================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-Q

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

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

                     FOR THE TRANSITION PERIOD FROM TO _____

COMMISSION FILE NUMBER 0 - 26728

                                  TALK.COM INC.
             (Exact name of registrant as specified in its charter)

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


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


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



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

                                Yes X    No
                                   ---     ---

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

     65,819,573  shares of Common  Stock,  par  value of $0.01 per  share,  were
issued and outstanding as of May 2, 2000.

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<PAGE>


                         TALK.COM INC. AND SUBSIDIARIES


                                      INDEX

<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----
<S>                                                                                                          <C>
PART I - FINANCIAL INFORMATION:

Item 1. Consolidated Financial Statements:

        Consolidated Balance Sheets - March 31, 2000 (unaudited)
        and December 31, 1999 .............................................................................    3

        Consolidated Statements of Operations - Three Months Ended March 31, 2000 and 1999 (unaudited).....    4

        Consolidated Statement of Stockholders' Equity  - Three Months Ended March 31, 2000 (unaudited)....    5

        Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 (unaudited).....    6

        Notes to Consolidated Financial Statements (unaudited) ............................................    7

Item 2  Management's Discussion and Analysis of Financial Condition
        and Results of Operations .........................................................................   11


PART II  - OTHER INFORMATION:

Item 6.  Exhibits and Reports on Form 8K ..................................................................   17
</TABLE>

         (a)      Exhibits
         (b)      Reports on Form 8-K

                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENT

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

<TABLE>
<CAPTION>
                                                                                       MARCH 31,    DECEMBER 31,
                                                                                         2000          1999
                                                                                     ------------   ----------
                                                                                      (UNAUDITED)
<S>                                                                                    <C>          <C>
                                        ASSETS

Current assets:
   Cash and cash equivalents                                                           $  88,440    $  78,937
   Accounts receivable, trade, net of allowance for uncollectible accounts of $7,620
     and $5,011, respectively                                                             64,819       59,501
   Advances to partitions and notes receivable                                             2,798        3,600
   Prepaid expenses and other current assets                                               4,669        8,855
                                                                                       ---------    ---------
       Total current assets                                                              160,726      150,893
                                                                                       ---------    ---------

Property and equipment, net                                                               65,280       57,335
Intangibles, net                                                                           1,213        1,068
Other assets                                                                               4,817        5,712
                                                                                       ---------    ---------
       Total assets                                                                    $ 232,036    $ 215,008
                                                                                       =========    =========

                  LIABILITIES, CONTINGENCIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses:

      Trade and other                                                                  $  45,895    $  47,965
      Partitions                                                                           1,788        1,676
      Taxes and other                                                                      8,109       14,127
                                                                                       ---------    ---------
       Total current liabilities                                                          55,792       63,768
                                                                                       ---------    ---------

Convertible debt                                                                          84,950       84,985
Deferred revenue                                                                          19,150       21,000
                                                                                       ---------    ---------
       Total liabilities                                                                 159,892      169,753
                                                                                       ---------    ---------

Commitments and contingencies
Contingent redemption value of common stock                                               12,364        5,152

Stockholders' equity:
   Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares
     outstanding                                                                              --           --
   Common stock - $.01 par value, 300,000,000 shares authorized;
     66,972,960 shares issued                                                                670          670
   Additional paid-in capital                                                            201,209      208,453
   Accumulated deficit                                                                  (125,920)    (139,300)
   Treasury stock, at cost                                                               (16,179)     (29,720)
                                                                                       ---------    ---------
       Total stockholders' equity                                                         59,780       40,103
                                                                                       ---------    ---------
       Total liabilities, contingent redemption value of common stock
          and stockholders' equity                                                     $ 232,036    $ 215,008
                                                                                       =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            FOR THE THREE MONTHS
                                                                              ENDED MARCH 31,
                                                                   ---------------------------------------
                                                                        2000                    1999
                                                                   ---------------         ---------------
<S>                                                                   <C>                      <C>
Sales                                                                 $156,059                 $110,572

Cost of sales                                                           91,691                   73,843
                                                                   ---------------         ---------------

Gross profit                                                            64,368                   36,729
                                                                   ---------------         ---------------

Operating expenses (income):
    General and administrative expenses                                 12,178                    9,543
    Promotional, marketing and advertising expenses                     36,651                   14,598
    Depreciation and amortization                                        1,856                    1,451
    Significant other income                                                --                   (1,218)
                                                                   ---------------         ---------------
               Total operating expenses                                 50,685                   24,374
                                                                   ---------------         ---------------

Operating income                                                        13,683                   12,355

Interest income, net                                                       290                      657
Other expense, net                                                        (343)                    (678)
                                                                   ---------------         ---------------

