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, 1996.
                                       0r
     { } 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/TELECOM, INC.

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

12655 N. Central Expwy, Suite 800
Dallas,  TX                                                     75243
------------------------------------------                ---------------------
(Address of Principal Executive                               (Zip Code)
            Offices)

                                    (972)  458-9950
                  (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 ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12, 13, or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by the Court.                 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 -  10,860,142  Shares as of January 31, 1997.

Transitional Small Business Format    Yes   X                 No


<PAGE>
                                      INDEX


                             PREFERRED/TELECOM, INC.


Part I.  Financial Information

Item 1.   Financial Statements

         Balance Sheets-December 31, 1996, December 31, 1995 and March 31, 1996.

         Statements of  Operations-Three  Months Ended  December 31, 1996;  Nine
months  ended  December 31, 1996;  Three  Months Ended  December 31, 1995;  Nine
months ended December 31, 1995 and for the Year Ended March 31, 1996.

         Statements of Cash Flows-Nine Months Ended December 31, 1995; Nine
Months Ended December  31,  1996  and for the  Year Ended  March 31, 1996.

         Notes to Financial statements - December 31, 1996.

Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                        1

Part II. Other Information                                                     4

Item 1.  Legal Proceedings                                                     4

Item 2.  Changes in Securities                                                 4

Item 3.  Defaults upon Senior Securities                                       4

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

Item 5.  Other Information                                                     4

Item 6.  Exhibits and Reports on Form 8-K                                      5

Signatures                                                                     6
<PAGE>

                             PREFERRED/TELECOM, INC.

                                 BALANCE SHEETS
                  DECEMBER 31, 1996 AND 1995 AND MARCH 31, 1996

<TABLE>
<CAPTION>

                                                                        DECEMBER 31,         DECEMBER 31,          MARCH 31,
                                                                            1996                 1995                1996
ASSETS                                                                  (UNAUDITED)          (UNAUDITED)           (AUDITED)

      CURRENT ASSETS:
<S>                                                                    <C>                   <C>                 <C>
          CASH AND CASH EQUIVALENTS                                    $         39,218      $       800,128     $        42,574
           ACCOUNTS RECEIVABLE, NET OF ALLOWANCE                                136,647               33,308              57,475
           FOR DOUBTFUL ACCOUNTS OF $ 57,903, $-0-
           AND $2,474 RESPECTIVELY
          EMPLOYEE RECEIVABLES                                                    1,529                7,086              13,185
          PREPAID EXPENSES                                                      206,657               37,889              30,917
                                                                     -------------------  -------------------  ------------------

      TOTAL CURRENT ASSETS                                              $       384,050      $       878,411     $       144,151
                                                                     -------------------  -------------------  ------------------
      PROPERTY AND EQUIPMENT:
         COMPUTER EQUIPMENT                                             $       103,663      $       120,410              99,979
         FURNITURE AND FIXTURES                                                  25,143               21,655              24,550
         OFFICE EQUIPMENT                                                         6,082                5,406               6,082
         LEASEHOLD IMPROVEMENTS                                                   6,248                3,356               6,248
         CALL VALIDATION SYSTEM                                                 122,087                  -O-             112,520
         LESS:  ACCUMULATED DEPRECIATION                                        (63,801)             (15,349)            (23,419)
                                                                     -------------------  -------------------  ------------------

      NET PROPERTY AND EQUIPMENT                                        $       199,422      $       135,478     $       225,960
                                                                     -------------------  -------------------  ------------------

      OTHER ASSETS:
         DEPOSITS                                                       $       103,624      $         4,199     $        14,852

         PREPAID EXPENSES                                                       640,000                  -O-                 -O-
         DEFERRED CONTRACT COSTS                                                100,203              149,813             121,576
         DEFERRED DEBT ISSUE COSTS-NET                                            4,387                6,939               4,333
         PATENTS AND TRADEMARKS-NET                                              19,443                  -O-              16,208
         CERTIFICATE OF DEPOSIT                                                  52,039                  -O-              50,445
         STATE CERTIFICATIONS                                                    22,891                  -O-                 -O-
         DEFERRED STOCK ISSUE COSTS                                              68,241                  -O-                 -O-
                                                                     -------------------  -------------------  ------------------

      TOTAL OTHER ASSETS                                                 $    1,010,828      $       160,951     $       207,414
                                                                     -------------------  -------------------  ------------------

TOTAL ASSETS                                                             $    1,594,299       $    1,174,840     $       577,525
                                                                     ===================  ===================  ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                                                        DECEMBER 31,         DECEMBER 31,          MARCH 31,
                                                                            1996                 1995                1996
LIABILITIES AND STOCKHOLDER'S DEFICIT                                   (UNAUDITED)          (UNAUDITED)           (AUDITED)

      CURENT
      LIABILITIES:
<S>                                                                     <C>                  <C>                         <C>
        ACCOUNTS PAYABLE                                                $       899,563      $       299,956             526,162
       ACCRUED OPERATING & VACATION EXPENSES                                     43,419               21,400              56,567
       ACCRUED PAYROLL AND RELATED TAX                                          475,421               96,321             162,411
       ACCRUED INTEREST PAYABLE                                                 123,589                6,706              20,866
       NOTES PAYABLE                                                          1,413,100              895,000             985,000
       NOTES PAYABLE-OFFICERS                                                    57,500               57,500              57,500
                                                                     -------------------  -------------------  ------------------

