**SECURITIES        AND EXCHANGE COMMISSION**

**_____________________**

**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 March 31, 2006**

**OR**

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

**For        the transition period from____to _____**

**Commission        file number 000 - 26728**

**Talk        America Holdings, Inc.**

| **Delaware**(State                  or other jurisdiction of incorporation or organization) | **23-2827736**(I.R.S.                  Employer Identification No.) |
|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------|

| **6805                  Route 202, New Hope, PA**(Address                  of principal executive offices) | **18938**(Zip                  Code) |
|------------------------------------------------------------------------------------------------------------|--------------------------------------|

**(215)        862-1500**

----

**TALK        AMERICA HOLDINGS, INC. AND SUBSIDIARIES**

**Index**

|                                                                                                                                                                                                                                                                                                                                                                                                 | ** ****Page** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| PART                  I - FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                      |               |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Item                  1.    Financial Statements                                                                                                                                                                                                                                                                                                                                 | 2             |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Condensed                  Consolidated Statements of Operations - Three Months Ended March                  31, 2006                  and 2005 (unaudited)                                                                                                                                                                                                                                          |  2            |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Condensed                  Consolidated Balance Sheets - March 31, 2006 and December 31, 2005                  (unaudited)                                                                                                                                                                                                                                                                           |  3            |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Condensed                  Consolidated Statements of Cash Flows - Three Months Ended March                  31, 2006                  and 2005 (unaudited)                                                                                                                                                                                                                                          | 4             |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
|                                  Condensed Consolidated Statements of Stockholders’ Equity - Three Months                  Ended                                           March 31, 2006 (unaudited) |  5            |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Notes                  to Consolidated Financial Statements (unaudited)                                                                                                                                                                                                                                                                                                                              |  6            |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Item                  2.    Management’s Discussion and Analysis of Financial                  Condition and Results of Operations                                                                                                                                                                                                                                              |  15           |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Item                  3.    Quantitative and Qualitative Disclosures about Market                  Risk                                                                                                                                                                                                                                                                               |  22           |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Item                  4.   Controls and Procedures                                                                                                                                                                                                                                                                                                                                         |  22           |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| PART                  II - OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                         |  23           |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
| Item                  6.    Exhibits                                                                                                                                                                                                                                                                                                                                                  |  23           |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |
|                                                                                                                                                                                                                                                                                                                                                                                                 |               |

----

**PART        I. FINANCIAL INFORMATION**

**Item        1. Financial Statements.**

**TALK        AMERICA HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED**
**        CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In        thousands, except for per share data)**

**(Unaudited)**

|                                                                                                                                                                              |   | **Three                  Months Ended March 31,** |     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|----------|
|                                                                                                                                                                              |   |                                              | **2006** |   |   | **2005** |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Revenue                                                                                                                                                                           |   | $                                                 | 120,516  |   | $ | 119,835 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Costs                  and expenses:                                                                                                                                              |   |                                              |     |   |   |   |   |
|                       Network and line costs (excluding depreciation and                           amortization) |   |                                              | 61,837   |   |   | 60,996 |   |
| General                  and administrative expenses                                                                                                                              |   |                                              | 28,584   |   |   | 18,120 |   |
| Provision                  for doubtful accounts                                                                                                                                  |   |                                              | 4,050    |   |   | 5,588 |   |
| Sales                  and marketing expenses                                                                                                                                     |   |                                              | 10,936   |   |   | 10,268 |   |
| Depreciation                  and amortization                                                                                                                                    |   |                                              | 11,235   |   |   | 9,501 |   |
| Total                  costs and expenses                                                                                                                                         |   |                                              | 116,642  |   |   | 104,473 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Operating                  income                                                                                                                                                 |   |                                              | 3,874    |   |   | 15,362 |   |
| Other                  income (expense):                                                                                                                                          |   |                                              |     |   |   |   |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Interest                  income                                                                                                                                                  |   |                                              | 318      |   |   | 308 |   |
| Interest                  expense                                                                                                                                                 |   |                                              | (227     | ) |   | (25 | ) |
| Other                  income (expense), net                                                                                                                                      |   |                                              | 113      |   |   | (20 | ) |
| Income                  before provision for income taxes                                                                                                                         |   |                                              | 4,078    |   |   | 15,625 |   |
| Provision                  for income taxes                                                                                                                                       |   |                                              | 1,697    |   |   | 6,155 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Net                  income                                                                                                                                                       |   | $                                                 | 2,381    |   | $ | 9,470 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Income                  per share - Basic:                                                                                                                                        |   |                                              |     |   |   |   |   |
| Net                  income per share                                                                                                                                             |   | $                                                 | 0.08     |   | $ | 0.35 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Weighted                  average common shares outstanding                                                                                                                       |   |                                              | 30,382   |   |   | 27,086 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Income                  per share - Diluted:                                                                                                                                      |   |                                              |     |   |   |   |   |
| Net                  income per share                                                                                                                                             |   | $                                                 | 0.08     |   | $ | 0.34 |   |
|                                                                                                                                                                              |   |                                              |     |   |   |   |   |
| Weighted                  average common and common equivalent                      shares outstanding                                                        |   |                                              | 30,743   |   |   | 27,813 |   |

