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

                                    Form 10-Q

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


                  For Quarterly Period Ended September 30, 1997


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ________ to ________

                         Commission File Number 0-17366


                       SHARED TECHNOLOGIES FAIRCHILD INC.
             (exact name of registrant as specified in its charter)

Delaware  87-0424558_____  (State  or other  jurisdiction  of  (I.R.S.  Employer
     Incorporation or organization) Identification No.)

             100 Great Meadow Road, Suite 104 Wethersfield, CT 06109
                    (Address of principal executive offices)

(860) 258-2400 (Registrant's telephone number, including area code)


Indicate by check mark  whether the  registrant  (1) has filed all reports to be
     filed by Section 13 or 15(d) of the Securities  Exchange Act of 1934 during
     the  preceding 12 months (or 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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the close of the latest practicable date.


Class                              Outstanding at November 14, 1997
Common Stock,  $.004 par value              17,174,622shares

<PAGE>




    PART I               FINANCIAL INFORMATION           PAGE


    Item 1.              Financial Statements

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

     Consolidated  Statements of Operations for the nine
     months ended  September 30, 1997 and 1996

     Consolidated  Statements of Operations for the three
     months ended September 30, 1997 and 1996

     Consolidated  Statements of Cash Flows for the
     nine months ended September 30, 1997 and 1996

     Consolidated  Statements of Stockholders'  Equity
     for the nine months ended September 30, 1997

     Notes to Consolidated
     Financial Statements


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

    PART II              OTHER INFORMATION
    Item 1               Legal Proceedings
    Item 6               Exhibits and Reports on Form 8-K

                          Signature Page


<PAGE>




Item 1.  Financial Statements


Shared Technologies Fairchild Inc.
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
(in thousands)
<TABLE>
<CAPTION>


                                    September 30,1997         December 31, 1996
<S>                                  <C>                   <C>
ASSETS                                (unaudited)
CURRENT ASSETS:
  Cash                              $           178    $              2,703
 Accounts receivable, less allowance
  for doubtful accounts of $300
  in 1997 and $611 in 1996                   34,155                  32,563
 Inventories                                  4,735                   1,976
 Other current assets                          3,961                  1,853
             Total current assets             43,029                 39,095

Equipment:
     Property & Equipment                    105,302                  95,934
     Accumulated depreciation                (37,234)                (28,169)
                                              68,068                  67,765

Other Assets:
 Investments in affiliates                       754                     457
 Intangible assets                           258,075                 261,842
 Deferred income taxes                             -                       -
 Other                                           316                     407
                                             259,145                 262,706

                 Total assets      $         370,242    $            369,566


The accompanying notes are an integral part of these financial statements
</TABLE>


<PAGE>





Shared Technologies Fairchild Inc.
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
(in thousands)

<TABLE>
<CAPTION>


                                     September 30,1997        December 31, 1996
                                   (unaudited)
<S>                                     <C>                 <C>
Liabilities and Stockholders' Equity CURRENT LIABILITIES:


  Current portion of long-term
  debt and capital lease obligations   $         16,083   $          13,576
  Accounts payable                               18,394              17,356
  Accrued expenses                                7,948               9,558
  Accrued dividends                               1,555                 435
  Advanced billings                               7,079               6,935
        Total current liabilities                51,059              47,860


Long-Term Debt and Capital Lease
Obligations less current
portion                                         239,633             238,261

Redeemable Put Warrant                              887               1,069

Convertible preferred stock
$.01 par value, authorized 250 shares,
outstanding 250 shares in 1997 and 1996           25,000              25,000

Special preferred stock
$.01 par value, authorized 200 shares,
outstanding 200 shares in 1997 and 1996           15,061              14,167

STOCKHOLDERS'  EQUITY:

 Preferred Stock, $.01 par value, authorized
 25,000 shares:
 Series C, outstanding no shares in 1997 and
 428 shares in 1996                                   -                    4
 Series D, outstanding 58 shares in 1997 and
 441 shares in 1996                                   1                     4
 Common stock; $.004 par value, 50,000 shares
 authorized, outstanding 17,186 shares in 1997
 and 15,682 shares in 1996                            69                    63
Additional paid-in capital                         78,137               76,054
Accumulated deficit                               (39,605)             (32,916)
     Total stockholders' equity                    38,602               43,209

     Total liabilities and
     stockholders' equity                $        370,242     $        369,566


The  accompanying notes are an integral part of these financial statements
</TABLE>

Shared Technologies Fairchild Inc.
Consolidated Statements of Operations
For the Nine Months Ended
September 30, 1997 and 1996
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
                                        September 30, 1997   September 30, 1996
<S>                                     <C>                     <C>
Revenue:
  Shared telecommunications services  $           82,539   $           69,310
  Telecommunications systems                      59,240                41,585

     Total Revenue                               141,779              110,895

Cost of Revenue:
  Shared telecommunications services               39,272               34,233
  Telecommunications  systems                      31,853               25,019