Income before income taxes                                              13,630                   12,334

Provision for income taxes                                                 250                       --
                                                                   ---------------         ---------------

Income before extraordinary gain                                        13,380                   12,334

Extraordinary gain                                                          --                   18,997
                                                                   ---------------         ---------------

Net income                                                             $13,380                  $31,331
                                                                   ===============         ===============

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

Basic earnings per share:

    Income before extraordinary gain                                   $  0.20                  $  0.21

    Extraordinary gain                                                      --                     0.32
                                                                   ---------------         ---------------

    Net income                                                         $  0.20                  $  0.53
                                                                   ===============         ===============

    Weighted average common shares outstanding                          65,302                   58,909
                                                                   ===============         ===============

Diluted earnings per share:

    Income before extraordinary gain                                   $  0.20                  $  0.20

    Extraordinary gain                                                      --                     0.30
                                                                   ---------------         ---------------

    Net income                                                         $  0.20                  $  0.50
                                                                   ===============         ===============

    Weighted  average  common  and  common   equivalent  shares
     outstanding                                                        68,401                   62,335
                                                                   ===============         ===============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2000
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<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, 2000         66,973         $670           $208,453          $(139,300)       (2,120)     $(29,720)     $40,103
  Net income                         --           --                 --             13,380            --            --       13,380
  Exercise of common stock
     options                         --           --             (1,986)                --           312         4,367        2,381
  Proceeds from rights
     exercised                       --           --              1,939                 --           653         9,154       11,093
  Issuance of common stock
    for convertible debt             --           --                 15                 --             2            20           35
  Contingent redemption
     value of common stock           --           --             (7,212)                --            --            --       (7,212)
                               ----------    ------------     -------------    ---------------- ---------    ----------    --------
Balance, March 31, 2000          66,973         $670           $201,209          $(125,920)       (1,153)     $(16,179)     $59,780
                               ==========    ============     =============    ================ =========    ==========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         FOR THE THREE MONTHS
                                                                                            ENDED MARCH 31,
                                                                                    --------------------------------
                                                                                        2000              1999
                                                                                    -------------    ---------------
<S>                                                                                   <C>                <C>
Cash flows from operating activities:
   Net income                                                                         $13,380            $31,331
   Adjustment to reconcile net income to net cash provided by (used in)
     operating activities:
          Provision for bad debts                                                       2,616                (79)
          Depreciation and amortization                                                 1,856              1,451
          Deferred revenue                                                             (1,850)            (1,850)
          Extraordinary gain                                                               --            (18,997)
     Changes in assets and liabilities, net:
       (Increase) decrease in:
          Accounts receivable, trade                                                   (7,927)             3,564
          Advances to partitions and notes receivable                                     802                720
          Prepaid expenses and other current assets                                     4,186              1,707
          Other assets                                                                    895                536
     Increase (decrease) in:
          Accounts payables and accrued expenses                                       (7,983)           (25,893)
          Other liabilities                                                                --             (1,850)
                                                                                    -------------    ---------------
                    Net cash provided by (used in) operating activities                 5,975             (9,360)
                                                                                    -------------    ---------------

Cash flows from investing activities:

   Capital expenditures                                                                (9,781)            (2,263)
   Acquisition of intangibles                                                            (165)                --
   Sale of securities, net                                                                 --             89,649
                                                                                    -------------    ---------------
                    Net cash provided by (used in) investing activities                (9,946)            87,386
                                                                                    -------------    ---------------

Cash flows from financing activities:

   Repayment of margin account indebtedness                                                --            (49,621)
   Acquisition of convertible debt                                                         --            (65,423)
   Proceeds from exercise of options and warrants                                       2,381             10,019
   AOL investment                                                                          --             55,000
   Proceeds from rights exercised                                                      11,093                 --
                                                                                    -------------    ---------------
                    Net cash provided by (used in) financing activities                13,474            (50,025)
                                                                                    -------------    ---------------

Net increase in cash and cash equivalents                                               9,503             28,001
Cash and cash equivalents, beginning of period                                         78,937              3,063
                                                                                    -------------    ---------------
Cash and cash equivalents, end of period                                            $  88,440          $  31,064
                                                                                    =============    ===============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   BASIC PRESENTATION:

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

     The consolidated financial statements and related notes thereto as of March
31, 2000 and for the three months ended March 31, 2000 and 1999 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, 1999 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 the Form 10-K report, as amended. The interim
results are not necessarily indicative of the results for any future periods.