      TOTAL CURRENT LIABILITIES                                         $     3,012,593       $    1,376,883      $    1,808,506
                                                                     -------------------  -------------------  ------------------



      LONG TERM DEBT                                                    $       875,000       $          -0-      $          -0-
                                                                     -------------------  -------------------  ------------------


      COMMITMENTS AND CONTINGENCIES (NOTE G)



      STOCKHOLDERS DEFICIT:
       COMMON STOCK, $0.001 PAR VALUE
         20,000,000 SHARES AUTHORIZED;
         SHARES ISSUED 10,860,142,  8,949,942
         AND 8,949,942 RESPECTIVELY                                    $         10,860     $          8,950     $         8,950
      ADDITIONAL  PAID IN CAPITAL                                             2,898,955            1,916,632           1,916,632
      ACCUMULATED DEFICIT                                                   (5,201,241)          (2,127,625)         (3,156,428)
      TREASURY STOCK - AT COST                                                  (1,868)                  -O-               (135)
      STOCK SUBSCRIPTIONS RECEIVABLE                                                -O-                  -O-                 -O-
                                                                     -------------------  -------------------  ------------------
      TOTAL STOCKHOLDER DEFICIT                                         $   (2,293,294)     $      (202,043)     $   (1,230,981)
                                                                     -------------------  -------------------  ------------------
TOTAL LIABILITIES AND STOCKHOLDER DEFICIT                                $    1,594,299       $    1,174,840     $       577,525
                                                                     ===================  ===================  ==================
</TABLE>
<PAGE>
                             PREFERRED/TELECOM, INC.

                                  STATEMENTS OF
                                   OPERATIONS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
            AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
                      AND FOR THE YEAR ENDED MARCH 31, 1996


<TABLE>
<CAPTION>

                                                  THREE MONTHS ENDED                     NINE MONTHS ENDED
                                      ---------------------------------------       ----------------------------------------
                                         DECEMBER 31,         DECEMBER 31,        DECEMBER 31,         DECEMBER 31,        MARCH 31,
                                            1996                 1995                 1996                 1995               1996
                                         (UNAUDITED)          (UNAUDITED)         (UNAUDITED)          (UNAUDITED)         (AUDITED)
                                      ------------------   ------------------  -------------------  -------------------  -----------

<S>                                      <C>                  <C>                  <C>                  <C>             <C>
SALES                                    $      217,280       $       40,070       $      696,190       $       54,520  $    159,004

COST OF SALES                                   238,037              116,163              821,933              210,014       344,310
                                      ------------------   ------------------  -------------------  -------------------  -----------

   GROSS PROFIT (LOSS)                   $      (20,757)           $ (76,093)      $     (125,743)      $     (155,494) $  (185,306)
                                      ------------------   ------------------  -------------------  -------------------  -----------

COSTS AND EXPENSES:
  SALES & MARKETING                      $      127,640       $      295,816       $      879,877       $      603,771  $  1,091,453
  GENERAL & ADMINISTRATIVE                      286,092              369,161              905,168              870,250     1,360,693
  INTEREST EXPENSE                                                                        134,025               65,603        86,469
                                                 47,954               25,831
                                      ------------------   ------------------  -------------------  -------------------  -----------

   TOTAL COSTS AND                       $      461,686       $      690,808        $   1,919,070        $   1,539,624  $  2,538,615
     EXPENSES
                                      ------------------   ------------------  -------------------  -------------------  -----------

LOSS BEFORE INCOME TAX                   $    (482,443)       $    (766,901)        $ (2,044,813)        $ (1,695,118)  $(2,723,921)

PROVISION FOR INCOME TAX                            -O-                  -O-                 -O-                  -O-            -O-
                                      ------------------   ------------------  -------------------  -------------------  -----------
NET LOSS                                 $    (482,443)       $    (766,901)        $ (2,044,813)        $ (1,695,118)  $(2,723,921)
                                      ==================   ==================  ===================  ===================  ===========

NET LOSS PER SHARE                       $       (0.05)       $       (0.20)        $      (0.20)        $      (0.23)  $     (0.35)
                                      ==================   ==================  ===================  ===================  ===========
</TABLE>
<PAGE>
                             PREFERRED/TELECOM, INC.

                             STATEMENT OF CASH FLOWS
              FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
                      AND FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>


                                                                        DECEMBER 31,         DECEMBER 31,          MARCH 31,
                                                                            1996                 1995                1996
                                                                        (UNAUDITED)          (UNAUDITED)           (AUDITED)
                                                                     -------------------  -------------------  ------------------

      CASH FLOWS FROM OPERATING
      ACTIVITIES:
<S>                                                                     <C>                 <C>                 <C>
        CASH RECEIVED FROM CUSTOMERS                                    $     559,115       $        21,212     $       101,529
        CASH PAID TO SUPPLIERS AND EMPLOYEES                               (1,951,438)           (1,600,726)         (2,359,786)
        INTEREST PAID                                                             -O-               (75,916)            (75,916)
                                                                     -------------------  -------------------  ------------------

               NET CASH USED BY OPERATING                               $  (1,392,323)      $    (1,655,430)    $    (2,334,173)
                    ACTIVITIES
                                                                     -------------------  -------------------  ------------------

