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 December 31, 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 Identification No.)
  incorporation or organization)

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-December 31, 1999, December 31, 1998
         and March 31, 1999.                                                   1

         Statements of Operations-Three Months Ended December 31, 1999
         and 1998, and Nine Months Ended December 31, 1999 and 1998,
         and for the Year Ended March 31, 1999.                                3

         Statements of Cash Flows-Nine Months Ended December 31, 1999
         and 1998 and for the Year Ended March 31, 1999.                       4

         Notes to Financial Statements - December 31, 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                                      19

Item 4.  Submission of Matters to a Vote of Security Holders                  19

Item 5.  Other Information                                                    19

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
                  December 31, 1999 and 1998 and March 31, 1999

<TABLE>
<CAPTION>
<S>                                                                       <C>                  <C>                  <C>
                                                                      December 31,         December 31,          March 31,
                                                                         1999                 1998                 1999
Assets                                                                (Unaudited)          (Unaudited)           (Audited)

      Current Assets:
          Cash and Cash Equivalents                                $   1,935,896           $      376          $   41,750
          Accounts Receivable, net of allowance                          391,382                  323                 860
          for doubtful accounts of $ -0-, $-0-
          and $-0- respectively
          Employee Receivables                                               -0-                  -0-               2,500
                                                              -------------------  -------------------  ------------------
      Total Current Assets                                         $   2,327,278           $      699          $   45,110
                                                              -------------------  -------------------  ------------------
      Property and Equipment:
         Computer Equipment                                        $     285,453           $  329,950          $  223,046
         Furniture and Fixtures                                           24,495               16,934              16,934
         Office Equipment                                                 10,393               12,493              12,493
         Computer Software                                               274,145              153,412             190,063
         LESS:  Accumulated Depreciation                               (249,957)            (103,281)           (161,049)
                                                              -------------------  -------------------  ------------------
      Net Property and Equipment                                   $     349,069           $  409,508          $  281,487
                                                              -------------------  -------------------  ------------------
      Other Assets:
         Deposits                                                  $      85,114           $   81,012          $   81,535
         Deferred Stock Issue Costs                                          -0-               10,000                 -0-
         Prepaid Expenses                                                761,018              761,018             761,018
                                                              -------------------  -------------------  ------------------
      Total Other Assets                                           $     846,132           $  852,030          $  842,553
                                                              -------------------  -------------------  ------------------
Total Assets                                                       $   3,522,479           $1,262,237          $1,169,150
                                                              ===================  ===================  ==================
</TABLE>

<PAGE>

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

      Current Liabilities:
       Accounts Payable                                             $    319,946         $    362,711         $    363,834
       Accrued Operating & Vacation Expenses                             180,400               18,822               19,611
       Accrued Payroll and Related Tax                                   151,006              173,291              226,755
       Accrued Interest Payable                                          219,392              264,826              248,967
       Notes Payable                                                      90,866              463,866              103,866
       Notes Payable-Related Parties                                         -0-              100,000              100,000
                                                              -------------------  -------------------  -------------------
      Total Current Liabilities                                     $    961,610         $  1,383,516         $  1,063,033
                                                              -------------------  -------------------  -------------------

      Long Term Debt:
       Notes Payable-Related Parties                                 $       -0-         $    590,946         $    590,946
       Deferred Gain on Sale-Leaseback Transaction                           -0-              136,242                  -0-
       Long-Term Debt, Net Of Current Maturities                             -0-                  -0-              253,000
                                                              -------------------  -------------------  -------------------

      Total Long Term Debt                                           $       -0-         $    727,188         $    843,946
                                                              -------------------  -------------------  -------------------

      Commitments and Contingencies (Note H)

      Stockholders Deficit:
       Common Stock, $0.001 par value
         20,000,000 shares authorized;
         shares issued 13,170,546,  9,113,045
         and 9,695,681 respectively                                 $     13,170         $      9,113         $      9,695
      Additional  Paid In Capital                                      8,737,244            4,935,721            5,192,033
      Accumulated Deficit                                            (6,187,677)          (5,791,433)          (5,937,689)

      Treasury Stock - at cost                                           (1,868)              (1,868)              (1,868)
                                                              -------------------  -------------------  -------------------

      Total Stockholder Deficit                                     $  2,560,869          $ (848,467)         $  (737,829)
                                                              -------------------  -------------------  -------------------
Total Liabilities and Stockholder Deficit                          $   3,522,479        $   1,262,237        $   1,169,150
                                                              ===================  ===================  ===================

</TABLE>

<PAGE>

                              Preferred Voice, Inc.

