<PAGE>


                                  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 June 30, 2002.
                                       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 - 18,407,493 shares as of August 9, 2002.

Transitional Small Business Format    Yes ___   No  X

<PAGE>


                                      INDEX

                              PREFERRED VOICE, INC.

<TABLE>
<S>                                                                                  <C>
Part I.  Financial Information                                                        1

Item 1.  Financial Statements                                                         1

         Balance Sheets-June 30, 2002, June 30, 2001 and March 31, 2002.              1

         Statements of Operations-Three Months Ended June 30, 2002 and 2001
         and for the Year Ended March 31, 2002.                                       3

         Statements of Cash Flows-Three Months Ended June 30, 2002 and 2001
         and for the Year Ended March 31, 2002.                                       4

         Notes to Financial Statements - June 30, 2002.                               6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                                   13

Part II. Other Information                                                           16

Item 1.  Legal Proceedings                                                           16

Item 2.  Changes in Securities                                                       16

Item 3.  Defaults upon Senior Securities                                             17

Item 4.  Submission of Matters to a Vote of Security Holders                         17

Item 5.  Other Information                                                           17

Item 6.  Exhibits and Reports on Form 8-K                                            17

Signatures                                                                           18
</TABLE>

<PAGE>


                              PREFERRED VOICE, INC.
                            CONDENSED BALANCE SHEETS
                             JUNE 30, 2002 AND 2001
                                 MARCH 31, 2002

<TABLE>
<CAPTION>
                                                          JUNE 30,         JUNE 30,         MARCH 31,
                                                           2002              2001             2002
                                                        (UNAUDITED)      (UNAUDITED)        (AUDITED)
                                                      --------------    -------------    -------------
<S>                                                   <C>               <C>              <C>
         ASSETS

Current assets:
   Cash and cash equivalents                          $      427,929    $   1,283,070    $   1,302,754
   Accounts receivable, net of allowance
    for doubtful accounts of $36,578, -0-, and
    $36,578 respectfully                                     163,114           65,204          162,940
   Employee advances                                           2,077            3,144            2,638
   Inventory                                                       0           49,085                0
   Prepaid expenses                                           27,686              203           28,411
                                                      --------------    -------------    -------------
      Total current assets                            $      620,806    $   1,400,706    $   1,496,743
                                                      --------------    -------------    -------------
Property and equipment:
   Computer equipment                                 $    1,680,635    $     933,428    $   1,678,172
   Furniture and fixtures                                     42,691           42,691           42,691
   Office equipment                                           62,997           61,889           62,997
                                                      --------------    -------------    -------------
                                                      $    1,786,323    $   1,038,008    $   1,783,860
   Less accumulated depreciation                             474,744          247,176          408,104
                                                      --------------    -------------    -------------

      Net property and equipment                      $    1,311,579    $     790,832    $   1,375,756
                                                      --------------    -------------    -------------

Other assets:
   Notes receivable                                   $       12,000    $           0    $           0
   Capitalized software development costs, net
    of accumulated amortization of $616,795,
    $387,421 and $588,815, respectively                      351,068          403,436          316,474
   Deposits                                                   23,019           15,687           23,019
   Trademarks and patents, net of accumulated
    amortization of $455, $-0- and $-0-
    respectively                                              53,318           51,091           53,535
                                                      --------------    -------------    -------------

      Total other assets                              $      439,405    $     470,214     $    393,028
                                                      --------------    -------------    -------------

      Total assets                                    $    2,371,790    $   2,661,752    $   3,265,527
                                                      ==============    =============    =============
</TABLE>

                                        1

<PAGE>

<TABLE>
<CAPTION>
                                                       JUNE 30,              JUNE 30,            MARCH 31,
                                                         2002                  2001                2002
                                                     (UNAUDITED)           (UNAUDITED)          (AUDITED)
                                                   ---------------       ---------------      ------------
<S>                                                <C>                   <C>                  <C>
        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                $       254,968       $       150,671      $    333,636
   Accrued operating expenses                               32,280                36,059            98,420
   Accrued vacation                                         15,076                31,356            23,715
   Accrued payroll and payroll taxes                         2,044                41,720             4,501
   Accrued interest payable                                 34,569                38,815            33,319
   Deferred revenue                                        344,076               342,118           344,618
   Current maturities of long-term debt                          0                20,000                 0
   Note payable                                             50,866                50,866            50,866
                                                   ---------------       ---------------      ------------

      Total current liabilities                    $       733,879       $       711,605      $    889,075
                                                   ---------------       ---------------      ------------