----

**TALK        AMERICA HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**(In        thousands, except for share and per share data)**

**(Unaudited)**

|                                                                                                                                                                                                                                                             |   | **March                  31,****2006** |     | **December                  31,****2005** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|-------------------------------------------|--------|
| **Assets**                                                                                                                                                                                                                                                       |   |                                   |     |                                      |   |   |   |
| Current                  assets:                                                                                                                                                                                                                                 |   |                                   |     |                                      |   |   |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                       |   | $                                      | 23,283   |                                      | $      | 46,288 |   |
| Restricted                  cash                                                                                                                                                                                                                                 |   |                                   | 1,925    |                                      |   | -- |   |
| Accounts                  receivable, trade (net of allowance for uncollectible accounts                  of $14,618                  and $13,838 at March 31, 2006 and December 31, 2005, respectively)                                                         |   |                                   | 40,358   |                                      |   | 43,600 |   |
| Deferred                  income taxes                                                                                                                                                                                                                           |   |                                   | 18,109   |                                      |   | 18,096 |   |
| Prepaid                  expenses and other current assets                                                                                                                                                                                                       |   |                                   | 12,962   |                                      |   | 10,297 |   |
| Total                  current assets                                                                                                                                                                                                                            |   |                                   | 96,637   |                                      |   | 118,281 |   |
|                                                                                                                                                                                                                                                             |   |                                   |     |                                      |   |   |   |
| Property                  and equipment, net                                                                                                                                                                                                                     |   |                                   | 102,898  |                                      |   | 98,492 |   |
| Goodwill                                                                                                                                                                                                                                                         |   |                                   | 36,479   |                                      |   | 36,479 |   |
| Intangible                  assets, net                                                                                                                                                                                                                          |   |                                   | 4,712    |                                      |   | 4,934 |   |
| Deferred                  income taxes                                                                                                                                                                                                                           |   |                                   | 33,584   |                                      |   | 21,033 |   |
| Capitalized                  software and other assets                                                                                                                                                                                                           |   |                                   | 10,321   |                                      |   | 9,470 |   |
|                                                                                                                                                                                                                                                             |   | $                                      | 284,631  |                                      | $      | 288,689 |   |
| **Liabilities                  and Stockholders’ Equity**                                                                                                                                                                                                  |   |                                   |     |                                      |   |   |   |
| Current                  liabilities:                                                                                                                                                                                                                            |   |                                   |     |                                      |   |   |   |
| Accounts                  payable                                                                                                                                                                                                                                |   | $                                      | 33,255   |                                      | $      | 40,025 |   |
| Sales,                  use and excise taxes                                                                                                                                                                                                                     |   |                                   | 7,725    |                                      |   | 7,316 |   |
| Deferred                  revenue                                                                                                                                                                                                                                |   |                                   | 15,004   |                                      |   | 13,824 |   |
| Current                  portion of long-term debt and capitalized lease                  obligations                                                                                                                                                            |   |                                   | 3,609    |                                      |   | 3,988 |   |
| Accrued                  compensation                                                                                                                                                                                                                            |   |                                   | 5,020    |                                      |   | 9,405 |   |
| Other                  current liabilities                                                                                                                                                                                                                       |   |                                   | 12,840   |                                      |   | 12,933 |   |
| Total                  current liabilities                                                                                                                                                                                                                       |   | $                                      | 77,453   |                                      | $      | 87,491 |   |
|                                                                                                                                                                                                                                                             |   |                                   |     |                                      |   |   |   |
| Long-term                  debt and capitalized lease obligations                                                                                                                                                                                                |   |                                   | 1,045    |                                      |   | 1,289 |   |
|                                                                                                                                                                                                                                                             |   |                                   |     |                                      |   |   |   |
| Deferred                  income taxes                                                                                                                                                                                                                           |   |                                   | 4,036    |                                      |   | 4,853 |   |
|                                                                                                                                                                                                                                                             |   |                                   |     |                                      |   |   |   |
| Other                  non-current liabilities                                                                                                                                                                                                                   |   |                                   | 5,934    |                                      |   | 3,269 |   |
|                                                                                                                                                                                                                                                             |   |                                   |     |                                      |   |   |   |
| Commitments                  and contingencies                                                                                                                                                                                                                   |   |                                   |     |                                      |   |   |   |
|                                                                                                                                                                                                                                                             |   |                                   |     |                                      |   |   |   |
| Stockholders'                  equity:                                                                                                                                                                                                                           |   |                                   |     |                                      |   |   |   |
| Preferred                  stock - $.01 par value, 5,000,000 shares authorized; no shares                  outstanding                                                                                                                                           |   |                                   | --       |                                      |   | -- |   |
| Common                  stock - $.01 par value, 100,000,000 shares authorized; 30,417,368                  and                  30,368,267 shares issued and outstanding at March 31, 2006 and                  December                  31, 2005, respectively |   |                                   | 317      |                                      |   | 317 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                      |   |                                   | 382,476  |                                      |   | 380,481 |   |
| Accumulated                  deficit                                                                                                                                                                                                                             |   |                                   | (181,630 | )                                         |   | (184,011 | ) |
| Treasury                  stock - at cost, 1,315,789 shares at March 31, 2006 and December                  31,                  2005                                                                                                                            |   |                                   | (5,000   | )                                         |   | (5,000 | ) |
| Total                  stockholders' equity                                                                                                                                                                                                                      |   |                                   | 196,163  |                                      |   | 191,787 |   |
|                                                                                                                                                                                                                                                             |   | $                                      | 284,631  |                                      | $      | 288,689 |   |