                            Statements of Operations
              For The Three Months Ended December 31, 1999 and 1998
            And For the Nine Months Ended December 31, 1999 and 1998
                      And For the Year Ended March 31, 1999

<TABLE>
<CAPTION>
<S>                                        <C>                <C>                <C>                   <C>                 <C>
                                           Three Months Ended                     Nine Months Ended

                                        December 31,     December 31,          December 31,        December 31,         March 31,
                                           1999               1998                 1999                1998               1999
                                       (Unaudited)         (Unaudited)          (Unaudited)         (Unaudited)         (Audited)
                                    ---------------    ----------------     ----------------    ----------------   ----------------

Sales                                 $  393,005          $    2,610         $  1,215,650          $    2,610        $   180,383

  Cost of Sales                          265,884               1,072              401,965               1,486             15,033
                                    ---------------    ----------------     ----------------    ----------------   ----------------
  Gross Profit (loss)                 $  127,121          $    1,538          $   813,685          $    1,124        $   165,350
                                    ---------------    ----------------     ----------------    ----------------   ----------------

Costs and Expenses:
  General & Administrative               482,479             162,107            1,071,651             483,160            768,024
  Interest Expense                         5,247              44,409               27,137             151,133            176,752
                                    ---------------    ----------------     ----------------    ----------------   ----------------

  Total Costs and Expenses           $   487,726         $   206,516         $  1,098,788         $   634,293        $   944,776
                                    ---------------    ----------------     ----------------    ----------------   ----------------

Gain/(Loss) Before Income Tax        $ (360,605)         $ (204,978)         $  (285,103)        $  (633,169)        $  (779,426)
Provision for Income Tax                     -0-                 -0-                  -0-                 -0-                -0-
                                    ---------------    ----------------     ----------------    ----------------   ----------------
Loss Before Extraordinary Item       $ (360,605)         $ (204,978)         $  (285,103)        $  (544,341)           (779,426)
                                    ===============    ================     ================    ================   ================
Extraordinary Item:
  Gain from Extinguishment of Debt         5,125                 -0-               35,116              88,828             88,828
   (less applicable income taxes
    of -0-)
   (Note K)

Net Loss                             $ (355,480)         $ (204,978)         $  (249,987)        $  (544,341)        $  (690,598)
                                    ===============    ================     ================    ================   ================

Per Share Amounts:

 Gain/(Loss) from Operations          $   (0.03)         $    (0.03)         $     (0.03)         $    (0.10)        $     (0.11)

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

Net Gain/Loss (Per Share)             $   (0.03)         $    (0.03)         $     (0.03)         $    (0.09)    $         (0.10)

</TABLE>

<PAGE>

                              Preferred Voice, Inc.

                             Statement of Cash Flows
              For the Nine Months Ended December 31, 1999 and 1998
                      And For the Year Ended March 31, 1999

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

Cash Flows from Operating Activities:
Cash Received from customers                               $     823,868          $     7,532        $     179,510
Cash Paid to suppliers and employees                         (1,306,402)            (354,519)            (500,572)
Interest Paid                                                   (16,978)                  -0-                  -0-
                                                          -------------------  -------------------  -------------------

       Net Cash used by Operating Activities               $   (499,512)        $   (346,987)        $   (321,062)
                                                          -------------------  -------------------  -------------------

Cash Flows from Investing Activities:

 Capital Expenditures                                      $    158,592)        $   (114,222)        $   (151,772)
 Proceeds from Sale of Fixed Assets                                  250                1,300                1,300
                                                          -------------------  -------------------  -------------------

       Net Cash used by Investing Activities               $   (158,342)        $   (112,922)        $   (150,472)
                                                          -------------------  -------------------  -------------------

Cash Flows from Financing Activities:
Proceeds from Sale of Stock                                $   2,570,000                  -0-                  -0-
Proceeds from Notes Payable                                      200,000              298,000              351,000
Note Principal Payments                                        (218,000)             (20,000)             (20,000)
Proceeds from Sale-Leaseback Transaction                             -0-              100,000              100,000
                                                          -------------------  -------------------  -------------------

      Net Cash provided by Financing Activities            $   2,552,000         $    378,000         $    431,000
                                                          -------------------  -------------------  -------------------

Net Increase (Decrease) in Cash and
 Cash Equivalents                                          $   1,894,146         $   (81,900)         $   (40,534)

