United States

                       Securities and Exchange Commission

                                              Washington, D. C. 20549

                                   Form 10-QSB

     { X } Quarterly  Report  Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Period Ended September 30, 1999.

                                       or

     { } Transition  Report  Pursuant to Section 13 or 15 (d) of the  Securities
Exchange   Act  of  1934  for  the   Transition   Period  From   _____________to
_____________

Commission File Number  33-92894
                        --------

                              PREFERRED VOICE, INC.

            Delaware                                       75-2440201
  ------------------------------                   --------------------------
 (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                        Identification No.)

6500 Greenville Avenue
Suite 570
Dallas,  TX                                                   75206
-------------------------------                    ---------------------------
(Address of Principal Executive                             (Zip Code)
            Offices)

                                  (214) 265-9580
                         ------------------------------
                         (Registrant's  Telephone Number,
                              including area code.)

                                  Not Applicable
                         ------------------------------
                      (Former  name,  Former  Address  and
              Former  Fiscal  year,  if changed since last report.)

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

            Yes                No  X
                ----              ----


                      Applicable Only to Corporate Issuers

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
Common Stock, as of the latest practical date.

Common Stock, $ 0.001 Par Value - 13,103,879 shares as of December 31, 1999.

Transitional Small Business Format    Yes         No   X
                                         ----        ----

<PAGE>

                                      INDEX

                              Preferred Voice, Inc.

Part I.  Financial Information                                          1

Item 1.  Financial Statements                                           1

         Balance Sheets-September 30, 1999, September 30, 1998
           and March 31, 1999.                                          1

         Statements of Operations-Three Months Ended September
           30, 1999 and 1998, and Six Months Ended September 30,
           1999 and 1998, and for the Year Ended March 31, 1999.        3

         Statements of Cash Flows-Six Months Ended September 30,
          1999 and 1998 and for the Year Ended March 31, 1999.          4

         Notes to Financial Statements - September 30, 1999.            6

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                         15

Part II. Other Information                                             18

Item 1.  Legal Proceedings                                             18

Item 2.  Changes in Securities                                         18

Item 3.  Defaults upon Senior Securities                               18

Item 4.  Submission of Matters to a Vote of Security Holders           18

Item 5.  Other Information                                             18

Item 6.  Exhibits and Reports on Form 8-K                              19

Signatures                                                             20

<PAGE>

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                                              Preferred Voice, Inc.

                                                  Balance Sheets
                                  September 30, 1999 and 1998 and March 31, 1999

<TABLE>
<CAPTION>
<S>                                                                     <C>                  <C>                   <C>

                                                                     September 30,        September 30,          March 31,
                                                                         1999                 1998                1999
Assets                                                                (Unaudited)          (Unaudited)           (Audited)

      Current Assets:

          Cash and Cash Equivalents                                 $    161,699          $       494         $    41,750
          Accounts Receivable, net of allowance                          284,721                  -0-                 860
            for doubtful accounts of $ -0-, $-0-
            and $-0- respectively
          Employee Receivables                                               583                   64               2,500
                                                              -------------------  -------------------  ------------------
      Total Current Assets                                          $    447,003          $       558         $    45,110
                                                              -------------------  -------------------  ------------------

      Property and Equipment:
         Computer Equipment                                         $    274,129         $    142,236             223,046
         Furniture and Fixtures                                           24,495               16,934              16,934
         Office Equipmentre                                               10,393               10,728              12,493
         Computer Equipment                                              248,220              136,032             190,063
         LESS:  Accumulated Depreciation                               (217,557)             (93,737)           (161,049)
                                                              -------------------  -------------------  ------------------

      Net Property and Equipment                                    $    339,680         $    212,192         $  281,487
                                                              -------------------  -------------------  ------------------
      Other Assets:
         Deposits                                                   $     85,114         $     81,012         $   81,535
         Prepaid Expenses                                                761,018              761,018            761,018
                                                              -------------------  -------------------  ------------------
     Total Other Assets                                             $    846,132         $    842,030         $  842,553
                                                              -------------------  -------------------  ------------------
Total Assets                                                        $  1,632,815         $  1,054,780         $1,169,150
                                                              ===================  ===================  ==================

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                      <C>                  <C>                   <C>
                                                                     September 30,        September 30,          March 31,
                                                                         1999                 1998                 1999
Liabilities and Stockholder's Deficit                                 (Unaudited)          (Unaudited)           (Audited)

      Current Liabilities:
        Accounts Payable                                            $    325,573         $    351,556         $    363,834
       Accrued Operating & Vacation Expenses                              25,237               51,301               19,611
       Accrued Payroll and Related Tax                                   158,109              137,637              226,755
       Accrued Interest Payable                                          261,034              289,289              248,967
       Notes Payable                                                     120,866              662,866              103,866
       Notes Payable-Related Parties                                     100,000               50,000              100,000
                                                              -------------------  -------------------  -------------------

      Total Current Liabilities                                     $    990,819        $   1,542,649         $  1,063,033
                                                              -------------------  -------------------  -------------------

      Long Term Debt:
       Notes Payable-Related Parties                                 $       -0-         $    590,946         $    590,946
       Deferred Gain on Sale-Leaseback Transaction                           -0-              136,243                  -0-
       Long-Term Debt, Net Of Current Maturities                             -0-                  -0-              253,000
                                                              -------------------  -------------------  -------------------

      Total Long Term Debt                                           $       -0-         $    727,189         $    843,946
                                                              -------------------  -------------------  -------------------

      Commitments and Contingencies (Note H)

      Stockholders Deficit:
       Common Stock, $0.001 par value
         20,000,000 shares authorized;
         shares issued 11,440,990,  7,679,574
         and 9,695,681 respectively                                 $     11,436         $      7,679         $      9,695
      Additional  Paid In Capital                                      6,464,620            4,365,586            5,192,033
      Accumulated Deficit                                            (5,832,192)          (5,586,455)          (5,937,689)
      Treasury Stock - at cost                                           (1,868)              (1,868)              (1,868)
                                                              -------------------  -------------------  -------------------

      Total Stockholder Deficit                                     $    641,996       $  (1,215,058)        $   (737,829)
                                                              -------------------  -------------------  -------------------

Total Liabilities and Stockholder Deficit                          $   1,632,815        $   1,054,780        $   1,169,150
                                                              ===================  ===================  ===================
</TABLE>

<PAGE>

                                             Preferred Voice, Inc.