      CASH FLOWS FROM INVESTING ACTIVITIES:
         CAPITAL EXPENDITURES                                           $     (28,393)      $      (124,727)    $      (246,459)
         PURCHASE OF CERTIFICATE OF DEPOSIT                                       -O-                 -O-               (50,000)
         PROCEEDS FROM SALE OF FIXED ASSETS                                       -O-                 -O-                 3,056
                                                                     -------------------  -------------------  ------------------
               NET CASH USED BY INVESTING                               $     (28,393)      $      (124,727)    $      (293,403)
                    ACTIVITIES
                                                                     -------------------  -------------------  ------------------
      CASH FLOWS FROM FINANCING ACTIVITIES:
         PROCEEDS FROM SALE OF STOCK                                    $         180       $     1,939,432     $     1,938,332

         PROCEEDS FROM NOTES PAYABLE                                        1,487,154               587,500             687,500
         INCREASE IN DEFERRED OFFERING COST                                   (68,241)                  -O-                 -O-
         PURCHASE OF TREASURY STOCK
                                                                               (1,733)                  -O-                (135)
         INCREASE IN DEBENTURES PAYABLE                                           -O-                10,000                 -O-
         DECREASE IN STOCK SUBSCRIPTION RECEIVABLE                                -O-                   -O-               1,100
                                                                     -------------------  -------------------  ------------------
               NET CASH PROVIDED BY FINANCING                           $   1,417,360       $     2,536,932     $     2,626,797
                    ACTIVITIES
                                                                     -------------------  -------------------  ------------------
      NET INCREASE (DECREASE) IN CASH AND CASH                          $      (3,356)      $       756,775     $          (779)
          EQUIVALENTS
      CASH AND CASH EQUIVALENTS:
         BEGINNING OF PERIOD                                                   42,574                43,353              43,353
                                                                     -------------------  -------------------  ------------------
         END OF PERIOD                                                  $      39,218       $       800,128     $        42,574
                                                                     ===================  ===================  ==================



      SUPPLEMENTAL SCHEDULE OF NON-CASH
      INVESTING AND FINANCING ACTIVITIES:
          ISSUANCE OF COMMON STOCK IN EXCHANGE FOR
             BARTERING CREDITS                                          $     800,000
          CONVERSION OF DEBENTURE TO COMMON STOCK                              75,000
                                                                     -------------------
      TOTAL NON-CASH INVESTING                                          $     875,000
          ACTIVITIES
                                                                     ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                        DECEMBER 31,         DECEMBER 31,          MARCH 31,
                                                                            1996                 1995                1996
                                                                        (UNAUDITED)          (UNAUDITED)           (AUDITED)
                                                                     -------------------  -------------------  ------------------

      RECONCILIATION OF NET LOSS TO
      NET CASH USED BY OPERATING ACTIVITIES:

<S>                                                                    <C>                  <C>                 <C>
      NET LOSS                                                         $   (2,044,813)      $   (1,695,118)     $   (2,723,921)
                                                                     -------------------  -------------------  ------------------
      ADJUSTMENTS TO RECONCILE NET LOSS TO NET
      CASH USED BY OPERATING ACTIVITIES:
         DEPRECIATION                                                  $       40,382       $       12,953      $       25,017
         AMORTIZATION                                                          32,634                8,515              29,604
         (GAIN) LOSS ON SALE OF FIXED ASSETS                                      -O-                  -O-                (636)

         CHANGES IN ASSETS AND LIABILITIES:
            (INCREASE) DECREASE IN ACCOUNTS RECEIVABLE                        (79,113)             (33,308)            (57,475)
            (INCREASE) DECREASE IN EMPLOYEE RECEIVABLES                        11,656               (7,086)            (13,185)
            (INCREASE) DECREASE IN CERTIFICATE OF DEPOSIT                      (1,653)                 -O-                (445)
            (INCREASE) DECREASE IN DEPOSITS                                   (88,772)              (1,354)            (12,007)
            (INCREASE) DECREASE IN PREPAID EXPENSES                           (15,740)             (36,698)            (29,726)
            (INCREASE) DECREASE IN DEFERRED CONTRACT COSTS                        -0-             (124,813)           (114,500)
            (INCREASE) DECREASE IN STATE CERTIFICATIONS                       (22,891)                 -O-                 -O-
            INCREASE (DECREASE) IN ACCOUNTS PAYABLE                           373,401              299,956             526,162
            INCREASE (DECREASE) IN ACCRUED EXPENSES                           402,586              (78,477)             36,939
                                                                     -------------------  -------------------  ------------------

                                                                        $     652,490       $       39,688      $      389,748
                                                                     -------------------  -------------------  ------------------

      NET CASH USED BY OPERATING ACTIVITIES                             $  (1,392,323)      $   (1,655,430)     $   (2,334,173)

                                                                     ===================  ===================  ==================
</TABLE>
<PAGE>

                             PREFERRED/TELECOM, INC.

