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

                       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, 2002

                                       OR

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

                  FOR THE TRANSITION PERIOD FROM     TO
                                                 ----   ----

                        COMMISSION FILE NUMBER 0 - 26728

                           TALK AMERICA HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

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

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


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


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

                                 Yes   X  No
                                      ---    ---

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

     81,667,721  shares  of  Common  Stock,  par  value of $0.01 per share, were
issued  and  outstanding  as  of  May  8,  2002.

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

<PAGE>
                  TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES


                                      INDEX



                                                                            PAGE
                                                                            ----

PART  I  -  FINANCIAL  INFORMATION:


Item  1.   Consolidated  Financial  Statements:

     Consolidated  Balance  Sheets  -  March  31,  2002  (unaudited)
     and  December  31,  2001 . . . . . . . . . . . . . . . . . . . . . . . . 3

     Consolidated Statements of Operations - Three Months Ended
     March 31, 2002 and 2001 (unaudited) . . . . . . . . . . . . . . . . . .  4

     Consolidated Statements of Cash Flows - Three Months Ended
     March 31, 2002 and 2001 (unaudited) . . . . . . . . . . . . . . . . . .  5

     Notes  to  Consolidated  Financial  Statements  (unaudited) . . . . . .  6

Item  2.   Management's  Discussion  and  Analysis  of  Financial
     Condition and Results of Operations . . . . . . . . . . . . . . . . . . 12

Item  3.   Quantitative and Qualitative Disclosure About Market Risk . . . . 23


PART  II  -  OTHER  INFORMATION:

Item  2.  Changes  in  Securities . . . . . . . . . . . . . . . . . . . . .  24

Item  6.  Reports  on  Form  8-K . . . . . . . . . . . . . . . . . . . . . . 24

     (a) Reports on Form 8-K


                                        2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM  1.    CONSOLIDATED  FINANCIAL  STATEMENTS

<TABLE>
<CAPTION>

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


                                                                                        MARCH 31,    DECEMBER 31,
                                                                                          2002           2001
<S>                                                                                    <C>          <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                           $   22,895   $      22,100
   Accounts receivable, trade (net of allowance for uncollectible
       accounts of $39,545 and $46,404 at March 31, 2002 and
       December 31, 2001, respectively)                                                    23,222          26,647
   Prepaid expenses and other current assets                                                1,892           1,951
                                                                                       -----------   -------------
        Total current assets                                                               48,009          50,698

Property and equipment, net                                                                74,030          77,285
Goodwill and intangibles, net                                                              29,014          29,672
Other assets                                                                                7,365           7,566
                                                                                       -----------  --------------
                                                                                       $  158,418   $     165,221
                                                                                       ===========   =============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                                    $   32,749   $      43,098
   Sales, use and excise taxes                                                              7,629           8,339
   Deferred revenue                                                                         8,538          10,193
   Current portion of long-term debt                                                        9,127          10,544
   Convertible subordinated notes due 2002                                                  3,910           3,910
   Other current liabilities                                                               11,871          11,189
                                                                                       -----------   -------------
        Total current liabilities                                                          73,824          87,273
                                                                                       -----------   -------------

Long-term debt:
   Convertible notes due 2011 (principal of $33,607 and  $32,773 and
     future accrued interest of $29,845 and $30,982 at March 31, 2002
     and December 31, 2001, respectively)                                                  63,452          63,755
   Convertible subordinated notes due 2002                                                 57,934          57,934
   Convertible subordinated notes due 2004                                                 18,093          18,093
   Senior credit facility and other long-term debt                                         11,323          12,588
                                                                                       -----------   -------------
        Total long-term debt                                                              150,802         152,370
                                                                                       -----------   -------------

Commitments and contingencies

Stockholders' equity (deficit):
   Preferred stock - $.01 par value, 5,000,000 shares authorized;
     no shares outstanding                                                                     --              --
   Common stock - $.01 par value, 300,000,000 shares authorized;
     81,652,721 and 81,452,721 shares issued and outstanding at
     March 31,  2002 and December 31, 2001, respectively                                      817             815
   Additional paid-in capital                                                             350,708         350,626
   Accumulated deficit                                                                   (417,733)       (425,863)
                                                                                       -----------   -------------
        Total stockholders' equity (deficit)                                              (66,208)        (74,422)
                                                                                       -----------   -------------
                                                                                       $  158,418   $     165,221
                                                                                       ===========   =============

                    See accompanying notes to consolidated financial statements.

</TABLE>

                                        3
<PAGE>

<TABLE>
<CAPTION>

                    TALK  AMERICA  HOLDINGS,  INC.  AND  SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
                                       (UNAUDITED)

                                                                     THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                 ------------------------
                                                                      2002        2001
                                                                 ------------  ----------
<S>                                                                  <C>            <C>
Sales                                                              $   79,447   $131,780

Costs and expenses:
   Network and line costs                                              40,219     64,705
   General and administrative expenses                                 14,561     20,445
   Provision for doubtful accounts                                      4,007     14,697
   Sales and marketing expenses                                         5,895     31,454
   Depreciation and amortization                                        4,443      9,214
                                                                 ------------  ----------
      Total costs and expenses                                         69,125    140,515
                                                                 ------------  ----------

Operating income (loss)                                                10,322     (8,735)
Other income (expense):
   Interest income                                                         89        523
   Interest expense                                                    (1,474)    (1,584)
   Other expense, net                                                    (807)      (352)
                                                                 ------------  ----------
Income (loss) before provision for income taxes                         8,130    (10,148)
Provision for income taxes                                                 --         --
                                                                 ------------  ----------
Net income (loss)                                                  $    8,130   $(10,148)
                                                                 ============  ==========

Income (loss) per share - Basic:
   Net income (loss) per share                                     $     0.10   $  (0.13)
                                                                 ============  ==========
   Weighted average common shares outstanding                          81,555     78,372
                                                                 ============  ==========
Income (loss) per share - Diluted:
   Net income (loss) per share                                     $     0.10   $  (0.13)
                                                                 ============  ==========
   Weighted average common and common equivalent shares
     outstanding.                                                      81,657     78,372
                                                                 ============  ==========

          See  accompanying  notes  to  consolidated  financial  statements.
</TABLE>

                                        4
<PAGE>

<TABLE>
<CAPTION>

                                    TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (IN THOUSANDS)
                                                     (UNAUDITED)


                                                                                             THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                           -------------------------
                                                                                                 2002        2001
                                                                                              ----------  ----------
<S>                                                                                              <C>          <C>
Cash flows from operating activities:
   Net income (loss)                                                                          $    8,130   $(10,148)

   Reconciliation of net income (loss) to net cash provided by (used in)
     operating activities:
     Provision for doubtful accounts                                                               4,007     14,697
     Depreciation and amortization                                                                 4,443      9,214
     Loss on sale and retirement of assets                                                           205        116
     Other non-cash charges                                                                           84         --
     Changes in assets and liabilities:
        Accounts receivable, trade                                                                  (582)   (22,195)
        Prepaid expenses and other current assets                                                    192        172
        Other assets                                                                                 120        212
        Accounts payable and accrued expenses                                                    (10,349)    (8,356)
        Deferred revenue                                                                          (1,655)    (1,863)
        Sales, use and excise taxes                                                                 (710)      (462)
        Other liabilities                                                                            682      1,658
                                                                                                ----------  --------
           Net cash provided by (used in) operating activities                                     4,567    (16,955)
                                                                                                ----------  --------

Cash flows from investing activities:
   Capital expenditures                                                                             (737)    (1,151)
   Acquisition of intangibles                                                                        (50)        (4)
                                                                                                ----------  --------
           Net cash used in investing activities                                                    (787)    (1,155)
                                                                                                ----------  --------

Cash flows from financing activities:
   Payments of borrowings                                                                         (2,985)       (10)
                                                                                                ----------  --------
          Net cash used in financing activities                                                   (2,985)       (10)
                                                                                                ----------  --------

Net increase (decrease) in cash and cash equivalents                                                 795    (18,120)
Cash and cash equivalents, beginning of period                                                    22,100     40,604
                                                                                                ----------  --------
Cash and cash equivalents, end of period                                                      $   22,895   $ 22,484
                                                                                                ==========  ========


                         See  accompanying  notes  to  consolidated  financial statements.
</TABLE>

                                        5
<PAGE>
                    TALK  AMERICA  HOLDINGS,  INC.  AND  SUBSIDIARIES
                      NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS
                                      (UNAUDITIED)

NOTE  1.  ACCOUNTING  POLICIES

(A)  BASIC  PRESENTATION

     The  consolidated financial statements include the accounts of Talk America
Holdings,  Inc.  and its wholly owned subsidiaries, primarily Talk America  Inc.
(collectively,  the  "Company"),  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,  2002  and  for the three months ended March 31, 2002 and March 31, 2001 are
presented  as unaudited but in the opinion of management include all adjustments
necessary to present fairly the information set forth therein.  The consolidated
balance  sheet  information  for  December 31, 2001 was derived from the audited
financial statements included in the Company's Form 10-K, as amended by its Form
10-K/A  filed April 12, 2002.  These interim financial statements should be read
in  conjunction with the Company's Annual Report on Form 10-K for the year ended
December  31,  2001,  as  amended  by  its Form 10-K/A filed April 12, 2002. The
interim  results  are  not  necessarily indicative of the results for any future
periods.  Certain  prior  year  amounts  have  been reclassified for comparative
purposes.

(B)  RISKS  AND  UNCERTAINTIES

     Future  results  of operations involve a number of risks and uncertainties.
Factors  that  could  affect  future  operating results and cash flows and cause
actual  results  to vary materially from historical results include, but are not
limited  to:

     -    The Company's business strategy with respect to bundled local and long
          distance  services  may  not  succeed
     -    Failure  to manage, or difficulties in managing, the Company's growth,
          operations  or  restructurings  including  attracting  and  retaining
          qualified  personnel  and  opening up new territories for its services
          with  favorable  gross  margins
     -    Dependence  on  the  availability and functionality of incumbent local
          telephone companies' networks, as they relate to the unbundled network
          element  platform  or  the  resale  of  such  services
     -    Increased  price  competition  in  local  and  long  distance services
     -    Failure  or  interruption  in  the  Company's  network and information
          systems
     -    Changes  in  government  policy,  regulation  and  enforcement
     -    Adverse  developments in the Company's relationship with its marketing
          partners
     -    Failure of the marketing of the bundle of the Company's local and long
          distance  services  under  its direct marketing channels and under its
          agreements  with  its  various  marketing  partners and  failure  to
          successfully  add  new  marketing  partners
     -    Failure  of  the  Company's  collection  management  system and credit
          controls  efforts  for  customers
     -    Inability  to  adapt  to  technological  change
     -    Competition  in  the  telecommunications  industry
     -    Inability to manage customer  attrition and bad debt expense and lower
          customer  acquisition  costs
     -    Adverse  change  in  Company's  relationship with third party carriers
     -    Failure  or  bankruptcy of other telecommunications companies whom the
          Company  relies  upon  for  services  and  revenues
     -    Ability to realize the benefit of any net operating loss carryforwards
          on  future  taxable  income  generated  by  the  Company

     Negative  developments  in  these areas could have a material effect on the
Company's  business,  financial  condition  and  results  of  operations.

