UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ______________
                                    FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                                      1934
                   For the fiscal year ended December 31, 2002
                           Commission File No. 0-26728

                           TALK AMERICA HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)
              DELAWARE                              23-2827736
              --------                              ----------
    (State or other jurisdiction of             (I.R.S. Employer
     incorporation or organization)           Identification Number)

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

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

SECURITIES  REGISTERED  PURSUANT  TO  SECTION  12(B)  OF  THE  ACT:

        TITLE OF EACH CLASS     NAME OF EACH EXCHANGE ON WHICH REGISTERED
        -------------------     -----------------------------------------
                None                       Not applicable

SECURITIES  REGISTERED  PURSUANT  TO  SECTION  12(G)  OF  THE  ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
        RIGHTS TO PURCHASE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
                                (Title of class)
                                ----------------

     Indicate  by  check mark whether the registrant (1) has filed all documents
and  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  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form  10-K.  [  ]

     Indicated  by check mark whether the registrant is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Act).  Yes  [X]  No  [  ]

     As  of  March  26, 2003, the aggregate market value of voting stock held by
non-affiliates  of  the  registrant,  based  on  the average of the high and low
prices  of  the Common Stock on March 26, 2003 of $7.24 per share as reported on
the  Nasdaq  National  Market,  was  approximately  $186,849,819  (calculated by
excluding solely for purposes of this form outstanding shares owned by directors
and  executive  officers).

     As  of March 26, 2003, the registrant had issued and outstanding 26,160,971
shares  of  its  Common  Stock,  par  value  $.01  per  share.


                       DOCUMENTS INCORPORATED BY REFERENCE

None.

<PAGE>

                           TALK AMERICA HOLDINGS, INC.

                               INDEX TO FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2002


ITEM NO.                                                               PAGE NO.
--------                                                               --------

                                     PART I

 1.  Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
 2.  Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
 3.  Legal  Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 14
 4.  Submission  of  Matters  to  a  Vote  of  Security  Holders . . . .  14

                                    PART II

 5.  Market  for  Registrant's  Common  Equity  and  Related
     Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . .  15
 6.  Selected  Consolidated  Financial  Data . . . . . . . . . . . . . .  16
 7.  Management's  Discussion  and  Analysis  of  Financial
     Condition and  Results  of  Operations . . . . . . . . . . . . . . . 17
 7a. Quantitative and Qualitative Disclosure About Market Risk . . . . . .33
 8.  Financial  Statements  and  Supplementary  Data . . . . . . . . . .  34
 9.  Changes  in  and Disagreements with Accountants on
     Accounting and Financial Disclosure . . . . . . . . . . . . . . . .  59

                                    PART III

10.  Directors  and  Executive  Officers  of  the  Registrant . . . . . . 60
11.  Executive  Compensation . . . . . . . . . . . . . . . . . . . . . . .62
12.  Security  Ownership of Certain Beneficial Owners and
     Management and Related Stockholder  Matters . . . . . . . . . . . . .67
13.  Certain  Relationships  and  Related  Transactions . . . . . . . . . 68

                                    PART IV

14.  Controls  and  Procedures . . . . . . . . . . . . . . . . . . . . .  67
15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K . . .67

                                        i
<PAGE>
                                     PART I

ITEM  1.  BUSINESS

OVERVIEW

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

     The Company offers both local and long distance telecommunication services,
primarily  the  bundled  service  offering  of  local  and  long  distance voice
services,  which  are  billed  to customers in one combined invoice. Local phone
services  include local dial tone, various local calling plans that include free
member-to-member  calling,  and  a  variety  of  features  such  as  caller
identification, call waiting and three-way calling. Long distance phone services
include  traditional  1+  long  distance,  international  and calling cards. The
Company  uses  the  unbundled network element platform ("UNE-P") of the regional
bell  operating  companies  ("RBOCs")  network to provide local services and the
Company's  nationwide  network  to  provide  long distance services. The Federal
Communications Commission ("FCC") has recently concluded its triennial review of
local  phone  competition.  Although the text of the order is not yet available,
the  decision  appears  to  preserve  the Company's ability to use UNE-P for the
provision  of  bundled  telecommunications  services  pending  further
market-by-market  analyses  by  the  respective  state  commissions.

     By  the  end  of  1999, the Company decided to expand beyond its historical
long  distance  business  and  utilize  UNE-P  to  enter  the  large  local
telecommunications  market  and  diversify  its  product  portfolio  through the
bundling  of  local  service  with its core long distance service offerings. The
Company encountered a number of operational and business difficulties during the
rollout  of the Company's bundled service offering in 2000 and worked to address
the operational issues that it encountered. The Company focused on improving the
overall  efficiency  of  the  bundled  business  model in 2001. During 2002, the
Company's  top  operating  priorities  were  to  lower  bad debt expense, reduce
customer  turnover, or "churn," and lower its customer acquisition costs. During
2003,  the  Company's  primary  focus  will  be to increase sales of its bundled
services  within  the  targets  established by management for acquisition costs,
customer  turnover  and  bad  debt  expense.

     The  Company  continues  to  manage its business to generate free cash flow
(defined  as  net  cash  provided  by operating activities less net cash used in
investing  activities) and has built a scaleable platform to provision, bill and
service  bundled  customers. The Company continues to focus on delivering better
service  and  value  to customers. During 2002, the Company expanded its product
offerings  to  appeal to a broader customer base based upon calling patterns and
feature preferences. Although the Company is now operational with respect to its
local  service  offering  in 26 states, the Company has limited the marketing of
its  bundled  services  to  those states, or certain areas of a state, where the
Company  believes  it  can  currently offer services to customers at competitive
prices.  The  Company  will  market  to additional states (or certain areas of a
particular  state) as the Company believes its pricing and cost structure permit
it  to  profitably offer services in those areas at competitive rates. While the
Company  has  actively  marketed  the  bundled product in a number of states, at
present,  a  majority  of  the  Company's bundled customers are in Michigan. The
Company  continually  reviews  its  product  offerings,  pricing  and  sales and
marketing  programs  in  an  effort  to  improve the efficiency of its sales and
marketing  channels.

     During  2002, the Company completed a significant restructuring of its debt
obligations,  including  (1)  an  exchange  offer, that effectively extended the
final  maturity on substantially all of the Company's public debt obligations to
2007;  (2)  the  retirement  of  the  Company's  senior credit facility of $13.8
million  prior  to  its  scheduled maturity; (3) open market repurchases of $5.7
million principal amount of the Company's 12% Senior Subordinated Notes; (4) the
repurchase  of  $5.4  million  principal  amount  of  the  Company's  8% Secured
Convertible  Notes;  and  (5)  the  restructuring  of the 8% Secured Convertible
Notes. In 2003, through March 28, the Company has (i) repurchased a further $9.4
million  principal  amount of its 12% Senior Subordinated Notes and $3.6 million
principal  amount  of  its  8%  Secured  Convertible  Notes,  and (ii) purchased
approximately  1.3  million shares of its common stock for an aggregate purchase
price  of  $5  million.

                                        1
<PAGE>

     Talk  America  Inc.  (formerly, Talk.com Holding Corp. and Tel-Save, Inc.),
the  Company's  predecessor  and  now  its  principal  operating subsidiary, was
incorporated  in  Pennsylvania in May 1989. The Company was incorporated in June
1995.  In  connection  with  the  Company's  decision  to  enter  the  local
telecommunications  market, the Company acquired Access One Communications Corp.
("Access  One")  in  August  2000.  Access  One  was  a  private,  local
telecommunication  services  provider  to nine states in the southeastern United
States.  The  address  of  the  Company's current principal executive offices is
12020 Sunrise Valley Drive, Suite 250, Reston, Virginia 20190, and its telephone
number  is  (703)  391-7500.  The Company's web address is www.talk.com.  Unless
the  context  otherwise  requires,  references  to  the  "Company"  or to  "Talk
America"  refer  to  Talk  America  Holdings,  Inc.  and  its  subsidiaries.

     The  Company  makes  available free of charge on its website, www.talk.com,
the  Company's  annual  report  on Form 10-K, the Company's quarterly reports on
Form  10-Q,  the  Company's  current  reports on Form 8-K, and amendments to the
Company's  reports  filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities  Exchange  Act  of  1934  as soon as reasonably practicable after the
Company  files  such  material  with,  or  furnishes  it  to, the Securities and
Exchange  Commission.


LOCAL  AND  LONG  DISTANCE  TELECOMMUNICATION  SERVICES

     The  Company offers both local and long distance telecommunication services
to  residential  and  small  business  customers.  The  Company  is  focused  on
providing  high-quality  service,  savings  through  competitively  priced
telecommunication  products,  and  simplicity  through  consolidated billing and
responsive  customer  service.

     LOCAL

     The  Company  uses  the unbundled network element platform, or UNE-P, from,
and,  to  a  lesser  extent,  resale agreements with, the RBOCs to provide local
telephone  services to residential and small business customers.  The Company is
currently  operational  in  26 states. The Company ended 2002 with approximately
330,000  bundled lines (local and long distance services).  The Company believes
that  it  offers and provides consumers value through competitive plans designed
to fit their particular calling patterns, broad feature selections and effective
customer  service.

     The  Company's  bundled  service  generally includes: unlimited local usage
dependent  upon  the  service plan, free member-to-member calling, long distance
service  and  calling  cards, one convenient invoice available both in paper and
electronically,  and  choices,  where  available,  among the following features:

             900  Call  Blocking            Calling  Name  Display
             976  Call  Restriction         Custom  Toll  Restriction
             Anonymous  Call  Reject        Distinctive  Ring
             Auto  Redial                   Priority  Call
             Automatic  Callback            Priority  Ringing
             Call  Forwarding               Privacy  Features
             Call  Block                    Remote  Call  Forwarding
             Call  Block  Denial            Repeat  Dialing
             Call  Hold                     Return  Call  (  *69  )
             Call  Return                   Return  Call  Block
             Call  Trace                    Speed Calling / Speed  Dialing
             Call  Trace  Denial            Three  Way  Calling
             Call  Waiting                  Touch  Tone  Service
             Caller  ID                     Voice  Mail

      The  provision  of  local telephone service through use of UNE-P generally
provides  the  Company  with  certain  advantages, including: (i) offering local
telephone  service  to  customers  located  virtually anywhere without deploying
costly  local switching facilities; (ii) minimizing current capital expenditures
and  at the same time maintaining network and service design flexibility for the
next generation of telecommunication technology; (iii) providing practically the
same  services  as  the  RBOCs;  (iv)  the  potential  for  higher  margins than

                                        2
<PAGE>

comparable  service  offered  through resale agreements; and (v) eliminating the
requirement  to  pay  certain  local  network access fees while collecting local
network  access  fees  for  calls  delivered  to  the  Company's local telephone
customers.  In  some  instances,  however,  such  as customers having high usage
volumes, resale may provide the Company with a lower cost structure than the use
of  UNE-P.

     UNE-P  became  available  to  the Company and other carriers on November 5,
1999,  when  the  FCC  released an order reconfirming that RBOCs nationwide must
offer  to  competitors, in an individual or combined form, a series of unbundled
network  elements,  ("UNEs"),  that  comprise  the  most  important  facilities,
features,  functions  and  capabilities  of a RBOC's network. The price at which
such  elements  are  offered  must  correspond  to  the  forward-looking cost of
providing  these elements. When offered in the combination known as UNE-P, these
components  include  the  loop  and  switching  elements needed to provide local
telephone  service  to  a  customer. Although RBOCs have a general obligation to
provide  UNE-P,  the  obligation is limited in the central business districts of
the  top  50  metropolitan statistical areas of the nation. In such markets, the
obligation  to  provide UNE-P currently is limited to carriers serving customers
with  less  than four telephone lines. Because the Company's current focus is on
residential and small business markets, the restriction on UNE-P availability in
the  central business districts of the top 50 metropolitan statistical areas has
not been a major impediment to its operations to date. On December 12, 2001, the
FCC  initiated  its  UNE  Triennial  Review  rulemaking  with  respect  to local
telecommunication  competition  in  which  it  reviewed  all UNEs and considered
whether RBOCs should continue to be required to provide them to competitors. The
FCC  has  recently  concluded  its  Triennial Review of local phone competition.
Although  the  text  of  the order is not yet available, the decision appears to
preserve  the  Company's  ability  to  use  UNE-P  for  the provision of bundled
telecommunications  services  pending  further  market-by-market analyses by the
respective  state  commissions. Changes to the current rules and regulations and
adverse judicial and administrative interpretations and rulings relating thereto
that  result  in  any curtailment in the availability of the local switching UNE
would  materially  impair  the  Company's  ability  to  provide  local
telecommunications  services.  Such  changes  could  eliminate  the  Company's
capability  to  provide  local  telecommunications  services entirely unless the
Company  is  able  to  utilize another technology, which may not be available or
available  on  economically feasible terms, or the Company purchases, builds and
implements  its  own  local  switching  network, which would require significant
additional  capital  expenditures  by  the  Company.  See  "Regulation."

     In  late  2002,  the  Company  purchased  two Lucent 5ESS-2000 switches and
related  ancillary  equipment.   The Company currently intends that one of these
switches will be initially installed in Michigan, primarily for the provision of
long  distance telecommunication services (see "Long Distance").  The Company is
also  exploring  and  intends  to  use this switch to test providing local phone
service to determine the necessary operational processes and information systems
required  to  provide  local  switch-based  service.  The  other switch has been
stored temporarily until such testing is complete.  Following the testing of the
local  switch,  the  Company will evaluate providing local telephone services to
customers  using  its  own  local  switch.

     The Company believes that UNE-P currently provides it with a cost-effective
means of offering local service bundled together with its long distance service.
The  Company  also  believes  that its operational systems are scalable and will
allow  it  to  continue  to  expand  its  service  offerings  in  the  local
telecommunication  market.

     LONG  DISTANCE

     The  Company  provides  1+  long  distance  telecommunication services on a
stand-alone  basis and bundled with the Company's local services.  The Company's
long  distance  voice services include intrastate, interstate, international and
calling  cards,  at rates that are competitive within the industry.  The Company
generally  uses  its  own  nationwide  long distance network to provide services
directly  to  its  customers.  As  of December 31, 2002, the Company provisioned
over  its  network  approximately  90%  of  the  lines  using  its long distance
services.  The  Company  ended  2002 with approximately 460,000 stand-alone long
distance  subscribers.

     The  Company's  network  is  comprised of equipment and facilities that are
either  owned  or  leased  by  the  Company.  The  Company contracts for certain
telecommunication  services with a variety of other carriers.  The Company owns,
operates  and  maintains five Lucent 5ESS-2000 switches in its network.  In late
2002, the Company purchased an additional Lucent 5ESS-2000 switch for use in its
long  distance  network.  The  Company plans to locate the switch in Michigan to
service  the  telecommunication  requirements  of its Michigan customers.  These

                                        3
<PAGE>

switches  are  generally  considered  extremely reliable and feature the Digital
Networking  Unit--SONET  technology.  The Digital Networking Unit is a switching
interface  that  is designed to increase the reliability of the 5ESS-2000 and to
provide  much  greater  capacity  in  a  significantly  smaller  footprint.

     The  switches  are  connected to each other by connection lines and digital
cross-connect  equipment  that  the  Company  owns  or  leases.  See  "Service
Agreements with Other Carriers." The Company also has installed lines to connect
its  long distance switches to switches owned by various local telecommunication
service carriers. The Company is responsible for maintaining these lines and has
entered  into  a  contract  with  GTE/Verizon  with  respect  to the monitoring,
servicing  and  maintenance  of  this  equipment.

     Since  the  Company operates its own switches, it is subject to the risk of
significant  interruption.  Fires or natural disasters, for example, could cause
damage  to  the  Company's  switching  equipment  or  to transmission facilities
connecting  its  switches.  Any  interruption in the Company's services over its
network  caused  by  such  damage  could  have  a material adverse impact on the
Company's  financial condition and results of operations. In such circumstances,
the  Company  could  attempt  to  minimize  the  interruption  of its service by
carrying  traffic  through  its  overflow  and  resale  arrangements  with other
carriers.

     SERVICE  AGREEMENTS  WITH  OTHER  CARRIERS

     The  Company  historically  obtained  services  from  AT&T through multiple
contract tariffs. With the deployment of its network, the Company requires fewer
such  services  from  AT&T  to  sell its services.  The Company has entered into
contracts  with  various  other  long  distance  and  local  carriers  of
telecommunication  services  for the provision of both its network and reselling
operations,  further  reducing  its  reliance on AT&T. These services enable the
Company  to  connect the Company's switches to each other, connect the Company's
switches  to  the  switches  of  local telecommunication service carriers, carry
overflow  traffic  during  peak  calling  times, connect international calls and
provide  directory  assistance  and  other  operator  assisted  services.

     With  respect to connections to local carriers, overflow, international and
operator  assisted  services, the Company maintains contracts with more than one
carrier for each of these services.  In May 2001, the Company entered into a new
Master  Carrier  Agreement with AT&T.  The agreement provides the Company with a
variety  of services, including transmission facilities to connect the Company's
network  switches  as  well  as services for international calls, local traffic,
international  calling  cards, overflow traffic and operator assisted calls. The
Company  believes  that  it  is  no longer dependent upon any single carrier for
these  services.  Currently,  many  price  differences  exist  in the market for
purchasing  these  services  in bulk. Under the terms of the Company's contracts
with  its  various carriers, the Company is able to choose which services and in
what  volume  the  Company  wishes  to  obtain  the  services from each carrier.
Several  of  the  network  service  agreements  contain  certain  minimum  usage
commitments.  The  largest contract establishes pricing and provides for revenue
commitments  based  upon  usage  of $52 million for the 18 months ended February
2004  and  $40  million  for  the 9  months ending December 2004.  This contract
obligates  the  Company  to  pay 65 percent of the revenue shortfall, if any.  A
separate  contract  with a different vendor establishes pricing and provides for
annual minimum payments as follows: 2003 - $6.0 million and 2004 - $3.0 million.
While the Company anticipates that it will not be required to make any shortfall
payments under these contracts as a result of (1) growth in network minutes, (2)
the  management  of traffic flows on its network, (3) the restructuring of these
obligations, and/or (4) the sale of additional minutes of usage on the wholesale
markets;  there  can be no assurances that the Company will be successful in its
efforts.  In addition, these actions will likely cause the Company to experience
an  increase  in  per  minute  network  costs.

     Many  of  the companies in the telecommunication sector have been adversely
affected  by  recent  business  trends  and  some  have  filed  for  bankruptcy
protection.  To  the  extent  that  the  credit  quality  of  these  carriers
deteriorates  or  they  seek bankruptcy protection, the Company may have service
disruptions  and  the  transition  of  the Company's customers to its network or
another  carrier's  network  may  cause  potential  disruptions for the affected
customers'  services, although, to date, there has been no significant effect.

INTEGRATED  INFORMATION  SYSTEMS

      The  Company  has  developed  and  continues  to  improve  and  update its
integrated  order  processing,  provisioning,  billing,  payment,  collection,
customer  service  and  information systems that enable the Company to offer and

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<PAGE>

deliver  high-quality,  competitively  priced  telecommunication  services  to
customers.  Through  dedicated  electronic  connections  with  its long distance
network  and  the  RBOCs from which the Company purchases local services through
UNE-P,  the  Company  has designed its systems to process information on a "real
time"  basis.  In  addition, the Company processes millions of call records each
day.

     The  Company's  core  operational  support  systems  include the following:

          -    The  Company's leads database system is utilized in the marketing
               of  its  telecommunication  services.  The  leads database system
               enables  the  Company  to  alter telemarketing campaigns to track
               areas  where  mass  advertisements are airing, manage the bundled
               sales price by customer, zone and state, maintain customer credit
               information,  and  comply  with  various regulatory requirements.

          -    The  Company's  proprietary  automated  order  processing  system
               ("OPS")  enables the Company to shorten the customer provisioning
               time  cycle  and  reduce associated costs. Prior to submitting an
               order  to  provision  a  customer  to  the Company's service, OPS
               processes the customer's credit history, and, once the customer's
               credit  is  approved, the customer's service record detailing the
               customer's  existing  phone  service  is immediately verified. In
               addition,  OPS  has enabled the Company to significantly increase
               its  customer provisioning rate for qualified and verified orders
               while  reducing  the  number  of  orders that are rejected by the
               RBOC,  reducing  manual  work  requirements.

          -    The  Company's automated service provisioning system enhances the
               Company's  ability  to  add  customer  lines  to  the  Company's
               telecommunication  service  and to change the features associated
               with  that  particular  customer's  service, reducing manual work
               requirements.

          -    The Company's billing system enables the Company to preview and
               run a bill cycle each day of the month for the many different,
               tailored service packages, increasing customer satisfaction while
               minimizing revenue leakage in the provision of local
               telecommunication service.

          -    The Company's proprietary automated collections management system
               ("CMS")  is  integrated  with  the Company's billing and customer
               relationship  management  system. CMS increases the efficiency of
               the  Company's  collection  process,  accelerates the recovery of
               accounts  receivable  and  assists  in  the retention of valuable
               customers.

          -    The  Company  continues  to develop and implement improvements to
               its  customer  relationship  manager  system,  which  enables the
               Company's  customer  service  representatives to access data in a
               real-time, organized manner, while the representative is speaking
               with  the customer, reducing the length of customer service calls
               and  improving  the  customer  experience.

     In  addition,  the  Company  maintains its own web site at www.talk.com  to
provide  for  customer  sign-up and to provide customers and potential customers
with  information  about  the Company's products and services as well as billing
information  and  customer  service.  The  Company  provides  these services and
features using the Company's web-enabled technologies that allow it to offer its
customers:

          -    Detailed  rate  schedules  and  product  and  service  related
               information.
          -    Online  sign-up  for  the  Company's  telecommunication services.
          -    Credit  card  billing.
          -    Real-time  and  24  x  7 billing services and online information,
               providing  customers  with  up  to  the hour billing information.

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<PAGE>

     The  information functions of the Company's systems are designed to provide
easy  access to all information about a customer, including volumes and patterns
of use. This information can be used to identify emerging customer trends and to
respond  with services to meet customers' changing needs.  This information also
allows  the  Company  to  identify  unusual  or  declining  use by an individual
customer,  which  may indicate fraud or that a customer is switching its service
to  a  competitor.  FCC  rules, however, may limit the Company's use of customer
proprietary  network  information.  See  "Regulation."

     These systems are designed, where applicable, to support the Company's long
distance services and its local services utilizing UNE-P, as currently provided.
If  the  Company  elects  or  is required to develop local switching capability,
these  systems  will  need  to  be  significantly  modified.


SALES  AND  MARKETING

     In  2002,  the Company's sales and marketing efforts focused on marketing a
bundle  of  local  and  long  distance  telecommunication  services  directly to
customers  under  its own brand.  The Company is now operational with respect to
its  bundle  of local and long distance telecommunication services in 26 states,
but  has  limited  the  marketing  of  its  bundled services to those states, or
certain  areas  of  a  state,  where the Company believes it can currently offer
services  to  customers at competitive prices to the general market. The Company
will market to additional states where the Company believes its pricing and cost
structure  permit it to profitably offer services in those states at competitive
rates.  While  the Company has actively marketed the bundled product in a number
of  states,  at  present,  a  majority of the Company's bundled customers are in
Michigan.  The  Company  continually  reviews its product offerings, pricing and
sales and marketing programs in an effort to improve the efficiency of its sales
and  marketing channels.  The Company increased personnel in 2002 to support the
expansion  of  its  sales  and  marketing  efforts  from  those  of  2001.

     The  Company  markets  its  bundled  services  within  its targeted markets
through  the  following  channels:

          -    Referrals  -  the  Company  solicits, through the use of referral
               promotions  and  its member-to-member free long distance product,
               the  names of potential customers or referrals from the Company's
               existing  customers.
          -    Telemarketing  -  the  Company  purchases  small  business  and
               residential  lead  databases  utilized for targeted, professional
               and  courteous  outbound telesales campaigns. Telemarketing is an
               important  sales  channel  for  the  Company.  Any changes in the
               federal or state "do not call" regulations could adversely affect
               the  Company.  See  "Regulation."
          -    Direct Sales - the Company, utilizing both independent agents and
               a recently developed internal sales force, acquires new customers
               in  targeted  geographic  areas.
          -    Broadcast  Media  -  the Company receives inbound calls in direct
               response  to  advertising  on television, in print and via direct
               mail.
          -    Online  Marketing  at www.talk.com  - the Company has developed a
               productive  online  marketing presence, through traditional media
               and  business  relationships.

     While  the  Company  does not actively market its stand alone long distance
telecommunications service, it does promote the long distance telecommunications
service  when  contacted by persons located in those regions where local service
is unavailable.  The Company also adds long distance customers when the customer
requests  its  local service provider to provide the customer with the Company's
long distance telecommunications service.  The Company is focused upon providing
its  customers  savings,  simplicity  and  service.

     The  Company  continues  to seek new marketing partners and arrangements to
expand both its opportunities to attract other customers to its services and the
products  and  services  that  it  offers  to  its  customer  base.


COMPETITION

     The   telecommunication   industry   is   highly   competitive.   Major
participants  in  the  industry  regularly  introduce new services and marketing
activities. Competition in the telecommunication industry is based upon pricing,
customer  service, billing services and perceived quality.  The Company competes

                                        6
<PAGE>

against  numerous  telecommunication  companies  that offer essentially the same
services  as those of the Company.  Many of the Company's competitors, including
the  RBOCs,  are  substantially larger and have greater financial, technical and
marketing  resources  than  those  of  the  Company.  The Company's success will
depend  upon  its continued ability to provide high quality, high value services
at  prices  generally  competitive  with,  or  lower  than, those charged by the
Company's  competitors.

     The major carriers, including AT&T, Sprint Corporation, MCI/Worldcom, Inc.,
and the RBOCs have targeted price plans at residential customers - the Company's
primary  target  market - with significantly simplified rate structures and with
bundles  of local services with long distance, which may lower overall local and
long  distance prices.  Competition is also fierce for the small to medium-sized
businesses  that  the  Company also serves. Additional pricing pressure may also
come  from  the  introduction  of  new technologies, such as Internet telephony,
which  seek to provide voice communications at a cost below that of  traditional
circuit-switched  long  distance  service.  In  addition, wireless carriers have
marketed  their services as an alternative to traditional long distance service,
further  increasing  competition  in  the  long  distance sector.  Reductions in
prices charged by competitors may have a material adverse effect on the Company.

     Consolidation  and  alliances  across  geographic regions, in the local and
long distance market and across industry segments may also intensify competition
from  significantly  larger,  well-capitalized  carriers.

     The entry of the RBOCs into the long distance market has further heightened
competition.  Under  the Telecommunications Act of 1996 (the "Telecommunications
Act"),  the  RBOCs  were  authorized  to  provide  long  distance  service  that
originates  outside  their traditional services areas, and may gain authority to
provide  long  distance  service  that  originates  within  their  region  after
satisfying  certain  market opening conditions.  The FCC has granted each of the
RBOCs the authority to provide long distance service in a quickly growing number
of  states. Verizon has such authority in New York, Massachusetts, Pennsylvania,
Connecticut,  Virginia, New Hampshire, Delaware, New Jersey, Maine, Vermont, and
Rhode Island.  SBC Communications has such authority in Texas, Kansas, Oklahoma,
Arkansas,  California  and  Missouri.  BellSouth  has such authority in Florida,
Georgia,  Louisiana,  Alabama,  Kentucky,  Mississippi,  North  Carolina,  South
Carolina,  and  Tennessee.  Qwest  has  such authority in Colorado, Idaho, Iowa,
Montana,  Nebraska,  North  Dakota,  Utah, Washington and Wyoming.  In addition,
several more applications are currently pending at the FCC, including Verizon in
Maryland,  West  Virginia  and  the  District  of  Columbia,  SBC  in Nevada and
Michigan,  and  Qwest in New Mexico, Oregon and South Dakota.  We cannot predict
if any of these applications will be approved or when such approval is likely to
occur.  The  Company anticipates that the RBOCs will  continue to seek to obtain
similar  authority  in  other states.  These actions are likely to increase long
distance  competition  within  the  affected  states.  RBOC  entry into the long
distance  market  means  new  competition  from  well-capitalized,  well-known
companies  that  have the capacity to "bundle" other services, such as local and
wireless  telephone  services and high speed Internet access, with long distance
telephone  services.  While  the  Telecommunications  Act  includes  certain
safeguards  against  anti-competitive  conduct by the RBOCs, it is impossible to
predict  whether  such  safeguards  will be adequate or what effect such conduct
would  have  on  the  Company.  Because  of the RBOCs' name recognition in their
existing  markets,  the  established  relationships  that  they  have with their
existing  local  service  customers,  their  ability  to take advantage of those
relationships,  and  the  possibility  that  interpretations  of  the
Telecommunications  Act  may be favorable to the RBOCs, it may be more difficult
for  the  Company  to  compete.

     In  addition,  access  to  RBOC  UNEs  at rates competitive with the RBOC's
retail  service  offerings  is critical to the Company's business.  The RBOC UNE
rates  are  ordered  by  individual  state commissions, which have only recently
begun  lowering  the  RBOC UNE rates to a level that allows the Company to offer
rates competitive with the RBOC for similar services in those states.  The RBOCs
have  petitioned  certain state commissions to raise the current RBOC UNE rates.
Failure  of  the remaining state commissions to lower RBOC UNE rates will have a
significant  impact  upon  the  Company's  ability  to  offer  services at rates
competitive  with  the  RBOCs.  See  "Regulation."

                                        7
<PAGE>

REGULATION

     GENERAL

     The  Company's  provision  of  telecommunication  services  is  subject  to
government  regulation.   Generally  speaking,  the FCC regulates interstate and
international  telecommunications,  while  the  state  commissions  regulate
telecommunications  that  originate  and  terminate  within  the  same  state.

     The  Telecommunications  Act provided for a significant deregulation of the
domestic telecommunications industry, including the opening of the local markets
of  incumbent  local  exchange  carriers (ILECs) to competition and the ability,
pursuant  to certain market-opening conditions, of the RBOCs to reenter the long
distance industry. See "Competition". The Telecommunications Act remains subject
to  judicial  review  and additional FCC rulemaking, and thus it is difficult to
predict what effect the legislation and regulations will have on the Company and
its  operations  over time. There are currently a number of, and (as a result of
the FCC's recently announced decision concerning the Triennial Review, discussed
below)  will  soon be many additional, regulatory proceedings underway and being
contemplated  by federal and state authorities regarding the availability of the
unbundled  network  element  platform  and  other  unbundled  network  elements,
interconnection,  pricing  and  other  issues  that  could result in significant
changes  to the business conditions in the telecommunication industry and have a
material  adverse  effect on the Company. In addition, there has been discussion
in  Congress  of  modifying  the Telecommunications Act in ways that could prove
detrimental  to  the  Company.

     In  January  1999,  the  U.S.  Supreme  Court  confirmed  the FCC's role in
establishing  national  telecommunications  policy through implementation of the
Telecommunications  Act,  and  thereby  created  greater certainty regarding the
rules  governing local competition going forward.   The FCC's rules which permit
the  Company  to  purchase  the  UNE-P  to  provide  local  and  long  distance
telecommunications  services  to  its  customers are the primary rules governing
competition  upon  which  the  Company  relies.  On  December  12, 2001, the FCC
initiated  its  UNE  Triennial  Review  rulemaking  with  respect  to  local
telecommunication  competition  in  which  it  reviewed  all UNEs and considered
whether  RBOCs  should  continue  to be required to provide them to competitors.
The  FCC has recently concluded its Triennial Review of local phone competition,
announcing  a  decision on February 20, 2003.  Although the text of the order is
not yet available, the decision appears to preserve the Company's ability to use
UNE-P  for  the provision of bundled telecommunications services pending further
market-by-market  analyses  by  the  respective  state  commissions.

      FEDERAL  REGULATION  OF  THE  COMPANY'S  RATES,  TERMS  AND  CONDITIONS

      The  FCC  has  imposed  numerous reporting, accounting, record keeping and
other  regulatory obligations on the Company.  The Company must offer interstate
and  international  services  under  rates,  terms and conditions that are just,
reasonable  and  not  unreasonably  discriminatory.  The  Company also must post
publicly  the  rates,  terms  and  conditions  of  the  Company's interstate and
international  long distance service on the Company's web site or elsewhere, and
is  authorized  to  file  interstate  tariffs on an ongoing basis for interstate
access  services  (rates  charged  among carriers for access to their networks).
Although  the  Company's  interstate and international service rates, terms, and
conditions  are subject to review, they are presumed to be lawful and have never
been formally contested by customers or other consumers.  Other FCC rules govern
the  procedures  the Company uses to solicit customers, its handling of customer
information, its obligation to assist in funding the federal system of universal
service,  its  billing  practices  and  the like.  The Company may be subject to
forfeitures  and  other  penalties  if  it  violates  the  FCC's  rules.

     Long  distance  carriers pay local facilities-based carriers, including the
Company,  interstate  access  charges  for  both originating and terminating the
interstate  calls of long distance customers on the local carriers' networks and
facilities,  including UNE-P.  Historically, the RBOCs set access charges higher
than  cost  and justified this pricing to regulators as a subsidy to the cost of
providing  local  telephone  service  to  higher  cost  customers.  With  the
establishment of an explicit and competitively neutral universal service subsidy
mechanism  and, as a result of other access reform proceedings, the FCC is under
increasing  pressure  to  revise  the  current access charge regime to bring the
charges  closer  to the cost of providing access.  In response, the FCC issued a
decision  in  2001  setting  the rates that competitive local carriers charge to
long  distance  carriers  at  a  level that will gradually decrease to the rates

                                        8
<PAGE>

charged by incumbent carriers.  So long as the Company is in compliance with the
FCC's  rate  schedule,  the  FCC's  order  forbids  long  distance carriers from
challenging  our  interstate  access  rates.  This  FCC decision lowering access
charges  may  reduce  our  access  charge  revenues  over time.  The FCC is also
considering,  in a declaratory ruling proceeding commenced in November 2002, the
question  of  whether  voice over the Internet services or services utilizing an
Internet  protocol  should  be  made subject to interstate access charges in the
same  manner  as  traditional  telephony.  The  FCC  has  indicated  on  several
occasions  that  such  services  are  exempt from interstate access charges, but
until  the  FCC  issues  its ruling in the current proceeding, it is unclear how
such  traffic  will  be  treated  for  intercarrier  compensation  purposes.