                                           Statements of Operations
                          For The Three Months Ended September 30, 1999 and 1998
                        And For the Six Months Ended September 30, 1999 and 1998
                                   And For the Year Ended March 31, 1999

<TABLE>
<CAPTION>
<S>                                  <C>                <C>                  <C>                 <C>                <C>

                                          Three Months Ended                    Six Months Ended

                                  September 30,      September 30,         September 30,       September 30,        March 31,
                                       1999               1998                 1999                1998               1999
                                    (Unaudited)        (Unaudited)          (Unaudited)        (Unaudited)          (Audited)
                                  --------------    ----------------     ----------------   -----------------   ----------------

Sales                              $  227,471           $       -         $    822,645          $        -        $   180,383

  Cost of Sales                        91,167                 415              136,082                 415             15,033
                                  --------------    ----------------     ----------------   -----------------   ----------------
  Gross Profit (loss)              $  136,304           $   (415)         $    686,563          $    (415)        $   165,350
                                  --------------    ----------------     ----------------   -----------------   ----------------

Costs and Expenses:
  General & Administrative            355,992             119,530              589,167             321,053            768,024
  Interest Expense                      5,450              55,896               21,890             106,724            176,752
                                  --------------    ----------------     ----------------   -----------------   ----------------
  Total Costs and Expenses         $  361,442          $  175,426          $   611,057         $   427,777        $   944,776
                                  --------------    ----------------     ----------------   -----------------   ----------------

Gain/(Loss) Before Income Tax      $(225,138)          $(175,841)          $    75,506         $ (428,192)        $ (779,426)


Provision for Income Tax                  -0-                 -0-                  -0-                 -0-                 -0-
                                  --------------    ----------------     ----------------   -----------------   ----------------

Loss Before Extraordinary Item     $(225,138)          $(175,841)          $    75,506         $ (428,192)        $ (779,426)
                                  ==============    ================     ================   =================   ================

Extraordinary Item:
  Gain from Extinguishment of
  Debt (less applicable income
  taxes of -0-)(Note K)                17,935              88,828               29,991              88,828             88,828

Net Loss                          $ (207,203)         $  (87,013)          $   105,497         $ (339,364)        $ (690,598)
                                  ==============    ================     ================   =================   ================

Per Share Amounts:

 Gain/(Loss) from Operations      $    (0.02)          $   (0.03)           $     0.01         $    (0.07)        $    (0.11)

 Gain from Extinguishment of Debt $         -          $     0.01           $        -         $      0.01        $      0.01

Net Gain/Loss (Per Share)         $    (0.02)          $   (0.02)           $     0.01         $    (0.06)        $    (0.10)

</TABLE>

<PAGE>

                                             Preferred Voice, Inc.

                                           Statement of Cash Flows

                            For the Six Months Ended September 30, 1999 and 1998
                                     And For the Year Ended March 31, 1999

<TABLE>
<CAPTION>
<S>                                                                      <C>                  <C>                  <C>
                                                                    September 30,        September 30,          March 31,
                                                                         1999                 1998                 1999
                                                                      (Unaudited)          (Unaudited)           (Audited)
                                                                 -------------------  -------------------  -------------------
      Cash Flows from Operating Activities:

        Cash Received from customers                                $    595,175         $      5,247         $    179,510
        Cash Paid to suppliers and employees                           (796,233)            (251,188)            (500,572)
      Interest Paid                                                      (4,442)                  -0-                  -0-
                                                                  -------------------  -------------------  -------------------

               Net Cash used by Operating Activities               $   (205,500)        $   (245,941)        $   (321,062)
                                                                  -------------------  -------------------  -------------------
      Cash Flows from Investing Activities:
         Capital Expenditures                                      $   (116,801)        $    (79,149)        $   (151,772)
         Proceeds from Sale of Fixed Assets                                  250                1,300                1,300
                                                                  -------------------  -------------------  -------------------

               Net Cash used by Investing Activities               $   (116,551)        $    (77,849)        $   (150,472)
                                                                  -------------------  -------------------  -------------------
      Cash Flows from Financing Activities:
         Proceeds from Sale of Stock                                $    360,000                  -0-                  -0-
         Proceeds from Notes Payable                                     200,000              148,000              351,000
         Note Principal Payments                                       (118,000)              (6,000)             (20,000)
         Proceeds from Sale -Leaseback Transaction                           -0-              100,000              100,000
                                                                  -------------------  -------------------  -------------------

               Net Cash provided by Financing Activities            $    442,000        $     242,000         $    431,000
                                                                  -------------------  -------------------  -------------------
      Net Increase (Decrease) in Cash and
          Cash Equivalents                                          $    119,949        $    (81,790)         $   (40,534)

      Cash and Cash Equivalents:
         Beginning of Period                                              41,750               82,285               82,284
                                                                  -------------------  -------------------  -------------------
        End of Period                                              $     161,699        $         495         $     41,750
                                                                  ===================  ===================  ===================

     Supplemental Schedule of non-cash investing and
     financing activities:

           Issuance of Common Stock in
            Exchange for Debt                                      $   1,173,928        $   1,051,346         $  1,879,809
                                                                  -------------------  -------------------  -------------------

      Total Non-Cash Investing Activities                          $   1,173,928        $   1,051,346        $   1,879,809
                                                                  ===================  ===================  ===================

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                       <C>                 <C>
                                                                    September 30,      September 30,            March 31,
                                                                        1999                1998                   1999
                                                                     (Unaudited)        (Unaudited)              (Audited)
                                                                 -------------------  -------------------  -------------------

      Reconciliation of Net Gain/(Loss) to Net
           Cash used by Operating Activities:

      Net Gain/(Loss)                                               $    105,497        $   (339,364)        $   (690,598)
                                                                 -------------------  -------------------  -------------------

       Adjustments to Reconcile Net Loss to Net Cash
           used by Operating Activities:
         Depreciation                                               $     58,083         $     12,832         $     80,113
         Amortization                                                          -                2,869                2,869
         (Gain) Loss on Sale of Fixed Assets                                 275                (216)                (186)

         Changes in Assets and Liabilities:
            (Increase) Decrease in Accounts Receivable                 (283,860)                    -                (860)
            (Increase) Decrease in Employee Receivables                    1,917                 (64)              (2,500)
            (Increase) Decrease in Deposits                              (3,579)                3,398                2,875
            (Increase) Decrease in Prepaid Expenses                            -               38,982               38,982
            (Increase) Decrease in Deferred Debt Issue Costs                   -                2,869                    -
            Increase (Decrease) in Accounts Payable                     (18,629)                8,244               58,635
            Increase (Decrease) in Accrued Expenses                     (65,204)               24,509              189,608
                                                                  -------------------  -------------------  -------------------


                   Total Adjustments                               $   (310,997)         $     93,423         $    369,536
                                                             -------------------  -------------------  -------------------

      Net Cash used by Operating Activities                        $   (205,500)        $   (245,941)        $   (321,062)
                                                              ===================  ===================  ===================

</TABLE>

<PAGE>

Note A - General organization:

              Preferred  Voice,  Inc. (the "Company") is a Delaware  corporation
incorporated in 1992. On February 25, 1997, the Company's  stockholders approved
changing the name of the Company to better  reflect the nature of the  Company's
business.  The  Company  commenced  business  on May  13,  1994,  and was in the
development  stage until  August 1, 1995.  The  Company  provides  products  and
services to the  telecommunications  industry  throughout  the United States and
maintains its principal offices in Dallas,  Texas. The Company has not presented
financial  statements for the period from  incorporation in 1992 through May 13,
1994,  as the Company did not begin its planning and  organizational  activities
until May 13, 1994. The  preparation of financial  statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying  notes.  Actual results could differ from these estimates.  Certain
prior year amounts have been reclassified for comparison purposes.

