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 MARCH 31, 1998.

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

FOR THE TRANSITION PERIOD FROM __________ TO _____

COMMISSION FILE NUMBER 0-26728

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

                                    DELAWARE
          ------------------------------------------------------------
         (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

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

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

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

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

     INDICATE BY CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
     TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES  EXCHANGE ACT OF 1934
     DURING  THE  PRECEDING  12  MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
     REGISTRANT  WAS REQUIRED TO FILE SUCH  REPORTS) AND (2) HAS BEEN SUBJECT TO
     SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

                                    YES X  NO

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

INDICATE  BY CHECK MARK  WHETHER  THE  REGISTRANT  HAS FILED ALL  DOCUMENTS  AND
REPORTS  REQUIRED  TO BE  FILED BY  SECTION  12,13,  OR 15(D) OF THE  SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE  DISTRIBUTION OF SECURITIES  UNDER A PLAN
CONFIRMED BY A COURT

                                    YES___ NO

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

COMMON STOCK, $.01 PAR VALUE, 64,535,012 SHARES OUTSTANDING AS OF MAY 12, 1998.


<PAGE>



                             TEL-SAVE HOLDINGS, INC.
                                    FORM 10-Q
                                 MARCH 31, 1998

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I   -  FINANCIAL INFORMATION
                                                                                Page
                                                                                ----
            Item 1.  Financial Statements
<S>                                                                               <C>
                     Consolidated Balance Sheets as of March 31, 1998
                       and December 31, 1997                                      3

                     Consolidated Statements of Operations for the three
                       months ended March 31, 1998 and 1997                       4

                     Consolidated Statement of Stockholders' Equity for
                       the three months ended March 31, 1998                      5

                     Consolidated Statements of Cash Flows for the three
                       months ended March 31, 1998 and 1997                       6

                     Notes to Consolidated Financial Statements                   7

            Item 2.  Management's Discussion and Analysis of Financial Condition
                         and Results of Operations                                8

PART II  -  OTHER INFORMATION

            Items 1-6                                                            13

            Signatures                                                           14
</TABLE>


                                       2

<PAGE>



PART I - FINANCIAL INFORMATION
         ITEM 1. FINANCIAL STATEMENTS

                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
                                                                            MARCH 31,              DECEMBER 31,
                                                                               1998                    1997
-------------------------------------------------------------------------------------------------------------------
ASSETS:
CURRENT:
<S>                                                                            <C>                     <C>     
   Cash and cash equivalents                                                   $  27,107               $316,730
   Marketable securities                                                         593,501                212,269
   Accounts receivable, trade net of allowance for uncollectible                  54,883                 44,587
     accounts of $2,165 and $2,419, respectively
   Advances to partitions and notes receivable                                    31,665                 26,110
   Due from broker                                                                27,145                 21,087
   Prepaid AOL marketing costs                                                    38,644                 30,857
   Deferred taxes                                                                 60,896                 30,916
   Prepaid expenses and other current assets                                      37,553                  8,495
-------------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT ASSETS                                                      871,394                691,051 
Property and equipment, net                                                       57,672                 55,835 
Intangibles, net                                                                  10,694                 10,590 
Prepaid AOL marketing costs                                                            -                 32,722 
Other assets                                                                      34,306                 24,693 
-------------------------------------------------------------------------------------------------------------------
       TOTAL ASSETS                                                             $974,066               $814,891
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
   Margin account indebtedness                                                  $161,967               $      -
   Accounts payable and accrued expenses:
      Trade and other                                                             30,644                 16,858
      Partitions                                                                   6,493                  7,740
      Interest and other accruals                                                 12,302                 10,578
   Securities sold short, at cost to purchase                                     27,145                 21,087
-------------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT LIABILITIES                                                 238,551                 56,263
Convertible debt                                                                 500,000                500,000
Deferred revenue                                                                  33,950                 35,800
Other liabilities                                                                  3,152                      -
-------------------------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                                         775,653                592,063
-------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 5,000,000 shares authorized;                       -                      -
     no shares outstanding
   Common stock - $.01 par value, 300,000,000 shares authorized;                     672                    672
     67,249,635 issued
   Additional paid-in capital                                                    286,805                291,952
   Retained earnings (defecit)                                                   (38,698)                 3,097
   Unrealized loss on marketable securities                                       (1,443)                     -
   Treasury stock                                                                (48,923)               (72,893)
-------------------------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY                                                198,413                222,828
-------------------------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $974,066               $814,891
===================================================================================================================
                                                      See accompanying  notes to consolidated financial statements.
</TABLE>


