================================================================================

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

                              ---------------------

                                    FORM 10-Q

(MARK ONE)

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                                       OR

[  ]     TRANSACTION 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 - 26728

                                  TALK.COM INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                               23-2827736
      (State of incorporation)           (I.R.S. Employer Identification No.)


12020 SUNRISE VALLEY DRIVE, SUITE 250
            RESTON, VIRGINIA                            20191
(Address of principal executive offices)              (Zip Code)


                                 (703) 391-7500
              (Registrant's telephone number, including area code)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes X No____

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.

     78,021,134  shares of Common  Stock,  par  value of $0.01 per  share,  were
outstanding as of November 13, 2000.
================================================================================

<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES



                                      INDEX
<TABLE>
<CAPTION>

                                                                                                             PAGE
                                                                                                             ----

PART I - FINANCIAL INFORMATION:

Item 1.  Financial Statements

<S>                                                                                                          <C>
        Consolidated Balance Sheets - September 30, 2000 (Unaudited)
        and December 31, 1999..............................................................................    3

        Consolidated Statements of Operations - Three and Nine Months Ended September 30,
        2000 and 1999(Unaudited)...........................................................................    4

        Consolidated Statement of Stockholders' Equity  - Nine Months Ended September 30,
        2000 (Unaudited)...................................................................................    5

        Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and
        1999(Unaudited)....................................................................................    6

        Notes to Consolidated Financial Statements (Unaudited).............................................    7

Item 2.   Management's Discussion and Analysis of Financial Condition
         and Results of Operations..........................................................................  13

Item 3.   Quantitative and Qualitative Disclosures about Market Risk.......................................   21

PART II  - OTHER INFORMATION:

Item 2.   Changes in Securities and Use of Proceeds.........................................................  22

Item 6.   Exhibits and Reports on Form 8-K..................................................................  22
</TABLE>


                                       2
<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                         UNAUDITED
                                                                                        SEPTEMBER 30,           DECEMBER 31,
                                                                                             2000                   1999
                                                                                      -------------------     ------------------
                                 ASSETS
<S>                                                                                       <C>                       <C>
Current assets:
   Cash and cash equivalents                                                              $   70,436                $   78,937
   Accounts receivable, trade, net of allowance for uncollectible accounts of $23,189
   and $5,011, respectively                                                                   57,122                    59,501
   Advances to partitions and notes receivable                                                 1,643                     3,600
   Prepaid expenses and other current assets                                                   2,837                     8,855
                                                                                      -------------------     ------------------
       Total current assets                                                                  132,038                   150,893
                                                                                      -------------------     ------------------
Property and equipment, net of accumulated depreciation of  $20,255 and $13,438,
  respectively                                                                                81,791                    57,335
Intangibles, net                                                                             223,204                     1,068
Other assets                                                                                   6,318                     5,712
                                                                                      -------------------     ------------------
       Total assets                                                                         $443,351                  $215,008
                                                                                      ===================     ==================
                  LIABILITIES, CONTINGENCIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable, trade and other                                                       $   75,205                 $  47,965
  Partitions                                                                                     804                     1,676
  Notes payable                                                                               15,907                     --
  Deferred revenue                                                                             1,571                     --
  Taxes and other                                                                             12,823                    14,127
                                                                                      -------------------     ------------------
       Total current liabilities                                                             106,310                    63,768
                                                                                      -------------------     ------------------
Convertible debt                                                                              84,950                    84,985
Deferred revenue                                                                              15,450                    21,000
                                                                                      -------------------     ------------------
       Total liabilities                                                                     206,710                   169,753
                                                                                      -------------------     ------------------
Commitments and contingencies:
  Contingent redemption value of common stock                                                 54,019                     5,152
                                                                                      -------------------     ------------------
Stockholders' equity:
   Preferred stock - $.01 par value per share, 5,000,000 shares authorized; no shares
   issued and outstanding                                                                         --                        --
   Common stock - $.01 par value per share, 300,000,000 shares authorized; 78,445,134
   shares issued and 78,021,134 shares outstanding (66,972,960 shares issued and
   64,854,268 shares outstanding in 1999)                                                        784                       670
   Additional paid-in capital                                                                349,367                   208,453
   Accumulated deficit                                                                      (161,581)                 (139,300)
   Common stock in treasury - at cost                                                         (5,948)                  (29,720)
                                                                                      -------------------     ------------------
       Total stockholders' equity                                                            182,622                    40,103
                                                                                      -------------------     ------------------
       Total liabilities, contingencies and stockholders' equity                            $443,351                  $215,008
                                                                                      ===================     ==================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (UNAUDITED - THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

                                                     FOR THE THREE MONTHS            FOR THE NINE MONTHS ENDED
                                                     ENDED SEPTEMBER 30,                   SEPTEMBER 30,
                                                  ---------------------------        ---------------------------
                                                     2000            1999               2000            1999
                                                  -----------     -----------        -----------     -----------
<S>                                                  <C>            <C>                 <C>            <C>
Sales                                                $121,254       $140,027            $413,071       $367,738

Cost of sales                                          72,501         84,604             252,703        231,004
                                                  -----------     -----------        -----------     -----------
Gross profit                                           48,753         55,423             160,368        136,734
                                                  -----------     -----------        -----------     -----------
Operating expenses (income):
    General and administrative expenses                18,117         10,609              43,983         28,600
    Promotional,  marketing  and  advertising
    expenses                                           57,738         27,698             126,901         63,490
    Depreciation and amortization                       6,326          1,537              10,168          4,449
    Significant other income                            --              --                 --            (2,718)
                                                  -----------     -----------        -----------     -----------
               Total operating expenses                82,181         39,844             181,052         93,821
                                                  -----------     -----------        -----------     -----------
Operating income (loss)                               (33,428)        15,579             (20,684)        42,913

Interest income (expense), net                           (105)          (624)                546           (592)
Other expense, net                                     (1,487)          (309)             (2,143)        (1,303)
                                                  -----------     -----------        -----------     -----------
Income (loss) before income taxes                     (35,020)        14,646             (22,281)        41,018

Income tax  benefit                                     (250)     --                       --             --
                                                  -----------     -----------        -----------     -----------
Income (loss) before extraordinary gain               (34,770)        14,646             (22,281)        41,018

Extraordinary gain                                      --             2,233               --            21,230
                                                  -----------     -----------        -----------     -----------
Net income (loss)                                    $(34,770)       $16,879            $(22,281)       $62,248
                                                  ===========     ===========        ===========     ===========
Basic earnings (loss) per share:

   Income (loss) before extraordinary gain           $  (0.48)      $   0.24            $  (0.33)      $   0.68

   Extraordinary gain                                   --              0.04               --              0.35
                                                  -----------     -----------        -----------     -----------

   Net income (loss)                                 $  (0.48)       $  0.28            $  (0.33)      $   1.03
                                                  ===========     ===========        ===========     ===========
Diluted earnings (loss) per share:

  Income (loss) before extraordinary gain            $  (0.48)      $   0.23            $  (0.33)      $   0.65

  Extraordinary gain                                    --               0.04                --            0.34
                                                  -----------     -----------        -----------     -----------
  Net income (loss)                                  $  (0.48)      $   0.27            $  (0.33)      $   0.99
                                                  ===========     ===========        ===========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
                       (UNAUDITED - THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>






                                        COMMON STOCK       ADDITIONAL                        TREASURY STOCK
                                  --------------------      PAID-IN      ACCUMULATED    ---------------------------
                                   SHARES      AMOUNT       CAPITAL        DEFICIT       SHARES          AMOUNT       TOTAL
                                  ---------- ----------  -------------- --------------- ------------  ------------   -----------

<S>                                 <C>         <C>          <C>            <C>           <C>           <C>            <C>
Balance, January 1, 2000            66,973      $670         $208,453       $(139,300)    (2,120)       $(29,720)      $40,103

  Net income (loss)                  --          --             --            (22,281)        --            --         (22,281)
  Exercise of common stock options   --          --            (2,274)         --            342           4,802         2,528
  Proceeds from rights exercised     --          --             1,940          --            653           9,154        11,094
  Issued in connection with
     acquisition                    11,472       114          187,926          --            699           9,796       197,836
  Warrants issued for consulting     --          --             2,175          --            --             --           2,175
  Issuance of common stock for
     convertible debt                --          --                15          --              2              20            35
  Contingent redemption value
     of common stock                 --          --           (48,868)         --            --             --         (48,868)
                                  ---------- ----------  -------------- --------------- ------------  ------------   -----------