Note B - Summary of significant accounting policies:

Cash and cash equivalents

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
amounts due from banks.

Accounts receivable

     In the normal course of business,  the Company extends  unsecured credit to
its customers with payment terms  generally 30 days.  Because of the credit risk
involved,  management  has provided an allowance  for  doubtful  accounts  which
reflects its opinion of amounts which will eventually become  uncollectible.  In
the event of complete  nonperformance  by the Company's  customers,  the maximum
exposure to the Company is the outstanding  accounts  receivable  balance at the
date of nonperformance.

Depreciation

     The cost of property and equipment is depreciated over the estimated useful
lives of the related  assets.  Depreciation  is  computed  on the  straight-line
method for  financial  reporting  purposes and the double  declining  method for
income tax purposes.

     Maintenance   and  repairs  are  charged  to  operations   when   incurred.
Betterments and renewals are capitalized.

     The useful  lives of property  and  equipment  for  purposes  of  computing
depreciation are as follows:

            Computer equipment                    5 years
            Furniture and fixtures                5 years
            Office equipment                      5 years
            Software development                  3 years

Income taxes

     Income  taxes  are  accounted  for  using the  liability  method  under the
provisions of SFAS 109 "Accounting for Income Taxes".

Fair value of financial instruments

     The Company defines the fair value of a financial  instrument as the amount
at which the  instrument  could be  exchanged in a current  transaction  between
willing  parties.  Financial  instruments  included in the  Company's  financial
statements include cash and cash equivalents,  trade accounts receivable,  other
receivables,  other assets,

<PAGE>

notes payable and  long-term  debt.  Unless otherwise   disclosed  in  the notes
to the financial  statements,  the carrying  value of financial  instruments  is
considered   to   approximate   fair  value  due  to  the  short   maturity  and
characteristics  of those  instruments.  The carrying  value of  long-term  debt
approximates  fair value as terms  approximate  those  currently  available  for
similar debt instruments.

Revenue recognition

     The  Company is engaged as a provider  of  telecommunication  products  and
services.  Generally,  the Company  recognizes  revenue under the accrual method
when its services and products are  provided.  During the six month period ended
September  30, 1999, a majority of the  Company's  revenue  consisted of license
fees.  A  one-time  only  license  fee is paid by  customers  who  purchase  the
Company's VIP system. This gives the customer the right to utilize the Company's
software  applications  on the customer's own equipment.  The license fee income
was derived from one major customer and was recognized  when the contract became
final.  The license fee income was -0-, and $570,000 for the three month and the
six month period ended  September 30, 1999,  respectively;  and $-0- and $-0-for
the three month and the six month period ended September 30, 1998,  respectively
and -0- for the period ended March 31, 1999. A one-time only  distributor fee is
paid by  master  distributors  in order to  obtain  distribution  rights  to the
Company's products and services.  The distributor fee income was recognized when
the contract  became final.  The distributor fee income was $-0- and $25,000 for
the three month and the six month period ended September 30, 1999, respectively;
and $-0- and $-0-for the three month and the six month  period  ended  September
30, 1998, respectively and $170,000 for the period ended March 31, 1999.

Loss per share

     The Company  adopted the  provisions  of Statement of Financial  Accounting
Standards  (SFAS) No. 128,  Earnings per Share,  during the year ended March 31,
1998.  SFAS No. 128 reporting  requirements  replace  primary and  fully-diluted
earnings per share (EPS) with basic and diluted EPS.  Basic EPS is calculated by
dividing net income  (available to common  stockholders) by the weighted average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution that could occur if  securities or other  contracts to issue
common stock were exercised or converted into common stock. The adoption of SFAS
128 did not affect per share amounts for 1997 as previously reported.

     Loss  per  share  is  based  on  the  weighted  average  number  of  shares
outstanding  of 10,691,809  and  10,007,257  for the three months and six months
ending September 30, 1999,  respectively;  6,214,078 and 6,016,107 for the three
months and six months ending September 30, 1998,  respectively and 7,205,065 for
the period ending March 31, 1999.

Amortization

     Fees and  other  expenses  associated  with the  issuance  of  subordinated
convertible  debentures are being amortized on the straight-line method over the
term of the  debentures  beginning  in April,  1995.  Amortization  expense  was
$-0-and  $-0- for the three  months and six months  ended  September  31,  1999,
respectively;  and $200 and $2,869 for the six  months  and three  months  ended
September 31, 1998, respectively; and $2,869 for the fiscal year ended March 31,
1999.

Transfers and servicing of financial assets and extinguishment of liabilities

     In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.  SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities  occurring after December 31, 1996, and
is to be applied prospectively. This statement provides accounting and reporting
standards for transfers and servicing of financial assets and  extinguishment of
liabilities based on consistent application of a  financial-components  approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Adoption of this statement did
not have a  material  impact on the  Company's  financial  position,  results of
operations or liquidity.

<PAGE>

Impairment of long-lived assets and long-lived assets to be disposed of

     The Company  adopted the  provisions  of SFAS No. 121,  Accounting  for the
Impairment of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of, on
April 1, 1997.  This  statement  requires  that  long-lived  assets and  certain
identified  intangibles be reviewed for impairment whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison on the carrying  amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceed the fair value of the assets.  Assets to be disposed
of are reported at the lower of the carrying  amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations or liquidity.

Comprehensive income

     The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income on April 1, 1998.  SFAS No. 130 requires  that an enterprise  report,  by
major  components and as a single total, the change in its net assets during the
period from nonowner sources. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations or cash flows,
as the Company did not have any changes in net assets  resulting  from  nonowner
sources during the periods covered by the accompanying financial statements.