----

**TALK        AMERICA HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In        thousands)**

**(Unaudited)**

|                                                                                                                                   |   | **Three                  Months Ended****March                  31,** |     |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|----------|
|                                                                                                                                   |   |                                                                  | **2006** |   |   | **2005** |   |
| Cash                  flows from operating activities:                                                                                 |   |                                                                  |     |   |   |   |   |
| Net                  income                                                                                                            |   | $                                                                     | 2,381    |   | $ | 9,470 |   |
|                      Adjustments to reconcile net income to net cash provided by operating                  activities: |   |                                                                  |     |   |   |   |   |
| Provision                  for doubtful accounts                                                                                       |   |                                                                  | 4,050    |   |   | 5,588 |   |
| Depreciation                  and amortization                                                                                         |   |                                                                  | 11,235   |   |   | 9,501 |   |
| Stock-based                  compensation                                                                                              |   |                                                                  | 1,608    |   |   | -- |   |
| Other                  non cash charges (benefits) - net                                                                               |   |                                                                  | (40      | ) |   | 20 |   |
| Deferred                  income taxes                                                                                                 |   |                                                                  | 1,071    |   |   | 4,484 |   |
| Changes                  in assets and liabilities, net of businesses acquired:                                                        |   |                                                                  |     |   |   |   |   |
| Restricted                  cash                                                                                                       |   |                                                                  | 1,370    |   |   | -- |   |
| Accounts                  receivable, trade                                                                                            |   |                                                                  | 3,635    |   |   | 202 |   |
| Prepaid                  expenses and other current assets                                                                             |   |                                                                  | (456     | ) |   | 652 |   |
| Other                  assets                                                                                                          |   |                                                                  | (158     | ) |   | 9 |   |
| Accounts                  payable                                                                                                      |   |                                                                  | (9,707   | ) |   | 707 |   |
| Sales,                  use and excise taxes                                                                                           |   |                                                                  | (228     | ) |   | (1,591 | ) |
| Deferred                  revenue                                                                                                      |   |                                                                  | (841     | ) |   | (1,049 | ) |
| Accrued                  compensation                                                                                                  |   |                                                                  | (8,944   | ) |   | (5,068 | ) |
| Other                  liabilities                                                                                                     |   |                                                                  | (1,724   | ) |   | (83 | ) |
| Net                  cash provided by operating activities                                                                             |   |                                                                  | 3,252    |   |   | 22,842 |   |
|                                                                                                                                   |   |                                                                  |     |   |   |   |   |
| Cash                  flows from investing activities:                                                                                 |   |                                                                  |     |   |   |   |   |
| Acquisition                  of NTC, net of cash acquired                                                                              |   |                                                                  | (16,485  | ) |   | -- |   |
| Capital                  expenditures                                                                                                  |   |                                                                  | (7,449   | ) |   | (12,221 | ) |
