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 MARCH 31, 1999.

[ ]  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
        -----------------------------------------------------------------
         (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

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

               12020 SUNRISE VALLEY DRIVE, RESTON, VIRGINIA 22091
          -------------------------------------------------------------
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES - ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 703-391-7500

                                TEL-SAVE.COM INC.
                                 6805 ROUTE 202
                          NEW HOPE, PENNSYLVANIA 18938
      ---------------------------------------------------------------------
      (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
                                  LAST REPORT.)

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
                                     ---    ---

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

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

                                  YES     NO
                                     ---    ---

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

AS OF APRIL 26,  1999,  60,141,892  SHARES  OF  COMMON  STOCK  WERE  ISSUED  AND
OUTSTANDING.


<PAGE>



                                  TALK.COM INC.
                                    FORM 10-Q
                                 MARCH 31, 1999

                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

         Item 1. Financial Statements

                  Consolidated Balance Sheets as of March 31, 1999 and
                           December 31, 1998

                  Consolidated  Statements of Operations for the three
                           months ended March 31, 1999 and 1998

                  Consolidated  Statement  of   Stockholders'   Equity
                           (Deficit)  for the three months ended March
                           31, 1999

                  Consolidated  Statements of Cash Flows for the three
                           months ended March 31, 1999 and 1998

                  Notes    to Consolidated Financial Statements

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

PART II - OTHER INFORMATION

         Signatures


                                  2

<PAGE>



PART I - FINANCIAL INFORMATION
         ITEM 1. FINANCIAL STATEMENTS

                         TALK.COM INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
                                                                                  MARCH 31,    DECEMBER 31,
                                                                                    1999          1998
------------------------------------------------------------------------------    ---------    -----------
<S>                                                                               <C>          <C>      
ASSETS
CURRENT:
   Cash and cash equivalents                                                      $  31,064    $   3,063
   Marketable securities                                                                 --       89,649
   Accounts receivable, trade net of allowance for uncollectible accounts of
     $1,540 and $1,669, respectively                                                 43,152       46,587
   Advances to partitions and notes receivable                                        1,150        1,870
   Prepaid expenses and other current assets                                          6,893        8,600
-------------------------------------------------------------------------------   ---------    --------- 
       TOTAL CURRENT ASSETS                                                          82,259      149,769
Property and equipment, net                                                          57,536       56,703
Intangibles, net                                                                      1,129        1,150
Other assets                                                                          7,577       64,938
-------------------------------------------------------------------------------   ---------    --------- 
       TOTAL ASSETS                                                               $ 148,501    $ 272,560
===============================================================================   =========    ========= 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
   Margin account indebtedness                                                    $      --    $  49,621
   Accounts payable and accrued expenses:
      Trade and other                                                                40,578       64,794
      Partitions                                                                      4,908        4,380
      Interest and other                                                             15,758       17,913
-------------------------------------------------------------------------------   ---------    --------- 
       TOTAL CURRENT LIABILITIES                                                     61,244      136,708
Convertible debt                                                                     94,285      242,387
Deferred revenue                                                                     26,550       28,400
Other liabilities                                                                        --        1,850
-------------------------------------------------------------------------------   ---------    --------- 
       TOTAL LIABILITIES                                                            182,079      409,345
-------------------------------------------------------------------------------   ---------    --------- 
COMMITMENTS AND CONTINGENCIES
Contingent redemption value of common stock                                          35,289           --
-------------------------------------------------------------------------------   ---------    --------- 
STOCKHOLDERS' EQUITY (DEFICIT):
   Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares
     outstanding                                                                         --           --
   Common stock - $.01 par value, 100,000,000 shares authorized; 66,934,635
     and 66,934,635 issued, respectively                                                669          669
   Additional paid-in capital                                                       215,189      265,325
   Accumulated deficit                                                             (186,898)    (218,229)
   Treasury stock                                                                   (97,827)    (184,550)
-------------------------------------------------------------------------------   ---------    --------- 
       TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                         (68,867)    (136,785)
===============================================================================   ---------    ---------
       TOTAL LIABILITIES, CONTINGENCIES AND STOCKHOLDERS' EQUITY (DEFICIT)        $ 148,501    $ 272,560
===============================================================================   =========    ========= 
</TABLE>
                    See accompanying notes to consolidated financial statements.