     REGULATION  OF  ACCESS  TO  UNBUNDLED  NETWORK  ELEMENTS

     Access  to  RBOC  UNEs  at  cost-based  rates  is critical to the Company's
business.  The  Company's  local telecommunications services are provided almost
exclusively  through  the  use  of  combinations  of  RBOC  UNEs,  and it is the
availability of cost-based UNE rates that enables the Company to price its local
telecommunications  services competitively.  However, the obligation of RBOCs to
provide  UNEs at such cost-based rates has been the subject of recent regulatory
and  judicial  actions  which  has  affected  their  availability.  Additional
proceedings are imminent which could result in them being substantially reduced,
at  least  in  some  markets.

     Access to RBOC UNEs in a fashion in which they are combined by the RBOCs is
critical  to  the  Company's  business.  The  Company's local telecommunications
services  are  provided  primarily  through  the  use  of  UNE-P,  in which UNEs
necessary  to  provide  service  to  the  Company's  customers (unbundled loops,
transport, and local switching) are combined by the RBOCs and then leased to new
entrants.  The  FCC's  yet-to-be-released  Triennial  Review  decision,  and
subsequent  state  proceedings  called  for by that decision, will determine the
extent  to  which  RBOCs  will  continue  to  be  required  to  provide such UNE
combinations  to  competitors.

     The  existing  set of UNEs were largely established by the FCC in its Local
Interconnection  Order  in  1996, and updated in a proceeding on remand from the
Supreme  Court's Iowa Utilities Board case in 1999.  The Supreme Court held that
the  FCC  did  not  apply  the  correct standards when determining which network
elements must be unbundled and made available to competitive telephone companies
such  as the Company.  In November 1999, the FCC released its "UNE Remand Order"
addressing  the  deficiencies  in the FCC's original ruling cited by the Supreme
Court.  The  order  was  generally  viewed as favorable to the Company and other
competitive  carriers  because  it  ensured  that  incumbent  carriers  would be
required  to  make  available  those network elements, including UNE-P, that are
crucial  to   the  Company's  ability  to provide local and other services.  The
order was appealed by the incumbent carriers and in May, 2002, the United States
Court  of  Appeals  for  the  D.C. Circuit released an opinion remanding the UNE
Remand  Order  to the FCC for further consideration.  The Court remanded the UNE
Remand  Order because (1) the FCC adopted, as to almost every unbundled element,
a  uniform  national rule mandating the element's unbundling in every geographic
market  and  customer  class,  without regard to the state of competition in any
particular  market; and (2) the FCC's concept of the circumstances in which cost
disparities  would  under  the  Telecommunications  Act's  standards, "impair" a
competitor's  ability  to  provide  service  without  unbundled  elements  was
considered  too  broad.

     As  part  of its regular periodic review of the list of unbundled elements,
the  FCC  initiated  its so-called UNE Triennial Review rulemaking proceeding on
December 12, 2001.  The FCC in its Triennial Review, and in response to the D.C.
Circuit  Court's  decision,  reviewed all UNEs to determine whether RBOCs should
continue  to  be  required  to  provide  them  to  competitors.

     At  its  Feb.  20, 2003, open meeting, the FCC adopted its Triennial Review
decision.  The  full  text  of the order is not yet available so at this time we
only  have  a  broad  outline  of the FCC's announced actions without the detail
required  to  fully  assess all of the potential ramifications of this important
decision.  However,  based on the FCC's press release and the FCC Commissioners'
comments  at  the meeting the decision appears to preserve the Company's ability
to  use  UNE-P  for  the  provision  of  bundled telecommunications services and
appears to delegate to each state the overall responsibility for deciding, under
FCC  guidelines, what unbundled elements should be available to competitors like
the  Company  in  local  markets

                                        9
<PAGE>

within  the  state's jurisdiction as well as the costs that the RBOCs may charge
for  such  elements.  This creates the risk that some states may decide to limit
or  eliminate  unbundled elements that the Company currently has access to, that
the  cost  of such elements may increase and that the Company will be faced with
different sets of rules and costs if states issue inconsistent decisions.  Among
the  broad  highlights of the Triennial Review decision that can be discerned at
this  time  are  the  following  actions that  have a significant  impact on the
Company:

Unbundled  Local  Switching and UNE-P: The FCC's current rules generally require
incumbent  carriers  to  offer  local  circuit switching as an unbundled network
element,  and  thus UNE-P, to competing carriers at cost-based prices.  However,
an  incumbent  carrier  need not make local circuit switching available where it
would  be  used  to  serve  end  users with four or more lines in zones with the
highest  density  of  access  lines  and  greatest  traffic volume in the top 50
Metropolitan  Statistical  Areas,  provided  that the incumbent carrier provides
nondiscriminatory, cost-based access to the enhanced extended link, or EEL.  The
EEL,  which  consists of an unbundled loop, multiplexing/concentrating equipment
and  dedicated  transport,  allows  a  competing  carrier to serve a customer by
extending  the  customer's  loop  from the end office serving that customer to a
different  end office in which the competitor is already co-located with its own
network  facilities.

     During  the  FCC's  Triennial  Review proceeding, the incumbents launched a
fierce  campaign,  at  both  the FCC and in Congress, in an attempt to limit the
availability  of circuit switching and, as a result, UNE-P. Comments made at the
Triennial Review FCC public meeting, during the FCC press conference, and in the
associated press release indicate that the FCC adopted a presumption that access
to  unbundled  switching for voice grade or DS-0 local circuit switching remains
impaired,  which  means  that  UNE-P would still be available to the Company for
residential  and  most  small-business  customers  (provided unbundled loops and
transport  also  remain  available  in  those geographic areas where the Company
intends  to  use  UNE-P).  Nonetheless,  the  FCC's presumption of impairment is
rebuttable,  and the Company expects that incumbent carriers in all or virtually
all  states  will  press  for  state commissions to conduct proceedings over the
nine-month  period  following  the  effectiveness  of the FCC's Triennial Review
order, as contemplated by that decision, to rebut that presumption and to remove
local  switching  and  UNE-P  from  the  incumbent  carriers'  set of unbundling
obligations. The FCC's order appears to provide that, in that event, UNE-P would
remain  available  for the limited purpose of a customer acquisition vehicle for
an  extended  transition period of three years. (Again, the details of the FCC's
plan  and  the  scope of the potential adverse effects on the Company's business
cannot  be  truly  known  until  the  text  of  the FCC's order is released.) In
addition,  we  anticipate that the incumbents will challenge the FCC's decisions
regarding  unbundled  local  switching  in court, and will also lobby the United
States Congress, in an effort to remove local circuit switching from the list of
UNEs on an even faster basis than could occur under the framework adopted by the
FCC  based  upon  state  commission  proceedings. If the incumbents' campaign is
successful, this would disadvantage UNE-P providers such as the Company. Further
restrictions  upon  the  availability  of  local  circuit switching beyond those
currently in place would significantly restrict the Company's ability to provide
service  on a UNE-P basis. Where circuit switching is not available, the Company
would  be  unable  to  offer  service  on  a  UNE-P basis and must instead serve
customers  on  its  own facilities or rely on the switching facilities of other,
non-incumbent  carriers,  which  may  delay  service  roll-out  in some markets,
increase  costs,  and  negatively  impact  the  Company's  business,  prospects,
operating  margins,  results  of operations, cash flows and financial condition.
The  FCC's  anticipated  order  will  adopt  a rebuttable presumption that local
circuit  switching  has  been  eliminated  as  an  unbundled network element for
high-capacity  (DS-1 or T-1 and above) end users; state commissions will have 90
days  after  the  effectiveness  of  the  FCC's  order to conduct proceedings to
determine  whether  to  rebut the presumption of no impairment for this level of
unbundled  local  circuit  switching,  and  UNE-P  that  relies on this level of
switching.

UNE  Pricing:  The  current  UNE  pricing  rules were established in 1996 in the
FCC's  Local Competition Order, wherein the FCC concluded that the rates charged
to  new  entrants  must  be  based on the forward-looking costs of providing the
interconnection  or  UNEs  ordered.  The  FCC  rejected the use of historical or
embedded costs in setting rates that new entrants pay.  The FCC further required
a specific methodology, "total element long-run incremental cost" ("TELRIC"), to
calculate  an  RBOC's  forward-looking  costs.  The  FCC required that TELRIC be
measured  based  on  the use of the most efficient telecommunications technology
currently  available  and  the  lowest  cost  network  configuration,  given the
location of existing RBOC wire centers.  Under the Telecommunications Act, state
commissions set the actual UNE rates based on the federally-adopted methodology.

                                       10
<PAGE>

     On  remand from the U.S. Supreme Court in AT&T v. Iowa Utilities Board, the
Eighth  Circuit  Court  of  Appeals concluded in 2000 that the FCC's UNE pricing
rules  violated  the  terms  of  the Telecommunications Act.  The Eighth Circuit
determined that the FCC's TELRIC methodology incorrectly based costs on the most
efficient technology and configuration available, rather than the actual cost of
the  particular  facilities and equipment deployed by RBOCs.  The Eighth Circuit
ruled that the FCC cannot require that UNE prices be calculated at the cost of a
hypothetical  network,  as opposed to the costs actually incurred, by the RBOCs.
The  Eighth  Circuit,  however,  did  not  vacate  the  FCC's  decision to use a
forward-looking  cost  methodology.  The  Court  determined  that requiring that
forward-looking  costs  be  used  to  establish UNE rates is a matter within the
FCC's  discretion.

     The FCC, RBOCs and CLECs (competitive local exchange carriers) all appealed
the  Eighth  Circuit  decision  to  the  U.S.  Supreme Court.  The Supreme Court
granted  certiorari in these cases, styled Verizon Communications v. FCC, and in
May 2002, reversed the Eighth Circuit (except for its decision about  the use of
a  forward-looking  methodology)  and  upheld  the  validity of the FCC's TELRIC
pricing  methodology  for  UNEs.

     Although  the  FCC's  forward-looking cost model for establishing rates for
unbundled  network  elements  has  been  upheld by the U.S. Supreme Court, it is
possible  that  either the FCC will review or revise the methodology in a manner
that  raises  the  Company's  costs or the states will review the UNE rates they
have  established  under  a  TELRIC  methodology.  The FCC's methodology and the
manner  in  which it is applied are under attack from the incumbent carriers and
the  U.S.  Telecom  Association,  their  trade association, and intense lobbying
efforts  by  the incumbent carriers could lead the FCC to re-examine its pricing
rules  further  or  even  convince  Congress  to modify the pricing standard for
unbundled  network  elements  in  the  Telecommunications Act, leading to higher
prices.  In  fact, the FCC has indicated that it may comprehensively review that
methodology in the near future.  Further, as a possible foretaste, in its recent
Triennial  Review  decision,  the  FCC  appears  to  have  opened  the  door for
incumbents  to  utilize  a higher cost of capital input and shorter depreciation
lives  in  establishing  rates for  unbundled elements.  Incumbent carriers also
routinely  file  petitions  with  the  state commissions seeking to increase the
rates they can charge competitors for unbundled elements.  Such modifications to
the incumbents' UNE rates could raise our costs for leasing UNE-P and other UNEs
in  the  future.

     As  indicated  above, the text of the Triennial Review decision has not yet
been  released.  It  is  anticipated  that  once  the FCC's new unbundling rules
become  effective,  incumbent  carriers will pursue review in courts, attempt to
institute  proceedings with the FCC and state regulatory agencies, and lobby the
United States Congress in an effort to affect laws and regulations regarding the
availability  of  UNEs  and UNE-P, and the prices competitors pay for them, in a
manner  even  more  favorable  to  them and against the interests of competitive
carriers.  Concomitantly, it is expected that competitive carriers will endeavor
to  improve their positions and access to the incumbents' networks at cost-based
rates  through  similar  means.

     REGULATION  OF  MARKETING

     The  Company's  current  and  past direct and partner marketing efforts all
require  compliance  with relevant federal and state regulations that govern the
sale  of  telecommunication  services.  The  FCC and many states have rules that
prohibit switching a customer from one carrier to another without the customer's
express  consent  and  specify  how  that consent must be obtained and verified.
Most states also have consumer protection laws that further define the framework
within  which  the  Company's  marketing  activities  must  be  conducted. While
directed  at  curbing abusive marketing practices, the design and enforcement of
these rules can have the incidental effect of entrenching incumbent carriers and
hindering  the  growth  of  new  competitors,  such  as  the  Company.

     The  Company's  marketing  efforts  are  carried  out  through a variety of
marketing  programs,  including  referrals  from  existing  customers,  outbound
telemarketing,  direct  sales  through  independent agents and the Company's own
direct  sales  force,  broadcast  media  and  online  marketing  initiatives.
Restrictions  on  the  marketing  of  telecommunication  services  are  becoming
stricter  in  the wake of widespread consumer complaints throughout the industry
about  "slamming"  (the  unauthorized  change  of  a customer's service from one
carrier  to  another  carrier)  and  "cramming"  (the  unauthorized provision of
additional telecommunication services).  The Telecommunications Act strengthened
penalties  against  slamming,  and  the  FCC issued and updated rules tightening
federal  requirements  for  the  verification  of  orders  for telecommunication
services  and  establishing  additional  financial  penalties  for slamming.  In

                                       11
<PAGE>

addition,  many  states  have  been  active in restricting marketing through new
legislation  and regulation, as well as through enhanced enforcement activities.
The  Federal  Trade  Commission  and the FCC have proposed rules and regulations
governing  the creation and enforcement of national "do not call" databases that
could  affect  the  Company's  ability  to  outbound  telemarket.  The Company's
marketing activities have subjected the Company to investigations or enforcement
actions  by  government  authorities.  The  constraints  of  federal  and  state
regulation,  as  well  as  increased  FCC,  Federal  Trade  Commission and state
enforcement  attention,  could  limit the scope and the success of the Company's
marketing  efforts  and  subject them  to enforcement actions, which may have an
adverse  effect  on  the  Company.

     Statutes and regulations designed to protect consumer privacy also may have
the  incidental  effect  of  hindering  the  growth  of  newer telecommunication
carriers  such as the Company.  For example, the FCC rules that restrict the use
of  "customer  proprietary  network  information"  (information  that  a carrier
obtains  and  uses  about  its  customers  through  their  use  of the carrier's
services)  may  make  it  more  difficult  for  the Company to market additional
telecommunication  services  (such  as  local  and  wireless),  as well as other
services  and  products,  to  its  existing  customers.

     UNIVERSAL  SERVICE  FUND  REGULATION

     Pursuant to Section 254 of the Telecommunications Act, the FCC requires the
Company  and  other  providers  of telecommunication services to contribute to a
federally  administered  universal  service  fund,  which helps to subsidize the
provision  of  local telecommunication services and other services to low-income
consumers,  schools,  libraries,  health  care  providers, and rural and insular
areas  that  are  costly  to  serve.  The  Telecommunications Act requires every
telecommunication carrier that provides interstate telecommunication services to
contribute,  on  an  equitable  and  nondiscriminatory  basis,  to the specific,
predictable,  and  sufficient  mechanisms established by the FCC to preserve and
advance  universal  service.  These  regulations  were  recently  amended  and
contributions  to  the  FCC's  universal  service  funds  are  now  assessed  on
telecommunication providers' projected combined interstate and international end
user  telecommunication  revenues,  and  no  longer  permit  telecommunication
providers  to  recover  margin on this assessment. The Company's contribution of
revenues  to  universal  service  stands at 7.28% of end user telecommunications
revenues  for  the  first  quarter of 2003 and 9.0044% for the second quarter of
2003.  In  a December 2002 Notice of Proposed Rulemaking, the FCC has asked many
broad-ranging questions regarding universal service including, whether to change
its  method  of  assessing  contributions  due from carriers by basing it on the
number  and  capacity of connections they provide, rather than on interstate and
international  end  user  revenues  they  earn.  The Company cannot be sure that
legislation  or  FCC  rulemaking  will  not  increase  the  size  of its subsidy
payments,  the  scope  of  the  subsidy  program  or  the  Company's  costs  of
calculating,  collecting  and  remitting the payments.  Some states have similar
universal  fund  programs, and in those instances the Company may be required to
remit  a  portion  of  its  intrastate  revenue  to  such  funds.

     STATE REGULATION

     The  vast  majority  of  the  states  require  the  Company  to  apply  for
certification  to provide local and intrastate telecommunication services, or at
least  to  register  or  to  be  found exempt from regulation, before commencing
intrastate  service. The majority of states also require the Company to file and
maintain  detailed  tariffs  listing its rates for intrastate service. State law
typically  requires charges and terms for the Company's services to meet certain
standards,  such  that  its  charges  and  practices be just, reasonable and not
unreasonably  discriminatory.   Many  states  also  impose  various  reporting
requirements and/or require prior approval for transfers of control of certified
carriers,  corporate  reorganizations,  acquisitions  of  telecommunication
operations,  assignments  of carrier assets, including subscriber bases, carrier
stock  offerings  and  incurrence  by  carriers of significant debt obligations.
Certificates  of  authority  can  generally  be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply with
state  law  and  the  rules,  regulations  and  policies of the state regulatory
authorities.  Fines  and  other  penalties,  including  the return of all monies
received  for  intrastate  traffic from residents of a state, may be imposed for
such  violations.  State  regulatory  authorities  may  also  place  burdensome
requirements  on  telecommunication  companies  seeking transfers of control for
licenses  and  the  like.  Under  the regulatory arrangement contemplated by the
Telecommunications  Act,  state authorities continue to regulate certain matters
related  to universal service, public safety and welfare, quality of service and

                                       12
<PAGE>

consumer  rights.  All  of  these  regulations,  however,  must be competitively
neutral  and  consistent  with  the  Telecommunications  Act,  which  generally
prohibits  state regulation that has the effect of prohibiting us from providing
telecommunications  services  in  any  particular  state. State commissions also
enforce  some  of  the  Telecommunications  Act's  local competition provisions,
including  those  governing  the arbitration of interconnection disputes between
the  incumbent  carriers  and competitive telephone companies and the setting of
rates  for  unbundled  network  elements.


FINANCIAL  RESTRUCTURING

     Beginning  in  the  third  quarter  of  2001,  the  Company embarked upon a
comprehensive  restructuring  of  its  financial  obligations  with  (i) America
Online, Inc. ("AOL"), (ii) its senior secured creditor, and (iii) the holders of
the  Company's  convertible  subordinated  notes.  References  in  the following
discussion  to  numbers  of shares of common  stock and per share prices reflect
adjustment  for  the  one-for-three  reverse stock split as of October 15, 2002.


     AOL  RESTRUCTURING

     In September, 2001, the Company restructured its financial obligations with
AOL  that  arose under the 1999 Investment Agreement between the Company and AOL
and,  effective  September  30, 2001, ended its marketing relationship with AOL.
The  Company  began  marketing  and  providing telecommunication services to AOL
subscribers  under  the Company's and AOL's brand in 1997. In January, 1999, AOL
made  a  $55  million investment in the Company at $57 per share and the Company
provided  AOL  with  the  ability  to protect the value of that investment for a
period  of time, permitting AOL, at its election, to require the Company to make
certain  "make  whole"  payments  to  AOL  on or before September 30, 2001. As a
result  of the September 2001 restructuring and the termination of the marketing
agreement,  the  Company issued to AOL $34 million of its 8% Secured Convertible
Notes  due  September  2011  ("8%  Secured Convertible Notes") in exchange for a
release  of  the  Company's  reimbursement obligations under the 1999 Investment
Agreement.  The  Company  also  issued 1,026,209 additional shares of its common
stock  in  exchange  for warrants to purchase the Company's common stock held by
AOL and the Company's related obligations under the 1999 Investment Agreement to
repurchase  those warrants, bringing the total number of shares of the Company's
common  stock  held  by  AOL  to  2,400,000.  On  December 23, 2002, the Company
restructured  its  8%  Secured  Convertible  Notes.  The  principal terms of the
restructuring  were  as  follows: the new maturity date is September 19, 2006, a
pay-in-kind  interest  option was eliminated and interest is thereafter required
to be paid entirely in cash, and the Company was provided additional flexibility
to  purchase  subordinated  debt and common stock through September 30, 2003. In
2002,  the Company repurchased $5.4 million of its 8% Secured Convertible Notes.
Through  March  28,  2003,  the  Company  has repurchased $3.6 million of its 8%
Secured  Convertible  Notes,  reducing the outstanding principal amount to $26.6
million  as  of March 28, 2003. In January 2003, the Company purchased 1,315,789
of  its  common shares from AOL for an aggregate purchase price of approximately
$5.0  million.

     SECURED  CREDIT  FACILITY  RESTRUCTURING

     By  amendments  on  February  12,  2002,  and  April  3,  2002, the Company
restructured  certain  portions,  including  financial  covenants, of its Credit
Facility  Agreement with MCG  Finance  Corporation  ("MCG"), and the  Consulting
Agreement,  and  other loan documents between the parties.  In October 2002, the
Company  retired the facility of $13.8 million prior to its originally scheduled
maturity  in  2005.

     CONVERTIBLE  SUBORDINATED  NOTES  RESTRUCTURING

     As  of  December  31,  2001,  the  Company had an aggregate amount of $61.8
million  in 4 1/2% Convertible Subordinated Notes due in September 2002 ("4-1/2%
Convertible  Subordinated  Notes")  and  $18.1  million  in  5%  Convertible
Subordinated  Notes  due  in  2004  ("5%  Convertible  Subordinated Notes"). The
Company  decided  to offer to exchange the 4-1/2% Convertible Subordinated Notes
and  the  5%  Convertible  Subordinated  Notes ("Existing Notes") for new notes,
principally  to  extend the time that the Company has to pay the Existing Notes,
as  part  of  the  Company's  efforts  to  restructure its debt obligations, and
maintain  sufficient  cash  to conduct its operations. On February 22, 2002, the
Company  initiated  Exchange  Offers  and  Consent  Solicitations ("the Exchange
Offers")  for all of the Company's outstanding Existing Notes. On April 4, 2002,
the Company completed the exchange for $57.9 million principal amount, or 94% of
the  total amount outstanding, of its 4-1/2% Convertible Subordinated Notes that
were

                                       13
<PAGE>

tendered  for  exchange  in  the Exchange Offers and approximately $17.4 million
principal  amount, or 95% of the total amount outstanding, of its 5% Convertible
Subordinated  Notes  that were tendered for exchange in the Exchange Offers. The
Company  issued  $53.2  million  in  principal  amount  of  its  new  12% Senior
Subordinated  PIK  Notes  due  2007  ("12%  Senior Subordinated Notes") and $2.8
million  in principal amount of its new 8% Convertible Senior Subordinated Notes
due  2007  ("8% Convertible Senior Subordinated Notes") (convertible into common
stock  at  $15.00  per  share),  and paid approximately $0.5 million in cash, in
exchange for the tendered 4-1/2% Convertible Subordinated Notes. Interest on the
new  12%  Senior  Subordinated Notes is payable in cash, except that the Company
may,  at  its  election, pay up to one-third of the interest due on any interest
payment  date  through  and  including  the  August 15, 2004 interest payment in
additional  12% Senior Subordinated Notes. The Company also issued $17.4 million
in  principal  amount  of  its 12% Senior Subordinated Notes in exchange for the
tendered  5%  Convertible  Subordinated  Notes.  In addition, the holders of the
4-1/2%  Convertible  Subordinated  Notes  and  5% Convertible Subordinated Notes
consented to amend the respective indentures under which the Existing Notes were
issued  to  eliminate  from  the  indentures the right to require the Company to
repurchase such notes should the Company's common stock cease to be approved for
trading  on  an  established  automated  over-the-counter  trading market in the
United  States.  After completion of the Exchange Offers, there were outstanding
approximately  $70.7  million  principal  amount  of  the  Company's  12% Senior
Subordinated Notes, approximately $2.8 million principal amount of the Company's
8%  Convertible  Senior Subordinated Notes, approximately $3.9 million principal
amount  of  the  4-1/2%  Convertible  Subordinated  Notes and approximately $0.7
million  principal amount of the 5% Convertible Subordinated Notes. In September
2002,  the  Company  retired  upon maturity the remaining $3.9 million principal
amount  of  the  4-1/2%  Convertible Subordinated Notes. The Company repurchased
$5.7  million of its 12% Senior Subordinated Notes in 2002 and, in 2003, through
March  28,  has  repurchased  an  additional  $9.4  million  of  its  12% Senior
Subordinated  Notes,  reducing the outstanding principal amount to $56.6 million
as  of  March  28,  2003.


EMPLOYEES

     As  of  December 31, 2002 the Company employed approximately 1,000 persons.
The  Company  considers  relations  with  its  employees  to  be  good.


ITEM  2.  PROPERTIES

     The  Company  leases an approximately 8,000 square foot facility in Reston,
Virginia, that serves as the Company's headquarters and is where a number of the
Company's  executives,  network and marketing personnel are located. The Company
owns  an  approximately  24,000  square  foot facility in New Hope, Pennsylvania
where  certain  of  the Company's executives and its finance, legal, information
technology  development  and  marketing  personnel are located. The Company also
leases  properties  in the cities in which switches for its network have been or
will  be  installed  (New  York,  New  York; San Francisco, California; Chicago,
Illinois;  Dallas, Texas; Jacksonville, Florida; and Southfield, Michigan).  The
Company  leases an approximately 3,500 square foot facility in Chicago, Illinois
for  additional  information  technology  development  personnel.

     With  respect  to  the  Company's  sales, provisioning and customer service
operations,  the  Company  owns  a  32,000  square foot facility located in Palm
Harbor,  Florida.  The  Company  also leases the following facilities for sales,
provisioning  and  customer  service  operations: an approximately 29,000 square
foot  facility in Orlando, Florida, an approximately 13,000 square foot facility
in  Greenville, South Carolina, and an approximately 12,000 square foot facility
in  Fort  Myers,  Florida.


ITEM  3.  LEGAL  PROCEEDINGS

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


ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

         None.

                                       14
<PAGE>
                                     PART II

ITEM  5.  MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED STOCKHOLDER
          MATTERS

     The  Company's  common  stock,  $.01  par value per share, is traded on the
Nasdaq  National  Market  under  the  symbol  "TALK". The Company's stockholders
approved  a  one-for-three  reverse  stock  split of the Company's common stock,
effective  October  15,  2002, decreasing the number of common shares authorized
from  300  million  to  100  million. All applicable references to the number of
shares  of  common stock and per share information, stock option data and market
prices  have  been  restated  to  reflect this reverse stock split. High and low
quotations  listed below are actual closing sales prices as quoted on the Nasdaq
National  Market:

           COMMON STOCK                            PRICE RANGE OF COMMON STOCK
           ------------                            ----------------------------
                                                     HIGH               LOW
                                                   --------           --------
           2001
           First Quarter                           $  7.59            $  3.84
           Second Quarter                             7.53               2.73
           Third Quarter                              3.18               0.99
           Fourth Quarter                             1.56               1.02
           2002
           First Quarter                           $  1.92            $  1.11
           Second Quarter                            12.39               1.32
           Third Quarter                             11.91               6.15
           Fourth Quarter                             9.18               5.43
           2003
           First Quarter (through March 26, 2003)  $  7.34            $  3.52

     As  of  March  26,  2003,  there  were approximately 910  record holders of
Common  Stock.

     The  Company  has  never declared or paid any cash dividends on its capital
stock.  The  Company  currently  intends  generally to retain future earnings to
finance  the  growth  and  development  of its business and, therefore, does not
anticipate  paying cash dividends in the foreseeable future. In addition, the 8%
Secured  Convertible Notes prohibit the Company from paying any dividends on its
capital  stock.

COMPENSATION  PLANS  AND  SECURITIES

      The following table sets forth certain information as of December 31, 2002
with  respect to compensation plans under which equity securities of the Company
are  authorized  for  issuance:

<TABLE>
<CAPTION>
                                                                             NUMBER OF SECURITIES
                            NUMBER OF SECURITIES TO     WEIGHTED-AVERAGE      REMAINING AVAILABLE
                            BE ISSUED UPON EXERCISE     EXERCISE PRICE OF     FOR FUTURE ISSUANCE
                            OF OUTSTANDING OPTIONS,    OUTSTANDING OPTIONS,      UNDER EQUITY
PLAN CATEGORY                 WARRANTS AND RIGHTS      WARRANTS AND RIGHTS   COMPENSATION PLANS (1)
-------------------------   -----------------------    -------------------   ----------------------
<S>                                 <C>                        <C>                    <C>
Equity compensation
   plans approved by
   security holders               2,141,758                 $  5.50                  126,097
Equity compensation
   plans not approved
   by security holders (2)        2,043,942                 $  8.25                  774,188(1)
                            -----------------------    -------------------   ----------------------
Total                             4,185,700                 $  6.84                  900,285
</TABLE>

(1)     Under  all  plans,  if  any  shares  subject  to  a  previous  award are
forfeited, or if any award is terminated without issuance of shares or satisfied
with  other  consideration,  the  shares  subject  to  such award shall again be
available  for  future  grants.

(2)     The shares  are primarily under the Company's 2001 Non-Officer Long Term
Incentive  Plan pursuant to which up to 1,666,666 shares of the Company's common
stock  may be issued to employees of the Company in the form of options, rights,
restricted  stock  and incentive shares. The shares also include shares issuable
on exercise of certain options granted in connection with the initial employment
of executive officers and without shareholder approval as permitted by the rules
of  Nasdaq. To the extent permitted by the rules of Nasdaq, there may be further
grants  of  securities by option or otherwise without shareholder approval, both
to  non-executive  employees  and  in  connection with the initial employment of
executive  officers.

                                       15
<PAGE>

ITEM  6.     SELECTED  CONSOLIDATED  FINANCIAL  DATA

     The  selected  consolidated  financial  data  should be read in conjunction
with,  and  are  qualified  in  their  entirety by, "Management's Discussion and
Analysis  of  Financial  Condition  and Results of Operations" and the Company's
Consolidated  Financial  Statements  included  elsewhere  in  this  Form  10-K.

<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------------
                                                          2002         2001           2000        1999         1998
                                                        ---------    ---------     ---------    ---------    ---------
<S>                                                        <C>          <C>           <C>          <C>          <C>
                                                                (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Sales                                                   $ 317,507    $ 488,158     $ 525,712    $ 516,548    $ 448,600
Costs and expenses:
   Network and line costs                                 155,567      235,153       292,931      289,029      321,215
   General and administrative expenses                     53,510       82,202        65,360       39,954       39,393
   Provision for doubtful accounts                          9,365       92,778        53,772       28,250       37,789
   Sales and marketing expenses                            27,148       73,973       152,028       96,264      210,552
   Depreciation and amortization                           17,318       34,390        19,257        6,214        5,499
   Impairment and restructuring charges                        --      170,571            --           --           --
   Significant other charges (income)                          --           --            --       (2,718)      91,025
                                                        ---------    ---------     ---------    ---------    ---------
       Total costs and expenses                           262,908      689,067       583,348      456,993      705,473
                                                        ---------    ---------     ---------    ---------    ---------
Operating income (loss)                                    54,599     (200,909)      (57,636)      59,555     (256,873)
Other income (expense):
   Interest income                                            802        1,220         4,859        3,875       38,876
   Interest expense                                        (9,087)      (6,091)       (5,297)      (4,616)     (29,184)
   Other, net                                                (892)      (2,698)       (3,822)      (1,115)     (20,867)
                                                        ---------    ---------     ---------    ---------    ---------
Income (loss) before provision for income
   taxes                                                   45,422     (208,478)      (61,896)      57,699     (268,048)
Provision (benefit) for income taxes (1)                  (22,300)          --            --           --       40,388
                                                        ---------    ---------     ---------    ---------    ---------
Income (loss) before extraordinary gains and
   cumulative effect of an accounting change               67,722     (208,478)      (61,896)      57,699     (308,436)
Extraordinary gains                                        29,340       20,648            --       21,230       87,110
Cumulative effect of an accounting change                      --      (36,837)           --           --           --
                                                        ---------    ---------     ---------    ---------    ---------
Net income (loss)                                       $  97,062    $(224,667)    $ (61,896)   $  78,929    $(221,326)
                                                        =========    =========     =========    =========    =========

Income (loss) per share - Basic:
   Income (loss) before extraordinary gains and
     cumulative effect of an accounting change per
     share                                              $    2.48    $   (7.89)    $   (2.63)   $    2.83    $  (15.61)
   Extraordinary gains per share                             1.08         0.78            --         1.04         4.41
   Cumulative effect of an accounting change per
     share                                                     --        (1.40)           --           --           --
                                                        ---------    ---------     ---------    ---------    ---------
   Net income (loss) per share                          $    3.56    $   (8.51)    $   (2.63)   $    3.87    $  (11.20)
                                                        =========    =========     =========    =========    =========
   Weighted average common shares outstanding              27,253       26,414        23,509       20,395       19,761
                                                        =========    =========     =========    =========    =========

Income (loss) per share - Diluted:
   Income (loss) before extraordinary gains and
     cumulative effect of an accounting change per
     share                                              $    2.20    $   (7.89)    $   (2.63)   $    2.69    $  (15.61)
   Extraordinary gains per share                             0.95         0.78            --         0.99         4.41
   Cumulative effect of an accounting change per
     share                                                     --        (1.40)           --           --           --
                                                        ---------    ---------     ---------    ---------    ---------
   Net income (loss) per share                          $    3.15    $   (8.51)    $   (2.63)   $    3.68    $  (11.20)
                                                        =========    =========     =========    =========    =========
   Weighted average common and common
     equivalent shares outstanding                         30,798       26,414        23,509       21,471       19,761
                                                        =========    =========     =========    =========    =========
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>

                                                                   AT DECEMBER 31,
                                          --------------------------------------------------------------
                                             2002        2001          2000         1999         1998
                                          ---------    ---------     ---------    ---------    ---------
<S>                                          <C>          <C>           <C>          <C>          <C>
                                                                   (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
   Cash and cash equivalents               $ 33,588     $ 22,100      $ 40,604     $ 78,937     $  3,063
   Total current assets                      81,261       50,698        97,203      150,893      149,769
   Goodwill and intangibles, net (4)         26,882       29,672       218,639        1,068        1,150
   Total assets                             187,511      165,221       407,749      215,008      272,560
   Current portion of long-term debt (3)         61       14,454         2,822           --       49,621
   Total current liabilities                 63,190       87,273       100,271       71,168      136,708
   Contingent obligations                        --           --       114,630      114,630           --
   Long-term debt (2)(3)                    100,855      152,370       103,695       84,985      242,387
   Stockholders' equity (deficit)            23,466      (74,422)       82,700      (69,375)    (136,785)
-----------------------------------------
</TABLE>

(1)  The provision for income taxes in 1998 represents a valuation allowance for
     deferred tax assets recorded in prior periods and current tax benefits that
     may  result  from  the  1998  loss.  The  Company  provided  the  valuation
     allowances  in  view  of  the  loss  incurred  in  1998,  the uncertainties
     resulting  from  intense  competition in the telecommunication industry and
     the  lack of any assurance that the Company would realize any tax benefits.
     The  Company  has  continued  to  provide a valuation allowance against its
     deferred  tax  assets at December 31, 2001, 2000 and 1999. In 2002, as part
     of  the Company's 2003 budgeting process, management evaluated the deferred
     tax  valuation  allowance  and  determined that a portion of this valuation
     allowance  should  be reversed, resulting in a non-cash deferred income tax
     benefit  of  $22.3  million.