     In  addition,  the Company has received a notice of non-compliance with its
applicable listing standards from the Nasdaq National Market; the delisting from
the  Nasdaq  National Market may adversely impact the market price and liquidity
of  the  Company's  common  stock

(C)  NEW  ACCOUNTING  PRONOUNCEMENTS

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  142,  "Goodwill  and Other Intangible Assets," which
establishes  the  impairment  approach rather than amortization for goodwill and
indefinite-lived  intangible  assets. Effective January 1, 2002, the Company was
no  longer  required  to  record  amortization  expense  on  goodwill  and
indefinite-lived  intangible  assets,  but instead is required to evaluate these
assets for potential impairment at least annually and to record a charge for any
such  impairment. A preliminary assessment of any potential impairment indicated
that  no  impairment  existed  at  January  1,  2002.

     The  impact  of  prior year goodwill and indefinite-lived intangible assets
amortization  to  reported  earnings  was  as  follows:

<TABLE>
<CAPTION>

                                                                                 Three Months Ended March 31,
                                                                              -----------------------------------
                                                                                   2002                 2001
                                                                              -------------       ---------------
<S>                                                                                <C>                   <C>
Net income (loss) as reported                                                    $ 8,130             $(10,148)
Goodwill and indefinite-lived intangible assets amortization                          --                5,386
                                                                              -------------       ---------------
Adjusted net income (loss)                                                       $ 8,130             $ (4,762)
                                                                              =============      ================

Basic income (loss) per share:
   Net income (loss) as reported per share                                       $  0.10             $  (0.13)
   Goodwill and indefinite-lived intangible assets amortization per share             --                 0.07
                                                                              -------------      ----------------
   Adjusted net income (loss) per share                                          $  0.10             $  (0.06)
                                                                              =============      ================

Dilutive income (loss) per share:
   Net income (loss) as reported per share                                       $  0.10             $  (0.13)
   Goodwill amortization and indefinite-lived intangible
     assets amortization per share                                                    --                 0.07
                                                                              -------------      ----------------
   Adjusted net income (loss) per share                                          $  0.10             $  (0.06)
                                                                              =============      ================
</TABLE>

     Goodwill and indefinite-lived intangible assets were $19.5 million at March
31, 2002. Intangible assets with a definite life consisted of a service mark and
purchased  customer  accounts  and  are being amortized on a straight-line basis
over  5  years.  The Company's balance of intangible assets with a definite life
was  $9.5  million  at  March  31, 2002, net of accumulated amortization of $4.1
million.  Amortization expense on intangible assets with a definite life for the
next  5  years  as  of March 31, is as follows: 2003 - $2.8 million, 2004 - $2.8
million,  2005  -  $2.8  million,  2006  -  $1.0  million  and  2007  -  $4,000.

     In  August  2001, the Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  143,  "Accounting  for  Obligations
Associated  with  the  Retirement  of  Long-Lived  Assets." SFAS 143 establishes
accounting  standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. It also provides accounting
guidance  for  legal  obligations  associated  with  the  retirement of tangible
long-lived  assets.  SFAS  143 is effective in fiscal years beginning after June
15, 2002, with early adoption permitted. The Company expects that the provisions
of  SFAS  143  will  not  have  a material effect on its consolidated results of
operations  or  financial  position  upon  adoption.

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  144,  "Accounting  for the Impairment or Disposal of
Long-Lived  Assets."  SFAS  144  establishes  a  single accounting model for the
impairment  or disposal of long-lived assets, including discontinued operations.
SFAS  144  superseded  Statement  of  Financial  Accounting  Standards  No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed Of," and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual  and  Infrequently  Occurring Events and Transactions." Adoption of SFAS
144  has  had  no  impact on the Company's consolidated results of operations or
financial  position.

     Effective  January  1,  2002, the Company also adopted Emerging Issues Task
Force  (EITF)  01-09,  "Accounting  for  Consideration  Given  by  a Vendor to a
Customer  or  a  Reseller  of  the  Vendor's Products." This issue presumes that
consideration  from  a vendor to a customer or reseller of the vendor's products
is  a  reduction  of the selling prices of the vendor's products and, therefore,
should  be  characterized  as  a  reduction  of  revenue  when recognized in the
vendor's  statement  of  operations  and  could  lead  to negative revenue under
certain  circumstances.  Revenue  reduction is required unless the consideration
relates  to a separate, identifiable benefit and the benefit's fair value can be
established.  The  adoption  of  this  issue  resulted  in a reclassification of
approximately  $6.1  million  from sales and marketing expenses to net sales for
the  quarter ended March 31, 2001 attributed to direct marketing promotion check
campaigns.  The  adoption  of  EITF  01-09 did not have a material effect on the
Company's consolidated financial statements for the three months ended March 31,
2002.

                                        6
<PAGE>

NOTE  2.  CONVERTIBLE  SUBORDINATED  NOTES  AND  EXCHANGE  OFFERS

     In  September  1997,  the  Company  sold $300 million of 4 1/2% Convertible
Subordinated  Notes ("4 1/2% Notes") that mature on September 15, 2002. Interest
on the 4 1/2% Notes is due and payable semiannually on March 15 and September 15
of  each  year.  At March 31, 2002, $61.8 million principal amount of the 4 1/2%
Notes  remained  outstanding.

     In  December  1997,  the  Company  sold  $200  million  of  5%  Convertible
Subordinated  Notes  ("5%  Notes") that mature on December 15, 2004. Interest on
the  5% Notes is due and payable semiannually on June 15 and December 15 of each
year. At March 31, 2002, $18.1 million principal amount of the 5% Notes remained
outstanding.

     The  Company  was  required  to  repay $61.8 million of its 4 1/2% Notes in
September  2002  and  the  Company  did not have cash, nor did it believe it had
access  to  new  financing,  sufficient  to  make  such  a  payment. The Company
commenced  exchange offers for the 4 1/2% Notes and 5% Notes primarily to extend
the  maturity  of  the  obligations  and  to  obtain  consents  to eliminate the
requirement  to  offer to repay the 4 1/2% Notes and 5% Notes upon a termination
of  trading  of  the Company's common stock on a national securities exchange or
established  automated  over-the-counter  trading  market.

     Under  the exchange offers, which expired at midnight on April 1, 2002, the
Company  offered  to  exchange  its  new  notes for up to the full amount of its
currently  outstanding  4  1/2%  Notes  and  for  up  to  the full amount of its
currently  outstanding  5%  Notes.  Under the terms of the 4 1/2% Notes exchange
offer,  the  Company  offered  two  exchange  options:

     --   $1,000  in  principal  amount  of  the new 12% Senior Subordinated PIK
          Notes  due  August  2007  ("12%  Notes")  for each $1,000 in principal
          amount  of  the  existing  4  1/2%  Notes  that  are  tendered.

     --   $600 in principal amount of the new 8% Convertible Senior Subordinated
          Notes  due August 2007 ("8% Notes"), convertible into common stock, at
          $5.00  per  share,  and  $100  in cash, in exchange for each $1,000 in
          principal  amount  of  the  existing  4  1/2% Notes that are tendered.

     Under  the  terms  of  the  5%  Notes  exchange offer, the Company offered:

     --   $1,000 in principal amount  of  the  new  12% Notes for each $1,000 in
          principal  amount  of  the  existing  5%  Notes.

     The  Company completed the exchange for its 4 1/2% and 5% Notes on April 4,
2002,  and issued a total of $70.7 million principal amount of its new 12% Notes
and  $2.8  million  principal  amount  of its new 8% Notes and paid cash of $0.5
million  in  exchange  for  a  total  of  $57.9  million principal amount of the
outstanding  4  1/2% Notes and $17.4 million principal amount of the outstanding
5% Notes. After the exchanges, $3.9 million principal amount of the 4 1/2% Notes
and  $0.7  million  principal  amount  of the 5% Notes remained outstanding. The
Company  paid  accrued  interest of $0.4 million on the exchanged old notes upon
closing  of  the  exchanges.

     The  new  12%  Notes  accrue  interest  at  a  rate  of 12% per year on the
principal  amount,  payable  two times a year on each February 15 and August 15,
beginning  on  August  15,  2002.  Interest  is payable in cash, except that the
Company  may,  at  its  option,  pay  up to one-third of the interest due on any
interest payment date through and including the August 15, 2004 interest payment
date in additional 12% Notes (see Note 5 regarding the Company's agreement under
its  Credit  Facility  Agreement  to  pay interest in kind to the maximum extent
possible).  The  new  8%  Notes  accrue interest at a rate of 8% per year on the
principal  amount,  payable  two times a year on each February 15 and August 15,
beginning  on  August 15, 2002 and are convertible, at the option of the holder,
into  common  stock  at  $5.00  per  share.

     As  part of the restructuring, the Company amended the indentures governing
the  4  1/2%  and  5%  Notes  that  were  not  exchanged to remove the Company's
obligation  to  repurchase  the  notes  on  the  termination  of  trading of the
Company's  common  stock  on  a  national  securities  exchange  or  established
automated  over-the-counter  trading  market.

     In  accordance  with  SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," the exchange of $61.8 million of the 4 1/2% Notes
into  $53.2  million  of  the  12%  Notes  and  $2.8  million of the 8% Notes is
accounted  for  as  a  troubled debt restructuring. Since the total liability of
$57.4  million  ($57.9  million  of principal as of the exchange date, less cash
payments  of  $0.5  million) is less than the future cash flows to holders of 8%
Notes  and  12%  Notes  of  $91.5  million  (representing  the  $56.0 million of
principal  and $35.5 million of future interest expense), the liability remained
on  the  balance  sheet at $57.4 million and was reclassified as long-term debt.
The difference between principal and the carrying amount of $1.4 million will be
recognized  as  a  reduction of interest expense over the life of the new notes.

                                        7
<PAGE>

NOTE  3.  AOL  AGREEMENTS

     On  September  19, 2001, the Company restructured its financial obligations
with  America  Online,  Inc.  ("AOL")  that arose under the Investment Agreement
entered  into  on January 5, 1999 and also ended its marketing relationship with
AOL  effective  September  30,  2001  (collectively the "AOL Restructuring"). In
connection  with  the  AOL  Restructuring,  the  Company  and AOL entered into a
Restructuring  and  Note Agreement ("Restructuring Agreement") pursuant to which
the  Company  issued  to  AOL  $54.0  million principal amount of its 8% secured
convertible  notes  due  September 2011 ("2011 Convertible Notes") and 3,078,628
additional  shares  of  the  Company's  common  stock.