                                       3

<PAGE>



                         TALK.COM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                       FOR THE THREE MONTHS
                                                                                          ENDED MARCH 31,
                                                                                    ---------------------------
                                                                                       1999             1998
----------------------------------------------------------------------------------  ----------       ---------- 
<S>                                                                                 <C>               <C>      
SALES                                                                               $ 110,572         $  91,146
COST OF SALES                                                                          74,698            76,580
----------------------------------------------------------------------------------  ---------         ---------

GROSS PROFIT                                                                           35,874            14,566

GENERAL AND ADMINISTRATIVE EXPENSES                                                    10,139             9,628
PROMOTIONAL, MARKETING AND ADVERTISING
     EXPENSES - PRIMARILY AOL                                                          14,598            47,322
SIGNIFICANT OTHER CHARGES (INCOME)                                                     (1,218)           21,318
----------------------------------------------------------------------------------  ---------         ---------

OPERATING INCOME (LOSS)                                                                12,355           (63,702)

INVESTMENT AND OTHER INCOME (EXPENSE), NET                                                (21)           (4,814)
----------------------------------------------------------------------------------  ---------         ---------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                                        12,334           (68,516)

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

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                                                12,334           (41,795)

EXTRAORDINARY GAIN                                                                     18,997                --
----------------------------------------------------------------------------------  ---------         ---------

NET INCOME (LOSS)                                                                   $  31,331         $ (41,795)
==================================================================================  =========         =========

BASIC EPS:

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                                             $    0.21         $   (0.65)
EXTRAORDINARY GAIN                                                                       0.32                --
----------------------------------------------------------------------------------  ---------         ---------

NET INCOME (LOSS)                                                                   $    0.53         $   (0.65)
==================================================================================  =========         =========

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - BASIC                                                               58,909            64,153
==================================================================================  =========         =========

DILUTED EPS:

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                                             $    0.20         $   (0.65)
EXTRAORDINARY GAIN                                                                       0.30                --
----------------------------------------------------------------------------------  ---------         ---------

NET INCOME (LOSS)                                                                   $    0.50         $   (0.65)
==================================================================================  =========         =========

WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING - DILUTED             62,335            64,153
==================================================================================  =========         =========
</TABLE>
                    See accompanying notes to consolidated financial statements.


                                        4

<PAGE>



                         TALK.COM INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<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, 1999       66,935        $669       $265,325      $(218,229)    (12,949)    $(184,550)    $(136,785)
  Net income                       --          --             --         31,331          --           --        31,331
  AOL investment                   --          --         (3,730)            --       4,121       58,730        55,000
  Exercise of common stock                                                                                                
     options                       --          --         (9,788)            --       1,390       19,807        10,019
  Issuance of common stock                                                                                                
     for convertible debt          --          --         (1,329)            --         575        8,186         6,857
  Contingent redemption                                                                                                   
     value of common stock         --          --        (35,289)            --          --           --       (35,289)
============================ ===========  ===========  =============  ============ ===========  ============  ============
Balance, March 31, 1999        66,935        $669       $215,189      $(186,898)     (6,863)    $(97,827)     $(68,867)
============================ ===========  ===========  =============  ============ ===========  ============  ============
</TABLE>
                    See accompanying notes to consolidated financial statements.




