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, 2000.

                                       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 X     No
                  -----     -------

                      Applicable Only to Corporate Issuers

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

Common Stock, $ 0.001 Par Value - 14,780,086 shares as of December 31, 2000.

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




<PAGE>


<TABLE>
<CAPTION>

                                      INDEX

                              Preferred Voice, Inc.
<S>      <C>                                                                                    <C>

Part I.  Financial Information                                                                   1

Item 1.  Financial Statements                                                                    1

         Balance Sheets-December 31, 2000, December 31, 1999 and March 31, 2000.                 1

         Statements of Operations-Three Months Ended December 31, 2000 and
         1999, and Nine Months Ended December 31, 2000 and 1999, and for the
         Year Ended March 31, 2000.                                                              3

         Statements of Cash Flows-Nine Months Ended December 31, 2000 and 1999
         and for the Year Ended March 31, 2000.                                                  4

         Notes to Financial Statements - December 31, 2000.                                      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


</TABLE>
<PAGE>
  The accompanying notes are an integral part of these statements.



Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
<CAPTION>
                                                     Preferred Voice, Inc.

                                                        Balance Sheets
                                         December 31, 2000 and 1999 and March 31, 2000

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

                                                                 December 31,         December 31,          March 31,
                                                                     2000                 1999                2000
Assets                                                           (Unaudited)          (Unaudited)           (Audited)

      Current Assets:

          Cash and Cash Equivalents                           $    1,018,319        $   1,935,896       $    1,373,291
          Accounts Receivable, net of allowance
          for doubtful accounts of $ -0-, $-0-
          and $-0-, respectively                                       7,527              391,382                3,924
          Inventory                                                   47,785                  -0-               84,724
          Prepaid Expenses                                           761,306              761,018              761,018
          Employee Receivables                                         1,573                  -0-                  -0-
                                                              -------------------  -------------------  ------------------
      Total Current Assets                                    $    1,836,510        $   3,142,186       $    2,222,957
                                                              -------------------  -------------------  ------------------

      Property and Equipment:
         Computer Equipment                                   $      752,128        $     285,453       $      321,248
         Furniture and Fixtures                                       42,691               24,495               38,880
         Office Equipment                                             59,774               14,933               18,198
         Computer Software                                           681,600              274,145              384,686
         LESS:  Accumulated Depreciation                           (444,333)            (249,957)            (253,143)
                                                              -------------------  -------------------  ------------------

      Net Property and Equipment                              $    1,091,860        $     349,069       $      509,869
                                                              -------------------  -------------------  ------------------

      Other Assets:

         Deposits                                             $       90,195        $      85,114       $       85,114
         Deferred Stock Issue Costs                                      -0-                  -0-               19,803
         Trademarks                                                   47,313                  -0-                7,472
                                                              -------------------  -------------------  ------------------

                                                              -------------------  -------------------  ------------------
      Total Other Assets                                      $      137,508        $      85,114       $      112,389
                                                              -------------------  -------------------  ------------------

Total Assets                                                  $    3,065,878        $   3,576,369       $    2,845,215
                                                              -------------------  -------------------  ------------------
                                                              -------------------  -------------------  ------------------
</TABLE>


<PAGE>

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




                                                                 December 31,         December 31,          March 31,
                                                                     2000                 1999                 2000
Liabilities and Stockholders' Deficit                            (Unaudited)          (Unaudited)           (Audited)

      Current Liabilities:
       Accounts Payable                                       $      177,965     $      279,312       $      272,818
       Accrued Operating & Vacation Expenses                          49,193             19,044               24,981
       Accrued Payroll and Related Tax                                 1,606            151,006                2,265
       Accrued Interest Payable                                       43,301            219,392               39,851
       Customer Deposits                                                 -0-                -0-              390,992
       Notes Payable                                                  80,866             90,866               50,866
       Notes Payable-Related Parties                                     -0-                -0-                  -0-
       Deferred Revenue                                              342,118            390,992                  -0-
                                                              --------------     --------------       --------------

      Total Current Liabilities                               $      695,049     $    1,150,612       $      781,773
                                                              --------------     --------------       --------------
      Long Term Debt:
       Long-Term Debt, Net Of Current Maturities              $          -0-     $          -0-       $       30,000
                                                              --------------     --------------       --------------

      Total Long Term Debt                                    $          -0-     $          -0-       $       30,000
                                                              --------------     --------------       --------------


      Commitments and Contingencies (Note H)

      Stockholders' Deficit:
       Common Stock, $0.001 par value
         20,000,000 shares authorized;
         shares issued 14,780,086,   13,170,546,
         and 13,276,796, respectively                         $       14,780     $       13,170       $       13,277
      Additional  Paid In Capital                                 12,126,947          8,737,244            8,952,788
      Accumulated Deficit                                        (9,769,030)        (6,322,789)          (6,930,755)

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

      Total Stockholder Deficit                               $    2,370,829     $    2,425,757       $    2,033,442
                                                              --------------     --------------       --------------

Total Liabilities and Stockholder Deficit                     $    3,065,878     $    3,576,369       $    2,845,215
                                                              --------------     --------------       --------------
                                                              --------------     --------------       --------------


</TABLE>


<PAGE>



                              Preferred Voice, Inc.