Balance, September 30, 2000
                                    78,445      $784         $349,367       $(161,581)      (424)        $(5,948)     $182,622
                                  ========== ==========  ============== =============== ============  ============   ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (UNAUDITED - THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                                                                      FOR THE NINE MONTHS
                                                                                      ENDED SEPTEMBER 30,
                                                                                --------------------------------
                                                                                    2000              1999
                                                                                --------------    --------------
<S>                                                                             <C>                   <C>
    Cash flows from operating activities:
       Net income (loss)                                                        $ (22,281)            $62,248
       Adjustment to reconcile net income (loss) to net cash provided by
         (used in) operating activities:
                Provision for bad debts                                            14,544               2,181
                Depreciation and amortization                                      10,168               4,449
                Deferred revenue                                                   (3,609)             (5,550)
                Extraordinary gain                                                   --               (21,230)
                Loss on retirement of assets                                           68               --
                Non-cash consulting expense                                           121               --
         Changes in assets and liabilities, net:
           (Increase) decrease in:
               Accounts receivable, trade                                          (8,997)            (12,772)
               Advances to partitions and notes receivable                          1,957                (127)
               Prepaid expenses and other current assets                            6,884              (1,896)
               Other assets                                                         2,398               4,084
          Increase (decrease) in:
              Accounts payables and accrued expenses                               13,316             (24,405)
              Other liabilities                                                    (3,000)             (1,850)
                                                                                --------------    --------------
                        Net cash provided by operating activities                  11,569               5,132
                                                                                --------------    --------------
    Cash flows from investing activities:
       Capital expenditures                                                       (29,887)             (4,671)
       Acquisition of intangibles                                                    (515)              --
       Acquisition costs, net of cash acquired                                     (3,285)              --
       Sale of securities, net                                                       --                89,649
                                                                                --------------    --------------
                        Net cash provided by (used in) investing activities       (33,687)             84,978
                                                                                --------------    --------------
    Cash flows from financing activities:
       Repayment of margin account indebtedness                                      --               (49,621)
       Acquisition of convertible debt                                               --               (72,304)
       Proceeds from exercise of options and warrants                               2,529              24,990
       Proceeds from exercise of rights                                            11,093               --
       AOL investment                                                                --                55,000
       Repayment of notes payable                                                      (5)              --
       Acquisition of treasury stock                                                 --                (7,686)
                                                                                --------------    --------------
                        Net cash provided by (used in) financing activities        13,617             (49,621)
                                                                                --------------    --------------
    Net increase (decrease) in cash and cash equivalents                           (8,501)             40,489
    Cash and cash equivalents, beginning of period                                 78,937               3,063
                                                                                --------------    --------------
    Cash and cash equivalents, end of period                                      $70,436           $  43,552
                                                                                ==============    ==============

</TABLE>


          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. BASIC PRESENTATION:


         The consolidated  financial statements include the accounts of Talk.com
Inc. and its wholly owned subsidiaries,  (collectively,  the "Company") and have
been  prepared as if the entities had  operated as a single  consolidated  group
since  their  respective  dates of  incorporation,  except as noted  below.  All
intercompany  balances and transactions  have been eliminated.  The consolidated
financial   statements   include  the  results  of   operations  of  Access  One
Communications Corp. ("Access One") from August 9, 2000, when it was acquired by
the Company in a merger  transaction  that was  accounted for under the purchase
method of accounting for business combinations. See Note 6 below.

     The  consolidated  financial  statements  and related  notes  thereto as of
September  30, 2000 and for the three and nine months ended  September  30, 2000
and 1999 are presented as unaudited but in the opinion of management include all
adjustments necessary to present fairly the information set forth therein. These
adjustments  consist  solely  of normal  recurring  accruals.  The  consolidated
balance  sheet  information  for  December 31, 1999 was derived from the audited
financial  statements  included in the Company's  Form 10-K,  as amended.  These
interim  financial  statements  should be read in conjunction with the Form 10-K
report,  as amended.  The interim results are not necessarily  indicative of the
results  for  any  future   periods.   Certain  prior  year  amounts  have  been
reclassified for comparative purposes.

     Statement  of  Financial  Accounting  Standards  No.  133  "Accounting  for
Derivative  Instruments and Hedging Activities" ("SFAS 133"),  requires entities
to recognize  all  derivatives  as either assets or  liabilities  in the balance
sheet and measure those  instruments at fair value.  SFAS No. 133, as amended by
SFAS No. 138,  becomes  effective for all fiscal years  beginning after December
31, 2000. The Company  anticipates  that the new standard will have no effect on
its financial statements.

     The Securities and Exchange Commission issued Staff Accounting Bulletin No.
101  "Revenue  Recognition  in  Financial  Statements  ("SAB  101") that  became
effective  for the  Company in the fourth  quarter  of 2000.  SAB 101  addresses
revenue recognition  policies and practices of companies that report to the SEC.
The Company believes its revenue recognition  policies and practices comply with
SAB 101.

2. AOL AGREEMENTS:

     Since  1997,  the  Company  has  negotiated  a  number  of  agreements  and
amendments to its agreements with America Online Inc.  ("AOL") for the marketing
and  sale of  telecommunications  services  to AOL  subscribers.  A  substantial
amendment to the AOL agreement in January 1999 provided for:  quarterly payments
by the  Company  to AOL  during  the long  distance  exclusivity  period  of the
agreement,  with fixed  quarterly  payments  ranging from $10.0 to $15.0 million
($19.0  million after July 1, 2000 if AOL elects to provide  certain  additional
marketing  and  promotions  to the  Company)  until June 30, 2001 and  quarterly
payments  thereafter  at a fixed 5% of the  Company's  marginable  long distance
revenues  from AOL  subscribers  in the quarter under the  agreement;  quarterly
payments  by  the  Company  to  AOL,  after  termination  of the  long  distance
exclusivity  period and so long as AOL  continues to provide  certain  levels of
marketing  and  promotions  to the  Company  under the  agreement,  at an annual
declining fixed  percentage of the Company's  marginable long distance  revenues
from AOL  subscribers  under the agreement,  starting at 5% and declining by one
percentage point each year to 1%; the elimination of the Company's obligation to
make bounty and current profit-sharing  payments to AOL; alteration of the terms
of the online and offline  marketing  arrangements  between the Company and AOL;
extension of the term of the AOL agreement,  including the  exclusivity  period,
until June 30, 2003, although AOL has the right, in each year beginning in 2000,
to elect,  on or before May 1 of such year, to end the  Company's  long distance
exclusivity  period as of June 30 of such year;  elimination  of AOL's rights to
receive further  warrants to purchase  Common Stock based upon customers  gained
from the AOL subscriber  base;  AOL's  contribution of up to $4.0 million (up to
$6.0 million if the Company  pays $19.0  million as noted above) per quarter for
offline  marketing;  and establishment of the framework for the Company to offer
additional services and products to AOL subscribers. By an amendment dated as of
June 30, 2000,  AOL agreed to give the Company a $1.0 million  credit in each of
the second and third quarters of 2000 against amounts  otherwise  payable by the
Company under the AOL agreement.  By a further  amendment  dated as of August 1,
2000,  in  consideration  of  AOL's  agreement  to  provide  certain  additional
marketing in the last five months of 2000, the Company agreed to make additional
payments to AOL of $3.0 million in August,  2000 and $1.0 million

                                       7
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

in each of the  months in the  fourth  quarter of 2000,  which  amounts  will be
credited against the Company's payment  obligations in any quarter for which the
Company is required to pay at the quarterly rate of $19.0 million,  as discussed
above.

     AOL did not elect to  exercise  its right to  terminate  the long  distance
exclusivity as of June 30, 2000 and,  accordingly,  the  exclusivity  period for
long distance will continue  through at least June 30, 2001. AOL did provide the
Company with notice that its exclusivity as to wireless services would terminate
on July 1, 2000,  although the Company's  right to offer wireless  services will
continue on a non-exclusive basis.

     On January 5, 1999, pursuant to an Investment Agreement between AOL and the
Company,  AOL  purchased  a total of  4,121,372  shares of  Common  Stock of the
Company  for $55.0  million  in cash and the  surrender  of  rights to  purchase
5,076,016  shares of Common  Stock of the Company  pursuant to various  warrants
held by AOL. AOL agreed to end further vesting under the outstanding performance
warrant and retained vested warrants  exercisable for 2,721,984 shares of Common
Stock. See Note 4 below for a discussion of certain reimbursement obligations of
the Company in favor of AOL.

3. RELATED PARTY TRANSACTIONS:

     On January 5, 1999, Mr. Daniel  Borislow,  a founder of the Company and its
Chairman of the Board and Chief  Executive  Officer,  resigned as a director and
officer of the Company.  The Company entered into various agreements and engaged
in various  transactions  with Mr. Borislow and certain  entities in which he or
his family had an interest.