                                       5

<PAGE>



                         TALK.COM INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       FOR THE THREE MONTHS
                                                                                          ENDED MARCH 31,
                                                                                  ------------------------------
                                                                                      1999            1998
--------------------------------------------------------------------------------  -------------  ---------------
<S>                                                                                 <C>             <C>       
Cash flows from operating activities:
   Net income (loss)                                                                $  31,331       $ (41,795)
   Adjustment to reconcile net income (loss) to net cash used in operating
     activities:
   Unrealized loss on securities                                                           --           4,739
   Provision for bad debts                                                                (79)           (230)
   Depreciation and amortization                                                        1,451           1,369
   Vested AOL warrants and amortization of prepaid AOL marketing costs                     --          35,839
   Purchased research and development                                                      --          21,034
   Deferred revenue                                                                    (1,850)         (1,850)
   Extraordinary gain                                                                 (18,997)             --
   Income tax benefit related to exercise of options and warrants                          --           8,443
   (Increase) decrease in:
     Accounts receivable, trade                                                         3,564         (10,042)
     Advances to partitions and notes receivable                                          720          (5,554)
     Prepaid expenses and other current assets                                          1,707         (58,115)
     Other assets                                                                         536             387
   Increase (decrease) in:
     Accounts and partition payables and accrued expenses                             (25,893)         14,762
     Other liabilities                                                                 (1,850)             --
--------------------------------------------------------------------------------    ---------       ---------
       Net cash used in operating activities                                           (9,360)        (31,013)
--------------------------------------------------------------------------------    ---------       ---------
Cash flows from investing activities:
   Acquisition of intangibles                                                              --            (285)
   Acquisition of ADS Holdings, Inc.                                                       --         (26,707)
   Capital expenditures                                                                (2,263)         (3,026)
   Securities sold short                                                                   --            (260)
   Due from broker                                                                         --          (6,058)
   Sale (purchase) of securities, net                                                  89,649        (382,018)
--------------------------------------------------------------------------------    ---------       ---------
       Net cash provided by (used in) investing activities                             87,386        (418,354)
--------------------------------------------------------------------------------    ---------       ---------
Cash flows from financing activities:
   Repayment of margin account indebtedness                                           (49,621)             --
   Proceeds from margin account indebtedness                                               --         161,967
   Acquisition of convertible debt                                                    (65,423)             --
   Proceeds from exercise of options and warrants                                      10,019           6,627
   AOL investment                                                                      55,000              --
   Acquisition of treasury stock                                                           --          (8,850)
--------------------------------------------------------------------------------    ---------       ---------
       Net cash (used in) provided by financing activities                            (50,025)        159,744
--------------------------------------------------------------------------------    ---------       ---------
Net increase (decrease) in cash and cash equivalents                                   28,001        (289,623)
Cash and cash equivalents, at beginning of period                                       3,063         316,730
================================================================================    =========       =========
Cash and cash equivalents, at end of period                                         $  31,064       $  27,107
================================================================================    =========       =========
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       6

<PAGE>



                         TALK.COM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basic Presentation

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

     The consolidated financial statements and related notes thereto as of March
31, 1999 and for the three months ended March 31, 1999 and 1998 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, 1998 was derived from the audited financial statements included
in the Company's  Form 10-K,  as amended.  These  interim  financial  statements
should be read in conjunction  with that Form 10-K report.  The interim  results
are not necessarily indicative of the results for any future periods.

2.   AOL Agreements

     The  Company  has  negotiated  a  number  of  amendments  to its  marketing
agreements  with AOL  based  on the  experience  gained  by the  Company  in the
marketing  and sale of  telecom  services  to AOL  subscribers  during  1998.  A
substantial  amendment to the AOL agreement in January 1999 in which the Company
agreed to fixed  quarterly  payments  ranging from $10 to $15 million during the
exclusivity  period  of  the  agreement  resulted  in:  the  elimination  of the
Company's  obligation  to  make  bounty  and  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
long  distance  exclusivity  period,  until June 2003,  although AOL can end the
Company's  long  distance  exclusivity  period  on or  after  June  30,  2000 by
foregoing the fixed quarterly  payments  described  above;  elimination of AOL's
rights to receive further common stock warrants based upon customers gained from
the AOL subscriber  base;  AOL's  contribution of up to $4.0 million per quarter
for offline  marketing;  and  establishment  of the framework for the Company to
offer additional services and products to AOL subscribers. The fixed payments to
AOL are being  amortized  based on estimated  benefits  from the AOL  subscriber
base.

