SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                                 AMENDMENT NO. 2

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE YEAR ENDED DECEMBER 31, 1996

                          COMMISSION FILE NO. 0 - 26728

                             TEL-SAVE HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

             DELAWARE                                          23-2827736
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification Number)


                                 6805 ROUTE 202
                          NEW HOPE, PENNSYLVANIA 18938
                                 (215) 862-1500
                   (Address, including zip code, and telephone
                  number, including area code, of registrant's
                          principal executive offices)

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


Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
           None                              Not applicable

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

                     COMMON STOCK, PAR VALUE $.01 PER SHARE

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

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

         The aggregate  market value of voting stock held by  non-affiliates  of
the registrant as of August 13, 1997 was  approximately  


<PAGE>


$752,598,000 based on the average of the high and low prices of the Common Stock
on August 13,1997 of $18.47 per share as reported on the Nasdaq National Market.

         As of August 13, 1997, the Registrant had outstanding 65,268,823 shares
of its Common Stock, par value $.01 per share.





<PAGE>



PART I

ITEM 1.  BUSINESS

                  For the definition of certain terms used in this Form
10-K, see "Glossary."

OVERVIEW

                  Tel-Save  Holdings,  Inc.  ("Company")  provides long distance
services  primarily to small and medium-sized  businesses located throughout the
United States.  The Company's long distance service  offerings  include outbound
service;  inbound toll-free 800 service; and dedicated private line services for
data.

                  Prior to the fourth  quarter  of 1996,  the  Company  operated
solely as a  switchless,  nonfacilities-based  reseller  of AT&T  long  distance
services.  By  purchasing  large usage  volumes  from AT&T  pursuant to contract
tariffs,  the Company has been able to procure  substantial  discounts and offer
low  cost,  high  quality  long  distance  services  to its  customers  at rates
generally more favorable than those offered directly by AT&T.

                  In order to reduce its dependence on AT&T contract tariffs and
increase  its  growth  opportunities,  the  Company  in  1996  deployed  its own
nationwide telecommunications network, One Better Net ("OBN"). OBN features five
Company-owned,   AT&T  (now  Lucent  Technologies,  Inc.  hereinafter  "Lucent")
manufactured   5ESS-2000  switches  connected  with  AT&T  digital  transmission
facilities.  OBN's  reduced  cost  structure  allows the  Company to offer rates
competitive  with those of non-AT&T  resellers  while  continuing to provide the
quality  of  AT&T  (now  Lucent)   manufactured   switches   and   AT&T-provided
transmission  facilities and billing services.  OBN allows the Company to pursue
the non-AT&T based  switchless  resale market,  which represents the majority of
the switchless resale long distance market.

                  The Company's strategy for expanding its business is to market
services  directly to business and residential end users, to continue to support
existing partitions and to attract additional partitions (including those now in
the non-AT&T resale  market).  The Company intends to attract new partitions and
support  existing  partitions  by, among other  things,  continuing  its current
practice of offering advances to new partitions to enable such partitions to pay
outstanding  balances due to their existing long distance providers in order for
such  partitions to transfer  their end users to the Company's  service,  and to
existing partitions to support their marketing efforts. The Company also intends
to approach residential  customers through its telemarketing  operations as well
as new marketing and advertising media, such as the Company's recently announced
arrangement with America Online, Inc. ("AOL") pursuant to



                                      - 1 -





<PAGE>


which  the  Company   will  be  the   exclusive   provider   of  long   distance
telecommunications services to AOL subscribers.

                  Tel-Save,   Inc.,  the  Company's  predecessor   ("Predecessor
Corporation") and now its operating subsidiary, was incorporated in Pennsylvania
in May 1989. The Company was  incorporated in Delaware in June 1995. The address
of the  Company's  principal  executive  offices is 6805  Route  202,  New Hope,
Pennsylvania  18938,  and its  telephone  number is (215)  862-1500.  Unless the
context otherwise requires,  "Company" includes the Predecessor  Corporation and
the Company's other subsidiaries.

DEVELOPMENT OF THE COMPANY

                  The  Company,  originally  incorporated  in 1989 as  Tel-Save,
Inc.,  was formed to capitalize  on the FCC mandate  allowing the resale of AT&T
services.  The Company  initially  marketed AT&T's  multi-location  calling plan
("MLCP"),  which provided incremental discounts earned by inclusion of the usage
volume of diverse end user  locations  under a single  service plan. The Company
was  successful  in marketing  MLCP,  but realized  that there were  significant
barriers to growth associated with the product,  primarily the lack of reporting
from AT&T, product inflexibility and the lack of control over end user accounts.

                  In late 1989, the Company successfully  obtained an additional
AT&T service plan  developed  by AT&T and marketed as Software  Defined  Network
Service  ("SDN"),  an AT&T product designed for larger business  customers.  SDN
provided the Company with higher margins,  network  controls,  advanced features
and the  ability to rebill its end users  through  AT&T and AT&T's  College  and
University Systems ("ACUS"), thus enabling the Company to have more control over
the end user account. As a result of SDN, the Company began to offer services on
a wholesale  basis  through  partitions.  The  Company  thereby  outsourced  its
marketing and end user service  expenses to partitions,  allowing it to focus on
managing  the  AT&T   relationship  and  to  further  develop  its  billing  and
information systems.

                  In December  1992,  the Company  obtained  the first  contract
tariff  created  by AT&T  specifically  for the  Company.  The  contract  tariff
provided the Company with significant  additional price advantages at stabilized
rates and the  ability to absorb  the  traffic  of  competitors'  plans into the
contract tariff. The Company subsequently obtained other contract tariffs, which
also provide AT&T inbound 800 services and AT&T private line services,  in order
to diversify its service offerings. This in turn has further enabled the Company
to increase the number of its partitions and end users.

                  To date, the Company has primarily  operated as a "switchless"
and  nonfacilities-based  provider of long distance  services by reselling  AT&T
services. The Company offers its

                                     - 2 -

<PAGE>

partitions  and end  users  nationwide  access  to AT&T  long  distance  network
services through contract tariffs, including outbound long distance, 800 service
and private line service.  Outbound long distance  service  accommodates  voice,
data and video transmissions. The Company's 800 service is currently provided by
reselling  AT&T's 800 Service  (Readyline,  Megacom 800, etc.),  which is AT&T's
inbound,  toll-free  (recipient  of the call  pays the  charges)  long  distance
service.  The Company's private line service is currently  provided by reselling
AT&T  Private  Line  Service,   which  includes  dedicated   transmission  lines
connecting pairs of sites.

                  The  Company  successfully   established  its  position  as  a
switchless reseller of AT&T long distance services as a result of its ability to
negotiate  with and obtain  favorable  contract  tariffs  from AT&T,  manage and
distribute data, bill accurately and provide partition support.  Contract tariff
subscriptions do not impose restrictions on the rates the Company may charge its
partitions and end users.  By purchasing  large usage volumes from AT&T pursuant
to such  contract  tariffs,  the Company is able to procure  substantial  volume
discounts and offer long distance  services to its  partitions  and end users at
rates  generally more favorable  than those offered  directly by AT&T.  With its
information  systems, the Company is able to manage and distribute to partitions
information such as data about end user usage and payment history.

                  Prior to 1995,  substantially  all of the  Company's  services
consisted of reselling AT&T outbound or SDN long distance services. In 1994, the
Company  began to offer 800 services,  which  accounted for 30.9% of 1995 sales,
and private line service, which accounted for 10.2% of 1995 sales. The Company's
800  services  and  private   line  service   accounted   for  32.4%  and  7.9%,
respectively, of 1996 sales.

                  In order to reduce its dependence on the AT&T contract tariffs
and  increase  its growth  opportunities,  the Company  began to develop its own
network,  OBN,  in late 1995.  In 1996,  the  Company  deployed  five  5ESS-2000
switches  in  Chicago,  Dallas,  Jacksonville,  New York and San  Francisco  and
installed new 5E11  software.  The Company began testing new customer calls over
its network in the third  quarter of 1996.  In the fourth  quarter of 1996,  the
Company began  provisioning on a test basis new customer orders on OBN. To date,
the Company has provisioned  approximately  50,000 end users to OBN. OBN enables
the Company to offer its end users and partitions more competitive rates than in
the past and to improve customer  provisioning,  as well as to improve reporting
to existing and new partitions. Currently the Company is continuing to provision
new  customers  on OBN while  completing  the final  testing of OBN. The Company
expects  final  testing of OBN to be completed  in April 1997,  and at that time
there  will be a general  release of OBN.  Thereafter,  the  Company  expects to
provision a large majority of its new customer orders on OBN.


                                     - 3 -

<PAGE>

STRATEGY

                  The Company has historically  expanded its business  primarily
through the addition of partitions and by providing new and existing  partitions
with operational,  financing,  marketing and management  support.  The Company's
strategy  for future  business  growth is to market  its  services  directly  to
business end users,  broaden the Company's target market to include  residential
customers,   continue  to  support  existing   partitions,   attract  additional
partitions and introduce new services.

                  Increase Direct Marketing  Efforts.  By marketing its services
                  directly  to end users,  the Company  expects to increase  its
                  profit margins by taking  advantage of the difference  between
                  the reduced  costs of  offering  services on OBN and the rates
                  charged directly to end users.

                  Broaden Target Market To Include  Residential  Customers.  The
                  Company intends to expand its service offerings to attract the
                  residential  segment of the long distance market. New services
                  may include new features  relating to customers  reporting and
                  billing as well as improved rates. The Company will use direct
                  marketing  and new marketing and  advertising  media,  such as
                  online  services,  to attract  the end users in this  customer
                  segment.  Recently, the Company announced its arrangement with
                  AOL  pursuant  to  which  the  Company  will be the  exclusive
                  provider of long distance telecommunications services to AOL's
                  subscribers. See "SALES AND MARKETING -- Residential."