                                       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
                                                                                               ENDED MARCH 31,
                                                                                     ------------------------------------
                                                                                          1998                1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                  <C>    
SALES                                                                                   $  91,146            $71,160

COST OF SALES                                                                              76,580             58,194
-------------------------------------------------------------------------------------------------------------------------

GROSS PROFIT                                                                               14,566             12,966

GENERAL AND ADMINISTRATIVE EXPENSES                                                         9,628              3,293

PROMOTIONAL, MARKETING AND ADVERTISING EXPENSES - AOL RELATED                              47,322              3,591

RESEARCH AND DEVELOPMENT COSTS                                                             21,318                  -
-------------------------------------------------------------------------------------------------------------------------

OPERATING INCOME (LOSS)                                                                   (63,702)             6,082

INVESTMENT AND OTHER INCOME (LOSS), NET                                                   ( 4,814)             2,819
-------------------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                                           (68,516)             8,901

PROVISION (BENEFIT) FOR INCOME TAXES                                                      (26,721)             3,471
-------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS)                                                                        $(41,795)           $ 5,430
=========================================================================================================================

NET INCOME (LOSS) PER SHARE - BASIC                                                      $   (.65)           $   .09
=========================================================================================================================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC                                         64,153             62,429
=========================================================================================================================

NET INCOME (LOSS) PER SHARE - DILUTED                                                    $   (.65)           $   .08
=========================================================================================================================

WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING - DILUTED                 64,153             65,839
=========================================================================================================================
                                                              See accompanying notes to consolidated financial statements.
</TABLE>


                                       4


<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                            UNREALIZED
                        COMMON STOCK             ADDITIONAL                   LOSS ON             TREASURY STOCK
                 --------------------------       PAID-IN        RETAINED   MARKETABLE     ---------------------------
                   SHARES         AMOUNT          CAPITAL        EARNINGS   SECURITIES         SHARES         AMOUNT       TOTAL
                 -----------    -----------    -------------    ----------  -----------    ------------   ------------   ----------
<S>                 <C>           <C>          <C>             <C>          <C>               <C>           <C>            <C>     
Balance,
January 1, 1998     67,250        $672         $291,952        $  3,097     $      --         (3,608)       $(72,893)     $222,828
  Net loss              --          --               --         (41,795)           --             --              --       (41,795)
  Vesting  of
      AOL warrants      --          --           10,905              --            --             --              --        10,905
  Exercise of
      common
      stock
      options
      and warrants      --          --          (24,237)             --            --          1,528          30,864         6,627
  Purchase of
      treasury
      shares            --          --               --              --            --           (381)         (8,850)       (8,850)
  Common stock 
      issued
      for
      compensation      --          --          (   257)             --            --             97           1,956         1,699
  Unrealized
      loss on
      marketable
      securities        --          --               --              --        (1,443)            --              --        (1,443)

   Income tax
     benefit
     related
     to
     exercise
     of common
     stock
     options
     and
     warrants           --          --            8,442              --                           --             --          8,442
------------------------------------------------------------------------------------------------------------------------------------
Balance, March      67,250        $672         $286,805        $(38,698)      $(1,443)        (2,364)      $(48,923)      $198,413
31, 1998
====================================================================================================================================
                                                                      See accompanying notes to consolidated financial statements.
</TABLE>