                          NOTES TO FINANCIAL STATEMENTS

NOTE A - GENERAL ORGANIZATION

Preferred/telecom,  Inc. (the "Company") is a Delaware corporation  incorporated
in  1992.  The  Company  commenced  business  on May  13,  1994,  and was in the
development  stage until  August 1, 1995.  The Company  provides  long  distance
telecommunications  services  throughout  the United  States and  maintains  its
principal  offices in Dallas,  Texas.  The Company has not  presented  financial
statements  for the period from  incorporation  in 1992 through May 14, 1994, as
the Company did not begin its planning and  organizational  activities until May
13, 1994. In the opinion of management,  the  accompanying  unaudited  financial
statements  reflect  all  adjustments   (consisting  only  of  normal  recurring
adjustments)  that  are  necessary  for a fair  presentation  of  the  financial
position of the Company at December 31, 1996,  the results of its operations for
the three and nine months  ended  December  31, 1996 and 1995 and the results of
the cash flows for the nine  months  ended  December  31,  1996 and 1995.  These
financial  statements  should  be read in  conjunction  with  the  notes  to the
Company's annual financial statements that were included in the Company's Annual
Report  on Form  10-KSB  for the  year  ended  March  31,  1996  filed  with the
Securities and Exchange Commission (the "Commission") on August 2, 1996.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE

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

DEPRECIATION

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

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

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

                  Computer Equipment                          5 years
                  Furniture and Fixtures                      5 years
                  Office Equipment                            5 years
                  Leasehold Improvements                      6 years

INCOME TAXES

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

LOSS PER SHARE

Loss per share is based on the weighted average number of shares  outstanding of
10,574,566 and  10,150,231 for the three months and nine months ending  December
31, 1996,  respectively;  8,406,453  and 7,419,575 for the three months and nine
months  ending  December 31, 1995,  respectively  and  7,769,708  for the period
ending March 31, 1996.

AMORTIZATION

Fees and other expenses associated with the issuance of subordinated convertible
debentures are being amortized on the straight-line  method over the term of the
debentures  beginning  in April,  1995.  Amortization  expense  was  $29,777 and
$14,000  for  the  nine  months  and  three  months  ended  December  31,  1996,
respectively; and $11,240 and $ 6,088 for the nine months and three months ended
December  31, 1995,  respectively;  and $ 10,303 for the fiscal year ended March
31, 1996.


                          NOTES TO FINANCIAL STATEMENTS

AMORTIZATION (CONTINUED)

The cost of patents and trademarks are being amortized on the straight line over
a period of 15 years.  Amortization expense charged to operations as of December
31, 1996 was $ 2,857, $ 6,926 and $ 559 for the three months and nine months and
for the fiscal year ended March 31, 1996, respectively.

NOTE C-NOTES PAYABLE-RELATED PARTIES

Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>

                                                                                    DEC. 31,         DEC. 31,          MARCH 31,
                                                                                     1996                       1995
                                                                                  ----------                --------
     1996

Notes payable to a director and officer, dated Sept. 1,1994
and June 12, 1996, due on Oct. 1, 1996 and June 12, 1998,
and unsecured, interest payable semi-annually at a rate of
prime + 2% (8.25% at Dec. 31, 1996 and March 31, 1996
<S>                                                                             <C>              <C>               <C>
and 7% per annum).                                                              $    67,500      $      7,500      $     7,500

Notes payable to a director and officer, dated June 5,1994
due on Oct. 1, 1996 and unsecured, interest payable semi-
annually at a rate of prime + 2% (8.25% at Dec. 31, 1996
and March 31, 1996).                                                                 50,000           50,000            50,000

Notes Payable to Pegasus  Settlement  Trust (PST), a stockholder of the Company.
The beneficiary and a trustee of PST are officers of the Company.  The notes are
unsecured  and bear interest at rates  ranging from prime  rate(8.25%  and 9% at
December,  1996 and March, 1996) with the principal and accrued interest payable
at maturity on various dates through
January 31, 1997                                                                    590,946          550,000           650,000

Notes payable to a stockholder of the Company and several  affiliated  trusts of
which the stockholder is the trustee.  The notes are unsecured and bear interest
at rates of 9% and 10% per annum and prime (8.25% at December 31, 1996 and March
1996) with principal and accrued interest payable at
various dates through November 26, 1996                                             385,000          225,000           225,000

         Total related party notes payable                                      $ 1,093,446        $ 832,500         $ 932,500
</TABLE>

Interest  expense  charged to  operations  related to the  related  party  notes
payable was $69,974  and  $23,977  for the nine  months and three  months  ended
December, 1996,  respectively;  and $43,678 and $ 18,898 for the nine months and
three months ended  December,  1995,  respectively;  and $ 78,943 for the fiscal
year ended March 31, 1996.

NOTE D-LONG TERM DEBT

Long-term  debt  consisted  of the  following  at December 31, 1996 and 1995 and
March 31, 1996:
<TABLE>
<CAPTION>

                                                                                      DEC. 31,         DEC. 31,          MARCH 31,
                                                                                       1996              1995              1996
Notes payable dated various dates from May 20, 1996 through  September 24, 1996,
secured by common stock with  principal and accrued  interest due at maturity on
various dates through September 24, 1998. 437,500 warrants to purchase shares of
common stock at $ 1.50 per share expiring from dates in May
<S>                                                                                  <C>              <C>    <C>        <C>    <C>
through September, 1998 were issued to the note holders                              $ 875,000**      $     -0-         $     -0-

                  Total                                                              $ 875,000        $     -0-         $     -0-
</TABLE>

**Includes $ 60,000  in related party participation.

                          NOTES TO FINANCIAL STATEMENTS

The following are maturities of long term debt for each of the next three years:

                  YEAR ENDING
                    MARCH 31,                        AMOUNT

                      1997                           $        0
                      1998                           $        0
                      1999                           $  875,000
                                                     ----------

                           Total                     $  875,000

NOTE E - COMMON STOCK:

STOCK PURCHASE WARRANTS

At December 31, 1996, the Company had outstanding warrants to purchase 2,572,400
shares of the Company's common stock at prices which ranged from $0.04 per share
to $2.44 per share. The warrants are exercisable at any time and expire on dates
ranging from January 27, 1998 to June 3, 2001.  At December 31, 1996,  2,572,400
shares of common stock were reserved for that purpose.