Long-term debt                                     $        50,000       $           -0-      $     50,000
                                                   ---------------       ---------------      ------------

Commitments (Notes F and G)

Stockholders' equity:
   Common stock, $0.001 par  value;
    50,000,000 shares authorized;
    18,407,493, 15672,586 and 18,407,493
    shares issued respectively                     $        18,407       $        15,745      $     18,407
   Additional paid-in capital                           17,817,465            14,652,779        17,817,465
   Accumulated deficit                                 (16,246,455)          (12,716,872)      (15,507,914)
   Treasury stock -  22,500 shares at cost                  (1,506)               (1,505)           (1,506)
                                                   ---------------       ---------------      ------------

      Total stockholders' equity                   $     1,587,911       $     1,950,147      $  2,326,452
                                                   ---------------       ---------------      ------------

      Total liabilities and stockholders'
       equity                                      $     2,371,790       $     2,661,752      $  3,265,527
                                                   ===============       ===============      ============
</TABLE>

                                        2

<PAGE>



                              PREFERRED VOICE, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
                      AND FOR THE YEAR ENDED MARCH 31, 2002

<TABLE>
<CAPTION>
                                                    JUNE 30,               JUNE 30,              MARCH 31,
                                                      2002                   2001                  2002
                                                   (UNAUDITED)            (UNAUDITED)            (AUDITED)
                                                 ----------------     ------------------    ------------------
<S>                                              <C>                  <C>                   <C>
Sales                                            $        417,084     $           84,272    $        1,474,465

Cost of sales                                             193,416                 19,211               462,311
                                                 ----------------     ------------------    ------------------

     Gross profit                                $        223,668     $           65,061    $        1,012,154
                                                 ----------------     ------------------    ------------------

General and administrative expenses              $        962,277     $        1,107,984    $        4,854,006
                                                 ----------------     ------------------    ------------------

Loss from operations                             $       (738,609)    $       (1,042,923)   $       (3,841,852)
                                                 ----------------     ------------------    ------------------

Other income (expense):
  Interest income                                $          3,332     $                0    $                0
  Interest expense                                         (1,250)                (1,150)               (5,255)
  Other expense                                            (2,014)                     0                     0
                                                 ----------------     ------------------    ------------------

     Total other income (expense)                $             68     $           (1,150)   $           (5,255)
                                                 ----------------     ------------------    ------------------

Loss from operations before income taxes         $       (738,541)    $       (1,044,073)   $       (3,847,107)

Provision for income taxes                                      0                      0                     0
                                                 ----------------     ------------------    ------------------

Loss from operations before extraordinary item   $       (738,541)    $       (1,044,073)   $       (3,847,107)

Gain from extinguishments of debt (net of
 applicable income taxes of $-0-)                               0                      0                11,992
                                                 ----------------     ------------------    ------------------

Net loss                                         $       (738,541)    $       (1,044,073)   $       (3,835,115)
                                                 ================     ==================    ==================

Per share amounts:
   Loss from operations                          $          (0.04)    $            (0.07)   $            (0.23)
                                                 ================     ==================    ==================

   Net loss per share                            $          (0.04)    $            (0.07)   $            (0.23)
                                                 ================     ==================    ==================
</TABLE>

See independent accountants' review report.
The accompanying notes are an integral part of these statements.

                                        3

<PAGE>

                              PREFERRED VOICE, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
                      AND FOR THE YEAR ENDED MARCH 31, 2002

<TABLE>
<CAPTION>
                                                             JUNE 30,            JUNE 30,         MARCH 31,
                                                               2002                2001             2002
                                                            (UNAUDITED)        (UNAUDITED)        (AUDITED)
                                                          ----------------   --------------   ------------------
<S>                                                       <C>                <C>              <C>
Cash flows from operating activities:
   Cash received from customers                           $        416,367   $       58,209   $        1,365,158
   Cash paid to suppliers and employees                         (1,214,207)      (1,174,571)          (4,707,443)
   Interest received                                                 3,332                0                    0
                                                          ----------------   --------------   ------------------

      Net cash used by operating activities               $       (794,508)  $   (1,116,362)  $       (3,342,285)
                                                          ----------------   --------------   ------------------

Cash flows from investing activities:
   Capital expenditures                                   $        (65,037)  $     (117,765)  $         (978,046)
   Increase in notes receivable                                    (12,000)               0                    0
   Employee advances (repayments)                                      562           (2,222)              (1,716)
                                                          ----------------   --------------   --=---------------

