13.4                 13.2
Selling, general and administrative                   4.1                3.4                 4.3                  3.1
                                                  -------               ----               -----                -----
Operating income                                      9.8                8.3                 9.1                 10.1
Other income, net                                     9.0                0.4                 4.7                  0.1
                                                  -------               ----                ----                -----
Income before provision for
   income taxes                                      18.8                8.7                13.8                 10.2
Provision for income taxes                            7.1                3.5                 5.2                  4.0
                                                  -------               ----                ----                -----
Net income                                           11.7%               5.2%                8.6%                 6.2%
=====================================================================================================================
</TABLE>

(A) Pro forma tax provisions have been calculated as if the Company's results of
operations  were taxable as a C corporation  (the Company's  current tax status)
for the three and nine months ended  September 30, 1995.  Prior to September 20,
1995,  the Company was an S corporation  with all earnings taxed directly to its
shareholders.

                                      -11-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



THREE MONTHS ENDED  SEPTEMBER  30, 1996 TO THE THREE MONTHS ENDED  SEPTEMBER 30,
1995 


Sales.  Sales  increased by 24.2% to $60.1  million in the third quarter of
1996 from $48.4  million in the third  quarter of 1995.  The  increase  in sales
related  primarily  to the  continued  expansion of the  Company's  distribution
network of partitions, as well as increases in the number of orders submitted by
the  Company's  existing  partitions.  One  partition,  The  Furst  Group,  Inc.
accounted for  approximately 13% of the Company's sales for the third quarter of
1996  versus  zero in the  third  quarter  of  1995.  In  addition,  significant
partition  marketing efforts focused on inbound 800 service resulted in sales of
$22.6  million for the three month period ended  September 30, 1996 versus $14.0
million for the three month period ended September 30, 1995.

Cost of Sales.  The Company's costs of sales increased by 21.1% to $51.8 million
in the third  quarter of 1996 from $42.7  million in the third  quarter of 1995.
The increase in cost of sales  resulted  primarily from the increase in sales of
AT&T- SDN and  inbound  800  services  and the  initiation  of direct  marketing
activities in 1996.

Gross Margin.  Gross margin increased to 13.9% in the third quarter of 1996 from
11.7% during the third quarter of 1995.  The increase in gross margin was due to
lower  network  costs  offset by direct  marketing  expenses  and higher  volume
discounts to certain partitions.  

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 aimed at  residential  customers  with
significantly simplified rate structures,  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 to medium sized
businesses that the Company serves. Although OBN is expected to make the Company
more price  competitive,  a reduction in long  distance  prices still may have a
material  adverse  impact on the  Company's  gross  margin  in  future  periods.

Selling,   general   and   administrative   expenses.   Selling,   general   and
administrative  expenses increased by 47.5% to $2.5 million in the third quarter
of 1996 from $1.7 million in the third quarter of 1995. The increase in selling,
general and  administrative  expenses was due primarily to the costs  associated
with hiring additional  management personnel to support the Company's continuing
growth, and increased fees for professional services.

Other Income.  Other income was $5.4 million in the third quarter of 1996 versus
$191,000 for the third  quarter of 1995.  Other income for the quarter  includes
two  nonrecurring  gains : a $1.4  million  gain on the  sale of  securities  of
another long distance  company and a $1.5 million gain on the sale of short term
U.S. Treasury  securities.  The remainder of other income consists  primarily of
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 declined to 37.7%
for the three months ended  September 30, 1996 from the pro forma  effective tax
rate  of  40.0%  for  the  three  months  ended  September  30,  1995  due to an
anticipated lower effective state tax rate in 1996.


                                      -12-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



NINE MONTHS ENDED SEPTEMBER 30, 1996 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995

Sales.  Sales  increased by 29.6% to $168.2  million in the first nine months of
1996 from $129.7 million in the first nine months of 1995. The increase in sales
related  primarily  to the  continued  expansion of the  Company's  distribution
network of partitions, as well as increases in the number of orders submitted by
the Company's existing partitions. In addition,  significant partition marketing
efforts  focused on inbound 800 service  resulted in sales of $58.8  million for
the nine month period ended September 30, 1996 versus $35.1 million for the nine
month period ended  September 30, 1995. 

Cost of Sales. The Company's costs of sales increased by 29.4% to $145.6 million
in the first nine months of 1996 from $112.6 million in the first nine months of
1995.  The  increase in cost of sales  resulted  primarily  from the increase in
sales of  AT&T-SDN  and  inbound  800  services  and the  initiation  of  direct
marketing  activities in 1996. 

Gross Margin.  Gross margin  increased to 13.4% in the first nine months of 1996
from 13.2%  during the first nine months of 1995.  The  increase in gross margin
was due to lower  network costs offset by direct  marketing  expenses and higher
volume  discounts to certain  partitions. 