(2)  Long-term  debt  at  December  31,  2001  included  $31.0 million of future
     accrued  interest  in  connection  with the 8% Secured Convertible Notes in
     accordance  with  SFAS  No.  15,  "Accounting  by Debtors and Creditors for
     Troubled  Debt  Restructuring."  In  2002, the 8% Secured Convertible Notes
     were  restructured,  resulting  in  the  elimination  of the future accrued
     interest  in connection therewith. As a result of the 2002 restructuring of
     the  Company's  8%  Secured  Convertible  Notes in 2002 and retirement of a
     portion  of such notes, the Company recorded an extraordinary gain of $28.9
     million.

(3)  The Company restructured substantially all of the 4-1/2% and 5% Convertible
     Subordinated  Notes in April 2002; accordingly, $57.9 million of the 4-1/2%
     Convertible  Subordinated  Notes  are  classified  as  long-term debt as of
     December  31,  2001.

(4)  In  2001,  the  Company  recorded  an  impairment  charge of $168.7 million
     primarily  related  to  the  write-down  of  goodwill  associated  with the
     acquisition  of  Access  One.


ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     The  following  discussion  should  be  read  in  conjunction  with  the
Consolidated Financial Statements included elsewhere in this Form 10-K.  Certain
of the statements contained herein may be considered forward-looking statements.
Such  statements  are identified by the use of forward-looking words or phrases,
including,  but  not  limited  to,  "estimates,"  "expects,"  "expected,"
"anticipates"  and "anticipated."  These forward-looking statements are based on
the  Company's  current  expectations.  Although  the  Company believes that the
expectations  reflected in such forward-looking statements are reasonable, there
can  be  no  assurance  that  such expectations will prove to have been correct.

     Forward-looking  statements  involve  risks  and  uncertainties  and  the
Company's  actual  results  could  differ  materially  from  the  Company's
expectations.  In  addition to those factors discussed in this Form 10-K and the
Company's  other  filings with the Securities and Exchange Commission, important
factors that could cause such actual results to differ materially include, among
others,  dependence  on the availability and functionality of RBOCs' networks as
they  relate  to  the  unbundled  network  element  platform,  increased  price
competition  for  long  distance and local services, failure of the marketing of

                                       17
<PAGE>

the  bundle of local and long distance services and long distance services under
its  agreements  with  its  direct  marketing channels and its various marketing
partners,  failure  to manage the nonpayment of amounts due the Company from its
customers  from  bundled  and long distance services, attrition in the number of
end  users,  failure  or  difficulties  in  managing  the  Company's operations,
including  attracting  and retaining qualified personnel, failure of the Company
to  be able to expand its active offering of local bundled services in a greater
number  of states, failure to provide timely and accurate billing information to
customers,  failure  of  the Company to manage its collection management systems
and  credit  controls  for  customers, interruption in the Company's network and
information  systems,  failure  of  the  Company  to  provide  adequate customer
service,  and  changes  in  government policy, regulation and enforcement and/or
adverse  judicial  or  administrative  interpretations  and  rulings relating to
regulations  and  enforcement,  including,  but  not  limited  to, the continued
availability  of  unbundled  network  element  platform  of  the  local exchange
carriers  network.

OVERVIEW

     The  Company provides local and long distance telecommunication services to
residential  and  small business customers in the United States. The Company has
developed  integrated  order  processing,  provisioning,  billing,  payment,
collection,  customer service and information systems that enable the Company to
offer  and  deliver  high-quality  service, savings through competitively priced
telecommunication  products,  and  simplicity  through  consolidated billing and
responsive  customer  service.

     The Company offers both local and long distance telecommunication services,
primarily  the  bundled  service  offering  of  local  and  long  distance voice
services,  which  are  billed to customers in one combined invoice.  Local phone
services  include local dial tone, various local calling plans that include free
member-to-member  calling,  and  a  variety  of  features  such  as  caller
identification,  call  waiting  and  three-way  calling.  Long  distance  phone
services  include traditional 1+ long distance, international and calling cards.
The  Company  uses  the  unbundled  network  element  platform  ("UNE-P") of the
regional  bell  operating  companies ("RBOCs") network to provide local services
and  the  Company's  nationwide  network to provide long distance services.  The
Federal  Communications  Commission ("FCC") has recently concluded its triennial
review  of  local  phone competition.  Although the text of the order is not yet
available,  the  decision appears to preserve the Company's ability to use UNE-P
for  the  provision  of  bundled  telecommunications  services  pending  further
market-by-market  analyses  by  the  respective  state  commissions.

     By  the  end  of  1999, the Company decided to expand beyond its historical
long  distance  business  and  utilize  UNE-P  to  enter  the  large  local
telecommunications  market  and  diversify  its  product  portfolio  through the
bundling  of  local  service  with  its core long distance service offerings. In
connection  therewith,  the  Company  acquired  Access  One Communications Corp.
("Access One") in August 2000. Access One was a private, local telecommunication
services  provider to nine states in the southeastern United States. The Company
encountered a number of operational and business difficulties during the rollout
of  the Company's bundled service offering and worked to address the operational
issues  that  it  encountered.  The  Company  focused  on  improving the overall
efficiency of the bundled business model in 2001. During 2002, the Company's top
operating  priorities  were to lower bad debt expense, reduce customer turnover,
or "churn," and lower its customer acquisition costs. During 2003, the Company's
primary  focus will be to increase sales of its local bundled service within the
targets  established  by management for acquisition costs, customer turnover and
bad  debt  expense.

     The  Company  continues  to  manage its business to generate free cash flow
(defined  as  net  cash  provided  by operating activities less net cash used in
investing  activities) and has built a scaleable platform to provision, bill and
service  bundled customers.  The Company continues to focus on delivering better
service  and  value  to customers. During 2002, the Company expanded its product
offerings  to  appeal to a broader customer base based upon calling patterns and
feature  preferences.  Although  the  Company is now operational with respect to
its  local  service offering in 26 states, the Company has limited the marketing
of  its bundled services to those states, or certain areas of a state, where the
Company  believes  it  can  currently offer services to customers at competitive
prices.  The  Company  will  market  to additional states (or certain areas of a
particular state)  as the Company believes its pricing and cost structure permit
it  to profitably offer services in those areas at competitive rates.  While the
Company  has  actively  marketed  the  bundled product in a number of states, at
present,  a  majority  of  the  Company's bundled customers are inMichigan.  The
Company  continually  reviews  its  product  offerings,  pricing  and  sales and
marketing  programs  in  an  effort  to  improve the efficiency of its sales and
marketing  channels.

                                       18
<PAGE>

     During  2002, the Company completed a significant restructuring of its debt
obligations, including (1) an exchange offer that effectively extended the final
maturity  on substantially all of the Company's public debt obligations to 2007;
(2)  the  retirement  of  the  Company's senior credit facility of $13.8 million
prior  to  its  scheduled  maturity; (3) open market repurchases of $5.7 million
principal  amount  of  the  Company's  12%  Senior  Subordinated  Notes; (4) the
repurchase  of  $5.4  million  principal  amount  of  the  Company's  8% Secured
Convertible  Notes;  and  (5)  the  restructuring  of the 8% Secured Convertible
Notes.  In  2003,  through  March  28, the Company has (i) repurchased a further
$9.4  million  principal  amount  of  its 12% Senior Subordinated Notes and $3.6
million principal amount of its 8% Secured Convertible Notes, and (ii) purchased
approximately  1.3  million shares of its common stock for an aggregate purchase
price  of  $5  million.


RESULTS  OF  OPERATIONS

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

<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31,
                                                       --------------------------------------
                                                         2002           2001           2000
                                                       --------       --------       --------
<S>                                                      <C>            <C>             <C>
   Sales                                                100.0%         100.0%          100.0%
   Costs and expenses:
      Network and line costs                             49.0           48.2            55.7
      General and administrative expenses                16.8           16.8            12.5
      Provision for doubtful accounts                     2.9           19.0            10.2
      Sales and marketing expenses                        8.6           15.2            28.9
      Depreciation and amortization                       5.5            7.0             3.7
      Impairment and restructuring charges                 --           35.0              --
                                                       --------       --------       --------
         Total costs and expenses                        82.8          141.2           111.0
                                                       --------       --------       --------
   Operating income (loss)                               17.2          (41.2)          (11.0)
   Other income (expense):
      Interest income                                     0.3            0.3             0.9
      Interest expense                                   (2.9)          (1.2)           (1.0)
      Other, net                                         (0.3)          (0.6)           (0.7)
                                                       --------       --------       --------
   Income (loss) before income taxes                     14.3          (42.7)          (11.8)
   Provision (benefit) for income taxes                  (7.0)            --             --
                                                       --------       --------       --------
   Income (loss) before extraordinary gains and
      cumulative effect of an accounting change          21.3          (42.7)          (11.8)
   Extraordinary gains                                    9.3            4.2             --
   Cumulative effect of an accounting change               --           (7.5)            --
                                                       --------       --------       --------
   Net income (loss)                                     30.6%         (46.0)%         (11.8)%
                                                       ========       ========       ========
</TABLE>


     YEAR  ENDED  DECEMBER  31,  2002  COMPARED  TO YEAR ENDED DECEMBER 31, 2001

     Sales.  Sales  decreased  by  35.0%  to  $317.5 million in 2002 from $488.2
million  in  2001. The decrease in sales for 2002 compared to 2001 is due to (i)
lower long distance sales resulting from the Company's continued focus, begun in
2000,  on its efforts in the local telecommunication services market by offering
local  telecommunication  services  bundled  with  long  distance  services  and
significantly  reduced sales and marketing related to the long distance product,
and (ii) lower bundled sales resulting primarily from lower average revenues per
line  in 2002 as the Company lowered product prices to provide more value to the
consumer.

                                       19
<PAGE>

     The  Company's  bundled  sales  for  the  year ended December 31, 2002 were
$171.2  million  as  compared  to $196.5 million for the year ended December 31,
2001.  The  decreases in sales was due to lower average revenue per bundled line
in  2002  as compared to 2001. Such decrease resulted from the Company's ongoing
strategy  to  market lower priced products to be more competitive with incumbent
and  other  competitive  local  exchange  carriers.  In  2002,  bundled revenues
increased  sequentially from $35.5 million in the first quarter to $51.8 million
in  the  fourth  quarter.  The  2002  quarterly sequential growth reflected both
growth  in  bundled  lines  and reductions in customer turnover. The Company had
approximately  333,000  bundled  lines  as  of  December  31, 2002 compared with
approximately  179,000 bundled lines at December 31, 2001. Approximately 203,000
of the bundled lines at December 31, 2002 were in Michigan. Bundled revenues for
the  quarter  ending  March  31, 2003 and the year ended 2003 are expected to be
between  $57  and  $60  million and $270 and $280 million, respectively. Bundled
lines  for  the quarter ended March 31, 2003 and for the year ended December 31,
2003  are  expected  to  be between 380,000 and 390,000 and 525,000 and 545,000,
respectively.  Longer-term  growth  in  revenues  will  depend  upon  continued
operating  efficiencies,  lower  customer  turnover and the Company's ability to
develop  and  scale  various  marketing  programs in additional states or areas.

     The  Company's long distance sales decreased to $146.3 million in 2002 from
$291.7  million  in  2001.  In  2001,  a significant percentage of the Company's
revenues  from  long  distance telecommunication services derived from customers
who  were  obtained under the AOL marketing agreement. The Company's decision to
focus  on  the  bundled  product  and  the  discontinuation of the AOL marketing
relationship  effective  September  30,  2001,  together with customer turnover,
contributed to the decline in long distance customers and revenues. This decline
in  long  distance customers and revenues is expected to continue so long as the
Company  continues  to  focus its marketing efforts on the bundled product. Long
distance  revenues  in  2002 and 2001 included non-cash amortization of deferred
revenue  of  $6.2  million  and  $7.4  million,  respectively,  related  to  a
telecommunications  service  agreement  entered  into in 1997.  Deferred revenue
relating  to  this  agreement  has  been amortized over a five-year period.  The
agreement  and  related  amortization terminated in October 2002.  Long distance
revenues  for  the  quarter  ended  March  31, 2003, and the year ended 2003 are
expected  to  be  between  $24  and  $27  million  and  $80  and  $90  million,
respectively.

     Recently,  the  Company  has  selectively  increased certain fees and rates
related  to its long distance and bundled products and such changes in rates and
bill  presentation  may  adversely  impact  customer  turnover.

     Network and Line Costs. Network and line costs decreased by 33.8% to $155.6
million  for  the  year ended December 31, 2002 from $235.2 million for the year
ended  December  31,  2001. The decrease in network and line costs was primarily
due to the lower numbers of local and long distance customers and a reduction in
access  and  usage rates. Network and line costs for the year ended December 31,
2002  benefited  from  a  credit  of  $1.7 million in connection with a New York
Public Service Commission mandated refund from Verizon New York of certain UNE-P
switching costs. Network and line costs also benefited from favorable resolution
of  certain disputes with vendors. The Company's policy is not to record credits
from  such  disputes  until  received.

     As a percentage of sales, network and line costs increased to 49.0% for the
year  ended  December 31, 2002, as compared to 48.2% for the year ended December
31,  2001.  The growth of local bundled service as a percentage of total revenue
and product mix has contributed to the increase in overall network and line cost
as  a percentage of revenues. Bundled network and lines costs as a percentage of
bundled  revenues were 56.1% in 2002 as compared to 54.8% in 2001. Excluding the
benefit  of  the  Verizon  New  York  credit  and other dispute resolutions, the
network  and  line  costs as a percentage of sales for the bundled product would
have been approximately 59% in 2002. Long distance network and line costs as a
percentage  of long distance revenues were 40.6% in 2002 as compared to 43.7% in
2001. Excluding amortization of deferred revenue related to a telecommunications
service  agreement,  which  expired  in  October  2002,  and  various  dispute
resolutions,  network  and  line  costs as a percentage of long distance revenue
would  have  been  approximately  44%  in  2002.

     There  are  several  factors  that  could cause network and line costs as a
percentage  of sales to increase in the future, including (i) adverse changes to
the  current  rules  and  regulations  or  adverse  judicial  and administrative
interpretations  and  rulings relating to the FCC's recently concluded triennial
review  of  local phone competition and the pending market-by-market analyses by
the respective state commissions, (ii) greater absorption of fixed network costs
as the Company's long distance customer base declines, and (iii) certain minimum
network  service  commitments  relating  to the Company's long distance network.
See  "Liquidity  and  Capital  Resources,  Other  Matters."

     General  and  Administrative  Expenses. General and administrative expenses
decreased  by  34.9%  to $53.5 million for the year ended December 31, 2002 from
$82.2  million  for  the  year  ended December 31, 2001. The overall decrease in
general  and  administrative expenses was due primarily to significant workforce
reductions  and  other  cost  cutting  efforts  by  the  Company  as  it pursued
improvements  in operating efficiencies of the Company's bundled business model.
Included  in general and administrative expenses for the year ended December 31,

                                       20
<PAGE>

2002  was  a  non-cash  credit  of  $1.7  million  related  to a favorable legal
settlement  of  a  dispute  that  had  previously been reflected as a liability,
partially  offset  by an increase in legal reserves of $0.5 million. General and
administrative  expenses  as  a percentage of sales were 16.8% for both 2002 and
2001.  While  the  Company  expects  general  and  administrative  expense  as a
percentage  of  sales to decline as the customer base grows, realization of such
efficiencies  will  be  dependent  on  the  ability of management to continue to
control personnel costs in areas such as customer service and collections. There
can  be  no  assurances  that  the  Company  will  be  able  to  realize  these
efficiencies.

     Provision  for Doubtful Accounts. Provision for doubtful accounts decreased
by 89.9% to $9.4 million for the year ended December 31, 2002 from $92.8 million
for the year ended December 31, 2001 and, as a percentage of sales, decreased to
2.9%  as compared to 19.0% for the year ended December 31, 2001. The Company had
taken  several  steps during the third and fourth quarters of 2001 to reduce bad
debt  expense,  improve  the  overall  credit  quality  of its customer base and
improve  its  collections  of  past  due  amounts. The benefits of the Company's
actions to reduce bad debt expense and improve the overall credit quality of its
customer  base  are  reflected  in the lower bad debt expense for the year ended
December  31,  2002.  Further,  the provision for doubtful accounts for the year
ended  December  31,  2002 reflects a benefit from a reversal of the reserve for
doubtful  accounts  of  $1.9  million  due  to  better than expected collections
experience  on outstanding accounts receivable at year-end 2001.   Adjusting for
the reversal, the provision for doubtful accounts as a percentage of sales would
have  been  3.5%  for  2002.  In general,  the Company  believes that  bad  debt
expense  as  a  percentage  of sales of the Company's long distance customers is
lower  than  that  of  its  bundled  customers because of the relatively greater
maturity  of  the  long  distance  customer  base.

     Sales  and Marketing Expenses. During the year ended December 31, 2002, the
Company  incurred  $27.1  million of sales and marketing expenses as compared to
$74.0  million for the year ended December 31, 2001, a 63.3% decrease, and, as a
percentage  of sales, a decrease to 8.6% as compared to 15.2% for the year ended
December  31,  2001.  Included  in  sales and marketing expenses are advertising
expenses  of $1.5 million for 2002 and $0.2 million for 2001, respectively.  The
decrease in sales and marketing costs from 2002 as compared to 2001 is primarily
attributable  to  the  reduction  in  marketing  fees  paid  to  AOL  due to the
termination of the marketing relationship with AOL effective September 30, 2001.
Sales  and  marketing expenses declined further due to the Company's decision to
slow  growth  as  it  pursued its plan in 2002  to improve the efficiency of the
Company's bundled business model.  Currently, substantially all of the sales and
marketing  expenses relate to the bundled product.  Sales and marketing expenses
are  expected  to  increase in 2003 as the Company continues to target growth in
the  bundled  product  and  invest in the development of its marketing programs.

     Depreciation  and  Amortization. Depreciation and amortization for the year
ended  December  31,  2002  was  $17.3  million,  a decrease of $17.1 million as
compared  to  $34.4  million  for  the  year  ended December 31, 2001, and, as a
percentage  of  sales,  decreased to 5.5% as compared to 7.0% for the year ended
December  31,  2001.  The Company's amortization expense decreased significantly
for  the year ended December 31, 2002 due to the write-down in the third quarter
of 2001 of goodwill associated with the acquisition of Access One. Additionally,
the  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 142,
"Goodwill  and  Other  Intangible  Assets,"  which  established  the  impairment
approach  rather  than  amortization  for  goodwill,  resulting  in  reduced
amortization  in  2002  (see  Note  1  of  the  Notes  to Consolidated Financial
Statements).

     Impairment  and  Restructuring Charges. The Company incurred impairment and
restructuring charges of $170.6 million in 2001. Included in the amount for 2001
was  an  impairment charge of $168.7 million primarily related to the write-down
of  goodwill  associated  with the acquisition of Access One. In September 2001,
the  Company  approved  a  plan  to close one of its call center operations. The
Company incurred expenses of $1.9 million during 2001 to reflect the elimination
of  approximately 225 positions and lease exit costs in connection with the call
center  closure.  There were no impairment or restructuring charges in 2002 (see
Note  4  of  the  Notes  to  Consolidated  Financial  Statements).

     Interest  Income.  Interest  income  was  $0.8  million in 2002 versus $1.2
million  in 2001.  Interest income in 2002 was lower due to lower interest rates
as  compared  to  2001.

     Interest  Expense. Interest expense was $9.1 million in 2002 as compared to
$6.1  million  in  2001.  The  increase in interest expense is attributed to the
higher  yielding  debt  instruments  delivered  in the exchange of the Company's
4-1/2%  and  5%  Convertible  Subordinated  Notes  for  8%  Convertible  Senior

                                       21
<PAGE>

Subordinated  Notes  and  12% Senior Subordinated Notes and the restructuring of
the  Company's  senior  credit facility (see Note 7 of the Notes to Consolidated
Financial  Statements  and  "Liquidity  and Capital Resources"). As described in
Note  2  of the Notes to Consolidated Financial Statements, the issuance in 2001
of  the  8%  Secured Convertible Notes was initially accounted for as a troubled
debt  restructuring. As such, the aggregate interest expense for these notes was
recorded  as  a  liability  at  such  time  and  the subsequent interest expense
associated  with these notes of $2.7 million and $0.8 million for 2002 and 2001,
respectively,  were  not  reflected  in  the  statement  of operations. With the
restructuring  of  the  Company's 8% Secured Convertible Notes in December 2002,
these  notes  will  not  be  accounted for as a troubled debt restructuring and,
accordingly,  interest  expense  will  now  be  reflected  on  the  statement of
operations. Interest expense is expected to increase in 2003 as compared to 2002
primarily  due  to  interest  expense  on the 8% Secured Convertible Notes being
reflected  in the statement of operations and a full year of interest expense on
the  8% Convertible Senior Subordinated Notes and 12% Senior Subordinated Notes,
partially offset by the early retirement of the Company's senior credit facility
and  the  Company's  repurchase  of 12% Senior Subordinated Notes and 8% Secured
Convertible  Notes  in  2002  and  2003.

     Other,  Net.  Net  other  expenses were $0.8 million in 2002 as compared to
$2.7  million in 2001. The amount for the year ended December 31, 2001 primarily
consisted of a $2.4 million unrealized loss on the increase in fair value of the
AOL  contingent  redemptions  in  accordance  with  the  fair  value  accounting
treatment  under  EITF Abstract No. 00-19. This amount did not recur, as the AOL
contingent  redemptions  had  been  restructured  effective  September  2001.

     Provision  for  Income Taxes.  In 2001, a full valuation allowance had been
provided  against  the  Company's  net  operating  loss  carryforwards and other
deferred  tax  assets  since  the  amounts  and  extent  of the Company's future
earnings  were  not  determinable  with  a  sufficient  degree of probability to
recognize  the  deferred  tax  assets  in  accordance  with  the requirements of
Statement  of  Financial  Accounting  Standards  No. 109, "Accounting for Income
Taxes."  The fourth quarter of 2002 represented the fifth consecutive quarter of
profitability  for  the  Company.  In the fourth quarter of 2002, as part of the
Company's  2003  budgeting  process,  management  evaluated  the  deferred  tax
valuation  allowance  and  determined that a portion of this valuation allowance
should  be  reversed, resulting in a non-cash deferred income tax benefit in the
fourth  quarter  of  $22.3  million.  Beginning in 2003, the Company will record
income  taxes  at  a  rate  equal  to  the  Company's combined federal and state
effective  rates.  However,  to  the  extent  of  available  net  operating loss
carryforwards,  the  Company  will be shielded from paying cash income taxes for
several  years,  other  than  possibly  alternative minimum taxes and some state
taxes.   There  can  be  no  assurances  that  the Company will realize the full
benefit  of  the  net  operating  loss  carryforwards  on  future taxable income
generated  by  the  Company  due  to the "change of ownership" provisions of the
Internal  Revenue  Code Section 382 (see "Liquidity and Capital Resources, Other
Matters").

     Extraordinary  Gains.  The  Company  incurred  extraordinary gains of $29.3
million in 2002 as compared to $20.6 million in 2001. The extraordinary gains in
2002  include  $28.9 million attributed to the restructuring and repurchase of a
portion  of  the 8% Secured Convertible Notes and $1.6 million attributed to the
repurchase  of  a  portion  of  the  Company's  12%  Senior  Subordinated Notes,
partially  offset  by  an  extraordinary  loss  of  $1.1  million related to the
retirement  of  the  Company's senior credit facility. On December 23, 2002, the
Company  restructured  its  8% Secured Convertible Notes and, accordingly, these
notes  will  no  longer  be  accounted for as a troubled debt restructuring. The
$28.9  million extraordinary gain from the restructuring and repurchase of these
notes  was  related  to  the  decrease  in  future  accrued  interest, which was
reflected  as  a  $28.9 million reduction in long-term debt. On October 4, 2002,
the  Company retired its senior credit facility prior to its scheduled maturity.
As a result of this early retirement, the Company incurred an extraordinary loss
of  approximately  $1.1  million  in  the fourth quarter of 2002, reflecting the
acceleration  of  the amortization of certain deferred finance charges and fees.
In addition, the Company repurchased $5.7 million of its 12% Senior Subordinated
Notes at a $1.6 million discount from the face amount, which was reflected as an
extraordinary  gain  in  the  fourth quarter of 2002. The extraordinary gains in
2001  of  $20.6 million include a $16.9 million gain on the restructuring of the
AOL  contingent  redemptions  in  accordance  with  SFAS  No. 15, "Accounting by
Debtors  and  Creditors  for  Troubled  Debt Restructurings," (see Note 2 of the
Notes  of  the  Consolidated  Financial  Statements).  In  addition, the Company
reacquired $5.0 million of the 4-1/2% Convertible Subordinated Notes due 2002 at
a  $3.8  million  discount  from  the  face  amount,  which  was reflected as an
extraordinary  gain  in  the  fourth  quarter  of  2001.


                                       22
<PAGE>

     Cumulative  Effect  of  an Accounting Change.  The Company adopted Emerging
Issues  Task  Force  (EITF)  Abstract  No.  00-19,  "Accounting  for  Derivative
Financial  Instruments  Indexed  to, and Potentially Settled in, a Company's Own
Stock,"  in  the  quarter  ended  June  30,  2001.  The cumulative effect of the
adoption of this change in accounting principle resulted in a non-cash charge to
operations  of  $36.8  million  in  the second quarter of 2001, representing the
change  in  fair  value of contingent redemption features of warrants and Common
Stock  held  by  AOL from issuance on January 5, 1999 through June 30, 2001. The
requirements  under  EITF 00-19 will not apply to future changes in the value of
these  instruments,  as  the  AOL  contingent redemptions have been restructured
effective  September  2001.

     Net Income (Loss). Net income for the year ended 2002 was $97.1 million, or
$3.15  per  share, compared with a net loss of $224.7 million, or $8.51 loss per
share,  for the year ended 2001. The net income for the year ended 2002 reflects
extraordinary  gains of $28.9 million due to the restructuring and repurchase of
the  8%  Secured  Convertible  Notes,  $1.6  million  due to the repurchase of a
portion  of  the  Company's convertible bonds, and an extraordinary loss of $1.1
million  related  to  the retirement of the Company's senior credit facility. In
addition,  the  year  ended  2002  included $22.3 million from the reversal of a
portion  of the Company's deferred tax valuation allowance. The net loss for the
year ended 2001 reflects a non-cash impairment charge of $168.7 million to write
down  the goodwill associated with the acquisition of Access One Communications,
restructuring  charges  of  $1.9  million,  extraordinary gains of $16.9 million
related  to  restructuring  of the certain obligations with AOL and $3.8 million
associated  with  the  repurchase of a portion of its convertible bonds. The net
loss  for  the  year ended 2001 also reflects a non-cash charge to operations of
$36.8  million  in  connection  with  the adoption of Emerging Issues Task Force
(EITF)  Abstract  No.  00-19,  "Accounting  for Derivative Financial Instruments
Indexed  to,  and  Potentially  Settled  in,  a  Company's  Own  Stock."


     YEAR  ENDED  DECEMBER  31,  2001  COMPARED  TO YEAR ENDED DECEMBER 31, 2000

     Sales.  Sales  decreased  by  7.1%  to  $488.2  million in 2001 from $525.7
million  in  2000. The decrease in sales reflects lower long distance sales as a
result  of  (i) the Company's decision in 2000 to focus its efforts in the local
telecommunication  services  market by offering local telecommunication services
bundled  with  long  distance  services  and  significantly  reducing  sales and
marketing  related to the long distance product; (ii) the termination of the AOL
marketing  agreement  as  of September 30, 2001; (iii) the Company's election to
exit  the  international  wholesale  business in the second quarter of 2000; and
(iv) a decrease in Company's other sales. The decline in long distance sales was
partially  offset  by  an  increase  in  bundled  sales.

     Effective  January  1, 2002, the Company adopted Emerging Issues Task Force
(EITF) 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller  of  the  Vendor's  Products." The adoption of this issue resulted in a
reclassification  of approximately $7.3 million and $18.8 million from sales and
marketing  expenses to a reduction of net sales for 2001 and 2000, respectively,
attributed  to  direct  marketing  promotion  check  campaigns.

     The  Company's long distance sales decreased to $291.7 million for the year
ended  December  31,  2001  from  $482.5 million for the year ended December 31,
2000.  Included  in long distance revenues for 2000 were international wholesale
sales  of $29.7 million. The Company elected to exit the international wholesale
business  in  the second quarter of 2000 because of the low gross profit margins
associated  therewith;  consequently,  the Company had no international sales in
2001.  A significant percentage of the Company's revenues were derived from long
distance  telecommunication  services  provided  to  customers who were obtained
under  the  AOL  marketing agreement. Effective June 30, 2001, AOL exercised its
right  to  terminate the Company's long distance exclusivity under the marketing
agreement  and  continue  on  a  non-exclusive  basis,  which contributed to the
decline  in long-distance customers and revenues. The AOL marketing relationship
was  discontinued  effective  September  30,  2001.  Long distance revenues also
decreased  in 2001 due to customer turnover as the Company focused its marketing
efforts  on  the  bundled  product.

     The  Company's  bundled  sales  for  the  year ended December 31, 2001 were
$196.5  million  as  compared to $43.2 million for year ended December 31, 2000.
Bundled  sales  decreased, however, during the fourth quarter of 2001 after five
consecutive  quarters  of increases. The decrease in bundled sales in the fourth
quarter  reflects  the  Company's decision to slow growth in bundled sales while
the  Company  pursued its plans to improve efficiencies of the Company's bundled
business  model  and  improved  customer  collections.

                                       23
<PAGE>

     Network  and  Line  Costs.  Network  and  line  costs decreased by 19.7% to
$235.2  million  in  2001 from $292.9 million in 2000. The decrease in costs was
primarily  due  to  a  decrease  in  network  costs  as  a result of exiting the
international  wholesale  business, a lower number of long distance customers, a
reduction  in  access  and  usage rates and a reduction in primary interexchange
carrier  charges  ("PICC").  This  decrease  in  network  costs was offset by an
increase  in  costs  paid  to incumbent local telephone companies related to the
provision  of local telecommunications services in connection with the Company's
bundled  service.

     As  a  percentage  of  sales, network and line costs decreased to 48.2% for
2001  as compared to 55.7% for 2000. The decrease in network and line costs as a
percentage  of  sales  was primarily due to lower network, partition and billing
costs,  offset  by  increased costs associated with the local telecommunications
business.

     General  and  Administrative Expenses.  General and administrative expenses
increased  by 25.8% to $82.2 million in 2001 from $65.4 million in 2000, and, as
a  percentage  of  sales,  increased to 16.8% as compared to 12.5% for 2000. The
increase  in  general and administrative expenses was due primarily to increased
personnel  costs  associated  with  supporting the Company's growth in the local
services  business,  including  customer  service,  provisioning and collections
personnel.  This  overall  increase  in  general and administrative expenses was
offset,  in  part,  by  significant  workforce reductions and other cost cutting
efforts  by  the  Company  during  the  third  and fourth quarters of 2001 as it
pursued improvements in operating efficiencies of the Company's bundled business
model.

     Provision for Doubtful Accounts.  Provision for doubtful accounts increased
by  72.5%  to  $92.8  million  in  2001  from  $53.8  million in 2000, and, as a
percentage  of  sales,  increased  to  19.0%  as  compared  to 10.2% for 2000. A
significant  portion  of  the  bad  debt expense was incurred in connection with
bundled  service  customers  acquired  through marketing programs that have been
discontinued.  The  Company  has taken several steps to reduce bad debt expense,
improve  the  overall  credit  quality  of  its  customer  base and increase its
collections  of  past due amounts, including the following: (a) adoption of more
stringent  credit  controls  through the implementation of credit scoring of the
existing  customer  base  and  pre-screening  of new customers based on specific
levels  and  criteria; (b) implementation of a new collections management system
in  the  third  quarter  of 2001 that is integrated with the billing and payment
applications;  (c) improved in-house and third party collection efforts; and (d)
enhanced  credit  card  and  paper  invoicing  processes.

     Sales  and  Marketing  Expenses.  During  2001,  the Company incurred $74.0
million of sales and marketing expenses as compared to $152.0 million in 2000, a
51.3%  decrease,  and, as a percentage of sales, a decrease to 15.2% as compared
to  28.9%  for  2000.  Included  in sales and marketing expenses are advertising
expenses  of $0.2 million for 2001 and $1.8 million for 2000, respectively.  The
decrease in sales and marketing costs is primarily attributable to the reduction
in  marketing  fees  paid  to  AOL.  Several  events occurred during 2001 in the
relationship  between  the  Company  and  AOL, including (i) a change in the AOL
marketing  agreement from an exclusive to a non-exclusive basis on July 1, 2001,
(ii)  the cessation of the AOL rewards points program in the second half of 2000
and  (iii)  the  termination  of  the  marketing relationship with AOL effective
September  30,  2001.  The  decline  is  also  attributable  to decreased direct
promotional  and  advertising  campaigns, partially offset by expanded sales and
marketing  efforts  for the Company's bundled customer base. Sales and marketing
expenses  declined  further  in  the  second  half of 2001 as the Company slowed
growth  as  it pursued its plan to improve efficiencies of the Company's bundled
business  model.