      Net cash used by investing activities               $        (76,475)  $     (119,987)  $         (979,762)
                                                          ----------------   --------------   ------------------

Cash flows from financing activities:
   Proceeds from issuance of stock                        $              0   $      783,667   $        4,072,035
                                                                         0                0               50,000
   Stock issuance costs                                             (3,842)               0             (232,986)
                                                          ----------------   --------------   ------------------

      Net cash provided (used) by financing activities    $        (3,842)   $      783,667   $        3,889,049
                                                          ----------------   --------------   ------------------

   Net decrease in cash and cash equivalents              $       (874,825)  $     (452,682)  $         (432,998)

Cash and cash equivalents:
   Beginning of period                                           1,302,754         ,735,752            1,735,752
                                                          ----------------   --------------   ------------------

   End of period                                          $        427,929   $    1,283,070   $        1,302,754
                                                          ================   ==============   ==================
</TABLE>

See independent accountants' review report.
The accompanying notes are an integral part of these statements.

                                        4

<PAGE>

<TABLE>
<CAPTION>
                                                         JUNE 30,          JUNE 30,         MARCH 31,
                                                          2002              2001              2002
                                                        (UNAUDITED)       (UNAUDITED)       (AUDITED)
                                                      --------------    --------------    -------------
<S>                                                   <C>               <C>               <C>
Reconciliation of net loss to net
 cash used by operating activities:

   Net loss                                           $     (738,541)   $   (1,044,073)   $  (3,835,115)
                                                      --------------    --------------    -------------

   Adjustments to reconcile net loss to
    net cash used by operating activities:

      Depreciation and amortization                   $       95,076    $      103,403    $     465,723
      Gain on sale of fixed assets                                 0            (3,291)               0

      Fair value of stock warrants issued in
       Exchange for services                                       0                 0           91,186
       Forgiveness of debt                                         0                 0          (11,992)

      Changes in assets and liabilities:
       Increase in accounts receivable                          (175)          (26,063)        (123,799)

       Decrease in inventory                                       0                 0           49,085

       (Increase) in deposits                                      0            (1,594)          (8,926)

       Decrease (increase) in prepaid expenses                 4,567               290          (27,918)
       Increase in patents and trademarks                       (239)           (2,558)          (5,002)

       Decrease in accounts payable                          (78,668)         (187,599)          (4,634)

       Increase (decrease) in accrued expenses               (75,986)           45,123           66,607

       Decrease (increase) in customer deposits                 (542)                0            2,500
                                                      --------------    --------------    -------------

           Total adjustments                          $      (55,967)   $      (72,289)   $     492,830
                                                      --------------    --------------    -------------

Net cash used by operating activities                 $     (794,508)   $   (1,116,362)   $  (3,342,285)
                                                      ==============    ==============    =============

Supplemental schedule of non-cash
 investing and financing activities:

   Issuance of common stock in
    exchange for debt                                 $            0    $       15,196    $      34,247
                                                      ==============    ==============    =============
</TABLE>

                                        5

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

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 voice recognition services to the
telecommunications industry throughout the United States and maintains its
principal offices in Dallas, Texas.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

   BASIS OF PRESENTATION

       The accounting policies followed by Preferred Voice, Inc. are set forth
   in the Company's financial statements that are a part of its March 31, 2002,
   Form 10KSB and should be read in conjunction with the financial statements
   for the three months ended June 30, 2002, contained herein.

       The financial information included herein as of June 30, 2002, and for
   the three-month periods ended June 30, 2002 and 2001, have been presented
   without an audit, pursuant to accounting principles for the interim financial
   information generally accepted in the United States of America, and the rules
   of the Securities and Exchange Commission. The Company believes that the
   disclosures are adequate to make the information presented not misleading.
   The information presented reflects all adjustments (consisting solely of
   normal recurring adjustments), which are, in the opinion of management,
   necessary for a fair statement of results for the period.

   CASH AND CASH EQUIVALENTS

       For purposes of reporting cash flows, cash and cash equivalents include
   all amounts due from banks with original maturities of three months or less.

   CONCENTRATION OF BUSINESS, MARKET AND CREDIT RISKS

       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 provides 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.

       On December 26, 2001, the American Institute of Certified Public
   Accountants (AICPA) issued Statement of Position (SOP) No. 01-06, Accounting
   by Certain Entities (Including Entities with Trade Receivables) That Lend to
   or Finance the Activities of Others. This SOP provides certain presentation
   and disclosure changes for entities with trade receivables and is effective
   for periods beginning January 1, 2002, and thereafter. The Company has not
   fully analyzed the provisions of the SOP, but does not believe adoption will
   have a material effect on the financial statements.

