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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 1999.
                              ---------------

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

For the transition period from            to
                               ----------    ---------

Commission file number 0 - 26728

                                  Talk.com Inc.
               --------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                    Delaware
          -------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)

                                   23-2827736
                    ---------------------------------------
                      (I.R.S. Employer Identification No.)

               12020 Sunrise Valley Drive, Reston, Virginia 22091
               ---------------------------------------------------
               (Address of principal executive offices - Zip code)

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

               ------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports)  and (2) has been  subject to such  filing
requirements for the past 90 days.
                                    Yes X No
                                       ---

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

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports required to be filed by Section 13, or 15(d) of the Securities  Exchange
Act of 1934 subsequent to the  distribution of securities under a plan confirmed
by a court

                                     Yes   No
                                        ---
-
APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding
of each of the issuer's  classes of common stock,  as of the latest  practicable
date.

As of August  13,  1999,  61,291,568  shares of Common  Stock  were  issued  and
outstanding.



<PAGE>



                                  TALK.COM INC.
                                    FORM 10-Q
                                  JUNE 30, 1999

                                TABLE OF CONTENTS




PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements


             Consolidated Balance Sheets as of June 30, 1999
                  and December 31, 1998

             Consolidated Statements of Operations for the three and six
                  months ended June 30, 1999 and 1998

             Consolidated Statement of Stockholders' Equity (Deficit) for
                  the six months ended June 30, 1999

             Consolidated Statements of Cash Flows for the six
                  months ended June 30, 1999 and 1998

             Notes to Consolidated Financial Statements


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

PART II - OTHER INFORMATION

          Signatures



                                       2


<PAGE>



PART I - FINANCIAL INFORMATION
           ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

                                                                               JUNE 30, 1999
                                                                                (UNAUDITED)      DECEMBER 31, 1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                   <C>
ASSETS
CURRENT:
   Cash and cash equivalents                                                     $37,114               $   3,063
   Marketable securities                                                              --                  89,649
   Accounts  receivable,  trade, net of allowance for uncollectible  accounts
     of $1,342 and $1,669, respectively                                           46,016                  46,587
   Advances to partitions and notes receivable                                       288                   1,870
   Prepaid expenses and other current assets                                       8,488                   8,600
---------------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT ASSETS                                                       91,906                 149,769
Property and equipment, net                                                       56,679                  56,703
Intangibles, net                                                                   1,109                   1,150
Other assets                                                                       6,436                  64,938
---------------------------------------------------------------------------------------------------------------------
       TOTAL ASSETS                                                             $156,130                $272,560
=====================================================================================================================
LIABILITIES, CONTINGENCIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
   Margin account indebtedness                                                   $    --                 $49,621
   Accounts payable and accrued expenses:
      Trade and other                                                             33,418                  64,794
      Partitions                                                                   5,293                   4,380
      Other                                                                       17,973                  17,913
---------------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT LIABILITIES                                                  56,684                 136,708
Convertible debt                                                                  94,285                 242,387
Deferred revenue                                                                  24,700                  28,400
Other liabilities                                                                     --                   1,850
---------------------------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                                         175,669                 409,345
---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
Contingent redemption value of common stock                                       31,941                      --
---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT):
   Preferred stock, $.01 par value,  5,000,000 shares  authorized;  no shares
     outstanding                                                                      --                      --
   Common stock - $.01 par value,  100,000,000 shares authorized;
     66,934,635  issued                                                              669                     669
   Additional paid-in capital                                                    209,119                 265,325
   Accumulated deficit                                                          (172,860)               (218,229)
   Treasury stock, at cost                                                       (88,408)               (184,550)
---------------------------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                      (51,480)               (136,785)
=====================================================================================================================
       TOTAL LIABILITIES, CONTINGENCIES AND STOCKHOLDERS' EQUITY (DEFICIT)      $156,130                $272,560
=====================================================================================================================
</TABLE>
                   See accompanying notes to consolidated financial statements.

