**SECURITIES      AND EXCHANGE COMMISSION**

**_____________________**

**FORM      10-Q**

**(Mark      One)**

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

**For      the quarterly period ended June 30, 2006**

**OR**

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

**For      the transition period from **
** **
**      to _____**

**Commission      File Number 000 - 26728**

**Talk      America Holdings, Inc.**

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

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

**(215)      862-1500**

----

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

**Index**

|                                                                                                                                                                                                                                    | ** ****Page**                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|
|                                                                                                                                                                                                                                    |                               |
| PART                I - FINANCIAL INFORMATION                                                                                                                                                                                           |                               |
|                                                                                                                                                                                                                                    |                               |
| Item                1. Financial Statements                                                                                                                                                                                             |                               |
|                                                                                                                                                                                                                                    |                               |
| Condensed                Consolidated Statements of Operations - Three and Six Months Ended                June                30, 2006 and 2005 (unaudited)                                                                            |  2                            |
|                                                                                                                                                                                                                                    |                               |
| Condensed                Consolidated Balance Sheets - June 30, 2006 and December 31, 2005                (unaudited)                                                                                                                   |  3                            |
|                                                                                                                                                                                                                                    |                               |
| Condensed                Consolidated Statements of Cash Flows - Six Months Ended June 30,                2006 and                2005 (unaudited)                                                                                      |  4                            |
|                                                                                                                                                                                                                                    |                               |
| Notes                to Condensed Consolidated Financial Statements (unaudited)                                                                                                                                                         |  5                            |
|                                                                                                                                                                                                                                    |                               |
| Item                2. Management’s Discussion and Analysis of Financial Condition and Results                of Operations Item                3. Quantitative and Qualitative Disclosures About Market                Risk |     13 21 |
|                                                                                                                                                                                                                                    |                               |
| Item                4. Controls and Procedures                                                                                                                                                                                          | 21                                 |
|                                                                                                                                                                                                                                    |                               |
| PART                II - OTHER INFORMATION                                                                                                                                                                                              |  22                           |
|                                                                                                                                                                                                                                    |                               |
| Item                6. Exhibits                                                                                                                                                                                                         |  22                           |
|                                                                                                                                                                                                                                    |                               |
|                                                                                                                                                                                                                                    |                               |
|                                                                                                                                                                                                                                    |                               |

----

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

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

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

**(Unaudited)**

|                                                                            |   | **Three                Months Ended****June                30,** |    | **Six                Months Ended****June                30,** |   |
|---------------------------------------------------------------------------------|--------|------------------------------------------------------------------|---------|----------------------------------------------------------------|--------|
|                                                                            |   | **2006**                                                         |    | **2005**                                                       |   | **2006** |   | **2005** |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Revenue                                                                         |   | $                                                                | 114,052 |                                                           | $      | 107,669 |   | $ | 234,568 |   | $ | 227,504 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Costs                and expenses:                                              |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Network                and line costs, excluding depreciation and amortization  |   |                                                             | 62,250  |                                                           |   | 55,681 |   |   | 124,087 |   |   | 116,677 |   |
| General                and administrative expenses                              |   |                                                             | 23,892  |                                                           |   | 18,330 |   |   | 52,476 |   |   | 36,450 |   |
| Provision                for doubtful accounts                                  |   |                                                             | 4,201   |                                                           |   | 4,806 |   |   | 8,251 |   |   | 10,394 |   |
| Sales                and marketing expenses                                     |   |                                                             | 13,006  |                                                           |   | 3,773 |   |   | 23,942 |   |   | 14,041 |   |
| Depreciation                and amortization                                    |   |                                                             | 11,916  |                                                           |   | 9,615 |   |   | 23,151 |   |   | 19,116 |   |
| Total                costs and expenses                                         |   |                                                             | 115,265 |                                                           |   | 92,205 |   |   | 231,907 |   |   | 196,678 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Operating                income (loss)                                          |   |                                                             | (1,213  | )                                                              |   | 15,464 |   |   | 2,661 |   |   | 30,826 |   |
| Other                income (expense):                                          |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Interest                income                                                  |   |                                                             | 196     |                                                           |   | 366 |   |   | 514 |   |   | 674 |   |
| Interest                expense                                                 |   |                                                             | (204    | )                                                              |   | (25 | ) |   | (431 | ) |   | (50 | ) |
| Other                expense, net                                               |   |                                                             | (60     | )                                                              |   | (336 | ) |   | 53 |   |   | (356 | ) |
| Income                (loss) before provision for income taxes                  |   |                                                             | (1,281  | )                                                              |   | 15,469 |   |   | 2,797 |   |   | 31,094 |   |
| Provision                (benefit) for income taxes                             |   |                                                             | (14     | )                                                              |   | 6,101 |   |   | 1,683 |   |   | 12,256 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                                                |   | $                                                                | (1,267  | )                                                              | $      | 9,368 |   | $ | 1,114 |   | $ | 18,838 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Income                (loss) per share - Basic:                                 |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share                                      |   | $                                                                | (0.04   | )                                                              | $      | 0.34 |   | $ | 0.04 |   | $ | 0.69 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding                       |   |                                                             | 30,453  |                                                           |   | 27,474 |   |   | 30,418 |   |   | 27,283 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Income                (loss) per share - Diluted:                               |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share                                      |   | $                                                                | (0.04   | )                                                              | $      | 0.33 |   | $ | 0.04 |   | $ | 0.67 |   |
|                                                                            |   |                                                             |    |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average common and common equivalent shares outstanding |   |                                                             | 30,453  |                                                           |   | 28,218 |   |   | 30,598 |   |   | 28,021 |   |