Selling,   general   and   administrative   expenses.   Selling,   general   and
administrative  expenses  increased  by 77.5% to $7.2  million in the first nine
months of 1996 from $4.1 million in the first nine months of 1995.  The increase
in selling,  general and administrative  expenses was due primarily to the costs
(including  bonus plan accruals)  associated with hiring  additional  management
personnel to support the Company's  continuing  growth,  and increased  fees for
professional  services.  

Other  Income.  Other  income for the first nine months of 1996 was $7.9 million
versus  $210,000  for the first  nine  months a year ago.  Other  income for the
quarter  includes  two  nonrecurring  gains : a $1.4 million gain on the sale of
securities of another long distance  company and a $1.5 million gain on the sale
of short term U.S. Treasury  securities.  The remainder of other income consists
primarily of 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 declined to 37.7%
for the nine months ended  September  30, 1996 from the pro forma  effective tax
rate of 40.0% for the nine months ended September 30, 1995 due to an anticipated
lower effective state tax rate in 1996.



                                      -13-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



LIQUIDITY  AND CAPITAL  RESOURCES 

The Company  consummated  its initial  public  offering of  5,175,000  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 8,534,000
shares of Common Stock in April and May, 1996. The Company received net proceeds
from such offering of approximately  $139.1 million. In addition,  in June 1996,
certain options to purchase shares of the Company's  Common Stock were exercised
and the Company  received net proceeds of  approximately  $4.5 million.  The tax
benefit  realized  from the  exercise of stock  options was  approximately  $5.9
million and is reflected as an  adjustment  to  additional  paid-in  capital and
taxes payable.  As of September 30, 1996, the Company had cash, cash equivalents
and marketable securities of approximately $173.0 million. 

Since its inception,  the Company has funded its operations  primarily from cash
generated by operations and, to a lesser extent,  advances from stockholders and
bank  borrowings.  The  Company's  cash flow  provided by  operations  was $11.6
million and $15.2 million for the nine months ended September 30, 1996 and 1995,
respectively.

The Company's  working capital was $183.6 million and $35.7 million at September
30, 1996 and 1995, respectively.  The significant increase in working capital is
primarily a result of the completion of the Company's  public  offering in April
and May, 1996. 

The Company  invested $20.0 million in capital  equipment during the nine months
ended September 30, 1996, of which $16.5 million was used for the acquisition of
capital  equipment and installation  costs relating to the deployment of OBN. In
June 1996,  the  Company  purchased  a new  headquarters  building  in New Hope,
Pennsylvania  for  approximately  $1.5 million.  In July 1996,  the Company also
purchased  a  building  in  Clearwater,  Florida  which  will be used for direct
marketing for approximately  $900,000. 

In March 1996,  the Company  negotiated an unsecured,  committed  line of credit
with PNC Bank, N.A.  ("Credit  Facility")  under which borrowings of up to $50.0
million are  available.  The Company is required to pay an  availability  fee of
$62,500  per annum,  or 0.125% of the total  available  borrowings.  Interest on
borrowings  is payable  monthly at PNC Bank's prime rate less 0.5% or LIBOR plus
0.875%, at the Company's  option.  Principal is payable upon demand by PNC Bank.
Under the terms of the  Credit  Facility,  the  Company  must  maintain  certain
financial covenants and adhere to certain  restrictions.  At September 30, 1996,
the Company had no borrowings outstanding under the Credit Facility.


                                      -14-

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



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  purchase  of a direct  marketing  center in
Clearwater, Florida, and (iv) the purchase of a new headquarters building in New
Hope,  Pennsylvania.  The Company intends to use the remaining proceeds:  (i) to
further  fund new and  existing  partitions,  (ii) to  expand  direct  marketing
efforts,  including the build out of the direct marketing  center,  and (iii) to
take advantage of growth  opportunities,  including but not limited to, possible
acquisitions and development of CTP Services.  Excess cash is invested primarily
in short term  government  securities and cash  equivalents  consisting of money
market accounts with major international brokerage firms. The Company expects to
spend  less of the  proceeds  of the 1996  stock  offering  to start up OBN than
originally planned because of the new AT&T contract tariff, which will allow the
Company to avoid some of the costs  associated with moving existing end users to
OBN and permit the Company to phase in OBN more cost  effectively by not leasing
transmission facilities before traffic levels are sufficient to fill them. There
can be no assurance that the Company's  financial  performance will meet analyst
expectations   in  the  future.  

The  Company  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, the
Credit Facility 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.




                                      -15-

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION


Item 1.        Legal Proceedings

               None

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.

Item 5.        Other Information

               As discussed  above in Part I, Item 2, the Company has subscribed
               to a new  contract  tariff  with  AT&T a copy of  which  is filed
               herewith on Exhibit 10.29 and incorporated herein by reference.

Item 6.        Exhibits and Reports on Form 8-K

               (a)   Exhibits

                     Exhibit 10.29    AT&T Contract Tariff No.  5776
                     Exhibit 11        Computation of Net Income Per Share

               (b)   Reports on Form 8-K


               No  reports  on Form 8-K were  filed  during  the  quarter  ended
September 30, 1996.

                                      -16-

<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 7, 1996          TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES



                                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


                                      -17-