                                       3

<PAGE>


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

<TABLE>
<CAPTION>

                                                               FOR THE THREE MONTHS                   FOR THE SIX MONTHS
                                                                  ENDED JUNE 30,                        ENDED JUNE 30,
                                                         ----------------------------------  -------------------------------------
                                                              1999                 1998           1999              1998
<S>                                                        <C>                  <C>            <C>                <C>
-------------------------------------------------------------------------------------------  -------------------------------------
SALES                                                      $117,139             $111,098      $227,711           $202,244

COST OF SALES                                                73,418               93,058       148,116            169,638
----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT                                                 43,721               18,040        79,595             32,606

GENERAL AND ADMINISTRATIVE EXPENSES                           9,049               10,195        19,188             19,823

PROMOTIONAL, MARKETING AND ADVERTISING
     EXPENSES                                                21,193               37,617        35,791             84,939

SIGNIFICANT OTHER CHARGES (INCOME)                           (1,500)                 277        (2,718)            21,595
----------------------------------------------------------------------------------------------------------------------------------

OPERATING INCOME (LOSS)                                      14,979              (30,049)       27,334            (93,751)

INVESTMENT AND OTHER INCOME (EXPENSE), NET                     (941)               1,004          (962)            (3,810)
----------------------------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE INCOME TAXES                            14,038              (29,045)       26,372            (97,561)

PROVISION FOR INCOME TAXES                                       --               67,109            --             40,388
----------------------------------------------------------------------------------------------------------------------------------

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                      14,038              (96,154)       26,372          (137,949)
  EXTRAORDINARY GAIN                                             --                   --        18,997                 --
----------------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS)                                          $ 14,038            $ (96,154)      $45,369          $(137,949)
==================================================================================================================================

BASIC EPS:

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                    $   0.23            $   (1.49)    $    0.44         $    (2.14)

EXTRAORDINARY GAIN                                               --                    --         0.32                 --
----------------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS)                                          $   0.23            $   (1.49)    $    0.76         $    (2.14)
==================================================================================================================================

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC                                          60,422               64,486        59,670             64,320
==================================================================================================================================

DILUTED EPS:

INCOME (LOSS) BEFORE EXTRAORDINARY GAIN                    $   0.22             $  (1.49)     $   0.42         $    (2.14)

EXTRAORDINARY GAIN                                               --                    --         0.30                 --
----------------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS)                                          $   0.22             $  (1.49)     $   0.72          $   (2.14)
==================================================================================================================================

WEIGHTED AVERAGE COMMON AND COMMON  EQUIVALENT SHARES
     OUTSTANDING - DILUTED                                   63,360               64,486        62,894             64,320
==================================================================================================================================

</TABLE>

                   See accompanying notes to consolidated financial statements.


                                       4
<PAGE>



             TALK.COM INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF
                         STOCKHOLDERS' EQUITY (DEFICIT)
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                    COMMON STOCK             ADDITIONAL                     TREASURY STOCK
                            ---------------------------       PAID-IN        ACCUMULATED    ----------------
                               SHARES         AMOUNT          CAPITAL          DEFICIT     SHARES        AMOUNT         TOTAL
                            ------------   ------------   --------------   -------------- ---------   ------------   -------------
<S>                           <C>             <C>           <C>             <C>           <C>           <C>            <C>
 Balance, January 1, 1999     66,935          $669          $265,325        $(218,229)    (12,949)      $(184,550)     $(136,785)
  Net income                      --            --                --           45,369           --              --        45,369
  AOL investment                  --            --            (3,730)               --      4,121          58,730         55,000
  Exercise of common
     stock options                --            --           (19,207)               --      2,590          36,912         17,705
  Acquisition  of  treasury
     stock                        --            --                --                --       (639)         (7,686)        (7,686)
  Issuance of common
     stock for convertible
     debt                         --            --            (1,328)               --        575           8,186          6,858
  Contingent     redemption
     value of common stock        --            --           (31,941)               --          --              --       (31,941)
==================================================================================================================================
Balance, June 30, 1999        66,935         $669           $209,119       $ (172,860)   ( 6,302)       $(88,408)       $(51,480)
==================================================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.
