Segments of an enterprise and related information

     The  Company  adopted the  provisions  of SFAS No.  131,  Disclosure  about
Segments of an Enterprise and Related Information on April 1, 1998. SFAS No. 131
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services,  geographic areas
and major  customers.  Adoption of this statement did not have a material impact
on the Company's financial position, results of operations or cash flows, as any
effects are limited to the form and content of its disclosures.

New accounting pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting  for  Derivative  Instruments  and Hedging  Activities.  SFAS No.1-33
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair  value.  Adoption  of this  statement  is not  expected  to  impact  the
Company's  financial  position,  results  of  operations  or  cash  flows.  This
statement is effective for fiscal years beginning after June 15, 1999.

Note C - Notes payable:

Notes payable consist of the following at September 30, 1999 and 1998, and March
31, 1999:

<TABLE>
<CAPTION>
                    <S>                           <C>              <C>             <C>
                                                Sept. 30,       Sept. 30,      March 31,
                                                  1999            1998            1999
                                            --------------  --------------  -------------

              Outside interests               $  50,866        $  50,866      $  50,866
              Related parties                         0          640,946        690,946
                                            --------------  --------------  -------------
                                              $  50,866        $ 691,812      $ 741,812
                                            ==============  ==============  =============

</TABLE>

Note payable to outside interests include:

<TABLE>
<CAPTION>
                    <S>                                                              <C>           <C>         <C>
                                                                                   Sept. 30,    Sept. 30,    March 31,
                                                                                      1999         1998        1999
                                                                                  -----------  ----------- ------------


              Note  payable,  Brite  Voice  Systems,  Inc.,  dated  January 31,
              1997.  Note is unsecured and payable in monthly  installments  of
              $8,112,  including  interest  at the  rate of  prime + 2 (8.5% at
              March 31, 1999 and 1998) through January 1, 1998.                      $50,866      $50,866      $50,866
                                                                                  ===========  =========== ============

</TABLE>

<PAGE>

     The note to Brite Voice Systems, Inc. is currently in dispute and beginning
April  1996,  the  Company has  discontinued  the  accrual of interest  expense.
Interest  expense  charged to operations  related to the note payable to outside
parties  was  $-0- for each of the  three  month  and six  month  periods  ended
September 30, 1999 and 1998, and March 31, 1999 respectively.

Notes payable to related parties include:

<TABLE>
<CAPTION>
                    <S>                                                               <C>           <C>            <C>
                                                                                    Sept. 30,     Sept. 30,     March 31,
                                                                                     1999          1998           1999
                                                                                 ------------  ------------  -------------

        Notes payable to Pegasus  Settlement  Trust (PST),  a stockholder of the
        Company.  The  beneficiary  and a  trustee  of PST are  officers  of the
        Company. The notes are unsecured and bear interest at rates ranging from
        9% to 10% and  prime  rate  (8.5% at March 31,  1999 and 1998)  with the
        principal  and accrued  interest  payable at  maturity on various  dates
        through  December 31, 1998.  Subsequent to the balance  sheet date,  the
        notes were converted into 787,928 shares of common stock on April 6, 1999.        0       590,946        590,946

        Notes payable to a stockholder  of the Company.  The notes are unsecured
        and bear  interest at 10% per annum with the  principal and interest due
        on various  maturity dates through  October 16, 1999.  Subsequent to the
        balance sheet date, the notes were paid in full on December 30, 1999.       100,000        50,000        100,000
                                                                                  ------------  ------------  -------------
                  Total related party notes payable                               $ 100,000      $640,946      $ 690,946

                  Less current portion                                              100,000       640,946        100,000
                                                                                  ------------  ------------  -------------
                  Long-term portion                                               $       0      $      0      $ 590,946
                                                                                  ============  ============  =============

</TABLE>

     Related  party  notes  payable  that  were   converted  into  common  stock
subsequent  to  the  balance  sheet  date  have  been  classified  as  long-term
liabilities in the accompanying 1999 balance sheet.

     Interest  expense charged to operations  related to the related party notes
payable  was $2,500 and  $5,985  for the three  months and the six months  ended
September 31, 1999,  respectively;  and $15,093 and $29,867 for the three months
and the six months  ended  September  31,  1998,  respectively;  $64,199 for the
fiscal year ended March 31, 1999.

Note D - Long-term debt:

         Long-term debt consisted of the following at September 30, 1999 and
1998, and March 31, 1999:

<TABLE>
<CAPTION>
<S>                                                                               <C>             <C>          <C>
                                                                                Sept. 30,     Sept. 30,     March 31,
                                                                                   1999         1998          1999
                                                                                -----------  ------------ ------------

              Notes  payable  dated  various  dates  from May 20,  1996  through
              September  9, 1996,  secured by common  stock with  principal  and
              accrued   interest  due  at  maturity  on  various  dates  through
              September 9, 1998.  216,250  warrants to purchase shares of common
              stock at  $3.00  per  share  expiring  on  various  dates  through
              September  9, 1998 were  issued to the note  holders.  These notes
              were converted into  1,555,458  shares of  common stock on various
              dates through June 30, 1999.                                         60,000       514,000       60,000

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
               <S>                                                                     <C>            <C>       <C>

              Notes  payable to Bisbro  Investments  Co.,  Ltd. The notes are
              unsecured   and  bear  interest  at  10%  per  annum  with  the
              principal  and interest due on various  maturity  dates through
              January 5, 2000.  These  notes are  convertible  into shares of
              common  stock  at  a  conversion   price  of  $.50  per  share.
              Subsequent to the balance sheet date,  the notes were converted
              into 120,000 shares of common stock on June 18, 1999.                      0             0      60,000

               Notes  payable  to  Universal  Asset  Fund,  Ltd.  The  notes  are
               unsecured  and bear  interest at 10% per annum with the  principal
               and interest due on various  maturity  dates through  November 25,
               1999. These notes are convertible into shares of common stock at a
               conversion  price of $.50 per  share.  Subsequent  to the  balance
               sheet date, the notes were converted into 80,000 shares of common
               stock on June 18, 1999.                                                    0             0     40,000

               Notes payable to Capital Growth Fund, Ltd. The notes are unsecured
               and  bear  interest  at 10% per  annum  with  the  principal  and
               interest due on various  maturity  dates through August 14, 1999.
               These  notes are  convertible  into  shares of common  stock at a
               conversion  price of $.50 per share.  Subsequent  to the  balance
               sheet  date,  the notes were  converted  into  186,000  shares of
               common stock on June 18, 1999.                                            0        98,000      93,000

              Note payable to Equity  Communication.  This note is unsecured,
              non-interest bearing, and due upon demand.                            10,000             0      10,000

              Note payable to an  individual.  This note is unsecured  and bears
              interest at 12% per annum with the  principal  and interest due on
              March 30,  2000.  This note is  convertible  into shares of common
              stock at a conversion price of $1.00 per share.  This note was
              paid in full on June 16, 1999.                                             0             0      43,000
                                                                                -----------  ------------ --------------
                                                                                  $ 70,000     $ 612,000    $306,000
              Less current portion                                                  70,000       612,000      53,000
                                                                                -----------  ------------ --------------
              Total                                                               $      0     $       0    $253,000
                                                                                ===========  ============ ==============
</TABLE>

     Current  maturities of long-term debt  obligations that were converted into
common  stock  subsequent  to the  balance  sheet date have been  classified  as
long-term liabilities in the accompanying 1999 balance sheet.