Cash and Cash Equivalents:
 Beginning of Period                                              41,750               82,285               82,284
                                                          -------------------  -------------------  -------------------

End of Period                                              $   1,935,896         $        376         $     41,750
                                                          ===================  ===================  ===================
Supplemental Schedule of non-cash investing and
  financing activities:

  Issuance of Common Stock in                             $      852,383         $  1,622,914        $   1,879,809
    Exchange for Debt
                                                          -------------------  -------------------  -------------------
Total Non-Cash Investing Activities                        $     852,383         $  1,622,914        $   1,879,809
                                                          ===================  ===================  ===================

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                      <C>                  <C>                   <C>
                                                                     December 31,         December 31,          March 31,
                                                                         1999                 1998                 1999
                                                                     (Unaudited)          (Unaudited)           (Audited)
                                                              -------------------  -------------------  -------------------
      Reconciliation of Net Gain/(Loss) to Net
           Cash used by Operating Activities:

      Net Gain/(Loss)                                              $   (249,987)        $   (544,342)        $   (690,598)
                                                              -------------------  -------------------  -------------------

       Adjustments to Reconcile Net Loss to Net Cash
           used by Operating Activities:

         Depreciation                                              $      90,484        $      22,375        $      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                 (390,921)                (323)                (860)
            (Increase) Decrease in Employee Receivables                    2,900                    -              (2,500)
            (Increase) Decrease in Deposits                              (3,579)                3,398                2,875
            (Increase) Decrease in Prepaid Expenses                          -0-               38,982               38,982
            (Increase) Decrease in Deferred Debt Issue Costs                 -0-              (7,131)                  -0-
            Increase (Decrease) in Accounts Payable                     (20,115)               20,864               58,635
            Increase (Decrease) in Accrued Expenses                       71,431              116,537              189,608
                                                              -------------------  -------------------  -------------------


                   Total  Adjustments                              $   (249,525)         $    197,355         $    369,536
                                                              -------------------  -------------------  -------------------
      Net Cash used by Operating Activities                        $   (499,512)        $   (346,987)        $   (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,  notes payable and long-term debt.  Unless otherwise
disclosed  in the  notes to the  financial  statements,  the  carrying

<PAGE>

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 nine month period ended
December 31, 1999, license fees and system sales were the two primary sources of
revenue,  even though there were  revenues  from  distributor  fees and customer
tests.  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
nine month period ended  December 31, 1999,  respectively;  and $-0- and $-0-for
the three month and the nine month period ended December 31, 1998, respectively,
and $-0- for the  period  ended  March  31,  1999.  System  sales  revenues  are
recognized  when the  customer  orders the  system.  The system  sale income was
$390,992,  and  $586,488  for the three  month and the nine month  period  ended
December  31, 1999,  respectively;  and $-0- and $-0-for the three month and the
nine month period ended December 31, 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 nine month  period  ended  December  31,  1999,  respectively;  and $-0- and
$-0-for the three  month and the nine month  period  ended  December  31,  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 11,152,246  and  10,390,308 for the three months and nine months
ending  December 31, 1999,  respectively;  7,659,740 and 6,544,100 for the three
months and nine months ending December 31, 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 nine months  ended  December  31,  1999,
respectively;  and $-0- and $2,869 for the three  months and nine  months  ended
December 30, 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

<PAGE>

borrowings.  Adoption of this  statement  did not have a material  impact on the
Company's financial position, results of operations or liquidity.

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 December 31, 1999 and 1998, and March
31, 1999:

                                    Dec. 31,        Dec. 31,       March 31,
                                      1999            1998            1999
                                 --------------  --------------  -------------


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

<PAGE>

Note payable to outside interests include:

<TABLE>
<CAPTION>
<S>                                                                       <C>        <C>         <C>
                                                                       Dec. 31,     Dec. 31,    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>

     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 nine  month  periods  ended
December 31, 1999 and 1998, and March 31, 1999 respectively.

Notes payable to related parties include:

<TABLE>
<CAPTION>
<S>                                                                              <C>          <C>           <C>
                                                                              Dec. 31,      Dec. 31,      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 of March
 31, 1999, 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  of  March 31, 1999, the notes were paid in full on
 December 30, 1999.                                                                   0       100,000        100,000
                                                                             ------------  ------------  -------------

                  Total related party notes payable                                $   0      $690,946      $ 690,946

                  Less current portion                                                 0       690,946        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 $8,485 for the three  months and the nine  months  ended
December  31, 1999,  respectively;  and $17,059 and $46,925 for the three months
and the nine months ended December 31, 1998,  respectively;  and $64,199 for the
fiscal year ended March 31, 1999.