                                       5

<PAGE>

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

                                                                                         FOR THE SIX MONTHS
                                                                                           ENDED JUNE 30,
                                                                                  -----------------------------
                                                                                    1999              1998
-----------------------------------------------------------------------------     -----------------------------
<S>                                                                                <C>             <C>
  Cash flows from operating activities:
    Net income (loss)                                                              $45,369          $(137,949)
    Adjustment to reconcile  net income  (loss) to net cash
       used in operating activities:
    Unrealized loss on securities                                                       --              2,850
    Provision for bad debts                                                           (232)             1,996
    Depreciation and amortization                                                    2,912              2,768
    Vested AOL warrants and amortization of prepaid AOL marketing costs                 --             49,513
    Purchased research and development                                                  --             21,034
    Deferred revenue                                                                (3,700)            (3,700)
    Extraordinary gain                                                             (18,997)                --
    Valuation allowance for deferred tax assets                                         --             40,388
    (Increase) decrease in:
      Accounts receivable, trade                                                       898            (14,943)
      Advances to partitions and notes receivable                                    1,582             14,834
      Prepaid expenses and other current assets                                        112             (7,918)
      Other assets                                                                   1,676            (38,026)
    Increase (decrease) in:
      Accounts and partition payables and accrued expenses                         (30,497)            13,581
      Other liabilities                                                             (1,850)            (1,587)
---------------------------------------------------------------------------  ---------------------------------
         Net cash used in operating activities                                      (2,727)           (57,159)
---------------------------------------------------------------------------  ---------------------------------
    Cash flows from investing activities:
      Capital expenditures                                                          (2,846)            (6,836)
      Sale (purchase) of securities, net                                            89,649           (361,157)
      Securities sold short                                                             --            (10,316)
      Due from broker                                                                   --              7,856
      Acquisition of intangibles                                                        --               (285)
      Acquisition of ADS Holdings, Inc.                                                 --            (26,707)
---------------------------------------------------------------------------- ---------------------------------
         Net cash provided by (used in) investing activities                        86,803           (397,445)
---------------------------------------------------------------------------- ---------------------------------
    Cash flows from financing activities:
      Repayment of margin account indebtedness                                     (49,621)                --
      Proceeds from margin account indebtedness                                         --            192,892
      Acquisition of convertible debt                                              (65,423)                --
      Proceeds from exercise of options and warrants                                17,705              8,490
      AOL investment                                                                55,000                 --
      Retirement of common stock                                                        --             (1,470)
      Acquisition of treasury stock                                                 (7,686)           (28,890)
---------------------------------------------------------------------------- ---------------------------------
        Net cash (used in) provided by financing activities                        (50,025)           171,022
---------------------------------------------------------------------------- ---------------------------------
    Net increase (decrease) in cash and cash equivalents                            34,051           (283,582)
    Cash and cash equivalents, at beginning of period                                3,063            316,730
==========================================================================   =================================
   Cash and cash equivalents, at end of period                                    $ 37,114          $ 33,148
==========================================================================   =================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                       6



<PAGE>


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



1. Basic Presentation

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

     The consolidated  financial statements and related notes thereto as of June
30,  1999 and for the  three and six  months  ended  June 30,  1999 and 1998 are
presented as unaudited but in the opinion of management  include all adjustments
necessary to present fairly the information set forth therein. These adjustments
consist solely of normal  recurring  accruals.  The  consolidated  balance sheet
information  for  December  31,  1998 was  derived  from the  audited  financial
statements  included  in the  Company's  Form 10-K,  as amended.  These  interim
financial  statements  should be read in conjunction with that Form 10-K report.
The interim results are not necessarily indicative of the results for any future
periods.