     Pursuant  to  the  Restructuring  Agreement,  in  exchange  for  and  in
cancellation  of  the  Company's  warrants  to  purchase 2,721,984 shares of the
common  stock  and  the  Company's  related  obligations  under  the  Investment
Agreement  to  repurchase  such  warrants from AOL, the Company issued 3,078,628
additional  shares  of its common stock to AOL, after which AOL holds a total of
7,200,000  shares  of  common  stock.  The  Company  agreed  to  provide certain
registration  rights to AOL in connection with the shares of common stock issued
to  it  by  the  Company.

     The  Restructuring  Agreement  provided  that the Investment Agreement, the
Security  Agreement  securing  the  Company's  obligations  under the Investment
Agreement  and  the  existing  Registration  Rights  Agreement  with  AOL  were
terminated  in  their  entirety  and  the parties were released from any further
obligation  under  these agreements. In addition, AOL, as the holder of the 2011
Convertible  Note, entered into an intercreditor agreement with the lender under
the  Company's  existing  secured  credit  facility.

     The  2011  Convertible  Notes  were issued in exchange for a release of the
Company's reimbursement obligations under the Investment Agreement. AOL, in lieu
of any other payment for the early discontinuance of the marketing relationship,
paid  the  Company  $20.0 million by surrender and cancellation of $20.0 million
principal  amount  of  the  2011  Convertible  Notes  delivered  to AOL, thereby
reducing the outstanding principal amount of the 2011 Convertible Notes to $34.0
million. The 2011 Convertible Notes are convertible into shares of the Company's
common  stock  at the rate of $5.00 per share, may be redeemed by the Company at
any  time  without premium and are subject to mandatory redemption at the option
of the holder on September 15, 2006 and September 15, 2008. The 2011 Convertible
Notes  accrue  interest  at  the  rate  of  8% per year on the principal amount,
payable two times a year each January 1 and July 1; interest is payable in cash,
except  that  the  Company  may  elect to pay up to 50% (100% in the case of the
first  interest  payment) of the interest due on any payment date in kind rather
than  in  cash  (see  Note  5 regarding the Company's agreement under its Credit
Facility  Agreement to pay interest in kind to the maximum extent possible). The
2011  Convertible  Notes  are  guaranteed  by  the Company's principal operating
subsidiaries  and are secured by a pledge of the Company's and the subsidiaries'
assets.

     In  addition  to  the  restructuring of the financial obligations discussed
above,  the  Company  and  AOL agreed, in a further amendment to their marketing
agreement,  dated  as  of  September  19,  2001, to discontinue, effective as of
September  30, 2001, their marketing relationship under the marketing agreement.
In  connection with this discontinuance, the Company paid AOL $6.0 million under
the marketing agreement, payable in two installments - $2.5 million on September
20,  2001 and the remaining $3.5 million on October 4, 2001. AOL, in lieu of any
other  payment  for the early discontinuance of the marketing relationship, paid
the  Company  $20 million by surrender and cancellation of $20 million principal
amount  of  the  2011  Convertible  Notes  delivered  to AOL as discussed above,
thereby  reducing the outstanding principal amount of the 2011 Convertible Notes
to  $34  million.  The amendment also provided for the payment by the Company of
certain  expenses related to marketing services until the discontinuance and for
the  continued  servicing  and  transition  of  telecommunications  customer
relationships  after  the  discontinuance  of  marketing.

     In  accordance  with  SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled  Debt  Restructurings," the AOL Restructuring transaction was accounted

                                        8
<PAGE>

for  as  a troubled debt restructuring. The Company combined all liabilities due
AOL  at  the  time  of  the  Restructuring  Agreement,  including the contingent
redemption  feature  of  the  warrants  with  a  value  of $34.2 million and the
contingent redemption feature of the common stock with a value of $54.0 million.
The  total  liability  of  $88.2  million  was  reduced by the fair value of the
3,078,628  incremental  shares  provided to AOL of $1.4 million and cash paid in
connection with the AOL Restructuring of $3.5 million. Since the remaining value
of  $83.3 million was greater than the future cash flows to AOL of $66.4 million
(representing  the $34.0 million of convertible debt and $32.4 million of future
interest  expense),  the  liability  was written down to the value of the future
cash flows due to AOL and an extraordinary gain of $16.9 million was recorded in
the third quarter of 2001. As a result of this accounting treatment, the Company
will  record  no  interest  expense  associated  with these convertible notes in
future  periods  in  the  Company's  statement  of  operations.

     On  February  21,  2002,  by  letter agreement, AOL agreed to waive certain
rights  that  it  had  under  the  Restructuring  Agreement  with respect to the
Company's  restructuring  of  its existing 4 1/2% and 5% Notes. As conditions to
the  waiver  of  such rights with respect to the restructuring its 4 1/2% and 5%
Notes,  the Company agreed to (i) provide that the new notes to be exchanged for
the  existing  4 1/2% and 5% Notes have a maturity date after September 19, 2006
and, if convertible, have a conversion price of not less than $5.00, (ii) make a
prepayment on the 2011 Convertible Notes equal to forty percent of the amount of
cash  (excluding  accrued  interest  paid on existing notes which are exchanged)
that  the  Company  pays  to  the  holders of the existing notes in the exchange
offers  and (iii) limit the aggregate amount of cash that the Company pays under
the  exchange offers and to AOL under the letter agreement to $10 million. Under
the  letter agreement, the Company also paid AOL approximately $1.2 million as a
prepayment on the 2011 Convertible Note, approximately $0.7 million of which was
credited  against  amounts  the  Company owes AOL under the letter agreement for
cash payments in the exchange offers. After giving effect to the prepayment, and
taking  into  account  the  interest  that had been paid on the 2011 Convertible
Notes  in  additional  principal amount of the 2011 Convertible Notes, there was
outstanding as of March 31, 2002, an aggregate of $33.6 million principal amount
of  the  2011  Convertible  Notes and the Company did not owe AOL any additional
payments  related to the exchange offers. In addition, by letter agreement dated
April  22,  2002,  AOL  agreed  to  waive  certain  rights that it had under the
Restructuring  Agreement  with  respect to the purchase prior to maturing of the
balance  of  the  $3.9  million  of  the  outstanding  4  1/2%  Notes.

NOTE  4.  LEGAL  PROCEEDINGS:

     On November 12, 2001, the Company received an award of arbitrators awarding
Traffix,  Inc.  approximately  $6.2  million  in  an  arbitration concerning the
termination of a marketing agreement between the Company and Traffix, payable to
Traffix  in  two  installments  -  $3.7  million  paid  in November 2001 and the
remaining  $2.5  million  paid  on  April  1,  2002.

     The  Company  also is a party to a number of legal actions and proceedings,
arising  from  the  Company's  provision  and  marketing  of  telecommunications
services,  as  well  as  certain legal actions and regulatory investigations and
enforcement  proceedings arising in the ordinary course of business. The Company
believes  that  the ultimate outcome of the foregoing actions will not result in
liability  that  would have a material adverse effect on the Company's financial
condition  or  results  of  operations. However, it is possible that, because of
fluctuations  in  the  Company's  cash position, the timing of developments with
respect  to  such  matters that require cash payments by the Company, while such
payments  are  not expected to be material to the Company's financial condition,
could  impair  the  Company's  ability  in  future  interim or annual periods to
continue  to  implement  its  business  plan,  which could affect its results of
operations  in  future  interim  or  annual  periods.

NOTE  5.  SENIOR  CREDIT  FACILITY

     The  Company's  principal  operating  subsidiaries  have  a Credit Facility
Agreement  with MCG Finance Corporation ("MCG"), providing for a term loan of up
to  $20.0  million and a line of credit facility permitting such subsidiaries to
borrow up to an additional $30.0 million. The availability of the line of credit
facility  is  subject, among other things, to the successful syndication of that
facility.  Loans  under  the  Credit  Facility Agreement bear interest at a rate
equal  to  either  (a)  the  Prime

                                        9
<PAGE>

Rate,  or  (b)  LIBOR, plus, in each case, the applicable margin. The applicable
margin was initially 2.5% for borrowings accruing interest at the Prime Rate and
4% for borrowings accruing interest at LIBOR; thereafter,  the applicable margin
was  based  on  the ratio of funded debt to trailing twelve-month operating cash
flow,  determined  on  a  consolidated  basis,  and varied from 2.0% to 2.5% for
borrowings  accruing  interest  at  the  Prime  Rate  and  from 3.5% to 4.0% for
borrowings  accruing  interest  at LIBOR. The Credit Facility Agreement subjects
the  Company  and its subsidiaries to certain restrictions and covenants related
to,  among  other  things,  liquidity,  per-subscriber-type  revenue, subscriber
acquisition  costs, and leverage ratio and interest coverage ratio requirements.
The  credit  facilities  under  the  Credit  Facility Agreement were extended by
amendment  to  June 30, 2005 for the term loan facility and to June 30, 2003 for
the  line  of  credit facility. The principal of the term loan is required to be
repaid  in  quarterly  installments of $1.25 million on the last calendar day of
each  fiscal  quarter,  commencing  on  September  30, 2001. The loans under the
Credit  Facility  Agreement  are secured by a pledge of all of the assets of the
subsidiaries of the Company that are parties to that agreement. In addition, the
Company  has  guaranteed  the obligations of those subsidiaries under the Credit
Facility  Agreement  and related documents; the Company's guarantee subjects the
Company  to  certain restrictions and covenants, including a prohibition against
the  payment  of dividends in respect of the Company's equity securities, except
under  certain  limited circumstances. In connection with the AOL Restructuring,
MCG  entered  into an Intercreditor Agreement with AOL. At March 31, 2002, $16.3
million  principal balance remained outstanding under the term loan facility and
no  amounts  were  outstanding  or  available under the line of credit facility.

     Upon  its  execution  of  the  Credit  Facility Agreement, the Company also
issued  warrants  to  purchase  300,000  shares of its common stock at $4.36 per
share,  150,000  of  which  vested on December 31, 2000 and the balance of which
would  have vested if the Company failed to exceed certain EBITDA thresholds for
the  fiscal  quarter  ended  March  31,  2001.  The  Company exceeded the EBITDA
threshold  for  the quarter ended March 31, 2001 and consequently the balance of
the  warrants  did  not vest. However, in connection with the waiver from MCG in
the  second  quarter  of  2001  and  certain  other  amendments under the Credit
Facility  Agreement,  the  Company issued warrants to purchase 150,000 shares of
its  common  stock  at  $0.68  per  share  to  such  lenders.

     By  amendments  on  February  12,  2002  and  April  3,  2002,  the Company
restructured  certain  portions of the Credit Facility Agreement and the related
consulting  agreement  and  other loan documents. This restructuring amended the
financial  covenants  for  2002 through 2005 to be consistent with the Company's
internal  projections.  As  of  and after January 1, 2002, the applicable margin
will  be  7.0% for borrowings accruing interest at LIBOR and 6.0% for borrowings
accruing  interest  at  the  Prime  Rate. The restructuring also added mandatory
prepayment  provisions  if  the Company used a total of $10.0 million or more of
cash to repurchase or otherwise prepay its other debt obligations, including the
4  1/2%  and  5% Notes, the 2011 Convertible Notes and the new 8% and 12% Notes,
and  effectively requires the Company to elect to pay in kind, rather than cash,
interest  on  its  2011  Convertible  Notes and its new 12% Notes to the fullest
extent  it  is  permitted  to  do  so under such notes. In addition, the Company
issued  200,000  shares  of  common  stock  to  MCG with a value of $84,000 upon
issuance  and  agreed  to  register  such  shares  in  the  future.