2.   AOL AGREEMENTS:

     Since  1997,  the  Company  has  negotiated  a  number  of  agreements  and
amendments to its agreements with America Online Inc.  ("AOL") for the marketing
and  sale of  telecommunications  services  to AOL  subscribers.  A  substantial
amendment to the AOL agreement in January 1999 provided for:  quarterly payments
by the  Company  to AOL  during  the long  distance  exclusivity  period  of the
agreement,  with fixed  quarterly  payments  ranging from $10.0 to $15.0 million
($19.0  million after July 1, 2000 if AOL elects to provide  certain  additional
marketing  and  promotions  to the  Company)  until June 30, 2001 and  quarterly
payments  thereafter at a fixed 5% of the Company's long distance  revenues from
AOL  subscribers in the quarter under the agreement;  quarterly  payments by the
Company to AOL, after termination of the long distance exclusivity period and so
long as AOL continues to provide  certain  levels of marketing and promotions to
the Company under the agreement,  at an annual declining fixed percentage of the
Company's  long distance  revenues  from AOL  subscribers  under the  agreement,
starting  at 5% and  declining  by one  percentage  point  each year to 1%;  the
elimination   of  the   Company's   obligation   to  make   bounty  and  current
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  exclusivity  period,  until June 30,
2003,  although AOL has the right,  in each year beginning in 2000, to elect, on
or before May 1 of such year,  to end the Company's  long  distance  exclusivity
period  as of June 30 of such  year;  elimination  of AOL's  rights  to  receive
further  warrants to purchase Common Stock based upon customers  gained from the
AOL  subscriber  base;  AOL's  contribution  of up to $4.0  million  (up to $6.0
million if the  Company  pays  $19.0  million as noted  above) per  quarter  for
offline  marketing;  and establishment of the framework for the Company to offer
additional  services  and  products  to AOL  subscribers.  AOL did not  elect to
exercise its right to terminate  the long  distance  exclusivity  as of June 30,
2000 and,  accordingly,  the exclusivity  period for long distance will continue
through at least June 30,  2001.  AOL did provide  the  Company  notice that its
exclusivity as to wireless  services would  terminate on July 1, 2000,  although
the Company's right to offer wireless  services will continue on a non-exclusive
basis.

     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 Common
Stock. See Note 4 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.


                                       7
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     In  connection  with Mr.  Borislow's  resignations,  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,  so long as Mr.  Borislow  owned  beneficially  at
least two  percent  (2%) of the Common  Stock (on a fully  diluted  basis),  Mr.
Borislow  and  trusts for the  benefit of his  children  would be  entitled  to:
registration  rights with respect to their shares of Common Stock,  the right to
require the Company to use a portion of proceeds from any public or private sale
of debt  securities,  excluding  borrowings  from a  commercial  bank  or  other
financial  institution,  by the Company to  repurchase  debt  securities  of the
Company owned by Mr. Borislow or the trusts for the benefit of his children, and
the right to require the Company to use the proceeds  from the exercise of stock
options by other  employees or rights,  to repurchase  Common Stock owned by Mr.
Borislow or the trusts for the benefit of his children.  The Company also agreed
that, so long as Mr. Borislow had such beneficial  ownership,  the Company would
not,  without the prior written  consent of Mr.  Borislow and subject to certain
exceptions: (a) engage in certain significant corporate transactions,  including
the  sale  or  encumbrance  of  substantially  all of its  assets,  mergers  and
consolidations  and certain  material  acquisitions,  or, (b) for a period of 18
months from the agreement date, offer or sell any of its Common Stock unless and
until Mr. Borislow and the trusts have sold or otherwise  disposed of all of 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 noted
above.  As of March 31, 2000, Mr. Borislow and the two trusts for the benefit of
Mr.  Borislow's  children,  which have the ability to distribute Common Stock to
Mr. Borislow, held less than an aggregate of 2% of the outstanding Common Stock.
Accordingly,  the Company  believes  that the  restrictions  described  above no
longer apply to the Company

     During 1999, the Company (a) purchased from Mr. Borislow and two trusts for
the benefit of Mr. Borislow's children, $85.9 million aggregate principal amount
of the Company's  Convertible Notes for $72.3 million in cash; (b) exchanged the
remaining $53.7 million principal amount of subordinated  notes of Communication
TeleSystems International d/b/a WorldxChange Communications, which were included
in other  assets  at  December  31,  1998,  to a trust  for the  benefit  of Mr.
Borislow's  children  for  $62.5  million  aggregate  principal  amount  of  the
Company's  Convertible Notes and (c) purchased $9.0 million aggregate  principal
amount of the Company's Convertible Notes for $6.9 million in Common Stock. Also
during 1999,  pursuant to the agreements with Mr.  Borislow as described  above,
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 by other employees.