                            Statements of Operations

              For The Three Months Ended December 31, 2000 and 1999
            And For the Nine Months Ended December 31, 2000 and 1999
                      And For the Year Ended March 31, 2000

<TABLE>
<CAPTION>

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


                                                  Three Months Ended                    Nine Months Ended
                                            December 31,       December 31,      December 31,      December 31,          March 31,
                                              2000                 1999              2000              1999                2000
                                          (Unaudited)          (Unaudited)        (Unaudited)       (Unaudited)          (Audited)
                                        -----------------    -----------------  ----------------  ----------------    --------------

Sales                                     $      8,588      $      58,263        $     66,646      $    880,908       $     885,134

  Cost of Sales                                 19,770             65,835              80,284           201,917             215,293
                                          ------------      -------------        ------------      ------------       -------------

  Gross Profit (loss)                     $   (11,182)      $     (7,572)        $   (13,638)      $    678,991       $   (669,841)
                                          ------------      -------------        ------------      ------------       -------------

Costs and Expenses:
  General & Administrative                   1,019,492           482,259            2,821,188         1,072,070           1,675,971
  Interest Expense                               1,150             5,247                3,450            27,137              28,556
                                          ------------      ------------         ------------      ------------       -------------

  Total Costs and Expenses                $  1,020,642      $    487,506         $  2,824,638      $  1,099,207       $   1,704,527
                                          ------------      ------------         ------------      ------------       -------------

Gain/(Loss) Before Income Tax             $(1,031,824)      $  (495,078)         $(2,838,276)      $  (420,216)       $ (1,034,686)

Other Income (Expense):
  Loss From Sale of Assets                         -0-               -0-                  -0-               -0-            (18,356)
                                          ------------      ------------         ------------      ------------       -------------

Gain/(Loss) From Operations Before
  Income Taxes/Extraordinary Items        $(1,031,824)      $  (495,078)         $(2,838,276)      $  (420,216)       $ (1,034,686)

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

Loss Before Extraordinary Item            $(1,031,824)      $  (495,078)         $(2,838,276)      $   (420,216)      $ (1,034,686)
                                          ------------      ------------         ------------      ------------       -------------
                                          ------------      ------------         ------------      ------------       -------------

Extraordinary Item:
 Gain from Extinguishment of Debt                  -0-             5,125                  -0-            35,116              59,976
  (less applicable income taxes of -0-)

Net Loss                                  $(1,031,824)      $  (489,953)         $(2,838,276)      $  (385,100)       $   (993,066)
                                          ------------      ------------         ------------      ------------       -------------
                                          ------------      ------------         ------------      ------------       -------------


Per Share Amounts:

 Gain/(Loss) from Operations              $     (0.07)      $     (0.04)         $     (0.21)      $     (0.04)       $      (0.10)

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

Net Gain/Loss (Per Share)                 $     (0.07)      $     (0.04)         $     (0.21)      $     (0.04)       $      (0.09)


</TABLE>

<PAGE>


<TABLE>
<CAPTION>

                                                   Preferred Voice, Inc.

                                                  Statement of Cash Flows

                                   For the Nine Months Ended December 31, 2000 and 1999
                                           And For the Year Ended March 31, 2000



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

                                                                     December 31,       December 31,          March 31,
                                                                         2000               1999                2000
                                                                      (Unaudited)        (Unaudited)          (Audited)
                                                                    ----------------  ------------------  ------------------

      Cash Flows from Operating Activities:
        Cash Received from customers                                  $      12,596       $     823,868      $    1,273,062
        Cash Paid to suppliers and employees                            (2,773,083)         (1,306,402)         (2,093,749)
        Interest Paid                                                           -0-            (16,978)           (224,235)
                                                                      -------------       -------------      --------------

               Net Cash used by Operating Activities                  $ (2,760,487)       $   (499,512)      $  (1,044,922)
                                                                      -------------       -------------      --------------

      Cash Flows from Investing Activities:
         Capital Expenditures                                         $   (773,181)       $  (158,592)       $   (389,436)
         Employee Advances                                                  (1,573)                -0-                 -0-
         Proceeds from Sale of Fixed Assets                                     -0-                250               1,750
                                                                      -------------       ------------       -------------

               Net Cash used by Investing Activities                  $  (774,754)        $  (158,342)       $     387,686
                                                                      -------------       ------------       -------------

      Cash Flows from Financing Activities:

         Proceeds from Sale of Stock                                  $  3,192,936        $  2,570,000       $   2,792,149
         Proceeds from Notes Payable                                            -0-            200,000             200,000
         Note Principal Payments                                                -0-          (218,000)           (228,000)
         Stock Issuance Costs                                              (12,667)                -0-                 -0-
                                                                      -------------       ------------       -------------

               Net Cash provided by Financing Activities              $   3,180,269       $  2,552,000       $   2,764,149
                                                                      -------------       ------------       -------------

      Net Increase (Decrease) in Cash and
          Cash Equivalents                                            $   (354,972)       $  1,894,146       $   1,331,541

      Cash and Cash Equivalents:
         Beginning of Period                                              1,373,291             41,750              41,750
                                                                      -------------       ------------       -------------

         End of Period                                                $   1,018,319       $  1,935,896       $   1,373,291
                                                                      -------------       ------------       -------------
                                                                      -------------       ------------       -------------

</TABLE>

<PAGE>


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

                                                                 December 31,         December 31,          March 31,
                                                                     2000                 1999                 2000
                                                                 (Unaudited)          (Unaudited)           (Audited)
                                                              -------------------  -------------------  -------------------
      Supplemental Schedule of non-cash investing and
      financing activities:

           Issuance of Common Stock in                           $           -0-       $     852,383        $         -0-
            Exchange for Debt
                                                                 ---------------       -------------        -------------

      Total Non-Cash Investing Activities                        $           -0-       $     852,383        $         -0-
                                                                 ---------------       -------------        -------------
                                                                 ---------------       -------------        -------------


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

      Net Gain/(Loss)                                            $   (2,838,276)       $    (385,100)       $    (993,066)
                                                                 ---------------       --------------       --------------

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

         Depreciation                                            $       191,190       $      90,484        $     140,948
         (Gain) Loss on Sale of Fixed Assets                                 -0-                 275               18,356


         Changes in Assets and Liabilities:
            (Increase) Decrease in Accounts Receivable                   (3,603)            (390,921)              (3,064)
            (Increase) Decrease in Employee Receivables                      -0-                2,900                2,500
            (Increase) Decrease in Patents                              (39,841)                  -0-              (7,472)
            (Increase) Decrease in Deposits                              (5,081)              (3,579)              (3,579)
            (Increase) Decrease in Prepaid Expenses                        (288)                  -0-                  -0-
            Increase (Decrease) in Inventory                              36,939                  -0-             (84,724)
            Increase (Decrease) in Accounts Payable                     (79,657)             (20,115)             (91,016)
            Increase (Decrease) in Deferred Revenue                          -0-              390,992                  -0-
            Increase (Decrease) in Customer Deposits                    (48,874)                  -0-              390,992
            Increase (Decrease) in Accrued Expenses                       27,004            (184,448)            (414,797)
                                                                 ---------------       --------------       --------------


                  Total Adjustments                              $       77,789        $    (114,412)       $     (51,856)
                                                                 ---------------       --------------       --------------

      Net Cash used by Operating Activities                      $   (2,760,487)       $    (499,512)       $  (1,044,922)
                                                                 ---------------       --------------       --------------
                                                                 ---------------       --------------       --------------


</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 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.

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.

   Inventory
   ---------

     Inventories  consist of finished  goods and are stated at the lower of cost
(specific identification) or market.

   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."

<PAGE>

Note B - Summary of significant accounting policies (continued):

   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  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.  For the three months and nine
months ended December 31, 2000, the majority of the Company's  revenue consisted
of revenue sharing receipts and billing one customer for a software and hardware
installation, respectively.

   Advertising expense
   -------------------

     The Company expenses advertising costs when the advertisement occurs. Total
advertising  expense  amounted to $38,808  and $62,658 for the three  months and
nine months ended December 31, 2000, respectively.

   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 or loss (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.

     Loss  per  share  is  based  on  the  weighted  average  number  of  shares
outstanding  of 14,394,862  and  13,746,448 for the three months and nine months
ended December 31, 2000, respectively.

   Amortization
   ------------

     The  costs  of  patents  and   trademarks   are  being   amortized  on  the
straight-line method over a period of 15 years.

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

     The Company has adopted the provisions of SFAS No. 121,  Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of.
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.

<PAGE>


Note B - Summary of significant accounting policies (continued):

   New accounting pronouncements
   -----------------------------

     The  Company  adopted  the  provisions  of SFAS  No.  133,  Accounting  for
Derivative  Instruments  and Hedging  Activities on April 1, 2000.  SFAS No. 133
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 did not have a material impact on the
Company's financial position, results of operations or cash flows as the Company
has not entered into any derivative transactions.

Note C - Note payable:

   Note payable consists of the following at December 31, 2000:

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

     ---------------------------------------------------------------------------------------
     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) through $50,866  maturity
     on January 1, 1998.                                                          $50,866
     ---------------------------------------------------------------------------------------
     ---------------------------------------------------------------------------------------

</TABLE>

     The note to Brite Voice Systems,  Inc. (Brite) is currently in dispute, and
effective April 1997, the Company  discontinued the accrual of interest expense.
Interest  expense  charged to operations  related to the Brite note was $-0- and
$-0- for the three months and nine months ended December 31, 2000, respectively.