NOTE  6.  IMPAIRMENT  AND  RESTRUCTURING  CHARGES

     In  2001,  the  Company  recorded  an  impairment  charge of $168.7 million
primarily  related to the write-down of goodwill associated with the acquisition
of  Access  One  Communications  Corp.,  ("Access  One"),  a  private,  local
telecommunications  service  provider  to nine states in the southeastern United
States.  The goodwill was created by purchase accounting treatment of the Access
One  merger transaction that closed in August 2000. SFAS 121 "Accounting for the
Impairment  of  Long-Lived  Assets and for Long-Lived Assets to be Disposed of,"
required  the  evaluation  of  impairment  of long-lived assets and identifiable
intangibles  whenever  events  or  changes  in  circumstances  indicate that the
carrying  amount  of an asset may not be recoverable. Management determined that
goodwill should be evaluated for impairment in accordance with the provisions of
SFAS  121  due  to  the increased bad debt rate and increased customer churn, as
well  as  the AOL Restructuring that occurred in the quarter ended September 30,
2001. The Company addressed these operational issues by improving credit quality
through  credit  scoring  the  existing  and  future customer base, slowing down
growth  of  new  expected  customers  through  decreased marketing, and lowering
product  pricing. These and other actions taken by the Company resulted in lower
current  and  future  projected  growth  of bundled revenues and cash flows than
those  originally projected at the time of the Access One merger. The write-down
of  goodwill was based on an analysis of projected discounted cash flows using a
discount  rate  of  18%,  which  results  determined  that the fair value of the
goodwill  was  substantially  less  than  the  carrying  value.

     In  September  2001,  the  Company approved a plan to close the call center
operation  in Sunrise, Florida. The Company recorded a charge of $2.5 million in
the quarter ended September 30, 2001 to reflect the elimination of approximately
225  positions  amounting to $1.0 million and lease exit costs amounting to $1.5
million  in connection with the call center closure. The employees identified in
the  plan were notified in September 2001 and terminated in October 2001. Actual
restructuring  costs  were  $1.9  million, comprised of $1.2 million of employee
severance  costs  and  $0.7  million  of lease termination and other call center
closure  costs.

                                       10
<PAGE>

NOTE  7.  PER  SHARE  DATA:

     Basic earnings per common share is calculated by dividing net income by the
average  number  of common shares outstanding during the year.  Diluted earnings
per  common  share  is  calculated  by  adjusting  outstanding  shares, assuming
conversion  of  all potentially dilutive stock options, warrants and convertible
bonds.  Earnings  per  share  are  computed  as  follows  (in  thousands):

<TABLE>
<CAPTION>

                                                                 THREE MONTHS ENDED,
                                                           ------------------------------
                                                                  2002            2001
                                                             ------------    ------------
<S>                                                                <C>             <C>
Net income (loss)                                              $  8,130         $(10,148)
                                                             ============    ============

Average shares of common stock outstanding used to
   compute basic earnings per share                              81,555           78,372
Additional common shares issued assuming exercise of
   stock options and warrants, net of shares assumed
   reacquired and conversion of convertible bonds *                 102               --
                                                             ------------    ------------
Average shares of common and common equivalent stock
   outstanding used to compute dilutive earnings per share       81,657           78,372
                                                             ============    ============

Income (loss) per share - Basic:
   Net income (loss) per share                                  $  0.10         $  (0.13)
                                                             ============    ============
   Weighted average common shares outstanding                    81,555           78,372
                                                             ============    ============
Income (loss) per share - Diluted:
   Net income (loss) per share                                  $  0.10         $  (0.13)
                                                             ============    ============
   Weighted average common and common equivalent
   shares outstanding                                            81,657           78,372
                                                             ============    ============

</TABLE>

*  The  diluted  share  basis for the three months ended March 31, 2001 excludes
convertible  notes,  options  and warrants due to their antidilutive effect as a
result  of  the Company's net loss from continuing operations. The diluted share
basis  for the three months ended March 31, 2002 excludes convertible notes that
are  convertible  into  10.0  million  shares  of  common  stock  due  to  their
antidilutive  effect.  A  significant  portion  of the 4 1/2% and 5% convertible
notes  were  exchanged for new 12% Notes and 8% Notes on April 4, 2002 (see Note
2).

                                       11
<PAGE>

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

SAFE  HARBOR  FOR  FORWARD-LOOKING  STATEMENTS

     The  following  discussion  should  be  read  in  conjunction  with  the
Consolidated  Financial  Statements  included elsewhere in this Form 10-Q and in
the Company's Annual on Form 10-K, as amended by its Form 10-K/A filed April 12,
2002  and any subsequent filings. Certain of the statements contained herein may
be  considered forward-looking statements. 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 in this Form 10-Q
(see  particularly  Note  1(b) of the Consolidated Financial Statements) and the
Company's  other  filings with the Securities and Exchange Commission, important
factors that could cause such actual results to differ materially include, among
others,  increased  price  competition  for  long  distance  and local services,
failure  of  the marketing of the bundle of local and long distance services and
long  distance services under its agreements with its marketing partners and its
direct  marketing  channels, failure to manage the nonpayment of amounts due the
Company from its customers from bundled and long distance services, attrition in
the  number  of  end-users,  failure  or  difficulties in managing the Company's
operations,  including  attracting and retaining qualified personnel, failure of
the  Company  to be able to expand its active offering of local bundled services
in  a  greater  number of states, failure to provide timely and accurate billing
information  to  customers,  failure  of  the  Company  to manage its collection
management  systems  and  credit  controls  for  customers,  interruption in the
Company's  network  and  information  systems, failure of the Company to provide
adequate  customer  service,  and  changes  in government policy, regulation and
enforcement and/or adverse judicial interpretations and rulings relating to such
regulations  and  enforcement.  Except as otherwise required by law, the Company
undertakes  no  obligation  to  update  its  forward-looking  statements.

OVERVIEW

     Talk  America  Holdings,  Inc.,  through  its subsidiaries (the "Company"),
provides  local  and long distance telecommunication services to residential and
small business customers throughout the United States. The Company has developed
integrated  order  processing,  provisioning,  billing,  payment,  collection,
customer  service  and  information systems that enable the Company to offer and
deliver  high-quality,  competitively  priced  telecommunication  services  to
customers.

     The  Company's  telecommunication  services offerings primarily include the
bundled  service  offering  of local and long distance voice services, which are
billed  to customers in one combined invoice. Local phone services include local
dial  tone  and unlimited local calling with a variety of features such as voice
mail  and call waiting. Long distance phone services include traditional 1+ long
distance,  international  and  calling  cards.  The  Company  uses the unbundled
network  element  platform ("UNE-P") incumbent local exchange carriers ("ILECs")
network  to  provide  local  services  and  the  Company's nationwide network to
provide  long  distance  services.  The  Company  attracts new customers through
direct  marketing  channels,  advertising,  agent  and  referral  programs  and
marketing  arrangements  with  business  partners.

                                       12
<PAGE>

RESULTS  OF  OPERATIONS

The  following table sets forth for the periods indicated certain financial data
of  the  Company  as  a  percentage  of  sales:

<TABLE>
<CAPTION>

                                      THREE MONTHS ENDED
                                           MARCH 31,
                                     -------------------
                                         2002     2001
                                       --------  -------
<S>                                     <C>         <C>
Sales                                   100.0%    100.0%
Costs and expenses:
   Network and line costs                50.6      49.1
   General and administrative expenses   18.3      15.5
   Provision for doubtful accounts        5.1      11.1
   Sales and marketing expenses           7.4      23.9
   Depreciation and amortization          5.6       7.0
                                       --------  -------
     Total costs and expenses            87.0     106.6
                                       --------  -------
Operating income (loss)                  13.0      (6.6)
Other income (expense):
   Interest income                        0.1       0.4
   Interest expense                      (1.9)     (1.2)
   Other expense, net                    (1.0)     (0.3)
                                       --------  -------
Income (loss) before income taxes        10.2      (7.7)
Provision for income taxes                 --        --
                                       --------  -------
Net income (loss)                        10.2%    (7.7)%
                                       ========  =======

</TABLE>

QUARTER  ENDED  MARCH  31,  2002  COMPARED  TO  QUARTER  ENDED  MARCH  31,  2001

     Sales.  Sales  decreased  by  39.7%  to $79.4 million for the quarter ended
March  31,  2002  from  $131.8  million  for  the  quarter ended March 31, 2001.
Effective January 1, 2002, the Company adopted Emerging Issues Task Force (EITF)
01-09,  "Accounting  for  Consideration  Given  by  a  Vendor to a Customer or a
Reseller of  the  Vendor's  Products."  The adoption of this issue resulted in a
reclassification of approximately $6.1 million from sales and marketing expenses
to net sales for the quarter ended March 31, 2001 attributed to direct marketing
promotional check campaigns.  The adoption of EITF 01-09 did not have a material
effect  on  the Company's consolidated financial statements for the three months
ended  March  31,  2002.

     The  Company's  long  distance  sales  decreased  to  $43.9 million for the
quarter  ended March 31, 2002 from $86.5 million for the quarter ended March 31,
2001.  A significant percentage of the Company's revenues were derived from long
distance  telecommunication  services  provided  to  customers who were obtained
under  the  AOL  marketing  agreement.  The  AOL  marketing  relationship  was
discontinued  effective  September 30, 2001, which contributed to the decline in
long  distance  customers and revenues. Long distance revenues also decreased in
2001  due  to customer attrition and are expected to continue to decline so long
as  the Company continues to focus its marketing efforts on the bundled product.
Long distance revenues are expected to decline to between $38 and $40 million in
the  second  quarter  of  2002  and  for  the full year  2002 are expected to be
between  $135  and  $145  million.

     The Company's bundled sales for the quarter ended March 31, 2002 were $35.5
million  compared  with  $45.3 million for the quarter ended March 31, 2001. The
decrease  in  bundled  sales in the first quarter of 2002 reflects the Company's
decision  to slow growth in bundled sales while the Company pursued its plans to
improve  the  efficiencies  of  the Company's bundled business model and improve
customer  collections.  In  addition, a significant portion of the bundled sales
for  the  quarter  ended  March  31,  2001  were  generated from bundled service
customers  acquired  through  marketing  programs  that had been discontinued in
2001.  Bundled  revenues are expected to increase to between $37 and $40 million
in  the  second  quarter  of  2002.  Bundled revenues for the full year 2002 are
expected  to  be  between  $165  and  $175  million.