     Total Cost of Revenue                         71,125               59,252

Gross Margin                                       70,654               51,643

Selling, General & Administrative Expenses:        51,536               39,118

Operating Income                                   19,118               12,525

Other income (expense):
Equity in loss of affiliate                         (210)              (2,009)
Net interest expense                              (21,694)             (15,246)
                                                  (21,904)             (17,255)

Income (loss) before income taxes and
extraordinary items                                (2,786)              (4,730)
Income tax                                           (214)                 (74)
Income (loss) before extraordinary item            (3,000)              (4,804)
Extraordinary item, loss on early retirement
 of debt                                                -                 (310)
Net Income(loss)                                    (3,000)             (5,114)
Preferred Stock Dividends                           (3,689)             (1,682)

Net income (loss) applicable to
common stock                             $          (6,689)    $        (6,796)

Net (loss) per common share:
 Income (loss) before extraordinary item  $           (0.42)  $         (0.49)
 Extraordinary item                                      -                (.02)
 Net income (loss)                        $           (0.42)            $(0.52)


Weighted Average Shares Outstanding                 16,039               13,316

     The accompanying notes are an integral part of these financial statements


</TABLE>
<PAGE>


Shared Technologies Fairchild Inc.
Consolidated Statements of Operations
For the Three Months Ended
September 30, 1997 and 1996
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
                                      September 30, 1997    September 30,
                                                                  1996
<S>                                   <C>                            <C>
Revenue:
  Shared telecommunications
  services                         $           26,937             $ 27,384
  Telecommunications systems                   19,224               19,739

     Total Revenue                             46,161               47,123

Cost of Revenue:
  Shared telecommunications services           13,061               13,143
  Telecommunications  systems                  11,434               11,301

     Total Cost of Revenue                     24,495               24,444

Gross Margin                                   21,666               22,679

Selling, General & Administrative Expenses:    17,202               16,262

Operating Income                                4,464                6,417

Other income (expense):
Equity in loss of affiliate                       (24)                (310)
Net interest expense                           (7,214)              (6,995)
                                               (7,238)              (7,305)

Income (loss) before income taxes and
extraordinary items                            (2,774)                (888)
Income tax                                         (6)                 (34)
Income (loss) before extraordinary item        (2,780)                (922)
Extraordinary item, loss on early retirement
 of debt                                            -                    -
Net Income(loss)                                (2,780)              (922)
Preferred Stock Dividends                       (1,390)            (1,081)

Net income (loss) applicable to
   common stock                         $       (4,170)       $    (2,003)

Net (loss) per common share:
 Income (loss) before extraordinary item  $       (0.25)                 $
                                                                                  (0.13)
 Extraordinary item                                    -                 -
 Net income (loss)                     $           (0.25)           $(0.13)


Weighted Average Shares Outstanding                16,531            15,066

     The accompanying notes are an integral part of these financial statements

</TABLE>
<PAGE>


Shared Technologies Fairchild Inc.
 Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30, 1997 and 1996
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
                                         September 30,1997    September 30,1996
<S>                                      <C>                  <C>
Cash Flows Used in Operating Activities:
  Net Income (loss)                     $        (3,000)        $(5,114)
  Adjustments:
  Extraordinary loss on early retirement of
   debt                                               -               310
  Depreciation & amortization                    14,294            11,525
  Accretion of put warrant                        (182)                 -
  Equity in loss of subsidiary                      210             2,009
  Accretion on 12 1/4% bonds                     11,782             7,803
  Amortization of discount on note                                     14
  Change in Assets and Liabilities:
           Accounts receivable                  (1,592)           (1,031)
           Inventory                            (2,759)                 -
           Other current assets                 (2,369)             (627)
           Other assets                           1,016             1,732
           Accounts payable                       1,038               646
           Accrued expenses                        (490)             2,039
           Advanced billings                         144             (472)
Net cash provided by operating activities         18,092             18,834

Cash Flows Used in Investing Activities
  Purchases of equipment                          (9,368)           (7,092)
  Investments in subsidiaries                       (507)           (1,494)
  Acquisitions, net of cash acquired              (1,240)           (4,011)
  Net cash used in investing activities          (11,115)          (12,597)
Cash Flows From Financing Activities:
    Preferred stock dividends                     (3,689)           (1,007)
    Repayments of notes payable, long-term
     debt and capital lease obligations           (9,903)         (192,004)
    Borrowings under notes payable and long-       2,000           244,999
     term debt
    Payments to affiliate                              -           (8,407)
    Deferred finance costs                          (886)           (9,416)
    Proceeds from sales of common stock             2,082               373
    Repayment of FII preferred stock                  894          (40,706)
    Net cash provided by (used in)financing
     activities                                    (9,502)           (6,168)

    Net increase (decrease) in cash                (2,525)                69

Cash, Beginning of Period                            2,703               476
Cash, End of Period                           $        178   $           545