     On January 6, 2000, the Company repurchased from Mr. Borislow real property
previously sold to Mr.  Borislow  constituting  the Company's  facilities in New
Hope, Pennsylvania for $2.5 million.

4.   STOCKHOLDERS' EQUITY:

CONTINGENT REDEMPTION VALUE OF COMMON STOCK

     Under the terms of the  Investment  Agreement  with AOL (see Note 2 above),
the Company has agreed to reimburse  AOL for losses AOL may incur on the sale of
any of the shares of Common  Stock  held by AOL  during the period  from June 1,
1999 through September 30, 2000. The Company has the first right to purchase any
of the shares of Common  Stock  held by AOL at the market  value on the day that
AOL notifies the Company of its 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.


                                       8
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


     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 Common Stock as of
March 31, 2000, the reimbursement  amount would be approximately  $12.4 million.
At March 31,  2000,  the  Company  recorded  $12.4  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 an aggregate  price of $36.3 million,  which  repurchase
price can be paid in Common  Stock or cash  (provided  that some  portion of the
repurchase price may be payable in a quarterly amortization, two-year promissory
note of the Company if the repurchase  price exceeds the then current  valuation
of the  warrants  being  purchased).  AOL did not  elect to  terminate  the long
distance  exclusivity  as of June 30, 2000, but can so elect as of June 30, 2001
and 2002. The Company has pledged the stock of its  subsidiaries  and has agreed
to fund an escrow account of up to $35.0 million from 50% of the proceeds of any
debt financing,  other than a bank, receivable or other asset based financing of
up to $50.0 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  $20.0  million  of  the  Company's
reimbursement obligations under the Investment Agreement with AOL.

STOCKHOLDERS RIGHTS PLAN

     On August 19, 1999, the Company adopted a Stockholders Rights Plan designed
to deter coercive  takeover tactics and prevent an acquirer from gaining control
of  the  Company  without  offering  a  fair  price  to  all  of  the  Company's
stockholders.

     Under  the  terms  of  the  plan,  preferred  stock  purchase  rights  were
distributed  as a  dividend  at the rate of one right  for each  share of Common
Stock of the Company held as of the close of business on August 30, 1999.  Until
the rights become exercisable, Common Stock issued by the Company will also have
one right attached.  Each right will entitle holders to buy one  three-hundredth
of a share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $55. Each right will thereafter  entitle the holder to receive
upon  exercise  Common Stock (or, in certain  circumstances,  cash,  property or
other  securities of the Company) having a value equal to two times the exercise
price of the right.

     The  rights  will  be  exercisable  only  if a  person  or  group  acquires
beneficial  ownership  of 20% or more of Common  Stock or  announces a tender or
exchange  offer which would result in such person or group owning 20% or more of
Common  Stock,  or if the  Board  of  Directors  declares  that  a 15%  or  more
stockholder has become an "adverse person" as defined in the plan.

     The Company,  except as otherwise  provided in the plan,  will generally be
able to  redeem  the  rights at  $0.001  per right at any time  during a ten-day
period following public announcement that a 20% position in the Company has been
acquired or after the Company's  Board of Directors  declares that a 15% or more
stockholder has become an "adverse person." The rights are not exercisable until
the  expiration of the redemption  period.  The rights will expire on August 19,
2009, subject to extension by the Board of Directors.

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


                                       9
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


the same  court.  At this point,  no classes  have been  certified.  A motion to
dismiss was  granted as to certain  officers of the Company and denied as to the
Company. There are currently no officers of the Company who are 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.

6.   PENDING ACQUISITION:

     On March 24, 2000,  the Company,  a wholly owned  subsidiary of the Company
("Merger Sub"), and Access One  Communications  Corp., a New Jersey  corporation
("Access  One"),  entered  into an  Agreement  and Plan of Merger  (the  "Merger
Agreement"),  which provides,  among other things, for the merger (the "Merger")
of  Merger  Sub  with  and into  Access  One.  Access  One is a  private,  local
telecommunications  service provider to nine states in the  southeastern  United
States.  Under the  terms of the  Merger  Agreement,  upon  consummation  of the
Merger,  Access One will  become a wholly  owned  subsidiary  of the Company and
Access One  stockholders  will receive  0.571428 shares of the Company's  common
stock in  exchange  for each  share of  Access  One  common  stock  held by such
stockholders  at the  effective  time of the Merger.  It is expected  that, as a
result of the Merger,  shareholders  of Access One will  receive an aggregate of
approximately 14.3 million shares of the Company's common stock. The transaction
has been approved by the Boards of Directors of both the Company and Access One,
but is contingent upon, among other things,  approvals of both the Company's and
Access One's  stockholders,  certain regulatory  approvals  (including  approval
under  the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976 and  certain
telecommunications regulatory approvals) and other customary conditions. Under a
Voting  Agreement  entered into on March 24, 2000, the holders of  approximately
67.8% of Access One's  outstanding  common stock have agreed to vote in favor of
the Merger.  In connection  with the Merger,  Access One has also entered into a
five-year  agreement  to  provide  certain  telecommunications  services  to the
Company  and its  subsidiaries.  Access  One has the  right  to  terminate  that
agreement if the merger with Talk.com is not consummated. It is also anticipated
that, upon consummation of the Merger,  $17.0 million of Access One indebtedness
must be repaid.