Note D - Long-term debt:

   Long-term debt consisted of the following at December 31, 2000:

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


     ----------------------------------------------------------------------------------------
     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 1,602,712 shares of common stock on various dates
     through March 31, 2000.                                                       $20,000
     ----------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------
     Note  payable  to  Equity  Communication.  This note is  unsecured,
     non-interest bearing, and due upon demand.                                     10,000
     ----------------------------------------------------------------------------------------
                                                                                   $30,000
     ----------------------------------------------------------------------------------------
     Less current portion                                                           30,000
     ----------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------
     Total                                                                              $0
                                                                                   ----------
     ----------------------------------------------------------------------------------------

</TABLE>


Interest expense charged to operations  related to the long-term debt was $1,150
and $3,450  for the three  months  and nine  months  ended  December  31,  2000,
respectively.

<PAGE>

Note E - Common stock:

 Stock purchase warrants
 -----------------------

     At December  31,  2000,  the Company had  outstanding  warrants to purchase
2,452,453 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  February 11, 2001 to August 24, 2006. At December
31, 2000, 2,452,453 shares of common stock were reserved for that purpose.

 Common stock reserved
 ---------------------

     At  December  31,  2000,  shares  of common  stock  were  reserved  for the
following purposes:

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


                        ---------------------------------------------------------------------------
                        Exercise of stock warrants                                       2,452,453
                        ---------------------------------------------------------------------------
                        ---------------------------------------------------------------------------
                        Exercise and future grants of stock
                           options and stock appreciation rights
                           under the 1994 stock option plan                                412,250
                        ---------------------------------------------------------------------------
                        ---------------------------------------------------------------------------
                        Exercise and future grants of stock options
                           and stock appreciation rights under the
                           2000 stock option plan                                        2,000,000
                        ---------------------------------------------------------------------------
                        ---------------------------------------------------------------------------
                                                                                         4,864,703
                        ---------------------------------------------------------------------------

</TABLE>



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>

                        ---------------------------------------------------------------------------------------------------
                                                                       For the three         For the nine
                                                                        months ended         months ended
                                                                        December 31,         December 31,
                                                                            2000                 2000
                        ---------------------------------------------------------------------------------------------------
                        ---------------------------------------------------------------------------------------------------
                        Current income taxes                                  $0                   $0
                        ---------------------------------------------------------------------------------------------------
                        ---------------------------------------------------------------------------------------------------
                        Change in deferred income taxes due
                           to temporary differences                           $0                   $0
                        ---------------------------------------------------------------------------------------------------

</TABLE>


<PAGE>

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

                        ---------------------------------------------------------------------------------------------------
                        Current income taxes                                  $0                   $0
                        ---------------------------------------------------------------------------------------------------
                        ---------------------------------------------------------------------------------------------------
                        Change in deferred income taxes due                   $0                   $0
                        ---------------------------------------------------------------------------------------------------

</TABLE>

Note F - Income taxes (continued):

 Deferred tax (liabilities) assets consist of the following:
<TABLE>
<CAPTION>
                        <S>                                                  <C>


                        --------------------------------------------------------------------
                        Accumulated depreciation                             $  (28,000)
                        --------------------------------------------------------------------
                        --------------------------------------------------------------------
                        Gross deferred tax liabilities                       $  (28,000)
                        --------------------------------------------------------------------
                        --------------------------------------------------------------------
                        Accrued liabilities                                  $     9,000
                        --------------------------------------------------------------------
                        Start-up expenditures                                      1,000
                        --------------------------------------------------------------------
                        Net operating loss carryforward                        3,295,000
                        --------------------------------------------------------------------
                        --------------------------------------------------------------------
                        Gross deferred tax assets                           $  3,305,000
                        --------------------------------------------------------------------
                        Valuation allowance                                  (3,277,000)
                        --------------------------------------------------------------------
                        --------------------------------------------------------------------
                        Net deferred tax assets                             $    28,000
                        --------------------------------------------------------------------
                        --------------------------------------------------------------------
                                                                            $         0
                                                                            ----------------
                        --------------------------------------------------------------------

</TABLE>


     The increase in the deferred tax  valuation  allowance for the three months
and nine months ended December 31, 2000 was $348,000 and $985,000, respectively.

     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 December  31,  2000,  a net  operating  loss
carryforward  of  approximately  $9,690,000  which can be used to offset  future
taxable  income through the year 2022.  Net operating  loss  limitations  may be
imposed if changes in stock  ownership of the Company create a change of control
as provided in Section 382 of the Internal Revenue Code of 1986, as amended.