     Network  and Line Costs. Network and line costs decreased by 37.8% to $40.2
million  for the quarter ended March 31, 2002 from $64.7 million for the quarter
ended  March 31, 2001. The decrease in costs was primarily due to a lower number
of  local  and  long distance customers, a reduction in access and usage charges
and  a  reduction  in  primary  interexchange  carrier  charges  ("PICC").  As a
percentage  of  sales, network and line costs increased to 50.6% for the quarter
ended  March  31, 2002, as compared to 49.1% for the same quarter last year. The
increase  in  network and line costs as a percentage of sales were attributed to
more competitively priced products for both local and long distance services and
changes  in  product  mix.

                                       13
<PAGE>

     Gross  profit,  defined  as sales less network and line costs, decreased by
41.5%  for  the quarter ended March 31, 2002 to $39.2 million from $67.1 million
for  the  same  quarter  last  year, and, as a percentage of sales, decreased to
49.4% as compared to 50.9% for the quarter ended March 31, 2001. The decrease in
gross  profit  is  due  to  the Company's decision to lower its pricing for both
local and long distance service and focus on delivering better service and value
to  its  customers.  In  addition,  the  growth  of  local  bundled service as a
percentage of total revenue and the intensification of price competition for the
Company's  products  have  also  contributed  to  decreased  gross  profits as a
percentage  of  sales.

     General  and  Administrative  Expenses. General and administrative expenses
decreased  by  28.8%  to $14.6 million for the quarter ended March 31, 2002 from
$20.4  million  for  the  quarter  ended March 31, 2001. The overall decrease in
general  and  administrative expenses was due primarily to significant workforce
reductions  and  other  cost  cutting  efforts  by  the  Company  as  it pursued
improvements  in operating efficiencies of the Company's bundled business model.
The  Company  had  increased  personnel  costs  associated  with  supporting the
Company's  expansion  of  its  bundled  services  offerings,  including customer
service,  provisioning  and collections personnel during the quarter ended March
31,  2001.  As  a  percentage  of  sales,  general  and  administrative expenses
increased to 18.3% as compared to 15.5% for the quarter ended March 31, 2001 due
primarily  to  the  decline  in the Company's sales. The Company expects further
general  and  administrative  expense  efficiencies  as growth continues and the
Company  is  able  to  leverage  its  existing  business  infrastructure.

     Provision  for Doubtful Accounts. Provision for doubtful accounts decreased
by 72.7% to $4.0 million for the quarter ended March 31, 2002 from $14.7 million
for the same quarter last year, and, as a percentage of sales, decreased to 5.1%
as compared to 11.1% for the quarter ended March 31, 2001. The Company had taken
several  steps  during  the third and fourth quarters of 2001 to reduce bad debt
expense,  improve  the  overall credit quality of its customer base and increase
its  collections  of  past due amounts. The benefits of the Company's actions to
reduce  bad  debt expense and improve the overall credit quality of its customer
base are reflected in the lower bad debt expense for the quarter ended March 31,
2002.

     Sales  and Marketing Expenses. During the quarter ended March 31, 2002, the
Company  incurred  $5.9  million  of sales and marketing expenses as compared to
$31.5  million  for  the  same  quarter  last  year, a 81.3% decrease, and, as a
percentage  of  sales,  a  decrease to 7.4% as compared to 23.9% for the quarter
ended March 31, 2001. The decrease is primarily attributable to the reduction in
marketing  fees paid to AOL due to the termination of the marketing relationship
with  AOL  effective  September  30,  2001.  The decline is also attributable to
decreased  direct  promotional  and  advertising campaigns.  Sales and marketing
expenses declined further as the Company slowed growth as it pursued its plan to
improve  efficiencies  of  the  Company's  bundled  business  model.

     Depreciation  and  Amortization.  Depreciation  and  amortization  for  the
quarter  ended  March  31,  2002  was  $4.4  million, a decrease of $4.8 million
compared  to  $9.2  million  for  the  quarter  ended  March 31, 2001, and, as a
percentage of sales, decreased to 5.6% as compared to 7.0% for the quarter ended
March  31,  2001. The Company's amortization expense decreased significantly for
the  quarter  ended  March  31, 2002 due to the write-off of goodwill associated
with  the  acquisition of Access One in the third quarter of 2001. Additionally,
the  Company  implemented  Statement  of Financial Accounting Standards No. 142,
"Goodwill  and  Other  Intangible  Assets"  ("SFAS  142"), which established the
impairment  approach rather than amortization for goodwill, resulting in reduced
amortization  in first quarter of 2002 (See "Recent Accounting Pronouncements").

     Interest  Income.  Interest  income was $89,000 for the quarter ended March
31,  2002  versus $523,000 for the quarter ended March 31, 2001. Interest income
for  the  quarter  ended  March  31,  2002  was lower due to the Company's lower
average  cash balances and a decrease in interest rates during the first quarter
of  2002  as  compared  to  the  first  quarter  of  2001.

     Interest  Expense.  Interest expense was $1.5 million for the quarter ended
March 31, 2002 as compared to $1.6 million for the quarter ended March 31, 2001.
The  decrease  is  due  to  lower average debt balances during the quarter ended
March  31,  2002 as compared to the quarter ended March 31, 2001. As a result of
the  exchange  offers  for  the  Company's  4  1/2%  and 5% Notes and MCG credit
facility  restructuring, the Company's interest expense will be higher in future
periods  (see  "Liquidity  and  Capital  Resources").

                                       14
<PAGE>

     Other  Expense,  Net.  Net other expense was $807,000 for the quarter ended
March  31,  2002  compared to $352,000 for the quarter ended March 31, 2001. The
amount  for  the  quarter  ended  March  31,  2002 primarily consists of cost in
connection  with  the  Company's  restructuring  of its convertible subordinated
notes  (see  Note  2 of  the  Consolidated  Financial  Statements).

     Provision  for  income  taxes. At March 31, 2002 and 2001, a full valuation
allowance has been provided against the Company's net operating losses and other
deferred  tax  assets.  Since  the  amounts  and  extent of the Company's future
earnings  are  not  determinable  with  a  sufficient  degree  of probability to
recognize  the  deferred  tax  assets  in  accordance  with  the requirements of
Statement  of  Financial  Accounting  Standards  No. 109, "Accounting for Income
Taxes,"  the Company has recorded a full valuation allowance on the net deferred
tax  assets.  For the quarter ended March 31, 2002, although the Company has net
income,  no  provision  for  income taxes has been reflected on the statement of
operations due to the full valuation allowance. The Company has not recorded any
income  tax  expense or benefit for the quarter ended March 31, 2001 because the
Company  incurred  losses  during  this  period  as well as maintaining the full
valuation  allowance.

LIQUIDITY  AND  CAPITAL  RESOURCES

     The  Company's  cash  requirements  arise  primarily from the subsidiaries'
operational  needs,  the subsidiaries' capital expenditures and the debt service
obligations  of  Talk America Inc. and of Talk America Holdings, Inc. Since Talk
America  Holdings,  Inc. conducts all of it operations through its subsidiaries,
primarily  Talk  America  Inc.,  it relies on dividends, distributions and other
payments  from its subsidiaries to fund its obligations. The MCG Credit Facility
and  related  agreements contain certain covenants, including covenants that may
restrict  such  payments  by  the  subsidiaries  to  Talk America Holdings, Inc.

                                       15
<PAGE>

     Contractual obligations of the Company as of March 31, 2002, as adjusted to
reflect  the exchange offers for the Company's 4 1/2% and 5% Notes as though the
exchanges  had  occurred on such date, are summarized as follows (in thousands):

<TABLE>
<CAPTION>


                                                                            1 year or    2 - 3     4 - 5
Contractual Obligations                                             Total      less      Years     Years   Thereafter
<S>                                             <C>    <C>   <C>    <C>    <C>          <C>      <C>      <C>     <C>
-----------------------------------------                     ------------ ----------  ---------  --------  ---------
Talk America Holdings, Inc.:
----------------------------
   4 1/2% Notes due 2002 (2)                                  $     3,910    $ 3,910    $    --    $   --    $     --
   5% Notes due 2004 (2)                                              670         --        670        --          --
   8% Convertible Notes due 2011 (1)                               65,159      1,707      2,911     3,151      57,390
   12% Notes due 2007 (2)                                          70,653         --         --        --      70,653
   8% Notes due 2007 (2)(3)                                         4,234         --         --        --       4,234

Talk America Inc. and other subsidiaries:
------------------------------------------
   Senior Credit Facility                                          16,250      5,000     10,000     1,250          --
   Capital Lease Obligations                                          700        627         73        --          --
   Other Long-Term Obligations                                      1,793      1,793         --        --          --
                                                              ------------ ----------  ---------  --------  ---------
Total Contractual Debt Obligations                            $   163,369    $13,037    $13,654    $4,401    $132,277
                                                              ============ ==========  =========  ========  =========

</TABLE>
----------

(1)  The  2011  Convertible  Notes  include $33.6 million of principal and $31.6
million  of  future  accrued  interest (see Note 2 of the Consolidated Financial
Statements).  The 2011 Convertible Notes are subject to mandatory redemption, at
the  option  of  the  holder,  in  September 2006 and September 2008 at par plus
accrued  interest.

(2) Effective April 4, 2002, the Company completed the exchange of $57.9 million
of  the  $61.8  million  principal amount of its 4 1/2% Convertible Subordinated
Notes  due  September 2002 into $53.2 million of new 12% Senior Subordinated PIK
Notes  due  August  2007  ("12%  Notes")  and $2.8 million of new 8% Convertible
Senior  Subordinated  Notes  due  August 2007 ("8% Notes") and cash paid of $0.5
million.  In  addition, the Company exchanged $17.4 million of the $18.1 million
principal amount of its 5% Convertible Subordinated Notes due December 2004 into
$17.4  million  of  the  new  12%  Notes.

(3)  The  8%  Notes include $2.8 million of principal and $1.4 million of future
accrued  interest (see Note 2 of the Consolidated Financial Statements).

     The  Company  leases  office  space  and  equipment  under  operating lease
agreements.  Certain  leases  contain  renewal options and purchase options, and
generally  provide  that  the  Company  shall  pay  for  insurance,  taxes  and
maintenance.  As  of  December  31,  2001, the Company had future minimum annual
lease  obligations under noncancellable operating leases with terms in excess of
one  year  as  follows:  2002  -  $1.8 million, 2003 - $1.7 million, 2004 - $1.4
million, 2005 - $0.9 million, 2006 - $0.4 million and 2007 and thereafter - $0.3
million.

     The  Company  is  also  party  to various network service agreements, which
contain  certain  minimum  usage  commitments.  The largest contract establishes
pricing  and  provides  for annual minimum payments for the years ended December
31,  as  follows:  2002  -  $22.2 million, 2003 - $22.8 million and 2004 - $27.9
million.  A  separate  contract  with a different vendor establishes pricing and
provides  for  annual  minimum  payments  for  the  years  ended December 31, as
follows:  2002  -  $3.0  million,  2003  - $6.0 million and 2004 - $3.0 million.