                  Provide  Operational,   Financing,  Marketing  and  Management
                  Support to  Partitions.  The Company will continue to sell its
                  services  through  partitions.  To do  so,  the  Company  will
                  continue to provide existing and new partitions with low rates
                  and  operational,   marketing  and  management  support.   The
                  operational,   marketing  and  management   support   includes
                  financing,  training in  customer  service and use of the data
                  base, collection services,  lists of prospective end users and
                  a business  management  system  designed and  developed by the
                  Company exclusively for its use and its partitions' use.

                  The Company's  basic strategy for business  growth is based on
the deployment of OBN. OBN is expected to lower the Company's costs, to maintain
its  access  to AT&T  services  and AT&T  (now  Lucent)  equipment,  to  improve
provisioning  of new accounts,  and to provide a network that can be expanded to
add new products and services.

                  Provide Low Cost, High Quality  Alternative to Other Carriers.
                  The  Company's  deployment  of OBN will  reduce  its costs and
                  allow it to offer pricing to its partitions and


                                     - 4 -

<PAGE>

                  end users  competitive with or below that typically offered by
                  major long distance  carriers and their resellers.  OBN's cost
                  structure  is  expected  to allow the  Company  to expand  its
                  target market beyond the current AT&T resale market to include
                  the balance of the switchless long distance market (i.e.,  the
                  non-AT&T  long  distance  resale   market),   which  currently
                  represents  the majority of the long distance  resale  market.
                  The  Company  also  intends to market to AT&T's end users,  as
                  well as other  end  users  including  residential  and  larger
                  commercial accounts.

                  Emphasize  Quality  and  Functionality  of AT&T  (now  Lucent)
                  Manufactured   Switches,   and   AT&T-Provided    Transmission
                  Facilities  and  Billing.  The  Company  offers  products  and
                  services  on  OBN  similar  to  those  that  it  offers  as  a
                  switchless reseller of AT&T services. OBN has been built using
                  AT&T (now Lucent)  manufactured  switches in conjunction  with
                  leased AT&T transmission  facilities.  The 5ESS-2000 switch is
                  generally   considered   the  most  reliable   switch  in  the
                  telecommunications  industry. In addition to offering services
                  using AT&T as the  underlying  facilities-based  carrier,  the
                  Company will continue to use the billing  services of AT&T and
                  ACUS.

                  Improve  Provisioning  of End User  Accounts.  OBN  allows the
                  Company to establish service directly for or activate end user
                  accounts.  The Company  will provide new end user account data
                  directly to the local  exchange  carrier  ("LEC"),  which will
                  then change the end user  account to the  service  provided by
                  the Company or its partition. This is expected to increase the
                  timeliness and the  acceptance  rate of the  establishment  of
                  service, or provisioning, and will allow lists of end users to
                  be maintained confidentially.

                  Expandable Network with Capability To Support New Products and
                  Services.  The AT&T (now  Lucent)  5ESS-2000  switches  can be
                  expanded to  increase  capacity  significantly  and can at the
                  same time accommodate  local, long distance,  private line and
                  wireless services. OBN thus enables the Company to provide new
                  products and services  beyond  those  currently  possible as a
                  switchless reseller.

                  The Company  also  intends to  continue  to explore  strategic
alliances    with   other    channels   of    distribution,    partitions    and
nonfacilities-based and other providers of long distance services.

                                     - 5 -

<PAGE>

SALES AND MARKETING

                  Partitions
                  ----------

                  To date,  the Company has  primarily  marketed its services to
small and medium-sized business end users (i.e., generally businesses with fewer
than 200  employees)  throughout  the United  States  through  independent  long
distance and marketing  companies known as "partitions."  Partitions  resell and
market the  Company's  products,  allowing the Company to minimize its marketing
and end user  overhead.  Partitions  offer end users a variety of  services  and
rates. As  compensation  for their services,  partitions  generally  receive the
difference  between the amount  received  by the Company  from end users and the
amount charged by the Company to the partition for providing such services.  One
partition,  The  Furst  Group,  Inc.,  accounted  for  approximately  11% of the
Company's sales in 1996; however, the Company does not expect that any partition
will account for 10% or more of the Company's sales in 1997.

                  A substantial number of the Company's partitions have executed
partition  agreements  with the Company  pursuant to which the Company agrees to
provide  services  utilizing  the AT&T  network  service  and end  user  billing
services at agreed  upon prices or  discounts.  The  Company  requires  that the
partitions  adhere to certain  Company  established  guidelines in marketing the
Company's  services  and  comply  with  federal  and  state  regulations.  These
requirements  include certain  representations  by each  organization that it is
acting as an  independent  contractor  with regard to the sale of the  Company's
services,  and not as a joint venture partner, agent or employee of the Company,
along  with  provisions  for the  proper  completion  of forms and  other  sales
procedures.  In  addition,  most of the  payments  made by end  users  are  paid
directly  into a lock-box  controlled by the Company.  The  Company's  partition
agreements  typically  run for  three  years or for the  term of the  applicable
tariffs,  whichever is less.  The  partitions  generally  make no minimum use or
revenue  commitments to the Company under these  agreements  with respect to the
resale of AT&T services. The agreements also are generally non-exclusive. If the
Company  were to lose  access to services  on the AT&T  network or AT&T  billing
services or  experience  difficulties  with OBN, the Company's  agreements  with
partitions could be adversely affected.

                  The Company  believes  that the  discounts  it will be able to
offer partitions and end users using OBN,  together with the  functionality  and
quality  of  OBN  operating  in  conjunction  with  AT&T-provided   transmission
facilities  and the accuracy of billing  services  obtained  from AT&T and ACUS,
will enable it to attract current and future partitions to OBN. The Company will
continue  its policy of  advancing  funds to most  partitions  to support  their
marketing efforts. Historically,  partitions of the Company have continued to 

                                     - 6 -

<PAGE>

do business under their partition  agreements following changes in the Company's
service offerings.

                  The Company intends to continue to promote increased marketing
activities  of certain of its  partitions  through  advances  collateralized  by
assets of such partitions.  In return for providing such marketing advances, the
Company seeks long-term arrangements with such partitions.  In 1996, the Company
entered into long term arrangements with several existing and new partitions.

                  Current marketing  practices,  including the methods and means
to convert a  customer's  long  distance  telephone  service from one carrier to
another,  have recently been subject to increased  regulatory review at both the
federal and state levels. This increased regulatory review could affect possible
future  acquisition  of new business  from new  partitions  or other  resellers.
Provisions  in the  Company's  partition  agreements  mandate  compliance by the
partitions with applicable state and federal regulations.  Because the Company's
partitions  are  independent  carriers and marketing  companies,  the Company is
unable to control  such  partitions'  activities.  The Company is also unable to
predict the extent of its partitions'  compliance with applicable regulations or
the effect of such increased regulatory review.

Direct Marketing
----------------

                  The  Company  began to actively  market its  telecommunication
services  directly to end users in 1996.  Through its direct marketing  efforts,
the Company  expects to increase its profit  margins by taking  advantage of the
difference  between the reduced  costs of  providing  services  over OBN and the
rates charged to end users.  The Company began its direct marketing in the first
quarter of 1996 with a telemarketing operation based in Clearwater,  Florida. In
December 1996, in connection with the settlement of certain  disagreements among
the Company,  American Business Alliance, Inc. ("ABA"), a switchless reseller of
long distance  telecommunications  services and a partition of the Company,  and
ABA's shareholders,  the Company acquired  substantially all of ABA's assets and
hired  substantially  all  of  ABA's  employees.   These  actions  significantly
increased the Company's  capabilities for direct marketing of  telecommunication
services. The Company expects that in 1997 a large majority of the Company's new
orders will be generated from direct  marketing.  The Company  currently has 260
employees involved in its direct marketing operations.  Direct marketing efforts
have  focused   initially  on  inbound  and  outbound   services  to  small  and
medium-sized businesses and may expand to include residential customers.

                  Operation of its own direct marketing will require the
Company to incur additional costs above levels historically 

                                     - 7 -

<PAGE>

experienced by the Company. There can be no assurance that any cost savings will
be realized utilizing direct marketing. Direct marketing by the Company also may
adversely  affect the Company's  relationships  with its  partitions as both the
Company and the partitions  will be competing to provide similar  services.  The
Company is required to comply with  additional  regulatory  standards for direct
marketing of  telecommunications  services,  and is subject to increased risk of
customer  complaints or federal or state enforcement actions with respect to its
marketing and order  verification  practices.  Actions have been brought against
many carriers based on allegations of "slamming" or the unauthorized  conversion
of a customer's chosen long distance carrier.

Residential
-----------

                  On  February  25,  1997,  the  Company  announced  that it had
entered into a  Telecommunications  Marketing  Agreement (the "AOL  Agreement"),
dated as of February 22, 1997 and  effective as of February 25, 1997,  with AOL,
under  which  the  Company  will  be the  exclusive  provider  of  long-distance
telecommunications services to be marketed by AOL under a distinctive brand name
to be used  exclusively  for the Company's  services.  The services will include
provision for online  sign-up,  call detail and reports and credit card payment.
Under  the AOL  Agreement,  AOL will  provide  millions  of  dollars  of  online
advertising  and  promotion of the  services and provide all of its  subscribers
with access to a dedicated service area online for the Company.  AOL subscribers
who  sign-up  for  the  telecommunications  services  will be  customers  of the
Company, as the carrier providing such services.