Note G - Stock option plans:

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

<PAGE>


     Under  the  terms  of  the  1994  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, 2000,  options to purchase  412,000  shares at exercise  prices of
$0.69 to $2.50 per share were outstanding. No stock appreciation rights had been
granted at December 31, 2000.

     On September 29, 2000, the Company  adopted a 2000 stock plan for incentive
stock options and other equity participation (the "2000 Plan") which permits the
issuance of stock purchase  agreements,  stock awards,  incentive stock options,
non-qualified  stock options and stock appreciation rights to selected employees
and independent  contractors of the Company.  The plan reserves 2,000,000 shares
of common stock for grant and provides that the term of each award be determined
by a committee of the Board of  Directors  (the "2000  Committee")  charged with
administering  the 2000 Plan. As of December 31, 2000, the 2000 Plan had not yet
been approved by the Company's stockholders.


Note G - Stock option plans (continued):

     Under  the  terms  of  the  2000  Plan,   options  granted  may  be  either
nonqualified or incentive stock options,  and the exercise price,  determined by
the 2000 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, 2000,  options to purchase  542,000  shares at an exercise price of
$1.40 per share were granted and outstanding, subject to stockholder approval of
the 2000 Plan.  No stock  appreciation  rights had been  granted at December 31,
2000.

     The per share  weighted-average  fair value of stock options granted during
the three months and nine months ended December 31, 2000,  was determined  using
the  Black  Scholes   Option-Pricing   Model.  The  following   weighted-average
assumptions were used in the pricing model:

                        ----------------------------------
                        Expected dividend yield              0.00%
                        ----------------------------------
                        ----------------------------------

                        ----------------------------------
                        ----------------------------------
                        Risk-free interest rate              4.99% - 6.02%
                        ----------------------------------
                        ----------------------------------

                        ----------------------------------
                        ----------------------------------
                        Expected life                        2.5 years to
                                                               6 years

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

                        ----------------------------------
                        ----------------------------------
                        Expected volatility                  134% to 139%
                        ----------------------------------

<PAGE>


     The Company  applies APB  Opinion  No. 25 in  accounting  for its plan and,
accordingly, has recognized no compensation expense for stock options granted at
exercise  prices at least  equal to the  market  value of the  Company's  common
stock. Had the Company  determined  compensation cost based on the fair value at
the grant date for its stock  options under SFAS No. 123, the Company's net loss
and loss per share would have been increased to the proforma  amounts  indicated
below:


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

                        -----------------------------------------------------------------------------------------------
                                                                                                  For the nine
                                                                          For the three           months ended
                                                                          months ended            December 31,
                                                                        December 31, 2000             2000
                        -----------------------------------------------------------------------------------------
                        -----------------------------------------------------------------------------------------
                        Net loss:
                        ------------------------------------------------
                        ------------------------------------------------
                          As reported                                         $(1,031,824)          $(2,838,276)
                        -----------------------------------------------------------------------------------------

                        ------------------------------------------------
                        ------------------------------------------------
                          Proforma                                            $(1,074,041)          $(2,944,761)
                        -----------------------------------------------------------------------------------------
                        -----------------------------------------------------------------------------------------

                        ------------------------------------------------
                        Loss per common share:
                        ------------------------------------------------
                        ------------------------------------------------
                          As reported                                         $     (0.07)          $     (0.21)
                        -----------------------------------------------------------------------------------------
                        -----------------------------------------------------------------------------------------
                        ------------------------------------------------
                          Proforma                                            $     (0.07)          $     (0.21)
                        -----------------------------------------------------------------------------------------
                        -----------------------------------------------------------------------------------------

</TABLE>

Note G - Stock option plans (continued):

   Following  is a summary of the stock  award and  incentive  plans  during the
three months and nine months ended December 31, 2000:
<TABLE>
<CAPTION>


                                                                1994 Plan                           2000 Plan
                                                         Number           Weighted           Number         Weighted
                                                           of              average             of           average
                                                         shares        exercise price        shares      exercise price
          <S>                                                <C>                 <C>           <C>                <C>

          Outstanding at March 31, 2000                      406,500             $0.96               0            $0.00

             Granted                                          15,000              2.50               0             0.00
             Exercised                                       (9,500)              1.00               0             0.00

          Outstanding at September 30, 2000                  412,000             $1.02               0            $0.00

             Granted                                               0              0.00         542,000             1.40
             Exercised                                             0              0.00               0             0.00

          Outstanding at December 31, 2000                   412,000             $1.02         542,000            $1.40
                                                          ----------        ----------       ---------       ----------
                                                          ----------        ----------       ---------       ----------

          Options exercisable at December 31, 2000           270,333             $0.93               0            $0.00

          Weighted average fair value of options
             granted during the nine months ended             15,000             $2.13         542,000            $1.40
             December 31, 2000

</TABLE>

<PAGE>

Note H - Commitments:

   The Company leases its office  facilities and various office  equipment under
operating  leases  expiring  through  December 2005.  Following is a schedule of
future minimum lease payments  required under the above  operating  leases as of
December 31, 2000:

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

                             ---------------------------------------------------------------
                                Year ending
                                December 31,                                       Amount

                             ---------------------------------------------------------------
                                2001                                               $137,098
                             ---------------------------------------------------------------
                                2002                                                176,611
                             ---------------------------------------------------------------
                                2003                                                170,433
                             ---------------------------------------------------------------
                                2004                                                169,685
                             ---------------------------------------------------------------
                                2005                                                170,527
                             ---------------------------------------------------------------
                                Thereafter                                           42,632
                             ---------------------------------------------------------------
                                                                                   $866,986
                             ---------------------------------------------------------------
                             ---------------------------------------------------------------


</TABLE>


     Total rent expense  charged to operations  was $48,604 and $106,620 for the
three months and nine months ended December 31, 2000, respectively.


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 current assets in the  accompanying  balance  sheet.  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 -  Going concern:

     The Company has incurred substantial  operating losses to date. The Company
has  raised,  and  intends to  continue  to raise,  additional  capital  through
subsequent  offerings of its common stock  through  subsequent  offerings of its
common stock.

     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.   As  of  September  30,  2000,  the  Company  had  completed  one
installation.

     On  September  25,  2000,   KMC  notified  the  Company  that  the  initial
installation  would not be accepted  and KMC intends to  terminate  the software
license agreement.  In addition, KMC requested the refund of the initial license
fee and other  amounts  paid to the Company.  The Company  believes it has fully
complied  with  the  terms  and  conditions  of the  agreement  and  intends  to
vigorously  defend  its  position.

<PAGE>

Accordingly,  no provision for losses in  connection  with the KMC agreement has
been charged to operations in the accompanying financial statements.

     In August  2000,  the  Company  completed  the  issuance  of an  additional
1,142,858  common shares through a private  offering,  resulting in net proceeds
(after deducting issuance costs) of $2,787,531. In connection with the offering,
the Company also issued warrants to purchase 285,715 shares of common stock at a
price of $2.625 per share.

     As of December 31, 2000,  the Company has entered into  thirty-one  revenue
sharing agreements with various  telecommunication  service providers throughout
the United States.  Generally, the agreements provide for the Company to receive
30% to 70% of the revenue from the sale of the Company's services depending upon
the level of revenue  generated.  The Company began  receiving  revenue from the
agreements in November 2000.

     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.

Note K - Concentrations:

   Concentrations of credit risk
   -----------------------------

     At December 31, 2000, the Company had cash balances of $1,005,967  with one
banking  institution,  which is in excess  of the  federally  insured  amount of
$100,000 per  institution.  These  balances are before  considering  outstanding
items.

<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 herein
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations" and those set forth in the "Management's  Discussion and Analysis
of Financial Condition and Results of Operations" section of the Form 10-KSB for
the fiscal year ended March 31, 2000. Notwithstanding the foregoing, the Company
is not entitled to rely on the safe harbor for forward looking  statements under
27A of the  Securities  Act or 21E of the Exchange Act as long as the  Company's
stock is  classified  as a penny stock  within the meaning of Rule 3a51-1 of the
Exchange Act. A penny stock is generally  defined to be any equity security that
has a market  price (as  defined  in Rule  3a51-1) of less than $5.00 per share,
subject to certain exceptions.

Overview

     The  Company  began   operations   in  April  1995  as  a  traditional   1+
long-distance  reseller. The need to distinguish itself from other resellers led
it  to  concentrate  on  enhanced  services  utilizing  voice  recognition  call
completion  technology.  The Company  contracted  with  Intervoice-Brite,  Inc.,
formerly known as Brite Voice Systems,  Inc.  ("Brite"),  to develop a switching
platform  that  incorporated  its service  applications  with voice  recognition
technology  acquired  through a licensing  agreement with Voice Control Systems,
Inc.

     Recognizing  the  declines  in  telecommunications  service  prices and the
decreasing margins being experienced in long distance sales, the Company decided
to sell its long distance  customer  base and assets in early 1997.  The Company
also  concluded that the  underlying  architecture  used by Brite to develop its
services  would not be  flexible  enough  to  continue  to  create a variety  of
services in the future.  Therefore,  the Company  reduced its staff and overhead
and began its focus on developing its own proprietary software.

     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 of 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 the use of 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  Communication  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 numbers of customers. To date, the
Company has signed thirty ILEC and WCC multi-year contracts. Four contracts have
been fully implemented so that the systems installed  pursuant to such contracts
are   already   generating   revenues   for  the   Company.   Four   contracting
telecommunications  providers are in the system  acceptance and early  marketing
stages and should generate revenues in the early part of the next fiscal year.