     In  connection  with Mr.  Borislow's  resignation,  the  Company  paid $1.0
million to Mr.  Borislow,  assigned  certain  automobiles  to him, and continued
certain of his health and medical  benefits and director and officer  insurance.
The Company also agreed that,  so long as Mr.  Borislow  owned  beneficially  at
least two  percent  (2%) of the Common  Stock (on a fully  diluted  basis),  Mr.
Borislow  and  trusts for the  benefit of his  children  would be  entitled  to:
registration  rights with respect to their shares of Common Stock,  the right to
require the Company to use a portion of proceeds from any public or private sale
of debt  securities,  excluding  borrowings  from a  commercial  bank  or  other
financial  institution,  by the Company to  repurchase  debt  securities  of the
Company owned by Mr. Borislow or the trusts for the benefit of his children, and
the right to require the Company to use the proceeds  from the exercise of stock
options by other employees or the exercise of rights, to repurchase Common Stock
owned by Mr. Borislow or the trusts for the benefit of his children. The Company
also agreed that, so long as Mr.  Borislow had such  beneficial  ownership,  the
Company would not, without the prior written consent of Mr. Borislow and subject
to certain exceptions: (a) engage in certain significant corporate transactions,
including the sale or encumbrance of  substantially  all of its assets,  mergers
and consolidations and certain material acquisitions, or, (b) for a period of 18
months from the agreement date, offer or sell any of its Common Stock unless and
until Mr. Borislow and the trusts have sold or otherwise  disposed of all of the
shares of Common Stock held by him on the agreement  date. In turn, Mr. Borislow
terminated  his  employment  with the Company and agreed not to compete with the
Company for at least one year. Mr. Borislow also agreed to guarantee up to $20.0
million of the  Company's  obligations  in  connection  with the AOL  investment
discussed in Note 4. As of September 30, 2000,  Mr.  Borislow and the two trusts
for the benefit of Mr. Borislow's children, which have the ability to distribute
Common  Stock  to  Mr.  Borislow,  held  less  than  an  aggregate  of 2% of the
outstanding   Common  Stock.   Accordingly,   the  Company   believes  that  the
restrictions described above no longer apply to the Company.


     During 1999,  the Company (a) purchased from Mr.  Borislow,  and two trusts
for the benefit of Mr. Borislow's  children,  $85.9 million aggregate  principal
amount  of the  Company's  Convertible  Notes  for $72.3  million  in cash;  (b)
exchanged the remaining $53.7 million principal amount of subordinated  notes of
Communication TeleSystems International d/b/a WorldxChange Communications, which
were  included in other assets at December 31, 1998,  to a trust for the benefit
of Mr. Borislow's  children for $62.5 million aggregate  principal amount of the
Company's  Convertible Notes and (c) purchased $9.0 million aggregate  principal
amount of the Company's Convertible Notes for $6.9 million in Common Stock. Also
during 1999, pursuant to the agreements with Mr. Borislow as described above the
Company purchased from Mr. Borislow approximately 639,000 shares of Common Stock
for approximately  $7.7 million with proceeds from the exercise of stock options
by other employees.

                                       8
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     On January 6, 2000,  the Company  repurchased  from Mr.  Borislow  for $2.5
million real property previously sold to Mr. Borislow constituting the Company's
facilities in New Hope, Pennsylvania.

4. STOCKHOLDERS' EQUITY:

CONTINGENT REDEMPTION VALUE OF COMMON STOCK

     Under the terms of the  Investment  Agreement  with AOL (see Note 2 above),
the Company  agreed to reimburse AOL for losses AOL may incur on the sale of any
of the shares of Common  Stock  held by AOL during the period  from June 1, 1999
through  September 30, 2000.  The Company has the first right to purchase any of
the shares of Company  common  stock held by AOL at the market  value on the day
that AOL  notifies  the  Company of its intent to sell any of the shares plus an
amount, if any, equal to the Company's reimbursement obligation described below.
The  reimbursement  amount  would be  determined  by  multiplying  the number of
shares,  if any, that AOL sells during the  applicable  period by the difference
between  the  purchase  price per share paid by AOL,  or $19 per share,  and the
price per share that AOL sells the shares for,  if less than $19 per share.  The
reimbursement  amount may not exceed $14 per share for 2,894,737  shares and $11
per share for 1,226,635 shares.  Accordingly,  the maximum amount payable to AOL
as  reimbursement  on the sale of AOL's  shares  would  be  approximately  $54.0
million plus AOL's reasonable expenses incurred in connection with the sale.

     By an amendment dated as of August 2, 2000, the period during which AOL may
exercise  its  rights to  reimbursement  for  losses  on the sale of  stock,  as
described  above,  was extended  from  September 30, 2000 to September 30, 2001.
Also as of August 2, 2000,  the Company  received a letter  from AOL  confirming
that AOL does not intend to exercise such rights to reimbursement for shortfalls
earlier than December 31, 2000.


     The Company has the option of issuing a six-month  10% note  payable to AOL
to satisfy the reimbursement  amount or other amounts payable on exercise of its
first refusal rights. Assuming AOL were to sell all of its shares subject to the
Company's  reimbursement  obligation  at the closing price of Common Stock as of
September  30,  2000,  the  reimbursement  amount would be  approximately  $54.0
million.  At September  30, 2000,  the Company  recorded  $54.0  million for the
contingent redemption value of this Common Stock with a corresponding  reduction
in additional  paid-in  capital.  AOL also has the right on  termination of long
distance  exclusivity under the AOL marketing  agreements to require the Company
to repurchase the warrants to purchase  2,721,984  shares of Common Stock of the
Company held by AOL for an aggregate  price of $36.3 million,  which  repurchase
price can be paid in Common  Stock or cash  (provided  that some  portion of the
repurchase price may be payable in a quarterly amortization, two-year promissory
note of the Company if the repurchase  price exceeds the then current  valuation
of the  warrants  being  purchased).  AOL did not  elect to  terminate  the long
distance  exclusivity  as of June 30, 2000, but can so elect as of June 30, 2001
and 2002. The Company has pledged the stock of its  subsidiaries  and has agreed
to fund an escrow account of up to $35.0 million from 50% of the proceeds of any
debt financing,  other than a bank, receivable or other asset based financing of
up to $50.0 million,  to secure its obligations  under the Investment  Agreement
with AOL.  AOL has agreed that it will  subordinate  its  security  interests to
permit the  securitization  of certain  future  financings  by the Company.  Mr.
Borislow  has  agreed  to  guarantee  up  to  $20.0  million  of  the  Company's
reimbursement obligations under the Investment Agreement with AOL.


5. LEGAL PROCEEDINGS:


     On June 16,  1998,  a purported  shareholder  class action was filed in the
United States District Court for the Eastern  District of  Pennsylvania  against
the Company and certain of its officers  alleging  violation  of the  securities
laws in connection  with certain  disclosures  made by the Company in its public
filings and seeking unspecified damages. Thereafter,  additional lawsuits making
substantially  the same  allegations  were filed by other plaintiffs in the same
court. A motion to dismiss was granted as to certain officers of the Company and
denied as to the Company. There are currently no officers of the Company who are
a party to these actions.  On July 19, 2000 a class was  certified.  The Company
believes the  allegations  in the  complaints  are without  merit and intends to
defend the litigations vigorously.  The Company also is a party to certain legal
actions  and  regulatory  investigations  arising  in  the  ordinary  course  of
business.

                                       9
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     The Company  believes that the ultimate  outcome of the  foregoing  actions
will not result in liability  that would have a material  adverse  effect on the
Company's financial condition or results of operations.


6. ACQUISITION:

     On August 9, 2000, a wholly owned subsidiary of the Company merged with and
into Access One Communications  Corp., a New Jersey corporation  ("Access One"),
pursuant  to the  Agreement  and Plan of  Merger,  dated as of March  24,  2000,
between  the  Company  and  Access  One.   Access  One  was  a  private,   local
telecommunications  service provider to nine states in the  southeastern  United
States. As a result of such merger,  Access One became a wholly owned subsidiary
of the  Company  and Access One  stockholders  received  0.571428  shares of the
Company's  common  stock in exchange  for each share of Access One common  stock
held by such  stockholders at the effective time of the merger,  or an aggregate
of  approximately  12.2  million  shares  of the  Company's  common  stock,  and
outstanding  options and warrants to purchase  shares of Access One common stock
converted to options and warrants to purchase an aggregate of 2.1 million shares
of the Company's common stock. The total purchase price was approximately $201.3
million and the merger was accounted for under the purchase method of accounting
for business  combinations.  Accordingly,  the consolidated financial statements
include the results of operations of Access One from the merger date. The merger
resulted in the recording of intangible assets of approximately  $224.6 million,
which are being amortized on a straight-line  basis over their expected  benefit
period of 10 years.  As of September 30, 2000,  the Company had $15.9 million of
notes payable  outstanding,  which were acquired as part of the  acquisition  of
Access One.