                                       5


<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                        FOR THE THREE MONTHS
                                                                                          ENDED MARCH 31,
                                                                                  ---------------------------------
                                                                                      1998               1997
-------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                                 <C>              <C>        
   Net income (loss)                                                               $ (41,795)       $     5,430
   Adjustments to reconcile net income to net cash (used in) provided by
     operating activities:
   Unrealized loss on securities                                                       4,739                220
   Provision for bad debts                                                              (230)               775
   Depreciation and amortization                                                       1,369              1,024
   Vested AOL warrants and amortization of prepaid AOL marketing costs                35,839              3,591
   Purchased research and development                                                 21,034                --  
   Deferred revenue                                                                   (1,850)               --
   Income tax benefit related to exercise of options and warrants                      8,443              4,097
   (Increase) decrease in:
     Accounts receivable, trade                                                      (10,042)           (11,562)
     Advances to partitions and note receivables                                      (5,554)            (1,821)
     Prepaid expenses and other current assets                                       (58,115)            (6,292)
     Prepaid AOL marketing costs                                                          --           (100,564)
     Other assets                                                                        387                789
   Increase (decrease) in:
     Accounts and partition payables and accrued expenses                             14,762             (1,723)
     -------------------------------------------------------------------------------------------------------------------
       Net cash used in operating activities                                         (31,013)          (106,036)
-------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Acquisition of intangibles                                                           (285)            (3,759)
   Acquisition of Symetrics Industries, Inc.                                         (26,707)               --
   Capital expenditures                                                               (3,026)            (5,701)
   Securities sold short                                                                (260)              (867)
   Due from broker                                                                    (6,058)               867
   Sale (purchase) of securities, net                                               (382,018)           124,559
-------------------------------------------------------------------------------------------------------------------
       Net cash (used in) provided by investing activities                          (418,354)           115,099
-------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Proceeds from margin account indebtedness                                         161,967                 --
   Proceeds from exercise of options and warrants                                      6,627              3,033
   Purchase of common stock warrants                                                      --             (4,400)
   Acquisition of treasury stock                                                      (8,850)
-------------------------------------------------------------------------------------------------------------------
       Net cash provided by (used in) financing activities                           159,744             (1,367)
-------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                                (289,623)             7,696
Cash and cash equivalents, at beginning of period                                    316,730              8,023
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period                                         $ 27,107          $  15,719
===================================================================================================================
                                                         See accompanying notes to consolidated financial statements.
</TABLE>


                                       6

<PAGE>

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

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

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

                                   Certain  reclassifications  of prior period's
                                   data have been made to conform to the current
                                   period's    presentation.    The   promotion,
                                   advertising and marketing expenses related to
                                   the  Company's  Telecommunications  Marketing
                                   Agreement  ("AOL   Agreement")  with  America
                                   Online,  Inc.  ("AOL") have been reclassified
                                   from cost of sales to promotional,  marketing
                                   and advertising  expenses in the statement of
                                   operations  for the three  months ended March
                                   31, 1997,  in order to conform to the current
                                   period's presentation.

2.  Acquisition of
    Symetrics Industries, Inc.     In January, 1998, the Company acquired all of
                                   the    outstanding    stock   of    Symetrics
                                   Industries,  Inc., a manufacturer  of digital
                                   telephone  switching  equipment  and  systems
                                   (the  "Telephone  Business")  and  electronic
                                   equipment for the U.S.  Department of Defense
                                   (the "Defense  Business")  for $26.8 million.
                                   The Company is in the  process of  completing
                                   the  sale  of  the   Defense   Business   for
                                   approximately $10 million  (including assumed
                                   liabilities)  following the acquisition.  The
                                   transaction  has been accounted for under the
                                   purchase method.

                                   The   Company's    purpose   for   purchasing
                                   Symetrics  was to obtain the  technology  for
                                   the  digital  switch   manufactured   by  the
                                   Telephone Business. The Company believes that
                                   the  digital  switch   requires   substantial
                                   development  in order to provide state of the
                                   art  features  which  would make the  digital
                                   switch  attractive for use by local telephone
                                   companies  operating  in  smaller  cities and
                                   rural areas and  competitive  local  exchange
                                   carriers operating in metropolitan areas. The
                                   Company  plans to use the  digital  switch in
                                   its own  operations  as a  competitive  local
                                   exchange  carrier  and in its  planned  entry
                                   into    the    college     and     university
                                   telecommunication  business. The net purchase
                                   price  of  $18.6  million  exceeded  the book
                                   deficit   of  the   Telephone   Business   by
                                   approximately $22.8 million.  The majority of
                                   this excess has been  recorded by the Company
                                   as  purchased  research and  development  and
                                   included in research and development  expense
                                   in the first quarter of 1998.  The Company is
                                   still in the process of valuing the purchased
                                   research and  development and the $21 million
                                   is its current  estimate.  The  operations of
                                   the Telephone  Business,  which resulted in a
                                   loss in 1997 and 1996, are not material.