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for -
     Interest                                       $12,908 $          6,300
     Income taxes                                       214              119
Non cash transactions-
     Issuance of common stock to acquire FII              -            27,750
     Issuance of preferred stock to acquire FII           -            38,269


     The accompanying notes are an integral part of these financial statements.
</TABLE>

Shared Technologies Fairchild Inc.
Consolidated Statement of Stockholders' Equity
For the period ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
                                Series C                 Series D
                            Preferred Stock           Preferred Stock
<S>                      <C>      <C>             <C>     <C>
                         Shares       Amount       Shares   Amount

Balance, January 1,1997    428     $      4           441       $
                                                                                         4

Preferred stock dividends   -            -             -        -

Dividend accretion of specia -            -             -       -
preferred stock

Exercise of common stock      -            -             -       -
options and warrants

Issuance of common stock for 401(k)
plan match                     -            -             -      -

Preferred stock converted to common
stock                         (428)          (4)         (383)   (3)

Net loss                        -            -             -       -


Balance, September 30,1997      -     $      -            58 $      1


     The accompanying notes are an integral part of these financial statements
</TABLE>



<PAGE>


Shared Technologies Fairchild Inc.
Consolidated Statement of Stockholders' Equity
For the period ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
                                                                      Additional
                                 Common Stock                   Paid-in
                              Shares           Amount            Capital
<S>                          <C>          <C>               <C>
Balance, January 1, 1997    15,682      $         63      $         76,054

Preferred stock dividends

Dividend accretion of special
preferred stock

Exercise of common stock options
and warrants                   724                 3                 1,498

Issuance of common stock        82                 -                   580
for 401(k)plan match

Preferred stock converted      698                 3                     5
to common stock

Net Loss

Balance, September 30, 1997  17,186   $           69                $78,137

                  The accompanying notes are an integral part of these
                                  financial statements

</TABLE>

<PAGE>


Shared Technologies Fairchild Inc.
Consolidated Statement of Stockholders' Equity
For the period ended September 30, 1997
(in thousands)

<TABLE>
<CAPTION>
                                                                           Total
                                                Accumulated        Stockholders'
                                                 Deficit              Equity
<S>                                       <C>                      <C>
Balance, January 1, 1997                        (32,916)               43,209

Preferred stock dividends                        (2,795)              (2,795)

Dividend accretion of special preferred
stock                                              (894)                (894)

Exercise of common stock options and                                    1,501
warrants

Issuance of common stock for 401(k) plan                                  580
match

Preferred stock converted to common stock                                   1

Net loss                                          (3,000)              (3,000)

Balance, September 30, 1997                     ($39,605)      $        38,602

    The accompanying notes are an integral part of these financial statements


</TABLE>




<PAGE>




Shared Technologies Fairchild Inc.
Notes to Consolidated Financial Statements
September 30, 1997
(in thousands)
(Unaudited)

1. Basis of Presentation:

     The consolidated financial statements included herein have been prepared by
Shared  Technologies  Fairchild  Inc.  (the  Company)  pursuant to the rules and
regulations  of  the   Securities  and  Exchange   Commission  and  reflect  all
adjustments,  consisting only of normal recurring adjustments, which are, in the
opinion of management,  necessary to present a fair statement of the results for
interim periods.  Certain information and footnote disclosures have been omitted
pursuant to such rules and  regulations,  although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these  consolidated  financial  statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's December 31, 1996 report on Form 10-K.


2. Investment in Unconsolidated Subsidiary

     The  Company's   investment  in  its  unconsolidated   subsidiary,   Shared
Technologies  Cellular,  Inc.  (STC),  is accounted for under the equity method.
Prior to December 1995, STC was a majority-owned  subsidiary and was included on
a consolidated basis. During December 1995, STC issued  approximately  $3,000 in
voting  preferred  stock to third  parties.  Although  the  Company's  ownership
percentage of  approximately  58% did not change,  the voting rights assigned to
the preferred stock reduced the Company's  voting interest in STC,  resulting in
the Company's loss of voting control of STC. Accordingly, STC has been accounted
for on the equity  method since 1996.  At September  30, 1997 the Company had an
ownership interest of approximately  25.4% in STC.  Summarized balance sheet and
statement  of  operations  information  for STC as of,  and for the nine  months
ended, September 30, 1997 is as follows:


                            Summarized Balance Sheet

Current assets                               $   3,379
Property and equipment, net                      1,844
Other assets                                     9,614
Total assets                                 $  14,837

Current liabilities                          $   9,457
Note payable                                     1,193
Total liabilities                               10,650
Stockholders' equity                             4,187
Total liabilities and stockholders' equity   $  14,837


                  Summarized Statement of Operations


  Revenues                                   $     19,089
  Gross margin                                      8,430
  Operating loss                                     (471)
  Net loss                                           (670)


     In August 1996 the Company reached an agreement with STC to purchase $2,500
in STC preferred  stock.  This investment was financed through the conversion of
existing  advances owed by STC to the Company in the amount of $1,200 and a cash
payment of $1,300.  The STC preferred stock was  convertible  into 833 shares of
common stock at the Company's option.  In addition,  upon conversion of such STC
preferred  stock,  the Company would receive a warrant to purchase an additional
833 shares of STC common stock, subject to adjustment.  Subsequently,  in August
1997, the Company sold such  preferred  stock to a third party investor for $250
and recorded a gain of $20.