| Capitalized                  software development costs                                                                                |   |                                                                  | (1,278   | ) |   | (1,010 | ) |
| Proceeds                  from sale of property and equipment                                                                          |   |                                                                  | --       |   |   | 42 |   |
| Net                  cash used in investing activities                                                                                 |   |                                                                  | (25,212  | ) |   | (13,189 | ) |
|                                                                                                                                   |   |                                                                  |     |   |   |   |   |
| Cash                  flows from financing activities:                                                                                 |   |                                                                  |     |   |   |   |   |
| Payments                  of capital lease obligations                                                                                 |   |                                                                  | (1,397   | ) |   | (629 | ) |
| Proceeds                  from exercise of options                                                                                     |   |                                                                  | 352      |   |   | 667 |   |
| Net                  cash provided by (used in) financing activities                                                                   |   |                                                                  | (1,045   | ) |   | 38 |   |
|                                                                                                                                   |   |                                                                  |     |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                                                  |   |                                                                  | (23,005  | ) |   | 9,691 |   |
| Cash                  and cash equivalents, beginning of period                                                                        |   |                                                                  | 46,288   |   |   | 47,492 |   |
| Cash                  and cash equivalents, end of period                                                                              |   | $                                                                     | 23,283   |   | $ | 57,183 |   |
|                                                                                                                                   |   |                                                                  |     |   |   |   |   |

----

**TALK        AMERICA HOLDINGS, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF STOCKHOLDERS' EQUITY**

**(In        thousands)**

**(Unaudited)        **

|                                                                                   |   |                              |   |        |   | **Additional**  |   |                                |    |       |   |       |   |      |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------|--------|-------------|--------|-----------------|--------|-------------------------------------|---------|------------|--------|------------|--------|-----------|--------|
|                                                                                   |   | **Common                  Stock** |   | **Paid-In** |   | **Accumulated** |   | **Treasury                  Stock** |    |       |   |
|                                                                                   |   | **Shares**                        |   | **Amount**  |   | **Capital**     |   | **Deficit**                         |    | **Shares** |   | **Amount** |   | **Total** |   |
|                                                                                   |   |                              |   |        |   |            |   |                                |    |       |   |       |   |      |   |   |   |   |   |   |   |   |
| Balances,                  December 31, 2005                                           |   |                              | 31,684 |        | $      | 317             |   | $                                   | 380,481 |       | $      | (184,011   | )      |      | 1,316  |   | $ | (5,000 | ) | $ | 191,787 |   |
|                                                                                   |   |                              |   |        |   |            |   |                                |    |       |   |       |   |      |   |   |   |   |   |   |   |   |
| Net                  income                                                            |   |                              | --     |        |   | --              |   |                                | --      |       | $      | 2,381      |   |      | --     |   |   | -- |   | $ | 2,381 |   |
| In Icome                  tax benefit related to exercise of common stock options |   |                              | --     |        |   | --              |   |                                | 82      |       |   | --         |   |      | --     |   |   | -- |   |   | 82 |   |
|  S  Stock-based                  compensation                           |   |                              | 49     |        |   | --              |   | $                                   | 1,913   |       |   | --         |   |      | --     |   |   | -- |   | $ | 1,913 |   |
| Balances,                  March 31, 2006                                              |   |                              | 31,733 |        | $      | 317             |   | $                                   | 382,476 |       | $      | (181,630   | )      |      | 1,316  |   | $ | (5,000 | ) | $ | 196,163 |   |

----

**TALK        AMERICA HOLDINGS, INC. AND SUBSIDIARIES**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE        1. ACCOUNTING POLICIES**