3. Comprehensive Income            As of January 1, 1998,  the  Company  adopted
                                   Statement of Financial  Accounting  Standards
                                   No.  130,  Reporting   Comprehensive   Income
                                   ("SFAS 130").  The adoption of this Statement
                                   had no impact on the  Company's net income or
                                   stockholders'  equity. SFAS 130 requires that

<PAGE>

                                   all  components of  comprehensive  income and
                                   total comprehensive income be reported on one
                                   of the following: a statement  of income  and
                                   comprehensive   income,    a   statement   of
                                   comprehensive   income  or  a  statement   of
                                   stockholders' equity. Comprehensive income is
                                   comprised  of net income  and all  changes to
                                   stockholders'  equity,  except  those  due to
                                   investments  by  owners  (changes  in paid in
                                   capital)   and    distributions   to   owners
                                   (dividends). For interim reporting  purposes,
                                   SFAS  130  requires   disclosure    of  total
                                   comprehensive income.

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

                                                    For the Three Months Ended
                                                             March 31, 
                                                      1998                1997
                                                  ----------          ----------
Net income (loss)                                 $  (41,795)         $    5,430
     
     Other comprehensive income (loss), net of tax:
     Unrealized loss on marketable securities
       available for sale                             (1,445)                  -
                                                  ----------          ----------
Comprehensive income (loss)                       $  (43,238)         $    5,430
                                                  ==========          ==========



                                       7

<PAGE>



                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                               March 31, 
                                                                      --------------------------
                                                                       1998                1997
                                                                       ----                ----
<S>                                                                    <C>                <C>   
Sales                                                                  100.0%             100.0%
Cost of sales                                                           84.0               81.8
                                                                       -----              -----
Gross profit                                                            16.0               18.2
Selling, general and administrative expenses                            10.6                4.6
Promotional, marketing and advertising expenses - AOL related           51.9                5.0
Research and development costs                                          23.4                  -
                                                                       -----              -----
Operating income (loss)                                                (69.9)               8.6
Investment and other income (loss), net                                 (5.3)               3.9
                                                                       -----              -----
Income (loss) before income taxes                                      (75.2)              12.5
Provision (benefit) for income taxes                                   (29.3)               4.9
                                                                      ------              -----
Net income (loss)                                                      (45.9)%              7.6%
                                                                      ======              =====
</TABLE>


                                      8

<PAGE>


                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

 THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

         Sales.  Sales  increased by 28.1% to $91.1 million in the first quarter
of 1998 from $71.2 million in the first  quarter of 1997.  The increase in sales
related primarily to the Company's  marketing  campaign under the AOL Agreement.


         Although  the  Company  expects  sales to increase by virtue of the AOL
Agreement, in view of the intense competition in this industry,  there can be no
assurance  that the  Company  will  increase  sales on a  quarter-to-quarter  or
year-to-year  basis.  In addition,  the Company's  sales under the AOL Agreement
have  continued  to be  adversely  affected  by the PIC  freezes  imposed by the
regional Bell operating companies.

         Cost of Sales. Cost of sales increased by 31.6% to $76.6 million in the
first quarter of 1998 from $58.2 million in the first quarter of 1997  primarily
as a result of increased sales.

         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.

         Until  April  30,  1998,  the  Company  acquired  most of the  services
purchased  from AT&T for resale or use in OBN pursuant to AT&T  Contract  Tariff
No.  5776.  The  Company  has signed a new  three-year  contract  with AT&T that
supersedes  Contract  Tariff No.  5776 and  provides a wide  variety of services
supporting  the  Company's  nationwide  telecommunications  network  and  resale
operations.   The  contract  included  a  new  offering  that  the  Company  has
successfully  used on a trial basis in recent  months (AT&T  Network  Connection
Services,  formerly known as AT&T's Carrier Solutions Platform) that enables the
Company to accommodate large numbers of additional  customers on OBN by handling
their peak load or overflow traffic.  The new contract also provides most of the
other services the Company acquires from AT&T. The new contract includes certain
financial  commitments  by  the  Company,  both  in  terms  of  minimum  revenue
commitments and a minimum percentage of certain services which must be purchased
from AT&T if purchased from any other carrier.  These commitments  expire at any
time after the first year that total charges from services  purchased  from AT&T
during the term have  reached $110  million.  The new  contract  also  specifies
various  options for  satisfying  the  financial  commitments  in the event of a
change in control of the Company.  The Company and AT&T agreed to guidelines for
describing  the  Company's  relationship  with AT&T and,  specifically,  how the
Company may refer to that relationship in the marketplace.

         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 1997 and the first  quarter  of 1998,  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.