     Depreciation  and Amortization.  Depreciation and amortization for 2001 was
$34.4  million, an increase of $15.1 million compared to $19.3 million for 2000,
and, as a percentage of sales, an increase to 7.0% as compared to 3.7% for 2000.
This  increase  is due primarily to a full year of depreciation and amortization
of  the  goodwill, intangibles and property from the Access One acquisition that
occurred  in  August 2000, as well as additional property and equipment that was
acquired  by the Company in 2001 and 2000. The excess of the purchase price over
the  fair  value  of  the  net assets acquired in the Access One acquisition was
approximately $225.9 million and was recorded as goodwill and intangible assets.
In  third  quarter  of 2001, the Company incurred an impairment charge of $168.7
million  resulting  in  decreased  amortization expense in the fourth quarter of
2001.

     Impairment  and Restructuring Charges.  The Company incurred impairment and
restructuring charges of $170.6 million in 2001. Included in the amount for 2001
was  an  impairment charge of $168.7 million primarily related to the write-down
of  goodwill  associated  with the acquisition of Access One. In September 2001,
the  Company  approved  a  plan  to close one of its call center operations. The

                                       24
<PAGE>

Company incurred expenses of $1.9 million during 2001 to reflect the elimination
of  approximately 225 positions and lease exit costs in connection with the call
center  closure.  There were no impairment or restructuring charges in 2000 (see
Note  4  to  the  Notes  of  the  Consolidated  Financial  Statements).

     Interest  Income.  Interest  income  was  $1.2  million in 2001 versus $4.9
million  in  2000.  Interest income in 2001 was lower due to the Company's lower
average  cash  balances  during  2001  as  compared  to  2000.

     Interest  Expense.  Interest  expense  was $6.1 million in 2001 versus $5.3
million  in  2000.  The  increase in interest expense is due to interest on debt
assumed with the acquisition of Access One and interest on additional borrowings
by  the  Company  in  the  second  half  of  2000.

     Other, Net.  Net other expense was $2.7 million in 2001 as compared to $3.8
million  in  2000.  The  amount  for  2001  primarily  represents a $2.4 million
unrealized  loss on the increase in fair value of the AOL contingent redemptions
in  accordance  with the fair value accounting treatment under EITF Abstract No.
00-19. This amount will not be recurring, as the AOL contingent redemptions have
been  restructured  effective  September  2001.  The  amount  for 2000 primarily
reflects  a  $2.5  million  increase in the reserve on a note receivable and AOL
investment  fees  of  $1.3  million.

     Provision  for  Income  Taxes.  The Company has not recorded any income tax
expense  or  benefit  in 2001 or 2000 because the Company incurred losses during
these  periods.  No  taxable income was available in prior periods against which
the Company could carry back losses. Also, at December 31, 2001 and 2000, a full
valuation allowance has been provided against the Company's net operating losses
and  other  deferred  tax  assets. Since the amounts and extent of the Company's
future earnings were not determinable with a sufficient degree of probability to
recognize  the  deferred  tax  assets  in  accordance  with  the requirements of
Statement  of  Financial  Accounting  Standards  No. 109, "Accounting for Income
Taxes",  the Company recorded a full valuation allowance on the net deferred tax
assets  for  2001  and  2000.

     Extraordinary  Gains.  The  Company incurred extraordinary gains in 2001 of
$20.6  million,  of  which $16.9 million represents the gain on restructuring of
the  AOL  contingent  redemptions in accordance with SFAS No. 15, "Accounting by
Debtors  and  Creditors  for  Troubled  Debt Restructurings," (see Note 2 of the
Notes  of  the  Consolidated  Financial  Statements).  In  addition, the Company
reacquired $5.0 million of the 4.5% Convertible Subordinated Notes due 2002 at a
$3.8  million  discount  from  the  face  amount,  which  was  reflected  as  an
extraordinary  gain  in  the  fourth  quarter  of  2001.

     Cumulative  Effect  of  an Accounting Change.  The Company adopted Emerging
Issues  Task  Force  (EITF)  Abstract  No.  00-19,  "Accounting  for  Derivative
Financial  Instruments  Indexed  to, and Potentially Settled in, a Company's Own
Stock,"  in  the  quarter  ended  June  30,  2001.  The cumulative effect of the
adoption of this change in accounting principle resulted in a non-cash charge to
operations  of  $36.8  million  in  the second quarter of 2001, representing the
change  in  fair  value of contingent redemption features of warrants and Common
Stock  held  by  AOL from issuance on January 5, 1999 through June 30, 2001. The
requirements  under  EITF 00-19 will not apply to future changes in the value of
these  instruments,  as  the  AOL  contingent redemptions have been restructured
effective  September  2001.

     Net  Loss.  Net  loss  for the year ended 2001 was $224.7 million, or $8.51
per  share, compared with a net loss of  $61.9 million, or $2.63 loss per share,
for  the  year  ended  2000.  The  net  loss  for the year ended 2001 reflects a
non-cash  impairment  charge  of  $168.7  million  to  write  down  the goodwill
associated  with the acquisition of Access One Communications, which was created
by  purchase  accounting,  restructuring  charges of $1.9 million, extraordinary
gains  of $16.9 million related to restructuring of the certain obligations with
AOL  and  $3.8  million  associated  with  the  repurchase  of  a portion of its
convertible bonds. The net loss for the year ended 2001 also reflects a non-cash
charge  to  operations  of  $36.8  million  in  connection  with the adoption of
Emerging Issues Task Force (EITF) Abstract No. 00-19, "Accounting for Derivative
Financial  Instruments  Indexed  to, and Potentially Settled in, a Company's Own
Stock."  The  net  loss for the year ended 2000 reflects international wholesale
sales  of  $29.7  million  and  associated  network  costs of $57.7 million. The
Company  elected  to  exit this business during 2000. The net loss for 2000 also
reflects  $78.0  million  of  sales  and  marketing  costs  attributable  to the
exclusive  marketing agreement between the company and AOL, which was terminated
during  2001.

                                       25
<PAGE>

LIQUIDITY  AND  CAPITAL  RESOURCES

     The  Company's  cash  requirements  arise  primarily from its subsidiaries'
operational  needs,  its subsidiaries' capital expenditures and the debt service
obligations  of  the Company.  Since Talk America Holdings, Inc. conducts all of
it  operations  through its subsidiaries, primarily Talk America Inc., it relies
on dividends, distributions and other payments from its subsidiaries to fund its
obligations.

     Contractual  obligations  of  the  Company  as  of  December  31,  2002 are
summarized  by  years  to  maturity  as  follows  (in  thousands):

<TABLE>
<CAPTION>

                                                   1 year or      2 - 3       4 - 5
Contractual Obligations (2)             Total         less        Years       Years      Thereafter
-------------------------------       ---------    ---------    ---------    ---------    ---------
<S>                                      <C>          <C>          <C>         <C>           <C>
Talk America Holdings, Inc.:
-------------------------------
  8% Secured Convertible Notes
    due 2006                          $  30,150    $     --     $     --     $  30,150    $      --
  12% Senior Subordinated Notes
    due 2007                             65,970          --           --        65,970           --
  8% Convertible Senior
    Subordinated Notes due 2007 (1)       4,038          --           --         4,038           --
  5% Convertible Subordinated
    Notes due 2004                          670          --          670            --           --

Talk America Inc. and other
subsidiaries:
-------------------------------
  Capital lease obligations                  27          27           --            --           --
                                      ---------    ---------    ---------    ---------    ---------
                                      $ 100,855    $     27     $    670     $ 100,158    $      --

Operating leases                          5,408       1,887        2,634           728          159
                                      ---------    ---------    ---------    ---------    ---------
Total Contractual Obligations         $ 106,263    $  1,914     $  3,304     $ 100,886    $     159
                                      =========    =========    =========    =========    =========
------------------
</TABLE>

(1)  The  8%  Convertible  Senior  Subordinated  Notes  include  $2.8 million of
principal  and  $1.2 million of future accrued interest (see Note 7 of the Notes
to  Consolidated  Financial  Statements).

(2)  Excluded  from  these  contractual  obligations are various network service
agreements  for  long  distance  services  that  contain  certain  minimum usage
commitments.  The  largest contract establishes pricing and provides for revenue
commitments  based  upon  usage of $52 million  for the 18 months ended February
2004  and  $40  million  for the  9 months ended December 2004.    This contract
obligates  the  Company  to pay 65 percent of the shortfall, if any.  A separate
contract  with  a  different  vendor establishes pricing and provides for annual
minimum  payments  for  the  years  ended  December  31, as follows: 2003 - $6.0
million and 2004 - $3.0 million.  While the Company anticipates that it will not
be  required to make any shortfall payments under these contracts as a result of
(1)  growth  in  network  minutes,  (2)  the  management of traffic flows on its
network,  (3)  the  restructuring of  these obligations,  and/or (4) the sale of
additional  minutes  of usage from the wholesale or other long distance markets;
there  can  be no assurances that the Company will be successful in its efforts.
In  addition,  these  actions  will  likely  cause  the Company to experience an
increase  in  per  minute  network  costs.

     The  Company  relies  on  internally  generated  funds  and  cash  and cash
equivalents  on hand to fund its capital and financing requirements. The Company
had  $33.6  million  of  cash  and cash equivalents as of December 31, 2002, and
$22.1  million  as  of  December  31,  2001.

     Net  cash  provided  by  operating  activities was $51.9 million in 2002 as
compared  to  net  cash used in operating activities of $5.6 million in 2001 and
$14.9 million in 2000.  In 2002, the major contributors to the net cash provided
by  operating  activities  were  the  net  income  of $97.1 million and non-cash
charges  of  $27.9  million,  primarily  consisting  of  provision  for doubtful
accounts  of  $9.4  million  and depreciation and amortization of $17.3 million.

                                       26
<PAGE>

These  amounts  were  offset  by  an  increase  in  accounts receivable of $10.6
million,  a  decrease  in  accounts  payable  and  accrued  expenses  and  other
liabilities  of  $9.9  million  and  non-cash  items of $53.3 million, primarily
consisting  of  an  extraordinary  gain  from  restructuring  and  redemption of
convertible  debt of $28.9 million and the deferred income tax valuation reserve
reversal of $22.3 million.  In 2001, the major contributors to the net cash used
in  operating  activities  were  the  net loss of $224.7 million, an increase in
accounts receivable of $65.8 million, a decrease in accounts payable and accrued
expenses and other liabilities of $22.3 million and non-cash extraordinary gains
of  $20.6  million.  These  amounts  were  offset  by non-cash charges of $335.3
million,  primarily  consisting  of  provision  for  doubtful  accounts of $92.8
million,  depreciation  and  amortization  of  $34.4  million,  impairment  and
restructuring  charges  of  $168.7  million  and  the  cumulative  effect  of an
accounting change for contingent redemptions of $36.8 million. For 2000, the net
cash  used in operating activities was mainly generated by the net loss of $61.9
million  and  an  increase  in accounts receivable of $43.4 million, offset by a
decrease  in  prepaid  expenses  and  other  current  assets of $8.1 million, an
increase  of accounts payable and accrued expenses and other liabilities of $8.6
million  and  adjustments  to  net  income  for non-cash items of $76.3 million.

     Net  cash  used  in  investing  activities  was  $7.3  million during 2002,
consisting of capitalized software development costs of $2.5 million and capital
expenditures  primarily for the purchase of equipment of $4.8 million.  Net cash
used  in  investing  activities of $4.5 million during 2001 related primarily to
the  purchase of property and equipment of $2.9 million and capitalized software
development  costs  of  $1.4  million.  For 2000, the net cash used in investing
activities  related  primarily  to  the  purchase  of  property,  equipment  and
intangibles of $35.4 million and net cash paid in connection with the Access One
acquisition  of  $3.6 million. The Company expects to incur capital expenditures
of  between  $10  and  $12 million and capitalized software development costs of
between  $2  and  $3  million  in  2003.  The  2003 capital expenditures include
approximately  $4.5  million  of  networking equipment and software. The FCC has
recently  concluded  its  triennial review of local phone competition.  Although
the text of the order is not yet available, the decision appears to preserve the
Company's  ability  to use UNE-P for the provision of bundled telecommunications
services  pending  further  market-by-market  analyses  by  the respective state
commissions.  Changes  to  the current rules and regulations or adverse judicial
and  administrative  interpretations and rulings relating thereto that result in
any curtailment in the availability of the local switching UNE could require the
Company to significantly increase its capital expenditures.  (See "Liquidity and
Capital  Resources,  Other  Matters").

     Net  cash  used  in  financing  activities was $33.1 million during 2002 as
compared  to $8.4 million in 2001, and net cash provided by financing activities
of $15.6 million in 2000.  The net cash used in financing activities during 2002
was  primarily  attributable to payment of borrowings under the Company's senior
credit  facility,  including  retirement  of this facility prior to maturity, of
$18.0  million, payments related to the repurchase of a portion of the Company's
12%  Senior Subordinated Notes of $4.1 million, payments related to the maturity
of  the  remaining  $3.9  million  principal  balance  of its outstanding 4-1/2%
Convertible  Subordinated  Notes,  payments  of  principal  and  future  accrued
interest  payments  under  its  8%  Secured  Convertible  Notes of $6.2 million,
payments  in  connection  with  the exchange of the Company's 4-1/2% Convertible
Subordinated  Notes for 8% Convertible Senior Subordinated Notes of $0.5 million
and  payments under capital lease obligations of $1.0 million.  Net cash used in
financing  activities  for  2001  of  $8.4 million was primarily attributable to
payment  of  borrowings  under  the  Company's  credit facility of $2.5 million,
repurchase  of  convertible bonds of the Company of $1.3 million and payments in
connection  with  the  restructuring  of  the AOL contingent redemptions of $3.5
million. The net cash provided by financing activities for 2000 of $15.6 million
reflects  proceeds from a credit facility of $20.0 million and the proceeds from
exercise  of  options  and  warrants  and  common  stock rights of $13.6 million
partially  offset by repayments of debt assumed in the Access One acquisition of
$18.0  million.

     For the year ended December 31, 2002, $2.8 million of interest was recorded
as  additional  principal  on  the  12% Senior Subordinated Notes and 8% Secured
Convertible  Notes  for  payment  of  interest  in  kind  rather  than  in cash.

     In  January  2003,  the  Company  announced  a share buyback program of $10
million or 2,500,000 shares. In January 2003, the Company purchased 1,315,789 of
its  common  shares  from AOL at a per share price of $3.80 (the average closing
price  for  the  five days ended January 15, 2003). The aggregate purchase price
was  approximately  $5.0  million.  Through  March  28,  2003,  the  Company has
repurchased  $9.4 million of its 12% Senior Subordinated Notes at a $2.2 million
discount  from  face  amount  that  will  be  reported  as  other  income in the
consolidated  statement of operations and, in connection with the purchases, has
also  repurchased  $3.6  million  of  its  8%  Secured  Convertible  Notes.

                                       27
<PAGE>

     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.

     8%  SECURED  CONVERTIBLE  NOTES

     In  September 2001, the Company restructured its financial obligations with
AOL that  arose under the 1999 Investment Agreement and, effective September 30,
2001,  also  ended its marketing relationship with AOL. In connection therewith,
the Company and AOL entered into a Restructuring and Note Agreement, pursuant to
which  the  Company  had  outstanding  as  of  December  31, 2002, $30.2 million
principal  amount of its 8% Secured Convertible Notes. On December 23, 2002, the
Company  restructured  its  8% Secured Convertible Notes. The principal terms of
the  restructuring were as follows: the new maturity date is September 19, 2006,
a  pay-in-kind  interest  option  was eliminated and interest will thereafter be
required  to  be  paid  entirely  in  cash,  and  the  Company  will be provided
additional  flexibility  to  purchase subordinated debt and common stock through
September  30,  2003.  As  a result of the repurchase of $9.4 million of its 12%
Senior  Subordinated  Notes  in  2003,  through  March 28, 2003, the Company has
repurchased  $3.6  million  of  its  8% Secured Convertible Notes due 2006 since
December  31,  2002.  (See  Note  2  of  the  Notes  to  Consolidated  Financial
Statements).

     CONVERTIBLE  SUBORDINATED  NOTES  AND  EXCHANGE  OFFERS

     Effective  April  4,  2002,  the  Company  completed  the exchange of $57.9
million  of  the  $61.8  million  outstanding  principal  balance  of its 4-1/2%
Convertible  Subordinated  Notes  that  matured on September 15, 2002 into $53.2
million  of  new  12%  Senior  Subordinated  PIK  Notes due August 2007 and $2.8
million of new 8% Convertible Senior Subordinated Notes due August 2007 and cash
paid  of  $0.5  million. In addition, the Company exchanged $17.4 million of the
$18.1  million  outstanding principal balance of its 5% Convertible Subordinated
Notes  that mature on December 15, 2004 into $17.4 million of the new 12% Senior
Subordinated  Notes.  The  Company  repurchased  $5.7  million of the 12% Senior
Subordinated  Notes  at  a $1.6 million discount from the face amount, which was
reflected  as  an  extraordinary gain in the fourth quarter of 2002. The Company
paid at maturity the remaining $3.9 million principal balance of its outstanding
4-1/2% Convertible Subordinated Notes due September 2002. In 2003, through March
28, the Company repurchased $9.4 million of its 12% Senior Subordinated Notes at
a  $2.2  million discount from face amount that will be reported as other income
in  the  consolidated  statement  of  operations.  (See  Note  7 of the Notes to
Consolidated  Financial  Statements).


     OTHER  MATTERS

     The  Company's  provision  of  telecommunication  services  is  subject  to
government  regulation.  Changes  in  existing regulations could have a material
adverse  effect  on the Company.  The Company's local telecommunication services
are  provided  almost  exclusively  through  the  use  of RBOC Unbundled Network
Elements  ("UNE"), and it is primarily the availability of costs-based UNE rates
that  enables  the  Company  to  price  its  local  telecommunications  services
competitively.  On  December  12,  2001,  the  FCC  initiated  its so-called UNE
Triennial  Review  rulemaking  in  which it was to review all UNEs and determine
whether RBOCs should continue to be required to provide them to competitors. The
FCC  has  recently  concluded  its  Triennial Review of local phone competition.
Although  the  text  of  the order is not yet available, the decision appears to
preserve  the  Company's  ability  to  use the UNEP for the provision of bundled
telecommunications  services  pending  further  market-by-market analyses by the
respective  state  commissions.  Changes to the current rules and regulations or
adverse judicial and administrative interpretations and rulings relating thereto
that result in any curtailment in the availability of the local switching UNE or
increase  in  costs  that  RBOCs  may  charge for such elements would materially
impair the Company's ability to provide local telecommunications services.  Such
changes  could  eliminate  the  Company's  capability  to  provide  local
telecommunications  services  entirely  unless  the  Company  is able to utilize
another  technology,  which  may  not  be available or available on economically
feasible  terms,  or  the Company purchases, builds and implements its own local
switching  network,  which  would  require  significant  additional  capital
expenditures  by  the  Company.

     At  December 31, 2001, a full valuation allowance had been provided against
the  Company's  net  operating  loss carryforwards and other deferred tax assets
since  the  amounts  and  extent  of the Company's future earnings were not then
determinable  with  a sufficient degree of probability to recognize the deferred
tax  assets  in  accordance  with  the  requirements  of  Statement of Financial
Accounting  Standards No. 109, "Accounting for Income Taxes." The fourth quarter
of  2002  represented  the  fifth  consecutive  quarter of profitability for the

                                       28
<PAGE>

Company.  In the fourth quarter of 2002, as part of the Company's 2003 budgeting
process,  management  evaluated  the  deferred  tax  valuation  allowance  and
determined  that  a  portion  of  this  valuation  allowance should be reversed,
resulting  in  a  non-cash  deferred income tax benefit in the fourth quarter of
$22.3  million.  Beginning  in  2003,  the Company will record income taxes at a
rate equal to the Company's combined federal and state effective rates. However,
to the extent of available net operating loss carryforwards, the Company will be
shielded from paying cash income taxes for several years, other than alternative
minimum  taxes  and  some  state  taxes.  The  Company  reviews  the  valuation
allowances  on  a  quarterly  basis.

     At  December  31,  2002,  the  Company  had  net  operating  loss  (NOL)
carryforwards for federal income tax purposes of approximately $262 million. Due
to  the  "change  of  ownership" provisions of the Internal Revenue Code Section
382,  the  availability  of  the  Company's  net  operating  loss  and  credit
carryforwards  may  be subject to an annual limitation against taxable income in
future  periods  if  a  change of ownership of more than 50% of the value of the
Company's  stock  should  occur  within a three-year testing period. Many of the
changes  that  affect these percentage change determinations, such as changes in
the  Company's  stock  ownership,  are  outside  the  Company's  control.  A
more-than-50%  cumulative  change  in  ownership for purposes of the Section 382
limitation occurred on August 31, 1998 and October 26, 1999. As a result of such
changes,  certain of the Company's carryforwards are limited. As of December 31,
2002,  approximately  $15  million  of  NOL carryforwards were limited to offset
future  income.  In  addition,  based  on information currently available to the
Company,  the  Company  believes  that  the  change  of ownership percentage was
approximately  38%  for  the currently applicable three-year testing period. If,
during  the  current  three-year  testing  period,  the  Company  experiences an
additional  more-than-50%  ownership change under Section 382, the amount of the
NOL  carryforward  available  to offset future taxable income may be further and
substantially  reduced.  To  the  extent  the Company's ability to use these net
operating loss carryforwards against any future income is limited, its cash flow
available  for  operations  and  debt  service would be reduced. There can be no
assurance  that  the Company will realize the full benefit of the carryforwards.

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

     While  the  Company  believes  that  it  has access, albeit limited, to new
capital  in the public or private markets to fund its ongoing cash requirements,
there  can be no assurance as to the timing, amounts, terms or conditions of any
such  new  capital  or  whether  it could be obtained on terms acceptable to the
Company.  Accordingly,  the  Company  anticipates  that  its  cash  requirements
generally  must  be  met from the Company's cash-on-hand and from cash generated
from  operations.  Based  on its current projections for operations, the Company
believes  that  its  cash-on-hand  and  its  cash  flow  from operations will be
sufficient  to  fund  its  currently contemplated capital expenditures, its debt
service obligations, including the increased interest expense of its outstanding
indebtedness,  and  the  expenses  of conducting its operations for at least the
next  twelve months. However, there can be no assurance that the Company will be
able  to  realize  its projected cash flows from operations, which is subject to
the  risks  and  uncertainties  discussed above, or that the Company will not be
required  to  consider  capital  expenditures  in  excess  of  those  currently
contemplated,  as  discussed  above.

CRITICAL  ACCOUNTING  POLICIES

     The  Company's  discussion  and  analysis  of  its  financial condition and
results  of  operations  are  based  upon  the  Company's consolidated financial
statements,  which  have  been prepared in accordance with accounting principles
generally  accepted  in  the  United  States. The preparation of these financial
statements  requires the Company to make estimates and judgments that affect the
reported  amounts  of  assets,  liabilities,  revenues and expenses, and related
disclosure  of  contingent  assets  and  liabilities.  On an on-going basis, the
Company  evaluates  its estimates, including those related to bad debt, goodwill
and  intangible  assets, income taxes, contingencies and litigation. The Company
bases  its estimates and judgments on historical experience and on various other

                                       29
<PAGE>

assumptions  that  are  believed  to  be reasonable under the circumstances, the
results  of  which form the basis for making judgments about the carrying values
of  assets  and  liabilities  that  are not readily apparent from other sources.
Actual  results  may  differ  from  these  estimates.

     RECOGNITION  OF  REVENUE

     The  Company  derives  its  revenues  from  local  and  long distance phone
services,  primarily  local  services  bundled with long distance services, long
distance services, inbound toll-free service and dedicated private line services
for data transmission. The Company recognizes revenue from voice, data and other
telecommunications-related  services  in the period in which subscribers use the
related  service.

     Deferred revenue represents the unearned portion of local telecommunication
services  and  features  that  are  billed  one  month  in advance. In addition,
deferred  revenue  at  December  31,  2001  included a non-refundable prepayment
received  in  1997  in  connection  with  an amended telecommunications services
agreement  with Shared Technologies Fairchild, Inc. The prepayment was amortized
over the five-year term of the agreement, which expired October 2002. The amount
included  in  revenue was $6.2 million in 2002, and $7.4 million in each of 2001
and  2000.

     ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS

     Allowances  for  doubtful  accounts  are  maintained  for  estimated losses
resulting  from  the  failure  of  customers  to make required payments on their
accounts.  The  Company reviews accounts receivable aging trends, historical bad
debt  trends,  and  customer  credit-worthiness  through customer credit scores,
current  economic trends and changes in customer payment history when evaluating
the  adequacy of the allowance for doubtful accounts. If the financial condition
of the Company's carriers that pay access charges were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be
required.  The  Company's  accounts receivable balance was $27.8 million, net of
allowance  for  doubtful  accounts  of  $7.8  million,  as of December 31, 2002.

     VALUATION  OF  LONG-LIVED ASSETS AND INTANGIBLE ASSETS WITH A DEFINITE LIFE

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

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

     If  this  comparison  indicates  there  is  impairment,  the  amount of the
impairment  loss  to  be recorded is calculated by the excess of the net assets'
carrying  value  over  their  fair  value  and  is  typically  calculated  using
discounted  expected future cash flows. Management of the Company believes that,
for the year ended December 31, 2002, no events or changes in circumstances have
occurred  to  trigger  an  impairment  review.

     GOODWILL

     Goodwill represents the cost in excess of net assets of acquired companies.
Effective  January  1,  2002,  with  the  adoption  of  SFAS  No.  142, goodwill
(comprised  of  goodwill  acquired in the Access One acquisition in August 2000)
will  not  be  amortized, but rather will be tested for impairment annually, and
will  be  tested  for  impairment  between  annual  tests  if an event occurs or
circumstances  change  that  would indicate the carrying amount may be impaired.
Prior  to  January  1,  2002,  goodwill  and  intangibles  were  amortized  on a
straight-line  basis  over  periods ranging from 5 years to 15 years. Impairment

                                       30
<PAGE>

testing  for  goodwill  is  performed  at  a  reporting  unit level; the Company
determined that it has one reporting unit under the guidance of SFAS No. 142. An
impairment  loss  would  generally be recognized when the carrying amount of the
reporting  unit's  net  assets exceeds the estimated fair value of the reporting
unit.  Prior  to January 1, 2002, goodwill was tested for impairment in a manner
consistent  with  long-lived  assets and intangible assets with a definite life.
The  Company  completed  the  transitional  assessment  of  goodwill  under  the
requirements  of  SFAS  142  and determined that the fair value of the reporting
unit  exceeds the carrying amount, thus the goodwill is not considered impaired.

     SOFTWARE  DEVELOPMENT  COSTS

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

     INCOME  TAXES

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

     The Company records a valuation allowance to reduce its deferred tax assets
and  reviews  the  amount  of  such allowance annually. At December 2001, a full
valuation  allowance  had been provided against the Company's net operating loss
carryforwards  and other deferred tax assets since the amounts and extent of the
Company's  future  earnings  were  not  determinable with a sufficient degree of
probability  to  recognize  the  deferred  tax  assets  in  accordance  with the
requirements of Statement of Financial Accounting Standards No. 109, "Accounting
for  Income Taxes." The fourth quarter of 2002 represented the fifth consecutive
quarter  of  profitability  for  the Company.  In the fourth quarter of 2002, as
part  of the Company's 2003 budgeting process, management evaluated the deferred
tax  valuation  allowance  and  determined  that  a  portion  of  this valuation
allowance  should  be  reversed,  resulting  in  a  non-cash deferred income tax
benefit  in the fourth quarter of $22.3 million.  Beginning in 2003, the Company
will  record  income taxes at a rate equal to the Company's combined federal and
state  effective  rates.  However, to the extent of available net operating loss
carryforwards,  the  Company  will be shielded from paying cash income taxes for
several  years,  other  than  possibly  alternative minimum taxes and some state
taxes.

     LEGAL  PROCEEDINGS

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

     NEW  ACCOUNTING  PRONOUNCEMENTS

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  142,  "Goodwill  and Other Intangible Assets," which
establishes  the  impairment  approach  rather  than  amortization for goodwill.
Effective  January  1,  2002,  the  Company  was  no  longer  required to record
amortization  expense  on  goodwill,  but  instead is required to evaluate these
assets  for  potential impairment at least annually and will test for impairment

                                       31
<PAGE>

between  annual  tests  if  an  event  occurs or circumstances change that would
indicate the carrying amount may be impaired. An impairment loss would generally
be  recognized  when  the  carrying  amount  of  the reporting unit's net assets
exceeds  the  estimated  fair  value  of  a  reporting  unit.

     In order to complete the transitional assessment of goodwill as required by
SFAS 142, the Company was required to determine by June 30, 2002, the fair value
of  the  reporting  unit  associated  with  the  goodwill  and compare it to the
reporting  unit's  carrying  amount,  including goodwill. The Company determined
that it has one reporting unit under the guidance of SFAS 142. The fair value of
the  reporting  unit  was  determined  primarily  using  a  discounted cash flow
approach  and quoted market price of the Company's stock. The amount of goodwill
reflected in the balance sheet as of December 31, 2002 was $19.5 million. To the
extent  a reporting unit's carrying amount exceeds its fair value, an indication
would  exist  that  the reporting unit's goodwill assets may be impaired and the
Company  will  have  to  perform  the second step of the transitional impairment
test.  The  Company  completed  the  transitional  assessment  of  goodwill  and
determined  that  the  fair  value  of  the  reporting unit exceeds its carrying
amount, thus goodwill is not considered impaired. If, in the future, the Company
has  to perform the second step of the transitional impairment test, the Company
will  have  to  compare the implied fair value of the reporting unit's goodwill,
determined  by  allocating  the reporting unit's fair value to all of its assets
and liabilities in a manner similar to a purchase price allocation in accordance
with  SFAS  141,  "Business Combinations," to its carrying amount, both of which
would be measured as of the date of adoption. Any transitional impairment charge
would  then  be  recognized  as  the cumulative effect of a change in accounting
principle  in  the  Company's consolidated statement of operations. The required
impairment  tests  of  goodwill  may  result  in  future  period  write-downs.

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

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

     Effective  January  1, 2002, the Company adopted Emerging Issues Task Force
(EITF) 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller  of the Vendor's Products." This issue presumes that consideration from
a  vendor  to  a customer or reseller of the vendor's products is a reduction of
the  selling  prices  of  the  vendor's  products  and,  therefore,  should  be
characterized  as  a  reduction  of  revenue  when  recognized  in  the vendor's
statement  of  operations  and  could  lead  to  negative  revenue under certain
circumstances. Revenue reduction is required unless the consideration relates to
a  separate,  identifiable  benefit  and  the  benefit's  fair  value  can  be
established.  The  adoption  of  this  issue resulted in a reclassification from
sales  and  marketing  expenses  to a reduction of net sales of $7.3 million and
$18.8  million  for  the year ended December 31, 2001 and 2000, respectively, in
each case attributed to direct marketing promotion check campaigns. The adoption
of  EITF  01-09  did  not  have  a material effect on the Company's consolidated
financial  statements  for  the year ended December 31, 2002, as the Company did
not  have  any  direct  marketing  promotion check campaigns during this period.


     In  May  2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 145,  "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statements No. 13, and Technical Corrections as of
April  2002."  SFAS  145  eliminates  the requirement to report gains and losses
from  extinguishment  of  debt  as  extraordinary  items.  Gains and losses from
extinguishment  of  debt  will  now be classified as extraordinary items only if
they  meet  the criteria of APB Opinion No. 30. Generally, SFAS 145 is effective
in  fiscal  years  beginning after May 15, 2002, with early adoption encouraged.

                                       32
<PAGE>

The Company will adopt SFAS 145 effective January 1, 2003.  The adoption of SFAS
145 will result in a reclassification from extraordinary gains (losses) from the
extinguishment  of  debt  to  other  income  (expense).

     In  July 2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 146,  "Accounting for Costs Associated with
Exit  or  Disposal  Activities."  SFAS  146 requires that a liability for a cost
that  is  associated  with  an  exit or disposal activity be recognized when the
liability  is  incurred.  SFAS  146  also  establishes  that  fair  value is the
objective  for  the  initial measurement of the liability. SFAS 146 is effective
for  exit  or  disposal  activities  that are initiated after December 31, 2002.

     In  November 2002, the Financial Accounting Standards Board ("FASB") issued
FASB  Interpretation  No. 45 ("FIN 45"), "Guarantees," an interpretation of FASB
Statement  No. 5, "Accounting for Contingencies." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements  about  its  obligations under certain guarantees that it has issued.
(See  Note  1  of  the  Notes  to  Consolidated  Financial  Statements).

     In December 2002, the Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  148,  "Accounting  for  Stock-Based
Compensation  - Transition and Disclosure - an amendment of SFAS 123."  SFAS 148
is  effective  for  fiscal years ending after December 15, 2002 and provides for
additional  annual  and interim financial statement disclosures.  (See Note 1 of
the  Notes  to  Consolidated  Financial  Statements).

     In  January  2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable  Interest  Entities  ("FIN  46").  FIN  46 requires a variable interest
entity  to be consolidated by a company if that company is subject to a majority
of  the  risk of loss from the variable interest entity's activities or entitled
to  receive  a  majority  of  the entity's residual returns or both. FIN 46 also
requires  disclosures  about  variable  interest  entities that a company is not
required  to  consolidate  but  in which it has a significant variable interest.
(See  Note  1  of  the  Notes  to  Consolidated  Financial  Statements).

ITEM  7A.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURE  ABOUT  MARKET  RISK

     In  the normal course of business, the financial position of the Company is
subject  to  a  variety  of  risks,  such  as the collectibility of its accounts
receivable and the receivability of the carrying values of its long-term assets.
The  Company's  long-term  obligations  consist primarily of long term debt with
fixed interest rates. The Company does not presently enter into any transactions
involving  derivative  financial  instruments  for  risk  management  or  other
purposes.