----

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

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

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

**(Unaudited)**

|                                                                                                                                                                                                                                                                    |   | **June                30,****2006** |     | **December                31,**** 2005** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|-----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| **Assets**                                                                                                                                                                                                                                                              |   |                                |     |                                          |   |   |   |
| Current                assets:                                                                                                                                                                                                                                          |   |                                |     |                                          |   |   |   |
| Cash                and cash equivalents                                                                                                                                                                                                                                |   | $                                   | 31,412   |                                          | $      | 46,288 |   |
| Restricted                cash                                                                                                                                                                                                                                          |   |                                | 1,920    |                                          |   | -- |   |
| Accounts                receivable, trade (net of allowance for uncollectible accounts of                $15,177                and $13,838 at June 30, 2006 and December 31, 2005, respectively)                                                                       |   |                                | 38,370   |                                          |   | 43,600 |   |
| Deferred                income taxes                                                                                                                                                                                                                                    |   |                                | 18,370   |                                          |   | 18,096 |   |
| Prepaid                expenses and other current assets                                                                                                                                                                                                                |   |                                | 11,333   |                                          |   | 10,297 |   |
| Total                current assets                                                                                                                                                                                                                                     |   |                                | 101,405  |                                          |   | 118,281 |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Property                and equipment, net                                                                                                                                                                                                                              |   |                                | 98,327   |                                          |   | 98,492 |   |
| Goodwill                                                                                                                                                                                                                                                                |   |                                | 36,479   |                                          |   | 36,479 |   |
| Intangibles,                net                                                                                                                                                                                                                                         |   |                                | 3,768    |                                          |   | 4,934 |   |
| Deferred                income taxes                                                                                                                                                                                                                                    |   |                                | 33,650   |                                          |   | 21,033 |   |
| Capitalized                software and other assets                                                                                                                                                                                                                    |   |                                | 10,757   |                                          |   | 9,470 |   |
|                                                                                                                                                                                                                                                                    |   | $                                   | 284,386  |                                          | $      | 288,689 |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| **Liabilities                and Stockholders’ Equity**                                                                                                                                                                                                           |   |                                |     |                                          |   |   |   |
| Current                liabilities:                                                                                                                                                                                                                                     |   |                                |     |                                          |   |   |   |
| Accounts                payable and accrued expenses                                                                                                                                                                                                                    |   | $                                   | 34,186   |                                          | $      | 40,025 |   |
| Sales,                use and excise taxes                                                                                                                                                                                                                              |   |                                | 7,416    |                                          |   | 7,316 |   |
| Deferred                revenue                Legal settlements                                                                                                                                                                                                        |   |                                | 14,126   |                                          |   | 13,824 |   |
| Current                portion of long-term debt                                                                                                                                                                                                                        |   |                                | 3,309    |                                          |   | 3,988 |   |
| Accrued                compensation                                                                                                                                                                                                                                     |   |                                | 6,342    |                                          |   | 9,405 |   |
| Other                current liabilities                                                                                                                                                                                                                                |   |                                | 11,688   |                                          |   | 12,933 |   |
| Total                current liabilities                                                                                                                                                                                                                                |   |                                | 77,067   |                                          |   | 87,491 |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Long-term                debt                                                                                                                                                                                                                                           |   |                                | 750      |                                          |   | 1,289 |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Deferred                income taxes                                                                                                                                                                                                                                    |   |                                | 3,942    |                                          |   | 4,853 |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Other                non-current liabilities                                                                                                                                                                                                                            |   |                                | 5,789    |                                          |   | 3,269 |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Commitments                and contingencies                                                                                                                                                                                                                            |   |                                |     |                                          |   |   |   |
|                                                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Stockholders'                equity:                                                                                                                                                                                                                                    |   |                                |     |                                          |   |   |   |
| Preferred                stock - $.01 par value, 5,000,000 shares authorized; no shares outstanding                                                                                                                                                                     |   |                                | --       |                                          |   | -- |   |
| Common                stock - $.01 par value, 100,000,000 shares authorized; 31,791,154                and                31,684,056 shares issued and 30,475,365 and 30,368,267 shares outstanding                at June 30, 2006 and December 31, 2005, respectively |   |                                | 318      |                                          |   | 317 |   |
| Additional                paid-in capital                                                                                                                                                                                                                               |   |                                | 384,417  |                                          |   | 380,481 |   |
| Accumulated                deficit                                                                                                                                                                                                                                      |   |                                | (182,897 | )                                             |   | (184,011 | ) |
| Treasury                stock - at cost, 1,315,789 shares at June 30, 2006 and December 31,                2005,                respectively                                                                                                                            |   |                                | (5,000   | )                                             |   | (5,000 | ) |
| Total                stockholders' equity                                                                                                                                                                                                                               |   |                                | 196,838  |                                          |   | 191,787 |   |
|                                                                                                                                                                                                                                                                    |   | $                                   | 284,386  |                                          | $      | 288,689 |   |