     Interest  expense  charged to operations  related to the long term debt was
$2,700 and $5,400 for the three  months and the six months ended  September  31,
1999,  respectively;  and $23,121  and $35,031 for the three  months and the six
months  ended  September  31, 1998,  respectively;  $112,553 for the fiscal year
ended March 31, 1999

Note E - Common stock:

Stock purchase warrants

         At September 30, 1999, the Company had outstanding warrants to purchase
2,355,500 shares of the Company's common stock at prices which ranged from $0.50
per share to $4.00 per  share.  The  warrants  are  exercisable  at any time and
expire on dates  ranging from June 25, 2000 to March 31, 2004.  At September 30,
1999, 2,355,500 shares of common stock were reserved for that purpose.


<PAGE>



Common stock reserved

     At  September  30,  1999,  shares of common  stock  were  reserved  for the
following purposes:

      Exercise of stock warrants                               2,355,500
      Exercise and future grants of stock
      options and stock appreciation rights                      423,000
                                                            --------------
                                                               2,778,500
                                                            ==============

Note F - Income taxes:

     The Company uses the liability  method of accounting for income taxes under
the provisions of Statement of Financial Accounting Standards No. 109. Under the
liability  method,  a  provision  for income  taxes is  recorded  based on taxes
currently payable on income as reported for federal income tax purposes, plus an
amount which represents the change in deferred income taxes for the year.

     Deferred  income taxes are provided for the temporary  differences  between
the  financial  reporting  basis and the tax  reporting  basis of the  Company's
assets and liabilities. The major areas in which temporary differences give rise
to  deferred  taxes  are  accounts  receivable,  accrued  liabilities,  start-up
expenditures,  accumulated  depreciation,  and net operating loss carryforwards.
Deferred  income taxes are classified as current or noncurrent  depending on the
classification  of the assets and  liabilities  to which they  relate.  Deferred
income taxes arising from temporary differences that are not related to an asset
or liability are  classified as current or noncurrent  depending on the years in
which the temporary differences are expected to reverse.

     The provision for income taxes consists of:

<TABLE>
<CAPTION>
                       <S>                                                       <C>                <C>             <C>

                                                                                Sept. 30,          Sept. 30,      March 31,
                                                                                  1999              1998           1999
                                                                           ---------------   ----------------  ---------------
                        Current income taxes                                   $     0            $     0          $    0

                        Change in deferred income taxes due
                             to temporary differences                          $     0            $     0          $     0
                                                                           ---------------   ----------------  ---------------

                                                                               $     0            $     0          $     0
                                                                           ===============   ================  ===============
</TABLE>



Deferred tax (liabilities) assets consist of the following:

<TABLE>
<CAPTION>
                        <S>                                                  <C>               <C>

                                                                               1999              1998
                                                                        ---------------   ----------------

                        Accumulated depreciation                        $     (30,000)    $     (22,000)
                                                                        ---------------   ----------------

                        Gross deferred tax liabilities                  $     (30,000)    $     (22,000)
                                                                        ---------------   ----------------

                        Accounts receivable                             $           0     $       29,000
                        Accrued liabilities                                     2,000              2,000
                        Start-up expenditures                                   7,000             18,000
                        Net operating loss carryforward                     2,010,000          1,727,000
                                                                        ---------------   ----------------

</TABLE>

<PAGE>

<TABLE>
                        <S>                                                    <C>               <C>

                        Gross deferred tax assets                       $    2,019,000    $     1,776,000
                        Valuation allowance                                (1,989,000)        (1,754,000)
                                                                        ---------------   ----------------

                        Net deferred tax assets                         $       30,000    $        22,000
                                                                        ---------------   ----------------
                                                                        $            0    $             0
                                                                        ===============   ================

                                                                             1999              1998
                                                                        ---------------   ----------------
                        The increases in the deferred tax valuation
                           allowance are as follows:                    $      235,000    $      128,000
                                                                        ===============   ================

</TABLE>


     The Company  has  recorded a valuation  allowance  amounting  to the entire
deferred tax asset balance  because of the Company's  uncertainty  as to whether
the deferred tax asset is realizable. However, if the Company is able to utilize
the deferred tax asset in the future,  the valuation  allowance  will be reduced
through a credit to income.

     The  Company  has  available  at  March  31,  1999,  a net  operating  loss
carryforward  of  approximately  $5,910,000  which can be used to offset  future
taxable income through the year 2019.

Note G - Stock option plan:

     On November 1, 1994,  the Company  adopted a stock award and incentive plan
which permits the issuance of options and stock appreciation  rights to selected
employees and independent  contractors of the Company. The plan reserved 450,000
shares of common stock for grant,  of which 27,000  shares have been  purchased,
and provides  that the term of each award be  determined by the committee of the
Board of Directors (Committee) charged with administering the plan.

     Under the terms of the plan, options granted may be either  nonqualified or
incentive stock options,  and the exercise  price,  determined by the Committee,
may not be less  than the  fair  market  value of a share on the date of  grant.
Stock appreciation  rights granted in tandem with an option shall be exercisable
only to the extent the  underlying  option is  exercisable  and the grant  price
shall be equal to the exercise price of the underlying  option. At September 30,
1999,  options to purchase  412,750 shares at exercise  prices of $0.20 to $1.50
per share had been  granted.  No stock  appreciation  rights had been granted at
September 30, 1999.

Note H - Commitments and contingencies:

Lease commitments

     The Company has entered into a  non-cancelable  operating  lease for office
facilities under a lease arrangement commencing on February 3, 1998 and expiring
on December 31, 2003.