     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 Company
common  stock.  See  Note  4(a)  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.

     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,  as long as Mr.  Borislow
owns  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 the  proceeds  from any
public or private sale of debt securities,  by the Company (excluding borrowings
from  commercial  banks or other  financial  institutions)  to  repurchase  debt
securities of the Company owned by Mr. Borislow or the trusts for the benefit of
his children  (see Note 4 (b));  and the right to require the Company to use the
proceeds  from  the  exercise  of stock


                                       7

<PAGE>



options  or share  purchase  rights  to  repurchase  common  stock  owned by Mr.
Borislow or the trusts for the benefit of his children.  The Company also agreed
that, as 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 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 below.

     On January 5, 1999, the Company  assigned to a trust for the benefit of Mr.
Borislow's  children the Company's  interest in $53,700,000  principal amount of
subordinated notes of Communication TeleSystems International d/b/a WorldxChange
Communications,  in exchange for $62,545,000  aggregate  principal amount of the
Company's 2002 Convertible  Notes and 2004 Convertible Notes owned by the trust.
The exchange rate was determined  based on the Company's  assessment of the fair
values of the WorldxChange Notes and of the Company's Convertible Notes given in
exchange,  which  assessment  was  supported  by the  opinion of an  independent
investment  banking firm as to the fairness to the Company of the  consideration
received.

     On January 5, 1999,  the Company,  in open market  transactions,  purchased
from two trusts for the benefit of Mr. Borislow's children $65,080,000 aggregate
principal  amount of the Company's 2002  Convertible  Notes and 2004 Convertible
Notes owned by the trusts for $55.4 million in cash.

     On March 18, 1999,  the Company  purchased  from Mr.  Borislow  $11,477,000
aggregate  principal  amount of the Company's 2004  Convertible  Notes for $10.0
million in cash.

4.   Stockholders' Equity

     (a)  Contingent Redemption Value of Common Stock

          On January 5, 1999,  pursuant to an Investment  Agreement  between AOL
and the Company, AOL acquired 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.  Under  the  terms  of the
Investment  Agreement  with AOL,  the  Company has agreed to  reimburse  AOL for
losses  AOL may  incur on the sale of any of the  4,121,372  shares  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.  Assuming  AOL were to sell all of its
shares subject to the Company's reimbursement obligation at the closing price of
the Company's common stock as of March 31, 1999, the reimbursement  amount would
be approximately $35.3 million or, if the closing price on April 26, 1999, $19.6
million.  At  March  31,  1999,  the  Company  recorded  $35.3  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 a minimum price of $36.3 million, which repurchase price
can be paid in Company  common  stock.  The Company has pledged the stock of its
subsidiaries  and has agreed to fund an escrow account of up to $35 million from
50% of the  proceeds of any debt  financing,  other than a bank,  receivable  or
other asset based  financing  of up to $50  million,  to secure its  obligations
under the Investment Agreement with AOL. AOL has not advised the Company that it
intends to sell any shares during the relevant  period.  Mr. Borislow has agreed
to guarantee up to $20,000,000 of the Company's reimbursement  obligations under
the Investment Agreement with AOL.