     The  Company  relies  on  internally  generated  funds  and  cash  and cash
equivalents  on hand to fund its capital and financing requirements. The Company
had  $22.9  million of cash and cash equivalents as of March 31, 2002, and $22.1
million  as  of  December  31,  2001.

     Net  cash provided by operating activities was $4.6 million for the quarter
ended  March 31, 2002 compared to net cash used in operating activities of $17.0
million  for quarter ended March 31, 2001. For the quarter ended March 31, 2002,
the major contributors to the net cash provided by operating activities were the

                                       16
<PAGE>

net  income  of  $8.1  million  and  non-cash  charges of $8.7 million primarily
consisting  of  provision for doubtful accounts of $4.0 million and depreciation
and  amortization  of $4.4 million.  These amounts were offset by an increase in
accounts  receivable  of  $582,000  and  a decrease in accounts payable of $10.3
million.  For the quarter ended March  31,  2001, the net cash used in operating
activities was mainly generated by the net loss of $10.1 million, an increase in
accounts  receivable  of  $22.2 million and decrease in accounts payable of $8.4
million  offset  by a increase in other liabilities of $1.7 million and non-cash
items  of  $24.0  million.

     Net cash used in investing activities was $787,000 during the quarter ended
March  31,  2002,  which consisted of capitalized internal use computer software
costs  of  $570,000  and  the remaining balance related to purchase of property,
equipment  and  intangibles.  Net  cash  used  in  investing activities was $1.2
million  during the quarter ended March 31, 2001, which primarily related to the
purchase  of  property,  equipment  and  intangibles.

     Net  cash used in financing activities for the quarter ended March 31, 2002
was  $3.0 million compared to $10,000 for the quarter ended March 31, 2001.  The
net  cash  used in financing activities for the quarter ended March 31, 2002 was
primarily  attributable  to  payment  of  borrowings  under the Company's credit
facility  of $1.3 million, payments under 2011 Convertible Notes of $1.2 million
and  payments  under  capital  lease  obligations.

     The  Company  generally does not have a significant concentration of credit
risk  with  respect to net trade accounts receivable, due to the large number of
end-users  comprising  the  Company's  customer base and their dispersion across
different  geographic  regions.  The increase in provision for doubtful accounts
was  due  to the provision for customers acquired through discontinued marketing
programs.

CONVERTIBLE  SUBORDINATED  NOTES  AND  EXCHANGE  OFFERS  (see  Note  2,  of  the
Consolidated  Financial  Statements)

     In  September  1997,  the  Company  sold  $300 million of 4 1/2% Notes that
mature  on  September  15, 2002. Interest on the 4 1/2% Notes is due and payable
semiannually on March 15 and September 15 of each year. At March 31, 2002, $61.8
million  principal  amount  of  the  4  1/2%  Notes  remained  outstanding.

     In  December 1997, the Company sold $200 million of 5% Notes that mature on
December  15,  2004. Interest on the 5% Notes is due and payable semiannually on
June 15 and December 15 of each year. At March 31, 2002, $18.1 million principal
amount  of  the  5%  Notes  remained  outstanding.

     The  Company  was  required  to  repay $61.8 million of its 4 1/2% Notes in
September  2002. The Company did not have cash, nor did it believe it had access
to  new  financing,  sufficient  to  make  such a payment. The Company commenced
exchange  offers in February 2002 for the 4 1/2% Notes and 5% Notes primarily to
extend  the  maturity of the obligations and to obtain consents to eliminate the
requirement  to  offer  to repurchase the notes should there be a termination of
trading  of  the  Company's common stock on a national securities exchange or an
established  automated  over-the-counter  trading  market.

     The Company completed the exchanges for its 4 1/2% and 5% Notes on April 4,
2002,  and issued a total of $70.7 million principal amount of its new 12% Notes
and  $2.8  million  principal  amount  of its new 8% Notes and paid cash of $0.5
million  in  exchange  for  a  total  of  $57.9  million principal amount of the
outstanding  4  1/2% Notes and $17.4 million principal amount of the outstanding
5% Notes. After the exchanges, $3.9 million principal amount of the 4 1/2% Notes
and  $0.7  million  principal  amount  of  the  5%  Notes were not exchanged and
remained  outstanding  after the exchanges. The Company paid accrued interest of
$0.4  million  in  cash  on  the  exchanged  old  notes  upon  the  exchanges.

     The  new  12%  Notes  accrue  interest  at  a  rate  of 12% per year on the
principal  amount,  payable  two times a year on each February 15 and August 15,
beginning  on  August  15,  2002.  Interest  is payable in cash, except that the
Company  may,  at  its  option,  pay  up to one-third of the interest due on any
interest payment date through and including the August 15, 2004 interest payment
date  in  additional 12% Notes. The new 8% Notes accrue interest at a rate of 8%
per  year  on the principal amount, payable two times a year on each February 15
and  August  15, beginning on August 15, 2002 and are convertible, at the option
of  the  holder,  into  common  stock  at  $5.00  per  share.

     As  part of the restructuring, the Company amended the indentures governing
the  4  1/2%  and  5%  Notes  that  were  not  exchanged to remove the Company's
obligation  to  repurchase  the  notes  on  any  termination  of  trading of the
Company's  common  stock  on  a  national  securities exchange or an established
automated  over-the-counter  trading  market.

                                       17
<PAGE>

AOL  AGREEMENTS

     On  September  19, 2001, the Company restructured its financial obligations
with  AOL  that  arose  under  the  1999 Investment Agreement and also ended its
marketing  relationship  with AOL effective September 30, 2001 (collectively the
"AOL  Restructuring"). In connection with the AOL Restructuring, the Company and
AOL  entered into a Restructuring and Note Agreement ("Restructuring Agreement")
pursuant  to  which  the Company issued to AOL $54.0 million principal amount of
its  8%  secured convertible notes due September 2011 ("2011 Convertible Notes")
and 3,078,628 additional shares of the Company's common stock. See Note 2 of the
Consolidated  Financial  Statements  included  in  this  Report.

     The  2011  Convertible  Notes  were issued in exchange for a release of the
Company's  reimbursement  obligations  under  the Investment Agreement. The 2011
Convertible  Notes  are convertible into shares of the Company's common stock at
the  rate of $5.00 per share, may be redeemed by the Company at any time without
premium  and  are subject to mandatory redemption at the option of the holder on
the  fifth  and  seventh  anniversaries  of its issue date. The 2011 Convertible
Notes  accrue  interest  at  the  rate  of  8% per year on the principal amount,
payable  two  times  a year on each January 1 and July 1; interest is payable in
cash,  except  that  the Company may elect to pay up to 50% (100% in the case of
the  first  interest  payment)  of  the interest due on any payment date in kind
rather  than  in  cash.

     Pursuant  to  the  Restructuring  Agreement,  in  exchange  for  and  in
cancellation  of  the  Company's warrants to purchase 2,721,984 shares of common
stock  and  the  Company's related obligations under the Investment Agreement to
repurchase  such  warrants  from  AOL,  the  Company issued 3,078,628 additional
shares  of  its  common  stock to AOL, after which AOL held a total of 7,200,000
shares  of  common  stock.  The  Company  agreed to provide certain registration
rights  to AOL in connection with the shares of common stock issued to it by the
Company.

     The  Restructuring  Agreement  provided  that the Investment Agreement, the
Security  Agreement  securing  the  Company's  obligations  under the Investment
Agreement  and  the  existing  Registration  Rights  Agreement  with  AOL  were
terminated  in  their  entirety  and  the parties were released from any further
obligation  under  these agreements. In addition, AOL, as the holder of the 2011
Convertible Notes, entered into an intercreditor agreement with the lender under
the  Company's  existing  secured  credit  facility.

     In  addition  to  the  restructuring of the financial obligations discussed
above,  the  Company  and  AOL agreed, in a further amendment to their marketing
agreement  dated  as  of  September  19,  2001,  to discontinue, effective as of
September  30, 2001, their marketing relationship under the marketing agreement.
In  connection with this discontinuance, the Company paid AOL $6.0 million under
the marketing agreement, payable in two installments - $2.5 million on September
20,  2001 and the remaining $3.5 million on October 4, 2001. AOL, in lieu of any
other  payment  for the early discontinuance of the marketing relationship, paid
the  Company  $20.0  million  by  surrender  and  cancellation  of $20.0 million
principal  amount  of  the  2011 Convertible Notes delivered to AOL as discussed
above, thereby reducing the outstanding principal amount of the 2011 Convertible
Notes  to  $34.0  million.  The  amendment  also provided for the payment by the
Company  of  certain  expenses  related  to  marketing  services  until  the
discontinuance  and  for  the  continued  servicing  and  transition  of
telecommunications customer relationships after the discontinuance of marketing.

     On  February  21,  2002,  by  letter agreement, AOL agreed to waive certain
rights  that  it  had  under  the  Restructuring  Agreement  with respect to the
Company's  restructuring  of  its  existing 4 1/2% and 5% Notes and the exchange
offers therefore. As conditions to the waiver of such rights with respect to the
exchange  offers,  the  Company  agreed  to (i) provide that the new notes to be
exchanged  for  the existing notes have a maturity date after September 19, 2006
and, if convertible, have a conversion price of not less than $5.00, (ii) make a
prepayment on the 2011 Convertible Notes equal to forty percent of the amount of
cash  (excluding  accrued  interest  paid on existing notes which are exchanged)
that  the  Company  pays  to  the  holders of the existing notes in the exchange
offers  and (iii) limit the aggregate amount of cash that the Company pays under
the  exchange  offers  and  to  AOL under the letter agreement to $10.0 million.
Under  the letter agreement, the Company also prepaid approximately $1.2 million

                                       18
<PAGE>

principal  amount  of  the 2011 Convertible Notes, approximately $0.7 million of
which  was credited against amounts owed AOL under the letter agreement for cash
payments  in  the  exchange  offers.  After giving effect to the prepayment, and
taking  into  account  the  interest  that had been paid on the 2011 Convertible
Notes  in  additional  principal amount of the 2011 Convertible Notes, there was
outstanding as of March 31, 2002, an aggregate of $33.6 million principal amount
of  the  2011  Convertible  Notes and the Company did not owe AOL any additional
payments  related to the exchange offers. In addition, by letter agreement dated
April  22,  2002,  AOL  agreed  to  waive  certain  rights that it had under the
Restructuring  Agreement with respect to the purchase of the balance of the $3.9
million  of  the  outstanding  4  1/2%  Notes.