2. AOL Agreements

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

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

3. Related Party Transactions

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

     The Company paid $1.0 million to Mr. Borislow, assigned certain automobiles
to him, and  continued  certain of his health and medical  benefits and director
and officer  insurance.  The Company also agreed that,  as long as Mr.  Borislow
owns at least two percent (2%) of the common stock (on a fully  diluted  basis),
Mr.  Borislow and trusts for the benefit of his  children  would be entitled to:
registration  rights with respect to their shares of common stock;  the right to
require the Company to use a portion of the proceeds  from any public or private
sale of debt  securities by the Company  (excluding  borrowings  from commercial
banks or other  financial  institutions)  to repurchase  debt  securities of the
Company owned by Mr. Borislow or the trusts for the benefit of his children (see
Note 4 (b));  and the right to require the Company to use the proceeds  from the
exercise of stock options or share  purchase  rights to repurchase  common stock
owned by Mr. Borislow or the trusts for the benefit of his children. The Company
also agreed that, as long as Mr.  Borislow had such  beneficial  ownership,  the
Company would not, without the prior written consent of Mr. Borislow and subject
to certain exceptions: (a) engage in certain significant corporate transactions,
including the

                                       7

<PAGE>

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



sale  or  encumbrance  of   substantially   all  of  its  assets,   mergers  and
consolidations  and certain  material  acquisitions,  or, (b) for a period of 18
months from the  agreement  date,  offer or sell any of its capital stock unless
and until Mr. Borislow and the trusts have sold or otherwise disposed of all the
shares of common stock held by him on the agreement  date. In turn, Mr. Borislow
terminated  his  employment  with the Company and agreed not to compete with the
Company for at least one year. Mr. Borislow also agreed to guarantee up to $20.0
million of the  Company's  obligations  in  connection  with the AOL  investment
discussed below.

     On January 5, 1999, the Company  assigned to a trust for the benefit of Mr.
Borislow's  children the Company's  interest in $53,700,000  principal amount of
subordinated notes of Communication TeleSystems International d/b/a WorldxChange
Communications,  which were  included in other assets at December  31, 1998,  in
exchange  for  $62,545,000  aggregate  principal  amount of the  Company's  2002
Convertible  Notes and 2004  Convertible  Notes owned by the trust. The exchange
rate was determined based on the Company's  assessment of the fair values of the
WorldxChange  Notes and of the  Company's  Convertible  Notes given in exchange,
which  assessment  was  supported  by the opinion of an  independent  investment
banking firm as to the fairness to the Company of the consideration received.

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

     On March 18, 1999,  the Company  purchased  from Mr.  Borislow  $11,477,000
aggregate  principal  amount of the Company's 2004  Convertible  Notes for $10.0
million in cash with proceeds from the exercise of stock options pursuant to the
agreements with Mr. Borislow as described above.

     During the three month period ended June 30,  1999,  the Company  purchased
from Mr. Borislow approximately 639,000 shares of common stock for approximately
$7.7 million with proceeds  from the exercise of stock  options  pursuant to the
agreements with Mr. Borislow as described above.

4.   Stockholders' Equity

     (a) Contingent Redemption Value of Common Stock

         On January 5, 1999, pursuant to an Investment Agreement between AOL and
the Company,  AOL acquired 4,121,372 shares of common stock for $55.0 million in
cash and the  surrender  of rights to acquire up to  5,076,016  shares of common
stock  pursuant  to  various  warrants  held  by AOL.  Under  the  terms  of the
Investment  Agreement  with AOL,  the  Company has agreed to  reimburse  AOL for
losses  AOL may  incur on the sale of any of the  4,121,372  shares  during  the
period from June 1, 1999 through  September 30, 2000.  The Company has the first
right to  purchase  any of the  4,121,372  shares of common  stock at the market
value on the day that AOL  notifies  the Company of their  intent to sell any of
the  shares  plus an  amount,  if any,  equal  to the  Company's   reimbursement
obligation  described  below.  The  reimbursement  amount would be determined by
multiplying  the number of shares,  if any, that AOL sells during the applicable
period by the  difference  between the purchase  price per share paid by AOL, or
$19 per share,  and the price per share that AOL sells the shares  for,  if less
than $19 per share.  The  reimbursement  amount may not exceed $14 per share for
2,894,737 shares or $11 per share for 1,226,635 shares. Accordingly, the maximum
amount  payable to AOL as  reimbursement  on the sale of AOL's  shares  would be
approximately   $54.0  million  plus  AOL's  reasonable   expenses  incurred  in
connection  with the sale.  The  Company  has the option of  six-month  10% note
payable to AOL to satisfy the  reimbursement  amount or other amounts payable on
exercise  of its  first  refusal  rights.  Assuming  AOL were to sell all of its
shares subject to the Company's reimbursement obligation at the closing price of
the Company's common stock as of June 30, 1999, the  reimbursement  amount would
be  approximately  $31.9 million.  At June 30, 1999, the Company  recorded $31.9
million  for the  contingent  redemption  value  of  this  common  stock  with a
corresponding reduction in additional paid-in capital. AOL also has the right on
termination of long distance  exclusivity under the AOL marketing  agreements to
require the Company to repurchase the warrants to purchase  2,721,984  shares of
common  stock of the Company held by AOL for a minimum  price of $36.3  million,
which repurchase price can be paid in Company common stock,  cash or a six-month
note.  The Company has pledged the stock of its  subsidiaries  and has agreed to
fund an escrow account of up to $35 million from 50% of the proceeds of any debt
financing, other than a bank, receivable or other asset based financing of up to
$50 million, to secure its obligations under the Investment  Agreement with AOL.
AOL has agreed that it will  subordinate  its  security  interests to permit the
securitization  of certain future  financings by the Company.  Mr.  Borislow has
agreed to guarantee up to $20,000,000 of the Company's reimbursement obligations
under the Investment Agreement with AOL.