       At June 30, 2002, the Company had cash balances of approximately $493,000
   in banking institutions in excess of federally insured amounts. These
   balances are before considering outstanding items.

                                        6

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

   CAPITALIZED SOFTWARE DEVELOPMENT

       The Company has adopted the provisions of FASB No. 86, Accounting for the
   Costs of Computer Software to Be Sold, Lease, or Otherwise Marketed, to
   account for its internally developed software costs since the Company is
   dependent on the software to provide the voice recognition services. Under
   the provisions of FASB No. 86, costs incurred prior to the product's
   technological feasibility are expensed as incurred. The capitalization of
   software development costs begins when a product's technological feasibility
   has been established and ends when the product is available for use and
   released to customers. Capitalized software development costs include direct
   costs incurred subsequent to establishment of technological feasibility for
   significant product enhancements. Amortization is computed on an individual
   product basis using the straight-line method over the estimated economic life
   of the product, generally three years.

   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

   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

       For recognizing revenue, the Company applies the provisions of SEC Staff
   Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
   Statements. In most cases, the services being performed do not require
   significant production, modification or customization of the Company's
   software or services; therefore, revenues are recognized when evidence of a
   completed transaction exists, generally when services have been rendered. In
   situations where the Company receives an initial payment for future services,
   the Company defers recognition of revenue, and recognizes the revenue over
   the life of the respective contract.

                                        7

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

   LOSS PER SHARE

       The Company adopted the provisions of Statement of Financial Accounting
   Standards (SFAS) No. 128, Earnings per Share. 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. Since the Company
   incurred a loss from operations for the periods ended June 30, 2002 and 2001,
   no computation of diluted EPS has been performed.

       Loss per share is based on the weighted average number of shares
   outstanding of 18,407,493 and 15,589,892 for the three months ended June 30,
   2002 and 2001, respectively.

   INCOME TAXES

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

   TRADEMARKS AND PATENTS

       Certain costs incurred for the registration of trademarks and patents are
   capitalized and amortized. The amortization is calculated using the
   straight-line method, beginning when it is approved and continuing over its
   estimated useful or legal life, generally between 5 and 15 years.

   IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

       The Company adopted the provisions of SFAS No. 144, Accounting for the
   Impairment or Disposal of Long-Lived Assets effective for periods beginning
   January 1, 2002 and thereafter. SFAS 144 replaces SFAS 121, Accounting for
   the Impairment of Long-Lived Assets for Long-Lived Assets to Be Disposed Of,
   and, among other matters, addresses financial accounting and reporting for
   the impairment or disposal of long-lived assets. SFAS 144 retains the basic
   provisions of SFAS 121, but broadens its scope and establishes a single model
   for long-lived assets to be disposed of by sale.

   USE OF ESTIMATES

       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.

   RECLASSIFICATION

       Certain amounts were reclassified in the prior years. The purpose of the
   reclassification is to give a more accurate representation of the Company's
   operations. The reclassification did not affect the representation of the
   Company's overall performance or net income or losses.

   REPORTING COMPREHENSIVE INCOME AND OPERATING SEGMENTS

       The Company has adopted the provisions of SFAS No. 130, Reporting
   Comprehensive Income and SFAS No. 131, Disclosures about Segments of an
   Enterprise and Related Information. 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 non-owner sources. 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 these statements has had no impact on the
   Company's financial position, results of operations, cash flow or related
   disclosures.

                                        8

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

   STOCK BASED COMPENSATION

       Prior to January 1, 1996, the Company accounted for its stock option
   plans in accordance with the provisions of Accounting Principles Board (APB)
   Opinion No. 25, Accounting for Stock Issued to Employees, and related
   interpretations. At such, compensation expense would be recorded on the date
   of grant only if the current market price of the underlying stock exceeds the
   exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
   Accounting for Stock-Based Compensation, which permits entities to recognize,
   as expense over the vesting period, the fair value of all stock-based awards
   on the date of grant. Alternatively, SFAS No. 123 allows entities to continue
   to apply the provisions of APB Opinion No. 25 and provide proforma net income
   and proforma earnings per share disclosures for employee stock option grants
   made in 1996 and future years as if the fair-valued-based method defined in
   SFAS No. 123 had been applied. The Company has elected to continue to apply
   the provisions of APB Opinion No. 25 and provide the proforma disclosure
   provisions of SFAS No. 123.