----

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

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In      thousands)**

**(Unaudited)**

|                                                                                                                         |   | **Six                Months Ended June 30,** |     |
|------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------|
|                                                                                                                         |   |                                         | **2006** |   |   | **2005** |   |
| Cash                flows from operating activities:                                                                         |   |                                         |     |   |   |   |   |
| Net                income                                                                                                    |   | $                                            | 1,114    |   | $ | 18,838 |   |
|                   Adjustments to reconcile net income to net cash provided by operating                activities: |   |                                         |     |   |   |   |   |
| Provision                for doubtful accounts                                                                               |   |                                         | 8,251    |   |   | 10,394 |   |
| Depreciation                and amortization                                                                                 |   |                                         | 23,151   |   |   | 19,115 |   |
| Other                non-cash charges                                                                                        |   |                                         | 429      |   |   | 349 |   |
| Deferred                income taxes                                                                                         |   |                                         | 650      |   |   | 10,015 |   |
| Stock-based                compensation                                                                                      |   |                                         | 3,217    |   |   | -- |   |
| Changes                in assets and liabilities:                                                                            |   |                                         |     |   |   |   |   |
| Accounts                receivable, trade                                                                                    |   |                                         | 1,422    |   |   | 162 |   |
| Prepaid                expenses and other current assets                                                                     |   |                                         | 1,173    |   |   | (442 | ) |
| Other                assets                                                                                                  |   |                                         | (66      | ) |   | (47 | ) |
| Accounts                payable and accrued expenses                                                                         |   |                                         | (9,009   | ) |   | (8,929 | ) |
| Sales,                use and excise taxes                                                                                   |   |                                         | (537     | ) |   | (3,636 | ) |
| Deferred                revenue                                                                                              |   |                                         | (1,719   | ) |   | (1,939 | ) |
| Accrued                compensation                                                                                          |   |                                         | (7,622   | ) |   | (1,926 | ) |
| Other                liabilities                                                                                             |   |                                         | (3,083   | ) |   | 1,046 |   |
| Net                cash provided by operating activities                                                                     |   |                                         | 17,371   |   |   | 43,000 |   |
|                                                                                                                         |   |                                         |     |   |   |   |   |
| Cash                flows from investing activities:                                                                         |   |                                         |     |   |   |   |   |
| Acquisition                of NTC, net of cash acquired                                                                      |   |                                         | (16,485  | ) |   | -- |   |
| Proceeds                from sale of fixed assets                                                                            |   |                                         | 48       |   |   | 42 |   |
| Capital                expenditures                                                                                          |   |                                         | (12,579  | ) |   | (19,986 | ) |
| Capitalized                software development costs                                                                        |   |                                         | (2,608   | ) |   | (2,023 | ) |
| Decrease                in restricted cash                                                                                   |   |                                         | 1,375    |   |   | -- |   |
| Net                cash used in investing activities                                                                         |   |                                         | (30,249  | ) |   | (21,967 | ) |
|                                                                                                                         |   |                                         |     |   |   |   |   |
| Cash                flows from financing activities:                                                                         |   |                                         |     |   |   |   |   |
| Payments                of capital lease obligations                                                                         |   |                                         | (2,656   | ) |   | (701 | ) |
| Proceeds                from exercise of options                                                                             |   |                                         | 358      |   |   | 1,643 |   |
| Tax                benefit of stock based compensation                                                                       |   |                                         | 300      |   |   | -- |   |
| Net                cash provided by (used in) financing activities                                                           |   |                                         | (1,998   | ) |   | 942 |   |
|                                                                                                                         |   |                                         |     |   |   |   |   |
| Net                change in cash and cash equivalents                                                                       |   |                                         | (14,876  | ) |   | 21,975 |   |
| Cash                and cash equivalents, beginning of period                                                                |   |                                         | 46,288   |   |   | 47,492 |   |
| Cash                and cash equivalents, end of period                                                                      |   | $                                            | 31,412   |   | $ | 69,467 |   |
|                                                                                                                         |   |                                         |     |   |   |   |   |