                  The Company also has certain rights under the AOL Agreement to
offer, on a comparably  exclusive basis,  local and wireless  telecommunications
services when such services  become  available to the Company through a contract
for resale or otherwise.  The inclusion of such  additional  services (which the
Company  does not  currently  offer) in the  telecommunications  services  to be
marketed by AOL under the  distinctive  brand name is subject to the negotiation
of an amendment to the AOL  Agreement  describing  the specifics of the rollout,
marketing and other terms  applicable to such new services  offering,  including
the specific economic  arrangements  between the Company and AOL with respect to
such additional services.  AOL and the Company have agreed to submit any dispute
with respect to such an amendment  for  resolution by  arbitration.  AOL may not
contract for the provision of such  additional  services with any other provider
prior to December  31, 1997 nor may it so contract  after the Company has become
and is the provider of such  additional  service  under the AOL  Agreement.  The
Company also has certain rights of first refusal with respect to such additional
services  should  AOL seek to  contract  with any other  provider  prior to such
times.

                                     - 8 -

<PAGE>

                  The exclusivity  provisions of the AOL Agreement  generally do
not prohibit AOL from selling  online  advertising  to other  telecommunications
service providers.  AOL may terminate its exclusivity  obligations under the AOL
Agreement   with   respect  to  a  category   of   telecommunications   services
(long-distance,  local and  wireless) if the  Company's  overall  pricing to end
users for such category of services exceeds the overall prices for such services
that are  generally  available  to end users  from  major  carriers  so as to be
non-competitive  with those carriers'  offerings.  The Company expects that this
termination  opportunity is unlikely to occur, since the Company's business plan
and  policy  are to  provide  telecommunications  services  at  prices  that are
competitive with those generally available to end users from major carriers.

                  It is  anticipated  that the  services  will be  tested in the
early summer and offered  generally to AOL  subscribers in the fall of 1997. The
AOL  Agreement  has an initial term of three years and can be extended by AOL on
an annual basis thereafter.

                  Under the AOL Agreement,  the Company made an initial  advance
of $100  million to AOL at signing and agreed to provide  marketing  payments to
AOL based on a percentage  of the Company's  profits from the services  (between
50% and 70%,  depending on the revenues  from the  services).  The AOL Agreement
provides that $43 million of the initial  advance will be offset and recoverable
by the Company through reduction of such profit-based  marketing payments during
the initial term of the AOL Agreement or, subject to certain monthly  reductions
by  offset  of  the  amount  thereof,  directly  by  AOL  upon  certain  earlier
terminations  of the AOL  Agreement.  The $57  million  balance  of the  initial
advance  will  be  offset  and is  recoverable  through  a  percentage  of  such
profit-based  marketing  payments  made  after the first  five  years of the AOL
Agreement  (when  extended  beyond  the  initial  term) and by offset  against a
percentage of AOL's share of the profits from the services after  termination or
expiration of the AOL  Agreement.  Any portion of the $43 million not previously
recovered  or reduced in amount  would be added to the $57  million and would be
recoverable similarly.

                  Also under the AOL  Agreement,  the  Company  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. One warrant is
for 5 million  shares,  at an  exercise  price of $15.50 per share,  one-half of
which shares will vest at the time the service is first made generally available
to AOL online network  subscribers  in accordance  with the AOL Agreement or the
first anniversary of the warrant issuance, whichever is earlier, and the balance
of which will vest on the first anniversary of issuance if the AOL Agreement has
not terminated.  The other warrant is for up to 7 million shares, at an exercise
price of $14.00 per share, which will vest,  commencing December 31, 1997, based
on the number of  subscribers  to the services and would vest fully if there are
at

                                     - 9 -
<PAGE>

least 3.5 million such  subscribers  at any one time. The Company also agreed to
issue to AOL an  additional  warrant to purchase 1 million  shares of its common
stock,  at  market  value at the time of  issuance,  upon  each of the first two
annual  extensions by AOL of the term of the AOL Agreement,  which warrants also
will vest based on the number of subscribers to the services.

                  In connection with the AOL Agreement, the Company and AOL will
jointly  develop the online  marketing and  advertising  for the  services.  The
Company will provide online customer service as well as inbound calling customer
service to the AOL subscriber  base in connection  with the services.  While the
Company expects to utilize its Clearwater,  Florida facility to provide customer
service support to AOL  subscribers,  the Company may need to increase  staffing
and purchase equipment to support this activity. The Company anticipates that it
will  incur   expenses  for  the  start-up  and   development  of  the  services
contemplated  in the AOL  Agreement  during  1997,  including  expenses  for the
expansion of the Clearwater operation, for software programming and for software
and hardware additions to the Company's network, OBN, to expand its capacity for
the traffic.  The Company  believes that the  increased  revenues to the Company
resulting from the AOL Agreement and the services  offered pursuant thereto will
be limited in 1997, but could be  significant in 1998,  although there can be no
assurance  that  these  results  can  be  achieved  in  light  of  a  number  of
uncertainties,  including the following: the Company's ability to timely develop
the online  ordering,  call detail,  billing and  customer  services for the AOL
subscribers,  which will require, among other things, being able to identify and
employ  sufficient  personnel  qualified to provide necessary  programming;  the
Company's and AOL's ability to work effectively  together to jointly develop the
online marketing contemplated by the AOL Agreement;  the response rate to online
promotions  of  AOL's  online  subscribers,  most of  whom  are  expected  to be
residential  rather than businesses,  which have historically been the Company's
customer  base;  the Company's  ability to expand OBN to  accommodate  increased
traffic levels;  and AOL's ability to  successfully  execute its publicly stated
business plan and implement its announced network changes to improve  subscriber
access to its online service.

SERVICES

Partitions
----------

                  The  Company  offers  operational,  financing,  marketing  and
management support to partitions, which provides the partitions with the ability
to operate and manage their businesses and attract and maintain end users.  Such
support  includes  financial  resources,  low long  distance  rates,  collection
services,  prospective  customer  lists  and  a  management  information  system
designed and developed by the Company exclusively for use by the Company and its
partitions

                                     - 10 -

<PAGE>

("Business  Management  System" or "BMS"). The Company offers start-up financing
as well as  financing to its existing  partitions  and expects to increase  such
financing in the future.  The Company's  Business  Management  System provides a
link  between the  Company's  operations  center and each  partition,  including
information relating to billing,  collections,  provisioning,  network usage and
other end user information. The Company also compiles, evaluates and distributes
prospective customer lists.

                  Service on a long  distance  network is activated by a process
called  provisioning.  On a daily basis,  through the Business Management System
provided by the Company,  the Company's  partitions  transmit  required end user
information  to the  Company.  Orders for AT&T  network  services  resold by the
Company as a  switchless  reseller  are  formatted  by the Company in the manner
required by AT&T and transmitted to AT&T's information  management system, where
AT&T processes the information and sends status updates on orders to the Company
which, in turn,  reports such status to the partitions.  Orders for OBN services
are processed and  controlled by the Company.  By controlling  the  provisioning
process with OBN, the Company  believes it can increase  acceptance rates of new
end users and reduce the time required to initiate  service provided through the
Company.

                  The Company promotes increased marketing activities by certain
of its partitions and attracts new partitions  through  advances.  Such advances
are made in  installments  subject to the  success of  marketing  efforts by the
applicable  partition.  As a condition to such advances,  the Company  generally
requires a  partition  to agree to utilize  the  Company's  Business  Management
System,  to accept  the  Company's  billing  services  and  lock-box  procedures
pursuant  to which  sales  generated  by a  partition  are paid  directly to the
Company's  lock-box account and to grant the Company a security interest in such
sales.  In return for  providing  such  marketing  advances,  the Company  seeks
long-term  arrangements  with such  partitions.  The Company  believes that such
long-term   arrangements   benefit  the  Company  and  its  partitions  as  such
arrangements  foster  increases  in the  Company's  end user base  resulting  in
increases in minutes of traffic.

End Users
---------

                  The Company offers  customer  service to end users marketed by
its  telemarketing  operations  as well as to end users of  certain  partitions.
Customer  service  representatives  are located in the  Company's  facilities in
Clearwater,  Florida and New Hope and Kingston,  Pennsylvania. The Company plans
to provide online customer  service as well as inbound calling  customer service
in connection with the services offered to AOL subscribers.


                                     - 11 -
<PAGE>

INFORMATION AND BILLING SERVICES

                  The Company  utilizes the billing services of AT&T and ACUS, a
wholly owned  strategic  business unit of AT&T.  As a result,  the Company's end
users benefit from the  reliability  and accuracy  associated with AT&T billing.
Detailed call  information on the usage of each end user is produced by AT&T (in
the case the of switchless  resale  business) and by the Company (in the case of
OBN business).  In both cases,  AT&T then processes the information and provides
billing  information  to the  Company.  ACUS bills the end users  pursuant  to a
custom  billing format bearing the names of either the Company or the applicable
partition in the bill heading.

                  AT&T has  removed  the  "AT&T"  name from the  heading  of the
bills,  although  the text of the bills or bill  inserts  may still refer to the
fact that an AT&T unit provides billing services. AT&T could further obscure its
role in  providing  billing  services  altogether,  which  could have an adverse
impact on the Company.  The Company is developing its own information systems in
order to have its own billing  capacity,  although  the Company has not provided
such direct billing services to end users in the past.