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

                                       33
<PAGE>

ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

                  TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                          PAGE
                                                                          ----

Reports  of  Independent  Accountants . . . . . . . . . . . . . . . . . . .35
Consolidated  statements  of  operations for the years ended
    December  31, 2002, 2001  and  2000 . . . . . . . . . . . . . . . . .  36
Consolidated  balance  sheets  as  of  December  31,  2002
    and  2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
Consolidated  statements  of  cash  flows for the years ended
    December 31, 2002, 2001  and  2000 . . . . . . . . . . . . . . . . . . 38
Consolidated  statements  of  stockholders' equity (deficit)
    for the years ended December  31,  2002,  2001  and  2000 . . . . . .  39
Notes  to  consolidated  financial  statements . . . . . . . . . . . . . . 40

                                       34
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To  the  Board  of  Directors  and
Shareholders  of  Talk  America  Holdings,  Inc.:

     In  our  opinion, the consolidated financial statements listed in the index
appearing  under  Item  15 (a) (1) of this Annual Report on Form 10-K
present fairly, in all material respects, the financial position of Talk America
Holdings,  Inc. and subsidiaries at December 31, 2002 and December 31, 2001, and
the results of their operations and their cash flows for each of the three years
in  the  period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15 (a)
(2), presents fairly, in all material respects, the information set
forth  therein  when read in conjunction with the related consolidated financial
statements.  These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an  opinion  on  these financial statements and the financial statement schedule
based  on  our audits. We conducted our audits of these statements in accordance
with  auditing  standards  generally  accepted  in the United States of America,
which  require that we plan and perform the audit to obtain reasonable assurance
about  whether  the  financial  statements are free of material misstatement. An
audit  includes  examining, on a test basis, evidence supporting the amounts and
disclosures  in  the  financial  statements, assessing the accounting principles
used  and  significant  estimates made by management, and evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

     As  discussed  in  Note  1  to the consolidated financial  statements,  the
Company  adopted  Statement of Financial Accounting Standards No. 142, "Goodwill
and  Other  Intangible  Assets",  effective  January  1,  2002.

PricewaterhouseCoopers  LLP

Philadelphia, Pennsylvania
February  6,  2003

                                       35
<PAGE>

<TABLE>
<CAPTION>

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


                                                                     YEAR ENDED DECEMBER 31,
                                                          ------------------------------------------
                                                              2002           2001           2000
                                                          ------------   ------------   ------------
<S>                                                            <C>            <C>            <C>
Sales                                                      $  317,507     $  488,158     $  525,712

Costs and expenses:
   Network and line costs                                     155,567        235,153        292,931
   General and administrative expenses                         53,510         82,202         65,360
   Provision for doubtful accounts                              9,365         92,778         53,772
   Sales and marketing expenses                                27,148         73,973        152,028
   Depreciation and amortization                               17,318         34,390         19,257
   Impairment and restructuring charges                            --        170,571             --
                                                          ------------   ------------   ------------
      Total costs and expenses                                262,908        689,067        583,348
                                                          ------------   ------------   ------------

Operating income (loss)                                        54,599       (200,909)       (57,636)
Other income (expense):
   Interest income                                                802          1,220          4,859
   Interest expense                                            (9,087)        (6,091)        (5,297)
   Other, net                                                    (892)        (2,698)        (3,822)
                                                          ------------   ------------   ------------
Income (loss) before provision for income taxes                45,422       (208,478)       (61,896)
Provision (benefit) for income taxes                          (22,300)            --             --
                                                          ------------   ------------   ------------
Income (loss) before extraordinary gains and cumulative
   effect of an accounting change                              67,722       (208,478)       (61,896)
Extraordinary gains                                            29,340         20,648             --
Cumulative effect of an accounting change                          --        (36,837)            --
                                                          ------------   ------------   ------------
Net income (loss)                                          $   97,062     $ (224,667)     $ (61,896)
                                                          ============   ============   ============

Income (loss) per share - Basic:
   Income (loss) before extraordinary gains and
      cumulative effect of an accounting change per share  $     2.48     $    (7.89)     $   (2.63)
   Extraordinary gains per share                                 1.08           0.78             --
   Cumulative effect of an accounting change per share             --          (1.40)            --
                                                          ------------   ------------   ------------
   Net income (loss) per share                             $     3.56     $    (8.51)     $   (2.63)
                                                          ============   ============   ============

   Weighted average common shares outstanding                  27,253         26,414         23,509
                                                          ============   ============   ============

Income (loss) per share - Diluted:
   Income (loss) before extraordinary gains and
      cumulative effect of an accounting change per share  $     2.20     $    (7.89)     $   (2.63)
   Extraordinary gains per share                                 0.95           0.78             --
   Cumulative effect of an accounting change per share             --          (1.40)            --
                                                          ------------   ------------   ------------
   Net income (loss) per share                             $     3.15     $    (8.51)     $   (2.63)
                                                          ============   ============   ============

   Weighted average common and common equivalent
      shares outstanding                                       30,798         26,414         23,509
                                                          ============   ============   ============

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

                                       36
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                       DECEMBER 31,     DECEMBER 31,
                                                                                           2002             2001
                                                                                      --------------   --------------
<S>                                                                                         <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                            $   33,588       $   22,100
   Accounts receivable, trade (net of allowance for uncollectible accounts of
      $7,821 and $46,404 at December 31, 2002 and 2001, respectively)                       27,843           26,647
   Deferred income taxes                                                                    17,500               --
   Prepaid expenses and other current assets                                                 2,330            1,951
                                                                                      --------------   --------------
         Total current assets                                                               81,261           50,698

Property and equipment, net                                                                 66,915           75,879
Goodwill                                                                                    19,503           19,503
Intangibles, net                                                                             7,379           10,169
Deferred income taxes                                                                        4,800               --
Other assets                                                                                 7,653            8,972
                                                                                      --------------   --------------
                                                                                        $  187,511       $  165,221
                                                                                      ==============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                                     $   30,588       $   43,098
   Sales, use and excise taxes                                                              11,439            8,339
   Deferred revenue                                                                          6,480           10,193
   Current portion of long-term debt                                                            61           10,544
   4-1/2% Convertible subordinated notes due 2002                                               --            3,910
   Accrued compensation                                                                      5,609            1,108
   Other current liabilities                                                                 9,013           10,081
                                                                                      --------------   --------------
         Total current liabilities                                                          63,190           87,273
                                                                                      --------------   --------------

Long-term debt:
   Senior credit facility                                                                       --           12,500
   8% Secured convertible notes due 2006 (includes principal of $32,773 and future
      accrued interest of  $30,982 at December 31, 2001)                                    30,150           63,755
   12% Senior subordinated notes due 2007                                                   65,970               --
   8% Convertible senior subordinated notes due 2007 (includes future accrued
      interest of $1,216 at December 31, 2002)                                               4,038               --
   4-1/2% Convertible subordinated notes due 2002                                               --           57,934
   5% Convertible subordinated notes due 2004                                                  670           18,093
   Other long-term debt                                                                         27               88
                                                                                      --------------   --------------
         Total long-term debt                                                              100,855          152,370
                                                                                      --------------   --------------

Commitments and contingencies

Stockholders' equity (deficit):
   Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares
      outstanding.                                                                              --               --
   Common stock - $.01 par value, 100,000,000 shares authorized;
      27,469,593 and 27,150,907 shares issued and outstanding at December 31,  2002
      and 2001, respectively                                                                   275              272
   Additional paid-in capital                                                              351,992          351,169
   Accumulated deficit                                                                    (328,801)        (425,863)
                                                                                      --------------   --------------
         Total stockholders' equity (deficit)                                               23,466          (74,422)
                                                                                      --------------   --------------
                                                                                        $  187,511       $  165,221
                                                                                      ==============   ==============

                         See  accompanying  notes  to  consolidated  financial  statements.

</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>

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

                                                                                     YEAR ENDED DECEMBER 31,
                                                                              ------------------------------------------
                                                                                  2002           2001           2000
                                                                              ------------   ------------   ------------
<S>                                                                                 <C>           <C>           <C>
Cash flows from operating activities:
Net income (loss)                                                               $   97,062    $ (224,667)    $  (61,896)
Adjustments to reconcile net income (loss) to net cash provided by (used
   in) operating activities:
   Provision for doubtful accounts                                                   9,365        92,778         53,772
   Depreciation and amortization                                                    17,318        34,390         19,257
   Non-cash compensation                                                               194            --            706
   Non-cash interest                                                                   832            --             --
   Provision for uncollectible note                                                     --            77          2,500
   Loss on sale and retirement of assets                                               205           116             68
   Impairment of goodwill and intangibles                                               --       168,684             --
   Cumulative effect of accounting change of contingent redemptions                     --        36,837             --
   Extraordinary gain from restructuring of convertible debt                       (28,909)           --             --
   Extraordinary gain from restructuring of contingent redemptions                      --       (16,867)            --
   Extraordinary gain from extinguishment of debt                                     (431)       (3,781)            --
   Unrealized loss on increase in fair value of contingent redemptions                  --         2,372             --
   Deferred income tax valuation reserve reversal                                  (22,300)           --             --
   Gain on legal settlement                                                         (1,681)           --             --
   Changes in assets and liabilities, net of acquisition of business:
      Accounts receivable, trade                                                   (10,561)      (65,788)       (43,390)
      Prepaid expenses and other current assets                                       (246)          808          8,066
      Other assets                                                                   1,605           322         (1,252)
      Accounts payable                                                             (12,510)      (27,696)        12,763
      Deferred revenue                                                              (3,713)       (9,004)        (1,433)
      Sales, use and excise taxes                                                    3,100           404             84
      Accrued expenses and other liabilities                                         2,568         5,418         (4,181)
                                                                              ------------   ------------   ------------
         Net cash provided by (used in) operating activities                        51,898        (5,597)       (14,936)
                                                                              ------------   ------------   ------------

Cash flows from investing activities:
   Acquisition of intangibles                                                          (50)         (154)          (515)
   Acquisition of Access One, net of cash acquired                                      --            --         (3,617)
   Capital expenditures                                                             (4,781)       (2,949)       (34,862)
   Capitalized software development costs                                           (2,501)       (1,406)            --
                                                                              ------------   ------------   ------------
         Net cash used in investing activities                                      (7,332)       (4,509)       (38,994)
                                                                              ------------   ------------   ------------

Cash flows from financing activities:
   Proceeds from borrowings                                                             --            --         20,000
   Payments of borrowings                                                          (17,983)       (2,624)       (18,025)
   Payments of capital lease obligations                                            (1,036)       (1,022)            --
   Repurchase of debt                                                              (14,691)       (1,227)            --
   Proceeds from exercise of options and warrants                                      632            --          2,528
   Payments in connection with restructuring contingent redemptions                     --        (3,525)            --
   Proceeds from exercise of common stock rights                                        --            --         11,094
                                                                              ------------   ------------   ------------
         Net cash provided by (used in) financing activities                       (33,078)       (8,398)        15,597
                                                                              ------------   ------------   ------------

Net increase (decrease) in cash and cash equivalents                                11,488       (18,504)       (38,333)
Cash and cash equivalents, beginning of year                                        22,100        40,604         78,937
                                                                              ------------   ------------   ------------
Cash and cash equivalents, end of year                                          $   33,588    $   22,100     $   40,604
                                                                              ============   ============   ============

                              See accompanying notes to consolidated financial statements.

</TABLE>

                                       38
<PAGE>

<TABLE>
<CAPTION>

                                TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                             (IN THOUSANDS)

                                      COMMON STOCK          ADDITIONAL                   TREASURY STOCK
                                   -----------------         PAID-IN    ACCUMULATED     -----------------
                                   SHARES     AMOUNT        CAPITAL       DEFICIT       SHARES    AMOUNT      TOTAL
                                   ------     ------       ---------    -----------     ------   --------   ----------
<S>                                 <C>           <C>       <C>               <C>         <C>     <C>        <C>
Balance, December 31, 1999         22,324     $ 223        $  99,422     $(139,300)      (706)   $(29,720)  $ (69,375)

Net income  (loss)                     --        --               --       (61,896)        --          --     (61,896)
Exercise of common stock options       --        --           (2,274)           --        114       4,802       2,528
Exercise of common stock rights        --        --            1,940            --        217       9,154      11,094
Issued in connection with
   acquisition                      3,824        38          188,002            --        233       9,796     197,836
Warrants issued for consulting         --        --            2,175            --         --          --       2,175
Issuance of common stock
   for convertible debt                --        --               17            --          1          23          40
Issuance of common stock
   for compensation                    --        --           (1,796)           --         50       2,094         298
                                   ------     ------       ---------    -----------     ------   --------   ----------
Balance, December 31, 2000         26,148       261          287,486      (201,196)       (91)     (3,851)     82,700

Net income (loss)                      --        --               --      (224,667)        --          --    (224,667)
Issuance of common stock
   for compensation                    --        --           (2,451)           --         68       2,858         407
Cumulative effect of an
   accounting change                   --        --           65,617            --         --          --      65,617
Issuance of common stock in
   connection with AOL
   restructuring                    1,003        11              440            --         24         993       1,444
Acquisition of treasury stock          --        --               --            --         (1)         --          --
Issuance of warrants for
   Services                            --        --               77            --         --          --          77
                                   ------     ------       ---------    -----------     ------   --------   ----------
Balance, December 31, 2001         27,151       272          351,169      (425,863)        --          --     (74,422)

Net income (loss)                      --        --               --        97,062         --          --      97,062
Issuance of common stock
   for services                        67         1               82            --         --          --          83
Exercise of common stock options      252         2              741            --         --          --         743
                                   ------     ------       ---------    -----------     ------   --------   ----------
Balance, December 31, 2002         27,470     $ 275        $ 351,992     $(328,801)        --     $    --   $  23,466
                                   ======     ======       =========    ===========     ======   ========   ==========

                            See accompanying notes to consolidated financial statements.

</TABLE>

                                       39
<PAGE>

                  TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1.  SUMMARY  OF  ACCOUNTING  POLICIES

(A)     BUSINESS

     Talk America Holdings, Inc. a Delaware corporation (the "Company"), through
its  consolidated  subsidiaries, primarily Talk America Inc., provides local and
long  distance  telecommunication  services  to  residential  and small business
customers.  The Company's telecommunication services offerings include local and
long  distance  phone  services,  primarily  local  services  bundled  with long
distance  services,  long  distance  service,  inbound  toll-free  service  and
dedicated  private  line  services  for  data transmission. The Company seeks to
expand  its  customer  base  through referrals from existing customers, outbound
telemarketing,  direct  sales  through independent agents and recently developed
internal  sales  force,  broadcast media, online marketing initiatives including
its  own  website.

(B)     BASIS  OF  FINANCIAL  STATEMENTS  PRESENTATION

     The  consolidated financial statements include the accounts of Talk America
Holdings,  Inc. and its wholly owned subsidiaries. All intercompany balances and
transactions  have  been  eliminated.

     The  Company's stockholders approved a one-for-three reverse stock split of
the Company's common stock, effective October 15, 2002, decreasing the number of
common  shares  authorized  from  300  million to 100 million. The reverse stock
split  has been reflected retroactively in the accompanying financial statements
and  notes  for  all  periods  presented and all applicable references as to the
number  of common shares and per share information, stock option data and market
prices  have  been  restated  to  reflect this reverse stock split. In addition,
stockholders'  equity  (deficit) has been restated retroactively for all periods
presented  for  the  par value of the number of shares that were eliminated as a
result  of  the  reverse  stock  split.

(C)     USE  OF  ESTIMATES

     In  preparing  financial  statements  in conformity with generally accepted
accounting  principles  in  the  United  States,  management is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and the disclosure of contingent assets and liabilities at the date
of  the  financial  statements  and  revenues  and expenses during the reporting
period.  Actual  results  could  differ  from  those  estimates.

(D)     RECLASSIFICATIONS

     Certain  amounts for 2001 and 2000 have been reclassified to conform to the
current  year  presentation.

(E)     RISKS  AND  UNCERTAINTIES

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

     -    Failure  or  difficulties  in  managing  the  Company's  operations,
          including  attracting  and  retaining  qualified  personnel
     -    Dependence on the availability and functionality of RBOCs' networks as
          they  relate  to  the  unbundled  network  element  platform
     -    Increased  price  competition  in local and long distance services and
          overall  competition  within  the  telecommunications  industry
     -    Failure  or  interruption  in the Company's network and technology and
          information  systems
     -    Changes  in  government  policy, regulation and enforcement or adverse
          judicial  or  administrative  interpretations  and rulings relating to
          regulations  and  enforcement,  including, but not limited to, changes
          that  affect  the  continued  availability  of  the  unbundled network
          element  platform  of  the  local  exchange  carriers  network.
     -    Failure of the marketing of the bundle of the Company's local and long

                                       40
<PAGE>

          distance  services under agreements with its direct marketing channels
          and  its  various  marketing  partners
     -    Inability  to  adapt  to  technological  change
     -    Failure  to  manage the nonpayment of amounts due the Company from its
          customers  from  bundled  and  long  distance  services
     -    Attrition  in  the  number  of  end  users
     -    Failure  of  the  Company  to be able to expand its active offering of
          local  bundled  services  in  a  greater  number  of  states
     -    Failure  to  provide  timely  and  accurate  billing  information  to
          customers
     -    Failure of the Company to manage its collection management systems and
          credit  controls  for  customers
     -    Interruption  in  the  Company's  network  and  information  systems
     -    Failure  of  the  Company  to  provide  adequate  customer  service

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

(F)     CONCENTRATION  OF  CREDIT  RISK

     The  Company  maintains  its  cash  and  cash  equivalents  in bank deposit
accounts,  which  at  times  may  exceed  federally  insured limits. 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.

(G)     RECOGNITION  OF  REVENUE

     The  Company  derives  its  revenues  from  local  and  long distance phone
services,  primarily  local  services  bundled with long distance services, long
distance services, inbound toll-free service and dedicated private line services
for data transmission. The Company recognizes revenue from voice, data and other
telecommunications-related  services  in the period in which subscribers use the
related  service.  Allowances for doubtful accounts are maintained for estimated
losses resulting from the failure of its customers to make required payments and
for  uncollectible  usage.

     Deferred  revenue  represents  the  unearned  portion  of local service and
features  that  are  billed a month in advance. In addition, deferred revenue at
December  31,  2001  included  a  non-refundable  prepayment received in 1997 in
connection  with  an  amended  telecommunications services agreement with Shared
Technologies  Fairchild,  Inc.  The  prepayment was amortized over the five-year
term  of  the  agreement,  which  expired  October  2002. The amount included in
revenue  was  $6.2  million  in 2002, and $7.4 million in each of 2001 and 2000.

(H)     CASH  AND  CASH  EQUIVALENTS

     The  Company  considers  all  temporary  cash investments purchased with an
initial  maturity  of  three  months  or  less  to  be  cash  equivalents.

(I)     PROPERTY  AND  EQUIPMENT  AND  DEPRECIATION

     Property  and  equipment  are recorded at historical cost. Depreciation and
amortization  are  calculated  using the straight-line method over the estimated
useful  lives  of  the  assets  from  3  to 39 years. Leasehold improvements are
depreciated  over  the  life  of  the  related  lease  or  asset,  if  shorter.
Amortization of assets acquired under capital leases is included in depreciation
and  amortization  expense  (see  Note  6).

(J)     COMPUTER  SOFTWARE  DEVELOPMENT  COSTS

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

                                       41
<PAGE>

     Computer  software  developed  or  obtained for internal use included other
assets  at  December  31,  2002  and  2001  were  $3.9 million and $1.4 million,
respectively,  net  of  accumulated amortization of $0.6 million at December 31,
2002.  Amortization  expense  was  $0.6  million for the year ended December 31,
2002.

(K)     GOODWILL  AND  INTANGIBLES

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  142,  "Goodwill  and Other Intangible Assets," which
establishes  the  impairment  approach  rather  than  amortization for goodwill.
Effective  January  1,  2002,  the  Company  was  no  longer  required to record
amortization  expense  on  goodwill,  but  instead is required to evaluate these
assets  for  potential impairment at least annually and will test for impairment
between  annual  tests  if  an  event  occurs or circumstances change that would
indicate the carrying amount may be impaired. An impairment loss would generally
be  recognized  when  the  carrying  amount  of  the reporting unit's net assets
exceeds  the  estimated  fair  value  of  the  reporting  unit.

     In order to complete the transitional assessment of goodwill as required by
SFAS 142, the Company was required to determine by June 30, 2002, the fair value
of  the  reporting  unit  associated  with  the  goodwill  and compare it to the
reporting  unit's  carrying  amount,  including goodwill. The Company determined
that it has one reporting unit under the guidance of SFAS 142. The fair value of
the  reporting  unit  was  determined  primarily  using  a  discounted cash flow
approach and quoted market price of the Company's stock.  The amount of goodwill
reflected  in  the  balance sheet as of December 31, 2001 was $19.5 million.  To
the  extent  a  reporting  unit's  carrying  amount  exceeds  its fair value, an
indication would exist that the reporting unit's goodwill assets may be impaired
and  the  Company  will  have  to  perform  the  second step of the transitional
impairment  test.  The Company completed the transitional assessment of goodwill
and  determined  that  the fair value of the reporting unit exceeds its carrying
amount,  thus  goodwill  is  not  considered  impaired.  If,  in the future, the
Company  has to perform the second step of the impairment test, the Company will
have  to  compare  the  implied  fair  value  of  the reporting unit's goodwill,
determined  by  allocating  the reporting unit's fair value to all of its assets
and liabilities in a manner similar to a purchase price allocation in accordance
with  SFAS  141,  "Business Combinations," to its carrying amount.  The required
impairment  tests  of  goodwill  may  result  in  future  period  write-downs.

     The following unaudited pro forma summary presents the adoption of SFAS 142
as  of  the  beginning  of  the  periods presented to eliminate the amortization
expense  recognized  in  those  periods  related  to goodwill that are no longer
required to be amortized. The pro forma amounts for the years ended December 31,
2001  and  2000  do  not  include  any  write-downs  of goodwill that could have
resulted  had  the  Company  adopted SFAS 142 as of the beginning of the periods
presented  and  performed  the  required  impairment  test  under this standard.

<TABLE>
<CAPTION>

   (In thousands, except for per share data)                  Year Ended December 31,
                                                    ------------------------------------------
                                                         2002           2001          2000
                                                    -------------   -------------   -----------
<S>                                                      <C>             <C>            <C>
   Net income (loss) as reported                     $   97,062      $(224,667)      $ (61,896)
   Add back: Goodwill amortization                           --         17,271           9,735
                                                    -------------   -------------   -----------
   Adjusted net income (loss)                        $   97,062      $(207,396)      $ (52,161)
                                                    =============   =============   ===========

   Basic income (loss) per share:
     Net income (loss) as reported per share         $    3.56       $   (8.51)      $   (2.63)
     Goodwill amortization per share                        --            0.66            0.41
                                                    -------------   -------------   -----------
     Adjusted net income (loss) per share            $    3.56       $   (7.85)      $   (2.22)
                                                    =============   =============   ===========

   Diluted income (loss) per share:
     Net income (loss) as reported per share         $    3.15       $   (8.51)      $   (2.63)
     Goodwill amortization per share                        --            0.66            0.41
                                                    -------------   -------------   -----------
     Adjusted net income (loss) per share            $    3.15       $   (7.85)      $   (2.22)
                                                    =============   =============   ===========
</TABLE>

                                       42
<PAGE>

      Intangible  assets consisted primarily of purchased customer accounts with
a  definite  life and are being amortized on a straight-line basis over 5 years.
The  Company  incurred amortization expense on intangible assets with a definite
life of $2.8 million, $3.2 million and $1.0 million for the years ended December
31,  2002,  2001  and  2000,  respectively.  The Company's balance of intangible
assets  with  a  definite  life  was  $7.4  million at December 31, 2002, net of
accumulated  amortization  of  $6.2  million. Amortization expense on intangible
assets  with  a  definite  life  for  the  next 5 years as of December 31, is as
follows:  2003  -  $2.8  million,  2004  - $2.8 million and 2005 - $1.7 million.

(L)     VALUATION  OF  LONG-LIVED  ASSETS

     Effective  January  1,  2002,  the  Company  adopted Statement of Financial
Accounting  Standards  No.  144,  "Accounting  for the Impairment or Disposal of
Long-Lived  Assets."  SFAS  144  establishes  a  single accounting model for the
impairment  or disposal of long-lived assets, including discontinued operations.

     The Company continually reviews the recoverability of the carrying value of
its long-lived assets, including intangibles using the methodology prescribed in
SFAS  144.  Long-lived  assets  are  reviewed  for impairment whenever events or
changes  in  circumstances  indicate that the carrying amount of such assets may
not  be  recoverable.  When such events occur, the Company compares the carrying
amount  of  the  assets  to the undiscounted expected future cash flows. If this
comparison  indicates  there  is  impairment,  the  amount  of the impairment is
typically calculated using discounted expected future cash flows. Certain of the
Company's  long-lived  assets  were  considered  impaired  during the year ended
December  31,  2001  (see  Note  4).

(M)     INCOME  TAXES

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

(N)     NET  INCOME  (LOSS)  PER  SHARE

     Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the effect of common shares issuable
upon  exercise  of  stock  options, warrants and conversion of convertible debt,
when  such  effect  is  not  antidilutive  (see  Note  14).

(O)     FINANCIAL  INSTRUMENTS

     The  carrying  values  of  accounts  receivable, prepaid expenses and other
current  assets,  accounts  payable  and accrued expenses approximate their fair
values.  Convertible debt is recorded at face amount but such debt has traded in
the  open  market  at discounts to face amount (see Note 7). The market value of
the  Company's  public  debt  securities  was  approximately 75% and 25% of face
amount  at  December  31,  2002  and  2001,  respectively.

(P)     STOCK-BASED  COMPENSATION

     The  Company accounts for its stock option awards under the intrinsic value
based  method  of  accounting  prescribed by APB Opinion No. 25, "Accounting for
Stock  Issued  to  Employees,"  and  related  interpretations,  including  FASB
Interpretation  No.  44  "Accounting  for  Certain  Transactions Including Stock
Compensation,"  an  interpretation  of  APB  Opinion No. 25. Under the intrinsic
value  based  method,  compensation  cost  is  the excess, if any, of the quoted
market  price  of  the  stock  at  grant date or other measurement date over the
amount  an  employee  must pay to acquire the stock. The Company makes pro forma
disclosures  of  net  income  and  earnings per share as if the fair value based
method  of  accounting had been applied as required by SFAS No. 123, "Accounting
for  Stock-Based  Compensation"  and  SFAS  148,  "Accounting  for  Stock-Based
Compensation  - Transition and Disclosure - an amendment of SFAS 123"  (see Note
10).

                                       43
<PAGE>

(Q)     COMPREHENSIVE  INCOME

     The  Company  has no items of comprehensive income or expense. Accordingly,
the  Company's  comprehensive  income (loss) and net income (loss) are equal for
all  periods  presented.

(R)     NEW  ACCOUNTING  PRONOUNCEMENTS

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

     Effective  January  1, 2002, the Company adopted Emerging Issues Task Force
(EITF) 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller  of the Vendor's Products." This issue presumes that consideration from
a  vendor  to  a customer or reseller of the vendor's products is a reduction of
the  selling  prices  of  the  vendor's  products  and,  therefore,  should  be
characterized  as  a  reduction  of  revenue  when  recognized  in  the vendor's
statement  of  operations  and  could  lead  to  negative  revenue under certain
circumstances. Revenue reduction is required unless the consideration relates to
a  separate,  identifiable  benefit  and  the  benefit's  fair  value  can  be
established.  The  adoption  of  this  issue resulted in a reclassification from
sales and marketing expenses of $7.3 million and $18.8 million to a reduction of
net  sales  for the year ended December 31, 2001 and 2000, respectively, in each
case  attributed  to direct marketing promotion check campaigns. The adoption of
EITF  01-09  did  not  have  a  material  effect  on  the Company's consolidated
financial  statements  for  the year ended December 31, 2002, as the Company did
not  have  any  direct  marketing  promotion check campaigns during this period.

     In  May  2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 145,  "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statements No. 13, and Technical Corrections as of
April  2002."  SFAS  145  eliminates  the requirement to report gains and losses
from  extinguishment  of  debt  as  extraordinary  items.  Gains and losses from
extinguishment  of  debt  will  now be classified as extraordinary items only if
they  meet  the criteria of APB Opinion No. 30. Generally, SFAS 145 is effective
in  fiscal  years  beginning after May 15, 2002, with early adoption encouraged.
The Company will adopt SFAS 145 effective January 1, 2003.  The adoption of SFAS
145 will result in a reclassification from extraordinary gains (losses) from the
extinguishment  of  debt  to  other  income  (expense).

     In  July 2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS 146 requires that a liability for a cost that
is associated with an exit or disposal activity be recognized when the liability
is  incurred. SFAS 146 also establishes that fair value is the objective for the
initial measurement of the liability. SFAS 146 is effective for exit or disposal
activities  that  are  initiated  after  December  31,  2002.

     In  November 2002, the Financial Accounting Standards Board ("FASB") issued
FASB  Interpretation  No. 45 ("FIN 45"), "Guarantees," an interpretation of FASB
Statement  No. 5, "Accounting for Contingencies." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also  clarifies  that  a guarantor is required to recognize, at the inception of
certain  guarantees, a liability for the fair value of the obligation undertaken
in  issuing  the  guarantees.  This interpretation is effective on a prospective
basis  for  guarantees  issued  or  modified  after  December  31,  2002 and for
financial  statements  of  interim  or  annual periods ending after December 15,
2002.  The  Company  believes  that  the  adoption of this standard will have no
material  impact  on  its  financial  statements.

                                       44
<PAGE>

     The Company has adopted the disclosure provisions of Statement of Financial
Accounting  Standards ("SFAS") No. 123, amended by SFAS No. 148, "Accounting for
Stock-Based  Compensation  -  Transition  and  Disclosure - an amendment of FASB
Statement  No.  123".  This  Statement  amends  the  disclosure  requirements of
Statement  123  to  require  prominent disclosures in the summary of significant
accounting  policies  in  the  financial  statements.  The  Company  adopted the
disclosure  requirements  of SFAS No. 148 effective December 31, 2002. There was
no  impact  on  the  Company's  basic  financial  statements  resulting from its
adoption.  The following disclosure complies with the adoption of this statement
and  includes pro forma net loss as if the fair value based method of accounting
had  been  applied:

<TABLE>
<CAPTION>

(In thousands)                                     Year Ended December 31,
                                         ------------------------------------------
                                             2002           2001           2000
                                         ------------   ------------   ------------
<S>                                          <C>             <C>             <C>
Net income (loss) as reported             $  97,062       $(224,667)    $ (61,896)
Stock-based employee compensation
   expense included in reported net
   income (loss)                                 --              --            --
Total stock-based employee
   compensation expense determined
   under fair value based method for all
   options                                    5,208           1,380        37,524
Proforma net income (loss)                $  91,854       $(226,047)    $ (99,420)
                                         ============   ============   ============
</TABLE>

                                               YEAR ENDED DECEMBER 31,
                                      -----------------------------------------
                                         2002          2001          2000
                                      ----------   -----------   --------------
   BASIC EARNINGS (LOSS) PER SHARE:
        As reported                     $   3.56    $   (8.51)    $   (2.63)
        Pro forma                       $   3.37    $   (8.56)    $   (4.23)
   DILUTED EARNINGS (LOSS) PER SHARE:
        As reported                     $   3.15    $   (8.51)    $   (2.63)
        Pro forma                       $   2.96    $   (8.56)    $   (4.23)


     In  January  2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable  Interest  Entities  ("FIN  46").  FIN  46 requires a variable interest
entity  to be consolidated by a company if that company is subject to a majority
of  the  risk of loss from the variable interest entity's activities or entitled
to  receive  a  majority  of  the entity's residual returns or both. FIN 46 also
requires  disclosures  about  variable  interest  entities that a company is not
required to consolidate but in which it has a significant variable interest. The
consolidation  requirements  of  FIN  46  apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing  entities  in  the  first fiscal year or interim period beginning after
June  15,  2003.  Certain  of the disclosure requirements apply in all financial
statements  issued  after  January  31,  2003,  regardless  of when the variable
interest  entity was established. The Company is currently evaluating the impact
of  FIN  46  on  its  financial  statements and related disclosures but does not
expect  that  there  will  be  any  material  impact.

(S)     SEGMENT  DISCLOSURE

     The  Company  manages  its  business  as  one reportable operating segment.

NOTE  2.  AOL  AGREEMENTS

     In  September 2001, the Company restructured its financial obligations with
America  Online,  Inc. ("AOL") that arose under the Investment Agreement entered
into  on  January  5,  1999  and,  effective  September 30, 2001, also ended its
marketing  relationship  with  AOL  (collectively  the  "AOL Restructuring"). In
connection  with  the  AOL  Restructuring,  the  Company  and AOL entered into a
Restructuring  and  Note Agreement ("Restructuring Agreement") pursuant to which
the  Company  issued  to  AOL  $54.0  million principal amount of its 8% Secured
Convertible  Notes  ("8%  Secured  Convertible  Notes") and 1,026,209 additional
shares  of the Company's common stock (see Note 7), after which AOL held a total
of  2,400,000 shares of common stock (see Note 9). The Company agreed to provide
certain registration rights to AOL in connection with the shares of common stock
issued  to  it  by  the  Company.

     In  addition  to  the  restructuring of the financial obligations discussed
above,  the  Company  and  AOL agreed, in a further amendment to their marketing
agreement,  dated  as  of  September  19,  2001, to discontinue, effective as of
September  30, 2001, their marketing relationship under the marketing agreement.
AOL,  in lieu of any other payment for the early discontinuance of the marketing
relationship,  paid the Company $20 million by surrender and cancellation of $20
million principal amount of the 8% Secured Convertible Notes delivered to AOL as
discussed  above,  thereby  reducing  the outstanding principal amount of the 8%
Secured  Convertible  Notes  to  $34  million.

     In  accordance  with  SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled  Debt  Restructurings," the AOL Restructuring transaction was accounted
for  as  a troubled debt restructuring. The Company combined all liabilities due
AOL  at  the  time  of  the  Restructuring  Agreement,  including the contingent
redemption  feature  of  the  warrants  with  a  value  of $34.2 million and the
contingent redemption feature of the common stock with a value of $54.0 million.
The  total  liability  of  $88.2  million  was  reduced by the fair value of the
1,026,209  incremental  shares  provided to AOL of $1.4 million and cash paid in
connection with the AOL Restructuring of $3.5 million. Since the remaining value
of $83.3 million was greater than the future cash flows to AOL of $66.4 million,
the  liability was written down to the value of the future cash flows due to AOL
and  an extraordinary gain of $16.9 million was recorded in the third quarter of
2001. As a result of this accounting treatment, the Company recorded no interest
expense  associated  with  these  convertible  notes during 2001 and 2002 in the
Company's  statements  of  operations.