                                       8

<PAGE>



     (b)  Restriction on Future Sales of Common Stock

          The  Company is subject  to  certain  restrictions  under the terms of
certain  registration  rights agreements that could affect the Company's ability
to raise capital.  Under these  agreements,  entered into by the Company for the
benefit of Mr.  Borislow  and two trusts for the  benefit of his  children  (the
"Trusts"),  the Company has agreed that as long as Mr. Borislow continues to own
at least 2% of the Company's  outstanding  common stock, the Company will use up
to 40% of the proceeds  from the sale of any public or private debt  securities,
excluding  borrowings  from a  commercial  bank  or  financial  institution,  to
repurchase the Company's  Convertible  Notes held by Mr.  Borislow or the Trusts
and that until June 2000,  the Company  will not sell any shares of common stock
of the Company  without the consent of Mr.  Borislow (other than sales of common
stock on  exercise  of  options  or rights as long as the  proceeds  are used to
repurchase common stock of the Company held by Mr. Borislow or the Trusts).  Mr.
Borislow  has  agreed to  subordinate  his  rights to  require  the  Company  to
repurchase the Company's  Convertible  Notes held by him or the Trusts until the
AOL escrow is fully funded.


                                       9

<PAGE>



                         TALK.COM INC. AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

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

                                                                                FOR THE THREE MONTHS ENDED 
                                                                                         MARCH 31,
                                                                            ------------------------------------
                                                                                 1999                 1998
                                                                                 ----                 ----
<S>                                                                              <C>                 <C>
Sales                                                                            100.0%              100.0%
Cost of sales                                                                     67.6                84.0
                                                                                 -----               -----
Gross profit                                                                      32.4                16.0
General and administrative expenses                                                9.1                10.6
Promotional, marketing and advertising expenses - primarily AOL                   13.2                51.9
Significant other charges (income)                                                (1.1)               23.4
                                                                                 -----               -----
Operating income (loss)                                                           11.2               (69.9)
Investment and other income (expense), net                                          --                (5.3)
                                                                                 -----               -----
Income (loss) before income taxes                                                 11.2               (75.2)
Provision (benefit) for income taxes                                                --               (29.3)
                                                                                 -----               -----
Income (loss) before extraordinary gain                                           11.2               (45.9)
Extraordinary gain                                                                17.1                  --
                                                                                 -----               -----
Net income (loss)                                                                 28.3%              (45.9)%
                                                                                 =====               =====
</TABLE>





                                       10

<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


 THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

          Sales. Sales increased by 21.3% to $110.6 million in the first quarter
of 1999 from $91.1 million in the first  quarter of 1998.  The increase in sales
resulted from the Company's marketing directed at generating new customers under
the AOL Agreement.  This  AOL-related  sales  increase  offset a decrease in the
Company's non-AOL sales, and reflected,  to a lesser extent, the Company's focus
on marketing under the AOL Agreement.

          Cost of Sales. Cost of sales decreased by 2.5% to $74.7 million in the
first  quarter of 1999 from $76.7  million  in the first  quarter of 1998.  This
decrease was  primarily  due to lower  network usage costs for OBN services on a
per call  basis  and lower  partition  costs due to the  Company's  decrease  in
non-AOL sales.

          Gross Margin.  Gross margin increased to 32.4% in the first quarter of
1999 from 16.0% in the first  quarter of 1998.  The increase in gross margin was
primarily  due to lower network usage costs for OBN services and lower local and
international  access  charges,  in each  case on a per  call  basis  and  lower
partition  costs due to the  Company's  decrease in non-AOL  sales.  The Company
anticipates  that gross  margins  will  continue  to  increase;  however,  price
competition continues to intensify for the Company's products and this trend can
be expected to continue to put downward pressure on gross margins.

          Other  Operating   Expenses.   General  and  administrative   expenses
increased  by 5.3% to $10.1  million  in the  first  quarter  of 1999  from $9.6
million in the first quarter of 1998. The increase in general and administrative
expenses  was due  primarily  to the costs  associated  with  hiring  additional
personnel to support the  Company's  continuing  growth and  increased  fees for
professional  services.  During the first quarter of 1999, the Company  incurred
$14.6 million of promotional,  marketing and  advertising  expense to expand its
online  customer base.  During the first quarter of 1998,  the Company  expensed
$24.9 million  related to the AOL Agreement,  $10.9 million for the  performance
warrants  issued to AOL on March 31, 1998 and $11.5 million of other AOL related
marketing and advertising efforts. During the first quarter of 1999, the Company
sold a division of TSFL Holdings,  Inc. (formerly Symetrics  Industries,  Inc.),
resulting in a gain of $1.2  million  which was  included in  significant  other
charges (income).  During the first quarter of 1998, the Company allocated $21.0
million of the acquisition cost of TSFL Holdings, Inc. to purchased research and
development expense.