                                       10
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES

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

OVERVIEW

         Talk.com Inc.  through its  subsidiaries,  provides  telecommunications
services to  residential  and business  customers  throughout the United States,
primarily  to  residential  consumers  through  its  e-commerce  platform.   The
e-commerce   platform  is  built  around  the  Company's   advanced  online  and
web-enabled  customer care, billing and information  systems.  Talk.com Inc. and
its  subsidiaries  are  sometimes  together  referred to as the "Company" and as
"Talk.com".

         The  Company's   telecommunications   service  offerings  include  long
distance outbound service,  inbound toll-free service and dedicated private line
services  for data.  The Company  announced  late last year that,  given the new
regulatory  opportunities that have developed,  it planned to expand its product
mix by also offering local service bundled with long distance service.  On March
27, 2000, the Company announced that it had entered into an agreement to acquire
Access One  Communications  Corp. in a statutory merger for  approximately  14.3
million shares of Company common stock. Access One is a private,  Florida-based,
local  telecommunications  service  provider to nine states in the  southeastern
United  States.  The  Access One  acquisition  is  subject  to  approval  by the
Company's and Access One's stockholders and to certain regulatory approvals.  In
connection with the acquisition agreement, the Company entered into an agreement
under which Access One agreed to provide  certain  telecommunications  services,
including local  services,  to the Company.  Using this  agreement,  the Company
recently has begun offering local telecommunication service in Florida, Georgia,
North  Carolina and New York. The Company also intends to offer a bundle of long
distance and local service to small business and select residential customers in
the nine  southeastern  states  serviced  by Access One,  through the  Company's
marketing partnerships and new direct channels.

         The Company  believes that it has an opportunity to capture  additional
market share and  accelerate  future  growth  through its offerings of local and
bundled local and long distance telecommunications  services. In connection with
its rollout of local services,  the Company  anticipates  that its marketing and
promotional expenditures will continue to increase on an absolute basis and as a
percentage of revenue  during the  remainder of the year.  With the extension of
the  Company's  long  distance  exclusivity  period with AOL until at least June
2001,  the Company also will continue to expend  significant  marketing  dollars
with AOL.  Accordingly,  the Company  believes  that the  projected  increase in
marketing and advertising  expenditures is expected to significantly  reduce the
Company's earnings in 2000.


                                       11
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                 FOR THE THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                 ---------------------------
                                                                      2000         1999
                                                                    --------     --------
<S>                                                                    <C>          <C>
Sales                                                                  100.0%       100.0%
Cost of sales                                                           58.8         66.8
                                                                    --------     --------
Gross profit                                                            41.2         33.2
                                                                    --------     --------
Operating expenses (income):
    General and administrative expenses                                  7.8          8.6
    Promotional, marketing and advertising expenses                     23.5         13.2
    Depreciation and amortization                                        1.2          1.3
    Significant other income                                              --         (1.1)
                                                                    --------     --------
                  Total operating expenses                              32.5         22.0
                                                                    --------     --------
Operating income                                                         8.7         11.2
Interest income, net                                                      .2           .6
Other expense, net                                                       (.2)         (.6)
                                                                    --------     --------
Income before income taxes                                               8.7         11.2
Provision for income taxes                                                .1           --
                                                                    --------     --------
Income before extraordinary gain                                         8.6         11.2
Extraordinary gain                                                        --         17.1
                                                                    --------     --------
Net income                                                               8.6%        28.3%
                                                                    ========     ========
</TABLE>

QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999

         Sales

         Sales  increased by 41.1% to $156.1 million for the quarter ended March
31, 2000 from $110.6 million for the quarter ended March 31, 1999. This increase
was  primarily  a result of an increase  in the number of online  customers  and
increased  revenue  per  online  customer.  The  increase  in  online  sales was
partially  offset  by a  decrease  in  the  Company's  other  sales,  including,
partition and dial-around sales, as the Company has continued to focus primarily
on developing  its online sales and customer base. The addition of new marketing
partners has contributed to the growth in the online business. While the Company
believes it offers  competitively  priced  services,  sales  could be  adversely
affected by the intense competition in this industry. In addition, the Company's
ability to  provision  customers,  which is  adversely  affected  by PIC freezes
implemented by the local telephone companies, directly affects sales.