**(a)        Basis of Financial Statements Presentation**

**(b)        Risks and Uncertainties **

|   |                      · |  Increased                  price and product competition in commercial and residential voice                  and data                  services, and overall competition within the telecommunications                  industry |
|--------|--------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |  Our                  ability to successfully integrate businesses that we acquire, including                  but not limited to Network Telephone                  Corporation |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                      · |  Dependence                  on the availability and functionality of the networks of the incumbent                  local exchange carriers |
|--------|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE        2. COMMITMENTS AND CONTINGENCIES **

----

**NOTE        3. STOCK-BASED COMPENSATION **

| **(a)  ** | **Compensation                  Expense** |
|---------------------|-------------------------------------------|

*de        minimus*

----

|                                                       |   | **Using Previous****Accounting** |   |   |   | **SFAS 123(R)****Adjustments** |   |   |   | **As****Reported** |   |   |   |
|------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------|-------------------------------------|--------|--------|--------|--------------------|--------|--------|--------|
|                                                       |   |                                  |   |   |   |                                |   |   |   |               |   |   |   |   |   |   |   |   |   |
|  Operating                  income                    |   | $                                     | 5.5    |   |   |                                     |   | $      | (1.6   | )                  |   |   |   | $ | 3.9 |   |   |  |   |
|  Income                  before income taxes          |   |                                  | 5.7    |   |   |                                     |   |   | (1.6   | )                  |   |   |   |   | 4.1 |   |   |  |   |
|  Provision                  for income taxes          |   |                                  | 2.3    |   |   |                                     |   |   | (0.6   | )                  |   |   |   |   | 1.7 |   |   |  |   |
|  Net                  income                          |   |                                  | 3.4    |   |   |                                     |   |   | (1.0   | )                  |   |   |   |   | 2.4 |   |   |  |   |
|                                                       |   |
|  Income                  per share-basic:             |   | $                                     | 0.11   |   |   |                                     |   | $      | (0.03  | )                  |   |   |   | $ | 0.08 |   |   |  |   |
|                                                       |   |                                  |   |   |   |                                |   |   |   |               |   |   |   |   |   |   |   |   |   |
|  Income                  per share-diluted:           |   |                                  | 0.11   |   |   |                                     |   |   | (0.03  | )                  |   |   |   |   | 0.08 |   |   |  |   |
|                                                       |   |                                  |   |   |   |                                |   |   |   |               |   |   |   |   |   |   |   |   |   |
|  Cash                  flow from operating activities |   | $                                     | 3.3    |   |   |                                |   | $      | (0.1   | )                  |   |   |   | $ | 3.2 |   |   |   |   |
|  Cash                  flow from financing activities |   |                                  | (1.1   | )      |   |                                |   |   | 0.1    |               |   |        |   |   | (1.0 | ) |   |   |   |

----

|                                                                                                                                                                                   |   | **Three                  Months Ended** |                                                      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------------------------------------------------------|
|                                                                                                                                                                                   |   |                                    | **                    March 31,****2005**  |   |
| Net                  income as reported                                                                                                                                                |   | $                                       | 9,470                                                     |   |
| Add:                  Stock-based employee compensation expense included in reported                         net income, net of tax effect     |   |                                    | --                                                        |   |
| Deduct:                  Total stock-based employee compensation expense determined under                  fair                  value based method for all options, net of tax effect |   |                                    | (503                                                      | ) |
| Pro                  forma net income                                                                                                                                                  |   | $                                       | 8,967                                                     |   |

| **Basic                  earnings per share:**   |   |   |   |   |
|--------------------------------------------------|--------|--------|--------|--------|
| As                  reported                     |   | $      | 0.35   |   |
| Pro                  forma                       |   | $      | 0.33   |   |
| **Diluted                  earnings per share:** |   |   |   |   |
| As                  reported                     |   | $      | 0.34   |   |
| Pro                  forma                       |   | $      | 0.33   |   |