     Minimum future rentals to be paid on  non-cancelable  leases as of June 30,
1999 for each of the next five years and in the aggregate are:

         Year ending

           March 31,                                      Amount
        ----------------                            -----------------

             2000                                       $   45,062
             2001                                          101,060
             2002                                          103,540
             2003                                          104,856
             2004                                           80,364
                                                    =================
                                                        $  434,882

<PAGE>

     Total rent expense  charged to  operations  was $14,352 and $28,011 for the
three months and the six months ended  September  31,  1999,  respectively;  and
$6,846 and $13,537 for the three months and the six months ended  September  31,
1998, respectively; $27,416 for the fiscal year ended March 31, 1999.

Note I - Barter transaction:

     On June 3, 1996, the Company  entered into a media  purchase  agreement for
the  promotion  of its  products  and services  with  Proxhill  Marketing,  Ltd.
(Proxhill).  Under the terms of the agreement, the Company committed to purchase
$1,200,000 of media  advertising  time in exchange for 200,000  shares of common
stock at a value of $4.00 per share,  and $400,000 in cash. The agreement is for
a period of five years. For each purchase of media advertising time, the Company
will receive a barter credit equal to 66.67% of the  transaction  value with the
remaining  balance  payable in cash.  A prepaid  barter  credit in the amount of
$761,018 is included in other  assets in the  accompanying  balance  sheet as of
September 30, 1999 and 1998 and March 31, 1999, respectively. In connection with
this  agreement,  the Company issued to Proxhill 50,000 warrants to purchase the
Company's common stock at a price of $4.00 per share. The options expire June 3,
2001.

Note J - Sale - leaseback transaction:

     The Company entered into a  sale-leaseback  arrangement  during each of the
years ended March 31, 1999 and 1998. Under these arrangements,  the Company sold
telecommunications  equipment  and  leased it back for a period of three  years.
Both leases were  originally  accounted  for as  operating  leases.  The gain of
$66,119 and $70,124 realized in these  transactions had originally been deferred
and  amortized to income in  proportion  to rental  expense over the term of the
lease.  In November  1998,  the Company agreed to issue 579,971 shares of common
stock to the lessor in exchange for the release of the  liability for all future
and past due lease payments.

Note K - Extinguishment of debt:

     During the periods  ended  September  30, 1999 and 1998 and March 31, 1999,
the Company negotiated settlements of amounts owed to certain of its vendors and
employees.  The negotiated  settlements resulted in a reduction of the Company's
accounts  payable  and accrued  operating  expenses in the amount of $17,935 and
$29,991  for the three  months  and the six months  ended  September  30,  1999,
respectively;  and $88,828  and $88,828 for the three  months and the six months
ended  September 30, 1998,  respectively;  and $88,828 for the fiscal year ended
March  31,  1999  which  has  been  reported  as an  extraordinary  item  in the
accompanying statements of operations.

Note L -  Going concern:

     The Company has  incurred  substantial  operating  losses to date.  In June
1995, the Company  issued 600,000 shares of its common stock to Star  Resources,
Inc.  (Star),  a  public  company,   for  $24,000.  The  Company  then  filed  a
registration statement with the Securities and Exchange Commission to allow Star
to  distribute to its  stockholders  the 600,000  shares of common  stock.  Upon
completion  of the Star  distribution,  the  Company  became a  separate  public
company.  The Company has raised,  and intends to continue to raise,  additional
capital  through  subsequent  offerings of its common stock in  over-the-counter
securities markets.

     On June 3, 1999, the Company entered into a software license agreement with
KMC Telecom Holdings, Inc. (KMC). Under the terms of the agreement, KMC paid the
Company an initial license fee of $570,000.  The agreement is for a period of 10
years and provides for a total of 39 installations and grants KMC the ability to
add up to 81 additional  installations.  The agreement also calls for KMC to pay
the Company a monthly  license  fee ranging  from $1,000 to $3,500 per month for
each software and hardware  installation  beginning in the 25th month after each
installation.  The  Company  anticipates  having the  initial  39  installations
completed  by June 2000 which  would  obligate  KMC to pay the  Company  monthly
license fees of $131,500,  subject to certain  adjustments,  beginning July 2002
and continuing through July 2009.

     On July 1, 1999 the Company closed a private  offering of 320,000 shares of
the Company's $.001 par value common stock for total proceeds of $400,000.

<PAGE>

     In view of these  matters,  realization of a major portion of the assets in
the  accompanying  balance sheet is dependent upon  continued  operations of the
Company,  which in turn is  dependent  upon the  Company's  ability  to meet its
financing  requirements,  and the success of its future  operations.  Management
believes  that actions  presently  being taken to meet the  Company's  financial
requirements  will  provide the Company the  opportunity  to continue as a going
concern.


<PAGE>



                 Item 2. Management's Discussion and Analysis of

                  Financial Condition and Results of Operations

         This report contains  forward-looking  statements within the meaning of
Section 27A of the  Securities Act of 1933, as amended (the  "Securities  Act"),
and  Section  21E of the  Securities  Exchange  Act of  1934,  as  amended  (the
"Exchange Act"). These  forward-looking  statements are subject to certain risks
and  uncertainties  that could cause actual  results to differ  materially  from
historical  results or  anticipated  results,  including  those set forth  under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and elsewhere in, or incorporated by reference into this report.

Overview

         The Company integrates and markets speech  recognition  technologies to
be used by telecommunications providers, to enhance a provider's overall package
of voice services  through voice dialing.  The Company's key product,  the Voice
Integrated Platform ("VIP System" or the "System"),  successfully integrates the
Philips  Speech  Pearl  Natural  Dialog,   Philips  Speech  Processing's  speech
recognition technology, with the Company's proprietary software application. The
System  is  designed  to  utilize  standard  industrial  grade  hardware  and  a
rack-mountable   microprocessor-based   computing  system,  with  a  Windows  NT
operating  system.  The  System  has  been  developed  for  collocation  at  the
telecommunication  provider's  central  office  switch.  With the VIP System,  a
provider's subscriber can use natural  conversational speech to access a variety
of enhanced service  applications.  The Company believes that the Philips speech
recognition technology that its System incorporates is superior to other similar
technologies  and that its VIP System's  enhanced  services will become standard
telephony options offered by telecommunications providers in the 21st century.

         The  Company  was  incorporated  in  Delaware in 1992 under the name of
Direct Connect,  Inc. and began  operations in the  telecommunications  industry
under the name of Preferred Telecom,  Inc. in April 1995. The Company began as a
long distance  telecommunications  carrier with a variety of enhanced  services,
however,  in  February  1997 the  Company  sold to  Brite  Voice  Systems,  Inc.
("Brite") a number of assets,  including the Company's  end-user  customer base.
The Company  elected to sell these  assets  because it believed  that the growth
prospects of this aspect of the  business  were  limited.  The Company has since
focused  on  enhanced   telephone   services  that  feature  speech  recognition
technology,  believing  that there are larger market  opportunities  in offering
enhanced speech recognition services to telecommunications providers.