     The Company is still at an 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

<PAGE>


and  telecommunications  information  systems,  the  management  of the  Company
believes 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,  including  adequate  numbers of technical
support  staff to provide  service for its  customers;  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  affect  the  Company's   business,
operating results and financial condition.


Results of Operations

     For the nine month period ended December 31, 2000, the Company recorded net
loss of  $2,838,276,  or $.21 per share,  compared  to a net loss of $385,100 or
$.04 per share, for the nine month period ended December 31, 1999. For the three
month  period  ended  December  31,  2000,  the  Company  recorded a net loss of
$1,031,824,  or $.07 per share,  compared to a net loss of $489,953, or $.04 per
share, for the three month period ended December 31, 1999.

         Total Revenue

     Total  revenue for the nine months  period ended  December  31,  2000,  was
$66,646 compared to $880,908 for the nine months period ended December 31, 1999.
Of the revenue booked in the nine months period ended December 31, 2000, 74% was
generated from sales of its VIP systems, 15% from service fees for the Company's
"Emma the Perfect  Receptionist"  and "Smart Line", and 11% from revenue sharing
agreements.  Of the revenue  booked in the nine months period ended December 31,
1999,  65% was generated from one-time  licensing fees to KMC Telecom  Holdings,
22% was from sales of its VIP systems, 10% 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  December 31, 2000 was $8,588
compared to $58,263 for the three months period ended  December 31, 1999. Of the
revenue  booked in the three  months  period ended  December  31, 2000,  88% for
revenue  sharing  agreements,  and 12% from service fees for the Company's "Emma
the Perfect  Receptionist"  and "Smart Line". Of the revenue booked in the three
months period ended  December 31, 1999,  97% was from customer tests and 3% from
service fees for the Company's "Emma the Perfect Receptionist" and "Smart Line".
For the fiscal year ended March 31, 2000,  revenues of $885,134 were generated -
65% from one-time licensing fees to KMC Telecom Holdings,  22% from sales of its
VIP  systems,  10% from  customer  tests,  3% from master  distributor  fees for
specific  marketing rights, and 1% from service fees for the Company's "Emma the
Perfect  Receptionist" and "Smart Line". The reduction of revenues reflects that
in the fiscal  year ended  March 31,  2000,  the  Company  obtained  most of its
revenues from a licensing  arrangement with KMC Telecom Holdings,  Inc. ("KMC"),
whereas  revenue  sharing  agreements  with its new customers  have provided the
Company  most of its  revenues  in the last three  quarters  of the fiscal  year
ending March 31, 2001.

     The Company  anticipates that revenues from its revenue sharing  agreements
will grow gradually in the final quarter of its fiscal year 2001 as it continues
to install  VIP systems in the  central  switch  offices of ILECs and WCCs which
have already signed revenue sharing agreements. The Company intends to focus its
marketing efforts, in the near future, on entering into revenue share agreements
with ILECs and WCCs and does not  anticipate  substantial  revenue going forward
from the sale of master  distributorships or direct licensing of the VIP Systems
such as was done in the KMC licensing agreement.

         Cost of Sales

     Cost of sales  for the nine  months  period  ended  December  31,  2000 was
$80,284 compared to $201,917 for the nine months period ended December 31, 1999.
For the nine months  period ended  December 31, 2000,  68% of

<PAGE>

the costs were for network  infrastructure  such as collocations,  connectivity,
system  access,  and  long-distance  and 32% of the  costs  were for VIP  system
hardware purchased by KMC, whereas in the comparable period of the previous year
55% of the costs were for VIP system hardware purchased by KMC, 16% of the costs
were  associated with the closing of the KMC licensing  agreement,  and 29% were
for network infrastructure such as collocations, connectivity, system access and
long distance. Cost of sales for the three months period ended December 31, 2000
was $19,770  compared to $65,835 for the three months period ended  December 31,
1999, with costs being similarly  distributed as the cost  distribution  for the
nine months ended December 31, 2000 and 1999, respectively.

         Selling, General and Administrative

     Selling,  general and  administrative  expenses for the nine months  period
ended  December  31, 2000 was  $2,821,188  compared to  $1,072,070  for the nine
months  period  ended  December 31, 1999.  Selling,  general and  administrative
expenses for the three  months  period  ended  December 31, 2000 was  $1,019,492
compared to $482,259 for the three months  period ended  December 31, 1999.  The
difference in the period ended December 31, 1999 and the same period in 2000 was
primarily due to 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
continue to increase through fiscal 2001, such expenses to include costs related
to increases in the number of employees and general overhead.


         Research and Development

     The Company has not expensed any research and development  costs for any of
the periods stated on its financial  statements,  but has  capitalized  costs of
$681,600 for development of its proprietary software and hardware for the period
ended December 31, 2000, in comparison to $269,145 for the period ended December
31, 1999.