     Under  the  terms  of  the  Investment Agreement, the had Company agreed to
reimburse  AOL  for  losses  AOL  may incur on the sale of certain shares of the
Company's  common  stock.  In  addition,  AOL  also had the right to require the
Company  to  repurchase  warrants  held  by  AOL. Upon the occurrence of certain

                                       45
<PAGE>

events,  including material defaults by the Company under its AOL agreements and
a  "change  of  control" of the Company, the Company could have been required to
repurchase  for  cash  all  of the shares held by AOL for $78.3 million ($57 per
share),  and the warrants for $36.3 million. The Company had originally recorded
the  contingent  redemption  value of the common stock and warrants at $78.3 and
$36.3  million,  respectively,  with  a  corresponding  reduction  in additional
paid-in  capital.  In  connection  with  the  implementation  of EITF 00-19, the
contingent  redemption feature of the common stock and warrants were recorded as
a liability at their fair values of $53.5 and $32.3 million, respectively, as of
June  30,  2001.  The  increase in the fair value of these contingent redemption
instruments from issuance on January 5, 1999 to June 30, 2001 was $36.8 million,
which  has  been  presented  as  a  cumulative  effect of a change in accounting
principle  in  the statement of operations for the year ended December 31, 2002.
For  the  quarter  ended  September 30, 2001, the Company recorded an unrealized
loss  of  $2.4  million  on  the  increase  in  the fair value of the contingent
redemption  instruments,  which  was  reflected in other (income) expense on the
statement  of  operations.  As  discussed  above,  these  contingent  redemption
instruments were satisfied through the Restructuring Agreement entered into with
AOL  on  September  19,  2001.

     On  February  21, 2002, by letter agreement, AOL agreed, subject to certain
conditions,  to  waive  certain  rights  that  it  had  under  the Restructuring
Agreement with respect to the Company's restructuring of its existing 4-1/2% and
5% Convertible Subordinated Notes.  Under the letter agreement, the Company also
paid  AOL  approximately  $1.2  million  as  a  prepayment  on  the  8%  Secured
Convertible  Notes,  approximately  $0.7  million  of which was credited against
amounts the Company owed AOL under the letter agreement for cash payments in the
restructuring  of  these  other  notes.  The  Company  complied with the various
conditions  of  the letter agreement and did not owe AOL any additional payments
related  to  this  restructuring  of  its  other  notes.

     On  December  23,  2002,  by  letter agreement, the Company and AOL amended
certain provisions of the Restructuring Agreement (the "Amendment"). Pursuant to
the  Amendment,  the  maturity  date for the 8% Secured Convertible Notes issued
under  the Restructuring Agreement was advanced to September 19, 2006 from 2011,
and  the  Company's  right  to  elect to pay a portion of the interest on the 8%
Secured  Convertible  Notes  in  kind  rather  than  in cash was eliminated. The
Amendment  also  provided  that certain limitations on the Company's purchase of
its  outstanding  subordinated  indebtedness  ("Sub Debt") and common stock were
amended,  to  permit the Company, through September 30, 2003, to: (i) repurchase
outstanding  Sub  Debt provided it does not pay more than 80% of the face amount
and,  for  every  dollar  used  to  repurchase Sub Debt, it repurchases $0.50 of
principal  amount  of  8%  Secured Convertible Notes from AOL; and (ii) purchase
shares  of its common stock, provided it purchases the shares at or below market
value  and  it  concurrently  purchases  an equal number of shares of the common
stock  from  AOL. The aggregate amount that the Company may utilize with respect
to  both  the  repurchase  of  Sub  Debt  and  of common stock cannot exceed $10
million.

      As  a  consequence  of the Amendment and the repurchase of $4.1 million of
the  8%  Secured  Convertible  Notes  in the fourth quarter of 2002, the Company
recorded  an  extraordinary  non-cash gain of $28.9 million from the decrease in
the future  accrued interest relating to the 8% Secured Convertible Notes, which
was  reflected  as  a  $28.9  million reduction in long-term debt.  As a further
consequence,  the  Company  will begin recording the interest expense associated
with  the  8%  Secured  Convertible  Notes  on  its  statements of  operations.

     The  Restructuring  Agreement  provided  that the Investment Agreement, the
Security  Agreement  securing  the  Company's  obligations  under the Investment
Agreement  and  the  existing  Registration  Rights  Agreement  with  AOL  were
terminated  in  their  entirety  and  the parties were released from any further
obligation  under  these  agreements.  In addition, AOL, as the holder of the 8%
Secured  Convertible  Notes,  entered  into  an intercreditor agreement with the
lender  under the Company's existing secured credit facility, which survives the
early  retirement  of  debt under the Company's Senior Credit Facility (see Note
7).

NOTE  3.  ACQUISITIONS

     On August 9, 2000, a wholly owned subsidiary of the Company merged with and
into  Access One Communications Corp., ("Access One"). Access One was a private,
local  telecommunications  service  provider  to nine states in the southeastern
United  States.  As  a  result  of such merger, Access One became a wholly owned
subsidiary  of  the Company and Access One stockholders received an aggregate of
approximately  4.1 million shares of the Company's common stock, and outstanding

                                       46
<PAGE>

options  and warrants to purchase shares of Access One common stock converted to
options  and  warrants  to  purchase  an  aggregate of 0.7 million shares of the
Company's  common  stock.  The  total  purchase  price  was approximately $201.6
million and the merger was accounted for under the purchase method of accounting
for  business  combinations.  Accordingly, the consolidated financial statements
include the results of operations of Access One from the merger date. The merger
resulted  in  the  recording of intangible assets of approximately $15.9 million
and  goodwill  of  $210.0 million (see Notes 1 and 4). The Company became liable
for  $19.6  million  of  notes payable as part of the acquisition of Access One.

     The  following  unaudited  pro  forma information presents a summary of the
consolidated  results  of  operations of the Company as if the Access One merger
had  taken place at the beginning of the periods presented (In thousands, except
share  data):

                                                           Year Ended
                                                       December 31, 2000
                                                       -----------------
        Sales                                            $  556,918
                                                       -----------------
        Net income (loss)                                $  (86,424)
                                                       =================

        Basic earnings (loss) per common share:
           Net income (loss)                             $    (3.68)
        Diluted earnings (loss) per common share:
           Net income (loss)                             $    (3.68)


     The  pro  forma  consolidated  results of operations include adjustments to
give effect to amortization of intangibles, consulting fees and shares of common
stock  issued.  These  unaudited  pro  forma  results  have  been  prepared  for
comparative  purposes only and do not purport to be indicative of the results of
operations  that  actually  would  have occurred had the merger been made at the
beginning  of  the  periods  presented  or  the  future  results of the combined
operations.

NOTE  4.  IMPAIRMENT  AND  RESTRUCTURING  CHARGES

     In  2001,  the  Company  recorded  an  impairment  charge of $168.7 million
primarily  related to the write-down of goodwill associated with the acquisition
of  Access  One  (see  Note  3).  SFAS  121  "Accounting  for  the Impairment of
Long-Lived  Assets  and  for  Long-Lived Assets to be Disposed of," required the
evaluation  of  impairment  of  long-lived  assets  and identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an  asset  may not be recoverable. Management determined that goodwill should be
evaluated  for  impairment  in accordance with the provisions of SFAS 121 due to
the  increased bad debt rate and increased customer turnover, as well as the AOL
Restructuring  that  occurred  in  the  quarter  ended  September  30, 2001. The
write-down  of  goodwill  was  based on an analysis of projected discounted cash
flows using a discount rate of 18%, which results determined that the fair value
of  the  goodwill  was  substantially  less  than  the  carrying  value.

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

                                       47
<PAGE>

NOTE  5.  COMMITMENTS  AND  CONTINGENCIES

(A)     LEASE  AGREEMENTS

     The  Company  leases  office  space  and  equipment  under  operating lease
agreements.  Certain  leases  contain  renewal options and purchase options, and
generally  provide  that  the  Company  shall  pay  for  insurance,  taxes  and
maintenance.  Total  rent  expense  for all operating leases for the years ended
December 31, 2002, 2001 and 2000 was $2.4, $2.5, and $1.4 million, respectively.
As of December 31, 2002, the Company had future minimum annual lease obligations
under  noncancellable  operating  leases  with  terms  in  excess of one year as
follows  (in  thousands):

                                                   OPERATING
                    YEAR ENDED DECEMBER 31,          LEASES
                 ----------------------------       ---------
                           2003                     $ 1,887
                           2004                       1,548
                           2005                       1,086
                           2006                         486
                           2007                         242
                        Thereafter                      159
                                                    ---------
                 Total minimum lease payments       $ 5,408
                                                    =========

(B)     LEGAL  PROCEEDINGS

     In  the third quarter of 2002, the Company paid $140,000 in connection with
the  favorable  settlement  of litigation relating to an obligation with a third
party that had previously been reflected as a liability, and recorded a non-cash
reduction  of  expense  in  the  amount  of  $1.7  million.

     On November 12, 2001, the Company received an award of arbitrators awarding
Traffix,  Inc.  approximately  $6.2  million  in  an  arbitration concerning the
termination  of a marketing agreement between the Company and Traffix, which the
parties agreed would be paid in two installments - $3.7 million paid in November
2001  and  the  remaining  $2.5  million  paid  on April 1, 2002.  The Company's
obligations  to  Traffix  have  been  satisfied.

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

(C)     NETWORK  COMMITMENTS

     The  Company  is  also  party  to various network service agreements, which
contain  certain  minimum  usage  commitments.  The largest contract establishes
pricing and provides for revenue commitments based upon usage of $52 million for
the  18  months  ended  February  2004  and  $40  million for the 9 months ended
December  2004.  This  contract  obligates  the Company to pay 65 percent of the
revenue  shortfall,  if  any.  A  separate  contract  with  a  different  vendor
establishes  pricing and provides for annual minimum payments as follows: 2003 -
$6.0 million and 2004 - $3.0 million. While the Company anticipates that it will
not be required to make any shortfall payments under these contracts as a result
of  (1)  growth  in  network minutes, (2) the management of traffic flows on its
network,  (3)  the  restructuring  of  these obligations, and/or (4) the sale of
additional minutes of usage on the wholesale markets; there can be no assurances
that  the Company will be successful in its efforts.  In addition, these actions
will  likely  cause  the Company to experience an increase in per minute network
costs.

                                       48
<PAGE>
NOTE  6.  PROPERTY  AND  EQUIPMENT

     The  following  is  a  summary  of  property  and  equipment, at cost, less
accumulated  depreciation  (in  thousands):

<TABLE>
<CAPTION>

                                                             DECEMBER 31,
                                                        -----------------------
                                         LIVES             2002         2001
                                     --------------     ----------   ----------
<S>                                      <C>               <C>          <C>
     Land                                               $     330    $     330
     Buildings and building
        improvements                   39 years             6,782        6,589
     Leasehold improvements            3-10 years             397          464
     Switching equipment               10-15 years         59,289       57,991
     Software                          3 years              6,366        4,916
     Equipment and other               3-10 years          44,770       43,676
                                                        ----------   ----------
                                                          117,934      113,966
     Less: Accumulated depreciation                       (51,019)     (38,087)
                                                        ----------   ----------
                                                        $  66,915     $  75,879
                                                        ==========   ==========
</TABLE>

     For  the years ended December 31, 2002, 2001 and 2000, depreciation expense
amounted  to  $13.3  million,  $13.6  million  and  $9.6  million, respectively.

NOTE  7.  DEBT

(A)     12%  SENIOR  SUBORDINATED  NOTES  DUE  2007  AND  8%  CONVERTIBLE SENIOR
SUBORDINATED  NOTES  DUE  2007

     Effective  April  4,  2002,  the  Company  completed  the exchange of $57.9
million  of  the  $61.8  million  outstanding  principal  balance  of its 4-1/2%
Convertible  Subordinated  Notes  due  September  15,  2002 ("4-1/2% Convertible
Subordinated Notes") into $53.2 million of new 12% Senior Subordinated PIK Notes
due  August  2007  ("12%  Senior Subordinated Notes") and $2.8 million of new 8%
Convertible  Senior  Subordinated  Notes due August 2007 ("8% Convertible Senior
Subordinated  Notes")  and  cash  paid of $0.5 million. In addition, the Company
exchanged  $17.4  million  of the $18.1 million outstanding principal balance of
its 5% Convertible Subordinated Notes ("5% Convertible Subordinated Notes") that
mature  on  December  15,  2004  into  $17.4  million  of  the  new  12%  Senior
Subordinated  Notes.

     The  new 12% Senior Subordinated Notes accrue interest at a rate of 12% per
year on the principal amount, payable semiannually on February 15 and August 15,
beginning  on  August  15,  2002.  Interest  is payable in cash, except that the
Company  may,  at  its  option,  pay  up to one-third of the interest due on any
interest payment date through and including the August 15, 2004 interest payment
date  in additional 12% Senior Subordinated Notes. The new 8% Convertible Senior
Subordinated  Notes  accrue  interest  at a rate of 8% per year on the principal
amount,  also  payable  semiannually  on  February  15  and  August  15, and are
convertible, at the option of the holder, into common stock at $15.00 per share.
The  12%  Senior Subordinated Notes and 8% Convertible Senior Subordinated Notes
are  redeemable  at  any  time  at  the  option of the Company at par value plus
accrued  interest  to  the  redemption  date.  The  AOL  Restructuring Agreement
obligates  the  Company's  to  redeem  8%  Secured  Convertible  Notes  upon the
redemption  of  subordinated  debt  (see  Note 2).  As of December 31, 2002, the
Company  had  $66.0  and  $2.8  million  principal amount outstanding of the 12%
Senior  Subordinated  Notes  and  8%  Convertible  Senior  Subordinated  Notes,
respectively.

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

     The  Company  reacquired  $5.7  million of 12% Senior Subordinated Notes in
2002  at a $1.6 million discount from face amount. This amount is reported as an
extraordinary  gain  in  the  consolidated statement of operations.

                                       49
<PAGE>

(B)      5%  CONVERTIBLE  SUBORDINATED  NOTES  DUE  2004

     As  of  December  31,  2002,  the Company has $0.7 million principal amount
outstanding  of  5%  Convertible  Subordinated Notes that mature on December 15,
2004. Interest on these notes is due and payable two times a year on June 15 and
December  15.  The  notes  are  convertible,  at  the option of the holder, at a
conversion price of $76.14 per share, as adjusted for the dilutive effect of the
exercise  of  rights pursuant to the Company's rights offering (see Note 9). The
5%  Convertible  Subordinated  Notes  are redeemable, in whole or in part at the
Company's  option,  at  101.43% of par prior to December 14, 2003 and 100.71% of
par  thereafter.

(C)     8%  SECURED  CONVERTIBLE  NOTES  DUE  2006

     In  connection  with the AOL Restructuring discussed in Note 2, the Company
and  AOL  entered  into  a Restructuring Agreement pursuant to which the Company
issued  to  AOL  $54.0  million  principal  amount of its 8% Secured Convertible
Notes. The 8% Secured Convertible Notes were issued in exchange for a release of
the  Company's reimbursement obligations under the Investment Agreement. AOL, in
lieu  of  any  other  payment  for  the  early  discontinuance  of the marketing
relationship,  paid  the  Company $20.0 million by surrender and cancellation of
$20.0  million principal amount of the 8% Secured Convertible Notes delivered to
AOL,  thereby  reducing  the  outstanding  principal  amount  of  the 8% Secured
Convertible  Notes  to  $34.0  million.

     The  8%  Secured  Convertible  Notes  are  convertible  into  shares of the
Company's  common  stock  at the rate of $15.00 per share and may be redeemed by
the Company at any time without premium. The 8% Secured Convertible Notes accrue
interest at the rate of 8% per year on the principal amount, payable two times a
year  on  January 1 and July 1.  The 8% Secured Convertible Notes are guaranteed
by the Company's principal operating subsidiaries and are secured by a pledge of
the  Company's and the subsidiaries' assets.  In addition, AOL, as the holder of
the  8%  Secured Convertible Notes, entered into an intercreditor agreement with
the  lender under the Company's existing secured credit facility, which survives
the  early retirement  of  debt  under  the  Company's  Senior  Credit Facility.

     On  December  23,  2002,  by  letter agreement, the Company and AOL amended
certain  provisions  of  the  Restructuring  Agreement  between  them  (the
"Amendment").  Pursuant  to  the Amendment, the maturity date for the 8% Secured
Convertible  Notes  issued  under  the  Restructuring  Agreement was advanced to
September  19, 2006 (four days later than the first date of mandatory redemption
at  the option of the holder) from 2011, and the Company's right to elect to pay
a  portion  (50%)  of  the  interest on the 8% Secured Convertible Notes in kind
rather  than  in  cash  was  eliminated.

     In  addition,  the  Amendment  provided  that  certain  limitations  on the
Company's purchase of its outstanding subordinated indebtedness ("Sub Debt") and
common  stock  were  amended, to permit the Company, through September 30, 2003,
to:  (i)  repurchase outstanding Sub Debt provided it does not pay more than 80%
of  the  face  amount  and,  for  every  dollar  used to repurchase Sub Debt, it
repurchases  $0.50 of principal amount of 8% Secured Convertible Notes from AOL;
and  (ii)  purchase shares of its common stock, provided it purchases the shares
at or below market value and it concurrently purchases an equal number of shares
of common stock from AOL. The aggregate amount that the Company may utilize with
respect to both the repurchase of Sub Debt and of common stock cannot exceed $10
million.

     As a consequence of the Amendment and the repurchase of $4.1 million of the
8% Secured Convertible Notes in the fourth quarter of 2002, the Company recorded
an  extraordinary non-cash gain of $28.9 million from the decrease in the future
accrued  interest  relating  to  the  8%  Secured  Convertible  Notes  which was
reflected  as  a  $28.9  million  reduction  in  long-term  debt.  As  a further
consequence,  the  Company  will begin recording the interest expense associated
with  the  8%  Secured  Convertible  Notes  on  its  consolidated  statement  of
operations.  As  of  December  31, 2002, the Company had $30.2 million principal
amount  outstanding  of  8%  Secured  Convertible  Notes.

                                       50
<PAGE>

(D)     SENIOR  CREDIT  FACILITY

     On  October  4,  2002,  the principal operating subsidiaries of the Company
retired,  prior to maturity, all of the debt outstanding under the Senior Credit
Facility Agreement between the subsidiaries and MCG Finance Corporation ("MCG").
As  a  result  of  the  retirement  of the debt under the Senior Credit Facility
Agreement,  the  pledge  of  assets and the restrictions and covenants under the
Senior  Credit  Facility  Agreement  were  terminated and the Company incurred a
one-time,  non-cash  extraordinary  charge  to  earnings  of $1.1 million in the
fourth  quarter  of  2002,  reflecting  the  acceleration of the amortization of
certain  deferred  finance  charges  and  fees.

     The  Senior  Credit  Facility  Agreement  provided for a term loan of up to
$20.0  million  maturing  on  June  30,  2005.  Loans  under the Credit Facility
Agreement  bore  interest at a rate equal to either (a) the Prime Rate plus 6.0%
or  (b) LIBOR plus 7.0%. The principal of the term loan was payable in quarterly
installments  of  $1.25  million commencing on September 30, 2001. In connection
with  the  AOL  Restructuring,  MCG entered into an Intercreditor Agreement with
AOL,  providing for the subordination of the 8% Secured Convertible Notes to the
obligations  under  the  Senior  Credit  Facility  and successor and replacement
senior  credit facilities of the Company, which Intercreditor Agreement survives
the  early  retirement  of debt under the Credit Facility Agreement (see Notes 2
and  7,  above).

     By  amendments  on  February  12,  2002  and  April  3,  2002,  the Company
restructured  certain  portions of the Credit Facility Agreement and the related
consulting  agreement  and  other  loan  documents.  This  restructuring amended
certain  financial  covenants and increased the interest rate. The restructuring
also  added mandatory prepayment provisions if the Company used a total of $10.0
million  or  more  of  cash  to  repurchase  or  otherwise prepay our other debt
obligations,  including the 4-1/2% and 5% Convertible Subordinated Notes, the 8%
Secured  Convertible  Notes and the 8% Convertible Senior Subordinated Notes and
12%  Senior Subordinated Notes and, effectively required the Company to elect to
pay  in kind, rather than cash, interest on its 8% Secured Convertible Notes and
its 12% Senior Subordinated Notes to the fullest extent it is permitted to do so
under  such  notes.  In addition, the Company had issued 66,666 shares of common
stock  to  MCG with a value of $84,000 upon issuance and agreed to register such
shares  in  the  future.

(E)     MINIMUM  ANNUAL  PAYMENTS

     As  of December 31, 2002, the required minimum annual principal payments of
long-term  debt obligations, including capital leases, for each of the next five
fiscal  years  is  as  follows  (in  thousands):

                        Year Ended December 31,
                        -----------------------
                                 2003               $     61
                                 2004                    697
                                 2005                     --
                                 2006                 30,150
                                 2007                 70,008
                                                    --------
                                                    $100,916
                                                    ========

NOTE  8.  RELATED  PARTY  TRANSACTION

     The  Company  had  a  note receivable with an officer of the Company with a
balance  of $1.0 million as of December 31, 2002 for relocation and construction
of  a  new  residence in Florida. The note receivable bore interest at 6.25% and
the  principal  balance together with unpaid accrued interest was payable to the
Company  in  November 2004. The note was collateralized by the new residence. In
the  first  quarter  of  2003,  the  note  was  prepaid  in  full.

NOTE  9.  STOCKHOLDERS'  EQUITY  (DEFICIT)

(A)     REVERSE  STOCK  SPLIT

     The  Company's stockholders approved a one-for-three reverse stock split of
the Company's common stock, effective October 15, 2002, decreasing the number of
common  shares  authorized  from  300  million  to  100  million.

                                       51
<PAGE>

(B)     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 $165. 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.

NOTE  10.  STOCK  OPTIONS,  WARRANTS  AND  RIGHTS

(A)     STOCK  BASED  COMPENSATION  PLAN

     Incentive  stock options, non-qualified stock options and other stock based
awards may be granted by a committee of the Board of Directors of the Company to
employees,  directors  and  consultants  under the 2000 Long Term Incentive Plan
("2000  Plan"),  1998  Long  Term  Incentive Plan ("1998 Plan") and otherwise in
connection with employment and to employees under the 2001 Non-Officer Long Term
Incentive  Plan  ("2001  Plan").  Generally,  the options vest over a three-year
period  and  expire  five  to  ten years from the date of grant. At December 31,
2002,  60,541,  65,556,  and 774,188 shares of common stock were available under
the  2000  Plan,  1998  Plan  and  2001  Plan, respectively, for possible future
issuances.  The exercise price of the options is 100% of the market value of the
common  stock  on  the  grant  date.

     Stock options granted in 2002 generally have contractual terms of 10 years.
The options granted to employees have an exercise price equal to the fair market
value  of  the stock at grant date. The vast majority of options granted in 2002
vest  one-third  each  year,  beginning  on the first anniversary of the date of
grant.

     On August 29, 2001, the Company commenced a voluntary stock option exchange
program  to  certain  eligible  employees  of  the  Company.  Under the program,
eligible employees were given the option to cancel each outstanding stock option
previously  granted to them at an exercise price greater than or equal to $16.50
per  share,  in  exchange for a new option to buy shares of the Company's common
stock  to  be  granted  on April 5, 2002, six months and one day from October 4,
2001,  the  date the old options were cancelled. The exercise price of these new
options  was equal to the fair market value of the Company's common stock on the
date  of  grant.  The  exchange  program  did  not  result  in  any  additional
compensation  charges or variable option plan accounting. The Company issued

                                       52
<PAGE>

options  to  purchase  1.9  million  stock shares on April 5, 2002, at $1.53 per
share,  market  value  on  the date of issue, in satisfaction of the obligations
under  the  Company's  exchange  offer.

     Information  with  respect  to  options  under  the  Company's  plans is as
follows:

<TABLE>
<CAPTION>

                                                    EXERCISE            WEIGHTED
                                      OPTIONS      PRICE RANGE          AVERAGE
                                      SHARES        PER SHARE       EXERCISE PRICE
                                     ----------    -------------    ---------------
<S>                             <C>          <C>            <C>
   Outstanding, December 31, 1999    2,282,977    $13.74-$51.75        $  29.16
   Granted                           3,226,269    $ 3.39-$48.54        $  23.94
   Exercised                          (114,112)   $13.74-$35.82        $  22.17
   Cancelled                          (372,028)   $ 7.89-$47.64        $  27.09

   Outstanding, December 31, 2000    5,023,106    $ 2.64-$51.75        $  25.80
   Granted                             365,733    $  0.99-$5.94        $   2.58
   Exercised                                --               --              --
   Cancelled                        (2,912,700)   $ 4.02-$51.75        $  34.02

   Outstanding, December 31, 2001    2,476,139    $ 0.99-$47.64        $  12.72
   Granted                           2,248,685    $ 1.11-$11.91        $   1.78
   Exercised                          (250,906)   $  0.99-$7.88        $   2.50
   Cancelled                          (288,218)   $ 1.26-$47.64        $  21.66

   Outstanding, December 31, 2002    4,185,700    $ 1.11-$48.54        $   6.84

</TABLE>

     The  following  table  summarizes options exercisable at December 31, 2002,
2001  and  2000:

                                         EXERCISE  PRICE          WEIGHTED
                                              RANGE               AVERAGE
                    OPTION  SHARES          PER  SHARE         EXERCISE PRICE
                    --------------       ---------------       --------------
           2000       1,865,857           $2.64-$51.75            $21.93
           2001       1,285,508           $2.64-$47.64            $16.74
           2002       2,942,999           $0.99-$48.54            $ 6.84

                                       53
<PAGE>

     The  following  table summarizes the status of stock options outstanding at
December  31,  2002:

<TABLE>
<CAPTION>
                                                     WEIGHTED
                      NUMBER                          AVERAGE        NUMBER
                  OUTSTANDING AT      WEIGHTED       REMAINING    EXERCISABLE AT     WEIGHTED
RANGE OF           DECEMBER 31,       AVERAGE       CONTRACTUAL    DECEMBER 31,      AVERAGE
EXERCISE PRICES       2002         EXERCISE PRICE   LIFE (YEARS)       2002       EXERCISE PRICE
----------------  --------------   --------------   ------------  --------------  --------------
<S>                  <C>              <C>              <C>            <C>             <C>
$0.99 to  $10.50    3,085,900         $   2.76          7.4          2,054,031        $ 2.26
$10.51 to $21.00      853,027         $  15.10          7.4            642,417        $15.44
$21.01 to $30.00      134,998         $  28.16          6.3            134,998        $28.16
$30.01 to $32.00      104,388         $  30.45          6.4            104,388        $30.45
$32.00 to $48.54        7,387         $  36.18          6.4              7,165        $35.82
</TABLE>

     The  weighted  average  estimated  fair values of the stock options granted
during  the  years  ended  December  31  2002,  2001  and  2000  based  on  the
Black-Scholes  option  pricing  model were $.57, $1.71 and $19.68, respectively.
The  fair value of stock options used to compute pro forma net income (loss) and
basic  and  diluted  earnings (loss) per share disclosures is the estimated fair
value  at  grant  date  using  the  Black-Scholes  option-pricing model with the
following  assumptions:

             ASSUMPTION                  2002           2001          2000
             -----------------------   ---------      ---------     ----------
             Expected Term              5 years        5 years       5 years
             Expected Volatility         98.13%         78.95%        87.46%
             Expected Dividend Yield        --%            --%           --%
             Risk-Free Interest Rate      4.33%          5.92%         6.27%

(B)     WARRANTS

     In  connection with the Access One acquisition, the Company assumed certain
warrants  to  purchase  shares  of  Access  One, which, upon consummation of the
Merger,  converted to warrants to purchase an aggregate of 290,472 shares of the
Company common stock at an exercise price of $6.30 per share and expiring August
2005. In connection with certain consulting services that MCG Credit Corporation
was  to  provide to the Company, the Company issued a warrant to MCG to purchase
100,000  shares of its common stock, at an exercisable price of $14.19 per share
and  expiring  August  2007. Upon its execution of the Credit Facility Agreement
with  MCG  Finance Corporation in October, 2000, the Company issued warrants for
100,000 shares of its common stock, at an exercise price of $13.08 per share and
expiring  October 20, 2005 of which only 50,000 vested.   In connection with the
waiver  from  the  MCG  lenders  in the second quarter of 2001 and certain other
amendments under the Credit Facility Agreement, the Company issued warrants with
a  value  of $77,000 upon issuance to purchase 50,000 shares of its common stock
at  an  exercise  price  of  $2.04 per share and expire August 16, 2006, to such
lenders.


NOTE  11.  INCOME  TAXES

     The  Company  reports  the  effects  of  income  taxes  under SFAS No. 109,
"Accounting  for  Income  Taxes".  The  objective  of income tax reporting is to
recognize (a) the amount of taxes payable or refundable for the current year and
(b)  deferred  tax  liabilities  and  assets  for the future tax consequences of
events  that  have  been  recognized in the financial statements or tax returns.
Under  SFAS  No.  109,  the  measurement  of  deferred tax assets is reduced, if
necessary,  by the amount of any tax benefits that, based on available evidence,
are  not  expected  to  be  realized.  Realization  of  deferred  tax  assets is
determined  on  a  more-likely-than-not  basis.

     The  Company  considers all available evidence, both positive and negative,
to  determine  whether,  based  on  the  weight  of  that  evidence, a valuation
allowance  is  needed  for  some  portion  or  all  of a net deferred tax asset.
Judgment  is  used  in  considering the relative impact of negative and positive
evidence.  In  arriving  at  these  judgments, the weight given to the potential
effect  of  negative  and  positive  evidence is commensurate with the extent to
which  it  can  be  objectively  verified.

                                       54
<PAGE>

     At  December 2001, a full valuation allowance had been provided against the
Company's  net operating loss carry-forwards and other deferred tax assets since
the  amounts  and  extent of the Company's future earnings were not determinable
with  a  sufficient  degree of probability to recognize the deferred tax assets.
The  fourth  quarter  of  2002  represented  the  fifth  consecutive  quarter of
profitability  for  the  Company.  In the fourth quarter of 2002, as part of the
Company's  2003  budgeting  process,  management  evaluated  the  deferred  tax
valuation  allowance  and  determined that a portion of this valuation allowance
should  be  reversed, resulting in a non-cash deferred income tax benefit in the
fourth  quarter  of  2002 of $22.3 million.  Beginning in 2003, the Company will
record  income taxes at a rate equal to the Company's combined federal and state
effective  rates.  However,  to  the  extent  of  available  net  operating loss
carry-forwards,  the  Company will be shielded from paying cash income taxes for
several  years,  other  than  possibly  alternative minimum taxes and some state
taxes.

     There  were  no  current or deferred provisions for income taxes for any of
the  years  ended  December  31,  2002,  2001  and  2000.

     A  reconciliation  of the Federal statutory rate to the provision (benefit)
for  income  taxes  is  as  follows:

<TABLE>
<CAPTION>

                                                      Year Ended December 31,
                              ------------------------------------------------------------------------
                                       2002                    2001                      2000
                              ----------------------   ----------------------   ----------------------
<S>                                <C>                        <C>     <C>        <C>      <C>        <C>
Federal income taxes
  computed at the statutory
  rate                         $ 33,972     35.0%       $(78,633)    (35.0)%     $(21,664)    (35.0)%
Increase (decrease) in
  income taxes resulting
  from:
    State income taxes less
      Federal   benefit              --      0.0              --       0.0         (2,338)     (3.8)
    Goodwill impairment              --      0.0          59,039      26.3             --        --
    Goodwill and intangible
      asset amortization            981      0.4           7,137       3.2          3,310       5.3
    Interest expense on
      restructured long-term
      debt                       (1,220)    (0.5)             --       0.0             --       0.0
    Bad debt write-offs, net
      of provision and
      recoveries                (13,513)    (6.0)             --       0.0             --       0.0
    Gain on long-term debt
      restructuring             (10,118)    (4.5)             --       0.0             --       0.0
    Capitalized software
      costs, net of
      amortization               (1,148)    (0.5)             --       0.0             --       0.0
    Recognition of deferred
      revenue                    (2,142)    (1.0)             --       0.0             --       0.0
    Legal settlement
      payments, net of
      reserves                   (1,299)    (0.6)             --       0.0             --       0.0
    Cumulative effect of
      accounting change              --      0.0          12,893       5.7             --        --
    Valuation allowance
      changes affecting the
      provision for income
      taxes                     (27,580)   (12.3)           (648)     (0.3)         20,561     33.2
    Other                          (233)    (0.1)            212       0.1             131      0.3
                               ---------   ------       ---------     -----       --------    ------
Total provision (benefit)
  for income taxes             $(22,300)    (9.9)       $     --        --        $     --       --
                               =========   ======       =========     =====       ========    ======
</TABLE>

                                       55
<PAGE>

     Deferred  tax  (assets)  liabilities  at  December  31,  2002  and 2001 are
comprised  of  the  following  elements:
<TABLE>
<CAPTION>

                                                YEAR ENDED DECEMBER 31,
                                           ----------------------------------
                                                 2002              2001
                                           ----------------   ---------------
<S>                                               <C>              <C>
   Net operating loss carry-forwards          $(102,357)        $(102,495)
   Deferred revenue not taxable currently           (31)           (2,418)
   Compensation for options granted below
     market price                                  (893)             (893)
   Allowance for uncollectible accounts          (1,837)          (16,894)
   Warrants issued for compensation                (878)             (431)
   Depreciation and amortization                 18,259            16,806
   Accruals not currently deductible             (1,309)           (2,843)
   Net capital loss carry-forwards                   --            (9,122)
                                           ----------------   ---------------

   Deferred tax (assets) liabilities, net       (89,046)         (118,290)
   Less valuation allowance                      66,746           118,290
                                           ----------------   ---------------
   Net deferred tax                           $ (22,300)        $      --
                                           ================   ===============
</TABLE>

     The  Company  has net operating loss carry-forwards for income tax purposes
and  other  deferred  tax  benefits  that are available to offset future taxable
income. Only a portion of the net operating loss carry-forwards are attributable
to  operating activities. The remainder of the net operating loss carry-forwards
are  attributable  to  tax  deductions related to the exercise of stock options.