3. Acquisitions:

     On March 13,  1996,  the  Company's  stockholders  approved and the Company
consummated  its merger  with  Fairchild  Industries,  Inc.("FII"),  following a
reorganization  transferring all  non-communication  assets to FII's parent, RHI
Holding,  Inc.  ("RHI").  The Company  changed  its name to Shared  Technologies
Fairchild  Inc.("STFI").  Pursuant to the merger agreement,  STFI issued to RHI,
6,000 shares of common stock,  250 shares of convertible  preferred stock with a
$25,000  liquidation  preference and 20 shares of special preferred stock with a
$20,000 initial  liquidation  preference.  In addition the Company raised in the
capital  market  approximately  $111,000 after  offering  expenses,  through the
issuance  of 12 1/4%  Senior  Subordinated  Notes  Due  2006  and  approximately
$125,000  (of an  available  $145,000)  in  loans  from a credit  facility  with
financial  institutions.  The funds were used  primarily  for the  retirement of
certain  liabilities  assumed from FII in  connection  with the merger,  and the
retirement of the Company's  existing  credit  facility.  In connection with the
merger,  the  Company  entered  into two  year  employment  agreements  with key
employees for initial annual  compensation  aggregating  $1,250, and adopted the
1996 Equity  Incentive  Plan.  The merger was  accounted  for using the purchase
method of accounting.  The total purchase consideration of approximately $71,581
was allocated to the net tangible and intangible  assets of FII based upon their
respective fair market values as follows:

Assets
  Cash                               $    1,551
  Accounts receivable                    24,747
  Other current assets                    2,572
  Equipment                              51,532
  Goodwill                              248,008
  Total Assets                          328,410
Liabilities and stockholders' equity
  Capital lease obligations         $      (262)
  Accounts payable                      (11,577)
  Accrued expenses                       (6,981)
  Advanced billings                      (6,102)
  Due to affiliated company              (8,407)
  Long term debt                       (182,794)
  FII preferred stock                   (40,706)
  Net purchase price                 $    71,581


     The  following  unaudited pro forma  statements of operations  for the nine
months ended  September 30, 1996 give effect to the above  acquisitions  and the
change  in  reporting  of STC to the  equity  method  (Note 2) and the pro forma
effect of STC acquisitions, as if they occurred on January 1, 1996:

                                       1996

Revenues                        $    138,178
Cost of revenues                      70,968
  Gross margin                        67,211
  Selling, general and
  administrative expenses             50,310
  Operating income                    16,901
  Equity in loss of subsidiary        (2,009)
  Interest expense, net              (20,594)
  Loss before income tax expense
   and extraordinary item             (5,702)
  Income taxes                           (64)
Extraordinary item. loss on early
   retirement of debt                   (332)
  Net Loss                            (6,098)
  Preferred stock dividends           (2,196)
  Loss applicable to common stock  $  (8,294)

  Net loss per common share        $    (.56)

  Weighted average number of common
    shares outstanding                14,849


4. Contingencies:

     In December 1995, a suit was filed against the Company alleging a breach of
a letter  agreement  and seeking an amount in excess of $2,250 for a  commission
allegedly  owed in  connection  with the merger  with FII (Note 3). The  Company
denies that the claimant at any time was engaged in connection  with the merger.
The Company  filed an answer in January  1996,  denying that any  commission  is
owed.  This  litigation  is  schedules  for trial in  December  1997.  While any
litigation contains an element of uncertainty, management is of the opinion that
the ultimate resolution of this matter should not have a material adverse effect
upon results of operations, cash flows or financial position of the Company.

     On July 31, 1997 the Company was served with a purported  shareholder class
action  complaint in an action  commenced in the Delaware  Chancery Court in New
Castle  County.  The  Company and its  directors  are named as  defendants.  The
complaint seeks injunctive relief, costs and attorneys' fees with respect to the
proposed merger of the Company and Tel-Save  Holdings,  Inc. which was announced
on July 17, 1997 (See Note 9).

     As of October 27, 1997, an agreement in principal had been reached  between
the Company and counsel for the plaintiff  class,  which  agreement,  subject to
court  approval,  would result in dismissal of the Complaint  with prejudice and
release of all claims of the plaintiff class relating to the merger.

     The  Company's  sales and use tax  returns  in  certain  jurisdictions  are
currently under  examination.  Management  believes these  examinations will not
result in a material change from liabilities provided.

     In addition to the above  matters,  the Company is a party to various legal
actions,  the outcome of which,  in the opinion of  management,  will not have a
material  adverse  effect on results  of  operations,  cash  flows or  financial
position of the Company.