                  BMS  is  provided  to  each  partition.  BMS  resides  at  the
partitions'  locations  and  communicates  with the  Network  Management  System
("NMS") located at the Company's headquarters.  NMS allows direct interface with
the LECs and the Company's network to perform functions  historically handled by
AT&T. These computerized  management systems control order processing,  accounts
receivable,  billing and status information in a streamlined fashion between the
Company and its partitions.  Furthermore, when applicable, the systems interface
with the AT&T  Provisioning  System and ACUS for order  processing  and  billing
services,  respectively.  Enhancements  and additional  features are provided as
needed.  Electronic  processing and feature  activation are designed to maintain
the Company's goal of minimizing overhead.

                  The  Company has  developed  its own new  information  systems
through the use of client/server  technology.  The Company purchased symmetrical
multi-processing ("SMP") hardware in conjunction with SQL Database software from
Informix  Corporation.  This system is now  operational  and has the capacity to
process the Company's  current  volume of  information  services and exceeds the
Company's  needs  for  the  foreseeable  future,  except  with  respect  to  the
information  and  billing  systems  that the  Company  will need to  develop  in
connection with the AOL Agreement,  including  online  sign-up,  call detail and
billing reports and credit card billing.

                  The  information  functions  of the  system  are  designed  to
provide easy access to all information  about an end user,  including volume and
patterns of use, which will help the Company and partitions identify value-added
services that might be well suited

                                     - 12 -
<PAGE>

for that end user. The Company also expects to use such  information to identify
emerging end user trends and respond with  services to meet end users'  changing
needs.  Such  information  should also allow the Company and its  partitions  to
identify  unusual or declining use by an individual end user,  which  frequently
indicates that an end user is switching its service to a competitor.

                  In addition, in connection with the AOL Agreement, the Company
will need to develop systems for online sign-up, call detail and billing reports
and credit card payments.  Any delay or  difficulties  in developing  systems or
hiring personnel could adversely affect the timing of the implementation of this
service  offering to AOL  subscribers  and, in turn, the success of this service
offering.

ONE BETTER NET

                  In order to reduce its dependence on AT&T contract tariffs and
to  increase  its  growth   opportunities,   the  Company   developed   its  own
telecommunications  network,  OBN, which utilizes AT&T (now Lucent) manufactured
switches  owned by the  Company  in  conjunction  with  AT&T-provided  lines and
digital   cross-connect   equipment   (herein   referred  to  as   "transmission
facilities") and AT&T-provided billing systems that the Company uses pursuant to
agreements  with AT&T and ACUS.  OBN includes  five AT&T (now Lucent)  5ESS-2000
switches,  which are  generally  considered  the most  reliable  switches in the
telecommunications  industry. The Company was one of the first installation site
for AT&T's 5ESS-2000  switching  equipment  featuring the new Digital Networking
Unit -- SONET  technology,  a  switching  interface  designed  to  increase  the
reliability  of  the  5ESS-2000  and  to  provide  much  greater  capacity  in a
significantly smaller footprint. The five switches -- in Jacksonville, New York,
Chicago,  Dallas and San  Francisco -- were  initially  deployed  with AT&T 5E10
software and were recently  upgraded to 5E11 software,  increasing the Company's
trunk capacity by approximately 33%.

                  OBN  allows  the  Company  to  offer  long  distance  services
directly  to its end users and  partitions  throughout  the  continental  United
States at rates that are  competitive  with or below those  offered by the major
long distance providers.  OBN also allows the Company to control provisioning of
end user accounts.

                  The Company's  current contract tariffs under which it resells
AT&T services require the Company to pay one  all-inclusive  "bundled" charge to
AT&T for the delivery of services, including switching and transmission services
and the payment of LEC access fees.  As a result of the  deployment  of OBN, the
Company will pay "unbundled"  charges consisting of charges paid directly to the
LECs for access charges and, under AT&T contract  tariffs,  charges paid to AT&T
for use of its  network  transmission  facilities.  The  Company  will  pay AT&T
"bundled" charges for use of its international

                                     - 13 -

<PAGE>

facilities to handle the international  portion of a call on OBN. The total cost
per call to the Company for the LEC access  fees,  the charges for use of AT&T's
transmission facilities and the overhead cost for calls using OBN is expected to
be less than the "bundled"  charge  currently paid under AT&T contract  tariffs.
LEC access fees  represent a substantial  portion of the total cost of providing
long  distance  services.  As a  result  of the  Telecommunications  Act,  it is
generally expected that the entry over time of competitors into LEC markets will
result in  lowering of access  fees,  but there is no  assurance  that this will
occur. To the extent it does occur, the Company,  by using OBN, will receive the
benefit  of any  future  reduction  in LEC  access  fees,  which  it  would  not
automatically receive under contract tariffs.

                  In October 1996, the Company subscribed to a new AT&T contract
tariff,  which permits the Company to continue to resell  through mid- 1998 AT&T
long distance services,  including AT&T SDN service and other services, at rates
which are more  favorable to the Company than prior  tariffs.  As a result,  the
Company decided only to provision new end users on OBN and to leave existing end
users on AT&T  service.  The new AT&T  contract  has enabled the Company to earn
higher  margins on existing  traffic,  minimize  possible  attrition  that might
result from moving  existing  end users from the AT&T  network to OBN.  This has
permitted a more gradual  introduction  of OBN, which has reduced the expense of
providing the capacity required in a more rapid phase-in of OBN and lessened the
impact of any technical difficulties during the phase-in of OBN.

                  In 1997,  the  Company  will  continue to offer  private  line
service through contract  tariffs with AT&T.  Although the Company will continue
to provide such private line service  through AT&T,  the Company also will begin
to offer private line service using OBN to new and existing customers.

                  In order for the  Company to  provide  service  over OBN,  the
Company has installed and operates,  and is responsible  for the maintenance of,
its own switching equipment. The Company also has installed lines to connect its
OBN switches to LEC switches and is responsible for maintaining these lines. The
Company  entered  into a  contract  with GTE  with  respect  to the  monitoring,
servicing and maintenance of the switching  equipment purchased from AT&T. There
can be no  assurance  that the Company  will be  successful  in  operating  as a
switch-based  carrier.  Additional  management personnel and information systems
are  required to support OBN, the costs of which have  increased  the  Company's
overhead. Moreover, operation as a switch-based provider subjects the Company to
risk of  significant  interruption  in the  provision  of services on OBN in the
event of damage to the Company's facilities  (switching equipment or connections
to AT&T  transmission  facilities)  such as could be caused  by fire or  natural
disaster. Such interruption could have a material

                                     - 14 -
<PAGE>

adverse impact on the Company's financial condition and results of operations.

                  The Company began  testing new customer  calls over OBN in the
third  quarter  of 1996.  In the  fourth  quarter  of 1996,  the  Company  began
provisioning  on a test basis new customer  orders on OBN. To date,  the Company
has provisioned  approximately 50,000 end users to OBN. Currently the Company is
continuing to provision new customers on OBN while  completing the final testing
of OBN. The Company  expects final testing of OBN to be completed in April 1997,
and at that time there will be a general release of OBN. Thereafter, the Company
expects to provision a large majority of its new customer orders on OBN.

                  The 5ESS-2000 switches make it possible for the Company in the
future to offer a number of additional or enhanced  services.  For example,  the
Company's  5ESS-2000  switches  could support the offering of Centrex  features,
such as call waiting,  conference  calling,  distinctive  ringing and least cost
routing,  that  traditionally  were  available  only to end users with their own
equipment  or  through  purchase  from the end  users'  local  exchange  carrier
("LEC").  The 5ESS-2000  switches  could support  Advanced  Intelligent  Network
("AIN"),   which   provides   an  open   network   architecture   allowing   for
interconnections  of  inexpensive  peripheral  equipment  and  databases and the
deployment of such services as calling cards, debit cards, voice recognition and
caller  identification,  without the  involvement of switch  manufacturers.  The
5ESS-2000   switches   could   help   the   Company   to   provide   competitive
telecommunications  services to tenants of  multi-tenant  office and residential
buildings and  complexes.  The 5ESS-2000  switch also has the capacity to direct
local service as well as long distance service.

AT&T CONTRACT TARIFFS

                  The  Company  historically  has  obtained  services  from AT&T
through  contract  tariffs and has been able to obtain the services it seeks and
to do so at increasingly  favorable contract tariff rates. The deployment of OBN
decreases the Company's  dependence on AT&T contract tariffs.  To the extent the
Company will need future  contract  tariffs,  there is no guarantee  the Company
will be able to obtain favorable contract tariffs, although the Company has been
successful in the past in obtaining such contract tariffs.

                  On October 1996, the Company subscribed to a new AT&T contract
tariff,  which was further  revised in December  1996 and permits the Company to
continue to resell AT&T long  distance  services,  including  AT&T-SDN  service,
through mid-1998. The new AT&T contract tariff also includes other AT&T services
(such as international  long distance,  inbound and outbound services) that will
be used in the Company's new  nationwide  telecommunications  network,  OBN. The
rates that the Company will pay under the new AT&T contract

                                     - 15 -

<PAGE>

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 exiting end users from the AT&T network
to OBN. The new AT&T contract 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  $300 million of service from AT&T over the next 4
years,  including  at least $1 million per month of  international  service.  If
minimum  usage  requirements  are not  met,  the  Company  is  obligated  to pay
shortfall  fees to AT&T based on a  percentage  of the  difference  between  the
minimum  requirement and the actual billed usage.  In addition,  if the contract
tariffs with AT&T are terminated  prior to the end of the contract  tariff term,
either by the Company or by AT&T for non-payment,  the Company may be liable for
"termination  with liability" or  "termination  charges" and subject to material
monetary penalties.  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 which are in excess of $10
million per month.  Further the Company can  terminate  the new contract  tariff
without  liability to AT&T at the end of 18 months if the Company has  generated
at least  $120  million  in usage  charges,  including  at least $15  million in
international  usage charges.  The Company also may discontinue the new contract
tariff without  liability  prior to the 18th month if the Company and AT&T enter
into a new contract tariff or another  contract with a revenue  commitment of at
least $7.5  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 $6.7 million per month for the months prior to
such termination, including $1 million per month of international usage.