         Gross Margin.  Gross margin  decreased to 16.0% in the first quarter of
1998 from 18.2% in the first  quarter of 1997.  The decrease in gross margin was
primarily due to credits for long distance  services the Company received in the
first  quarter  of  1997.  Price  competition  continues  to  intensify  for the
Company's  products  and this trend can be expected to continue to put  downward
pressure on gross margins.

         General  and  administrative   expenses.   General  and  administrative
expenses  increased by 192.4% to $9.6 million in the first  quarter of 1998 from
$3.3  million  in the  first  quarter  of 1997.  The  increase  in  general  and
administrative  expenses was due primarily to the costs  associated  with hiring
additional  personnel to support the Company's  continuing  growth,  the general
administrative  expense  incurred  by  Compco,  Inc.  and  Symetrics  which were
acquired in November 1997 and January 1998, respectively, and increased fees for
professional services.


                                       9


<PAGE>

                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES

         In December  1997,  the  Company  granted  options to purchase  810,000
shares of Company  Common  Stock at an exercise  price of $17.50 per share to an
executive officer and two outside directors.  The options granted are subject to
the approval of the  stockholders  and are being  submitted  for approval at the
Company's 1998 stockholder meeting. Approval of the option grants will result in
compensation  expense  equal to the  amount  by which  the  market  value of the
Company  Common  Stock  subject to these  options  on the date of such  approval
exceeds the exercise price.

         Promotional,  Marketing and Advertising Expenses - AOL Related.  During
the first  quarter of 1998,  the Company  expensed  approximately  $24.9 million
related to the AOL  Agreement  based on the value of  advertising  and promotion
provided by AOL and  approximately  $10.9 million for the  performance  warrants
issued to AOL on March 31, 1998.  The  remaining  portion of AOL  marketing  and
advertising  expenses  primarily  represents  other AOL  related  marketing  and
advertising  efforts.  During the first  quarter of 1997,  the Company  expensed
approximately $3.6 million for certain exclusivity rights.

          The  Company  made an initial  payment  of $100  million to AOL at the
signing  of the AOL  Agreement  and  issued to AOL at signing  two  warrants  to
purchase shares of the Company's Common Stock at a premium over the market value
of such  stock  on the  issuance  date.  Of the  prepaid  AOL  marketing  costs,
approximately  $57.0  million was  charged to expense in 1997 and  approximately
$24.9 million was charged to expense in the first quarter of 1998. The remaining
portion of the prepaid AOL marketing costs (approximately $38.6 million at March
31, 1998) will be recognized  over the balance of the term of the AOL Agreement,
the initial term of which expires on June 30, 2000 (extended as to long distance
services to June 30, 2001 by  amendment  as  described  below),  as  advertising
services are received.  The AOL warrant for up to 7 million  shares vests at the
rate of 2 shares for each new user of the  Company's  services  that  subscribes
through AOL and will be valued and charged to expense as and when subscribers to
the Company's services under the AOL Agreement sign-up and the shares under such
warrant vest. The amount of such charges,  which could be  significant,  will be
based on the extent to which such AOL warrants vest and the market prices of the
Company's Common Stock at the time of vesting and therefore such charges are not
currently determinable.  Generally, the higher the market price of the Company's
Common  Stock at the time of  vesting,  the larger the amount of the charge will
be.  Under an  amendment of the AOL  Agreement  dated as of May 14, 1998,  among
other things,  the term of the AOL Agreement  with respect to the Company's long
distance  telecommunications services was extended by one year to June 30, 2001,
the  Company's  flexibility  to  engage  for  90  days  in  certain  acquisition
transactions  that may otherwise  have  triggered a right of  termination by AOL
under  the  AOL  Agreement  was  increased  and  the  Company  issued  to AOL an
additional, fully exercisable warrant to purchase up to 1 million Company shares
at an exercise price of $22.25. The approximate $10 million value of the new AOL
warrant  will  be  amortized  over  the  remaining,  extended  term  of the  AOL
Agreement.  The Company  also  anticipates  that it may incur up to $100 million
additional AOL marketing  expenses in 1998 for such marketing  efforts as direct
mail, media campaigns and special pricing and other promotions.

         Research and  Development  Costs.  Research and  development  costs are
associated  with the  acquisition  of  Symetrics  Industries,  Inc.  and include
purchased  research and development  costs of approximately $ 21.0 million (Note
2).