----

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

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      1. ACCOUNTING POLICIES**

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

**(b)      Risks and Uncertainties **

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

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

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

----

**NOTE      2. COMMITMENTS AND CONTINGENCIES **

----

**NOTE      3. STOCK-BASED COMPENSATION**

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

*de      minimus*

|                                                  |   |                                     |                                                                                                                                                                                                                                                              |                                  |   |                                         |   |   |                             |   |   |                                              |   |
|-------------------------------------------------------|--------|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|--------|----------------------------------------------|--------|--------|----------------------------------|--------|--------|---------------------------------------------------|--------|
|                                                  |   | **Three                  Months Ended**  |                                                                                                                                                                                                                                                              | **Six                  Months Ended** |   |
|                                                  |   | **June                  30, 2006**  | **                                                       June 30, 2006** |
|                                                  |   |                                     | **Using****Previous                  Accounting**                                                                                                                                                                                                            |                                  |   | **SFAS                  123(R) Adjustments** |   |   | **As                  Reported** |   |   | **Using****Previous                  Accounting** |   |   | **SFAS                  123(R) Adjustments** |   |   | **As                  Reported** |   |
| Operating                  income                     |   | $                                        | 0.4                                                                                                                                                                                                                                                               |                                  | $      | (1.6                                         | )      | $      | (1.2                             | )      | $      | 5.9                                               |   | $ | (3.2 | ) | $ | 2.7 |   |
| Income                  before income taxes           |   | $                                        | 0.3                                                                                                                                                                                                                                                               |                                  | $      | (1.6                                         | )      | $      | (1.3                             | )      | $      | 6.0                                               |   | $ | (3.2 | ) | $ | 2.8 |   |
| Provision                  (benefit) for income taxes |   | $                                        | 0.6                                                                                                                                                                                                                                                               |                                  | $      | 0.6                                          |   | $      | -                                |   | $      | 2.9                                               |   | $ | 1.2 |   | $ | 1.7 |   |
| Net                  income (loss)                    |   | $                                        | (0.3                                                                                                                                                                                                                                                              | )                                     | $      | (1.0                                         | )      | $      | (1.3                             | )      | $      | 3.1                                               |   | $ | (2.0 | ) | $ | 1.1 |   |
|                                                  |   |                                     |                                                                                                                                                                                                                                                              |                                  |   |                                         |   |   |                             |   |   |                                              |   |   |   |   |   |   |   |
| Income                  (loss) per share- basic:      |   | $                                        | (0.01                                                                                                                                                                                                                                                             | )                                     | $      | (0.03                                        | )      | $      | (0.04                            | )      | $      | 0.10                                              |   | $ | (0.06 | ) | $ | 0.04 |   |
| Income                  (loss) per share- diluted:    |   | $                                        | (0.01                                                                                                                                                                                                                                                             | )                                     | $      | (0.03                                        | )      | $      | (0.04                            | )      | $      | 0.10                                              |   | $ | (0.06 | ) | $ | 0.04 |   |
|                                                  |   |                                     |                                                                                                                                                                                                                                                              |                                  |   |                                         |   |   |                             |   |   |                                              |   |   |   |   |   |   |   |
| Cash                  flow from operating activities  |   |                                     |                                                                                                                                                                                                                                                              |                                  |   |                                         |   |   |                             |   | $      | 17.7                                              |   | $ | (0.3 | ) | $ | 17.4 |   |
| Cash                  flow from financing activities  |   |                                     |                                                                                                                                                                                                                                                              |                                  |   |                                         |   |   |                             |   | $      | (2.3                                              | )      | $ | 0.3 |   | $ | (2.0 | ) |