       In addition, the Company has adopted the provisions of Financial
   Accounting Standards Board Interpretation (FIN) 44, Accounting for Certain
   Transactions Involving Stock Compensation, which became effective July 1,
   2000. FIN 44 clarifies the application of APB Opinion No. 25 for certain
   issues. Among other issues, this interpretation clarifies the definition of
   an employee for purposes of applying APB Opinion No. 25, the criteria for
   qualification of a plan as compensatory, the consequences of modifications to
   the terms of the plan, and the treatment of stock compensation issued to
   service providers who are not employees. The issuance of this interpretation
   does not change the current accounting policies of the Company, and has had
   no effect on the accompanying financial statements.

   GAIN FROM EXTINGUISHMENT OF DEBT

       In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
   Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
   Technical Corrections effective for period beginning May 15, 2002 and
   thereafter. The Company plans to adopt the provision of SFAS No. 145 for the
   fiscal year ending March 31, 2003. SFAS No. 145, among other matters,
   addresses financial accounting and reporting for the extinguishment of debt,
   concluding that debt extinguishments are often routine, recurring
   transactions and concluded that classifying the associated gains and losses
   as extraordinary items in all cases would be inconsistent with the criteria
   of ABP Opinion 30. Management has not fully assessed the effect of FASB No.
   145, however, it believes that the adoption will result in a reclassification
   of extraordinary gains into ordinary income, with no effect on net income.

NOTE C - NOTE PAYABLE:

   Note payable consists of the following:

<TABLE>
<CAPTION>
                                                                      JUNE 30,       MARCH 31,
                                                                       2002            2002
                                                                     ---------      ----------
         <S>                                                         <C>            <C>
         Note payable, Brite Voice Systems, Inc., dated
          January 31, 1997.  Note is unsecured.                      $  50,866      $   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- for each of the three months ended June 30, 2002 and 2001, respectively.

                                        9

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE D - LONG-TERM DEBT:

   Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                          JUNE 30,         MARCH 31,
                                                                            2002             2002
                                                                        -------------    -------------
      <S>                                                               <C>              <C>
      Note payable, 10% interest rate. Principal and
       accrued interest payable on September 30, 2003.
       Convertible into shares of the Company's common
       stock at a conversion rate of $2.00 of indebtedness
       per share of common stock.                                       $      50,000    $      50,000
                                                                        =============    =============
</TABLE>

   Interest expense charged to operations related to the long-term debt was
$1,250, and $1,150 for the three months ended June 30, 2002 and 2001,
respectively.

NOTE E - COMMON STOCK:

   COMMON STOCK AUTHORIZED

       On September 29, 2000, the Company's Board of Directors adopted a
   resolution to increase the number of authorized shares of common stock from
   20,000,000 to 50,000,000. The increase in authorized shares was approved by
   the Company's stockholders on September 21, 2001.

   STOCK PURCHASE WARRANTS

       At June 30, 2002, the Company had outstanding warrants to purchase
   4,318,703 shares of the Company's common stock at prices which ranged from
   $0.50 per share to $3.53 per share. The warrants are exercisable at any time
   and expire through November 20, 2006. At June 30, 2002, 4,318,703 shares of
   common stock were reserved for that purpose.

   COMMON STOCK RESERVED

       At June 30, 2002, shares of common stock were reserved for the following
   purposes:

          Exercise of stock warrants                           4,318,703
          Exercise of future grants of stock options
           and stock appreciation rights under the
           1994 stock option plan                                337,132
          Exercise of future grants of stock options
           and stock appreciation rights under the
           2000 stock option plan                              2,000,000
                                                            ------------
                                                               6,655,835
                                                            ============

                                       10

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE F - 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
March 31, 2002:

                  YEAR ENDING
                   MARCH 31,                         AMOUNT
                -----------------                 -------------

                      2003                        $     176,433
                      2004                              169,524
                      2005                              170,526
                      2006                              127,895
                                                  -------------
                                                  $     644,378
                                                  =============

   Total rent expense charged to operations was $51,783 and $47,061 for the
three months ended June 30, 2002 and 2001, respectively.

NOTE G - OPERATION AND MANAGEMENT'S INTENT:

   OPERATING LOSSES

       The Company has incurred substantial operating losses to date. The
   Company intends to increase sales by focusing on its marketing of revenue
   sharing agreements to various telecommunication service providers throughout
   the United States.

   CONTINGENCY

       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 $570,000 for the rights to utilize the Company's software
   applications in certain geographical markets. 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 June 30, 2002, the Company had completed
   one installation, and $342,118 remains as deferred revenue.