         Investment and Other Income (Loss),  Net.  Investment and other income,
net was $(4.8)  million in the first  quarter of 1998 versus $2.8 million in the
first quarter of 1997.  During the first quarter of 1998, the Company incurred a
loss of 3.0 million on the sale of its  investment in US Wats,  Inc.,  which was
originally  acquired in connection  with the Company's  proposed  acquisition of
another telecommunications company.

LIQUIDITY AND CAPITAL RESOURCES

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


                                       10


<PAGE>

                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


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

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

         During 1996,  certain  options and  warrants to purchase  shares of the
Company's Common Stock were exercised and the Company repurchased  approximately
428,000 shares,  which are held as treasury shares,  yielding to the Company net
proceeds of $7.7 million.  During 1997, certain options and warrants to purchase
shares of the Company's Common Stock were exercised and the Company  repurchased
certain  Common  Stock  Warrants,  yielding to the Company net proceeds of $16.9
million.  In addition,  during 1997 the Company  repurchased  approximately  3.5
million shares of the Company's Common Stock, which are held as treasury shares,
for approximately  $72.0 million.  The tax benefit realized from the options and
warrants was  approximately  $21.3 million in 1996 and $25.7 million in 1997 and
is reflected as an adjustment to additional paid-in capital.

         During the first  quarter of 1998,  certain  options  and  warrants  to
purchase  shares of the Company's  Common Stock were  exercised  yielding to the
Company proceeds of $6.6 million.  Also, the Company  repurchased  approximately
381,000 shares of the Company's Common Stock, which are held as treasury shares,
for  approximately  $8.9 million.  The tax benefit realized from the options and
warrants  was  approximately  $8.4  million in the first  quarter of 1998 and is
reflected as an adjustment to additional paid-in capital.

         The Company's  working capital was $632.8 million and $634.8 million at
March 31, 1998 and December 31, 1997, respectively.  The significant increase in
working capital when compared to historical amounts is primarily a result of the
sale of the 2002 and 2004  Convertibles  Notes,  discussed  above.  In the first
quarter of 1998,  the Company  invested  $300 million in a tax exempt bond fund,
$245 million in government bond funds and incurred approximately $160 million of
margin account  indebtedness in connection with these investments.  The value of
such investments may be affected by interest rate fluctuations and other general
economic factors. In addition,  the Company's  investment policy with respect to
these  funds may  result in a less  favorable  return  for such  investments  in
comparison to other investments.


         While the Investment  Company Act of 1940, as amended (the  "Investment
Company  Act"),   principally  regulates  vehicles  for  pooled  investments  in
securities,  such as mutual  funds,  it also may be deemed to be  applicable  to
companies  that are not  organized  for the purpose of  investing  or trading in
securities but nonetheless have more than a specified percentage of their assets
in  investment  securities.  The  Company is  engaged in the  telecommunications
business, and the availability of cash and liquid securities is important to the
Company's   ability  to  take  advantage  of   opportunities  to  acquire  other
telecommunications  businesses,  assets and technologies  from time to time. The
Company believes, therefore, that its activities do not and will not subject the
Company to regulation under the Investment Company Act. However,  if the Company
were  to be  deemed  to be an  investment  company  within  the  meaning  of the
Investment Company Act, the Company would become subject to certain restrictions
relating  to  the  Company's   activities,   including,   but  not  limited  to,
restrictions on the conduct of its business, the nature of its investments,  the
issuance  of  securities  and  transactions  with  affiliates.   Therefore,  the
characterization  of the Company as an investment  company would have a material
adverse effect on the Company.  In the Indenture  governing the 2002 Convertible
Notes, the Company has covenanted that it will not become an investment  company
within the meaning of the Investment  Company Act and that it will take all such
actions as are  necessary  in order to continue  not to be deemed an  investment
company.


                                       11


<PAGE>

                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


         The Company invested $3.0 million in capital equipment during the first
quarter of 1998.

         During the first quarter of 1998, the Company purchased the outstanding
shares of Symetrics for $26.8 million.

         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.  The Company maintains reserves
for  potential  credit  losses  and,  to date,  such losses have been within the
Company's expectations.