----

|                                                                                                                                                                                            |   | **Three                    Months Ended** |   | **Six                    Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                                                                            |   |                                      |   |                                    |   |   |   |
|                                                                                                                                                                                            |   |                                      |   |                                    |   |   |   |
| **Net                    income as reported**                                                                                                                                                   |   | $                                         | 9,368  |                                    | $      | 18,838 |   |
| **Add:**Stock-based                    employee compensation expense included in reported net income,                    net of tax                    effect                                   |   |                                      | -      |                                    |   | - |   |
| **Deduct:**Total                    stock-based employee compensation expense determined under fair                    value                    based method for all options, net of tax effect |   |                                      | 563    |                                    |   | 1,066 |   |
| **Pro                    forma net income**                                                                                                                                                     |   | $                                         | 8,805  |                                    | $      | 17,772 |   |
|                                                                                                                                                                                            |   |                                      |   |                                    |   |   |   |
| **Basic                    earnings per share:**                                                                                                                                                |   |                                      |   |                                    |   |   |   |
| As                    reported                                                                                                                                                                  |   | $                                         | 0.34   |                                    | $      | 0.69 |   |
| Pro                    forma                                                                                                                                                                    |   | $                                         | 0.32   |                                    | $      | 0.65 |   |
| **Diluted                    earnings per share:**                                                                                                                                              |   |                                      |   |                                    |   |   |   |
| As                    reported                                                                                                                                                                  |   | $                                         | 0.33   |                                    | $      | 0.67 |   |
| Pro                    forma                                                                                                                                                                    |   | $                                         | 0.32   |                                    | $      | 0.65 |   |

----

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

|                                          |   |  **Options****Shares** |   | **Exercise****Price                Range****Per                Share** |   | **Weighted****Average****Exercise                Price** |
|-----------------------------------------------|--------|-----------------------------|--------|------------------------------------------------------------------------|--------|----------------------------------------------------------|
| Outstanding,                December 31, 2003 |   | 5,437,107                   |   | $0.99-$47.64                                                           |   | $8.35                                                    |
| Granted                                       |   | 220,833                     |   | $5.14-$10.87                                                           |   | $6.83                                                    |
| Exercised                                     |   | (374,144)                   |   | $1.05-$6.81                                                            |   | $1.75                                                    |
| Cancelled                                     |   | (401,952)                   |   | $1.32-$29.63                                                           |   | $12.86                                                   |
|                                          |   |                        |   |                                                                   |   |                                                     |
| Outstanding,                December 31, 2004 |   | 4,881,844                   |   | $0.99-$47.64                                                           |   | $8.41                                                    |
| Granted                                       |   | 1,670,000                   |   | $6.22-$9.57                                                            |   | $8.52                                                    |
| Exercised                                     |   | (1,240,706)                 |   | $0.99                - $10.49                                          |   | $2.43                                                    |
| Cancelled                                     |   | (310,334)                   |   | $1.11-$30.38                                                           |   | $10.28                                                   |
|                                          |   |                        |   |                                                                   |   |                                                     |
| Outstanding,                December 31, 2005 |   | 5,000,804                   |   | $1.20-$47.64                                                           |   | $9.82                                                    |
| Granted                                       |   | 312,500                     |   | $7.36-$9.04                                                            |   | $8.76                                                    |
| Exercised                                     |   | (107,098)                   |   | $1.53-$7.88                                                            |   | $3.24                                                    |
| Cancelled                                     |   | (201,563)                   |   | $3.70-$30.38                                                           |   | $9.50                                                    |
|                                          |   |                        |   |                                                                   |   |                                                     |
| Outstanding,                June 30, 2006     |   | 5,004,643                   |   | $1.20-$47.64                                                           |   | $9.91                                                    |