         From June of 1997 until April of 1998,  all corporate  activities  were
focused on the  development and testing of services to be deployed to the public
through a platform  the  Company  calls the VIP  System.  In late April 1998 the
first operational VIP System was collocated in a switch environment. The initial
sales activity  focused its efforts on introducing  the concept of voice dialing
to  prospective  customers to gauge  consumer  response with respect to pricing,
features and viability of the services provided.

         In December of 1998, the Company realized that the resources  necessary
to sell and market its services  directly to subscribers would require extensive
amounts of working  capital  and began  researching  venues  which  already  had
inherent  customer  bases.  The  first  distribution  channel  that the  Company
explored  was  master  distributors  in various  cities  and  states  around the
country.  The Company  believes this will be a source of customer  addition once
the  Company  is in the  position  to  locate  its  VIP  Systems  in the  master
distributor marketing areas. The second is through revenue sharing directly with
incumbent local exchange carriers ("ILECs"),  wireless  communications  carriers
("WCCs"),  and competitive  local exchange  carriers  ("CLECs").  This avenue is
extremely attractive to the Company because these entities already have customer
bases and the  infrastructure  to service large number of customers.  In June of
1999, the Company  announced its revenue sharing  marketing plan to wireline and
wireless  telecommunications  providers  providing  services  such as The  Smart
Linesm, Emma-The Perfect  Receptionistsm,  ** Talksm, My One Special Number sm ,
and Safety*Talksm.

     The Company is at a very early stage of implementing  its business plan. It
is subject to risks inherent in the  establishment  and deployment of technology
with which the consumer has very little experience. As voice recognition becomes
more  prevalent  in everyday  life,  such as in computer  programs,  reservation
systems and

<PAGE>

telecommunications     information    systems,  the  public  will be more apt to
accept and  utilize  its many  features.  In order for the Company to succeed it
must secure  adequate  financial and human  resources to meet its  requirements;
establish  and  maintain   relationships  with   telecommunications   providers;
facilitate  integration with various switch environments;  establish a lead time
for delivery of hardware;  achieve user  acceptance  for its services;  generate
reasonable  margins on its services;  deploy and install VIP Systems on a timely
and  acceptable  schedule;  respond to competitive  developments;  mitigate risk
associated  with  obtaining  patents and  copyrights  and other  protections  of
intellectual  property; and continually update its software to meet the needs of
end users.  Failure to  achieve  these  objectives  could  adversely  effect the
Company's business, operating results and financial condition.

Results of Operations

         For the six month period ended September 30,1999,  the Company recorded
net gain of $105,497,  or $.01 per share  compared to a net loss of  $339,364,or
$.06 per share for the six month period ended  September 30, 1998. For the three
month  period  ended  September  30,  1999,  the Company  recorded a net loss of
$207,203, or $.02 per share compared to a net loss of $87,013, or $.02 per share
for the three month period ended September 30, 1998.

         Total Revenue

         Total revenue for the six months period ended  September 30, 1999,  was
$822,645  compared to -0- for the six month period ended  September 30, 1998. Of
the revenue  booked in the six months period ended  September 30, 1999,  69% was
generated  from one-time  licensing fees to KMC Telecom  Holdings,  24% was from
sales of its VIP systems,  4% from customer tests, 2.5% from master  distributor
fees for specific  marketing rights,  and the remaining.5% from service fees for
the Company's "Emma the Perfect  Receptionist"  and "Smart Line".  Total revenue
for the three months period ended  September  30, 1999 was $227,471  compared to
-0- for the three month period ended  September 30, 1998. Of the revenue  booked
in the three months period ended  September 30, 1999,  86% was from sales of the
Company's VIP systems,  and 14% from customer tests. For the fiscal period ended
March 31, 1999,  revenues of $180,383 were generated 94% from master distributor
fees  and the  remaining  6%  from  service  fees  for the  Company's  end  user
customers.  The Company  does not  anticipate  significant  revenue  growth from
either direct sales to ILECs and WCCs as negotiated  with KMC or through  master
distributorships. However the Company does anticipate significant revenue growth
in the second half of the year 2000 from its revenue  sharing  agreements and as
more ILEC, WCC and CLEC agreements are completed.

         Cost of Sales

         Cost of sales for the six months  period ended  September  30, 1999 was
$136,082  compared to $415 for the six months  period ended  September 30, 1998.
Cost of sales for the three months  period ended  September 30, 1999 was $91,167
compared to $415 for the three months period ended  September 30, 1998.  For the
six months  period ended  September  30, 1999,  59% of costs were for VIP system
hardware  purchased by KMC, 23% direct costs  associated with the closing of the
KMC  licensing   agreement,   and  18%  for  network   infrastructure   such  as
collocations, connectivity, system access and long distance.

         Selling, General and Administrative

         Selling,  general and administrative expenses for the six months period
ended  September  30, 1999 was $589,167  compared to $321,053 for the six months
period ended September 30, 1998.  Selling,  general and administrative  expenses
for the three months period ended  September  30, 1999 was $355,992  compared to
$119,530 for the three months period ended  September 30,  1998.The  increase in
the period  ended June 30,  1998 and the same period in 1999 was  primarily  due
from the staffing  increases  and increased  marketing  efforts of the Company's
revenue sharing program to wireline and wireless carriers.

         The Company expects that selling,  general and administrative  expenses
will increase  significantly  as it begins its full  deployment of its sales and
marketing  plan.  To date the  Company  infrastructure  has  focused  on  system
development  and now must  support its sales,  marketing  and  customer  service
departments, as such, the Company believes fiscal 2000 will experience increases
in cost related to increased headcount, lease space, and general overhead.

<PAGE>

         Extraordinary Items

         The Company has recognized  income from the  extinguishment  of debt of
$29,991 and $88,828  respectively  for the six months period ended September 30,
1999 and 1998.  For the three months  period ended  September 30, 1999 and 1998,
the  Company  recognized  income  from  extinguishment  of debt of  $17,935  and
$88,828, respectively.

Liquidity and Capital Resources

         The  Company's  cash and cash  equivalents  at September  30, 1999 were
$161,699 an increase of $119,949  from $41,750 at March 31,  1999.  The improved
liquidity  was due  primarily to the proceeds  received on the  licensing of the
Company's VIP application  software to KMC Telecom Holdings,  Inc. (KMC).  Under
the terms of the  agreement,  KMC paid the  Company  an initial  license  fee of
$570,000.  The agreement is for a period of 10 years and provides for a total of
39  installations  and  grants  KMC  the  ability  to  add  up to 81  additional
installations.  The  agreement  also calls for KMC to pay the  Company a monthly
license  fee  ranging  from  $1,000 to $3,500  per month for each  software  and
hardware installation  beginning in the 25th month after each installation.  The
Company  anticipates having the initial 39 installations  completed by June 2000
which would  obligate KMC to pay the Company  monthly  license fees of $131,500,
subject to certain adjustments,  beginning July 2002 and continuing through July
2009.