SECURED  CREDIT  FACILITY  (see Note 5 of the Consolidated Financial Statements)

     The  Company's  Credit Facility Agreement with MCG provides for a term loan
to  the  Company's  subsidiaries  of  up  to  $20.0 million and a line of credit
facility  permitting  such  subsidiaries  to  borrow  up  to an additional $30.0
million. The availability of the line of credit facility is subject, among other
things,  to  the successful syndication of that facility. Loans under the Credit
Facility  Agreement  bear interest at a rate equal to either (a) the Prime Rate,
or  (b)  LIBOR, plus, in each case, the applicable margin. The applicable margin
was initially 2.5% for borrowings accruing interest at the Prime Rate and 4% for
borrowings  accruing  interest  at  LIBOR; thereafter, the applicable margin was
based  on the ratio of funded debt to trailing twelve-month operating cash flow,
determined  on a consolidated basis, and varied from 2.0% to 2.5% for borrowings
accruing  interest  at  the  Prime  Rate  and  from  3.5% to 4.0% for borrowings
accruing  interest  at LIBOR. The Credit Facility Agreement subjects the Company
and  its  subsidiaries  to  certain restrictions and covenants related to, among
other  things,  liquidity,  per-subscriber-type  revenue, subscriber acquisition
costs,  and  leverage ratio and interest coverage ratio requirements. The credit
facilities  under  the  Credit  Facility Agreement were extended by amendment to
June  30,  2005  for the term loan facility and to June 30, 2003 for the line of
credit  facility.  The  principal  of  the term loan is required to be repaid in
quarterly  installments of $1.25 million on the last calendar day of each fiscal
quarter,  commencing  on September 30, 2001. The loans under the Credit Facility
Agreement  are  secured  by a pledge of all of the assets of the subsidiaries of
the  Company  that  are  parties to that agreement. In addition, the Company has
guaranteed  the  obligations  of  those  subsidiaries  under the Credit Facility
Agreement and related documents; the Company's guarantee subjects the Company to
certain  restrictions and covenants, including a prohibition against the payment
of dividends in respect of the Company's equity securities, except under certain
limited  circumstances.  In  connection  with the AOL Restructuring, MCG entered
into  an  Intercreditor  Agreement  with AOL. The Company borrowed $20.0 million
under  the  term  loan  facility  (approximately $15.0 million was used to repay
indebtedness  of Access One). At March 31, 2002, $16.3 million principal balance
remained  outstanding  under  the  term  loan  facility  and  no  amounts  were
outstanding  or  available  under  the  line  of  credit  facility.

     By  amendments  on  February  12,  2002  and  April  3,  2002,  the Company
restructured  certain  portions of the Credit Facility Agreement and the related
consulting  agreement  and  other loan documents. This restructuring amended the
financial  covenants  for  2002 through 2005 to be consistent with the Company's
internal  projections  and,  among  other  provisions,  effectively requires the
Company  to  elect  to  pay  in  kind,  rather  than  cash, interest on its 2011
Convertible Notes and its new 12% Notes to the fullest extent it is permitted to
do  so  under such notes. As of and after January 1, 2002, the applicable margin
will  be  7.0% for borrowings accruing interest at LIBOR and 6.0% for borrowings
accruing  interest  at  the  Prime  Rate. The restructuring also added mandatory
prepayment  provisions  if  the Company used a total of $10.0 million or more of
cash to repurchase or otherwise prepay its other debt obligations, including the
4  1/2%  and  5% Notes, the 2011 Convertible Notes and the new 12% and 8% Notes,
and  effectively requires the Company to elect to pay in kind, rather than cash,
interest  on  its  2011  Convertible  Notes and its new 12% Notes to the fullest
extent  it  is  permitted  to  do  so under such notes. In addition, the Company
issued  200,000  shares  of  common  stock  to  MCG with a value of $84,000 upon
issuance  and  agreed  to  register  such  shares  in  the  future.

OTHER  MATTERS

     The  Company's  provision  of  telecommunication  services  is  subject  to
government  regulation.  Changes  in  existing regulations could have a material
adverse  effect  on the Company including the following: (i) the Company's local
telecommunications  service  are  provided almost exclusively through the use of
ILEC  UNEs,  and  it is primarily the availability of costs-based UNE rates that
enables  the  Company  to  price  its  local  telecommunications  services
competitively.  The  possibility  exists  that  the  courts  or  the  FCC  could
discontinue  use  of  "total  element  long-run incremental cost" ("TELRIC") for
pricing  UNEs  based  on  an  ILEC's forward-looking costs, which could compel a

                                       19
<PAGE>

substantial increase in the prices that the Company pays for ILEC UNEs and could
make  it  unaffordable  for  the  Company  to  provide  UNE-based  local
telecommunications  services.  On  December  12,  2001,  the  FCC  initiated its
so-called UNE Triennial Review rulemaking in which it intends to review all UNEs
and  determine  whether  ILECs should continue to be required to provide them to
competitors.  Among  other  things,  the FCC has indicated that it will consider
whether  ILECs  should  continue to be required to provide the "local switching"
UNE, an essential component of the UNE-P combination. Any curtailment by the FCC
in  the  availability  of  the  local  switching UNE would materially impair the
Company's  ability  to  provide  local  telecommunications  services,  and could
eliminate  the Company's capability to provide local telecommunications services
entirely.  The FCC requires the Company and other providers of telecommunication
services  to  contribute to the universal service fund, which helps to subsidize
the  provision  of  local  telecommunication  services  and  other  services  to
low-income  consumers,  schools, libraries, health care providers, and rural and
insular  areas  that are costly to serve. If the FCC substantially increases the
current  contribution  factor  for  the  USF,  the  Company's costs of providing
telecommunication  services  will be increased and the Company might not be able
to  be  reimbursed  by  its customers for all of those costs, which would have a
negative  impact  on  the  Company's  gross  margins.

     At  December  31,  2001,  the  Company  had  net  operating  loss  (NOL)
carryforwards  for  federal  income  tax  purposes of $262.8 million. Due to the
"change  of  ownership" provisions of the Internal Revenue Code Section 382, the
availability of the Company's net operating loss and credit carryforwards may be
subject  to  an  annual limitation against taxable income in future periods if a
change  of ownership of more than 50% of the value of the company's stock should
occur  within a three-year testing period. Many of the changes that affect these
percentage  change  determinations,  such  as  changes  in  the  Company's stock
ownership,  are outside the Company's control. A more-than-50% cumulative change
in ownership for purposes of these Section 382 limitation occurred on August 31,
1998 and October 26, 1999. As a result of such changes, certain of the Company's
carryforwards  are limited. As of December 31, 2001, approximately $64.0 million
are  not available to offset income. In addition, as of March 31, 2002, based on
information  currently  available  to the Company, the Company believes that the
change  of  ownership  percentage  was  approximately  45%  for  the  applicable
three-year testing period. If, during the current three-year testing period, the
Company  experiences  an additional more-than-50% ownership change under Section
382,  the  amount  of  the  NOL  carryforward available to offset future taxable
income  may  be  further  and substantially reduced. To the extent the Company's
ability  to use these net operating loss carryforwards against any future income
is  limited,  its  cash  flow available for operations and debt service would be
reduced.  There can be no assurance that the Company will realize the benefit of
any  carryforwards.

     The  Company  is  a  party  to  a  number of legal actions and proceedings,
arising  from  the  Company's  provision  and  marketing  of  telecommunications
services,  as  well  as  certain legal actions and regulatory investigations and
enforcement  proceedings arising in the ordinary course of business. The Company
believes  that  the ultimate outcome of the foregoing actions will not result in
liability  that  would have a material adverse effect on the Company's financial
condition  or  results  of  operations. However, it is possible that, because of
fluctuations  in  the  Company's  cash position, the timing of developments with
respect  to  such  matters that require cash payments by the Company, while such
payments  are  not expected to be material to the Company's financial condition,
could  impair  the  Company's  ability  in  future  interim or annual periods to
continue  to  implement  its  business  plan,  which could affect its results of
operations  in  future  interim  or  annual  periods.

     The  Company has received notification from NASDAQ that it did not meet the
minimum  bid  price  requirement of the NASDAQ's National Marketplace Rules. The
Company  has  90 calendar days, or until May 15, 2002, to regain compliance with
these  standards.  If  at  any  time  before  May 15, 2002, the bid price of the
Company's  stock is at least $3.00 for a minimum of 10 consecutive trading days,
NASDAQ  staff  will  provide  written notification that the Company has achieved
compliance  with  the  rules.  Since  the Company's stock has not achieved a bid
price  of  $3.00,  the  Company  anticipates  receiving  such  a  notice  of
noncompliance.  The  Company  intends  to  appeal  such  notification.
Notwithstanding  such  appeal,  the delisting of the Company's common stock from
the  NASDAQ  National Market may adversely impact the market price and liquidity
of  the  Company's  common  stock.

     While  the  Company  believes  that  it  has access, albeit limited, to new
capital  in the public or private markets to fund its ongoing cash requirements,
there  can be no assurance as to the timing, amounts, terms or conditions of any
such  new  capital  or  whether  it could be obtained on terms acceptable to the
Company.  Accordingly,  the  Company  anticipates  that  its  cash  requirements
generally  must  be  met from the Company's cash-on-hand and from cash generated
from  operations.  Based  on  its  current projections for operations and having
restructured  the  MCG  facility  and  most of its outstanding convertible notes
indebtedness  through  the  exchange  offers,  the  Company  believes  that  its
cash-on-hand  and  its  cash flow from operations will be sufficient to fund its
capital  expenditures,  its  debt  service  obligations, including the increased
interest expense of its outstanding indebtedness, and the expenses of conducting
its  operations  for  at  least the next twelve months. However, there can be no
assurance that the Company will be able to realize its projected cash flows from
operations,  which  is  subject  to the risks and uncertainties discussed above.

                                       20
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NEW  ACCOUNTING  PRONOUNCEMENTS

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  142,  "Goodwill  and Other Intangible Assets," which
establishes  the  impairment  approach rather than amortization for goodwill and
indefinite-lived  intangible  assets. Effective January 1, 2002, the Company was
no  longer  required  to  record  amortization  expense  on  goodwill  and
indefinite-lived  intangible  assets, but instead is required  to evaluate these
assets for potential impairment at least annually and to record a charge for any
such  impairment. A preliminary assessment of any potential impairment indicated
that  no  impairment  existed  at  January  1,  2002.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No.  143,  "Accounting  for  Obligations  Associated  with  the  Retirement  of
Long-Lived  Assets."  SFAS  143  establishes  accounting  standards  for  the
recognition and measurement of an asset retirement obligation and its associated
asset  retirement  cost.  It  also  provides  accounting  guidance  for  legal
obligations  associated  with the retirement of tangible long-lived assets. SFAS
143  is  effective  in  fiscal  years  beginning after June 15, 2002, with early
adoption permitted. The Company expects that the provisions of SFAS 143 will not
have  a  material  effect on its consolidated results of operations or financial
position  upon  adoption.

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  144,  "Accounting  for the Impairment or Disposal of
Long-Lived  Assets."  SFAS  144  establishes  a  single accounting model for the
impairment  or disposal of long-lived assets, including discontinued operations.
SFAS  144  superseded  Statement  of  Financial  Accounting  Standards  No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed Of," and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual  and  Infrequently  Occurring Events and Transactions." Adoption of SFAS
144  has  had  no  impact on the Company's consolidated results of operations or
financial  position.