----

**(b)        **
**Stock-Based        Compensation Plans**

|                                            |   |  **Options****Shares** |   | **Exercise****Price                  Range****Per                  Share** |   | **Weighted****Average****Exercise                  Price** |
|-------------------------------------------------|--------|-----------------------------|--------|----------------------------------------------------------------------------|--------|------------------------------------------------------------|
| Outstanding,                  December 31, 2003 |   | 5,437,107                   |   | $0.99-$47.64                                                               |   | $8.35                                                      |
| Granted                                         |   | 220,833                     |   | $5.14-$10.87                                                               |   | $6.83                                                      |
| Exercised                                       |   | (374,144)                   |   | $1.05-$6.81                                                                |   | $1.75                                                      |
| Cancelled                                       |   | (401,952)                   |   | $1.32-$29.63                                                               |   | $12.86                                                     |
|                                            |   |                        |   |                                                                       |   |                                                       |
| Outstanding,                  December 31, 2004 |   | 4,881,844                   |   | $0.99-$47.64                                                               |   | $8.41                                                      |
| Granted                                         |   | 1,670,000                   |   | $6.22-$9.57                                                                |   | $8.52                                                      |
| Exercised                                       |   | (1,240,706)                 |   | $0.99                  - $10.49                                            |   | $2.43                                                      |
| Cancelled                                       |   | (310,334)                   |   | $1.11-$30.38                                                               |   | $10.28                                                     |
|                                            |   |                        |   |                                                                       |   |                                                       |
| Outstanding,                  December 31, 2005 |   | 5,000,804                   |   | $1.20-$47.64                                                               |   | $9.82                                                      |
| Granted                                         |   | 255,000                     |   | $8.84-$8.92                                                                |   | $8.84                                                      |
| Exercised                                       |   | (49,101)                    |   | $1.53-$7.88                                                                |   | $5.26                                                      |
| Cancelled                                       |   | (138,780)                   |   | $7.68-$15.75                                                               |   | $9.44                                                      |
|                                            |   |                        |   |                                                                       |   |                                                       |
| Outstanding,                  March 31, 2006    |   | 5,067,923                   |   | $1.20-$47.64                                                               |   | $9.82                                                      |

----

| **Range                  of****Exercise                  Prices** |   | **Number                  Outstanding at March 31, 2006** |   | **Weighted                  Average Exercise Price** |   | **Weighted                  Average Remaining Contractual Life (years)** |   | **Number                  Exercisable at March 31, 2006** |   | **Weighted                  Average Exercise Price** |
|-------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|------------------------------------------------------|
| $1.20                  to $10.31                                  |   | 2,803,343                                                 |   | $                  6.96                              |   | 7.6                                                                      |   | 928,738                                                   |   | $                  3.87                              |
| $10.32                  to $14.35                                 |   | 1,969,675                                                 |   | 11.62                                                |   | 6.7                                                                      |   | 1,966,209                                                 |   | 11.62                                                |
| $14.36                  to $21.00                                 |   | 133,297                                                   |   | 20.19                                                |   | 2.9                                                                      |   | 133,297                                                   |   | 20.19                                                |
| $21.01                  to $30.00                                 |   | 66,666                                                    |   | 26.65                                                |   | 2.9                                                                      |   | 66,666                                                    |   | 26.65                                                |
| $30.01                  to $47.64                                 |   | 94,942                                                    |   | 30.94                                                |   | 3.2                                                                      |   | 94,942                                                    |   | 30.94                                                |
| $1.20                  to $47.64                                  |   | 5,067,923                                                 |   | $9.82                                                |   | 7.0                                                                      |   | 3,189,852                                                 |   | $10.61                                               |

| **Assumption**                           |   | **2006**                 |   | **2005**                 | **2004**                 |   |
|------------------------------------------|--------|--------------------------|--------|--------------------------|--------------------------|--------|
| Expected                  Term           |   | 6                  years |   | 5                  years | 5                  years |   |
| Expected                  Volatility     |   | 87.40%                   |   | 92.16%                   | 93.82%                   |   |
| Expected                  Dividend Yield |   | --%                      |   | --%                      | --%                      |   |
| Risk-Free                  Interest Rate |   | 4.32%                    |   | 4.10%                    | 3.49%                    |   |

----

|                                                     |   | **Number of****Shares** |      | **Weighted****Average****Fair Value** |   |
|----------------------------------------------------------|--------|------------------------------|-----------|--------------------------------------------|--------|
|  Nonvested                  at January 1, 2006 |   |                         | 1,763,572 |                                       |   |  |   | $ | 6.14 |   |
| Granted                                                  |   |                         | 255,000   |                                       |   |  |   |   | 6.64 |   |
| Vested                                                   |   |                         | (30,835   | )                                     |   |  |   |   | 5.58 |   |
| Forfeited                                                |   |                         | (109,666  | )                                     |   |  |   |   | 6.35 |   |
| Nonvested                  at March 31, 2006             |   |                         | 1,878,071 |                                       |   |  |   | $ | 6.21 |   |
|                                                     |   |                         |      |                                       |   |   |   |   |   |   |