The  following  unaudited  pro  forma  information  presents  a  summary  of the
consolidated  results of  operations  of the Company as if the Access One merger
had taken place at the beginning of the periods presented.

<TABLE>
<CAPTION>

                                                                      (In thousands, except share data)
                                                                       Nine Months Ended September 30,
                                                                 ------------------------------------------
                                                                        2000                     1999
                                                                        ----                     ----

<S>                                                                       <C>                      <C>
        Sales                                                             $444,277                 $388,026

        Income (loss) before extraordinary gain                          $(45,409)                  $15,226
        Extraordinary gain                                                   --                      21,230
                                                                  -----------------        -----------------
        Net income (loss)                                                $(45,409)                  $36,456
                                                                  =================        =================
        Basic earnings (loss) per common share:
             Income (loss) before extraordinary gain                      $ (0.58)                    $0.21
             Net income (loss)                                            $ (0.58)                    $0.50
        Diluted earnings (loss) per common share:
             Income (loss) before extraordinary gain                      $ (0.58)                    $0.20
             Net income (loss)                                            $ (0.58)                    $0.48

</TABLE>

The pro forma  consolidated  results of operations  include  adjustments to give
effect to  amortization  of  intangibles,  consulting  fees and shares of common
stock  issued.  These  unaudited  pro  forma  results  have  been  prepared  for
comparative  purposes only and do not purport to be indicative of the results of
operations  which  actually  would have occurred had the merger been made at the
beginning  of the  periods  presented  or the  future  results  of the  combined
operations.

                                       10
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

7. PER SHARE DATA:

     Basic  earnings per common share is calculated  using the average shares of
common stock  outstanding,  while diluted earnings per common share reflects the
potential  dilution  that  could  occur  if  stock  options  and  warrants  were
exercised. Earnings per share are computed as follows:
<TABLE>
<CAPTION>

                                                       Three Months Ended                    Nine Months Ended
                                                          September 30,                         September 30,
                                                ---------------------------------     ---------------------------------
                                                    2000               1999               2000               1999
                                                    ----               ----               ----               ----
<S>                                                <C>                   <C>              <C>                  <C>
Income (loss) before extraordinary gain            $(34,770)             $14,646          $(22,281)            $41,018
Extraordinary gain                                   --                    2,233           --                   21,230
                                                -------------     ---------------     --------------     --------------
Net income (loss)                                  $(34,770)             $16,879          $(22,281)            $62,248
                                                =============     ===============     ==============     ==============
Average shares of common stock outstanding
used to compute basic earnings per common
share                                                 72,839              61,343             68,005             60,233
Additional common shares to be issued
assuming exercise of stock options and
warrants, net of shares assumed reacquired            --                   2,137              --                 2,860
                                                -------------     ---------------     --------------     --------------
Shares used to compute dilutive effect of
stock options                                         72,839              63,480             68,005             63,093
                                                =============     ===============     ==============     ==============
Basic earnings (loss) per share:

  Income (loss) before extraordinary gain            $(0.48)              $ 0.24            $(0.33)             $ 0.68
                                                                            0.04                                  0.35
  Extraordinary gain                                    --                                     --
                                                -------------     ---------------     --------------     --------------
  Net income (loss)                                  $(0.48)              $ 0.28            $(0.33)             $ 1.03
                                                =============     ===============     ==============     ==============
Diluted earnings (loss) per share:

  Income (loss) before extraordinary gain         $   (0.48)              $ 0.23            $(0.33)             $ 0.65

  Extraordinary gain                                     --                 0.04               --                 0.34
                                                -------------     ---------------     --------------     --------------
  Net income (loss)                               $   (0.48)              $ 0.27            $(0.33)             $ 0.99
                                                =============     ===============     ==============     ==============
</TABLE>


The diluted share basis for the three months and nine months ended September 30,
2000  excludes  incremental  shares  related to stock  options  and  warrants of
633,304 and  1,557,978,  respectively.  These  shares are  excluded due to their
antidilutive effect as a result of the Company's net loss.

8. SUBSEQUENT EVENTS:

     On October 20, 2000,  certain  subsidiaries  of the Company  entered into a
Credit Facility Agreement with MCG Finance Corporation providing for a term loan
of  up  to  $20.0  million  and  a  line  of  credit  facility  permitting  such
subsidiaries to borrow up to an additional $30.0 million.  The  effectiveness of
the line of credit  facility is subject,  among other things,  to the successful
syndication  of that facility,  which is expected to occur in 2001.  Loans under
the Credit  Facility  Agreement  bear interest at a rate equal to either (a) the
Prime Rate,  as  published  by the Board of  Governors  of the  Federal  Reserve
System, or (b) LIBOR,  plus, in each case, the applicable margin. The applicable
margin will initially be 2.5% for borrowings accruing interest at the Prime Rate
and 4% for borrowings  accruing interest at LIBOR;  after December 31, 2000, the
applicable  margin  will be  based  on the  ratio  of  funded  debt to  trailing
twelve-month  operating cash flow,  determined on a consolidated basis, and will
vary from 2.0% to 2.5% for  borrowings  accruing  interest at the Prime Rate and
from 3.5% to 4.0% for borrowings accruing interest at LIBOR. The Credit Facility
Agreement subjects the Company and its subsidiaries to certain  restrictions and
covenants


                                       11
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

related to, among other things,  liquidity,  per-subscriber revenue,  subscriber
acquisition costs, leverage ratio and interest coverage ratio requirements.  The
credit  facilities  under the Credit  Facility  Agreement  terminate on June 30,
2001, but can be extended at the Company's  election up to June 30, 2005 for the
term loan facility and up to June 30, 2003 for the line of credit facility.  The
principal of the term loan is required to be repaid in quarterly installments of
$1.25  million on the last  calendar day of each fiscal  quarter,  commencing on
September 30, 2001. The loans under the Credit Facility Agreement are secured by
a pledge  of all of the  assets  of the  subsidiaries  of the  Company  that are
parties  to  that  agreement.  In  addition,  the  Company  has  guaranteed  the
obligations  of those  subsidiaries  under the  Credit  Facility  Agreement  and
related  documents;  the  Company's  guarantee  subjects  the Company to certain
restrictions  and  covenants,  including  a  prohibition  against the payment of
dividends in respect of the Company's  equity  securities,  except under certain
limited circumstances.  Upon its execution of the Credit Facility Agreement, the
Company  issued  warrants for 300,000  shares of its common stock,  which become
exercisable  at $4.36 per share,  if the Company fails to exceed  certain EBITDA
thresholds  for the fiscal  quarters ended December 31, 2000 and March 31, 2001.
The Company is also  required to issue  warrants  exercisable  for an additional
300,000 shares of common stock  (exercisable  immediately)  on the date on which
the line of credit  facility  is  successfully  syndicated  (provided  such date
occurs prior to March 31, 2001). On October 20, 2000, the Company borrowed $20.0
million  under the term loan facility  (approximately  $15.0 million was used to
repay indebtedness of Access One).


                                       12
<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES

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

OVERVIEW


         Talk.com Inc.,  through its subsidiaries,  provides  telecommunications
services to  residential  and small  business  customers  throughout  the United
States,  primarily through its electronic billing and customer service platform.
Talk.com Inc. and its  subsidiaries  are sometimes  together  referred to as the
"Company" and as "Talk.com".

         The  Company's   telecommunications   service  offerings  include  long
distance and local outbound service,  including local services bundled with long
distance  services,  internet  service,  inbound toll-free service and dedicated
private line services for data. On August 9, 2000, a wholly owned  subsidiary of
the Company merged with and into Access One Communications Corp. ("Access One"),
a New Jersey corporation, pursuant to the Agreement and Plan of Merger, dated as
of March 24, 2000, between the Company and Access One. Access One was a private,
local  telecommunications  service  provider to nine states in the  southeastern
United  States.  As a result of the  merger,  Access One  became a wholly  owned
subsidiary of the Company and Access One stockholders  received  0.571428 shares
of the  Company's  common  stock in exchange for each share of Access One common
stock held by such  stockholders  at the  effective  time of the  merger,  or an
aggregate of  approximately  12.2 million shares of the Company's  common stock,
and  outstanding  options and  warrants to purchase  shares of Access One common
stock  converted to options and warrants to purchase an aggregate of 2.1 million
shares of the Company's  common stock.  Using a March 2000 agreement with Access
One, the Company  began  offering  local  telecommunication  service in Florida,
Georgia,  North Carolina,  South  Carolina,  Kentucky,  Louisiana,  Mississippi,
Tennessee,  Alabama  and New York in the second  quarter of 2000.  In the second
quarter of 2000,  the Company also began  offering a bundle of long distance and
local  service to small  business and select  residential  customers in the nine
southeastern  states  serviced by Access One,  through the  Company's  marketing
partnerships  and new direct  channels.  Late in the third quarter of 2000,  the
Company began offering local  telecommunication  services in  Pennsylvania.  The
Company  expects to continue  to add to the states in which it offers  local and
bundled local and long distance telecommunication services.