     In  accounting  for  income  taxes, the Company recognizes the tax benefits
from  current  stock  option  deductions after utilization of net operating loss
carry-forwards  from  operations  (i.e.,  net  operating  loss  carry-forwards
determined  without deductions for exercised stock options) to reduce income tax
expense.  Because  stock  option deductions are not recognized as an expense for
financial reporting purposes, the tax benefit of stock option deductions must be
credited  to  additional  paid-in  capital.  Such  benefit has not been recorded
because  of  the  Company's  full  valuation  allowances.

     At  December  31,  2002,  the  Company  had  net  operating  loss  (NOL)
carry-forwards  for  federal  income  tax  purposes  of $262 million. Due to the
"change  of  ownership" provisions of the Internal Revenue Code Section 382, the
availability  of  the Company's net operating loss and credit carry-forwards may
be subject to an annual limitation against taxable income in future periods if a
change  of ownership of more than 50% of the value of the Company's stock should
occur  within a three-year testing period. Many of the changes that affect these
percentage  change  determinations,  such  as  changes  in  the  Company's stock
ownership,  are outside the Company's control. A more-than-50% cumulative change
in  ownership  occurred  on August 31, 1998 and October 26, 1999. As a result of
such  changes,  certain  of  the  Company's  carryforwards  are  limited.  As of
December  31,  2002; approximately $15 million of NOL carryforwards were limited
to  offset  income.  In  addition, as of December 31, 2002, based on information
currently  available  to  the  Company,  the  change of ownership percentage was
approximately  38%  for the applicable three-year testing period. If, during the
current  three-year  testing  period,  the  Company  experiences  an  additional
more-than-50%  ownership  change  under  Section  382,  the  amount  of  the NOL
carry-forward  available  to  offset  future taxable income may be substantially
reduced.  There can be no assurance that the Company will realize the benefit of
any  carry-forwards.

                                       56
<PAGE>

NOTE  12.  SUPPLEMENTAL  CASH  FLOW  INFORMATION

<TABLE>
<CAPTION>

                                                    2002        2001        2000
                                                  --------    --------    ----------
<S>                                                  <C>         <C>         <C>
Supplemental disclosure of cash flow
  information:
   Cash paid during the year for interest          $6,252     $  5,620    $   4,218
                                                  ========    ========    ==========

Supplemental schedule of non-cash investing and
  financing activities:
   Acquisition of equipment under capital lease
     obligations                                   $   --     $  2,145    $      --
   Interest expense paid in additional principal    2,824           --           --
   Issuance of warrants for services                   --           77        2,175
   Common stock issued for compensation                --           --          706
   Contingent redemptions exchanged for
     convertible debt                                  --       32,400           --
   Acquisitions:
     Fair value of assets acquired                     --          835       21,718
     Goodwill                                          --           54      209,978
     Less: Fair value of stock issued                  --           --     (170,388)
     Less: Fair value of options/warrants issued       --           --      (27,448)
     Less: liabilities assumed                         --         (889)     (30,243)
                                                  --------    --------    ----------
     Acquisitions, net cash acquired                   --           --        3,617
   Cumulative effect of accounting change
     attributed to implementation of EITF 00-19
     for the contingent redemption feature of
     common stock and warrants:
       Increase in additional paid-in capital          --       65,617           --
       Net change in contingent redemption value
         of warrants and common stock                  --      (28,780)          --
                                                  --------    --------    ----------
       Cumulative effect of accounting change          --       36,837           --

</TABLE>

NOTE  13.  EMPLOYEE  BENEFIT  PLANS

     The  Company sponsors a defined contribution pension plan (the "Plan"). The
Plan  qualifies  as  a  deferred  salary arrangement under Section 401(k) of the
Internal  Revenue  Code.  Eligible  employees  may contribute up to 15% of their
compensation  (subject  to  Internal  Revenue Code limitations). The Plan allows
employees  to  choose among a variety of investment alternatives. The Company is
not  required  to  contribute  to  the Plan. During the years ended December 31,
2002,  2001  and  2000, the Company elected to contribute $131,000, $108,000 and
$85,000  to  the  Plan,  respectively.  No significant administration costs were
incurred  during  2002,  2001  or  2000.

                                       57
<PAGE>

NOTE  14.  PER  SHARE  DATA

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

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                             ----------------------------------------
                                                                 2002         2001         2000
                                                             -----------  ------------  -------------
<S>                                                             <C>             <C>         <C>
Income (loss) before extraordinary gains and
  cumulative effect of an accounting change                  $  67,722     $(208,478)     $ (61,896)
Extraordinary gains                                             29,340        20,648             --
Cumulative effect of an accounting change                           --       (36,837)            --
                                                             -----------  ------------  -------------
Income available to common stockholders used to
  compute basic income (loss) per share                      $  97,062     $(224,667)     $ (61,896)
Interest expense on convertible bonds                               18            --             --
                                                             -----------  ------------  -------------
Income available for common stockholders after
  assumed conversion of dilutive securities used to
  compute diluted income (loss) per share                    $  97,080     $(224,667)     $ (61,896)
                                                             ===========  ============  =============

Weighted average number of common shares
  outstanding used to compute basic income (loss) per
  share                                                         27,253        26,414         23,509
Effect of dilutive securities*:
  Stock options and warrants                                     1,347            --             --
  8% Secured convertible bonds due 2006                          2,010            --             --
  8% Senior convertible subordinated notes due 2007                188            --             --
                                                             -----------  ------------  -------------
Weighted average number of common and common
  equivalent shares outstanding used to compute diluted
  income (loss) per share                                       30,798        26,414         23,509
                                                             ===========  ============  =============

Income (loss) per share - Basic:
  Income (loss) before extraordinary gains and
    cumulative effect of an accounting change per share       $   2.48     $   (7.89)     $   (2.63)
  Extraordinary gains per share                                   1.08          0.78             --
  Cumulative effect of an accounting change per share               --         (1.40)            --
                                                             -----------  ------------  -------------
  Net income (loss) per share                                 $   3.56     $   (8.51)     $   (2.63)
                                                             ===========  ============  =============
  Weighted average common shares outstanding                    27,253        26,414         23,509
                                                             ===========  ============  =============
Income (loss) per share - Diluted:
  Income (loss) before extraordinary gains and
    cumulative effect of an accounting change per share       $   2.20     $   (7.89)     $   (2.63)
  Extraordinary gains per share                                   0.95          0.78             --
  Cumulative effect of an accounting change per share               --         (1.40)            --
                                                             -----------  ------------  -------------
  Net income (loss) per share                                 $   3.15     $   (8.51)     $   (2.63)
                                                             ===========  ============  =============

  Weighted average common and common equivalent
    shares outstanding                                          30,798        26,414         23,509
                                                             ===========  ============  =============
</TABLE>

*  The  diluted share basis for the years ended December 31, 2002, 2001 and 2000
excludes  options  and  warrants  to  purchase  1.7 million, 3.0 million and 6.4
million  shares  of  common  stock,  respectively and convertible bonds that are
convertible into 9 thousand, 3.3 million and 1.4 million shares of common stock,
respectively,  due  to  their  antidilutive  effect.

                                       58
<PAGE>

NOTE  15.  SUBSEQUENT  EVENTS (UNAUDITED)

     In  2003, through March 28, the Company has repurchased $9.4 million of its
12%  Senior  Subordinated Notes at a $2.2 million discount from face amount that
will  be  reported  as  other  income,  and approximately $3.6 million of its 8%
Secured  Convertible Notes at face value. In January 2003, the Company announced
a  share  buyback  program  of  $10  million  or 2,500,000 shares, and purchased
1,315,789 of its common shares from America Online, Inc. at a per share price of
$3.80 (the average closing price for the five days ended January 15, 2003).  The
aggregate  purchase  price  was  approximately  $5.0  million.

     The  Company  had  a  note receivable with an officer of the Company with a
balance  of $1.0 million as of December 31, 2002 for relocation and construction
of  a  new  residence  in Florida (See Note 8 above).  As of March 27, 2003, the
note  was  prepaid  in  full.

NOTE  16.  QUARTERLY  FINANCIAL  DATA  (UNAUDITED)

<TABLE>
<CAPTION>
     (In thousands, except per share data)         FIRST      SECOND       THIRD       FOURTH
                                                  QUARTER     QUARTER     QUARTER     QUARTER
                                                ---------   ---------   ----------   ---------
<S>                                                 <C>        <C>         <C>          <C>
              2002
              ----
  Sales                                          $ 79,447    $ 77,673    $  79,133    $ 81,254
  Operating income                               $ 10,322    $ 12,231    $  15,753    $ 16,293
  Income before extraordinary gains              $  8,130    $  9,417    $  13,378    $ 36,797
  Extraordinary gains                                  --          --           --    $ 29,340
  Net income                                     $  8,130    $  9,417    $  13,378    $ 66,137
  Net income per share - Basic                   $   0.30    $   0.35    $    0.49    $   2.42
  Net income per share - Diluted                 $   0.28    $   0.30    $    0.42    $   2.10

              2001
              ----
  Sales                                          $131,780    $132,445    $ 126,335    $ 97,598
  Operating income (loss)                        $ (8,735)   $(24,888)   $(175,404)   $  8,118
  Income (loss) before extraordinary
    gains and cumulative effect of an
    accounting change                            $(10,148)   $(25,850)   $(179,166)   $  6,686
  Extraordinary gains                            $     --    $     --    $  16,867    $  3,781
  Cumulative effect of an accounting
    change.                                      $     --    $(36,837)   $      --    $     --
  Net income (loss)                              $(10,148)   $(62,687)   $(162,299)   $ 10,467
  Net income (loss) per share - Basic            $  (0.39)   $  (2.40)   $   (6.18)   $   0.39
  Net income (loss) per share - Diluted          $  (0.39)   $  (2.40)   $   (6.18)   $   0.36

</TABLE>

*  Fully  diluted  earnings  per share for the quarters ended December 31, 2001,
March  31,  2002,  June  30,  2002,  and  September  30, 2002 have been revised.

ITEM  9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL  DISCLOSURE

     None.

                                       59
<PAGE>

                                    PART III

ITEM  10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

DIRECTORS  AND  EXECUTIVE  OFFICERS

     The  directors  and  executive  officers  of  the Company as of March [  ],
2003  were  as  follows:

<TABLE>
<CAPTION>

      NAME                    AGE                           POSITION
                              ---   -----------------------------------------------------------
<S>                           <C>  <C>

Gabriel Battista (3)          58   Chairman of the Board of Directors, Chief Executive Officer
                                     and Director
Warren Brasselle              45   Senior Vice President - Operations
Jeffrey Earhart               41   Senior Vice President - Customer Operations
Mark S. Fowler (1)            60   Director
Kevin D. Griffo               42   Executive Vice President - Sales and Marketing
Aloysius T. Lawn, IV          44   Executive Vice President - General Counsel and Secretary
Arthur J. Marks (2).          58   Director
Edward B. Meyercord, III (2)  37   President and Director
Ronald R. Thoma (3)           68   Director
George Vinall                 47   Executive Vice President - Business Development
Thomas Walsh                  43   Senior Vice President - Finance and Treasurer
David G. Zahka                43   Chief Financial Officer
</TABLE>

(1)     Director  whose  term  expires  in  2005.
(2)     Director  whose  term  expires  in  2003.
(3)     Director  whose  term  expires  in  2004.

All  officers  are  elected  annually  by the Board of Directors and hold office
until  their  successors  are  elected  and  qualified.

GABRIEL  BATTISTA.  Mr.  Battista  currently  serves as Chairman of the Board of
Directors  and  Chief  Executive  Officer  of the Company.  Prior to joining the
Company  in  January  of  1999  as  a  Director and Chief Executive Officer, Mr.
Battista  served  as  Chief  Executive  Officer  of  Network  Solutions Inc., an
Internet  domain name registration company.  Prior to joining Network Solutions,
Mr.  Battista served both as CEO and as President and Chief Operating Officer of
Cable  & Wireless, Inc., a telecommunication provider.  His career also included
management positions at US Sprint, GTE Telenet and The General Electric Company.
Mr.  Battista  serves  as  a director of Capitol College, and Systems & Computer
Technology  Corporation  (SCTC).

WARREN  BRASSELLE.  Since  April  2000,  Mr. Brasselle has served as Senior Vice
President  -  Operations  for  the  Company.  Prior  to joining the Company, Mr.
Brasselle  was Vice President of Operations for Cable and Wireless North America
since  1996,  where he was broadly responsible for the design, provisioning, and
maintenance of Cable & Wireless' voice, data, and IP network. Mr. Brasselle also
held  a  variety  of  operational  positions  at  MCI, now MCI WorldCom Inc. and
Williams  Telecommunications.

JEFFREY  EARHART.  Mr.  Earhart  currently  serves  as  Senior  Vice President -
Customer  Operations  of  the  Company.  Between  1997  and  2000, he served the
Company as Vice President, Operations. Mr. Earhart originally joined the Company
as  its  Director  of  Retail Sales and Provisioning in 1990, a position he held
until  1992.  Prior  to  rejoining  the  Company  in 1997, Mr. Earhart served as
President  of  Collective  Communications Services, an independent long distance
reseller  of  long  distance  services  of  the  Company.

MARK  S.  FOWLER.  Mr. Fowler has been a director of the Company since September
1999.  From  1981  to  1987, he was the Chairman of the FCC.  From 1987 to 1994,
Mr.  Fowler  was  Senior Communications Counsel at Latham & Watkins, a law firm,
and  of  counsel  from  1994  to  2000.  From  1991 to 1994, he was the founder,
Chairman  and  Chief  Executive  Officer  of  PowerFone  Holdings  Inc.,  a
telecommunications  company.  From 1994 to 2000 he was a founder and chairman of
UniSite,  Inc.,  a  developer  of  antenna  sites  for  use by multiple wireless

                                       60
<PAGE>

operators.  From  1999  to  December  2002,  Mr.  Fowler served as a director of
Pac-West  Telecomm,  Inc.,  a  competitive  local exchange carrier. From 1999 to
date,  Mr.  Fowler  has served as a director of Beasley Broadcast Group, a radio
broadcasting company. Mr. Fowler is also a founder and serves as Chairman of the
Board  of  Directors  of  AssureSat,  Inc.,  a  provider  of  telecommunications
satellite  backup  services.

KEVIN  D.  GRIFFO.  Mr.  Griffo  has  served  as  the  Company's  Executive Vice
President  - Sales and Marketing since March 2000. Prior to joining the Company,
Mr.  Griffo  was  the  President and Chief Operating Officer of Access One.  Mr.
Griffo  was  also  employed by AMNEX from January 1995 to December 1997, holding
various  positions,  including  Chief Operating Officer and President of AMNEX's
Telecommunications  Division.

ALOYSIUS  T. LAWN, IV. Mr. Lawn joined the Company in January 1996 and currently
serves  as  Executive  Vice  President - General Counsel and Secretary. Prior to
joining the Company, from 1985 through 1995, Mr. Lawn was an attorney in private
practice.  Mr. Lawn is a director of Stonepath Group, Inc., a global, integrated
logistics  services  organization.

ARTHUR J. MARKS. Mr. Marks has been a director of the Company since August 1999.
He  is  currently a general partner of Valhalla Partners, a private equity fund.
From  1984  through  2001,  Mr.  Marks  was  a General Partner of New Enterprise
Associates,  a  private  equity  fund  that  invests in early stage companies in
information  technology  and  medical  and  life sciences. Mr. Marks serves as a
director  of  two  publicly traded software companies, Mobius Management Systems
and  Progress  Software  Corp.,  as  well  as one publicly traded communications
equipment company, Advanced Switching Communications. He is also a director of a
number  of  privately  held  companies.

EDWARD  B.  MEYERCORD, III.  Mr. Meyercord currently serves as the President and
Director of the Company. Mr. Meyercord was elected to the Board of Directors and
President  of  the  Company in May 2001. He served as Chief Financial Officer of
the Company between August 1999 and December 2001 and Chief Operating Officer of
the  Company  between  January  2000  and  May  2001.  He  joined the Company in
September  of  1996  as  the  Executive  Vice President, Marketing and Corporate
Development.  Prior  to  joining  the  Company,  Mr.  Meyercord  served  as Vice
President  in  the  Global Telecommunications Corporate Finance Group at Salomon
Brothers,  Inc.,  based in New York.  Prior to Salomon Brothers he worked in the
corporate  finance  department  at  PaineWebber  Incorporated.

RONALD  R.  THOMA.  Mr. Thoma is currently a business consultant, having retired
in  early  2000  as  an Executive Vice President of Crown Cork and Seal Company,
Inc.,  a  manufacturer  of  packaging products, where he had been employed since
1955.  Mr.  Thoma  has  served  as  a  director  of  the  Company  since  1995.

GEORGE  VINALL.  Mr.  Vinall  joined the Company in January of 1999 as Executive
Vice  President - Business Development.  Prior to joining the Company, he served
as  President  of  International  Protocol  LLC,  a telecommunication consulting
business,  as  General  Manager  of  Cable  &  Wireless  Internet  Exchange,  an
international  Internet  service  provider,  and as Vice President, Regulatory &
Government  Affairs  of  Cable  and  Wireless North America, a telecommunication
provider.

THOMAS  M.  WALSH.  Mr.  Walsh  joined  the  Company  in  September  of 2000 and
currently  serves  as  Senior  Vice  President  - Finance and Treasurer.  Before
joining the Company, he served as a director at Comcast Cellular Communications,
a  telecommunications  company,  from  1996  to 1999, and Regional Controller of
Southwestern  Mobil  Systems, a successor corporation, from 1999 to 2000.  Prior
to Comcast Cellular Communications, he worked for Call Technology Corporation, a
telecommunications  company,  where  he  was  responsible  for  all  finance and
accounting  functions as Chief Financial Officer.  Prior to his tenure with Call
Technology  Corporation,  Mr.  Walsh  served as Audit Manager for Ernst & Young.
Mr.  Walsh  is  a  Certified  Public  Accountant.

DAVID  G.  ZAHKA.  Mr.  Zahka  joined  the  Company in December of 2001 as Chief
Financial Officer.  Before joining the Company, he spent more than 15 years with
PaineWebber  Incorporated,  and  its successor UBS Warburg, where he served most
recently as Executive Director of the Financial Sponsors Group.  At PaineWebber,
Mr. Zahka also served as Senior Vice President of Debt Capital Markets and First
Vice  President  of  the  Utility  Finance  Group.

                                       61
<PAGE>

COMPLIANCE  WITH  SECTION  16(A)  OF  THE  EXCHANGE  ACT

     Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's  directors  and  certain  officers  and persons who are the beneficial
owners  of  more than 10 percent of the Common Stock of the Company are required
to  report  their  ownership  of  the  Common Stock, options and certain related
securities  and any changes in that ownership to the SEC. Specific due dates for
these  reports  have been established, and the Company is required to report any
failure  to  file  by  such  dates in 2002. The Company believes that all of the
required  filings  have  been made in a timely manner, except that the executive
officers  of  the  Company  who  participated  in  the Company's Employee Option
Exchange  (described in "STOCK OPTION GRANTS" below) that was completed in April
2002,  including  Messrs. Battista, Meyercord, Lawn, Earhart, Brasselle, Griffo,
and  Vinall,  reported  the cancellation of their options that were exchanged in
their  timely  filed Form 4 reports of the issuance of the new options delivered
in  the  exchange,  rather  than  in  an  earlier  Form 5 report. In making this
statement,  the  Company has relied on copies of the reporting forms received by
it.

ITEM  11.  EXECUTIVE  COMPENSATION.

     The  following  table  sets  forth  information  for the fiscal years ended
December  31,  2002,  2001 and 2000 as to the compensation for services rendered
paid  by  the  Company to the Chief Executive Officer and to the four other most
highly  compensated  executive  officers  of the Company whose annual salary and
bonus  exceeded  $100,000.

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                                                             LONG TERM
                                                        ANNUAL COMPENSATION                COMPENSATION
                                               -------------------------------------------------------------
                                                                                            SECURITIES
                                                                                            UNDERLYING
                                                                                           OPTIONS/SARS
NAME AND PRINCIPAL POSITION                      YEAR     SALARY (1)     BONUS (1)
------------------------------------------------------------------------------------------------------------
<S>                                              <C>         <C>             <C>               <C>

Gabriel Battista, Chairman of the Board          2002     $ 500,000       $ 535,000          440,488(4)
of Directors,  Chief Executive Officer and       2001           --(2)            --               --
Director                                         2000           --(2)     $  50,000          166,666(3)

Edward B. Meyercord, III, President and.         2002     $ 350,000       $ 381,500          150,000(4)
Director                                         2001     $ 300,000              --               --
                                                 2000     $ 298,000       $  30,000          116,666(3)

Aloysius T. Lawn, IV, Executive Vice             2002     $ 275,000       $ 245,400           70,000(4)
President - General Counsel and                  2001     $ 275,000              --               --
Secretary.                                       2000     $ 260,500       $  27,500          104,166(3)

Warren A. Brasselle, Senior Vice                 2002     $ 250,000       $ 233,500           68,333(4)(5)
President - Operations                           2001     $ 250,000              --               --
                                                 2000     $ 186,539(7)    $ 188,000           85,000(6)

David G. Zahka, Chief Financial Officer          2002     $ 250,000       $ 233,500               --
                                                 2001     $  13,462(7)           --          100,000(6)
                                                 2000            --              --               --

Jeffrey Earhart, Senior Vice President -         2002     $ 230,000       $ 333,000           63,889(4)
Customer Operations                              2001     $ 230,000              --               --
                                                 2000     $ 216,615       $ 140,000          106,000(3)(5)(6)
</TABLE>

(1)     The  costs  of  certain  benefits  not properly categorized as salary or
benefits  are  not  included  because  they  did  not exceed, in the case of any
executive  officer named in the table, the lesser of $50,000 or 10% of the total
annual  salary  and  bonus  reported  in  the  above  table.

(2)     Under  his  employment  agreement  with  the  Company,  Mr.  Battista is
entitled to a minimum annual salary of $500,000.  Mr. Battista's salary for 1999
included,  in  addition  to the $500,000 annual base salary for 1999, $1,000,000
representing  a  prepayment of $500,000 in salary for each of the years 2000 and
2001  as  provided  in  Mr.  Battista's  employment  agreement with the Company.

                                       62
<PAGE>

(3)     Options  to  purchase the Company's common stock. The options granted to
Messrs.  Battista,  Meyercord, Lawn and Earhart were granted under the Company's
2000  Long Term Incentive Plan. In 2000, Mr. Battista was granted (i) options to
purchase  83,333  shares  of  the Company's common stock at an exercise price of
$6.00  per  share  that  vest  in five years and (ii) options to purchase 83,333
shares  of  the  Company's common stock at an exercise price of $14.25 per share
that  vest  over  three years. In 2000, Mr. Meyercord was granted (i) options to
purchase  50,000  shares  of  the Company's common stock at an exercise price of
$6.00  per  share  that  vest  in five years and (ii) options to purchase 66,666
shares  of  the  Company's common stock at an exercise price of $14.25 per share
that  vest  over  three  years.  In  2000,  Mr.  Lawn was granted (i) options to
purchase  45,833  shares  of  the Company's common stock at an exercise price of
$6.00  per share that vest in five years, (ii) options to purchase 16,666 shares
of  the  Company's  common  stock  at  an exercise price of $6.93, half of which
vested  upon  grant and the remainder of which vested six months thereafter, and
(iii)  options  to  purchase  41,666  shares of the Company's common stock at an
exercise  price  of  $14.25  per share that vest over three years.  In 2000, Mr.
Earhart  was  granted  options to purchase 31,000 shares of the Company's common
stock at an exercise price of  $6.00 per share that vest in five years.  Each of
the  employment  agreements  for  Messrs.  Battista, Meyercord, Lawn and Earhart
provide  for  immediate vesting of options in event of a "change of control" (as
defined  in  such  agreements).

(4)     Messrs.  Meyercord,  Lawn,  Earhart  and Brasselle were reissued options
under  the  1998 Long Term Incentive Plan to purchase the Company's common stock
on April 5, 2002, in exchange for options to purchase the Company's common stock
exchanged  and  cancelled  pursuant  to  the  Company's Employee Option Exchange
(described in "STOCK OPTION GRANTS" below): 150,000, 70,000, 63,889, and 60,000,
respectively, at an exercise price of $1.53.  On April 5, 2002, Mr. Battista was
reissued  options  under  the:  (i)  1998  Long  Term Incentive Plan to purchase
107,155  shares  of the Company's common stock and (ii) 2000 Long Term Incentive
Plan  to  purchase 333,000 shares of the Company's common stock; in exchange for
options  to purchase the Company's common stock exchanged and cancelled pursuant
to  the  Company's  Employee Option Exchange (described in "STOCK OPTION GRANTS"
below).

(5)     Options  to  purchase the Company's common stock. The options granted to
Messrs.  Earhart  and  Brasselle were granted under the Company's 1998 Long Term
Incentive  Plan.  In  2000,  Mr.  Earhart was granted options to purchase 50,000
shares  of  the  Company's common stock at an exercise price of $14.25 per share
that  vest  over  three  years.  In 2002, Mr. Brasselle was granted options that
vest  over three years to purchase 8,333 shares of the Company's common stock at
an  exercise  price  of  $1.53  per  share.

(6)     Options  to purchase the Company's common stock.  The options granted to
Mr.  Zahka and certain options granted to Messrs. Earhart and Brasselle were not
granted  under  a  stock option plan.  In 2000, prior to Mr. Earhart becoming an
executive  officer  of  the Company, Mr. Earhart was granted options to purchase
25,000  shares  of the Company's common stock at an exercise price of $14.25 per
share  that  vest  over  three  years.  In  2000,  Brasselle  was granted (i) in
connection  with his hiring by the Company, options to purchase 60,000 shares of
the  Company's  common  stock  at  an exercise price of $43.14 per share, 10,000
vested  immediately  and the remainder vest over three years (these options were
subsequently  reissued  pursuant  to  the  Company's Employee Option Exchange as
described  in footnote 4 above), and (ii) prior to becoming an executive officer
of  the Company, options to purchase 25,000 shares of the Company's common stock
at  an  exercise price of $14.25 per share that vest over three years.  In 2001,
in  connection  with his hiring by the Company, Mr. Zahka was granted options to
purchase  100,000  shares  of the Company's common stock at an exercise price of
$1.20  per  share  that  vest  over  three  years.

(7)     Messrs.  Brasselle  and  Zahka  commenced employment with the Company on
April  3,  2000  and  December  7,  2001,  respectively.

                                       63
<PAGE>

STOCK  OPTION  GRANTS

     The  following  table  sets  forth  further information regarding grants of
options  to  purchase  the  Company  common stock made by the Company during the
fiscal  year  ended  December  31,  2002  to the executive officers named in the
Summary  Compensation  Table,  above.

<TABLE>
<CAPTION>

                    OPTION/SAR  GRANTS  IN  LAST  FISCAL  YEAR


                    NUMBER  OF    PERCENT OF TOTAL
                    SECURITIES     OPTIONS/SARS
                    UNDERLYING     GRANTED TO          EXERCISE                      POTENTIAL REALIZABLE VALUE
                   OPTIONS/SARS   EMPLOYEES IN        PRICE PER      EXPIRATION     AT  ASSUMED  ANNUAL  RATES
NAME                GRANTED          2002             SHARE (1)      DATE            OF STOCK OPTION TERM (5)
----------------------------------------------------------------------------------------------------------------
                                                                                          5%($)         10%($)
                                                                                      ------------   -----------
<S>                    <C>             <C>             <C>              <C>               <C>             <C>
Gabriel Battista    107,155(2)        4.8%             $  1.53        11/12/08          $ 62,431       $144,184
                    333,333(3)       14.8%             $  1.53        11/12/08          $194,209       $448,520

Edward B.           150,000(2)        6.7%             $  1.53         11/1/09          $102,752       $243,636
Meyercord, III

Aloysius T.          70,000(2)        3.1%             $  1.53          4/1/09          $ 43,588       $101,750
Lawn, IV

Jeffrey Earhart       3,889(2)        0.2%             $  1.53        12/17/02          $    220       $    440
                     10,000(2)        0.4%             $  1.53         10/5/09          $  6,801       $ 16,109
                     50,000(2)        2.2%             $  1.53         1/28/10          $ 35,553       $ 84,833

Warren A.            60,000(2)        2.7%             $  1.53          3/8/10          $ 43,379       $103,852
Brasselle             8,333(4)        0.4%             $  1.53          4/5/12          $  8,030       $ 20,384

David G. Zahka .          0            --                   --              --                --             --
</TABLE>

(1)     All  options  have  been  granted  at market price on the date of issue.

(2)     The  options  granted  to Messrs. Battista, Meyercord, Lawn, Earhart and
Brasselle  were  granted under the Company's 1998 Long Term Incentive Plan.  The
options were reissued options to purchase the Company's common stock on April 5,
2002,  in  exchange for options to purchase the Company's common stock exchanged
and  cancelled  pursuant  to  the  Company's Employee Option Exchange (described
below).

(3)     The  options  granted  to  Mr. Battista were granted under the Company's
2000  Long Term Incentive Plan.    The options were reissued options to purchase
the Company's common stock on April 5, 2002, in exchange for options to purchase
the  Company's  common  stock  exchanged and cancelled pursuant to the Company's
Employee  Option  Exchange  (described  below).

(4)     The  options  granted  to Mr. Brasselle were granted under the Company's
1998  Long  Term  Incentive  Plan.

(5)     Disclosure  of  the  5%  and  10% assumed annual compound rates of stock
appreciation  based  on exercise prices are mandated by the rules of the SEC and
do  not  represent  the  Company's estimate or projection of future common stock
prices.  The  actual  value  realized  may be greater or less than the potential
realizable  value  set  forth  in  the  table.

     Of  the  executive  officers  in  the Summary Compensation Table above, Mr.
Earhart acquired 3,889 shares of the Company's common stock upon the exercise of
options  in  2002.

                                       64
<PAGE>

<TABLE>
<CAPTION>

      AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES

                                                    NUMBER OF SECURITIES           VALUE  OF  UNEXERCISED
                                                   UNDERLYING UNEXERCISED               IN-THE-MONEY
                                                       OPTIONS/SARS                   OPTIONS/SARS  (1)
                   SHARES ACQUIRED     VALUE      -------------------------     ----------------------------
   NAME              ON EXERCISE      REALIZED    EXERCISABLE/UNEXERCISABLE       EXERCISABLE/UNEXERCISABLE
------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>               <C>                              <C>


Jeffrey Earhart         3,889        $20,883.93         60,001/55,999                176,369.38/$67,830.62
</TABLE>

(1)     Calculated  as  the  difference  between  the exercise/base-price of the
options/SARs and a year-end fair market value of the underlying securities equal
to  $5.60.

     On  August  29,  2001,  the  Company  initiated  an  offer  to exchange all
outstanding stock options previously issued by the Company to employees that had
an exercise price of $16.50 or more and did not expire before April 5, 2002, for
new  options to be granted under one of the Company's various stock option plans
(the  "Employee Option Exchange").  On October 4, 2001, the Company accepted for
cancellation  options  to  purchase a total of 1,938,211 shares of Common Stock.
On  April  5,  2002,  the  Company  granted new options pursuant to the Employee
Option  Exchange  in  exchange  for  the  exchanged  and  cancelled  options.

COMPENSATION  OF  DIRECTORS

     The  Company  currently  pays  non-employee directors an annual retainer of
$10,000.  Directors  are eligible to receive, and have been granted in the past,
options  to  purchase  shares  of  common stock of the Company.  No options were
granted  in  2002.  Non-employee  directors  are  also reimbursed for reasonable
expenses incurred in connection with attendance at Board meetings or meetings of
committees  thereof.

EMPLOYMENT  CONTRACTS

     Gabriel  Battista  is  party  to  an employment agreement with the Company,
dated  as  of  November  13, 1998, that was amended as of March 28, 2001 and now
expires  on December 31, 2004. Under the terms of the agreement, as amended, Mr.
Battista  received  a  signing  bonus  of $3,000,000 at the time of the original
agreement  and  is  entitled to a minimum annual base salary of $500,000, plus a
discretionary  bonus.  The  initial  three  years  of  salary under the original
agreement  were paid in advance. Mr. Battista is also entitled to other benefits
and  perquisites. In addition, upon execution of the original agreement in 1998,
Mr.  Battista  was  granted  options  that  vested  over three years to purchase
333,333  shares  of  the Company common stock at an exercise price of $31.32 per
share,  and  options  that vested immediately upon execution of the agreement to
purchase  an additional 216,666 shares at an exercise price of $21.00 per share.
A  portion  of  these  options  were  exchanged  and  cancelled  pursuant to the
Company's  Employee  Option  Exchange  (described  in  "STOCK  OPTION  GRANTS").

     In  the  event  of  certain  transactions  (including an acquisition of the
Company's  assets, a merger into another entity or a transaction that results in
the  Company  common  stock  no longer being required to be registered under the
Securities  Exchange Act of 1934), Mr. Battista will receive an additional bonus
of  $1,000,000  if  the  price  per  share  for the Company common stock in such
transaction  was  less  than  or equal to $60.00 per share, or $3,000,000 if the
consideration  is  greater  than  $60.00  per  share.

     Edward  B.  Meyercord,  III  entered into a three-year employment agreement
with  the  Company effective as of March 26, 2001. Commencing in 2002, under the
contract,  Mr. Meyercord is entitled to a minimum annual base salary of $350,000
and  certain  other  perquisites  made generally available by the Company to its
senior  executive  officers.

     Aloysius  T.  Lawn,  IV entered into a three-year employment agreement with
the  Company  effective  as  of  March 26, 2001. Under the contract, Mr. Lawn is
entitled  to  a  minimum  annual  base  salary  of  $275,000  and  certain other
perquisites  made  generally  available  by  the Company to its senior executive
officers.

                                       65
<PAGE>

     Jeffrey  Earhart  entered  into  a three-year employment agreement with the
Company  effective  as  of  October  2, 2001. Under the contract, Mr. Earhart is
entitled  to  a  minimum  annual  base  salary  of  $230,000  and  certain other
perquisites  made  generally  available  by  the Company to its senior executive
officers.