COMPETITION

                  The  long  distance   telecommunications  industry  is  highly
competitive and affected by the  introduction of new services by, and the market
activities  of, major  industry  participants.  Competition in the long distance
business is based upon pricing, customer service, billing services and perceived
quality.  The Company  competes  against  various  national  and  regional  long
distance  carriers  composed of both  facilities-based  providers and switchless
resellers offering essentially the same services as the Company.  Several of the
Company's  competitors  are  substantially  larger and have  greater  financial,
technical  and  marketing  resources.  Although the Company  believes it has the
human and technical resources to pursue its

                                     - 16 -

<PAGE>

strategy and compete  effectively in this competitive  environment,  its success
will depend upon its continued ability to provide profitably high quality,  high
value  services at prices  generally  competitive  with,  or lower  than,  those
charged by its competitors.

                  End users are not  obligated  to purchase  any  minimum  usage
amount and can discontinue  service,  without penalty, at any time. There can be
no assurance  that end users will continue to buy their long distance  telephone
service through the Company or through partitions that purchase service from the
Company.  In the event that a  significant  portion of the  Company's  end users
decides to purchase  long distance  service from another long  distance  service
provider, there can be no assurance that the Company will be able to replace its
end user base from other sources.

                  A high level of  attrition  is inherent  in the long  distance
industry,  and the Company's revenues are affected by such attrition.  Attrition
is attributable to a variety of factors,  including  termination of customers by
the Company for  non-payment and the initiatives of existing and new competitors
as  they  engage  in,  among  other  things,   national  advertising  campaigns,
telemarketing programs and cash payments and other incentives.

                  Although the basic rates of the three  largest  long  distance
carriers  -- AT&T,  MCI  Communications  Corp.  and Sprint  Corporation  -- have
consistently  increased  over  the  past  three  years  and  remained  generally
unchanged  through  the third  quarter  of 1996,  AT&T and other  carriers  have
announced new price plans aimed at residential  customers (the Company's primary
target  audience  under he AOL  Contract)  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 makes the Company more price  competitive,  a reduction in
long distance  prices still may have a material  adverse impact on the Company's
profitability.

                  AT&T   has   split    itself   into   three    separate    and
independently-owned and operated companies ("AT&T breakup").  One services, long
distance,  wireless  and other  telecommunications  services.  Another,  Lucent,
manufactures and sells communications  equipment.  A third, NCR, includes AT&T's
computer  operations and will focus on the financial,  retail and communications
industries.  AT&T has stated  that the  breakup  will  allow it to compete  more
effectively with providers of telecommunications services.

                  The   Company   will  link  its   switching   equipment   with
transmission  facilities  and  services  purchased  or leased from AT&T and will
continue to resell services  obtained from AT&T,  which will remain a competitor
of the Company for the  provision of  telecommunications  services.  The Company
also utilizes AT&T and ACUS

                                     - 17 -

<PAGE>

to provide billing services.  There can be no assurance that either AT&T or ACUS
will continue to offer billing  services to the Company at competitive  rates or
attractive terms.

                  In October 1995,  the FCC  reclassified  AT&T as a nondominant
interexchange carrier. The FCC stated that AT&T would have greater incentives to
cut its prices and offer innovative new services.  Nondominant  carriers are not
subject to price cap  regulation  and could file  tariffs  (and tariff  changes)
under  streamlined  procedures that will be presumed lawful on one day's notice.
The Company will  therefore no longer be able to file  Petitions to Reject or to
Suspend  and  Investigate  AT&T  tariff  proposals  with  the FCC  before  those
offerings  take  effect.  The FCC's  reclassification  of AT&T as a  nondominant
carrier eliminated certain pricing restrictions and regulatory oversight and may
allow AT&T to compete more aggressively with the Company.

                  As a  nondominant  carrier,  AT&T will be  subject to the same
regulations as other long distance  service  providers.  AT&T remains subject to
Title II of the  Communications  Act (47  U.S.C.  Section  151,  et seq.) and is
required to offer  service  under  rates,  terms and  conditions  that are just,
reasonable  and not  unreasonably  discriminatory.  AT&T is also  subject to the
FCC's  complaint  process  and  was  required  to  file  tariffs,  though  under
streamlined procedures. In addition, AT&T is also required to give notice to the
FCC and to affected customers prior to discontinuing, reducing, or impairing any
services.

                  In seeking FCC  approval of its motion,  AT&T made a series of
"voluntary  commitments"  to the FCC as a  transitional  mechanism to govern its
conduct.  With  respect to  business  term plans and  long-term  contracts  with
customers,  including  resellers,  AT&T agreed for a 12 month  period to provide
advance  notice  to the  customer  of  proposed  changes  that  might  affect  a
customer's  reliance on its contract with AT&T and to file any such changes with
advance  notice and time for  action by the FCC.  AT&T also  stated  that it was
willing to enter into mutually  agreeable private party  arbitration  agreements
with its  reseller  customers  and was willing to develop a model  agreement  in
negotiations with the Telecommunications  Resellers Association Executive Board.
The FCC accepted all of the "voluntary  commitments" offered by AT&T and ordered
AT&T's compliance with those commitments.

                  The  Telecommunications  Act of 1996 was intended to introduce
more competition to U.S.  telecommunications  markets. The legislation opens the
local  services  market by  requiring  LECs to permit  interconnection  to their
networks and establishing,  among other things,  LEC obligations with respect to
access, resale, number portability, dialing parity, access to rights-of-way, and
mutual  compensation.  The legislation  also codifies the LECs' equal access and
nondiscrimination  obligations and preempts most inconsistent  state regulation.
The legislation also contains special provisions

                                     - 18 -

<PAGE>

that eliminate restrictions on the RBOCs providing long distance services, which
means  that the  Company  will face  competition  for  providing  long  distance
services from  well-capitalized,  well-known  companies  that prior to this time
could not compete in long distance service.

                  The  RBOCs  have  been  prohibited  from  providing  interLATA
interexchange  telecommunications  services  under the terms of the AT&T decree.
The  Telecommunications  Act authorizes the RBOCs to provide  certain  interLATA
interexchange  telecommunications  services  immediately  and  others  upon  the
satisfaction of certain conditions. Such legislation includes certain safeguards
against  anticompetitive  conduct  by the RBOCs in the  provision  of  interLATA
service. Anticompetitive conduct could result, among other things, from a RBOC's
access to all  subscribers  on its existing  network as well as its  potentially
lower costs  related to the  termination  and  origination  of calls  within its
territory.  It is impossible to predict whether such safeguards will be adequate
to protect against  anticompetitive conduct by the RBOCs and the impact that any
anticompetitive  conduct  would have on the  Company's  business and  prospects.
Because of the name  recognition  that the RBOCs have in their existing  markets
and the  established  relationships  that they have with  their  existing  local
service customers,  and their ability to take advantage of those  relationships,
as   well   as   the   possibility   of   favorable   interpretations   of   the
Telecommunications  Act  by  the  RBOCs,  it may be  more  difficult  for  other
providers of long distance services,  such as the Company, to compete to provide
long distance  services to RBOC customers.  At the same time, as a result of the
Telecommunications  Act, RBOCs have become potential customers for the Company's
long distance services.

                  Consolidation and alliances across  geographic  regions (e.g.,
Bell   Atlantic/Nynex   and  SBC  Communications   Inc./Pacific   Telesis  Group
domestically   and   BT/MCI   and   France    Telecom/Deutsche    Telekom/Sprint
internationally)  and across industry  segments (e.g.,  WorldCom/MFS/UUNet)  may
also intensify competition in the  telecommunications  market from significantly
larger,  well-capitalized  carriers and materially adversely affect the position
of the Company.

INDUSTRY BACKGROUND


                  The $72.5 billion U.S. long distance  industry is dominated by
the nation's three largest long distance providers,  AT&T, MCI and Sprint, which
together  generated  approximately  80.9% of the aggregate  revenues of all U.S.
long distance  interexchange  carriers in 1995.  Other long distance  companies,
some with  national  capabilities,  accounted  for the  remainder of the market.
Based on published Federal  Communications  Commission ("FCC")  estimates,  toll
service  revenues of U.S. long distance  interexchange  carriers have grown from
$38.8 billion in 1984 to $72.5 billion in 1995. The aggregate market

                                     - 19 -

<PAGE>

share of all  interexchange  carriers  other than AT&T, MCI and Sprint has grown
from 2.6% in 1984 to 17.13% in 1995. During the same period, the market share of
AT&T declined from 90.1% to 53%.

                  Prior  to  the  Telecommunications   Act,  the  long  distance
telecommunications  industry  had  been  principally  shaped  by a court  decree
between  AT&T  and  the  United  States  Department  of  Justice,  known  as the
Modification of Final Judgment (the "Consent  Decree") that in 1984 required the
divestiture by AT&T of its 22 Bell  operating  companies and divided the country
into some 200 Local  Access and  Transport  Areas  ("LATAs").  The 22  operating
companies,  which were combined into the RBOCs,  were given the right to provide
local  telephone  service,  local access  service to long distance  carriers and
intraLATA  toll  service  (service  within  LATAs),  but  were  prohibited  from
providing  interLATA  service  (service  between  LATAs).  The right to  provide
interLATA service was maintained by AT&T and other carriers.