         The Company  believes that it has an opportunity to capture  additional
market share and  accelerate  future  growth  through its offerings of local and
bundled local and long distance telecommunications  services. In connection with
its rollout of local services,  the Company anticipates that the higher level of
marketing  and  promotional  expenditures  during the first nine  months of 2000
compared  to  1999  will  continue.   However,  the  marketing  and  promotional
expenditures  for the fourth  quarter of 2000 are  expected  to  decrease  on an
absolute  basis and as a percentage  of revenue as compared to the third quarter
of 2000.  With the extension of the Company's long distance  exclusivity  period
with AOL until at least June 2001,  the  Company  also will  continue  to expend
significant  marketing  dollars with AOL. The Company  believes that,  primarily
because of these  marketing and advertising  expenditures,  it will report a net
loss for the fourth quarter of 2000 and the full year 2000.  Notwithstanding the
foregoing,  the Company expects its EBITDA loss in the fourth quarter of 2000 to
be  substantially  less  than  for the  third  quarter  of 2000 and that it will
achieve EBITDA  breakeven in the first quarter of 2001.  EBITDA means net income
or loss adjusted to eliminate interest income and expense,  taxes,  depreciation
and amortization.


                                       13
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS

The following table set forth for the periods  indicated  certain financial data
as a percentage of sales:
<TABLE>
<CAPTION>

                                                 FOR THE THREE MONTHS           FOR THE NINE MONTHS ENDED
                                                  ENDED SEPTEMBER 30,                 SEPTEMBER 30,
                                               --------------------------       ---------------------------
                                                 2000            1999              2000            1999
                                               ----------     -----------       -----------     -----------
<S>                                               <C>             <C>              <C>             <C>
Sales                                             100.0%          100.0%           100.0%          100.0%
Cost of sales                                      59.8            60.4             61.2            62.8
                                               ----------     -----------       -----------     -----------
Gross profit                                       40.2            39.6             38.8            37.2
                                               ----------     -----------       -----------     -----------
Operating expenses (income):
    General and administrative expenses            14.9             7.6             10.6             7.8
    Promotional, marketing and advertising
      expenses                                     47.6            19.8             30.7            17.3
    Depreciation and amortization                   5.2             1.1              2.5             1.2
    Significant other income                        --              --                --            (0.8)
                                               ----------     -----------       -----------     -----------
                  Total operating expenses         67.7            28.5             43.8            25.5
                                               ----------     -----------       -----------     -----------
Operating income (loss)                           (27.5)           11.1             (5.0)           11.7

Interest income (expense), net                     (0.1)            (.4)             0.1             (.1)

Other expense, net                                 (1.2)            (.2)            (0.5)            (.4)
                                               ----------     -----------       -----------     -----------
Income (loss) before income taxes                 (28.8)           10.5             (5.4)           11.2

Provision for income taxes                          0.2             --               --              --
                                               ----------     -----------       -----------     -----------
Income (loss) before extraordinary gain             0.0            10.5             (5.4)           11.2

Extraordinary gain                                  --               1.6             --               5.7
                                               ----------     -----------       -----------     -----------
Net income (loss)                                 (28.6%)          12.1%            (5.4%)          16.9%
                                               ==========     ===========       ===========     ===========

</TABLE>

QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999

         Sales


         Sales  decreased  by 13.4% to  $121.3  million  for the  quarter  ended
September 30, 2000 from $140.0 million for the quarter ended September 30, 1999.
This  decrease  was a  result  of the  Company's  exit  from  the  international
wholesale business,  a decline in the number of long distance  customers,  and a
reduction  in the  Company's  other  sales.  The  Company  elected  to exit  the
international  wholesale  business,  because  of the low  gross  profit  margins
associated  therewith.  The decrease in long distance sales was partially offset
by growth in sales from new local  customers  and the  revenues  from Access One
since the date of the  merger.  During the second  quarter of 2000,  there was a
significant  reduction in the principal  marketing  opportunity  provided to the
Company  by AOL,  which  resulted  in a decline in gross  additions  of new long
distance  customers.   In  addition,   the  Company  instituted  new  collection
procedures in the first quarter of 2000, which the Company believes  contributed
to customer terminations during the introduction period of the new procedures at
a rate  greater  than  the  Company's  historical  churn  experience.  With  the
reduction  in long  distance  sales from the  interruption  of its  primary  AOL
marketing  channel,  increased churn, the exit from the international  wholesale
business and the decline in other sales, the Company  experienced a reduction in
total sales for the third quarter  ended  September 30, 2000 from total sales of
$135.8 million in the second quarter of 2000. The Company  believes that revenue
from its long distance  business will be sequentially flat in the fourth quarter
of 2000 compared to the third quarter of 2000.

         While the Company  believes it offers  competitively  priced  services,
sales could be adversely  affected by the intense  competition in this industry.
In addition,  the Company's ability to provision long distance and local bundled
services directly affects sales. Growth in the Company's sales of local services
will also be  affected  by the  Company's  ability  to  continue  to expand  its
offerings  of such  services  to new states and to  continue  to build  share in
existing markets.

                                       14
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

         A  significant  percentage  of the  Company's  revenues in the quarters
ended   September   30,  2000  and  1999  were   derived   from  long   distance
telecommunications  services  provided to customers who were obtained  under the
AOL  agreement  and a  significant  decline in its AOL  subscribers  that is not
offset by growth in other  subscribers  could have a  significant  effect on the
Company's  results of operations  and cash flow.  While the Company's  rights to
market long  distance  exclusively  under the AOL  agreement do not expire until
June 30, 2003, AOL has the right in each year beginning in 2000, to elect, on or
before  May  1  of  such  year,   to  permit  others  to  market  long  distance
telecommunications  services  after  June 30 of such year to AOL's  subscribers.
Notwithstanding  any such AOL  election,  the  Company's  rights to  continue to
market its  services  to AOL  subscribers  on a  non-exclusive  basis,  but with
significant  marketing  rights,  would continue until June 30, 2003. AOL did not
exercise its right as to 2000 and, accordingly,  the exclusivity period for long
distance  will  continue  through  at least  June 2001 and the  Company  will be
obliged to make fixed quarterly payments during the year ending June 30, 2001 of
at least $15.0 million  ($18.0 million in the last two quarters of 2000 before a
$1  million  credit  from AOL in the  third  quarter)  to AOL.  AOL did elect to
terminate  the  Company's  exclusive  right to offer  wireless  services  to AOL
subscribers, but the Company's right to offer wireless services will continue on
a non-exclusive  basis. The Company plans to continue to market its
services to AOL subscribers, and also plans, as discussed above, to increase its
efforts to expand its base of long distance and local bundled customers.

         Cost of Sales

         Cost of sales  decreased by 14.3% to $72.5 million in the quarter ended
September 30, 2000 from $84.6  million in the quarter ended  September 30, 1999,
and as a  percentage  of sales,  decreased to 59.8% as compared to 60.4% for the
same quarter last year.  The decreases  were mainly due to a decrease in network
costs as a result of exiting of the international  wholesale  business,  a lower
number of long distance  customers,  a reduction in local access charges,  and a
reduction  in primary  interexchange  carrier  charges  ("PICC").  In  addition,
partition costs and billing costs were lower.  The decrease in cost of sales was
offset by an increase in bad debt expense and additional  cost of sales relating
to the  growth of the local  business  and the cost of sales of Access One since
the date of merger.  The Company  provided $3.7 million more in bad debt expense
during the quarter  ended  September  30, 2000 over the same  quarter last year.
This increase is to due to the provision for certain aged  receivables  that are
now deemed not  collectible,  and the bad debt expense from Access One since the
date of merger.  The Company  expects bad debt expense to be flat for the fourth
quarter of 2000 and to decrease for 2001.

         Gross Profit

          Gross  profit  increased  to  40.2%  of  sales  in the  quarter  ended
September  30, 2000 from 39.6% in the quarter  ended  September  30,  1999.  The
increase in the gross profit  percentage  was  primarily  due to lower  network,
partition  and billing costs offset by  additional  provisions  for bad debt and
increased cost associated with the growing local business,  as noted above.  Due
to the growth of local bundled service revenue as a percentage of total revenue,
the early  stage of  development  of the  Company's  local  service  initiative,
fluctuations  in bad  debt  expense,  as well as the  intensification  of  price
competition  for  the  Company's  products,  the  Company  may not  continue  to
experience an upward trend in gross profits in the future.