5. Income Taxes:

     The  Company  accounts  for  income  taxes  under  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 109,  "Accounting  for Income  Taxes," which
requires an asset and  liability  approach  to  financial  reporting  for income
taxes.  Deferred  income tax assets and  liabilities  are computed  annually for
differences  between financial statement and tax bases of assets and liabilities
that will  result in  taxable or  deductible  amounts  in the  future,  based on
enacted tax laws and rates  applicable  to the periods in which the  differences
are expected to effect taxable  income.  Valuation  allowances are  established,
when necessary,  to reduce the deferred income tax assets to the amount expected
to be realized.

6. Extraordinary Item:

     At June 30,  1996,  the  Company  recorded  an  extraordinary  loss of $310
relating  to the  early  retirement  of a  $5,000  credit  facility.  The  early
retirement took place as a result of  requirements in the merger  agreement with
FII (Note 3).

7.  Earnings per Share:

     Statement of Financial  Accounting  Standards No. 128, "Earnings per Share"
changes the reporting  requirements  for earnings per share ("EPS") for publicly
traded  companies  by  replacing  primary  EPS with basic EPS and  changing  the
disclosures  associated with this change.  The Company is required to adopt this
standard  for its December 31, 1997  year-end  and is currently  evaluating  the
impact of this standard.



8.  Consolidating Financial Statements:

     The following  unaudited  statements  separately  show Shared  Technologies
Fairchild Inc. and the subsidiaries of Shared Technologies  Fairchild Inc. These
statements  are provided to fulfill SEC  reporting  requirements.  All of Shared
Technologies  Fairchild  Inc.'s  subsidiaries  are  wholly  owned  and are  full
guarantors on the 12 1/4% Senior Subordinated Notes due 2006.

     Shared Technologies Fairchild Inc.
     September 30, 1997                               Eliminating Consolidated
                               STFTI    STFCC   STFI     Entries       STFI
                            --------------------------------------------------
Assets
     Current Assets:
       Cash and cash equivalents
                                150              28                       178
       Accounts receivable, net 33,766          389                     34,155
       Inventories              4,735                                    4,735
       Other current assets     3,961                                    3,961
                            --------------------------------------------------
        Total current assets   42,612       0     417           0       43,029
                            --------------------------------------------------
     Equipment:
       Property & Equipment   105,302                                  105,302
       Accumulated depreciation(37,234)                               (37,234)
                          --------------------------------------------------
       New Property & Equip.   68,068       0       0           0       68,068
                          --------------------------------------------------
     Other Assets:
     Investment in affiliates   382    47,540   55,174   (102,342)         754
       Intangible assets                7,627  250,448                 258,075
       Note Receivable                144,173           (144,173)            -
       Intercompany Receivable 143,322 228,866           (372,188)           -
       Deferred income taxes
                                                                             -
       Other                   316                                         316
                            --------------------------------------------------
       Total Other Assets     144,020 428,206  305,622   (618,703)    259,145
                        ----------------------------------------------
       Total assets        $254,700   $428,206 306,039   (618,703)   370,242

                          ==================================================
Liabilities and Stockholders' Equity
 Current Liabilities:
  Current portion of
  long term debt and
  capital lease obligations            16,083                           16,083

  Accounts payable          18,394                                      18,394
  Accrued expenses           7,488             460                       7,948
  Accrued dividends                           1,555                      1,555
  Advanced billings          7,079                                       7,079
                            ----------------------------------------------
Total current liabilities   32,961   16,083    2,015           0       51,059
                           --------------------------------------------------
Long-term debt, and current
 lease obligations
 less current portion       144,173 239,633             (144,173)     239,633
                            --------------------------------------------------
 Redeemable put warrant                            887                     887
                           --------------------------------------------------
 Convertible preferred stock                     25,000                25,000
                           --------------------------------------------------
 Special preferred stock                         15,061               15,061
                            --------------------------------------------------
 Stockholders' equity:
 Preferred Stock, Series C                           -                       -
 Preferred Stock,  Series D                          1                       1
 Common Stock                   1       1           69         (2)          69
 Additional paid-in capital  47,538  54,802     78,137    (102,340)     78,137
       Accumulated deficit   30,027 (25,635)  (43,997)                (39,605)
       Intercompany                 143,322    228,866   (372,188)           -
                            --------------------------------------------------
 Total stockholders'        77,566  172,490    263,076   (474,530)      38,602
     equity
                            -------------------------------------------------
Total liabilities and      $254,700  428,206   306,039   (618,703)   370,242
stockholders' equity
                          ==================================================

Shared Technologies Fairchild Inc.
Consolidated  Financial Statements
(continued)
                                STFTI    STFCC   STFI     Entries       STFI
                            --------------------------------------------------