CHANGE IN AUTHORIZED SHARES

On March 15, 1995, the Company's  stockholders approved an amendment to increase
the number of authorized shares of common stock from 10,000,000 to 15,000,000.

On July 25, 1995, the Company's  stockholders  approved an amendment to increase
the number of authorized shares of common stock from 15,000,000 to 20,000,000.

COMMON STOCK RESERVED

At December 31, 1996,  shares of common  stock were  reserved for the  following
purposes:

                  Exercise of stock warrants                           2,572,400
                  Conversion of convertible debentures                    23,333
                  Exercise and future grants of stock options
                        and stock appreciation rights                    396,000

                           Total                                       2,991,733

NOTE F - STOCK OPTION PLAN:

On November 1, 1994, the Company  adopted a stock award and incentive plan which
permits  the  issuance  of options  and stock  appreciation  rights to  selected
employees  and  independent  contractors  of the  Company.  The plan  originally
reserved  450,000 shares of common stock for grant,  of which 54,000 shares have
been  purchased,  leaving  396,000 shares of common stock for grant and provides
that the term of each  award be  determined  by the  committee  of the  Board of
Directors (Committee) charged with administering the plan.

Under the terms of the  plan,  options  granted  may be either  nonqualified  or
incentive stock option, and the exercise price, determined by the Committee, may
not be less  than the  fair  market  value of a share on the date of the  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,
1996, options to purchase 77,500 shares at exercise prices of $0.10 to $1.50 per
share have been  granted.  No stock  appreciation  rights  have been  granted at
December 31, 1996.

NOTE G - COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENT

The  Company  has  entered  into a  non-cancelable  operating  lease for  office
facilities  under a lease  agreement  which  commenced  on  February 1, 1996 and
expires on August 31, 2002.  Minimum future rental to be paid on  non-cancelable
leases as of December 31, 1996 for each of the next five years in the  aggregate
are:


                          NOTES TO FINANCIAL STATEMENTS

NOTE G - COMMITMENTS AND CONTINGENCIES: (CONTINUED)


LEASE COMMITMENT (CONTINUED)

                  YEAR ENDING
                    MARCH 31,                        AMOUNT

                      1997                           $   127,836
                      1998                               127,836
                      1999                               131,708
                      2000                               151,608
                      2001                               151,608
                  Thereafter                             214,013

                                                     $   904,609

Total rent expense charged to operations $96,517 and $31,313 for the nine months
and three months ended December 31, 1996, respectively;  and $25,410 and $ 8,839
for the nine months and three months ended December 31, 1995, respectively;  and
$ 49,661 for the fiscal year ended March 31, 1996.

LETTER OF CREDIT

At December 31,  1996,  the Company had a $50,000  outstanding  letter of credit
expiring February 1, 1998. The letter of credit is for the benefit of the lessor
of office space facilities and may be drawn in the event of default.  The letter
of credit is secured by a certificate of deposit in the amount of $52,039.

CARRIER AGREEMENT

The Company is obligated for minimum monthly service payments under the terms of
a carrier  services  agreement  with MCI  Telecommunications  Corporation  (MCI)
expiring in October 1998. The minimum annual commitments under the MCI agreement
are:

                  YEAR ENDING
                    MARCH 31,                                AMOUNT

                      1997                           $      9,725,000
                      1998                                 12,000,000
                      1999                                 12,000,000
                      2000                                  7,000,000
                                                     -----------------

                                                     $     40,725,000

The MCI  agreement  is for a period of 46 months.  The  Company  has a liability
equal to fifteen (15) percent of the remaining  minimum payments in the event of
termination prior to expiration by the Company or MCI under certain  conditions.
The remaining liability amounts to a maximum of $ 6,000,000.  Currently,  60% of
the Company's  collections from the sale of long distance are being paid to MCI,
subject to subsequent adjustments for over and underpayments.

OTHER COMMITMENTS

On April 19, 1995, the Company  entered into a three year equipment and services
agreement  with Brite Voice  Systems,  Inc. (BVS) for BVS to provide the Company
with voice-activated  calling card services.  Under the terms of this agreement,
the Company  paid BVS an initial fee of $89,500  and minimum  monthly  payments,
starting  at $ 20,000  per  month,  for months  one  through  twelve  (1-12) and
escalating to $ 25,000 per month in months thirteen through  twenty-four (13-24)
and $ 30,000 in months twenty-five  through thirty-six (25-36) of the agreement.
The Company renegotiated the BVS Agreement to reduce the monthly minimums from $
25,000 to $3,000 per month effective November 1, 1996. The total minimum monthly
commitments  amount to $  367,000  over the term of the  agreement,  $ 58,500 of
which have not yet become payable.