         General and Administrative Expenses

         General and administrative expenses increased by 70.8% to $18.1 million
in the quarter ended  September 30, 2000 from $10.6 million in the quarter ended
September  30,  1999.  As a  percentage  of sales,  general  and  administrative
expenses  increased to 14.9% for the quarter ended September 30, 2000 from 7.6 %
for the quarter  ended  September  30, 1999.  The increase was due  primarily to
increased  costs  associated  with  additional  personnel  hired to support  the
Company's  growth in the  local  services  business  and the  additional  sales,
provisioning and customer  service support for the local customers.  The general
and  administrative  expenses of Access One are also included  since the date of
merger.

         Promotional, Marketing and Advertising Expenses

         During the quarter ended September 30, 2000, the Company incurred $57.8
million in promotional,  marketing and advertising expenses as compared to $27.7
million in the quarter ended  September 30, 1999. This represents an increase of
108.7% over the same period last year,  and relates to the Company's  efforts to
expand  its long  distance  and local  bundled  customer  base as well as higher
promotional  costs and an increase in fixed  payments


                                       15
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

to AOL and the addition of Access One marketing and  promotional  expenses since
the date of merger.  The Company sold over 185,000 lines in the third quarter of
2000 that are expected to be billed in the fourth  quarter of 2000.  The Company
expects to continue to incur marketing and promotional expenses as it implements
its plans noted above to aggressively  pursue local subscribers and line growth,
particularly  non-AOL  customers.  However,  fourth  quarter  2000  expenses are
expected to be lower than in the third quarter 2000.  Fixed payments to AOL have
increased  by $3.0  million  for both the third and fourth  quarters  of 2000 in
connection with AOL's agreement to provide certain  additional  marketing in the
last five months of 2000.  After taking into account a third quarter credit from
AOL,  fixed  payments to AOL in the third quarter of 2000 were $17.0 and will be
$18.0 million for the fourth quarter of 2000.

         Depreciation and Amortization

         Depreciation  and amortization for the quarter ended September 30, 2000
was $6.3 million,  an increase of $4.8 million  compared to $1.5 million for the
same period in 1999.  This increase is due primarily to the  amortization of the
goodwill  recorded upon the Access One acquisition ($3.7 million of amortization
for the third  quarter of 2000),  and also  reflects the  continued  purchase of
property and equipment to support the  Company's  ongoing  growth,  particularly
with investment in a state-of-the-art billing, provisioning and customer service
system platform, along with additional property,  equipment and intangibles that
were  acquired  by the  Company  in the  Access  One  merger.  The excess of the
purchase price over the fair value of the net assets  acquired in the Access One
acquisition was approximately  $224.6 million and has been recorded as goodwill,
which is being amortized on a straight-line basis over ten years.

         Interest Income (Expense), net

         Net interest  expense was $105,000 for the quarter ended  September 30,
2000 as  compared to net  interest  expense of  $624,000  for the quarter  ended
September  30,  1999.  This  represents  an decrease of $519,000  from the third
quarter  of last  year  due  primarily  to the  higher  level  of cash  and cash
equivalents  and lower  debt  levels in the 2000  period.  Net  interest  income
consists primarily of interest income earned on cash and cash equivalents offset
by interest  expense  related to the  Company's  convertible  debt and  interest
expense incurred by Access One since the date of the merger.

         Other Expense, net

         Net other expense was $1.5 million for the quarter ended  September 30,
2000 as compared to $309,000  for the quarter  ended  September  30,  1999.  The
increase  is due  primarily  to a $1 million  increase  in the reserve on a note
receivable.

         Provision for Income Taxes

         During the quarter ended  September  30, 2000,  due to an expected loss
for this fiscal  year,  the  Company  recorded an income tax benefit of $250,000
that represents a reversal of the provision  recorded in the quarter ended March
31,  2000.  In the  quarter  ended March 31,  2000,  the  Company  recorded  the
provision   relating  to  the  expected  payment  of  federal  income  taxes  on
alternative minimum taxable income for the fiscal year.

         Extraordinary Gain

         During the quarter  ended  September  30, 1999 the Company  recorded an
extraordinary  gain  of $2.2  million  from  the  acquisition  of the  Company's
convertible debt at a discount from its aggregate principal amount.

NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999

         Sales

         Sales  increased  by 12.3% to $413.1  million for the nine months ended
September 30, 2000 from $367.7  million for the nine months ended  September 30,
1999.  This increase was primarily a result of an increase in the number of long
distance  customers,  growth  in new local  customers,  addition  of Access  One
revenues since the date of merger,  and sales from the  international  wholesale
business.  The Company exited the international  wholesale business in the third
quarter, because  of the low gross  profit  margins  associated  therewith.  The
increase in sales was partially

                                       16
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

offset by a decrease in the Company's  other sales, as the Company has continued
to focus  primarily on developing  its long distance and local bundled  customer
base.  The addition of new marketing  partners has  contributed to the growth in
sales for the nine months ended  September  30, 2000 compared to the same period
for 1999.

         As discussed above in the third quarter  discussion,  during the second
quarter of 2000,  there was a significant  reduction in the principal  marketing
opportunity provided to the Company by AOL, which resulted in a decline in gross
additions of new customers.  In addition,  the Company instituted new collection
procedures in the first quarter of 2000, which the Company believes  contributed
to customer terminations during the introduction period of the new procedures at
a rate  greater  than  the  Company's  historical  churn  experience.  With  the
reduction  in long  distance  sales from the  interruption  of its  primary  AOL
marketing  channel,  increased churn, the exit from the international  wholesale
business and the decline in other sales, the Company  experienced a reduction in
total sales for the third quarter  ended  September 30, 2000 from total sales of
$135.8  million in the second  quarter of 2000.  While the  Company  believes it
offers competitively  priced services,  sales could be adversely affected by the
intense  competition in this  industry.  In addition,  the Company's  ability to
provision  long  distance and local bundled  services  directly  affects  sales.
Growth in the  Company's  sales of local  services  will also be affected by the
Company's  ability to continue to expand its  offerings of such  services to new
states and to continue to build share in existing markets.

         A significant  percentage of the Company's  revenues in the nine months
ended   September   30,  2000  and  1999  were   derived   from  long   distance
telecommunications  services  provided to customers who were obtained  under the
AOL  agreement  and,  as  discussed  above in the third  quarter  discussion,  a
significant decline in its AOL subscribers that is not offset by growth in other
subscribers  could  have a  significant  effect  on  the  Company's  results  of
operations and cash flow.

         Cost of Sales

         Cost of sales  increased  by 9.4% to $252.7  million in the nine months
ended  September 30, 2000 from $231.0 million in the nine months ended September
30, 1999.  This  increase was due to the overall  increase in sales for the nine
months ended September 30, 2000 as compared to the same period last year and the
addition of Access One cost of sales since the date of merger.  As a  percentage
of  sales,  cost of sales  for the nine  months  in 2000  decreased  to 61.2% as
compared to 62.8% for the same period last year.  The decrease was primarily due
to lower  network usage costs for services on the Company's OBN network on a per
minute  basis and lower  partition  costs due to the  decrease  in other  sales,
offset by increased  bad debt and by higher  network costs  associated  with the
international wholesale business, as noted above.

         Gross Profit

          Gross  profit  increased  to 38.8% of sales in the nine  months  ended
September 30, 2000 from 37.2% in the nine months ended  September 30, 1999.  The
increase in the gross profit percentage was primarily due to lower network usage
costs for OBN  services on a per minute basis and lower  partition  costs due to
the decrease in other sales, as noted above.

         General and Administrative Expenses

          General  and  administrative  expenses  increased  by  53.8%  to $44.0
million in the nine months ended  September  30, 2000 from $28.6  million in the
nine months ended  September  30, 1999.  As a percentage  of sales,  general and
administrative  expenses  increased to 10.6% for the nine months ended September
30, 2000 from 7.8 % for the nine months ended  September 30, 1999.  The increase
was due primarily to costs associated with additional personnel hired to support
the Company's  continuing growth in the local services business and the addition
of Access One general and administrative expenses since the date of the merger.

         Promotional, Marketing, and Advertising Expenses

         During the nine months ended  September 30, 2000, the Company  incurred
$126.9 million in promotional, marketing and advertising expenses as compared to
$63.5 million in the nine months ended  September 30, 1999.  This  represents an
increase of 99.8% over the same period last year,  and relates to the  Company's
efforts to expand


                                       17
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

its long distance and local bundled customer base as well as higher  promotional
costs and an  increase in fixed  payments to AOL and the  addition of Access One
marketing and promotional expenses since the date of merger.