          Investment  and Other  Income  (Expense),  Net.  Investment  and other
income  (expense),  net was $(21,000) in the first quarter of 1999 versus $(4.8)
million  in the  first  quarter  of 1998.  During  the  first  quarter  of 1999,
investment  and other income  (expense),  net consists  primarily of  investment
income offset by interest expense related to the Company's convertible debt.

          Extraordinary  gain.  During the first  quarter of 1999,  the  Company
recorded an  extraordinary  gain of $19.0  million from the  acquisition  of the
Company's convertible debt at a discount from its aggregate principal amount.




                                       11
<PAGE>






LIQUIDITY AND CAPITAL RESOURCES

          The Company's  working  capital was $21.0 million and $13.1 million at
March 31, 1999 and  December 31, 1998,  respectively.  This  increase in working
capital is  primarily a result of the cash  generated  during the first  quarter
1999 from the  Company's  income  before  extraordinary  gain of $12.3  million,
offset by $2.3 million the Company invested in capital equipment.

          The Company  expended an aggregate of $126.0 million of cash,  Company
common stock and other  consideration  for the repurchase of  Convertible  Notes
during the first quarter of 1999.  The Company (a) purchased  from Mr.  Borislow
and two trusts for the benefit of Mr. Borislow's children $76,557,000  aggregate
principal amount of the Company's  Convertible  Notes for $65.4 million in cash;
(b) exchanged the $53.7 million  remaining on the WorldxChange  Notes to a trust
for the benefit of Mr. Borislow's  children for $62,545,000  aggregate principal
amount of the Company's Convertible Notes and (c) purchased $9,000,000 aggregate
principal amount of the Company's  Convertible Notes for $6.9 million in Company
common stock. As of March 31, 1999, the Company had reduced the principal amount
outstanding of its  Convertible  Notes to $94.3 million ($66.9 million of 4 1/2%
notes  and $27.4  million  of 5% notes)  of which  approximately  $52.4  million
continues to be held by one of such trusts.

          On January 5, 1999,  pursuant to an Investment  Agreement  between AOL
and the Company, AOL acquired 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.  Under  the  terms  of the
Investment  Agreement  with AOL,  the  Company has agreed to  reimburse  AOL for
losses  AOL may  incur on the sale of any of the  4,121,372  shares  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.  Assuming  AOL were to sell all of its
shares subject to the Company's reimbursement obligation at the closing price of
the Company's common stock as of March 31, 1999, the reimbursement  amount would
be approximately $35.3 million or, if the closing price on April 26, 1999, $19.6
million.  At  March  31,  1999,  the  Company  recorded  $35.3  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 a minimum price of $36.3 million, which repurchase price
can be paid in Company  common  stock.  The Company has pledged the stock of its
subsidiaries  and has agreed to fund an escrow account of up to $35 million from
50% of the  proceeds of any debt  financing,  other than a bank,  receivable  or
other asset based  financing  of up to $50  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.  AOL has not advised  the  Company  that it intends to sell any
shares during the relevant  period.  Mr.  Borislow has agreed to guarantee up to
$20,000,000  of the Company's  reimbursement  obligations  under the  Investment
Agreement with AOL.