         On July 1, 1999,  pursuant to Section  4(2),  the Company  conducted an
offering  of 320,000  shares of the  Company's  common  stock at $1.25 per share
providing the Company with $400,000 working capital.

At September 30, 1999, the Company had $284,721 of accounts receivable which the
Company collected on its credit terms of net 30.

         Future Obligations

         During the next twelve months,  the Company  plans,  subject to raising
adequate capital, to increase substantially the marketing of its VIP Systems, to
introduce  new  services,  and to continue  refining  the  services it currently
provides.  Subject to the Company's ability to fund the cost, management expects
the Company to hire or contract with  approximately 40 additional persons during
the next twelve  (12)  months,  primarily  to support  its  expanding  marketing
activities and system  installations.  At February 7, 2000, the Company employed
fifteen 22 employees.

         The  ability of the  Company  to raise  capital  is, in the  opinion of
management,  the primary  constraint on the implementation of its business plan.
Management  estimates that during the next twelve (12) months,  the Company will
require approximately  $3,000,000 of equity and/or long term debt to finance its
costs of marketing, system deployment, and continued refinement of its services.
In addition,  the Company will be required to obtain  extensions  of its current
debt or raise additional  funds of approximately  $1,000,000 to retire its debt.
There is no assurance that the Company will be able to secure any such financing
or extensions of its current debt.

         Year 2000 Compliance

         Many currently  installed  computer  systems and software  products are
coded to accept only two digit  entries in the date code field.  These date code
fields will need to accept four digit entries to distinguish  21st century dates
from 20th century dates. As a result,  many companies'  computer  systems and/or
software  may need to be  upgraded  or  replaced to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance.

         The Company has reviewed its own  software  products and believes  that
there  will be no  adverse  impact  with the Year 2000 date  change.  All of the
Company's  products are designed to record,  store,  and process  calendar dates
occurring  before  and after  January  1, 2000 with the same full year  accuracy
(i.e. four numeric characters instead of two).

<PAGE>

         An impact  analysis has been  conducted to identify the risk of failure
within the Company's in-house computer systems.  The Company believes that there
will be no adverse impact with the Year 2000 date change.  However, this risk to
the Company's business relates not only to the Company's  computer systems,  but
also to some  degree to those of the  Company's  suppliers  and  customers.  The
Company has developed a policy to ensure that all key  customers,  suppliers and
strategic partners operate and provide Year 2000 compliant systems and software.
The  Company  is  currently  collecting  certifications  from  third  parties on
compliance.  Also, there is a risk that existing and potential customers may not
purchase the  Company's  products in the future if the computer  systems of such
existing or potential  customers  are  adversely  impacted by the Year 2000 date
change.

          Based on the  information  to date, the Company has completed its Year
2000 compliance review and made necessary  modifications.  However, the issue is
complex and no business can guarantee  that there will be no Year 2000 problems.
Some commentators have stated that a significant amount of litigation will arise
out of Year 2000 compliance issues, and the Company is aware of a growing number
of lawsuits against other software vendors.  Because of the unprecedented nature
of such  litigation,  it is uncertain to what extent the Company may be affected
by it.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

The Company is not involved in any material legal proceedings.

Item 2.  Changes in Securities.

(a)      There have been no material changes in securities during the period

(b)  There  have been no  material  changes  in the class of  securities  or the
     rights of the holders of the registered securities.

(c)  Recent Sales of Unregistered Securities

On July 1, 1999,  the Company  issued  160,000  shares of common stock to Triton
Capital  Investments,   Ltd.  at  a  purchase  price  of  $1.25  per  share  for
$200,000.00.  On the same day, the Company also issued  160,000 shares of common
stock to JMG Capital  Partners,  L.P. at a purchase price of $1.25 per share for
$200,000.00.

On September 21, 1999, the Company issued Southwest Texas Telephone a warrant to
purchase  5,000  shares of common  stock of the Company at an exercise  price of
$1.66 per share on or before September 20, 2000.

None of these transactions involved an underwriter and no underwriting discounts
or commissions were paid. These  transactions are exempt from registration under
the  Securities Act of 1933 (the  "Securities  Act") pursuant to Section 4(2) of
the Securities Act.

Item 3.  Defaults upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security Holders.

None.

Item 5.   Other Information.

None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

<PAGE>

Exhibit

Number               Description of Exhibits

10.1*                Subscription  Agreement and Letter of Investment  Intent of
                     Triton  Capital  Investments,  Ltd., dated July 1, 1999

10.2*                Subscription  Agreement and Letter of Investment  Intent of
                     JMG Capital  Partners,  L.P.,  dated July 1, 1999

10.3*                Second  Amendment to Lease between Dallas Office Portfolio,
                     L.P. as successor in interest to Greenville Avenue
                     Properties, Ltd. and Preferred Voice, Inc.

10.4**               Software License  Agreement  between Southwest Texas
                     Telephone Company and Preferred Voice, Inc.(10.28)

10.5**               Marketing Agreement between Southwest Texas Telephone
                     Company and Preferred Voice, Inc. (10.29)

10.6*                Warrant Certificate No. 98 issued to Southwest Texas
                     Telephone Company, dated September 21, 1999

10.7**               Software License Agreement between Rural Cellular
                     Corporation and Preferred Voice, Inc. (10.26)

10.8**               Marketing Agreement between Rural Cellular Corporation and
                     Preferred Voice, Inc. (10.27)

27*                  Financial Data Schedule

* Filed herewith.
** Filed as an exhibit to the  Company's  Form  10-KSB for the fiscal year ended
March 31, 1999 (File No. 33-92894) and incorporated herein by reference.

(b)      Reports on Form 8-K

         None


<PAGE>


                                   SIGNATURES

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

                                  PREFERRED VOICE, INC.


February 11, 2000                  /s/ G. Ray Miller
-----------------                 -----------------
      Date                        G. Ray Miller
                                  President, Chief Executive Officer and
                                  Chairman of the Board of Directors
                                  (Principal Executive Officer)

February 11, 2000                  /s/ Mary G. Merritt
-----------------                 -------------------
     Date                         Mary G. Merritt
                                  Secretary, Treasurer and Vice President
                                  of Finance (Principal Financial Officer)