         Extraordinary Items

     The Company has recognized income from the extinguishment of debt of $0 and
$35,116  respectively  for the nine months  period  ended  December 31, 2000 and
1999.  For the three months period ended December 31, 2000 and 1999, the Company
recognized income from extinguishment of debt of $0 and $5,125, respectively.

         Income Taxes

     As of December 31, 2000, the Company had  cumulative  federal net operating
losses of approximately $9.7 million,  which can be used to offset future income
subject to federal  income tax through the fiscal year 2022.  Net operating loss
limitations may be imposed if changes in stock ownership of the Company create a
change of control as  provided in Section 382 of the  Internal  Revenue  Code of
1986, as amended.

Liquidity and Capital Resources

     The  Company's  cash  and  cash  equivalents  at  December  31,  2000  were
$1,018,319 a decrease of $354,972 from $1,373,291 at March 31, 2000.

     On June 3, 1999, the Company entered into a software license agreement with
KMC. Under the terms of the agreement,  KMC paid the Company an initial  license
fee of  $570,000.  It has also paid the Company  $391,000 for hardware for eight
installations. The agreement provides for a total of 39 installations and grants
KMC the ability to add up to 81 additional installations. The agreement is for a
period of 10 years but KMC has the right to terminate the agreement annually and
on standard events of default.

<PAGE>


     To date the Company has  installed one system.  On September 25, 2000,  KMC
wrote the  Company  and  asserted  that since it had not  accepted  the  initial
installation within 90 days, it was refusing to accept the system and exercising
its right to terminate the agreement. KMC requested a refund of most monies paid
relating  to the  initial  market  and a refund  of all  monies  paid for  other
markets. If the Company were required to refund such monies it would result in a
charge to revenue in the period  that the  refund is  ascertained.  The  Company
responded  by  informing  KMC that  under  the terms of the  agreement,  KMC had
already  accepted  the  initial  installation  and,  therefore,  had no right to
terminate the agreement.

     On  November  1, 2000,  KMC wrote to the  Company  again and  disputed  the
Company's interpretation of the agreement. KMC reiterated its termination of the
agreement  and its request  for  reimbursement  of monies that it had paid.  KMC
added that if the Company were correct that the agreement is not terminated, KMC
would  exercise  its right to remove  all  other  markets  from the terms of the
agreement and would demand return of the license fee and hardware costs paid for
those markets. The Company disputes that it has any obligation to refund license
fees for markets  that are removed  from the  agreement.  KMC also  informed the
Company that if the  agreement  were in effect,  the Company would have breached
the  provisions  requiring  escrow of the  software.  While the  Company has not
escrowed the software,  the Company  disputes  that such inaction  constitutes a
breach of the escrow provisions of the agreement.

    On  November  16,  2000 the  Company  filed a breach of  contract  suit
against KMC. See Part II - Item 1 "Legal Proceedings" for additional information
regarding the legal proceedings.

         Future Obligations

     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  $2,000,000 of equity and/or long term debt to finance its
costs of marketing, system deployment, and continued refinement of its services.

     During the next  twelve  months,  subject to  raising  adequate  capital or
securing  financing for its VIP systems,  the Company  intends to  substantially
increase its VIP system installations, to continue 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  thirty  (30)  additional
persons  during the next twelve (12) months,  primarily to support its expanding
marketing   activities,   software   and   hardware   development,   and  system
installations. At February 12, 2001, the Company employed thirty-three (33) full
time employees.


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

     The Company filed a breach of contract  suit against KMC Telecom  Holdings,
Inc.  on  November  16,  2000.  The cause of action is styled in the name of the
principal parties, Preferred Voice, Inc. v. KMC Telecom Holdings, Inc., Case No.
00-09351,  filed in the 101st Judicial District,  Dallas,  Texas. The Company is
seeking general, special and various other damages, including attorneys fees and
declaratory judgment regarding certain terms of the Company's contract with KMC.
See Part I - Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital  Resources"  for a description
of facts underlying the proceedings.

Item 2.  Changes in Securities.

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

<PAGE>


(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

     The  Company  has  granted  an  aggregate  of  542,000  options  to various
     employees of the Company, including its executive officers, pursuant to the
     2000 Stock Plan for Incentive Stock Options and Other Equity  Participation
     subject to stockholder approval.


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



Exhibit
Number             Description of Exhibits
------             -----------------------

10.1       2000 Stock Plan for Incentive Stock Options and Other Equity
           Participation

10.2       Form of Incentive Stock Option Agreement


(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 14, 2001                   /s/ G. Ray Miller
--------------------------         -------------------------------------------
       Date                        G. Ray Miller
                                   President, Chief Executive Officer and
                                   Chairman of the Board of Directors
                                     (Principal Executive Officer)




February 14, 2001                  /s/ Mary G. Merritt
---------------------------        -------------------------------------------
       Date                        Mary G. Merritt
                                   Secretary, Treasurer and
                                   Vice President of Finance
                                     (Principal Financial Officer)