     Warren  Brasselle  entered  into a three-year employment agreement with the
Company  effective  as  of  April  3,  2000.  Under  the contract, Mr. Brasselle
received  a signing bonus of $100,000, payable in two equal installments on June
31,  2000  and  September  30,  2000,  and  is entitled to a minimum annual base
salary of $250,000 and certain other perquisites made generally available by the
Company  to  its  senior executive officers.  In addition, upon execution of the
agreement,  Mr.  Brasselle  was granted options to purchase 60,000 shares of the
Company's  common  stock at an exercise price of $43.14 per share, 10,000 vested
immediately  and  the  remainder  vest  over  three  years  (these  options were
exchanged  and  cancelled  pursuant  to  the  Company's Employee Option Exchange
(described  in  "STOCK  OPTION  GRANTS").

     David  G.  Zahka  entered  into  a three-year employment agreement with the
Company  effective  as  of  December  7, 2001.  Under the contract, Mr. Zahka is
entitled  to  a  minimum  annual  base  salary  of  $250,000  and  certain other
perquisites  made  generally  available  by  the Company to its senior executive
officers.  In  addition,  upon execution of the agreement, Mr. Zahka was granted
options  to purchase 100,000 shares of the Company's common stock at an exercise
price  of  $1.20  per  share  that  vest  over  three  years.

     Each  of  the  employment agreements for Messrs. Battista, Meyercord, Lawn,
Earhart,  Brasselle  and Zahka provide for immediate vesting of options in event
of  a  "change  of  control"  (as  defined in the agreements) of the Company and
provide  for  severance  benefits  in  the event employment is terminated by the
Company  without  cause  prior  to  the end of the term and for a certain period
beyond the end of the term in the event of a "change of control."  The severance
benefits  are generally the payment of an amount equal to two years' base salary
plus the average annual incentive bonus earned by the executive in the preceding
four  years,  as  well  as the continuation of various employee benefits for two
years.

     Each  of  the above-described agreements requires the executive to maintain
the  confidentiality  of  Company  information  and assign any inventions to the
Company. In addition, each of the executive officers has agreed that he will not
compete  with  the  Company  by engaging in any capacity in any business that is
competitive  with  the business of the Company during the term of his respective
agreement  and  thereafter  for  specified  periods.


COMPENSATION  COMMITTEE  INTERLOCKS  AND  INSIDER  PARTICIPATION

None.

                                       66
<PAGE>

ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS.

     The Compensation Plans and Securities table from Item 5 of this Annual
Report  is  incorporated  herein  by  reference.

     The  following  table  sets  forth certain information known to the Company
with respect to beneficial ownership of the Company common stock as of March 26,
2003  (except  as  otherwise  noted) by (i) each stockholder who is known by the
Company  to  own  beneficially  more than five percent of the outstanding common
stock,  (ii)  each  of  the Company's directors and nominees for director, (iii)
each  of  the  executive officers named below and (iv) all current directors and
executive  officers  of  the  Company  as a group. Except as otherwise indicated
below,  the  Company  believes  that  the  beneficial owners of the common stock
listed  below have sole investment and voting power with respect to such shares.

<TABLE>
<CAPTION>

                                                         NUMBER OF SHARES        PERCENT OF SHARES
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP          BENEFICIALLY OWNED (1)    BENEFICIALLY OWNED
-----------------------------------------------        ---------------------     ------------------
<S>                                                           <C>                     <C>
Paul Rosenberg                                            1,919,995 (2)                 7.3%
650 N. E. 5th Avenue
Boca Raton, Fl 33432

Gabriel Battista                                            655,555 (3)                 2.4%

Mark S. Fowler                                              108,674 (3)                   *

Arthur J. Marks                                              61,666 (3)                   *

Edward B. Meyercord, III                                    244,820 (3)                   *

Ronald R. Thoma                                              39,311 (3)                   *

Jeffrey Earhart                                              81,434 (3)                   *

Aloysius T. Lawn, IV                                        145,660 (3)                   *

Warren Brasselle                                             89,278 (3)                   *

David G. Zahka                                               40,000 (3)                   *


All directors and executive officers as a group
(12 persons)                                              2,186,005 (3)                 7.8%

*     Less  than  1%
</TABLE>

(1)     The  securities  "beneficially  owned"  by  a  person  are determined in
accordance  with  the  definition  of  "beneficial  ownership"  set forth in the
regulations of the SEC and, accordingly, may include securities owned by or for,
among  others,  the  spouse, children or certain other relatives of such person.
The  same  shares may be beneficially owned by more than one person.  Beneficial
ownership  may  be  disclaimed  as  to  certain  of  the  securities.

(2)     The  foregoing  information  is derived from the Schedule 13D/A filed by
Paul  Rosenberg, the Rosenberg Family Limited Partnership, PBR, Inc. and the New
Millennium  Charitable  Foundation  on  February  12,  1999.

(3)     Includes  shares of the Company common stock that could be acquired upon
exercise  of  options  exercisable  within 60 days after March 28, 2003 and that
have been tendered for exchange and cancelled pursuant to the Company's Employee
Option  Exchange  on  the  assumption  that  the  new  options will be exchanged
therefore.  Includes  shares of Company common stock that could be acquired upon
exercise  of  options exercisable within sixty (60) days after March 31, 2003 as
follows:  Gabriel Battista-605,555; Edward B. Meyercord III-194,444; Aloysius T.
Lawn  IV-114,444; Jeffrey Earhart-76,666; Warren Brasselle-79,445, and; David G.
Zahka-33,334.

                                       67
<PAGE>

ITEM  13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

     In  1999,  the  principal  operating subsidiary of the Company requested an
employee,  Jeffrey Earhart, to relocate from Pennsylvania to Florida in order to
take  over  the  management  of  its  customer  service  centers in Florida.  In
connection with the relocation, the Company agreed to make advances or a loan to
Mr.  Earhart  for  the  relocation  and  the  construction of a new residence in
Florida.  In  2000,  the  Company  and  Mr.  Earhart memorialized this agreement
regarding  relocation with a loan that was secured by the new residence and bore
interest at the rate of 8.25 percent per annum.  The loan was refinanced in July
2002  and bore interest at the rate of 6.25 percent per annum to reflect current
market  rates.  As  of  March  27,  2003,  Mr.  Earhart  retired the loan in its
entirety.  The  largest aggregate amount of the loan outstanding during 2002 was
$1.04  million,  and, as of March 28, 2003, no money was outstanding on the loan
and  advances.  In May 2001, Mr. Earhart was elected an executive officer of the
Company.

ITEM  14.   CONTROLS  AND  PROCEDURES.

     Within the 90-day period prior to the filing of this report, an  Evaluation
was  carried  out  under  the  supervision  and  with  the  participation of the
Company's  management,  including  the Chief Executive Officer ("CEO") and Chief
Financial  Officer  ("CFO"),  of  the  effectiveness of the Company's disclosure
controls  and  procedures.  Based  on  that  evaluation,  the  CEO  and CFO have
concluded that the Company's disclosure controls and procedures are effective to
ensure  that information required to be disclosed by the Company in reports that
it  files  or  submits  under  the  Securities Exchange Act of 1934 is recorded,
processed,  summarized  and  reported  within  the  time  periods  specified  in
Securities  and  Exchange Commission rules and forms.  Subsequent to the date of
their  evaluation,  there  were no significant changes in the Company's internal
controls  or  in  other  factors  that could significantly affect the disclosure
controls,  including  any  corrective  actions  with  regard  to  significant
deficiencies  and  material  weaknesses.

ITEM  15.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES  AND  REPORTS  ON
FORM  8-K

     (a)     The  following documents are filed as part of this Annual Report on
Form  10-K.

           1.     Consolidated  Financial  Statements:

     The  Consolidated  Financial Statements filed as part of this Form 10-K are
listed  in  the  "Index  to  Consolidated  Financial  Statements"  in  Item  8.

           2.     Consolidated  Financial  Statement  Schedule:

     The  Consolidated  Financial  Statement  Schedule  filed  as  part  of this
report  is  listed  in  the  "Index  to  S-X  Schedule."

     Schedules  other  than  those  listed  in  the  accompanying  Index  to S-X
Schedule  are  omitted  for  the  reason  that they are either not required, not
applicable or the required information  is  included  in  the       Consolidated
Financial  Statements  or  notes  thereto.

                                       68
<PAGE>

                  TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES

                              INDEX TO S-X SCHEDULE

                                                                           PAGE
                                                                           ----

Schedule  II  --  Valuation  &  Qualifying  Accounts                        70

                                       69
<PAGE>

<TABLE>
<CAPTION>

                   SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                    (IN THOUSANDS)

                                               ADDITIONS
                                 BALANCE  AT    CHARGED TO    DEDUCTIONS     BALANCE
                                  BEGINNING     COSTS AND     FOR WRITE-    AT END OF
DESCRIPTION DEDUCTIONS            OF PERIOD      EXPENSES        OFFS         PERIOD
-------------------------------   ----------   -----------    ----------    ---------
<S>                                 <C>           <C>          <C>            <C>
YEAR ENDED DECEMBER 31, 2002:
Reserve and allowances deducted
  from asset accounts:
Allowance for uncollectible
  Accounts                         $ 46,404      $  9,365      $ (47,948)     $  7,821
                                  ==========   ===========    ==========    ==========

YEAR ENDED DECEMBER 31, 2001:
Reserve and allowances deducted
  from asset accounts:
Allowance for uncollectible
  Accounts                         $ 29,429      $ 92,778      $ (75,803)     $ 46,404
                                  ==========   ===========    ==========    ==========

YEAR ENDED DECEMBER 31, 2000:
Reserve and allowances deducted
  from asset accounts:
Allowance for uncollectible
  Accounts                         $  5,021      $ 53,772      $ (29,334)     $ 29,459
                                  ==========   ===========    ==========    ==========
</TABLE>

                                       70
<PAGE>

(3)  EXHIBITS:

EXHIBIT
NUMBER                           DESCRIPTION
--------------------------------------------

3.1  Composite  form of Amended and Restated Certificate of Incorporation of the
     Company,  as amended through October 15, 2002 (incorporated by reference to
     Exhibit  3.2 to the Company's Current Report on Form 8-K, dated October 16,
     2002).

3.2  Bylaws  of  the  Company  (incorporated  by reference to Exhibit 3.2 to the
     Company's  registration  statement  on  Form  S-1  (File  No.  33-94940)).

3.3  Certificate of Designation of Series A Junior Participating Preferred Stock
     of Company dated August 27, 1999 (incorporated by reference to Exhibit A to
     Exhibit  1  to  the  Company's registration statement on Form 8-A (File No.
     000-26728)).

4.1  Specimen  of  Talk  America  Holdings, Inc. common stock certificate (filed
     herewith).

4.2  Form  of  Warrant  Agreement  for Elec Communications, Kenneth Baritz, Joel
     Dupre,  Keith  Minella,  Rafael Scolari, and William Rogers dated August 9,
     2000  (incorporated  by  reference  to  Exhibit 4.2 to the Company's Annual
     Report  on  Form  10-K  for  the  year  ended  December  31,  2000).

4.3  Form  of  Warrant Agreement for MCG Credit Corporation dated August 9, 2000
     (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on
     Form  10-K  for  the  year  ended  December  31,  2000).

4.4  Form of Warrant Agreement for MCG Credit Corporation dated October 20, 2000
     (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on
     Form  10-K  for  the  year  ended  December  31,  2000).

4.5  Form  of  Warrant  Agreement  for MCG Finance Corporation dated October 20,
     2000  (incorporated  by  reference  to  Exhibit 4.5 to the Company's Annual
     Report  on  Form  10-K  for  the  year  ended  December  31,  2000).

4.6  Indenture dated as of December 10, 1997 between the Company and First Trust
     of  New  York,  N.A.  (incorporated  by  reference  to Exhibit 10.34 to the
     Company's Annual Report on Form 10-K for the year ended December 31, 1997).

4.7  Indenture  dated  as  of April 2, 2002, between Talk America Holdings, Inc.
     and Wilmington Trust Company (incorporated by reference to Exhibit 10.69 to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2001).

4.8  Supplemental  Indenture  No.  1  dated  as  of  April 2, 2002, between Talk
     America Holdings, Inc. and Wilmington Trust Company, to the Indenture dated
     as  of  April  2,  2002, between Talk America Holdings, Inc. and Wilmington
     Trust  Company (incorporated by reference to Exhibit 10.70 to the Company's
     Annual  Report  on  Form  10-K  for  the  year  ended  December  31, 2001).

4.9  Supplemental  Indenture  No.  2  dated  as  of  April 2, 2002, between Talk
     America Holdings, Inc. and Wilmington Trust Company, to the Indenture dated
     as  of  April  2,  2002  (incorporated by reference to Exhibit 10.71 to the
     Company's Annual Report on Form 10-K for the year ended December 31, 2001).

4.10 First  Supplemental  Indenture  dated  as  of  April  2, 2002, between Talk
     America  Holdings,  Inc.  and  U.S. Bank Trust National Association, to the
     Indenture  dated  as  of  September  9,  1997 (incorporated by reference to
     Exhibit  10.72  to  the  Company's  Annual Report on Form 10-K for the year
     ended  December  31,  2001).

                                       71
<PAGE>

4.11 First  Supplemental  Indenture  dated  as  of  April  2, 2002, between Talk
     America  Holdings,  Inc.  and  U.S. Bank Trust National Association, to the
     Indenture  dated  as  of  December  10,  1997 (incorporated by reference to
     Exhibit  10.73  to  the  Company's  Annual Report on Form 10-K for the year
     ended  December  31,  2001).

10.1 Employment  Agreement  between  the  Company and Aloysius T. Lawn, IV dated
     March  28, 2001 (incorporated by reference to Exhibit 10.1 to the Company's
     Annual  Report  on  Form  10-K  for  the  year  ended  December 31, 2000).*

10.2 Employment Agreement between the Company and Edward B. Meyercord, III dated
     March  28, 2001 (incorporated by reference to Exhibit 10.2 to the Company's
     Annual  Report  on  Form  10-K  for  the  year  ended  December 31, 2000).*

10.3 Indemnification  Agreement  between  the  Company  and Aloysius T. Lawn, IV
     dated  March  28,  2001(incorporated  by  reference  to Exhibit 10.3 to the
     Company's Annual Report on Form 10-K for the year ended December 31, 2000).
     *

10.4 Indemnification  Agreement between the Company and Edward B. Meyercord, III
     (incorporated  by reference to Exhibit 10.14 to the Company's Annual Report
     on  Form  10-K  for  the  fiscal  year  ended  December  31,  1996).  *

10.5 Tel-Save  Holdings,  Inc.  1995 Employee Stock Option Plan (incorporated by
     reference  to Exhibit 10.15 to the Company's registration statement on Form
     S-1  (File  No.  33-94940)).*

10.6 Employment  Agreement,  dated  as of November 13, 1998, between the Company
     and  Gabriel  Battista  (incorporated  by  reference to Exhibit 10.1 to the
     Company's  Current  Report  on  Form  8-K  dated  January  20,  1999).*

10.7 Amendment  to  Employment  Agreement,  dated  March  28,  2001, between the
     Company and Gabriel Battista (incorporated by reference to Exhibit 10.16 to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2000).*

10.8 Indemnification  Agreement,  dated  as  of  December  28, 1998, between the
     Company  and Gabriel Battista (incorporated by reference to Exhibit 10.2 to
     the  Company's  Current  Report  on  Form  8-K  dated  January 20, 1999). *

10.9 Stock  Option Agreement, dated as of November 13, 1998, between the Company
     and  Gabriel  Battista  (incorporated  by  reference to Exhibit 10.3 to the
     Company's  Current  Report  on  Form  8-K  dated  January  20,  1999).*

10.10 Stock Option Agreement, dated as of November 13, 1998, between the Company
     and  Gabriel  Battista  (incorporated  by  reference to Exhibit 10.4 to the
     Company's  Current  Report  on  Form  8-K  dated  January  20,  1999).*

10.11 1998 Long-Term Incentive Plan of the Company (incorporated by reference to
     Exhibit 10.14 to the Company's Current Report on Form 8-K dated January 20,
     1999).*

10.12  Investment  Agreement,  dated  as  of  December  31,  1998, as amended on
     February 22, 1999, among the Company, America Online, Inc., and, solely for
     purposes  of  Sections  4.5,  4.6  and 7.3(g) thereof, Daniel Borislow, and
     solely  for  purposes  of  Section 4.12 thereof, Tel-Save, Inc. and the D&K
     Retained  Annuity  Trust  dated  June  15,  1998  by  Mark  Pavol,  Trustee
     (incorporated  by reference to Exhibit 10.41 to the Company's Annual Report
     on  Form  10-K  for  the  year  ended  December  31,  1998).

10.13  Employment Agreement between the Company and Kevin Griffo dated March 24,
     2000  (incorporated  by  reference  to  Exhibit  10.7  to  the  Company's
     Registration  Statement  in  Form  S-4  (File  No.  333-40980)).*

                                       72
<PAGE>

10.14 Form of Indemnification Agreement, dated as of January 5, 1999, for George
     Vinall  (incorporated by reference to Exhibit 10.50 to the Company's Annual
     Report  on  Form  10-K  for  the  year  ended  December  31,  1998).  *

10.15  Form  of  Non-Qualified  Stock Option Agreement, dated as of December 16,
     1998, for George Vinall, (incorporated by reference to Exhibit 10.51 to the
     Company's  Annual  Report  on  Form  10-K  for  the year ended December 31,
     1998).*

10.16  2000 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.31
     to  the  Company's  Registration  Statement on Form S-4 (No. 333-40980)). *

10.17 Form of Non-Qualified Stock Option Agreement, dated December 12, 2000, for
     each  of  Gabriel  Battista,  Kevin  Griffo, Aloysius T. Lawn IV, Edward B.
     Meyercord,  III,  and  George  Vinall (incorporated by reference to Exhibit
     10.40  to  the  Company's  Annual  Report  on  Form 10-K for the year ended
     December  31,  2000).*

10.18  Employment  Agreement, dated as of December 16, 1998, between the Company
     and  George  Vinall  (incorporated  by  reference  to  Exhibit 10.62 to the
     Company's  Annual  Report  on  Form  10-K  for  the year ended December 31,
     1998).*

10.19  Rights  Agreement  dated as of August 19, 1999 by and between the Company
     and First City Transfer Company, as Rights Agent (incorporated by reference
     to  Exhibit 1 to the Company's registration statement on Form 8-A (File No.
     000-26728)).

10.20  Credit  Facility  Agreement,  among  Talk.com  Holding  Corp., Access One
     Communications  Corp. and certain of their direct and indirect subsidiaries
     and  MCG  Finance Corporation dated as of October 20, 2000 (incorporated by
     reference to Exhibit 10.4 to Talk.com's Quarterly Report of Form 10-Q dated
     November  14,  2000).

10.21  Guaranty  between  the  Company  and MCG Finance Corporation, dated as of
     October  20,  2000 (incorporated by reference to Exhibit 10.5 to Talk.com's
     Quarterly  Report  of  Form  10-Q  dated  November  14,  2000).

10.22  Consulting  Agreement  dated  as  of  July  5,  2000  between  MCG Credit
     Corporation  and Access One Communications Corp. (incorporated by reference
     to  Exhibit 10.55 to the Company's Registration Statement in Form S-4 (File
     No.  333-40980)).

10.23  Employment Agreement by and between Thomas M. Walsh and the Company dated
     as  of  August  7,  2000  (incorporated by reference to Exhibit 10.1 to the
     Company's  Quarterly  Report  on  Form  10-Q  dated  November  14,  2000).*

10.24  Indemnification  Agreement by and between Thomas M. Walsh and the Company
     dated  as  of  August 7, 2000 (incorporated by reference to Exhibit 10.2 to
     the  Company's  Quarterly  Report  on  Form 10-Q dated November 14, 2000).*

10.25  Non-Qualified  Stock  Option  Agreement  by  and  Thomas M. Walsh and the
     Company  dated  as  of August 7, 2000 (incorporated by reference to Exhibit
     10.3  to  the  Company's  Quarterly  Report on Form 10-Q dated November 14,
     2000).*

10.26 Lease by and between Talk.com Holding Corp. and University Science Center,
     Inc.  dated  April  10, 2000 (incorporated by reference to Exhibit 10.54 to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2000).

10.27  Lease  by  and  between  The  Other  Phone  Company,  dba  Access  One
     Communications  and  University Science Center, Inc. dated December 8, 1999
     (incorporated  by reference to Exhibit 10.55 to the Company's Annual Report
     on  Form  10-K  for  the  year  ended  December  31,  2000).

                                       73
<PAGE>

10.28  Restated  Access  One  Communications  Corp.  1997  Stock  Option  Plan
     (incorporated  by  reference  to  Exhibit 4.2 to the Company's registration
     statement  on  Form  S-8  (File  No.  333-52166).*

10.29  Restated  Access  One  Communications  Corp.  1999  Stock  Option  Plan
     (incorporated  by  reference  to  Exhibit 4.3 to the Company's registration
     statement  on  Form  S-8  (File  No.  333-52166).*

10.30  Amendment  to  Employment Agreement for Kevin Griffo dated March 28, 2001
     (incorporated  by reference to Exhibit 10.60 to the Company's Annual Report
     on  Form  10-K  for  the  year  ended  December  31,  2000).*

10.31  Amendment  to  Employment  Agreement for Kevin Griffo dated June 17, 2002
     (incorporated  by  reference  to  Exhibit  10.1  to the Company's Quarterly
     Report  on  Form  10-Q  for  the  quarter  ended  June  30,  2002).*

10.32  Amendment  to Employment Agreement for George Vinall dated March 28, 2001
     (incorporated  by reference to Exhibit 10.61 to the Company's Annual Report
     on  Form  10-K  for  the  year  ended  December  31,  2000.*

10.33  Second  Amendment  to  Investment  Agreement  dated  as of August 2, 2000
     between  the Company and America Online, Inc. (incorporated by reference to
     Exhibit  99.1  to  the Company's Current Report on Form 8-K dated August 3,
     2000).

10.34 Employment Agreement between the Company and Jeffrey Earhart dated October
     2,  2001  (incorporated  by  reference  to  Exhibit  10.1  to the Company's
     Quarterly  Report  on  Form  10-Q  dated  November  14,  2001).*

10.35  Employment Agreement between the Company and Warren Brasselle dated March
     8, 2000 (incorporated by reference to Exhibit 10.48 to the Company's Annual
     Report  on  Form  10-K  for  the  year  ended  December  31,  2001).*

10.36  Form of Non-Qualified Stock Option Agreement, dated as of March 24, 2000,
     for  Kevin  Griffo  (incorporated  by  reference  to  Exhibit  10.49 to the
     Company's  Annual  Report  on  Form  10-K  for  the year ended December 31,
     2001).*

10.37  Restructuring and Note Agreement, dated as of September 19, 2001, between
     the  Company and America Online, Inc. (incorporated by reference to Exhibit
     10.1  to  the  Company's  Current Report on Form 8-K filed on September 24,
     2001).

10.38 Registration Rights Agreement, dated as of September 19, 2001, between the
     Company and America Online, Inc. (incorporated by reference to Exhibit 10.2
     to  the  Company's Current Report on Form 8-K filed on September 24, 2001).

10.39  Security  and Pledge Agreement, dated as of September 19, 2001, among the
     Company  as  Grantor,  and  State  Street  Bank and Trust Company, N.A., as
     collateral agent on behalf of America Online, Inc. and America Online, Inc.
     (incorporated  by reference to Exhibit 10.3 to the Company's Current Report
     on  Form  8-K  filed  on  September  24,  2001).

10.40  Master Subsidiary Guarantee, Security Agreement Collateral Assignment and
     Equity  Pledge,  dated as of September 19, 2001, among certain subsidiaries
     of  the  Company as Grantors, State Street Bank and Trust Company, N.A., as
     Collateral  Agent  on  behalf  of America Online, Inc., and America Online,
     Inc.  (incorporated  by  reference to Exhibit 10.4 to the Company's Current
     Report  on  Form  8-K  filed  on  September  24,  2001).

10.41  Intercreditor  Agreement,  dated  as  of  September 19, 2001, between MCG
     Finance  Corporation,  as  collateral  agent  for  certain  MCG Lenders (as
     defined  therein)  and  State  Street  Bank  and  Trust  Company,  N.A., as
     collateral  agent  (incorporated  by  reference  to  Exhibit  10.5  to  the
     Company's  Current  Report  on  Form  8-K  filed  on  September  24, 2001).

                                       74
<PAGE>

10.42  Consent  and Amendment to Talk.com Loan Documents, dated as of August 10,
     2001  by  and among Talk America Inc., Access One Communications Corp., the
     Company,  MCG Finance Corporation and MCG Capital Corporation (incorporated
     by  reference  to  Exhibit 10.7 to the Company's Current Report on Form 8-K
     filed  on  September  24,  2001).

10.43  Consent  and  Amendment to Talk.com Loan Documents, dated as of September
     19,  2001  by and among Talk America Inc., Access One Communications Corp.,
     the  Company,  MCG  Finance  Corporation  and  MCG  Capital  Corporation
     (incorporated  by reference to Exhibit 10.8 to the Company's Current Report
     on  Form  8-K  filed  on  September  24,  2001).

10.44  First  Amendment, dated as of September 19, 2001, to the Rights Agreement
     dated as of August 19, 1999, by and between Talk America Holdings, Inc. and
     First  City Transfer Company, as Rights Agent (incorporated by reference to
     Exhibit 10.9 to the Company's Current Report on Form 8-K filed on September
     24,  2001).

10.45  Letter  Agreement  between  America  Online,  Inc.  and the Company dated
     February  21,  2002  (incorporated  by  reference  to  Exhibit  10.1 to the
     Company's  Current  Report  on  Form  8-K  filed  on  February  21,  2002).

10.46  Amendment  Number  Three to Talk.com Loan Documents, dated as of February
     12,  2002,  among the Company, Talk America Inc., Access One Communications
     Corporation,  each  other  Borrower  under  and  as  defined  in the Credit
     Agreement  (referenced  therein), Lenders that are parties thereto, and MCG
     Capital  Corporation  (incorporated  by  reference  to  Exhibit 10.2 to the
     Company's  Current  Report  on  Form  8-K  filed  on  February  21,  2002).

10.47  Amended and Restated Consulting Agreement, dated as of February 12, 2002,
     among the Company and MCG Capital Corporation (incorporated by reference to
     Exhibit  10.3 to the Company's Current Report on Form 8-K filed on February
     21,  2002).

10.48  2001 Non-Officer Long Term Incentive Plan of the Company (incorporated by
     reference  to  Exhibit  4.1 to the Company's registration statement on Form
     S-8  (File  No.  333-74820).*

10.49  Interconnection  Agreement  under  Sections  251  and  252  of  the
     Telecommunications  Act  of  1996  dated  as  of  July  13,  2000,  between
     Southwestern Bell Telephone Company, Nevada Bell Telephone Company, Pacific
     Bell  Telephone  Company,  Southern  New  England  Telephone, Ameritech and
     Talk.com  Holding  Corp. (incorporated by reference to Exhibit 10.62 to the
     Company's Annual Report on Form 10-K for the year ended December 31, 2001).

10.50  Mi2A  Amendment to the Interconnection Agreement under Section 271 of the
     Telecommunications  Act of 1996 dated as of May 15, 2001, between Ameritech
     Michigan  and  Talk.com Holding Corp. (incorporated by reference to Exhibit
     10.63  to  the  Company's  Annual  Report  on  Form 10-K for the year ended
     December  31,  2001).

10.51  Indenture  of Lease by and between Woodruff Properties and Omnicall, Inc.
     dated  August  1,  1998  (incorporated by reference to Exhibit 10.64 to the
     Company's Annual Report on Form 10-K for the year ended December 31, 2001).

10.52  Amendment dated February 9, 2001 to the Indenture of Lease by and between
     Woodruff  Properties  and Omnicall, Inc. dated August 1, 1998 (incorporated
     by  reference  to Exhibit 10.65 to the Company's Annual Report on Form 10-K
     for  the  year  ended  December  31,  2001).

10.53  Lease  Agreement  by  and  between Bridge Plaza Partnership and The Furst
     Group,  Inc.  dated  as  of November 4, 1998 ((incorporated by reference to
     Exhibit  10.66  to  the  Company's  Annual Report on Form 10-K for the year
     ended  December  31,  2001).

10.54  Option  dated  July    , 2001 to Renew the Lease Agreement by and between
     Bridge  Plaza Partnership and The Furst Group, Inc. dates as of November 4,
     1998  (incorporated  by  reference to Exhibit 10.67 to the Company's Annual
     Report  on  Form  10-K  for  the  year  ended  December  31,  2001).

                                       75
<PAGE>

10.55  Office Lease by and between Reston Plaza I and II, LLC and Talk.com, Inc.
     dated  as  of April 28, 2000 (incorporated by reference to Exhibit 10.68 to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2001).

10.56  Amendment  Number  Four  to  Talk.com Loan Documents dated as of April 3,
     2002,  between  the  Company,  Talk America Inc., Access One Communications
     Corporation,  each  other  Borrower  under  and  as  defined  in the Credit
     Agreement  (referenced  therein), Lenders that are parties thereto, and MCG
     Capital  Corporation  (incorporated  by  reference  to Exhibit 10.74 to the
     Company's Annual Report on Form 10-K for the year ended December 31, 2001).

10.57  Second  Amendment  to Rights Agreement, dated as of December 13, 2002, to
     the  Rights  Agreement  dated  as  of  August 19, 1999, by and between Talk
     America  Holdings,  Inc.,  First City Transfer Company and Stocktrans, Inc.
     (incorporated  by reference to Exhibit 10.1 to the Company's Current Report
     on  Form  8-K  filed  on  December  13,  2002).

10.58 Interconnection Agreement Executed as of September 23, 2002 by and between
     Ameritech  Michigan  and  Talk  America  Inc.  (filed  herewith).

21.1 Subsidiaries  of the Company (incorporated by reference to Exhibit 10.49 to
     the  Company's  Annual  Report on Form 10-K for the year ended December 31,
     2001).

23.1 Consent  of  PricewaterhouseCoopers  LLP.

99.1 Certification  of  Gabriel  Battista pursuant to 18 U.S.C. Section 1350, as
     adopted  pursuant  to  Section 906 of the Sarbanes-Oxley Act of 2002 (filed
     herewith).

99.2 Certification  of  David  G.  Zahka  pursuant to 18 U.S.C. Section 1350, as
     adopted  pursuant  to  Section 906 of the Sarbanes-Oxley Act of 2002 (filed
     herewith).

*  Management  contract  or  compensatory  plan  or  arrangement. + Confidential
treatment  previously  has  been  granted  for  a  portion  of  this  exhibit.

(b)  Reports  on  Form  8-K.

     The  following Current Reports on Form 8-K were filed by the Company during
the  three  months  ended  December  31,  2002:

     1.  Current  Report  on  Form  8-K  dated  October  7,  2002.
     2.  Current  Report  on  Form  8-K  dated  October  11,  2002.
     3.  Current  Report  on  Form  8-K  dated  October  16,  2002.
     4.  Current  Report  on  Form  8-K  dated  December  13,  2002.
     5.  Current  Report  on  Form  8-K  dated  December  24,  2002.

                                       76
<PAGE>


                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) 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:  March  28,  2003

                                         TALK  AMERICA  HOLDINGS,  INC.

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

     Pursuant  to  the requirements of the Securities Exchange Act of 1934, this
report  has  been signed by the following persons on behalf of the registrant in
the  capacities  and  on  the  dates  indicated.


SIGNATURE                                  TITLE                     DATE



Gabriel Battista /s/             Chairman of the Board            March 28, 2003
---------------------------  of Directors, Chief Executive
Gabriel Battista                  Officer and Director
                             (Principal Executive Officer)

David G. Zahka /s/               Chief Financial Officer          March 28, 2003
---------------------------- (Principal Financial Officer)
David G. Zahka

Thomas M. Walsh /s/           Vice President - Finance and        March 28, 2003
----------------------------          Treasurer
Thomas  M.  Walsh             (Principal Accounting Officer)

Edward B. Meyercord, III /s/     President and Director           March 28, 2003
----------------------------
Edward B. Meyercord, III

Mark S. Fowler /s/                      Director                  March 28, 2003
---------------------------
Mark S. Fowler

Arthur J. Marks /s/                     Director                  March 28, 2003
---------------------------
Arthur J. Marks

Ronald R. Thoma /s/                     Director                  March 28, 2003
---------------------------
Ronald R. Thoma

                                       77
<PAGE>
                                 CERTIFICATIONS
                                 --------------

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002


I,  Gabriel  Battista,  certify  that:

     1.  I  have  reviewed  this  annual  report  on  Form  10-K of Talk America
Holdings,  Inc.;

     2.  Based  on  my knowledge, this annual report does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

     3.  Based  on  my  knowledge, the financial statements, and other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

     4.  The  registrant's  other  certifying officers and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

          a)  designed  such  disclosure  controls and procedures to ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

          b) evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

          c)  presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

     5.  The  registrant's other certifying officers and I have disclosed, based
on  our  most  recent  evaluation,  to  the  registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent  function):

          a) all significant deficiencies in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

          b)  any  fraud,  whether  or not material, that involves management or
          other  employees  who  have  a  significant  role  in the registrant's
          internal  controls;  and

     6.  The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.

March  28,  2003

/s/  Gabriel  Battista
----------------------
Gabriel  Battista
Chief  Executive  Officer

                                       78
<PAGE>

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

I,  David  G.  Zahka,  certify  that:

     1.     I  have  reviewed  this  annual  report on Form 10-K of Talk America
Holdings,  Inc.;

     2.  Based  on  my knowledge, this annual report does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

     3.  Based  on  my  knowledge, the financial statements, and other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

     4.  The  registrant's  other  certifying officers and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

          a)  designed  such  disclosure  controls and procedures to ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

          b) evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

          c)  presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

     5.  The  registrant's other certifying officers and I have disclosed, based
on  our  most  recent  evaluation,  to  the  registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent  function):

          a) all significant deficiencies in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

          b)  any  fraud,  whether  or not material, that involves management or
          other  employees  who  have  a  significant  role  in the registrant's
          internal  controls;  and

     6.  The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.

March  28,  2003

/s/  David  G.  Zahka
---------------------
David  G.  Zahka
Chief  Financial  Officer

                                       79
<PAGE>