         The Company has announced  that its Board has authorized the repurchase
of up to eight million shares of its Common Stock.  It is  anticipated  that the
repurchased  shares  will be held in  treasury  for  issuance  upon  exercise of
outstanding  options and warrants and upon  conversion,  if any, of  convertible
notes, and for other general corporate purposes. As noted above, when it entered
into the AOL  Agreement,  the  Company  issued two  warrants  to AOL to purchase
shares of the Company's Common Stock,  including a warrant to purchase 5 million
shares at an exercise  price of $15.50 per share,  which  warrant  became  fully
exercisable  on February 22, 1998. On March 31, 1998, AOL exercised this warrant
as to 1,000,000 shares of the Company's Common Stock on a net issuance basis and
the Company  repurchased from AOL all of the 380,624 shares issued upon such net
issuance exercise for $23 1/4 per share. In connection with such purchases,  AOL
agreed not to dispose of any shares of the  Company's  Common Stock  acquired by
AOL under any of the warrants  issued in connection with the AOL Agreement until
March 30, 1999.

         The  Company  believes  that  its  current  cash  position,  marketable
securities and the cash flow expected to be generated from  operations,  will be
sufficient  to fund its  capital  expenditures,  working  capital and other cash
requirements for at least the next twelve months.

         The "Year  2000"  issue  refers  to the  potential  harm from  computer
programs  that  identify  dates by the last two digits of the year  rather  than
using the full four  digits.  As such,  dates  after  January  1, 2000  could be
misidentified,  and such  programs  could fail.  The Company  has  examined  its
computer-based  systems and believes that the "Year 2000" problem is not present
on such  systems.  However,  the  Company is  dependent  upon  computer  systems
operated by third parties,  such as LECs, AT&T, AOL and other vendors.  If those
systems  were to  malfunction  due to the "Year  2000"  problem,  the  Company's
services could fail, as well. Such failures could have a material adverse effect
upon the Company's business,  results of operations and financial condition. The
Company is inquiring of such third parties to determine  the effect,  if any, of
the "Year 2000" problem on the systems upon which the Company is dependent,  and
to obtain appropriate assurance that no such problem exists.

                                    * * * * *

         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 or AOL, increased price competition for long distance services,  failure of
the marketing of long distance  services under the AOL  Agreement,  attrition in
the number of end  users,  and  changes in  government  policy,  regulation  and
enforcement. The Company undertakes no obligations to update its forward-looking
statements.


                                       12


<PAGE>

                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES


PART II - OTHER INFORMATION

Item 1.       Legal Proceedings
              -----------------

              The  Company is a party to certain  legal  actions  arising in the
              ordinary  course  of  business.  The  Company  believes  that  the
              ultimate outcome of these actions will not result in any liability
              that  would  have a  material  adverse  effect  on  the  Company's
              financial condition or results of operations.

Item 2.       Changes in Securities
              ---------------------

              In connection  with the Company's  agreement with America  Online,
              Inc.  ("AOL")  the  Company  granted a warrant to AOL to  purchase
              5,000,000  shares of the  Company's  Common  Stock at an  exercise
              price of $15.50 per share,  which  warrant  became fully vested on
              February 22, 1998. On March 31, 1998,  AOL exercised  this warrant
              as to 1,000,000  shares of Company  Common Stock on a net issuance
              basis  and the  Company  repurchased  from AOL all of the  380,624
              shares issued upon such net issuance exercise.

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.

Item 6.       Exhibits and Reports on Form 8-K
              --------------------------------

                  (a)      Exhibits
                           --------

                           Exhibit 10.1  Master  Carrier  Agreement  dated April
                                         22, 1998  between  Tel-Save,  Inc.  and
                                         AT&T Corp.*

                           Exhibit 11    Computation of Net Income Per Share

                           Exhibit 27    Financial Data Schedule
                  -------------------
                    *    Confidential  treatment has been requested for portions
                         of this Exhibit.

         (b)      Reports on Form 8-K
                  -------------------

                  Since December 31, 1997, the following Current Reports on Form
                  8-K have been filed by the Company:

                  Current  Report on Form 8-K,  dated  February  6, 1998,  which
                  reported the Company's  press releases of February 6, 1998 and
                  February  20, 1998 which  announced  the  Company's  financial
                  results  for  the  year  ended   December  31,  1997  and  the
                  engagement  of  an  investment  banker  with  respect  to  the
                  possible sale of the Company, respectively.



                                       13


<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:  May 15, 1998         TEL-SAVE HOLDINGS, INC.
                            ----------------------------------------------------
                            (Registrant)



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



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



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




                                       14