         Depreciation and Amortization

         Depreciation  and  amortization for the nine months ended September 30,
2000 was $10.2 million,  an increase of 131.8%  compared to $4.4 million for the
same period in 1999.  This increase is due primarily to the  amortization of the
goodwill  recorded upon the Access One acquisition ($3.7 million of amortization
for the nine months ended  September 30, 2000),  and also reflects the continued
purchase of property and  equipment  to support the  Company's  ongoing  growth,
particularly  with investment in a  state-of-the-art  billing,  provisioning and
customer service system platform, along with additional property,  equipment and
intangibles  that were  acquired by the  Company in the Access One  merger.  The
excess of the purchase  price over the fair value of the net assets  acquired in
the  Access  One  acquisition  was  approximately  $224.6  million  and has been
recorded as goodwill, which is being amortized on a straight-line basis over ten
years.

         Significant Other Income

         During the nine months ended  September 30, 1999, the Company sold TSFL
Holdings,  Inc. (formerly Symetrics  Industries,  Inc.),  resulting in a gain of
$2.7 million.

         Interest Income (Expense), net

         Net interest  income was  $546,000 for the nine months ended  September
30,  2000 as compared to net  interest  expense of $592,000  for the nine months
ended September 30, 1999. This is a decrease in interest expense of $1.1 million
from  the  nine  months  of last  year  due to  higher  levels  of cash and cash
equivalents and lower  convertible debt levels in the 2000 period.  Net interest
income consists primarily of interest income earned on cash and cash equivalents
offset by interest expense related to the Company's  convertible debt and Access
One notes payable since the date of the merger.

         Other Expense, net

         Net other expense was $2.1 million for the nine months ended  September
30, 2000 as compared to $1.3  million for the nine months  ended  September  30,
1999. This represents a 61.5% increase compared to the nine months of last year.
The increase is due  primarily  to a $1.0  million  increase in the reserve on a
note receivable.

         Provision for Income Taxes

         Due to an expected  loss for this fiscal year,  no income tax provision
was booked by the Company in the nine months ended September 30, 2000.

         Extraordinary Gain

         During the nine months ended  September 30, 1999, the Company  recorded
an  extraordinary  gain of $21.2 million from the  acquisition  of the Company's
convertible debt at a discount from its aggregate principal amount.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had $70.4 million of cash and cash  equivalents as of September
30, 2000,  and $78.9  million as of December  31, 1999.  The decrease in cash is
primarily a result of $29.9 million in capital  expenditures for the purchase of
property  and  equipment,  related  primarily  to the  expansion of the business
discussed above, offset in part by cash generated from the Company's  operations
and the receipt of $11.1 million in connection  with the exercise of outstanding
Common Stock rights prior to their expiration in February 2000.

     Net cash  provided by operating  activities  was $11.6 million for the nine
months ended  September 30, 2000. Net cash provided by operating  activities was
$5.1 million for the nine months ended  September 30, 1999.  For the nine months
ended  September 30, 2000,  the major  contributors  to the net cash provided by
operating  activities  were a


                                       18
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

decrease  in prepaid  expenses  and other  current  assets of $6.9  million,  an
increase  in  accounts  payable  and  accrued  expenses  of  $13.3  million  and
adjustments to net income for non-cash  items of $21.3 million.  This was offset
by a net loss of $22.3 million,  an increase in net trade accounts receivable of
$9.0 million and a decrease in other  liabilities of $3.0 million.  For the nine
months ended  September 30, 1999, net cash provided by operating  activities was
mainly  generated  by net income of $62.2  million  and a net  decrease in other
assets of $4.1,  offset by a reduction in accounts  payable and accrued expenses
of $24.4  million,  an adjustment  for the  extraordinary  gain of $21.2 million
recorded from the acquisition of the Company's  convertible debt and an increase
in accounts receivable, trade of $12.8 million.

     Net cash used in investing activities of $33.7 million related primarily to
the purchase of property, equipment and intangibles during the nine months ended
September 30, 2000.  For the nine months ended  September 30, 1999, the net cash
provided  by  investing  activities  was  mainly  from  the  sale of  marketable
securities of $89.6 million.

     The $13.6  million net cash provided by financing  activities  for the nine
months ended September 30, 2000 was received from the exercise of employee stock
options and common stock purchase  rights.  For the nine months ended  September
30, 1999, the net cash used in financing  activities  totaled $49.6 million.  On
January  5,  1999,  pursuant  to an  Investment  Agreement  between  AOL and the
Company,  AOL made a significant  equity  investment  in the Company,  acquiring
4,121,372  shares of Common Stock for $55.0 million in cash and the surrender of
rights to acquire up to  5,076,016  shares of Common  Stock  pursuant to various
warrants held by AOL. Additional  financing  activities  generated $25.0 million
from the  exercise of employee  stock  options.  These  activities  in 1999 were
offset by the acquisition of convertible debt of $72.3 million, the repayment of
margin  account  indebtedness  of $49.6 million and the  acquisition of treasury
stock of $7.7 million.

Under the terms of the  Investment  Agreement  with AOL,  the Company  agreed to
reimburse  AOL for  losses  AOL may  incur on the  sale of any of the  4,121,372
shares of Company  common  stock held by AOL during the period from June 1, 1999
through  September  30, 2000.  The  reimbursement  amount would be determined by
multiplying  the number of shares,  if any, that AOL sells during the applicable
period by the  difference  between the purchase  price per share paid by AOL, or
$19 per share,  and the price per share that AOL sells the shares  for,  if less
than $19 per share.  The  reimbursement  amount may not exceed $14 per share for
2,894,737 shares or $11 per share for 1,226,635 shares. Accordingly, the maximum
amount  payable to AOL as  reimbursement  on the sale of AOL's  shares  would be
approximately   $54.0  million  plus  AOL's  reasonable   expenses  incurred  in
connection  with the sale. The Company has the option of issuing a six-month 10%
note payable to AOL to satisfy the reimbursement amount or other amounts payable
on exercise of its first  refusal  rights.  Assuming AOL were to sell all of its
shares subject to the Company  reimbursement  obligation at the closing price of
Company common stock as of November 10, 2000, the reimbursement  amount would be
approximately  $54.0  million.  AOL also has the right,  on  termination  of the
Company's long distance  exclusivity under its marketing  agreement with AOL, to
require the Company to  repurchase  warrants  held by AOL to purchase  2,721,984
shares of Company common stock for $36.3 million,  which repurchase price can be
paid in Common Stock or cash (provided that some portion of the repurchase price
may be payable in a  quarterly  amortization,  two-year  promissory  note of the
Company if the  repurchase  price  exceeds  the then  current  valuation  of the
warrants being purchased). The Company has pledged the stock of its subsidiaries
and has agreed to fund an escrow  account of up to $35.0 million from 50% of the
proceeds of any debt  financing,  other than a bank,  receivable  or other asset
based  financing of up to $50.0  million,  to secure its  obligations  under the
Investment Agreement with AOL. Mr. Daniel Borislow, former Chairman of the Board
and Chief Executive Officer of the Company,  has agreed to guarantee up to $20.0
million  of  the  Company's  reimbursement   obligations  under  the  Investment
Agreement  with AOL.  By an  amendment  dated as of August 2,  2000,  the period
during which AOL may exercise its rights to reimbursement for losses on the sale
of stock, as described  above, was extended from September 30, 2000 to September
20,  2001.  Also as of August 2, 2000,  the  Company  received a letter from AOL
confirming that AOL does not intend to exercise such rights to reimbursement for
shortfalls earlier than December 31, 2000.

     The Company  generally does not have a significant  concentration of credit
risk with respect to net trade accounts  receivable,  due to the large number of
end users  comprising the Company's  customer base and their  dispersion  across
different  geographic  regions.  The Company  maintains  reserves for  potential
credit  losses  and,  to date,  such  losses  have  been  within  the  Company's
expectations.