                  To  encourage  the  development  of  competition  in the  long
distance market, the Consent Decree and the FCC require most LECs to provide all
carriers with access to local exchange services that is "equal in type,  quality
and price" to that provided to AT&T and with the  opportunity  to be selected by
customers as their  preferred  long distance  carrier.  These  so-called  "equal
access" and related provisions are intended to prevent preferential treatment of
AT&T.

                  Regulatory,  judicial and technological factors have helped to
create  the   foundation   for  smaller   companies  to  emerge  as  competitive
alternatives  to AT&T,  MCI,  and  Sprint  for long  distance  telecommunication
services.  The FCC requires  that AT&T not restrict the resale of its  services,
and the Consent  Decree and regulatory  proceedings  have ensured that access to
LEC networks is, in most cases, available to all long distance carriers.

                  Long  distance  companies  that have  their  own  transmission
facilities  and  switches,  such as AT&T,  are  referred to as  facilities-based
carriers. Facilities-based carriers are switch-based carriers, meaning that they
have  at  least  one   switch   to   direct   their   long   distance   traffic.
Nonfacilities-based  carriers either (i) depend upon  facilities-based  carriers
for switching  and  transmission  facilities  ("switchless  resellers")  or (ii)
install and operate their own switches but depend on  facilities-based  carriers
for transmission facilities ("switch-based resellers").

                  The relationship between resellers and the major long distance
carriers is predicated  primarily upon the fact that the pricing  strategies and
cost structures of the major long distance  carriers have resulted  historically
in their charging higher rates to the small to medium business  customer.  Small
to  medium  business  customers  typically  are  not  able to  make  the  volume
commitments necessary to negotiate reduced rates under individualized contracts.

                                     - 20 -

<PAGE>

By committing to large volumes of traffic,  the reseller is guaranteeing traffic
to the major  long  distance  carrier  but the major  long  distance  carrier is
relieved of the administrative  burden of qualifying and servicing large numbers
of medium to small  accounts.  The successful  reseller has lower overhead costs
and is able to market  efficiently  the long distance  product,  process orders,
verify credit and provide customer service to large numbers of accounts.

                  With its own switches,  the Company will be significantly less
dependent  on AT&T for  switching  services,  although  it will  continue  to be
dependent  on AT&T for  transmission  services.  In recent  years,  national and
regional network providers have substantially  upgraded the quality and capacity
of their  domestic  long  distance  networks,  resulting in  significant  excess
transmission  capacity  for voice and data  communications.  Due to  anticipated
advances in the technology involved in digital fiber optic transmission,  excess
capacity is expected to persist and may result in  decreasing  prices for use of
transmission  facilities.  By deploying its own switches, the Company expects to
be able to continue to provide long distance  services using the quality of AT&T
transmission  facilities  but at lower rates than it has  historically  charged,
with the Company in control of  establishing  service or activating new end user
accounts ("provisioning") and maintaining confidential end user lists

REGULATION


                  The Company's provision of communications  services is subject
to government  regulation.  Federal law regulates  interstate and  international
telecommunications,  while states have jurisdiction over telecommunications that
originate and terminate within the same state.  Changes in existing  policies or
regulations  in any state or by the FCC could  materially  adversely  affect the
Company's  financial  condition or results of operations,  particularly if those
policies make it more  difficult for the Company to obtain  service from AT&T or
other long distance  companies at competitive  rates, or otherwise  increase the
cost and regulatory burdens of marketing and providing service.  There can be no
assurance that the regulatory  authorities in one or more states or the FCC will
not take action having an adverse effect on the business or financial  condition
or results of  operations  of the Company.  Regulatory  action by the FCC or the
states also could  adversely  affect the partitions,  or otherwise  increase the
partitions' cost and regulatory burdens of marketing and providing long distance
services.

                  The Company is classified by the FCC as a nondominant carrier.
After the  recent  reclassification  of AT&T as  nondominant,  only the LECs are
classified as dominant carriers among domestic carriers.  As a consequence,  the
FCC regulates many of the rates,  charges, and services of the LECs to a greater
degree than the

                                     - 21 -

<PAGE>

Company's.  Because AT&T is no longer classified as a dominant carrier,  certain
pricing  restrictions that formerly applied to AT&T have been eliminated,  which
could make it easier for AT&T to compete  with the  Company  for low volume long
distance subscribers.

                  The FCC  generally  does not exercise  direct  oversight  over
charges for service of nondominant carriers, although it has the statutory power
to do so.  Nondominant  carriers  are  required  by statute to offer  interstate
services under rates,  terms,  and conditions that are just,  reasonable and not
unreasonably discriminatory. The FCC has the jurisdiction to act upon complaints
filed by third parties,  or brought on the FCC's own motion,  against any common
carrier,  including  nondominant  carriers,  for  failure  to  comply  with  its
statutory  obligations.  Nondominant carriers have been required to file tariffs
listing the rates, terms and conditions of service, which were filed pursuant to
streamlined tariffing procedures.  The FCC also has the authority to impose more
stringent  regulatory  requirements  on the  Company  and change its  regulatory
classification   from  nondominant  to  dominant.   In  the  current  regulatory
atmosphere, the Company believes, however, that the FCC is unlikely to do so.

                  The  FCC  imposes  only  minimal  reporting,   accounting  and
record-keeping  obligations.  International nondominant carriers,  including the
Company,  must maintain  international tariffs on file with the FCC. The FCC has
issued an order  requiring  non-dominant  carriers  to withdraw  their  domestic
tariffs,  but as of the date  hereof,  a court has stayed the FCC's  order.  The
Company  currently has two tariffs on file with the FCC. Although the tariffs of
nondominant carriers, and the rates and charges they specify, are subject to FCC
review, they are presumed to be lawful and are seldom contested.  The Company is
permitted  to make tariff  filings on a single  day's  notice and  without  cost
support  to  justify  specific  rates.  IXCs are also  subject  to a variety  of
miscellaneous  regulations  that,  for instance,  govern the  documentation  and
verifications  necessary to change a subscriber's long distance  carrier,  limit
the use of 800 numbers for pay-per-call services,  require disclosure of certain
information if operator assisted  services are provided and govern  interlocking
directors and management.  The  Telecommunications Act grants explicit authority
to the FCC to "forbear" from regulating any telecommunications services provider
in response  to a petition  and if the agency  determines  that  enforcement  is
unnecessary and the public interest will be served.

                  At present,  the FCC exercises its regulatory authority to set
rates  primarily  with  respect to the rates of  dominant  carriers,  and it has
increasingly  relaxed its control in this area. Even when AT&T was classified as
a dominant carrier,  the FCC most recently employed a "price cap" system,  which
essentially  exempted most of AT&T's  services,  including  virtually all of its
commercial and 800 services,  from traditional rate of return regulation because
the FCC

                                     - 22 -

<PAGE>

believes that these  services were subject to adequate  competition.  Similarly,
the FCC is in the process of changing  the  regulation  and pricing of the local
transport  component  of  access  charges  (i.e.,  the  fee  for  use of the LEC
transmission  facilities  connecting  the LEC's  central  offices  and the IXC's
access  points).  In addition,  the LECs have been  afforded a degree of pricing
flexibility in setting  interstate  access  charges where  adequate  competition
exists.  The impact of such repricing and pricing  flexibility on IXCs,  such as
the Company, cannot be determined at this time.

                  The Company is subject to varying  levels of regulation in the
states   in  which   it  is   currently   authorized   to   provide   intrastate
telecommunications services. The vast majority of the states require the Company
to apply for certification to provide intrastate telecommunications services, or
at least to register or to be found exempt from  regulation,  before  commencing
intrastate service. The vast majority of states also require the Company to file
and maintain  detailed  tariffs listing its rates for intrastate  service.  Many
states also impose various reporting  requirements and/or require prior approval
for  transfers  of control of  certified  carriers,  corporate  reorganizations,
acquisitions of  telecommunications  operations,  assignments of carrier assets,
including  subscriber bases,  carrier stock offerings and incurrence by carriers
of  significant  debt  obligations.  Certificates  of authority can generally be
conditioned,  modified,  canceled,  terminated  or revoked  by state  regulatory
authorities for failure to comply with state law and the rules,  regulations and
policies  of the  state  regulatory  authorities.  Fines  and  other  penalties,
including  the  return  of all  monies  received  for  intrastate  traffic  from
residents of a state,  may be imposed for such  violations.  In certain  states,
prior regulatory approval may be required for acquisitions of telecommunications
operations.  Currently,  the  Company is  certificated  and  tariffed to provide
intrastate   interLATA   service  in   substantially   all  states   where  such
authorization can be obtained.

                  The Company's expansion of its direct marketing efforts, makes
the Company subject to and requires  compliance with relevant  federal and state
regulations that govern direct sales of telecommunications  services.  FCC rules
prohibit  switching a customer from one long distance carrier to another without
the customer's consent and specify how that consent can be obtained. Most states
have consumer protection laws that further define the framework within which the
Company's marketing activities must be conducted. The constraints of federal and
state  restrictions  could impact the success of the Company's  direct marketing
efforts.

                  To   the   extent   that   the   Company   makes    additional
telecommunications  service  offerings,  the  Company may  encounter  additional
regulatory constraints.

                                     - 23 -

<PAGE>

EMPLOYEES

                  As of December 31, 1996, the Company employed 313 persons,  of
whom 260 were engaged in marketing  and sales,  26 were engaged in partition and
end  user  support,  and  27  were  engaged  in  systems  development,  finance,
administration  and  management.  None of the Company's  employees is covered by
collective  bargaining  agreements.  The Company  considers  relations  with its
employees to be good.