                          NOTES TO FINANCIAL STATEMENTS

NOTE H - 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 400,000  shares of common stock at a
value of $ 2.00 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.  In  connection  with this  agreement,  the
Company  issued  Proxhill a warrant to purchase  100,000 shares of the Company's
common stock at a price of $2.00 per share. The warrants expire on June 3, 2001.

NOTE I - GOING CONCERN

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

In the first and second quarters ended September 30, 1996, the Company  received
total  proceeds  of $875,000 in  connection  with a private  offering of $10,000
notes  bearing  interest at 7% and  warrants to purchase  5,000 shares of common
stock at a price of $1.50.  The offering was closed on September 30, 1996.  This
amount, however, was insufficient to fund the Company's operations.  The Company
has been forced to significantly curtail its operations and made drastic cuts in
its overhead.  The Company's  operations,  at this time, consist  principally of
servicing existing customers. The Company has suspended its marketing operations
and is not acquiring  additional platforms until additional funding is acquired.
The Company  borrowed $ 60,000 from a shareholder in October,  1996. In November
and December,  1996 the Company borrowed $150,000 from a lender. This short term
funding  allowed the Company to continue its curtailed  operations  only through
January 31, 1997. The Company has negotiated the sale of certain assets to Brite
Voice  systems,  Inc.  ("Brite")  which  should  close in early  February.  This
agreement  requires  settlement of the total MCI debt for a  negotiated  sum of 
$250,000, reduces the Brite note by more than one-half and provides some working
capital,  which should be sufficient through March 15, 1997. The Company intends
to make a private  placement  in the form of common  stock and  warrants  in the
maximum amount of $1.8 million.  If this maximum  amount is raised,  the Company
should be able to resume marketing operations beyond March 15, 1997.

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


<PAGE>
                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following  discussion and analysis  should be read in  conjunction  with the
Financial  Statements  of  the  Company  and  related  notes  thereto  appearing
elsewhere in this filing.

RESULTS OF OPERATIONS

Preferred/telecom,  Inc. (the Company)  commenced  business on May 13, 1994, and
was in the development  stage through August 1, 1995. During the period from its
inception  until  March 31,  1995,  the end of the fiscal  year,  the  Company's
activities  consisted entirely of developing and implementing its business plan,
including  developing its product service  offerings,  formulating its marketing
strategies and operations,  negotiation of agreements  necessary to its proposed
operations and hiring personnel. The Company began its sales activities in April
1995 and had no  revenues  during the period of May 13, 1994  through  March 31,
1995. The initial sales activity  involved  introducing  the Company's  proposed
services to  prospective  customers to gauge  consumer  response with respect to
pricing,  features and  viability of the services.  The Company began  enrolling
SecureCard  customers  in  August  1995 and has  been  providing  long  distance
services,  including  SecureCard and  traditional 1+ and 800 services since that
time.

In the nine months period ended December 31, 1995 the Company booked revenues of
$ 54,520 for services and the direct costs  associated with generating sales was
$ 210,014.  During the nine months ended  December 31, 1996,  the Company booked
revenues of $ 696,190.  Of this amount,  18% was  attributed  to the  SecureCard
product.  The  remainder  of the  Company's  revenue was derived from 1+ and 800
service.  Direct cost of sales for the nine months  period  ending  December 31,
1996 was $ 821,933  or 118.1% of sales.  Of that  amount,  $ 158,500  related to
contractual  minimums,  very  little of which  represented  payment  for  actual
services. In part, this is due to the costs of the basic infrastructure that the
Company put into place and is required regardless of the level of sales.

During the fiscal year ended  March 31,  1996,  the Company  booked $ 159,004 in
revenue and $ 344,310 in direct expenses  associated with the sale of SecureCard
and other  telecommunications  services.  Of these  direct  expenses,  $ 140,000
related to paying contractual  minimums.  For the nine months ended December 31,
1996,  sales  and  marketing  expenses  were  125% of  sales,  and  general  and
administrative   expenses  were  150%  of  sales.   Each  of  these  ratios  are
considerable less than the equivalent ratios for the Fiscal year ended March 31,
1996, down from 722% and 697% respectively.