<PAGE>

Note D - Long-term debt:

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

<TABLE>
<CAPTION>
<S>                                                                                <C>          <C>           <C>
                                                                                 Dec. 31,     Dec. 31,      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.                                                     30,000       220,000         60,000

 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        50,000         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        40,000         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        93,000         93,000

 Note payable to Equity  Communication.  This note is unsecured,
 non-interest bearing, and due upon demand.                                       10,000        10,000         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
                                                                                -----------  ------------ --------------
                                                                                  $ 40,000     $ 413,000       $306,000
              Less current portion                                                  40,000       413,000         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.

<PAGE>

     Interest  expense  charged to operations  related to the long term debt was
$2,747 and $18,652 for the three months and the nine months  ended  December 31,
1999,  respectively;  and $26,068 and $80,991 for the three  months and the nine
months ended December 31, 1998, respectively; $112,553 for the fiscal year ended
March 31, 1999.

Note E - Common stock:

Stock purchase warrants

         At December 31, 1999, the Company had outstanding  warrants to purchase
2,303,203 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 12, 2000 to March 31,  2004.  At December 31,
1999, 2,303,203 shares of common stock were reserved for that purpose.

Common stock reserved

     At  December  31,  1999,  shares  of common  stock  were  reserved  for the
following purposes:

 Exercise of stock warrants                                       2,303,203
 Exercise and future grants of stock
    options and stock appreciation rights                           423,000
                                                                --------------
                                                                  2,726,203
                                                                 ==============

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

 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  had  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 December 31,
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
December 31, 1999.

<PAGE>

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 December
31, 1999 for each of the next five years and in the aggregate are:

              Year ending
               March 31,                            Amount
            ----------------                  -----------------

                2000                            $   25,074
                2001                               101,060
                2002                               103,540
                2003                               104,856
                2004                                80,364
                                              -----------------
                                               $   414,894
                                              =================


     Total rent expense  charged to  operations  was $19,988 and $47,999 for the
three months and the nine months ended  December  31,  1999,  respectively;  and
$6,846 and $20,383 for the three months and the nine months  ended  December 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
December 31, 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 December 31, 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 $5,125 and
$35,116  for the three  months and the nine  months  ended  December  31,  1999,
respectively;  and $-0- and  $88,828  for the three  months and the nine  months
ended  December  31, 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.

<PAGE>

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.

     On December  22, 1999 the Company  closed a private  offering of  1,500,000
shares of the  Company's  $.001 par value  common  stock for total  proceeds  of
$2,250,000.

     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  telecommunications  information systems, the
public will be more apt to accept and utilize  its many  features.  In order

<PAGE>

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 nine month period ended December 31,1999,  the Company recorded
net loss of $249,982,  or $.03 per share compared to a net loss of $544,341,  or
$.09 per share for the nine month period ended  December 31, 1998. For the three
month  period  ended  December  31,  1999,  the  Company  recorded a net loss of
$355,480,  or $.03 per share  compared  to a net loss of  $204,978,  or $.03 per
share for the three month period ended December 31, 1998.

         Total Revenue

         Total revenue for the nine months period ended  December 31, 1999,  was
$1,215,650  compared to $2,610 for the nine months  period  ended  December  31,
1998. Of the revenue  booked in the nine months period ended  December 31, 1999,
47% was generated from one-time licensing fees to KMC Telecom Holdings,  48% was
from  sales  of its VIP  systems,  2.5%  from  customer  tests,  2% 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  December 31, 1999 was $393,005
compared to $2,610 for the three month  period ended  December 31, 1998.  Of the
revenue  booked in the three months period ended December 31, 1999, 99% was from
sales of the Company's  VIP systems,  and 1% from service fees for the Company's
"Emma the Perfect  Receptionist"  and "Smart Line".  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 from 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 nine months  period  ended  December 31, 1999 was
$401,966  compared to $1,486 for the six months period ended  December 31, 1998.
Cost of sales for the three months  period ended  December 31, 1999 was $265,884
compared to $1,072 for the three months period ended  December 31, 1998. For the
nine months  period ended  December  31, 1999,  78% of costs were for VIP system
hardware  purchased by KMC, 8% direct costs  associated  with the closing of the
KMC  licensing   agreement,   and  14%  for  network   infrastructure   such  as
collocations, connectivity, system access and long distance.