| **Range                of Exercise Prices** |   | **Number                Outstanding at June 30, 2006** |   | **Weighted                Average Exercise Price** |   | **Weighted                Average Remaining Contractual Life (years)** |   | **Number                Exercisable at June 30, 2006** |   | **Weighted                Average Exercise Price** |
|---------------------------------------------|--------|--------------------------------------------------------|--------|----------------------------------------------------|--------|------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|----------------------------------------------------|
| $0.99-$10.31                                |   | 2,764,181                                              |   | $7.08                                              |   | 7.4                                                                    |   | 876,352                                                |   | $4.05                                              |
| 10.32-14.35                                 |   | 1,946,438                                              |   | 11.62                                              |   | 6.5                                                                    |   | 1,944,213                                              |   | 11.62                                              |
| 14.36-21.00                                 |   | 132,583                                                |   | 20.22                                              |   | 2.6                                                                    |   | 132,583                                                |   | 20.22                                              |
| 21.10-30.00                                 |   | 66,666                                                 |   | 26.65                                              |   | 2.6                                                                    |   | 66,666                                                 |   | 26.65                                              |
| 30.01-47.64                                 |   | 94,775                                                 |   | 30.95                                              |   | 2.9                                                                    |   | 94,775                                                 |   | 30.95                                              |
| $1.20-$47.64                                |   | 5,004,643                                              |   | $9.91                                              |   | 6.8                                                                    |   | 3,114,589                                              |   | $10.76                                             |

----

| **Assumption**                         |   | **2006**               |   | **2005**               | **2004**               |   |
|----------------------------------------|--------|------------------------|--------|------------------------|------------------------|--------|
| Expected                Term           |   | 6                years |   | 5                years | 5                years |   |
| Expected                Volatility     |   | 85.90%                 |   | 92.16%                 | 93.82%                 |   |
| Expected                Dividend Yield |   | --%                    |   | --%                    | --%                    |   |
| Risk-Free                Interest Rate |   | 4.45%                  |   | 4.10%                  | 3.49%                  |   |

|                                                   |         |                         |   |   |                                       |   |
|--------------------------------------------------------|--------------|------------------------------|--------|--------|--------------------------------------------|--------|
|                                                   |    | **Number of****Shares** |   |   | **Weighted****Average****Fair Value** |
|  Nonvested                at January 1, 2006 |    | 1,763,572                    |   |   | $                                          | 6.14   |
|  Granted                                          |    | 312,500                      |   |   |                                       | 6.53   |
|  Vested                                           |    | (39,779                      | )      |   |                                       | 5.74   |
|  Forfeited                                        |    | (146,239                     | )      |   |                                       | 6.28   |
|  Nonvested                at June 30, 2006        |    | 1,890,054                    |   |   | $                                          | 6.20   |
|                                                   |    |                         |   |   |                                       |   |

----

**NOTE      4. PER SHARE DATA**

|                                                                                                                                                                   |   | **Three                Months Ended****June                30,** |     | **Six                Months Ended****June                30,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|----------|----------------------------------------------------------------|--------|
|                                                                                                                                                                   |   |                                                             | **2006** |                                                           |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Net                income (loss) used to compute both basic and diluted earnings per                share                                                              |   | $                                                                | (1,267   | )                                                              | $      | 9,368 |   | $ | 1,114 |   | $ | 18,838 |   |
|                                                                                                                                                                   |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Average                shares of common stock outstanding used to compute basic earnings                per                share                                       |   |                                                             | 30,453   |                                                           |   | 27,474 |   |   | 30,418 |   |   | 27,283 |   |
| Additional                common shares to be issued assuming exercise of stock options and                warrants                (net of shares assumed reacquired)* |   |                                                             | --       |                                                           |   | 744 |   |   | 180 |   |   | 738 |   |
| Average                shares of common and common equivalent stock outstanding used to                compute                diluted earnings per share               |   |                                                             | 30,453   |                                                           |   | 28,218 |   |   | 30,598 |   |   | 28,021 |   |
|                                                                                                                                                                   |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Income                loss per share - Basic:                                                                                                                          |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Net                income per share                                                                                                                                    |   | $                                                                | (0.04    | )                                                              | $      | 0.34 |   | $ | 0.04 |   | $ | 0.69 |   |
|                                                                                                                                                                   |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding                                                                                                              |   |                                                             | 30,453   |                                                           |   | 27,474 |   |   | 30,418 |   |   | 27,283 |   |
|                                                                                                                                                                   |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                   |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Income                loss per share - Diluted:                                                                                                                        |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Net                income per share                                                                                                                                    |   | $                                                                | (0.04    | )                                                              | $      | 0.33 |   | $ | 0.04 |   | $ | 0.67 |   |
|                                                                                                                                                                   |   |                                                             |     |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average common and common equivalent shares outstanding                                                                                        |   |                                                             | 30,453   |                                                           |   | 28,218 |   |   | 30,598 |   |   | 28,021 |   |