The Company has  reevaluated  its  marketing  efforts and product  strategies as
expenses  continue  to exceed  revenues.  The Company  now  recognizes  that the
services it pioneered  are  applicable  not only in the end-user  long  distance
markets but also in the  newly-competitive  local calling arena and the realm of
wireless  communications.  The Company has  negotiated  the  divestiture  of its
end-user  long  distance  customer  base.  The  strategic  focus will then be on
providing its products to domestic and international  interexchange carriers and
other   telecommunications   service   providers   who  wish  to  offer   speech
recognition-enhanced  services as a value added product to their customers,  and
to corporations who wish to make the convenience of speech recognition available
to its employees.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  cash and cash  equivalents  at December  31, 1996 were $ 39,218.
During the period from  inception , May 1994 through  September  30,  1995,  the
Company's operations were funded primarily through loans of $ 1,255,000 of which
an aggregate of $ 822,500 was borrowed from the Company officers, directors, and
a greater  than 5%  beneficial  owner.  In March,  1995 the Company  conducted a
private offering of convertible  debentures in which debentures due in September
1996 with an aggregate  principal  amount of $ 122,500.  were sold.  In October,
1995, $ 12,500 of those  debentures were converted to common  stock("the  Common
Stock"), par value $ 0.001 per share, of the Company. In July, 1996, $ 15,000 of
those  debentures were converted to Common Stock. By the terms of the debenture,
when the debenture  came due on September 27, 1996 the holder was due principal,
interest and penalties for a sum due of $ 125,000.  Of this amount, $ 60,000 was
converted to 40,000  shares of the Company's  Common Stock,  and $ 65,000 of the
debenture was replaced by a convertible note due March 27, 1997. This note bears
interest at a rate of 8.5% per annum and is convertible into Common Stock at the
conversion  rate of $ 1.50 per share.  In October 1995, the Company  conducted a
Regulation  S offering and sold  1,000,000  shares of Common Stock at $ 1.50 per
share.  Additionally,  in October and November  1995,  the Company  conducted an
offering  of eight  percent  (8%)  convertible  debentures  in  accordance  with
Regulation  D under the  Securities  Act of 1933  (the  "Securities  Act").  The
principal of the debentures was to be due March 31, 1997 with interest payable
                                       -1-
<PAGE>
quarterly  commencing  December  31,  1995.  Under  the  terms of the  debenture
offering,  the  $375,000  generated  was  converted to Common Stock in November,
1995. From the $ 1,875,000 generated,  notes due to non-affiliates in the amount
of $ 300,000.  were repaid  with the  associated  interest.  The  remainder  was
available for working capital and payment of vendor payables.

In April,  1996 the Company  commenced a private  offering of notes and warrants
("Units")  with  maximum  proceeds  to the  Company of $ 800,000  with each Unit
consisting  of (i) a note in the  principal  face  amount  of $  10,000  bearing
interest at a rate of 7% per annum,  with  principal  and  interest  payable two
years  from the date of issue and (ii)  warrants  to  purchase  5,000  shares of
Common  Stock,  at an exercise  price of $ 1.50 per share at any time within two
(2) years after issuance of the warrants.

In June,  1996,  the terms of the offering  were amended to increase the size of
the offering  from 80 Units to a maximum of 150 Units or proceeds to the Company
of $ 1,500,000.  Also in this amendment the Company  altered the repayment terms
to the  promissory  note by means of an  addendum to the note  stating  that the
Company  contemplated  raising  capital in an  underwritten  public offering and
after  payment of expenses  of the  underwriting  would  apply  proceeds of such
offering to repayment  of the notes  issued in the private  offering . The funds
sought in the  offering  were  intended  only to permit the  Company to continue
operations  and  meet  its  material  operating   obligations  while  it  sought
additional funding sufficient for long term implementation of its business plan.
The offering  was closed on September  30, 1996 , after the Company had raised $
875,000 in the private placement.

The Company  entered into a letter of intent with an investment  banking firm to
underwrite  on a firm  commitment  basis,  a  proposed  Four  Million  Dollar ($
4,000,000)  public offering of the Company's  securities.  The  underwriting was
subject  to  numerous  conditions  upon which  ultimately  the  Company  and the
investment banking firm could not agree.  Therefore,  the Company has terminated
its plans to conduct a public offering at this time.  Although the provisions of
the letter of intent relating to the public offering have terminated, the letter
of intent grants to the investment  banking firm a right of first refusal to act
as the Company's investment banker with regard to future offerings,  and certain
acquisition/disposition   transactions   and  provides  for  the  payment  of  a
substantial fee to the investment banking firm for a breach of these provisions.
The Company requested a general  termination and mutual release in order to move
forward with other means of financing.  To date, the investment banking firm has
agreed to waive  compensation  on the near term  financing  requirements  of the
Company but has not provided a release with respect to other transactions.

The Company acquired short term funding which allowed it to continue  operations
through January 31, 1997. In October,  1996, a greater than 5% stockholder  lent
the  Company $ 60,000 at 10% per annum and is  secured by office  furniture  and
equipment.  Principal  and interest  was due on this note January 10, 1997.  The
Company is  currently in default on this note.  Additional  funding of $ 150,000
was negotiated with another  stockholder  which bears interest at 12% and is due
February 10, 1997. This note is secured by a media barter credit under its media
purchase agreement.  See Note H to the Financial  Statements.  In addition,  the
stockholder  received warrants to purchase 600,000 shares of Common Stock, at an
exercise price of $ 0.50 per share. The Company has been forced to significantly
curtail its operations and has made drastic cuts in its overhead.  The Company's
operations,  at this time, consist  principally of servicing existing customers.
It has  suspended  its  marketing  operations  and is not  acquiring  additional
platforms until additional financing is in place.

The Company has  negotiated  the sale of all assets related to its long distance
services to Brite Voice Systems,  Inc. (Brite) with an effective closing date of
January 31, 1997.  This  contract  requires  settlement of the total debt to MCI
through  January 31, 1997 for a negotiated  sum of $ 250,000;  reduces the Brite
note by more than  one-half,  initiates a monthly  payment plan for repayment of
the Brite note,  and provides  some working  capital  which should be sufficient
through March,  1997. The Company intends to offer a combination of Common Stock
and warrants in a Regulation D offering for maximum proceeds of $ 1,800,000.  If
all such proceeds are raised,  the Company will have sufficient funds to operate
while it continues to develop a long term financial structure. The timing of the
proposed offering is subject to a number of factors, certain of which are beyond
the Company's control; however, the Company intends to commence this offering in
late February, 1997.