         Selling, General and Administrative

         Selling, general and administrative expenses for the nine months period
ended December 31, 1999 was $1,071,371  compared to $488,635 for the nine months
period ended December 31, 1998. Selling, general and administrative expenses for
the three  months  period  ended  December  31,  1999 was  $482,479  compared to
$162,107 for the three months  period ended  December 31, 1998.  The increase in
the period ended December 31, 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
$35,116 and $88,828  respectively  for the nine months period ended December 31,
1999 and 1998. For the three months period ended December 31, 1999 and 1998, the
Company  recognized  income  from  extinguishment  of debt of  $5,125  and $-0-,
respectively.

Liquidity and Capital Resources

         The  Company's  cash and cash  equivalents  at  December  31, 1999 were
$1,935,896 an increase of $1,894,146  from $41,750 at March 31, 1999.  Liquidity
was enhanced by 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) of the  Securities  Act, 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.

         On December 22, 1999,  pursuant to Section 4(2) of the Securities  Act,
the Company  conducted an offering of 1,500,000  shares of the Company's  common
stock at $1.50 per share providing the Company with $2,250,000 working capital.

         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 50 additional persons during
the next twelve  (12)  months,  primarily  to support  its  expanding  marketing
activities and system installations.  At February 17, 2000, the Company employed
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 $15,000,000 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  $500,000 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 changes. 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
changes.

          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 October 5, 1999, the Company  issued two warrants.  The Company issued Bisbro
Investments  Company,  Ltd.  ("Bisbro") a warrant to purchase  177,703 shares of
common stock of the Company at an exercise price of $1.25 replacing  warrant #71
issued to Bisbro after they exercised  their right to purchase 22,297 shares out
of the original  200,000 shares that could be purchased under that warrant.  The
Company also issued Invest,  Inc. a warrant to purchase 100,000 shares of common
stock of the Company under the same terms as the Bisbro warrant.

On  December 1, 1999,  the  Company  issued  Alexander  Associates  a warrant to
purchase  50,000  shares of common stock of the Company at an exercise  price of
$1.50 per share on or before December 1, 2004.

On December 10,  1999,  the Company  issued Steve  Chizzik a warrant to purchase
35,000  shares of common stock of the Company at an exercise  price of $1.60 per
share on or before December 10, 2001.

On December 10, 1999,  the Company  issued  Howard  Isaacs a warrant to purchase
5,000  shares of common  stock of the Company at an exercise  price of $1.60 per
share on or before December 10, 2001.

On December 10, 1999, the Company issued William Reininger a warrant to purchase
5,000  shares of common  stock of the Company at an exercise  price of $1.60 per
share on or before December 10, 2001.

On December 10, 1999, the Company issued  Elizabeth Valdes a warrant to purchase
5,000  shares of common  stock of the Company at an exercise  price of $1.60 per
share on or before December 10, 2001.

On December 22, 1999, the Company issued  1,500,000  shares of common stock to a
number  of  private  investors  at a  purchase  price of $1.50  per share for an
aggregate offering price and total proceeds of $2,250,000.00.

<PAGE>

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

Exhibit

Number               Description of Exhibits
<TABLE>
<S>                   <C>
4.1*                  Warrant Certificate No. 99 issued to Bisbro Investments Company, Ltd., dated October 5, 1999
4.2*                  Warrant Certificate No. 100 issued to Invest, Inc., dated October 5, 1999
4.3*                  Warrant Certificate No. 101 issued to Alexander Associates, dated December 1, 1999
4.4*                  Warrant Certificate No. 102 issued to Steve Chizzik, dated December 10, 1999
4.5*                  Warrant Certificate No. 103 issued to Howard Isaacs, dated December 10, 1999
4.6*                  Warrant Certificate No. 104 issued to William Reininger, dated December 10, 1999
4.7*                  Warrant Certificate No. 105 issued to Elizabeth Valdes, dated December 10, 1999
4.8*                  Form of Subscription Agreement and Schedule
27*                   Financial Data Schedule

</TABLE>

* Filed herewith.

(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 18, 2000                        /s/ G. Ray Miller
------------------                       --------------------------------------
     Date                                G. Ray Miller
                                         President, Chief Executive Officer and
                                         Chairman of the Board of Directors
                                         (Principal Executive Officer)

February 18, 2000                        /s/ Mary G. Merritt
-----------------                        --------------------------------------
     Date                                Mary G. Merritt
                                         Secretary, Treasurer and Vice President
                                         of Finance
                                        (Principal Financial Officer)