                                       8

<PAGE>


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

 (b) Restriction on Future Sales of Common Stock

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

5. Legal Proceedings

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

                                       9

<PAGE>






                         TALK.COM INC. AND SUBSIDIARIES


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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                  FOR THE THREE MONTHS ENDED
                                                                            JUNE 30,
                                                                  --------------------------
                                                                      1999          1998
                                                                     ------        ------
<S>                                                                  <C>           <C>
Sales                                                                100.0%        100.0%
Cost of sales                                                         62.7          83.8
                                                                     ------        ------
Gross profit                                                          37.3          16.2
General and administrative expenses                                    7.7           9.2
Promotional, marketing and advertising expenses                       18.1          33.8
Significant other charges (income)                                    (1.3)          0.2
                                                                     ------        ------
Operating income (loss)                                               12.8         (27.0)
Investment and other income (expense), net                            (0.8)          0.9
                                                                     ------        ------
Income (loss) before income taxes                                     12.0         (26.1)
Provision for income taxes                                              --          60.4
                                                                     ------        ------
Net income (loss)                                                     12.0%        (86.5)%
                                                                     ======        ======

                                                                  FOR THE SIX MONTHS ENDED
                                                                          JUNE 30,
                                                                  ------------------------
                                                                      1999          1998
                                                                     ------        ------
Sales                                                                100.0%        100.0%
Cost of sales                                                         65.0          83.9
                                                                     ------        ------
Gross profit                                                          35.0          16.1
General and administrative expenses                                    8.5           9.8
Promotional, marketing and advertising expenses                       15.7          42.0
Significant other charges (income)                                    (1.2)         10.7
                                                                     ------        ------
Operating income (loss)                                               12.0         (46.4)
Investment and other income (expense), net                            (0.4)         (1.8)
                                                                     ------        ------
Income (loss) before income taxes                                     11.6         (48.2)
Provision for income taxes                                              --          20.0
                                                                     ------        ------
Income (loss) before extraordinary gain                               11.6         (68.2)
Extraordinary gain                                                     8.3            --
                                                                     ------        ------
Net income (loss)                                                     19.9%       (68.2)%
                                                                     ======        ======
</TABLE>

                                       10

<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES

  THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

     Sales.  Sales increased by 5.4% to  $117.1million  in the second quarter of
1999 from $111.1  million in the second  quarter of 1998.  The increase in sales
primarily  reflected  an  increase  in the  number  of  customers  under the AOL
Agreement.  The AOL-related sales increase was partially offset by a decrease in
the Company's  non-AOL sales.

     Cost of Sales.  Cost of sales  decreased  by 21.1% to $73.4  million in the
second  quarter of 1999 from $93.1 million in the second  quarter of 1998.  This
decrease was  primarily  due to lower  network usage costs for OBN services on a
per minute  basis and lower  partition  costs due to the  Company's  decrease in
non-AOL  sales.