     Effective  January  1,  2002, the Company also adopted Emerging Issues Task
Force  (EITF)  01-09,  "Accounting  for  Consideration  Given  by  a Vendor to a
Customer  or  a  Reseller  of  the  Vendor's Products." This issue presumes that
consideration  from  a vendor to a customer or reseller of the vendor's products
is  a  reduction  of the selling prices of the vendor's products and, therefore,
should  be  characterized  as  a  reduction  of  revenue  when recognized in the
vendor's  statement  of  operations  and  could  lead  to negative revenue under
certain  circumstances.  Revenue  reduction is required unless the consideration
relates  to a separate, identifiable benefit and the benefit's fair value can be
established.  The  adoption  of  this  issue  resulted  in a reclassification of
approximately  $6.1  million  from sales and marketing expenses to net sales for
the  quarter ended March 31, 2001 attributed to direct marketing promotion check
campaigns.  The  adoption  of  EITF  01-09 did not have a material effect on the
Company's consolidated financial statements for the three months ended March 31,
2002.

CRITICAL  ACCOUNTING  POLICIIES

     The  Company's  discussion  and  analysis  of  its  financial condition and
results  of  operations  are  based  upon  the  Company's consolidated financial
statements,  which  have  been prepared in accordance with accounting principles
generally  accepted  in  the  United  States. The preparation of these financial
statements  requires the Company to make estimates and judgments that affect the
reported  amounts  of  assets,  liabilities,  revenues and expenses, and related
disclosure  of  contingent  assets  and  liabilities.  On an on-going basis, the
Company  evaluates  its estimates, including those related to bad debt, goodwill
and  intangible  assets, income taxes, contingencies and litigation. The Company
bases  its estimates and judgments on historical experience and on various other
assumptions  that  are  believed  to  be reasonable under the circumstances, the
results  of  which form the basis for making judgments about the carrying values
of  assets  and  liabilities  that  are not readily apparent from other sources.
Actual  results  may  differ from these estimates under different assumptions or
conditions.

                                       21
<PAGE>

     Recognition  of  Revenue.  The  Company derives its revenues from local and
long  distance  phone  services,  primarily  local  services  bundled  with long
distance  services,  long  distance  services,  inbound  toll-free  service  and
dedicated  private  line  services for data transmission. The Company recognizes
revenue  from  voice,  data and other telecommunications related services in the
period  in  which  subscriber  uses the related service. Allowances for doubtful
accounts  are  maintained for estimated losses resulting from the failure of its
customers  to  make required payments and for uncollectible usage. To the extent
the  Company  would  offer  sales incentives to its customers, the Company would
consider  the  guidance  of  EITF  01-09.

     Deferred revenue represents the unearned portion of local telecommunication
services  and  features  that  are  billed one month in advance. In addition, it
includes  the  amortization  of  a non-refundable prepayment received in 1997 in
connection  with  an  amended  telecommunications services agreement with Shared
Technologies Fairchild, Inc. The payment is amortized over the five-year term of
the  agreement,  which  expires October 2002. The amount included in revenue was
$1.9  million  in  each  of  the  quarters  ended  March  31, 2002 and 2001. The
remaining  amount  of  $4.3  million  will  be  included  in  revenue during the
remainder  of  2002. This agreement is terminable by either party on thirty days
notice. Termination by either party would accelerate recognition of the deferred
revenue.

     Allowance  for  Doubtful Accounts. The Company reviews accounts receivable,
historical  bad debt, customer credit-worthiness through customer credit scores,
current  economic  trends, changes in customer payment history and acceptance of
the  Company's  calling  plans  and  fees  when  evaluating  the adequacy of the
allowance  for  doubtful  accounts.  If the financial condition of the Company's
customers  were  to  deteriorate, resulting in an impairment of their ability to
make  payments,  additional  allowances  may be required. The Company's accounts
receivable  balance was $23.2 million, net of allowance for doubtful accounts of
$39.5  million,  as  of  March  31,  2002.

     Valuation  of Long-Lived Assets and Intangible Assets with a Definite Life.
The  Company  continually  reviews  the  recoverability of the carrying value of
long-lived  assets,  including  intangibles  with a definite life for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. When such events occur, the Company compares
the  carrying  amount  of  the  assets  to the undiscounted expected future cash
flows.  Factors the Company considers important that could trigger an impairment
review  include  the  following:

     -    Significant  underperformance  relative  to  expected  historical  or
          projected  future  operating  results
     -    Significant changes in the manner of the Company's use of the acquired
          assets  or  the  strategy  for  the  Company's  overall  business
     -    Significant  negative  industry  or  economic  trends
     -    Significant  decline  in  the  Company's  stock  price for a sustained
          period  and  market  capitalization  relative  to  net  book  value

     If  this  comparison  indicates  there  is  impairment,  the  amount of the
impairment  loss  to  be recorded is calculated by the excess of the net assets'
carrying  value over its fair value and is typically calculated using discounted
expected  future  cash  flows.

     Goodwill  and  Indefinite-Lived  Intangible Assets. Goodwill represents the
cost  in  excess of net assets of acquired companies. Effective January 1, 2002,
with  the  adoption  of  SFAS No. 142, goodwill and indefinite-lived intangibles
assets (mostly comprising of the workforce and intangible assets acquired in the
Access  One  acquisition  in August 2000) are not amortized. Prior to January 1,
2002  goodwill  and  intangibles  were  amortized  on a straight-line basis over
periods  ranging  from 5 years to 15 years.  Beginning January 1, 2002, goodwill
and  indefinite-lived intangible assets will not be amortize, but rather will be
tested for impairment annually, and will be tested for impairment between annual
tests  if  an  event  occurs  or  circumstances  change  that would indicate the
carrying  amount  may  be  impaired.   Impairment  testing  for  goodwill  and
indefinite-lived  intangible  assets  is  done  at  a  reporting  unit level. An
impairment  loss  would  generally be recognized when the carrying amount of the
reporting  units'  net  assets exceeds the estimated fair value of the reporting
unit.  Prior to January 1, 2002, goodwill and indefinite-lived intangible assets
were  tested  for  impairment  in a manner consistent with long-lived assets and
intangible  assets  with  a  definite  life.

     Internal  Use  Computer  Software. Direct development costs associated with
internal-use  computer  software  are  accounted for under Statement of Position
98-1,  "Accounting  for the Costs of Computer Software Developed or Obtained for
Internal  Use"  and  are capitalized including external direct costs of material
and  services  and  payroll  costs  for  employees devoting time to the software
projects.  Costs  incurred  during the preliminary project stage, as well as for
maintenance  and training, are expensed as incurred. Amortization is provided on
a  straight-line  basis over the shorter of 3 years or the estimated useful life
of  the  software.

                                       22
<PAGE>

     Income  Taxes. Income taxes are accounted for under the asset and liability
method.  Deferred  tax  assets  and liabilities are recognized for the estimated
future  tax  consequences  attributable to the differences between the financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax  bases and operating loss and tax credit carryforwards. Deferred
tax  assets  and  liabilities are measured using enacted tax rates in effect for
the  year  in  which those temporary differences are expected to be recovered or
settled.

     The Company records a valuation allowance to reduce its deferred tax assets
in  an  amount  that  is  more  likely  than not to be realized. The Company has
provided  a  full  valuation  allowance  for the net deferred tax assets for the
estimated  future  tax effects attributable to temporary differences between the
basis  of  assets and liabilities for financial and tax reporting purposes as of
March  31, 2002. If the Company continues to be profitable in future quarters at
levels  which  cause management to conclude that it is more likely than not that
the  Company  will realize all or a portion of the NOL carryforward, the Company
would  record  the  estimated  net realizable value of the deferred tax asset at
that  time  and  would  then  provide  for  income  taxes at a rate equal to the
Company's  combined  federal and state effective rates.

     Legal  Proceedings. The Company is a party to a number of legal actions and
proceedings  arising  from  the  Company's  provision  and  marketing  of
telecommunications  services,  as  well  as certain legal actions and regulatory
investigations  and  enforcement  proceedings  arising in the ordinary course of
business.  Management's  current estimated range of liability related to some of
the  pending litigation is based on claims for which management can estimate the
amount  and  range of loss. The Company recorded the minimum estimated liability
related  to  those  claims,  where  there  is  a  range  of loss. Because of the
uncertainties  related  to  both  the  amount and range of loss on the remaining
pending  litigation,  management  is unable to make a reasonable estimate of the
liability  that  could  result  from  an  unfavorable  outcome.  As  additional
information  becomes  available, the Company will assess the potential liability
related  to  the  Company's  pending  litigation  and revise its estimates. Such
revisions in the Company's estimates of the potential liability could materially
affect  its  results  of  operations  and  financial  position.

ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURE  ABOUT  MARKET  RISK

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

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

                                       23
<PAGE>

                           PART II - OTHER INFORMATION

ITEM  2.  CHANGES  IN  SECURITIES.

     In connection with certain amendments to the Credit Facility Agreement with
MCG  Finance  Corporation  ("MCG")  (as  further  described  in  Note  5  of the
Consolidated  Financial  Statements),  on  February 12, 2002, the Company issued
200,000 shares of its common stock to MCG. The issuance of such shares were made
by  the  Company  in  reliance  on  Section  4(2) of the Securities Act of 1933.

     In connection with the completion of the exchange offers for its 4 1/2% and
5%  Notes  on  April 4, 2002 (as further described in Note 2 of the Consolidated
Financial  Statements),  the  Company  issued a total of $70.7 million principal
amount  of  its  new  12%  Notes and $2.8 million principal amount of its new 8%
Notes. The issuance of such securities were made in reliance on Section 3(a) (9)
of  the  Securities  Act  of  1933.


ITEM  6.     REPORTS  ON  FORM  8-K

     (a)  Reports  on  Form  8-K:

     During  the  quarter  ended  March  31, 2002, the Company filed one Current
Report on Form 8-K, dated February 21, 2002 reported under Item 5, Other Events,
reporting  the restructuring of certain financial obligations to America Online,
Inc and MCG Capital Corporation.

                                       24
<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.



                                           TALK  AMERICA HOLDINGS, INC.




Date: May 13, 2002                        By: /s/  Gabriel  Battista
                                             -----------------------------------
                                            Gabriel  Battista
                                            Chairman of the Board of Directors,
                                            Chief Executive Officer and Director
                                            (Principal Executive Officer)

Date: May 13, 2002                        By: /s/  David G. Zahka
                                             -----------------------------------
                                            David G. Zahka
                                            Chief Financial Officer
                                            (Principal Financial Officer)

Date: May 13, 2002                        By: /s/  Thomas  M.  Walsh
                                             -----------------------------------
                                            Thomas  M.  Walsh
                                            Senior  Vice  President  -  Finance
                                            (Principal Accounting Officer)

                                       25
<PAGE>