         Beginning in the second  quarter of 2000,  there has been a significant
reduction in the principal marketing opportunity provided to the Company by AOL,
which has resulted in a decline in gross additions of new online customers.  The
Company expects that this decline will be reflected in a decline in online sales
in the second  quarter.  In  addition,  the Company  instituted  new  collection
procedures in the first quarter of 2000, which the Company believes  contributed
to customer  terminations  during the introduction period at a rate greater than
the Company's historical churn experience.  With a reduction in the online sales
from the interruption of its primary AOL marketing channel,  the increased churn
and the continued  decline in other sales (including  international  wholesale),
the  Company  expects a  reduction  in total  sales for the second  quarter.  In
addition to the matters  discussed  above,  there can be no  assurance  that the
Company will continue to increase sales on a quarter-to-quarter  or year-to-year
basis.



                                       12
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


         A  significant  percentage  of the  Company's  revenues in the quarters
ended March 31, 2000 and 1999 were derived from long distance telecommunications
services  provided to customers who were obtained  under the AOL agreement and a
significant  decline  in its AOL  subscribers  that is not  offset  by growth in
non-AOL  subscribers could have a significant effect on the Company's results of
operations  and cash flow.  While the  Company's  rights to market long distance
exclusively  under the AOL agreement do not expire until June 30, 2003,  AOL has
the right in each year  beginning in 2000, to elect,  on or before May 1 of such
year, to permit others to market long distance telecommunications services after
June  30 of  such  year to  AOL's  subscribers.  Notwithstanding  any  such  AOL
election,  the  Company's  rights to  continue  to market  its  services  to AOL
subscribers on a non-exclusive  basis,  but with significant  marketing  rights,
would  continue  until June 30, 2003.  AOL did not exercise its right as to 2000
and, accordingly, the exclusivity period for long distance will continue through
at least June 2001 and the  Company  will be  obliged  to make  fixed  quarterly
payments  during the year ending June 30, 2001 of at least $15.0 million to AOL.
AOL did elect to  terminate  the  Company's  exclusive  right to offer  wireless
services to AOL subscribers,  but the Company's right to offer wireless services
will  continue  on a  non-exclusive  basis.  The  Company  plans to  continue to
aggressively  market  its  services  to AOL  subscribers,  and  also  plans,  as
discussed  above,  to increase  its efforts to expand its non-AOL base of online
customers.

         Cost of Sales

         Cost of sales  increased by 24.2% to $91.7 million in the quarter ended
March 31, 2000 from $73.8  million in the quarter  ended  March 31,  1999.  This
increase  was due to the overall  increase in sales this  quarter as compared to
the same  quarter  last  year.  As a  percentage  of  sales,  cost of sales  has
decreased  to 58.8% as compared  to 66.8% for the same  quarter  last year.  The
decrease  was  primarily  due to lower  network  usage costs for services on the
Company's OBN network on a per minute basis and lower partition costs due to the
decrease in other sales, as noted above.  Cost of sales as a percentage of sales
increased in the first  quarter  versus the fourth  quarter of 1999.

         Gross Profit

         Gross profit increased to 41.2% of sales in the quarter ended March 31,
2000 from 33.2% in the quarter  ended March 31, 1999.  The increase in the gross
profit  percentage  was  primarily  due to lower  network  usage  costs  for OBN
services on a per minute basis and lower  partition costs due to the decrease in
other sales, as noted above. However, there can be no assurance that the Company
will continue to increase gross profits on a quarter-to-quarter  or year-to-year
basis due to higher  network  costs,  increased  bad debt  expense,  and reduced
profits on other sales, as well as the  intensification of price competition for
the Company's products, which will put downward pressure on gross profits. Gross
profit  percentage  declined in the first quarter  versus the fourth  quarter of
1999.  The Company  expects  further  declines  in gross  profit  percentage  in
connection   with  the  initial  rollout  of  local  services  and  the  reduced
profitability of its other sales.

         General and Administrative Expenses

         General and administrative expenses increased by 27.6% to $12.2 million
in the quarter ended March 31, 2000 from $9.5 million in the quarter ended March
31, 1999, but decreased as a percentage of sales. The increase was due primarily
to increased costs  associated with hiring  additional  personnel to support the
Company's  continuing  growth,  offset in part by the elimination of general and
administrative  expenses  of  TSFL  Holdings,  Inc.  (as  discussed  below)  and
decreased costs for professional services.