----

**NOTE        4. PER SHARE DATA**

|                                                                                                                                                                          |   | **Three                  Months Ended****March                  31,** |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|----------|
|                                                                                                                                                                          |   |                                                                  | **2006** |   |   | **2005** |   |
| Net                  income used to compute both basic and diluted                     earnings per share                                                      |   | $                                                                     | 2,381    |   | $ | 9,470 |   |
|                                                                                                                                                                          |   |                                                                  |     |   |   |   |   |
| Average                  shares of common stock outstanding used to compute basic earnings                  per                  share                                        |   |                                                                  | 30,382   |   |   | 27,086 |   |
| Additional                  common shares to be issued assuming exercise of stock options and                  warrants                  (net of shares assumed reacquired) * |   |                                                                  | 361      |   |   | 727 |   |
| Average                  shares of common and common equivalent stock outstanding used to                  compute                  diluted earnings per share                |   |                                                                  | 30,743   |   |   | 27,813 |   |
|                                                                                                                                                                          |   |                                                                  |     |   |   |   |   |
| Income                  per share - Basic:                                                                                                                                    |   |                                                                  |     |   |   |   |   |
| Net                  income per share                                                                                                                                         |   | $                                                                     | 0.08     |   | $ | 0.35 |   |
|                                                                                                                                                                          |   |                                                                  |     |   |   |   |   |
| Weighted                  average common shares outstanding                                                                                                                   |   |                                                                  | 30,382   |   |   | 27,086 |   |
|                                                                                                                                                                          |   |                                                                  |     |   |   |   |   |
|                                                                                                                                                                          |   |                                                                  |     |   |   |   |   |
| Income                  per share - Diluted:                                                                                                                                  |   |                                                                  |     |   |   |   |   |
| Net                  income per share                                                                                                                                         |   | $                                                                     | 0.08     |   | $ | 0.34 |   |
|                                                                                                                                                                          |   |                                                                  |     |   |   |   |   |
| Weighted                  average common and common equivalent shares outstanding                                                                                             |   |                                                                  | 30,743   |   |   | 27,813 |   |

**NOTE        **
**5**
**.        ACQUISITIONS**

----

|                                      |   |  **For the Three                  Months Ended****March                  31,** |     |
|-------------------------------------------|--------|-----------------------------------------------------------------------------------------------|----------|
|                                      |   |                                                                                          | **2006** |   |   | **2005** |   |
| Revenues                                  |   | $                                                                                             | 120,516  |   | $ | 166,285 |   |
| Net                  Income               |   | $                                                                                             | 2,381    |   | $ | 7,663 |   |
|                                      |   |                                                                                          |          |   |   |  |   |
| Earnings                  per share:      |   |                                                                                          |          |   |   |  |   |
| Basic                                     |   | $                                                                                             | 0.08     |   | $ | 0.27 |   |
| Diluted                                   |   | $                                                                                             | 0.08     |   | $ | 0.26 |   |
| Weighted                  Average Shares: |   |                                                                                          |          |   |   |  |   |
| Basic                                     |   |                                                                                          | 30,382   |   |   | 28,886 |   |
| Diluted                                   |   |                                                                                          | 30,743   |   |   | 29,613 |   |