     REVENUE
      Total revenue           131,980           9,799                  141,779
      Total cost of revenue    71,125                                   71,125
                             ------------------------------------------------
     Gross margin           60,855        -       9,799       -        70,654

     Gross margin %          46.11%                100%                49.83%
                            --------------------------------------------------
     Selling, general & administrative
     expenses                45,941                5,595                51,536
                            --------------------------------------------------
     Operating Income        14,914         -       4,204        -      19,118
     Other income (expense):
     Equity in loss of
     affiliate                                     (11,806)    11,596   (210)
     interest expense, net   (9,712)  (12,192)      210               (21,694)
                            --------------------------------------------------
                             (9,712) (12,192)     (11,596)     11,596  (21,904)
                            --------------------------------------------------
     Income(loss)before income
     taxes and extraordinary
     item                     5,202   (7,392)      11,596     (2,786) (12,192)
     Income tax                (214)                                    (214)
                           --------------------------------------------------
     Income (loss) before
     extraordinary item        4,988 (12,192)     (7,392)     11,596   (3,000)
     Extraordinary item, loss on early
     retirement of debt          -        -        -          -            -
                          --------------------------------------------------
     Net income (loss)         4,988 (12,192)    (7,392)      11,596   (3,000)
    Preferred stock dividends                    (3,689)               (3,689)
    Income (loss)applicable
     to comon stock             4,988 (12,192)   (11,081)    11,596    (6,689)
                         -----------------------------------------------------


     9. Merger Agreement. On July 16, 1997, the Company,  Tel-Save Holdings Inc.
("Tel-Save"),  and TSHCo,  Inc.  ("Merger  Sub"),  a wholly owned  subsidiary of
Tel-Save, entered into an Agreement and Plan of Merger (the "Merger Agreement").
Pursuant to the Merger Agreement the Company shall be merged (the "Merger") with
and into Merger Sub and each common  stock holder of the Company  shall  receive
for each share of the  Company's  common  stock $11.25 worth of shares of common
stock of Tel-Save based upon the average  closing price of Tel-Save common stock
for the 15 trading days ending on the third business day prior to the closing of
the Merger. Holders of Series C and Series D preferred stock of the Company will
receive  preferred stock in Tel-Save with  substantially  identical terms to the
series C and D preferred  stock of the  Company.  The Merger is intended to be a
tax-free  exchange of shares and is expected to qualify for pooling of interests
accounting treatment.  The Merger is subject to approval of stockholders of both
companies and other customary closing conditions.

     In  connection  with the Merger  Agreement,  the Company has entered into a
Stock Option  Agreement with Tel-Save  pursuant to which Tel-Save has the option
(the "Option") to acquire  3,000,000  shares of common stock of the Company upon
the termination of the Merger Agreement under certain circumstances (a "Purchase
Event").  The Option expires on the earlier of (a)  consummation  of the Merger,
(b) January 15, 1998 or (c) the  termination of the Merger  Agreement other than
pursuant  to a  Purchase  Event (as such  term is  defined  in the Stock  Option
Agreement).  In addition,  the Company has entered into a Voting  Agreement with
Daniel Borislow, the Chairman and Chief Executive Officer of Tel-Save,  pursuant
to which Mr.  Borislow has agreed to vote his shares of Tel-Save common stock in
favor of the Merger and the Merger Agreement.

     On October 30, 1997, the Tel-Save  Holdings,  Inc. and Shared  Technologies
Fairchild Inc. Joint Proxy  Statement was filed with the Securities and Exchange
Commission giving notice of each company's special meeting of stockholders to be
held on December 1, 1997.



<PAGE>



Item 2.

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations

Results of Operations:

Nine Months Ended September 30, 1997 compared to September 30, 1996

Revenues

     STFI's  revenues rose to $141.8  million in 1997, an increase of 27.8% over
1996 revenues of $110.9 million.  This increase was principally due to the March
13,   1996   merger   with   Fairchild   Industries,    Inc.   ("FII").   Shared
Telecommunications  Service ("STS") revenue  increased $13.2 million,  or 19.1%,
and  Telecommunications  Systems ("Systems") revenue increased $17.6 million, or
42.5%.

     Approximately  $7.0 million of the increase in the Systems  revenue was due
to the inclusion of management fees from ICS Communications, Inc. ("ICS") and GE
Capital-ResCom, L.P. ("ResCom"). During this period, the Company operated as the
manager of each of these  businesses.  These  management  agreements  terminated
during the third quarter of 1997.

Gross Margin

     Gross margin  increased to 49.8% of revenues for 1997, from 46.6% for 1996.
The change in gross margin was mainly the result of changes in sales mix and the
merger  with FII.  In  addition,  the  revenues  generated  from the  management
agreements  with ICS and ResCom  were  included  in Systems  revenue.  Since the
associated cost for this revenue of  approximately  $9.0 million was in selling,
general and administrative expense, it had no material adverse effect on Systems
gross  margin.  The following  table sets forth the  components of the Company's
overall  gross  margin (GM) for the nine months  ended  September  30, 1997 as a
factor of sales percentage and gross margin percentage per line of business:

                                                Weighted
    Division      Sales             GM          GM

    STS           58.2%             52.4%       30.5%

    Systems       41.8%             46.2%       19.3%

   Company Total  100.0%                        49.8%


     As shown  above,  the 1997 gross  margin  was a mix of STS gross  margin of
52.4% and Systems gross margin of 46.2%. In 1996, the Company's gross margin was
a combination of STS gross margin of 31.1% and Systems gross margin of 14.9%.