     At the time of the Company's  acquisition of Access One, Access One and its
subsidiaries  had $15.0 million of loans  outstanding  under an existing  credit
facility with MCG Finance Corporation.  The loans under the credit facility were
secured by a pledge of all of the assets of Access One and its subsidiaries.  In
addition,  the  Company
                                       19
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

guaranteed the obligations of Access One and its  subsidiaries  under the credit
facility.  The $15.0  million  loan was repaid on October 20, 2000 when  certain
subsidiaries of the Company  entered into a Credit  Facility  Agreement with MCG
Finance Corporation, providing for a term loan of up to $20.0 million and a line
of credit facility  permitting  such  subsidiaries to borrow up to an additional
$30.0  million.  The  effectiveness  of the line of credit  facility is subject,
among other things,  to the successful  syndication  of that facility,  which is
expected to occur in 2001. The Credit  Facility  Agreement  subjects the Company
and its  subsidiaries to certain  restrictions  and covenants  related to, among
other things, liquidity,  per-subscriber revenue,  subscriber acquisition costs,
leverage ratio and interest coverage ratio  requirements.  The credit facilities
under the Credit  Facility  Agreement  terminate  on June 30,  2001,  but can be
extended  at the  Company's  election  up to June 30,  2005  for the  term  loan
facility and up to June 30, 2003 for the line of credit facility.  The principal
of the term loan is required  to be repaid in  quarterly  installments  of $1.25
million on the last calendar day of each fiscal quarter, commencing on September
30, 2001. The loans under the Credit Facility  Agreement are secured by a pledge
of all of the assets of the subsidiaries of the Company that are parties to that
agreement.  In addition,  the Company has  guaranteed  the  obligations of those
subsidiaries  under the Credit  Facility  Agreement and related  documents;  the
Company's guarantee subjects the Company to certain  restrictions and covenants,
including  a  prohibition  against the  payment of  dividends  in respect of the
Company's equity securities,  except under certain limited  circumstances.  Upon
its execution of the Credit Facility Agreement,  the Company issued warrants for
300,000  shares of its common  stock,  which  become  exercisable,  at $4.36 per
share,  if the Company fails to exceed certain EBITDA  thresholds for the fiscal
quarters  ended  December  31,  2000 and March 31,  2001.  The  Company  is also
required to issue  warrants  exercisable  for an  additional  300,000  shares of
common stock  (exercisable  immediately) on the date on which the line of credit
facility is  successfully  syndicated  (provided such date occurs prior to March
31, 2001).  On October 20, 2000,  the Company  borrowed  $20.0 million under the
term loan facility (approximately $15.0 million was used to repay the Access One
loans).

         The Company does not, and has not  historically,  required  significant
amounts of working capital for its day-to-day  operations.  The Company believes
that its current cash position and the cash flow  expected to be generated  from
operations will be sufficient to fund its capital expenditures,  working capital
and other cash requirements,  including  marketing and promotional  expenditures
discussed above, for at least the next twelve months. The Company also believes,
based on its  existing  cash and cash  equivalents  and its  expectations  as to
future cash flow from  operations,  that,  should AOL elect  during the exercise
period of January 1, 2001 through  September  30, 2001 to sell its shares of the
Company's common stock at a price below $19 per share. The Company will have the
ability  to  obtain  the  financing  necessary  to  fund  such  portion  of  its
reimbursement obligations under the AOL Investment Agreement as it does not fund
from its cash on hand at such time.  Should the Company seek to raise additional
capital,  however,  there  can  be  no  assurance  that,  given  current  market
conditions,  the Company would be able to raise such additional capital on terms
acceptable to the Company.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

         Certain  of  the   statements   contained   herein  may  be  considered
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933  and  Section  21E of the  Securities  Exchange  Act of  1934.  Such
statements  are  identified  by the use of  forward-looking  words  or  phrases,
including,   but   not   limited   to,   "estimates,"   "expects,"   "expected,"
"anticipates," and "anticipated." These forward-looking  statements are based on
the  Company's  current  expectations.  Although the Company  believes  that the
expectations reflected in such forward-looking statements are reasonable,  there
can be no  assurance  that such  expectations  will prove to have been  correct.
Forward-looking  statements  involve risks and  uncertainties  and the Company's
actual  results  could differ  materially  from the Company's  expectations.  In
addition to those factors discussed in the foregoing Management's Discussion and
Analysis,  important  factors  that could  cause such  actual  results to differ
materially  include,   among  others,  adverse  developments  in  the  Company's
relationship with its marketing  partners,  increased price competition for long
distance and local services, failure of the marketing of long distance and local
services under its agreements with its various marketing partners and its direct
marketing  channels,  attrition  in the  number of end  users,  a failure of the
Company to continue to  successfully  integrate the  operations of Access One or
difficulties  in  managing  the  larger  combined  companies,  a failure  of the
Company's  new local  services  and  bundled  local and long  distance  services
initiative,  failure of the  Company to expand its  offering  of local and local
bundled services to new states,  failure of the Company to manage its growth and
changes in government policy, regulation and enforcement. The Company undertakes
no obligation to update its forward-looking statements.

                                       20
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the normal course of business,  the financial position of the Company is
subject  to a  variety  of risks,  such as the  collectibility  of its  accounts
receivable  and the  recoverability  of the  carrying  values  of its  long-term
assets.  The  Company's  long-term  obligations  consist  primarily  of its  own
convertible notes and credit facility. The Company does not presently enter into
any transactions  involving derivative financial instruments for risk management
or other  purposes due to the  stability  in interest  rates in recent times and
because management does not consider the potential impact of changes in interest
rates to be material.

     The Company's  available  cash balances are invested on a short-term  basis
(generally  overnight) and,  accordingly,  are not subject to significant  risks
associated  with changes in interest rates.  Substantially  all of the Company's
cash flows are  derived  from its  operations  within the United  States and the
Company  is not  subject  to market  risk  associated  with  changes  in foreign
exchange rates.


                                       21
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

Rights of Equity Securities

     On October 20, 2000,  certain  subsidiaries  of the Company  entered into a
Credit Facility Agreement with MCG Finance Corporation.  The Company's guarantee
of such  subsidiaries'  obligations under the Credit Facility Agreement subjects
the Company to certain  restrictions  and  covenants,  including  a  prohibition
against the payment of dividends in respect of the Company's equity  securities,
except under certain limited circumstances.

Issuances of Securities

     Upon  its  execution  of a  Credit  Facility  Agreement  with  MCG  Finance
Corporation (with its affiliated  entities,  collectively  "MCG") on October 20,
2000, the Company issued warrants for 300,000 shares of its common stock to MCG,
which  warrants  become  exercisable  at $4.36 per share if the Company fails to
exceed certain  revenue  thresholds  for the fiscal  quarters ended December 31,
2000 and March 31, 2001.

     On August 9, 2000, the Company  issued  currently  exercisable  warrants to
purchase  300,000  shares  of its  common  stock  to MCG in  consideration  of a
consulting  agreement  and  services  provided by MCG  thereunder  to Access One
Communications  Corp.  These warrants have an exercise price of $4.73 and expire
on August 8, 2007.

     Each of the above  issuances was made by the Company in reliance on Section
4(2) of the Securities Act of 1933.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

(a)  Exhibits:

<S>     <C>
        10.1     Employment Agreement between the Company and Thomas M. Walsh dated August 7, 2000. *

        10.2     Indemnification Agreement between the Company Thomas M. Walsh dated August 7, 2000. *

        10.3     Non-Qualified Stock Option Agreement between the Company and Thomas M. Walsh dated August 7, 2000. *

        10.4     Credit Facility Agreement among Talk.com Holding Corp., Access One Communications Corp, certain of their
                 direct and indirect subsidiaries and MCG Finance Corporation, dated as of October 20, 2000. ++

        10.5     Guaranty between Talk.com Inc. in favor of MCG Finance Corporation, dated as of October 20, 2000.

        27       Financial Data Schedule

         *       Management contract or compensatory plan or arrangement.
         ++      Confidential treatment has been requested for portions of this exhibit.
</TABLE>

                                       22
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

         (b) Reports on Form 8-K:

                  During the quarter ended September 30, 2000, the Company filed
              three Current Reports on Form 8-K reporting on the following:

                  The Current Report on Form 8-K, dated August 2, 2000, reported
              under Item 5. Other  Events,  an  extension  of the  reimbursement
              obligation  under the Investment  Agreement  with America  Online,
              Inc.

                  The Current Report on Form 8-K, dated August 9, 2000, reported
              on Item 2.  Acquisition or  Disposition  of Assets,  that a wholly
              owned  subsidiary  of the Company  merged with and into Access One
              Communications  Corp., a New Jersey  corporation  ("Access  One"),
              pursuant to the  Agreement  and Plan of Merger,  dated as of March
              24, 2000, between the Company and Access One.

                  The  Current  Report on Form 8-K,  dated  September  8,  2000,
              reported  under  Item  4.  Changes  in   Registrant's   Certifying
              Accountant  the  change  in the  Company's  independent  certified
              public accountants to PricewaterhouseCoopers LLP.


                                       23
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES

                                   SIGNATURES

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

                                               TALK.COM INC.


Date:    November 14, 2000                      By: /s/ Gabriel Battista
                                                   ---------------------
                                                Gabriel Battista
                                                Chief Executive Officer

Date:    November 14, 2000                      By: /s/ Edward B. Meyercord, III
                                                   -----------------------------
                                                Edward B. Meyercord, III
                                                Chief Operating Officer and
                                                Chief Financial Officer

Date:    November 14, 2000                      By: /s/ Janet C. Kirschner
                                                   -----------------------
                                                Janet C. Kirschner
                                                Controller

                                       24