       On September 25, 2000, KMC notified the Company that the initial
   installation would not be accepted and KMC intends to terminate the
   agreement. In addition, KMC requested the refund of the initial fees 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. Accordingly, no provision for losses in connection with
   the KMC agreement has been charged to revenue in the accompanying financial
   statements. If required to refund such monies, it would result in a charge to
   revenue in the period that the refund is ascertained and could impair the
   Company's ability to continue as a going concern. The Company filed a breach
   of contract suit against KMC on November 16, 2000 (see Note H).

   STOCK OFFERINGS

       In August 2000, the Company completed the issuance of an additional
   1,142,858 common shares through a private offering, resulting in net proceeds
   (net of stock 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.

                                       11

<PAGE>

                              PREFERRED VOICE, INC.

                          NOTES TO FINANCIAL STATEMENTS

       In April 2001, the Company completed a private placement offering in
   which 937,500 shares of common stock were issued at a price of $2.00 per
   share resulting in net proceeds (net of stock issuance costs) of $1,752,500.
   In connection with the offering, the Company also issued warrants to purchase
   593,750 shares of common stock at a price of $2.00 per share.

       On November 21, 2001, the Company closed an offering of 2,420,000 units
   consisting of shares of common stock and warrants to purchase shares of
   common stock at $1.25 per unit, providing net proceeds of $2,849,625 for
   working capital.

   OPERATIONS

       As of June 30, 2002, the Company has entered into forty-six 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.

   MANAGEMENT'S INTENT

       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 H - LEGAL MATTERS:

   The Company has filed a suit against KMC Telecom Holdings, Inc. (KMC)
claiming breach of contract (see Note G, Contingency) and, subsequently, KMC
filed a counterclaim also claiming breach of contract. The case is set to begin
in October 2002; however, both parties have been engaged in settlement
discussions, with the current offer involving the payment of no money from
either party and the mutual dismissal of all claims. The Company views the
potential exposure to the counterclaim as minimal and believes that as the
lawsuit progresses, it will result in a positive recovery. Due to the
uncertainty of the outcome, as of June 30, 2002, no accrual for possible gain
from the lawsuit has been made.

                                       12

<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, 2002. 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

         We began operations in May 1994 as a traditional 1+ long-distance
reseller. Recognizing the declines in telecommunications service prices and the
decreasing margins being experienced in long distance sales, we decided to sell
our long distance customer base and assets in early 1997. Since June of 1997, we
have focused solely on the development, testing, and deployment of voice
activated telecommunications services that would allow any consumer the ability
to "dial" their calls using their voice.

         In December of 1998, we realized that we would need extensive amounts
of working capital to sell and market our services directly to individual
consumers. Therefore, we began researching venues which already had inherent
customer or subscriber bases. The first distribution channel that we explored
was the use of master distributors in various cities and states around the
country. We believe the distributors will be a source of direct subscriber
addition once we include the master distributor marketing area in the network of
a VIP system, the first deployment of which began in Miami, Florida in March of
2002. The second distribution channel is directly with Incumbent Local Exchange
Carriers, or local telephone companies, Wireless Communication Carriers, or cell
phone companies, and Competitive Local Exchange Carriers, or competitive local
telephone companies. This avenue of distribution is extremely attractive because
these companies already have the subscriber bases and the infrastructure to
service large numbers of subscribers. Our third distribution channel is through
our network services division which provides third party service application
providers access to wireline and wireless carriers through our voice over
internet protocol (VOIP) network hosted by a web hosting provider.

         We first attempted to sell our hardware and license our application
software but after only one such agreement with KMC Telecom Holdings, Inc.
("KMC") we decided to pursue revenue sharing whereby we provide all hardware,
software applications and support in exchange for a portion of revenue generated
from the service provided by our customer to their subscribers. Our entire sales
force focuses on marketing our revenue sharing agreements and, to date, we have
signed forty six (46) local telephone company and cell phone company multi-year
contracts. Sixteen contracts have been fully implemented so that the systems
installed pursuant to such contracts are already generating revenues for us. As
of June 30, 2002, these sixteen contracts were generating revenues of
approximately $140,000 per month. The revenue sharing agreement, and not the
sale of our hardware, is the primary method in which we intend to contract with
customers to generate revenue going forward. Since our deployments began in
October of 2000, we have experienced increased revenues each month but with a
new technology it is difficult to project continued satisfaction with the
product; therefore, revenues will fluctuate with subscriber additions and
deletions. Four contracting phone companies are in the system acceptance and
early marketing stages, and we should generate revenues from these contracts by
the second quarter of the fiscal year ending March 31, 2003.