PRINCIPAL STOCKHOLDER

                  Daniel  Borislow,  the Company's  Chairman and Chief Executive
Officer,  owns  beneficially  approximately  38.4% of the Company's  outstanding
Common Stock, as of the date hereof.  Accordingly,  Mr. Borislow effectively has
the ability to control the election of all of the members of the Company's Board
of Directors and the outcome of corporate actions requiring majority stockholder
approval.
 Even as to corporate actions for which super-majority approval may be required,
such as certain fundamental  corporate  transactions,  Mr. Borislow  effectively
will control the outcome.

                  Future sales of  substantial  amounts of the Company's  Common
Stock by Mr. Borislow or others could  adversely  affect the market price of the
Common Stock.  Of the Company's  62,887,998  shares of Common Stock,  35,737,998
shares are freely  tradeable by persons other than  "affiliates" of the Company.
Of the remaining 27,150,000 shares of Common Stock, none are eligible for public
resale until after the  expiration  of the holding  period  pursuant to Rule 144
under the Securities Act.

                  On March 10,  1997,  Mr.  Borislow  sold  3,911,000  shares of
Common Stock in a private sale (the  "Private  Sale"),  and placed an additional
1,546,400  shares in escrow to be held for the benefit of the  purchasers in the
Private Sale and for  distribution  thereto (in part or in full), if the average
current  market  price of the  Common  Stock in the 20 days  prior to the  fifth
business day after the date on which the Company announces its financial results
for the  third  quarter  of 1997  shall be  lower  than  $16.50  per  share.  In
connection  with the  Private  Sale.  Mr.  Borislow  agreed  that,  except for a
contribution  of  up  to  2,000,000  shares  of  Common  Stock  to a  charitable
foundation,  he will not sell,  assign,  transfer  or  otherwise  dispose of any
shares of  Common  Stock for a period  of 12  months  from  March 10,  1997 (the
"Lock-up Period");  provided,  however,  that if the current market price of the
Common Stock shall  increase by an amount greater than 20% from $16.50 per share
for a period of 20 consecutive trading days, the Lock-up Period shall be reduced
to 90 days. Also on March 10, 1997, Mr.  Borislow  donated  1,200,000  shares of
Common Stock to the Daniel Borislow Charitable Foundation.





                                     - 24 -

<PAGE>



                                    GLOSSARY

ACUS: AT&T College and University  Systems,  a wholly owned  strategic  business
unit of AT&T.

AIN:  Advanced Intelligent Network.

AOL:  America Online, Inc.

AT&T:  AT&T Corp.

BMS: The Company's database, which it provides to each of its partitions.

Consent  Decree:  A 1984 U.S.  Department  of Justice  decree that,  among other
things,   ordered  AT&T  to  divest  its   wholly-owned   local  Bell  operating
subsidiaries.

End Users:  Customers that utilize long distance telephone services.

Equal  Access:  Connection  provided  by a  LEC  permitting  a  customer  to  be
automatically  connected to the IXC of the  customer's  choice when the customer
dials "1."

Facilities-based  provider: Long distance service providers who own transmission
facilities.

5ESS-2000:  The  switching  equipment  manufactured  by AT&T,  which the Company
acquired from AT&T.

5E10  Software:  AT&T software that enables  switches to combine  simultaneously
wireline and wireless, local, long distance, voice, video and data services.

FCC:  Federal Communications Commission.

Inbound "800" Service:  A service that bills long distance  telephone charges to
the called party.

IXC:  Interexchange  carrier, a long distance carrier providing services between
local exchanges.

LATA: Local Access and Transport Areas, the  approximately  200 geographic areas
defined  pursuant  to the AT&T  Consent  Decree  between  which  the  RBOCs  are
generally prohibited from providing long distance service.

LEC: Local Exchange Carrier, a company providing local telephone services.

                                     - 25 -

<PAGE>

MEGACOM:  An outbound  long  distance  service  offering  by AT&T that  requires
dedicated access.

MEGACOM  800:  An inbound 800 service  offering  provided by AT&T that  requires
dedicated access.

MCI:  MCI Communications Corporation.

MLCP: AT&T's multi-location calling plan (a discounted long distance program).

Network:  An integrated system composed of switching  equipment and transmission
facilities  designed to provide for the  direction,  transport  and recording of
telecommunications traffic.

NMS: The Company's computerized internal management information system.

Nonfacilities-based  provider:  Long distance service  providers that do not own
transmission facilities.

OBN:  One Better Net, the Company's nationwide long distance network.

Partition:  An  independent  long distance and marketing  company that contracts
with the Company to purchase or otherwise provide to end users the long distance
services provided by the Company.

Private Line:  A full-time leased line directly connecting two points.

Provisioning: The process of initiating a carrier's service to an end user.

PUC: A state  regulatory  body  empowered  to  establish  and enforce  rules and
regulations  governing public utility companies and others,  such as the Company
in many of its state jurisdictions.

RBOC:  Regional  Bell  Operating  Company -- Any of seven  regional Bell holding
companies that the Consent Decree  established to serve as parent  companies for
the Bell operating companies.

Readyline:  An Inbound 800 service offering provided by AT&T.

SDN:  The AT&T Software Defined Network.

Sprint:  Sprint Corporation.

Switching  Equipment:  A  computer  that  directs  telecommunication  traffic in
accordance with programmed instructions.

                                     - 26 -

<PAGE>


Tariff:  The  schedule of rates and  regulations  set by  communications  common
carriers and filed with the appropriate  Federal and state regulatory  agencies;
the published official list of charges, terms and conditions governing provision
of a specific  communication  service or facility,  which functions in lieu of a
contract between the user and the supplier or carrier.




                                     - 27 -





<PAGE>



ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

         (a) The following  documents are filed as part of this Annual Report on
Form 10-K.

                  1.  Consolidated Financial Statements:

                  The  Consolidated  Financial  Statements filed as part of this
Form 10-K are listed in the "Index to Consolidated Financial Statements" in Item
8.

                  2.  Consolidated Financial Statement Schedule:

                  The Consolidated Financial Statement Schedule filed as part of
this report is listed in the "Index to S-X Schedule."

                  Schedules other than those listed in the accompanying Index to
S-X Schedule are omitted for the reason that they are either not  required,  not
applicable,  or  the  required  information  is  included  in  the  Consolidated
Financial Statements or notes thereto.




                                     - 28 -





<PAGE>





                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                              INDEX TO S-X SCHEDULE


                                                                       PAGE
                                                                       ----

Report of Independent Certified Public Accountants                      30
Schedule II -- Valuation & Qualifying Accounts                          31





                                     - 29 -





<PAGE>





                  REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
and Stockholders of Tel-Save Holdings, Inc.

                  The audits  referred to in our report  dated  January 29, 1997
relating to the consolidated financial statements of Tel-Save Holdings, Inc. and
subsidiaries,  which is  contained  in Item 8 of this Form  10-K,  included  the
audits of the financial  statement schedule listed in the accompanying index for
each of the three years in the period ended  December 31, 1996.  This  financial
statement schedule is the responsibility of management. Our responsibility is to
express an opinion on this schedule based on our audits.

                  In  our  opinion,  the  financial  statement  Schedule  II  --
Valuation and Qualifying  Accounts,  presents fairly, in all material  respects,
the information set forth therein.




/s/ BDO Seidman, LLP
BDO Seidman, LLP

New York, New York
January 29, 1997






                                     - 30 -

<PAGE>





                    TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                  Charged
                                                  Balance at      to Costs
                                               Beginning of          and             Other                       Balance at
Description                                         Period        Expenses          Changes     Deductions     End of Period
-----------                                         ------        --------          -------     ----------     -------------
Year ended December 31, 1996:
<S>                                                     <C>              <C>       <C>               <C>               <C> 
   Reserves and allowances deducted from asset accounts:
   Allowance for uncollectible
       accounts                                         $804             $38       $145(a)           $ --              $987
                                                        ====             ===       =======           ====              ====

Year ended December 31, 1995:

   Reserves and allowances deducted
         from asset accounts:
   Allowance for uncollectible
      accounts                                          $987           $(13)     $(170)(a)         $   --              $804
                                                        ====           =====     =========         ======              ====

Year ended December 31, 1994:

 Reserves and allowances deducted from asset accounts:
 Allowance for uncollectible
   accounts                                             $287             $53       $647(a)        $    --              $987
                                                        ====             ===       =======        =======              ====

   (a)  Amount  represents  portion  of change in  allowance  for  uncollectible
accounts applied against Accounts Payable - Partitions.

</TABLE>


                                      -31-

<PAGE>


(3) Exhibits:

EXHIBIT NO.                DESCRIPTION
-----------                ---------------------------------------------------
2.1                        Plan of  Reorganization  between  and among  Tel-Save
                           Holdings,  Inc.,  a  Delaware   corporation,Tel-Save,
                           Inc., a Pennsylvania corporation, Daniel Borislow and
                           Paul Rosenberg, and Exhibits Thereto (incorporated by
                           reference   to   Exhibit   2.1   to   the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

3.1                        Amended and Restated  Certificate of Incorporation of
                           the Company, as amended (incorporated by reference to
                           Exhibit 3.1 to the Company's  registration  statement
                           on Form S-1 (File No. 33-94940)).

3.2                        Bylaws of the Company  (incorporated  by reference to
                           Exhibit 3.2 to the Company's  registration  statement
                           on Form S-1 (File No. 33-94940)).

9.1                        Voting Trust  Agreement  between Daniel  Borislow and
                           Paul Rosenberg (included as part of Exhibit 2.1).