     Gross Margin. Gross margin increased to 37.3% in the second quarter of 1999
from  16.2% in the second  quarter of 1998.  The  increase  in gross  margin was
primarily  due to lower  network  usage  costs for OBN  services on a per minute
basis and lower partition costs due to the Company's  decrease in non-AOL sales.
The Company  anticipates  continued  gross margin  improvement;  however,  price
competition continues to intensify for the Company's products and this trend can
be expected to continue to put downward pressure on gross margins.

     Other Operating Expenses.  General and administrative expenses decreased by
11.2% to $9.0  million in the second  quarter of 1999 from $10.2  million in the
second quarter of 1998. The decrease in general and administrative  expenses was
due primarily to the elimination of general and administrative  expenses of TSFL
Holdings,  Inc.  (as  discussed  below)  and  decreased  fees  for  professional
services,  offset by increased costs associated with hiring additional personnel
to support the Company's  continuing growth.  During the second quarter of 1999,
the Company  incurred $21.2 million of  promotional,  marketing and  advertising
expense to expand its online  customer base.  During the second quarter of 1998,
the Company  incurred $37.6 million of  promotional,  marketing and  advertising
expense,  including $8.5 million related to the AOL Agreement,  $5.2 million for
the  performance  warrants  issued to AOL on June 30, 1998 and $23.9  million of
other AOL related marketing and advertising  efforts.  During the second quarter
of 1999,  the Company sold the last remaining  division of TSFL  Holdings,  Inc.
(formerly  Symetrics  Industries,  Inc.),  resulting in a gain of $1.5  million,
which was included in significant other charges  (income).

     Investment  and Other Income  (Expense),  Net.  Investment and other income
(expense),  net was $(0.9)  million in the second  quarter of 1999  versus  $1.0
million in the  second  quarter  of 1998.  During  the  second  quarter of 1999,
investment and other income (expense), net consists primarily of interest income
offset by interest expense related to the Company's convertible debt.

                                       11


<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES


   SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

     Sales.  Sales  increased by 12.6% to $227.7 million in the first six months
of 1999 from  $202.2  million in the first six months of 1998.  The  increase in
sales  primarily  reflected an increase in the number of customers under the AOL
Agreement.  The AOL-related sales increase was partially offset by a decrease in
the Company's non-AOL sales.

     Cost of Sales.  Cost of sales  decreased by 12.7% to $148.1  million in the
first six  months of 1999 from  $169.6  million in the first six months of 1998.
This decrease was primarily due to lower network usage costs for OBN services on
a per minute basis and lower  partition  costs due to the Company's  decrease in
non-AOL sales.

     Gross  Margin.  Gross margin  increased to 35.0% in the first six months of
1999 from 16.1% in the first six months of 1998.  The  increase in gross  margin
was  primarily due to lower network usage costs for OBN services on a per minute
basis and lower partition costs due to the Company's decrease in non-AOL sales.

     Other Operating Expenses.  General and administrative expenses decreased by
3.2% to $19.2  million in the first six months of 1999 from $19.8 million in the
first six months of 1998.  The decrease in general and  administrative  expenses
was due primarily to the elimination of general and  administrative  expenses of
TSFL Holdings,  Inc. (as discussed  below) and decreased  fees for  professional
services,  offset by increased costs associated with hiring additional personnel
to support the Company's continuing growth. During the first six months of 1999,
the Company  incurred $35.8 million of  promotional,  marketing and  advertising
expense to expand its online customer base. During the first six months of 1998,
the Company  incurred $84.9 million of  promotional,  marketing and  advertising
expense, including $33.4 million related to the AOL Agreement, $16.1 million for
the  performance  warrants issued to AOL during the first six months of 1998 and
$35.4 million of other AOL related marketing and advertising efforts. During the
first six  months  of 1999,  the  Company  sold TSFL  Holdings,  Inc.  (formerly
Symetrics  Industries,  Inc.),  resulting  in a gain of $2.7  million  which was
included in significant other charges  (income).  During the first six months of
1998,  the  Company  allocated  $21.0  million of the  acquisition  cost of TSFL
Holdings, Inc. to purchased research and development expense, which was included
in significant other charges (income).