         We are still at an early stage of implementing our business plan. It is
subject to risks inherent in the establishment and deployment of technology with
which consumers have limited experience. We believe our services are services
that any consumer who uses a phone can utilize. For example, any cell phone user
who wants to speak a name or use our dial number feature without punching
buttons on his cell phone would be a user, or a

                                     -13-

<PAGE>

company who wants their employees accessed by the caller saying an employee name
instead of asking the caller to punch in an extension or spell a name on the key
pad. Our services are generic to cell phone users as well as land line users,
children as well as the elderly. As voice recognition becomes more prevalent in
everyday life, such as in computer programs, reservation systems and
telecommunications information systems, we believe the public will be more apt
to accept and utilize voice-related features. In order for us to succeed, we
must:

         .    secure adequate financial and human resources to meet our
              requirements, including adequate numbers of technical support
              staff to provide service for our phone company customers;

         .    establish and maintain relationships with phone companies;

         .    make sure the VIP system works with the telephone switches of all
              of the major manufacturers;

         .    establish a lead time for delivery of hardware;

         .    achieve user acceptance for our services;

         .    generate reasonable margins on our services;

         .    deploy and install VIP systems on a timely and acceptable
              schedule;

         .    respond to competitive developments;

         .    mitigate risk associated with our technology by obtaining patents
              and copyrights and other protections of our intellectual property;
              and

         .    continually update our software to meet the needs of consumers.

Failure to achieve these objectives could adversely affect our business,
operating results and financial condition.

Results of Operations

         We recorded a net loss of $738,541 or $0.04 per share, for the period
ended June 30, 2002, compared to a net loss of, $1,044,073, or $0.07 per share
for the period ended June 30, 2001.

         Total Sales

         Total revenue for the period ended June 30, 2002, was $417,084 compared
to $84,272 for the period ended June 30, 2001. During the three months ended
June 30, 2002 and 2001, our revenue consisted entirely of revenue sharing
receipts from our customer phone companies. The increase of revenues reflects
our commercial deployment of our services through our revenue sharing agreement
with our customers.

         We anticipate that revenues from the sale of our services will grow
gradually in the second half of our fiscal year 2003 as we continue to install
VIP systems in the service areas for the local telephone companies and cell
phone companies which have already signed revenue sharing agreements.

         Cost of Sales

         Cost of sales for the period ended June 30, 2002 was $193,416 compared
to $19,211 for the period ended June 30, 2001.Cost of sales consisted entirely
of costs for network infrastructure such as collocations, connectivity, system
access and long distance to end-users during both periods.

                                     -14-

<PAGE>

         Selling, General and Administrative

         Selling, general and administrative expenses for the period ended June
30, 2002 were $962,277 compared to $1,107,984 for the period ended June 30,
2001. The slight decrease from 2001 to 2002, are due to decreases in staffing.
We expect that selling, general and administrative expenses will remain steady
through fiscal year 2003, such expenses to include costs related to the number
of employees, office space requirements and general overhead. However, we
believe that such expenses will begin to increase again in fiscal year 2004 as
the company expects to market new services.

         Core Technology Enhancements Software Applications and Hardware

         The capitalization of software development costs begins when a
product's technological feasibility has been established and ends when the
product is available for general release to customers. Capitalized software
development costs include direct costs incurred subsequent to establishment of
technological feasibility for significant product enhancements. During the
periods ended June 30, 2002 and 2001, software development costs capitalized
were $5,000 and $67,296, respectively. The amortization of capitalized software
development costs for the periods ended June 30, 2002 and 2001 was $23,477 and
$44,033 respectively.

         Income Taxes

         As of June 30, 2002, we had cumulative federal net operating losses of
approximately $15.8 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 our stock ownership create a change of
control as provided in Section 382 of the Internal Revenue Code of 1986.

Liquidity and Capital Resources

         Our cash and cash equivalents at June 30, 2002 were $427,929, a
decrease of $874,825 from $1,302,754 at March 31, 2002. We have relied primarily
on the issuance of stock and warrants to fund our operations since January of
1997 when we sold our long-distance resale operation.

         On June 3, 1999, we entered into a software license agreement with KMC.
Under the terms of the agreement, KMC paid us an initial license fee of
$570,000. It has also paid us $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.