----

**Item        2. Management’s Discussion and Analysis of Financial Condition and Results of        Operations.**

**Cautionary        Note Concerning Forward-Looking Statements**

**OVERVIEW**

----

**RESULTS        OF OPERATIONS **

|                                                 | **Three                  Months Ended March 31,** |
|------------------------------------------------------|---------------------------------------------------|
|                                                 | **2006**                                          |   | **2005** |
| Revenue                                              | 100.0%                                            |   | 100.0% |
| Costs                  and expenses:                 |                                              |   |   |
| Network                  and line costs              | 51.3                                              |   | 50.9 |
| General                  and administrative expenses | 23.7                                              |   | 15.1 |
| Provision                  for doubtful accounts     | 3.4                                               |   | 4.7 |
| Sales                  and marketing expenses        | 9.1                                               |   | 8.6 |
| Depreciation                  and amortization       | 9.3                                               |   | 8.0 |
| Total                  costs and expenses            | 96.8                                              |   | 87.3 |
| Operating                  income                    | 3.2                                               |   | 12.7 |
| Other                  income (expense):             |                                              |   |   |
| Interest                  income                     | 0.3                                               |   | 0.3 |
| Interest                  expense                    | (0.2)                                             |   | -- |
| Other                  income (expense), net         | 0.1                                               |   | -- |
| Income                  before income taxes          | 3.4                                               |   | 13.0 |
| Provision                  for income taxes          | 1.4                                               |   | 5.1 |
| Net                  income                          | 2.0%                                              |   | 7.9% |

----

|                                                 | **Three                  Months Ended****March                  31, 2006** |
|------------------------------------------------------|----------------------------------------------------------------------------|
|                                                 |                                                                       |
| Revenue                                              | 0.6%                                                                       |
| Costs                  and expenses:                 |                                                                       |
| Network                  and line costs              | 1.4                                                                        |
| General                  and administrative expenses | 57.7                                                                       |
| Provision                  for doubtful accounts     | (27.5)                                                                     |
| Sales                  and marketing expenses        | 6.5                                                                        |
| Depreciation                  and amortization       | 18.3                                                                       |
| Total                  costs and expenses            | 11.6                                                                       |
| Operating                  income                    | (74.8)                                                                     |
| Other                  income (expense):             |                                                                       |
| Interest                  income                     | 3.2                                                                        |
| Interest                  expense                    | 808.0                                                                      |
| Other                  income (expense), net         | 665.0                                                                      |
| Income                  before income taxes          | (73.9)                                                                     |
| Provision                  for income taxes          | (72.4)                                                                     |
| Net                  income                          | (74.9%)                                                                    |

*Revenue.*

----

*Network        and Line Costs*

----

*General        and Administrative Expenses*

*Provision        for Doubtful Accounts*

*Sales        and Marketing Expenses*

*Depreciation        and Amortization.*

----

**LIQUIDITY        AND CAPITAL RESOURCES **

|                                  | **First                  Quarter****(in                  thousands)** |  **Percent                  Change** |
|---------------------------------------|-----------------------------------------------------------------------|-------------------------------------------|
|                                  | **2006**                                                              | **2005**                                  | **2006                  vs. 2005** |
| Operating                  activities | $3,252                                                                | $                  22,842                 | (85.8%) |
| Investing                  activities | (25,212)                                                              | (13,189)                                  | 91.2% |
| Financing                  activities | (1,045)                                                               | 38                                        | (2850.0%) |

*Cash        Provided By Operating Activities.*

*Net        Cash Used in Investing Activities.*

----

*Net        Cash Provided by (Used in) Financing Activities.*

**Other        Matters **

----

**Critical        Accounting Policies**

**Item        3. **
**Quantitative        and Qualitative Disclosure about Market Risk.**

**Item        4. **
**Controls        and Procedures. **

----

**PART        II - OTHER INFORMATION**

**Item        6.**
**Exhibits.        **

| 31.1 | Rule                  13a-14(a) Certifications of Edward B. Meyercord, III (filed                  herewith). |
|------|---------------------------------------------------------------------------------------------------------------|

| 31.2 | Rule                  13a-14(a) Certifications of David G. Zahka (filed                  herewith). |
|------|-----------------------------------------------------------------------------------------------------|

| 32.1 | Certification                  of Edward B. Meyercord, III Pursuant to 18 U.S.C. Section 1350,                  as Adopted                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished                  to                  the Commission herewith). |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.2 | Certification                  of David G. Zahka Pursuant to 18 U.S.C. Section 1350, as Adopted                  Pursuant                  to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished to                  the                  Commission herewith). |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SIGNATURES**

**TALK        AMERICA HOLDINGS, INC. **

| Date:                  May 10, 2006 | By:/s/                  Edward B. Meyercord, III  Edward                  B. Meyercord, IIIChief                  Executive Officer                                         |
|-------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Date:                  May 10, 2006 | By:/s/                  David G. Zahka    David                  G. Zahka Chief                  Financial Officer (Principal Financial                  Officer) |