Selling, general and administrative Expenses

     Selling, general and administrative (SG&A) expenses increased $12.4 million
to $51.5  million,  due  entirely  to the  merger  with  FII and the  associated
increased headcount,  goodwill amortization and other general overhead expenses.
SG&A as a percentage of revenue increased from 35.3% in 1996 to 36.3% in 1997.

Operating Income

     Operating  income  increased by $6.6 million to $19.1  million in 1997 from
$12.5  million  in 1996.  The  increase  was mainly the result of the FII merger
mentioned earlier.



Interest Expense

     Interest  expense net of interest income  increased by $6.5 million for the
nine months ended  September  30, 1997 over the nine months ended  September 30,
1996. This was attributable to the addition of approximately $245 million in new
debt on March 13, 1996 in connection with the FII merger.

Net Income (Loss)

     As a result of the factors listed above, net loss for the nine months ended
September 30, 1997  decreased  $2.1 million to $3.0  million,  compared to a net
loss of $5.1 million in the nine months ended September 30, 1996.

Three Months Ended September 30, 1997 Compared to September 30, 1996

Revenues

     STFI's  revenues  decreased  to $46.2  million in 1997,  a decrease of 2.0%
compared to 1996 revenues of $47.1  million.  STS revenue  decreased $.5 million
from $27.4 million in the three months ended  September 30, 1996 to $26.9 in the
three  months ended  September  30,  1997.  This slight  decrease was due to the
increasing  competition in the telecommunications  marketplace.  Systems revenue
decreased $.5 million in 1997 over 1996.

Gross Margin

     Gross margin  decreased to 46.9% of revenues for 1997, from 48.1% for 1996.
The following  table sets forth the  components  of the Company's  overall gross
margin ("GM") for the three months ended September 30, 1997 as a factor of sales
percentage and gross margin percentage per line of business:

                                              Weighted
Division          Sales             GM        GM____

STS               58.4%             51.5%      30.1%

Systems           41.6%             40.5%      16.8%

Company Total    100.0%                        46.9%

     As shown above,  the 1997 gross margin was a mix of the STS gross margin of
51.5% and Systems gross margin of 40.5%. In 1996, the Company's gross margin was
a combination  of STS gross margin of 30.2%,  and Systems gross margin of 17.9%.
The  gross  margin  decrease  was  due  to  the  increasing  competition  in the
telecommunications market place.

Selling, General and Administrative Expenses

     SG&A as a  percentage  of revenue  increased  to 37.3% in the three  months
ended  September 30, 1997 compared to 34.5% for the three months ended September
30, 1996.

Operating Income

     Operating  income  decreased  to $4.5  million in 1997 from $6.4 million in
1996.

Interest Expense

     Interest  expense  net of  interest  income  had a slight  increase  of $.2
million for the three  months  ended  September  30, 1997 over the three  months
ended September 30, 1996.


Net Income

          As a result  of the  factors  listed  above,  a net loss for the three
     months ended September 30, 1997 of $2.8 million was recorded, compared to a
     net loss of $.9 million for the three months ended September 30, 1996.

Liquidity and Capital Resources

          Due to the  merger  with  FII and the  associated  borrowings  of $245
     million,  the Company's  liquidity and capital resources were significantly
     changed. At September 30, 1997 the Company had $370 million in assets, $256
     million in various long and short-term debt and capital lease  obligations,
     and $40.1 million in recently issued  preferred stock. The balance sheet at
     September  30,  1997  showed a working  capital  deficit  of $8.0  million,
     compared  to a deficit  of $22.7  million  at  September  30,  1996.  As of
     September  30,  1997  the  Company  had  available  for  future  borrowings
     approximately $11 million on a credit facility. Cash provided by operations
     was $18.1 million for the nine months ended September 30, 1997, compared to
     $12.1 million for the nine months ended September 30, 1996.

          The Company  invested $9.4 million in equipment  purchases in the nine
     months  ended  September  30,  1997,  compared to $7.1  million in the nine
     months ended  September  30,  1996.  These  expenditures  were used to grow
     additional business and sustain the Company's underlying revenue stream.

          Financing  activities for the period ended September 30, 1997 involved
     principal payments on the Company's debt of $9.9 million,  offset by a $2.0
     million take down on the  Company's  revolver  availability.  Subsequent to
     quarter  end,  the Company has drawn down an  additional  $5 million on its
     revolver  bringing it to 17 million and leaving $6 million still  available
     (net of cash set aside for letters of credit).