         The  Company  is subject  to  certain  restrictions  under the terms of
certain  registration  rights agreements that could affect the Company's ability
to raise capital.  Under these  agreements,  entered into by the Company for the
benefit of Mr.  Borislow  and two trusts for the  benefit of his  children  (the
"Trusts"),  the Company has agreed that as long as Mr. Borislow continues to own
at least 2% of the Company's  outstanding  common stock, the Company will use up
to 40% of the proceeds  from the sale of any public or private debt  securities,
excluding  borrowings  from a  commercial  bank  or  financial  institution,  to
repurchase the Company's  Convertible  Notes held by Mr.  Borislow or the Trusts
and that until June 2000,  the Company  will not sell any shares of common stock
of



                                       12
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


the  Company  without the  consent of Mr.  Borislow  (other than sales of common
stock on  exercise  of  options  or rights as long as the  proceeds  are used to
repurchase common stock of the Company held by Mr. Borislow or the Trusts).  Mr.
Borislow  has  agreed to  subordinate  his  rights to  require  the  Company  to
repurchase the Company's  Convertible  Notes held by him or the Trusts until the
AOL escrow is fully funded.

          The Company  generally  does not have a significant  concentration  of
credit risk with respect to 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.

          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  for at least the next twelve  months.  The Company
believes that,  assuming the current market price of its common stock,  its cash
flow from operations will be sufficient to fund any reimbursement  amount in the
event that AOL  elects  after May 31,  1999 to sell its shares of the  Company's
common stock at a price below $19 per share and that, alternatively,  it has the
ability to obtain the necessary  financing to fund its obligations under the AOL
Investment Agreement. Should the Company seek to raise additional capital, 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.

         YEAR 2000

          The "Year  2000  issue"  refers to the  potential  harm from  computer
programs  that  identify  dates by the last two digits of the year  rather  than
using the full four digits. Such programs could fail due to misidentification of
dates  on or after  January  1,  2000.  If such a  failure  were to occur to the
Company's  internal  computer-based  systems  or to the  computer-based  systems
operated by third  parties that are critical to the  Company's  operations,  the
Company could be unable to continue to provide  telecommunications  services, to
sign up new customers or to bill existing customers for services. Such failures,
if  they  occurred,  would  have a  material  adverse  effect  on the  Company's
business, results of operations and financial condition. However, because of the
complexity of the issues,  the number of parties involved and the fact that many
of the issues are outside the Company's  control,  the Company cannot reasonably
predict with certainty the nature or likelihood of such effects.

          The Company, using its internal staff, has conducted a review and test
of most of the internal  computer-based  systems.  Most of the Company's systems
are relatively  new. Much of the software used by the Company has been developed
internally  and  is  regularly   modified  and  updated  to  meet  the  changing
requirements  of its business.  The Company  expects that its critical  internal
systems  will be able to  process  relevant  date  information  in the future to
permit the  Company to  continue to provide  its  services  without  significant
interruption or material  adverse effect on its business,  results of operations
and financial  condition.  However,  there can be no assurances that the Company
will not experience  unanticipated  negative  consequences  caused by undetected
errors or defects in the technology used in its internal systems.

          Notwithstanding the Company's expectation that its own systems will be
able to process  Year 2000 date  information,  the  Company's  business  depends
significantly  on  receiving   uninterrupted  services  by  other  parties.  The
principal   service   suppliers  to  the  Company  include  other   switch-based
long-distance  providers, the local exchange carriers throughout the country and
AOL.  Other parties whose ability to deal with Year 2000 issues could affect the
Company include the Company's partitions and the credit and debit card companies
through which most of the  Company's  AOL customers are billed.  The Company has
made  inquiry of some of these  parties  regarding  their  respective  levels of
preparedness  for Year 2000 issues as they may affect the  Company.  The Company
will continue to make such inquiries and will monitor the public  disclosures of
such companies  regarding their Year 2000 status.  So far, the responses to such
inquiries have been generally  non-committal regarding levels of preparedness or
willingness  to provide  assurances  to the  Company.  In almost all cases,  the
Company is not in a position to require either  affirmative action or assurances
by these  parties  regarding  continued  provision of services in the Year 2000.
Accordingly,  while  the  Company  has not been  advised  by any of these  other
companies  on which it depends that they do not expect to be ready for Year 2000
issues, the


                                       13
<PAGE>



                         TALK.COM INC. AND SUBSIDIARIES

Company does not believe it is in a position to project the  likelihood  of such
parties' abilities to provide uninterrupted services to the Company. The Company
has considered possible contingency plans. Although the Company has entered into
multiple  contracts  with  long-distance  service  providers  to support its OBN
network the failure of any of the significant suppliers to provide uninterrupted
service  to the  Company  would  likely  have a material  adverse  effect on the
Company's business and its results of operations and financial condition.