         Promotional, Marketing, and Advertising Expenses

         During the quarter  ended March 31, 2000,  the Company  incurred  $36.7
million in promotional,  marketing and advertising expenses as compared to $14.6
million in the quarter  ended March 31,  1999.  This  represents  an increase of
151.1% over the same period last year,  and relates to the  Company's  continued
effort to expand its online customer base as well as higher promotional expenses
and an increase in the fixed  payment to AOL.  The  Company  expects  that these
expenses  will  continue to increase as the Company  implements  its plans noted
above  to   aggressively   pursue  new,  local   subscribers  and  line  growth,
particularly  non-AOL customers.  In addition,  the fixed payment to AOL for the
twelve-month  period  ending  June 30, 2001 will  increase  by $3.0  million per
quarter to $15.0 million as of July 1, 2000.



                                       13
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


         Depreciation and Amortization

         Depreciation  and amortization for the quarter ended March 31, 2000 was
$1.9 million,  an increase of 27.9% compared to $1.5 million for the same period
in 1999.  This  increase is related to the  continued  purchase of property  and
equipment to support the Company's ongoing growth.

         Significant Other Income

         During the quarter ended March 31, 1999, the Company sold a division of
TSFL Holdings,  Inc. (formerly Symetrics Industries,  Inc.), resulting in a gain
of $1.2 million.

         Interest Income, net

         Net interest  income was $290,000 for the quarter  ended March 31, 2000
as compared to $657,000 for the quarter ended March 31, 1999.  This represents a
55.9%  decrease from the first quarter of last year.  Interest  income  consists
primarily  of  interest  income  earned on cash and cash  equivalents  offset by
interest expense related to the Company's convertible debt.

         Other Expense, net

         Net other  expense was $343,000 for the quarter ended March 31, 2000 as
compared to $678,000  for the quarter  ended March 31, 1999.  This  represents a
49.4% decrease compared to the first quarter of last year.

         Provision for Income Taxes

         The  Company  recorded a  $250,000  provision  for income  taxes in the
quarter ended March 31, 2000 related to the expected  payment of federal  income
taxes on  alternative  minimum  taxable  income this fiscal  year.  Although the
Company had net  operating  loss  carryforwards  sufficient  to offset  expected
taxable  income for 2000,  the loss  carryforwards  can only reduce up to 90% of
alternative minimum taxable income.

         Extraordinary Gain

         During  the  quarter  ended  March 31,  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.

LIQUIDITY AND CAPITAL RESOURCES

     As of March  31,  2000,  the  Company  had $88.4  million  of cash and cash
equivalents  and $64.9 million in net trade accounts  receivable.  The Company's
working  capital  was  $109.4  million  at March 31,  2000 and $87.1  million at
December 31,  1999.  This  increase in working  capital is primarily a result of
cash generated from the Company's operations and the receipt of $11.1 million in
connection  with the exercise of outstanding  Common Stock rights prior to their
expiration  in  February  2000,  offset  in  part  by $9.8  million  in  capital
expenditures for the purchase of property and equipment.

     Net cash provided by operating  activities was $6.0 million for the quarter
ended March 31, 2000. Net cash used in operating activities was $9.4 million for
the quarter ended March 31, 1999. For the quarter ended March 31, 2000 the major
contributors to the net cash provided by operating activities were net income of
$13.4 million, a decrease in all other assets of $5.9 million and adjustments to
net income for non-cash  items of $2.6 million.  This was offset by increases in
both net trade  accounts  receivable  of $7.9 million and  accounts  payable and
accrued expenses of $8.2 million.  For the quarter ended March 31, 1999 net cash
used in  operating  activities  was mainly  generated by a reduction in accounts
payable  and  accrued  expenses  of  $25.9  million  and an  adjustment  for the
extraordinary  gain of  $19.0  million  recorded  from  the  acquisition  of the
Company's  convertible  debt offset by net income of $31.3 million and decreases
in several other assets of $6.5 million.



                                       14
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


     Net cash used in investing  activities related primarily to the purchase of
property and equipment  during the quarter ended March 31, 2000. For the quarter
ended March 31, 1999 the net cash  provided by investing  activities  was mainly
from the sale of marketable securities of $89.6 million.

     The net cash provided by financing  activities  for the quarter ended March
31, 2000 was received from the exercise of stock options and Common Stock rights
for $13.5  million.  For the  quarter  ended March 31, 1999 the net cash used in
financing  activities totaled $50.0 million.  On January 5, 1999, pursuant to an
Investment  Agreement between AOL and the Company, AOL made a significant equity
investment in the Company,  acquiring 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.  Additional  financing
activities  generated  $10.0 million from the exercise of stock  options.  These
activities in 1999 were offset by the  acquisition of convertible  debt of $65.4
million and the repayment of margin account indebtedness of $49.6 million.