          Cash   requirements   for  1997  have  been  significant  due  to  the
     acquisition of FII and associated new debt mentioned  earlier.  The Company
     anticipates to continue  repaying  these  borrowings and providing cash for
     operations and capital expenditures through cash from operations.




<PAGE>



PART II.                                 OTHER INFORMATION

Item 1.  Legal Proceedings

          In December  1995,  a suit was filed  against  the Company  alleging a
     breach of a letter  agreement and seeking an amount in excess of $2,250 for
     a commission  allegedly  owed in connection  with the merger with FII (Note
     3).  The  Company  denies  that the  claimant  at any time was  engaged  in
     connection  with the merger.  The Company  filed an answer in January 1996,
     denying that any commission is owed. This litigation is scheduled for trial
     in December 1997. While any litigation  contains an element of uncertainty,
     management  is of the opinion that the ultimate  resolution  of this matter
     should not have a material adverse effect upon results of operations,  cash
     flows or financial position of the Company.

          On July 31, 1997 the  Company was served with a purported  shareholder
     class  action  complaint in an action  commenced  in the Delaware  Chancery
     Court in New Castle  County.  The  Company and its  directors  are named as
     defendants.  The complaint seeks  injunctive  relief,  costs and attorneys'
     fees with  respect  to the  proposed  merger of the  Company  and  Tel-Save
     Holdings, Inc. which was announced on July 17, 1997.

          As of October 27, 1997,  an  agreement  in principal  had been reached
     between the Company and counsel for the plaintiff  class,  which agreement,
     subject to court approval,  would result in dismissal of the Complaint with
     prejudice and release of all claims of the plaintiff  class relating to the
     Merger.

          The Company's sales and use tax returns in certain  jurisdictions  are
     currently under  examination.  Management  believes these examinations will
     not result in a material change from liabilities provided.

          In  addition to the above  matters,  the Company is a party to various
     legal actions, the outcome of which, in the opinion of management, will not
     have a material  adverse  effect on results  of  operations,  cash flows or
     financial position of the Company.

          Item 5. Other  Information
     On November 13, 1997 the Company signed an
     agreement  whereby  Tel-Save  Holdings,  Inc.  will  become  the  exclusive
     provider of its long-distance services. The rates to be paid by the Company
     under this contract are  significantly  lower than rates  currently paid to
     its existing long-distance providers.


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

        (a)   Exhibits

        10.1  Agreement  and Plan of  Merger by and  among  Shared  Technologies
        Fairchild Inc.,  Tel-Save Holdings Inc., and TSHCo, Inc., dated July 16,
        1997.  Incorporated by reference to the Company's Form 8-K filed on July
        21, 1997.

         10.2     Stock Option Agreement between Shared
         Technologies Fairchild Inc. and Tel-Save Holdings Inc.
         dated July 16, 1997.  Incorporated by reference to the Company's Form
         8-K filed on July 21, 1997.

         10.3     Voting Agreement between Shared
         Technologies Fairchild  Inc. and Daniel Borislow dated July 16, 1997.
         Incorporated by reference to the Company's Form 8-K filed on July
         21, 1997.

         10.4     Tel-Save Holdings, Inc. and Shared
         Technologies Fairchild Inc. Joint Proxy
         Statement filed as part of S-4 registration of
         Tel-Save Holdings, Inc. (Reg # 333-38943)incorporated hereby by
         reference.

         27       Financial Data Schedule

         99       Press Release dated July 17, 1997.
         Incorporated by reference to the Company's Form 8-K filed
         July 21, 1997.

         99       Complaint filed by Bernard Zicherman
         dated July 1997.  Incorporated by reference to the Company's
         Form 8-K filed on August 4, 1997.

         99       Press Release dated August 1, 1997.
         Incorporated by reference to the Company's Form 8-K filed on
         August 4, 1997.

         (b)   Reports on Form 8-K

               On July 21,  1997 the  Company  filed a Form 8-K,  date of report
               July 16, 1997, in which the Company  disclosed  that the Company,
               Tel-Save   Holdings,   Inc.  and  TSHCo,  Inc.,  a  wholly  owned
               subsidiary  of  Tel-Save  Holdings,  Inc.  had  entered  into  an
               Agreement and Plan of Merger.


               On August 4, 1997, the Company filed a
               Form 8-K,  date of report  July 31,  1997,  in which the  Company
               disclosed that is was served with a purported  shareholder  class
               action complaint in an action commenced in the Delaware  Chancery
               Court in New Castle County.




<PAGE>



                                    SIGNATURE



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



                                           SHARED TECHNOLOGIES FAIRCHILD INC.



                                            By:      /s/ Vincent DiVincenzo
                                                Vincent DiVincenzo
                                                Senior Vice President-Finance
                                                and Administration, Treasurer,
                                                Chief Financial Officer



Date:  November 14, 1997
<PAGE>