----

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

|                                      |   | **For                the Three Months Ended June 30,** |     | **For                the Six Months Ended June 30,** |   |
|-------------------------------------------|--------|--------------------------------------------------------|----------|------------------------------------------------------|--------|
|                                      |   |                                                   | **2006** |                                                 |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Revenues                                  |   | $                                                      | 114,052  |                                                 | $      | 153,772 |   | $ | 234,568 |   | $ | 320,057 |   |
| Net                Income (loss)          |   | $                                                      | (1,267   | )                                                    | $      | 9,303 |   | $ | 1,114 |   | $ | 17,295 |   |
|                                      |   |                                                   |     |                                                 |   |   |   |   |   |   |   |   |   |
|  Earnings                per share:  |   |                                                   |     |                                                 |   |   |   |   |   |   |   |   |   |
| Basic                                     |   | $                                                      | (0.04    | )                                                    | $      | 0.32 |   | $ | 0.04 |   | $ | 0.59 |   |
| Diluted                                   |   | $                                                      | (0.04    | )                                                    | $      | 0.31 |   | $ | 0.04 |   | $ | 0.58 |   |
| Weighted                Average Shares:   |   |                                                   |     |                                                 |   |   |   |   |   |   |   |   |   |
|     Basic             |   |                                                   | 30,453   |                                                 |   | 29,274 |   |   | 30,418 |   |   | 29,083 |   |
|                    Diluted |   |                                                   | 30,453   |                                                 |   | 30,018 |   |   | 30,598 |   |   | 29,821 |   |

----

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

**Cautionary      Note Concerning Forward-Looking Statements**

----

**OVERVIEW**

----

**RESULTS      OF OPERATIONS **

|                                               |   | **Three                Months Ended June 30,** |     | **Six                Months Ended June 30,** |   |
|----------------------------------------------------|--------|------------------------------------------------|----------|----------------------------------------------|--------|
|                                               |   |                                           | **2006** |                                         |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Revenue                                            |   |                                           | 100.0    | %                                            |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |
| Costs                and expenses:                 |   |                                           |     |                                         |   |   |   |   |   |   |   |   |   |
| Network                and line costs              |   |                                           | 54.6     |                                         |   | 51.7 |   |   | 52.9 |   |   | 51.3 |   |
| General                and administrative expenses |   |                                           | 20.9     |                                         |   | 17.0 |   |   | 22.4 |   |   | 16.0 |   |
| Provision                for doubtful accounts     |   |                                           | 3.7      |                                         |   | 4.5 |   |   | 3.5 |   |   | 4.6 |   |
| Sales                and marketing expenses        |   |                                           | 11.4     |                                         |   | 3.5 |   |   | 10.2 |   |   | 6.2 |   |
| Depreciation                and amortization       |   |                                           | 10.5     |                                         |   | 8.9 |   |   | 9.9 |   |   | 8.4 |   |
| Total                costs and expenses            |   |                                           | 101.1    |                                         |   | 85.6 |   |   | 98.9 |   |   | 86.5 |   |
| Operating                income                    |   |                                           | (1.1     | )                                            |   | 14.4 |   |   | 1.1 |   |   | 13.5 |   |
| Other                income (expense):             |   |                                           |     |                                         |   |   |   |   |   |   |   |   |   |
| Interest                income                     |   |                                           | 0.2      |                                         |   | 0.3 |   |   | 0.2 |   |   | 0.4 |   |
| Interest                expense                    |   |                                           | (0.2     | )                                            |   | -- |   |   | (0.1 | ) |   | -- |   |
| Other,                net                          |   |                                           | --       |                                         |   | (0.3 | ) |   | -- |   |   | (0.2 | ) |
| Income                before income taxes          |   |                                           | (1.1     | )                                            |   | 14.4 |   |   | 1.2 |   |   | 13.7 |   |
| Provision                for income taxes          |   |                                           | --       |                                         |   | 5.7 |   |   | 0.7 |   |   | 5.4 |   |
| Net                income                          |   |                                           | (1.1     | )%                                           |   | 8.7 | % |   | 0.5 | % |   | 8.3 | % |