     Investment  and Other Income  (Expense),  Net.  Investment and other income
(expense),  net was $(1.0) million in the first six months of 1999 versus $(3.8)
million  in the first six  months of 1998.  During the first six months of 1999,
investment and other income (expense), net consists primarily of interest income
offset by interest expense related to the Company's convertible debt.

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


                                       12
<PAGE>
                         TALK.COM INC. AND SUBSIDIARIES




LIQUIDITY AND CAPITAL RESOURCES

     The Company's  working  capital was $35.2 million and $13.1 million at June
30, 1999 and December 31, 1998,  respectively.  This increase in working capital
is  primarily  a result of the cash  generated  during the first six months 1999
from the  Company's  operations.

     The Company expended an aggregate of $126.0 million of cash, Company common
stock and other consideration for the repurchase of Convertible Notes during the
first six months of 1999.  The Company (a) purchased  from Mr.  Borislow and two
trusts  for  the  benefit  of  Mr.  Borislow's  children  $76,557,000  aggregate
principal amount of the Company's  Convertible  Notes for $65.4 million in cash;
(b) exchanged the $53.7 million  remaining on the WorldxChange  Notes to a trust
for the benefit of Mr. Borislow's  children for $62,545,000  aggregate principal
amount of the Company's Convertible Notes and (c) purchased $9,000,000 aggregate
principal amount of the Company's  Convertible Notes for $6.9 million in Company
common stock. As of June 30, 1999, the Company had reduced the principal  amount
outstanding of its  Convertible  Notes to $94.3 million ($66.9 million of 4 1/2%
notes  and $27.4  million  of 5% notes)  of which  approximately  $52.4  million
continues to be held by one of such trusts.  The Company also purchased from Mr.
Borislow  approximately  639,000 shares of common stock for  approximately  $7.7
million  during the first six months of 1999 with  proceeds from the exercise of
stock options  pursuant to  agreements  with Mr.  Borislow.

         On January 5, 1999, pursuant to an Investment Agreement between AOL and
the Company,  AOL acquired 4,121,372 shares of common stock for $55.0 million in
cash and the  surrender  of rights to acquire up to  5,076,016  shares of common
stock  pursuant  to  various  warrants  held  by AOL.  Under  the  terms  of the
Investment  Agreement  with AOL,  the  Company has agreed to  reimburse  AOL for
losses  AOL may  incur on the sale of any of the  4,121,372  shares  during  the
period from June 1, 1999 through  September 30, 2000.  The Company has the first
right to  purchase  any of the  4,121,372  shares of common  stock at the market
value on the day that AOL  notifies  the Company of their  intent to sell any of
the  shares  plus  an  amount,  if any,  equal  to the  Company's  reimbursement
obligation  described  below.  The  reimbursement  amount would be determined by
multiplying  the number of shares,  if any, that AOL sells during the applicable
period by the  difference  between the purchase  price per share paid by AOL, or
$19 per share,  and the price per share that AOL sells the shares  for,  if less
than $19 per share.  The  reimbursement  amount may not exceed $14 per share for
2,894,737 shares or $11 per share for 1,226,635 shares. Accordingly, the maximum
amount  payable to AOL as  reimbursement  on the sale of AOL's  shares  would be
approximately   $54.0  million  plus  AOL's  reasonable   expenses  incurred  in
connection  with the sale. The Company has the option of issuing a six-month 10%
note payable to AOL to satisfy the reimbursement amount or other amounts payable
on exercise of its first  refusal  rights.  Assuming AOL were to sell all of its
shares subject to the Company's reimbursement obligation at the closing price of
the Company's common stock as of June 30, 1999, the  reimbursement  amount would
be  approximately  $31.9 million.  At June 30, 1999, the Company  recorded $31.9
million  for the  contingent  redemption  value  of  this  common  stock  with a
corresponding reduction in additional paid-in capital. AOL also has the right on
termination of long distance  exclusivity under the AOL marketing  agreements to
require the Company to repurchase the warrants to purchase  2,721,984  shares of
common  stock of the Company held by AOL for a minimum  price of $36.3  million,
which repurchase price can be paid in Company common stock,  cash or a six-month
note.  The Company has pledged the stock of its  subsidiaries  and has agreed to
fund an escrow account of up to $35 million from 50% of the proceeds of any debt
financing, other than a bank, receivable or other asset based financing of up to
$50 million, to secure its obligations under the Investment  Agreement with AOL.
AOL has agreed that it will  subordinate  its  security  interests to permit the
securitization  of certain future  financings by the Company.  Mr.  Borislow has
agreed to guarantee up to $20,000,000 of the Company's reimbursement obligations
under the Investment Agreement with AOL.