10.1*                      Employment  Agreement  between the Company and Daniel
                           Borislow  and  related  Agreement   (incorporated  by
                           reference   to   Exhibit   10.1   to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

10.2*                      Employment  Agreement between the Company and Emanuel
                           J. DeMaio  (incorporated by reference to Exhibit 10.2
                           to the Company's  registration  statement on Form S-1
                           (File No. 33-94940)).

10.3*                      Employment  Agreement between the Company and Gary W.
                           McCulla (incorporated by reference to Exhibit 10.3 to
                           the  Company's  registration  statement  on Form  S-1
                           (File No. 33-94940)).

10.4*                      Employment  Agreement  between the Company and Joseph
                           A. Schenk  (incorporated by reference to Exhibit 10.4
                           to the Company's  registration  statement on Form S-1
                           (File No. 333-2738)).

10.5*                      Employment Agreement between the Company and Aloysius
                           T. Lawn,  IV  (incorporated  by  reference to Exhibit
                           10.5 to the Company's  registration statement on Form
                           S-1 (File No. 333-2738)).

                                     - 32 -

<PAGE>


10.6*                      Employment  Agreement  between the Company and Edward
                           B.  Meyercord,  III  (incorporated  by  reference  to
                           Exhibit 10.6 to the  Company's  Annual Report on Form
                           10-K for the year ended December 31, 1996).

10.7                       Indemnification  Agreement  between  the  Company and
                           Daniel Borislow (incorporated by reference to Exhibit
                           10.4 to the Company's  registration statement on Form
                           S-1 (File No. 33-94940)).

10.8                       Indemnification  Agreement  between  the  Company and
                           Emanuel  J.  DeMaio  (incorporated  by  reference  to
                           Exhibit 10.5 to the Company's  registration statement
                           on Form S-1 (File No. 33-94940)).

10.9                       Indemnification  Agreement  between  the  Company and
                           Gary W. McCulla (incorporated by reference to Exhibit
                           10.6 to the Company's  registration statement on Form
                           S-1 (File No. 33-94940)).

10.10                      Indemnification  Agreement  between  the  Company and
                           Joseph  M.  Morena   (incorporated  by  reference  to
                           Exhibit 10.7 to the Company's  registration statement
                           on Form S-1 (File No. 33-94940)).

10.11                      Indemnification  Agreement  between  the  Company and
                           Peter  K.  Morrison  (incorporated  by  reference  to
                           Exhibit 10.8 to the Company's  registration statement
                           on Form S-1 (File No. 33-94940)).

10.12                      Indemnification  Agreement  between  the  Company and
                           Kevin R. Kelly  (incorporated by reference to Exhibit
                           10.9 to the Company's  registration statement on Form
                           S-1 (File No. 33-94940)).

10.13                      Indemnification  Agreement  between  the  Company and
                           Aloysius T. Lawn,  IV  (incorporated  by reference to
                           Exhibit 10.12 to the Company's  Annual Report on Form
                           10-K for the fiscal year ended December 31, 1995).

10.14                      Indemnification  Agreement  between  the  Company and
                           Edward B. Meyercord,  III  (incorporated by reference
                           to Exhibit  10.14 to the  Company's  Annual Report on
                           Form 10-K for the  fiscal  year  ended  December  31,
                           1996).

10.15                      Agreement  dated as of March  15,  1994  between  the
                           Company    and    Global    Network    Communications
                           (incorporated  by reference  to Exhibit  10.10 to the
                           Company's  registration  statement  on Form S-1 (File
                           No. 33-94940)).

                                     - 33 -

<PAGE>


10.16                      AT&T  Contract  Tariff  No.  516   (incorporated   by
                           reference   to   Exhibit   10.11  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

10.17                      AT&T  Contract  Tariff  No.  1715   (incorporated  by
                           reference   to   Exhibit   10.15  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           333-2738)).

10.18                      AT&T  Contract  Tariff  No.  2039   (incorporated  by
                           reference   to   Exhibit   10.16  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           333-2738)).

10.19                      AT&T  Contract  Tariff  No.  2432   (incorporated  by
                           reference   to   Exhibit   10.17  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           333-2738)).

10.20                      AT&T  Contract  Tariff  No.  3628   (incorporated  by
                           reference   to   Exhibit   10.18  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           333-2738)).

10.21                      AT&T  Contract  Tariff  No.  5776   (incorporated  by
                           reference to Exhibit  10.21 to the  Company's  Annual
                           Report on Form 10-K for the year ended  December  31,
                           1996).

10.22                      $50,000,000 line of credit from PNC Bank, N.A., dated
                           March 22, 1996  (incorporated by reference to Exhibit
                           10.19 to the Company's registration statement on Form
                           S-1 (File No. 333-2738)).

10.23                      Modification  Agreement  between  the Company and PNC
                           Bank, N.A. dated February 24, 1997  (incorporated  by
                           reference to Exhibit  10.23 to the  Company's  Annual
                           Report on Form 10-K for the year ended  December  31,
                           1996).

10.24+                     General  Agreement  between  Tel-Save,  Inc. and AT&T
                           Corp. dated June 26, 1995  (incorporated by reference
                           to  Exhibit  10.14  to  the  Company's   registration
                           statement on Form S-1 (File No. 33-94940)).

10.25*                     Tel-Save  Holdings,  Inc. 1995 Employee  Stock Option
                           Plan  (incorporated  by reference to Exhibit 10.15 to
                           the  Company's  registration  statement  on Form  S-1
                           (File No. 33-94940)).

                                     - 34 -

<PAGE>


10.26*                     Tel-Save   Holdings,   Inc.   Employee   Bonus   Plan
                           (incorporated   by   reference  to  page  13  of  the
                           Company's  Proxy  Statement  for the  Company's  1996
                           Annual Meeting of Stockholders dated April 3, 1996).

10.27*                     Non-Qualified  Stock  Option  Agreement  between  the
                           Company   and  Daniel   Borislow   (incorporated   by
                           reference   to   Exhibit   10.17  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

10.28*                     Non-Qualified  Stock  Option  Agreement  between  the
                           Company  and  Emanuel  J.  DeMaio   (incorporated  by
                           reference   to   Exhibit   10.18  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

10.29*                     Non-Qualified  Stock  Option  Agreement  between  the
                           Company and Mary Kennon (incorporated by reference to
                           Exhibit 10.19 to the Company's registration statement
                           on Form S-1 (File No. 33-94940)).

10.30*                     Non-Qualified  Stock  Option  Agreement  between  the
                           Company  and  Gary  W.   McCulla   (incorporated   by
                           reference   to   Exhibit   10.20  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

10.31*                     Non-Qualified  Stock  Option  Agreement  between  the
                           Company  and  Peter  K.  Morrison   (incorporated  by
                           reference   to   Exhibit   10.22  to  the   Company's
                           registration   statement   on  Form  S-1   (File  No.
                           33-94940)).

10.32++                    Telecommunications  Marketing  Agreement by and among
                           the Company, Tel-Save, Inc. and America Online, Inc.,
                           dated February 22, 1997.

11.1                       Net Income  Per Share  Calculation  (incorporated  by
                           reference  to Exhibit  11.1 to the  Company's  Annual
                           Report on Form 10-K for the year ended  December  31,
                           1996).

21.1                       Subsidiaries   of  the   Company   (incorporated   by
                           reference  to Exhibit  21.1 to the  Company's  Annual
                           Report on Form 10-K for the year ended  December  31,
                           1996).

23.1                       Consent  of  BDO  Seidman,   LLP   (incorporated   by
                           reference  to Exhibit  23.1 to the  Company's  Annual
                           Report on Form 10-K for the year ended  December  31,
                           1996).

                                     -35 -

<PAGE>



27                         Financial Data Schedule (incorporated by reference to
                           Exhibit  27 to the  Company's  Annual  Report on Form
                           10-K for the year ended December 31, 1996).

----------
   * Management contract or compensatory plan or arrangement.

   +  Confidential  treatment  previously has been granted for a portion of this
exhibit.

   ++ Confidential treatment has been requested for a portion of this exhibit.

   (b) Reports on Form 8-K.

   The following  Current  Reports on Form 8-K were filed by the Company  during
the three months ended December 31, 1996:

   1.   Current Report on Form 8-K dated December 30, 1996.

   2.   Current Report on Form 8-K dated November 18, 1996.





                                     - 36 -





<PAGE>



                                   SIGNATURES

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

                                                  TEL-SAVE HOLDINGS, INC.



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

Date:  August 14, 1997


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.


     Signature                      Title                          Date
     ---------                      -----                          ----



/s/ Daniel Borislow              Chairman of the Board           August 14, 1997
-------------------              of Directors, Chief    
    Daniel Borislow              Executive Officer and  
                                 Director (Principal    
                                 Executive Officer)     
                                                        
/s/ Gary W. McCulla              President, Director             August 14, 1997
-------------------              of Sales and Marketing 
    Gary W. McCulla              and Director           
                                                        
                                                        
/s/ Emanuel J. DeMaio            Chief Operations                August 14, 1997
---------------------            Officer and Director
    Emanuel J. DeMaio                
                                                        
                                                        
/s/ Joseph A. Schenk             Chief Financial Officer         August 14, 1997
--------------------             and Director (Principal
    Joseph A. Schenk             Financial Officer)     
                                                        

/s/ Kevin R. Kelly               Controller (Principal           August 14, 1997
------------------               Accounting Officer)
    Kevin R. Kelly                   
                                                         
                                
                                     - 37 -

<PAGE>



/s/ George P. Farley             Director                        August 14, 1997
--------------------
    George P. Farley


/s/ Harold First                 Director                        August 14, 1997
----------------
    Harold First


/s/ Ronald R. Thoma              Director                        August 14, 1997
-------------------
    Ronald R. Thoma



                                     - 38 -