         To date we have installed one system. On September 25, 2000, KMC wrote
us 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 with cause under the terms of the contract. KMC
requested a refund of most monies paid relating to the initial market and a
refund of all monies paid for other markets. We 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 with cause
pursuant to the terms of the agreement. If the judge were to determine that KMC
had properly terminated the contract for cause, then KMC would be entitled to
the refund of money paid under the agreement.

         On November 16, 2000, we filed a breach of contract suit against KMC.
We continue to carry approximately $342,000 in deferred revenue related to sales
of hardware to KMC and we will continue to carry such amounts as deferred
revenue until the conclusion of and final judgment on the case. If we are
required to refund such monies in the period that the refund is ascertained, it
could have a material adverse effect on our financial condition, particularly
our liquidity.

         On March 1, 2001, KMC gave written notice to us that it was terminating
its agreement with us effective on the anniversary date, June 3, 2001, without
cause. Upon a termination without cause under the terms of the

                                     -15-

<PAGE>

contract, neither party would be entitled to receive any money back. However, we
will continue to carry the $342,000 related to sales of hardware to KMC as
deferred revenue until final judgment is entered on this case.
         We have relied on the issuance of stock to fund our operations since
January of 1997 when we sold our long-distance resale operation. We began
collecting revenues from our revenue sharing agreements in January of 2001.
These revenues are approximately $140,000 per month but we expect these to
continue to rise to a level to meet our monthly cash requirements by October of
2002.

         We have also issued stock or convertible securities to fulfill certain
obligations or motivate various people. We have issued warrants to purchase
shares of our common stock in connection with services provided by various
individuals and entities in their capacity as members of our Board of Directors,
Council of Advisors, various forms of consulting services, capital raising (such
as a private offering), and marketing distributors. These warrants are always
priced at the fair market value of our common stock on the date of issuance. We
have utilized our common stock as actual compensation in only one instance where
5,000 shares were issued as compensation for consulting services. These services
were valued at total fair market value for the 5,000 shares on the date of
completion of services.

Future Obligations

         We project our working capital needs to be $1,200,000 over the next six
months for corporate overhead and equipment purchases to continue to deploy our
systems in carrier locations. Management believes that current cash and cash
equivalents and cash that may be generated from operations will be sufficient to
meet these anticipated capital requirements and to finance continued growth for
the next six months, after which time the company projects a positive cash flow.
Such projections have been based on continued growth from our current customers
and customers which are already under contract utilizing the revenue rates that
we have experienced over the past six months with our currently installed
customers and projected cash requirements to support installation, sales and
marketing, and general overhead. We may be forced to raise additional capital
through the issuance of new shares, the exercise of outstanding warrants, or
reduce our current overhead. However, any projections of future cash needs and
cash flows are subject to substantial uncertainty.

         We do not make any assurance that we will be able to raise any
additional capital or to raise capital on terms satisfactory to us. If we need
to raise additional capital before November 21, 2002, we may be required to
issue additional shares of our common stock to the stockholders who purchased
their stock in the November 21, 2002 offering pursuant to the terms of the
subscription agreement executed between us and such stockholders. At this time
we are not projecting any requirements for additional employees during the next
twelve (12) months. On May 31, 2002, we implemented a thirty-three (33) percent
reduction in force and at August 9, 2002 we employed twenty (20) employees,
eighteen (18) that were full time employees.

PART II.   OTHER INFORMATION

Item 1.  Legal Proceedings.

There have been no material developments in the litigation we have reported
regarding KMC and Proxhill Marketing Limited in our Form 10-KSB for the fiscal
year ended March 31, 2002, filed with the SEC on June 27, 2002 and we are not
involved in any other 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

                                     -16-

<PAGE>

None

Item 3.   Defaults upon Senior Securities.

None.

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

None.

Item 5.   Other Information.

From June 21, 2002 to August 12, 2002, William J. Schereck, the Company's
President purchased 25,000 shares of the Company's common stock through open
market transactions at prices ranging from $0.26 to $0.51 per share.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

Exhibit
Number        Exhibit Description
-------       -------------------

99.1          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)      Reports on Form 8-K

None

                                     -17-

<PAGE>

                                   SIGNATURES

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

                                        PREFERRED VOICE, INC.

         August 14, 2002                /s/ William J. Schereck
-----------------------------           ----------------------------------------
         Date                           William J. Schereck
                                        President
                                        (Principal Executive Officer)


         August 14, 2002                /s/ Mary G. Merritt
-----------------------------           ----------------------------------------
         Date                           Mary G. Merritt
                                        Secretary, Treasurer and Vice President
                                        of Finance
                                        (Principal Financial Officer)

                                     -18-