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


                                       13

<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES

has agreed to  subordinate  his rights to require the Company to repurchase  the
Company's  Convertible  Notes held by him or the Trusts  until the AOL escrow is
fully funded.

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

     The  Company  does  not,  and has not  historically,  required  significant
amounts of working capital for its day-to-day  operations.  The Company believes
that its current cash position and the cash flow  expected to be generated  from
operations will be sufficient to fund its capital expenditures,  working capital
and other cash  requirements  for at least the next twelve  months.  The Company
believes that,  assuming the current market price of its common stock,  its cash
flow from operations will be sufficient to fund any reimbursement  amount in the
event  that AOL  elects to sell its shares of the  Company's  common  stock at a
price below $19 per share and that, alternatively,  it has the ability to obtain
the  necessary  financing  to fund  its  obligations  under  the AOL  Investment
Agreement.  Should the Company seek to raise additional capital, there can be no
assurance that,  given current market  conditions,  the Company would be able to
raise such additional capital on terms acceptable to the Company.

     YEAR 2000

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

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

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

                                       14

<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES



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


                                    * * * * *

     Certain   of  the   statements   contained   herein   may   be   considered
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933  and  Section  21E of the  Securities  Exchange  Act of  1934.  Such
statements  are  identified  by the use of  forward-looking  words  or  phrases,
including,   but   not   limited   to,   "estimates,"   "expects,"   "expected,"
"anticipates," and "anticipated." These forward-looking  statements are based on
the  Company's  current  expectations.  Although the Company  believes  that the
expectations reflected in such forward-looking statements are reasonable,  there
can be no  assurance  that such  expectations  will prove to have been  correct.
Forward-looking  statements  involve risks and  uncertainties  and the Company's
actual  results  could differ  materially  from the Company's  expectations.  In
addition to those factors  discussed  elsewhere  herein,  important factors that
could cause such actual  results to differ  materially  include,  among  others,
adverse  developments in the Company's  relationship  with AOL,  increased price
competition  for  long  distance  services,  failure  of the  marketing  of long
distance services under the AOL Agreement, attrition in the number of end users,
and  changes in  government  policy,  regulation  and  enforcement.  The Company
undertakes no obligations to update its forward-looking statements.












                                       15


<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 6. Exhibits and Reports on Form 8-K

       (a) Exhibits

           10.1  Employment   Agreement  by  and  among  Vincent W. Talbert and
                 Talk.com Inc. and  Talk.com  Holding Corp.  dated  as  of June
                 8, 1999.

           10.2  Indemnification  Agreement  by  and between Vincent W. Talbert
                 and Talk.com Inc. dated as of June 8, 1999.

           10.3  Non-Qualified Stock option Agreement  for  Vincent  W. Talbert.

           11    Computation of Net Income Per Share

           27    Financial Data Schedule

       (b) Reports on Form 8-K

       Since March 31,  1999,  the Company has not filed any Current  Reports on
       Form 8-K.











                                       16

<PAGE>



                                   SIGNATURES


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



Date:    August 13, 1999        TALK.COM INC.
                                ---------------
                                (Registrant)



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


                                    By: /s/ Edward B. Meyercord, III
                                        --------------------
                                        Edward B. Meyercord, III
                                        Chairman Financial Officer and Treasurer


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







                                       17