          The Company does not separately  identify costs incurred in connection
with Year 2000 compliance  activities.  To date,  however,  the Company does not
believe such costs to be  significant  because they generally have been incurred
in the normal course of internally modifying and updating the Company's software
programs.  Future  expenditures  are not expected to be significant  and will be
funded out of operating cash flows.

                                    * * * * *

          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  elsewhere  herein,  important factors that
could cause such actual  results to differ  materially  include,  among  others,
adverse  developments in the Company's  relationship  with AOL,  increased price
competition  for  long  distance  services,  failure  of the  marketing  of long
distance services under the AOL Agreement, attrition in the number of end users,
and  changes in  government  policy,  regulation  and  enforcement.  The Company
undertakes no obligations to update its forward-looking statements.



                                       14
<PAGE>



PART II - OTHER INFORMATION

Item 2.       Changes in Securities

              ISSUANCES OF UNREGISTERED SECURITIES

              On  January  5,  1999,  Registrant,   pursuant  to  an  Investment
              Agreement  between  Registrant and America Online,  Inc.  ("AOL"),
              issued  4,121,372  shares of  Registrant's  common stock to AOL in
              exchange for $55.0  million in cash and the surrender of rights to
              acquire  up to  5,076,016  shares  of  Registrant's  common  stock
              pursuant to various warrants held by AOL.

              On February 5, 1999, in connection with the conversions of certain
              outstanding convertible notes of Registrant,  Registrant issued to
              Donaldson,  Lufkin & Jenrette an  aggregate  of 214,338  shares of
              Registrant's  common  stock in  addition  to the shares  that were
              issuable upon such conversion in accordance with the terms of such
              convertible  notes (the  issuance of which  conversion  shares was
              registered).

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

Item 5.       Other Information

              Registrant  announced  on  April  16,  1999,  the  change  of  its
              corporate  name to Talk.com  Inc.,  and the move of its  principal
              executive offices to Reston, Virginia.

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits

                    3.1  Certificate  of Ownership and Merger  merging  Talk.com
                         Inc.  into  Tel-Save.com, Inc.  (changing  the  name of
                         Registrant).
                    3.2  Composite  form of Amended and Restated  Certificate of
                         Incorporation  of Registrant,  as amended through April
                         26, 1999.
                    10.1 Letter  Agreement,  dated  as of April  6,  1999,  with
                         respect  to  the  Employment  Agreement,  dated  as  of
                         October  13,  1999,   between  Registrant  and  Emanuel
                         DeMaio.
                    11   Computation of Net Income Per Share
                    27   Financial Data Schedule

(b)      Reports on Form 8-K

                    Since December 31, 1998, the Company has filed the following
                    Current Report on Form 8-K:

                    Current   Report  on  Form  8-K,  dated  January  20,  1999,
                    reporting   changes  in  the  Chief  Executive  Officer  and
                    Chairman of the Board of  Registrant,  certain  transactions
                    between the  outgoing  Chief  Executive  Officer and related
                    parties   and    Registrant,    the   signing   of   certain
                    telecommunications  services  agreements,  the  execution of
                    amendments to  Registrant's  agreements with America Online,
                    Inc. ("AOL") and an investment by AOL in Registrant's common
                    stock.



                                       15
<PAGE>







                                   SIGNATURES

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

Date:  May 4, 1999              TALK.COM INC.                      
                                ---------------------------------
                                (Registrant)

                                      By: /s/ Gabriel Battista       
                                         ---------------------------------------
                                         Gabriel Battista
                                         Chairman of the Board,
                                         Chief Executive Officer and President


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


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



                                       16