         Under the terms of the  Investment  Agreement with AOL, the Company has
agreed  to  reimburse  AOL for  losses  AOL may  incur on the sale of any of the
4,121,372 shares during the period from June 1, 1999 through September 30, 2000.
The  reimbursement  amount  would be  determined  by  multiplying  the number of
shares,  if any, that AOL sells during the  applicable  period by the difference
between  the  purchase  price per share paid by AOL,  or $19 per share,  and the
price per share that AOL sells the shares for,  if less than $19 per share.  The
reimbursement  amount may not exceed $14 per share for  2,894,737  shares or $11
per share for 1,226,635 shares.  Accordingly,  the maximum amount payable to AOL
as  reimbursement  on the sale of AOL's  shares  would  be  approximately  $54.0
million plus AOL's reasonable expenses incurred in connection with the sale. 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 reimbursement  obligation at the closing price of Common Stock as of May
8, 2000, the reimbursement amount would be approximately $40.7 million. AOL also
has the right, on termination of the Company's long distance  exclusivity  under
its marketing  agreement with AOL to require the Company to repurchase  warrants
held by AOL to  purchase  2,721,984  shares of Common  Stock for $36.3  million,
which  repurchase  price can be paid in Common Stock or cash (provided that some
portion of the  repurchase  price may be payable  in a  quarterly  amortization,
two-year promissory note of the Company if the repurchase price exceeds the then
current valuation of the warrants being purchased).  The Company has pledged the
stock of its  subsidiaries  and has  agreed to fund an escrow  account  of up to
$35.0 million from 50% of the proceeds of any debt financing, other than a bank,
receivable or other asset based financing of up to $50.0 million,  to secure its
obligations under the Investment Agreement with AOL. Mr. Daniel Borislow, former
Chairman of the Board and Chief Executive Officer of the Company,  has agreed to
guarantee up to $20.0 million of the Company's  reimbursement  obligations under
the Investment Agreement with AOL.

     The  Company  has  previously  announced  the  commitment,  subject  to the
satisfaction   of  certain   conditions,   including   execution  of  definitive
agreements,  obtaining  regulatory  approvals and completion of satisfactory due
diligence,  of investment  affiliates of Soros Private Equity Partners to invest
$80.0  million in the Company in  exchange  for 80,000  shares of seven  percent
convertible  preferred  stock of the  Company and  warrants  to acquire  200,000
shares of the Company common stock. These conditions have not yet been satisfied
and  there  can be no  assurance  that  such  investment  will be  completed  or
completed in accordance with the original commitment terms.

     Except with respect to  receivables  from  international  wholesale  sales,
which are conducted with a small number of international  wholesale  purchasers,
the Company  generally does not have a significant  concentration of credit risk
with respect to net trade  accounts  receivable,  due to the large number of end
users  comprising  the  Company's  customer  base and  their  dispersion  across
different  geographic  regions.  The 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,  including the increased  marketing and promotional
expenditures  discussed above, for at least the next twelve months.  The Company


                                       15
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


also believes that,  assuming the current market price of its common stock,  its
existing cash and 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 fail due to  misidentification  of dates after January 1, 2000. The Company
did not encounter any  disruptions  in service or operations as a result of Year
2000  computer  programming.  The  Company  did not  separately  identify  costs
incurred in connection with its Year 2000 compliance activities. The Company did
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.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

         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 in the foregoing Management's Discussion and
Analysis,  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 its agreement with its
various marketing  partners,  attrition in the number of end users, a failure of
the  Company's new local  services and bundled local and long distance  services
initiative and changes in government  policy,  regulation and  enforcement.  The
Company undertakes no obligation to update its forward-looking statements.


                                       16
<PAGE>

                         TALK.COM INC. AND SUBSIDIARIES


                           PART II - OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits:

                  11       Computation of Net Income Per Share

                  27       Financial Data Schedule

         (b)      Reports on Form 8-K:

                  The  Company  filed no Current  Reports on Form 8-K during the
                  three months ended March 31, 2000.


                                       17
<PAGE>

                                   SIGNATURES

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

                                        TALK.COM INC.

Date:    May 15, 2000                   By: /s/ Gabriel Battista
                                           ---------------------
                                           Gabriel Battista
                                           Chief Executive Officer


Date:    May 15, 2000                   By: /s/ Edward B. Meyercord, III
                                           -----------------------------
                                           Edward B. Meyercord, III
                                           Chief Financial Officer


Date:    May 15, 2000                   By: /s/ Janet C. Kirschner
                                           -----------------------
                                           Janet C. Kirschner
                                           Controller



                                       18