|                                               |   | **Three                Months Ended**** June                30,** |     | **Six                Months Ended**** June                30,** |   |
|----------------------------------------------------|--------|------------------------------------------------------------------------|----------|----------------------------------------------------------------------|--------|
|                                               |   |                                                                   | **2006** |                                                                 |   | **2005** |   |   | **2006** |   |   | **2005** |   |
| Revenue                                            |   |                                                                   | 5.9      | %                                                                    |   | (6.5 | )% |   | 3.1 | % |   | 1.2 | % |
| Costs                and expenses:                 |   |                                                                   |     |                                                                 |   |   |   |   |   |   |   |   |   |
| Network                and line costs              |   |                                                                   | 11.8     |                                                                 |   | 0.2 |   |   | 6.4 |   |   | 6.3 |   |
| General                and administrative expenses |   |                                                                   | 30.3     |                                                                 |   | 15.3 |   |   | 44.0 |   |   | 17.4 |   |
| Provision                for doubtful accounts     |   |                                                                   | (12.6    | )                                                                    |   | (2.0 | ) |   | (20.6 | ) |   | 24.8 |   |
| Sales                and marketing expenses        |   |                                                                   | 244.7    |                                                                 |   | (80.4 | ) |   | 70.5 |   |   | (61.5 | ) |
| Depreciation                and amortization       |   |                                                                   | 23.9     |                                                                 |   | 80.7 |   |   | 21.1 |   |   | 82.9 |   |
| Total                costs and expenses            |   |                                                                   | 25.0     |                                                                 |   | (8.6 | ) |   | 17.9 |   |   | 0.3 |   |
| Operating                income                    |   |                                                                   | (107.8   | )                                                                    |   | 8.1 |   |   | (91.4 | ) |   | 7.4 |   |
| Other                income (expense):             |   |                                                                   |     |                                                                 |   |   |   |   |   |   |   |   |   |
| Interest                income                     |   |                                                                   | (46.4    | )                                                                    |   | 771.4 |   |   | (23.7 | ) |   | 371.3 |   |
| Interest                expense                    |   |                                                                   | 716.0    |                                                                 |   | (94.3 | ) |   | 762.0 |   |   | (96.0 | ) |
| Other,                net                          |   |                                                                   | 82.1     |                                                                 |   | 100.0 |   |   | (114.9 | ) |   | 100.0 |   |
| Income                before income taxes          |   |                                                                   | (108.3   | )                                                                    |   | 11.2 |   |   | (91.0 | ) |   | 12.7 |   |
| Provision                for income taxes          |   |                                                                   | (100.2   | )                                                                    |   | 11.3 |   |   | (86.3 | ) |   | 12.6 |   |
| Net                income                          |   |                                                                   | (113.5   | )%                                                                   |   | 11.2 | % |   | (94.1 | )% |   | 12.7 | % |

----

*Revenue.*

----

*Network      and Line Costs*

*General      and Administrative Expenses*

*Provision      for Doubtful Accounts*

*Sales      and Marketing Expenses*

*Depreciation      and Amortization.*

----

*Revenue.*

*Network      and Line Costs*

*General      and Administrative Expenses*

----

*Provision      for Doubtful Accounts*

*Sales      and Marketing Expenses*

*Depreciation      and Amortization.*

**LIQUIDITY      AND CAPITAL RESOURCES **

|                                | **Year                to date****(in                thousands)** | **Percent                Change** |
|-------------------------------------|------------------------------------------------------------------|-----------------------------------|
|                                | **2006**                                                         | **2005**                          | **2006                vs. 2005** |
| Operating                activities | $17,371                                                          | $43,000                           | (59.6)% |
| Investing                activities | (30,249)                                                         | (21,967)                          | 37.7% |
| Financing                activities | (1,998)                                                          | 942                               | (312.1)% |

*Cash      Provided By Operating Activities.*

----

*Net      Cash Used in Investing Activities.*

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

**Other      Matters **

**CRITICAL      ACCOUNTING POLICIES **

**Stock-Based      Compensation Expense **

----

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

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

----

**PART      II - OTHER INFORMATION**

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

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

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

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

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

----

**SIGNATURES**

**TALK      AMERICA HOLDINGS, INC. **

| Date:                August 9, 2006 | By:                /s/ Edward B. Meyercord, III  Edward                B. Meyercord, IIIChief                Executive Officer                                      |
|-------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Date:                August 9, 2006 | By:/s/                David G. Zahka    David                G. Zahka Chief                Financial Officer (Principal Financial                Officer) |