Future  Obligations.  During the next six months, the Company plans,  subject to
raising  adequate  capital,  to sell  platforms  which  provide  the  technology
necessary to utilize its Preferred SecureCard, VIP800 and Preferred Collect

                                       -2-
<PAGE>
Service  technology,  to introduce  new products,  and to continue  refining its
products.  Subject to the Company's ability to fund the cost, Management expects
the Company to hire or contract with approximately 16 persons during the next 12
months, primarily to support its expanded marketing activities.

The ability of the Company to raise capital,  in the opinion of  Management,  is
the primary constraint on execution of its business plan.  Management  estimates
that, during the next twelve (12) months, the Company will require approximately
$ 3,500,000  of equity  and/or long term debt to finance its costs of  marketing
and the continued refinement of its services at anticipated levels, with most of
the funds being used to support marketing efforts. In addition, the Company will
be required to  renegotiate  or obtain  extensions  of its current debt or raise
additional  funds of  approximately $ 1,600,000 to retire its debt.  There is no
assurance,  however, that the Company will be able to secure any renegotiations,
financing or  extensions  of its current  debt.  In  addition,  the Company will
continue to seek a general  termination  and mutual release of the provisions of
the  letter  of intent  with its  investment  banking  firm  relating  to future
offerings.

The Company  was  obligated , under its  agreement  with MCI  Telecommunications
Corporation  (MCI),  to pay at least $  1,000,000.  per month  for  transmission
services beginning January,  1996. Throughout 1996,  negotiations for a mutually
beneficial  revised  agreement  took place,  but no final revised  agreement was
executed.  With the Company's  new focus on sales of platforms,  and the sale of
its long  distance  services to Brite,  the need for a carrier  agreement  is no
longer  necessary.  The Company has  negotiated a full and final  release of all
obligations under the MCI service agreement.

The Company is subject to monthly  minimum fees under its agreement  with Brite.
The  Company  had  committed  to pay  Brite  at  least $  20,000.  per  month in
SecureCard  charges  through  August,  1996.  The minimum  obligations  to Brite
increased in  September,  1996 to $ 25,000 and $ 30,000 in  September,  1997. In
November,  this  agreement  was amended and monthly  minimums  were reduced to $
3,000 per month.  The Company's  obligation to Brite is based upon the Company's
billable  minutes  through the Brite system and paid out of revenues as they are
received.  To the extent that the monthly usage is less than the minimum amounts
specified  in the  governing  agreements,  the Company  would be required to pay
Brite the  difference  between the actual  usage  charges and these  minimums at
those times  specified in the  agreements.  At this time, the Company's usage is
less than the minimum  amount.  The Company and Brite  executed an  agreement to
convert the monthly minimums for the period January through October, 1996 into a
promissory note in the amount of $ 216,500 due November 1, 1996. This note bears
interest at prime plus 2% per annum and  warrants to purchase  60,000  shares of
common  stock at a price of $ 2.44 per share  exercisable  three  years from the
date of the note. On November 1, 1996,  the note was  renegotiated  and interest
due of $ 5,654.21 was rolled into a new note in the amount of $  222,154.21.  In
conjunction  with the sale of the long distance  service to Brite,  of the asset
purchase  price $  143,000  was used to pay down the note and the  balance  of $
84,931.31 is payable in eleven equal installments beginning March 1, 1997.

Certain  of the  information  contained  in Parts I and II of this  form  10-QSB
constitutes  forward looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities  Exchange Act of 1934. Although
the Company  believes that the  expectations  reflected in such forward  looking
statements are based upon reasonable assumptions,  it can give no assurance that
its expectations will be achieved. Important factors that could cause the actual
results to differ from the Company's expectations are set forth herein and under
the caption "Risk  Factors" in the Company's  prospectus  dated August 15, 1995.
In addition to those risk  factors,  the  following  factors  could cause actual
results to differ from the Company's expectations.

The Company has been unable to compete in the new long distance environment with
the passage of the  Telecommunications  Act of 1996. The Company will change its
business   focus   to   providing   its   speech    recognition    products   to
telecommunications  service  providers.  There  is no  assurance  that  the  new
business strategy will be successfully  developed. In its new business strategy,
the Company is still  dependent upon third parties.  In this case, it depends on
Brite to supply  platforms to resell to service  providers  and to write sofware
applications for the Company's  products.  Brite has not granted a non-exclusive
license  to  the  technology  in  its  products.  Accordingly,  there  can be no
assurance   that   Brite  will  not   license   similar   technology   to  other
telecommunications  service providers.  The Company's speech recognition product
incorporates  applications of speech  recognition-based  call automation for the
telecommunications   industry  which  are,  in  terms  of  the  underlying  core
technology,  similar to products  offered by competitors  that have greater name
recogition  and  marketing  resources  such  as  Lucent   Technologies,   Brite,
InterVoice,  Inc.,  Octel,  etc. Any or all of these companies could conceivably

                                      -3-
                                    
<PAGE>
develop  applications  that  directly  compete with the  Company's  products and
services.  AT&T,  Sprint,  Southwestern  Bell,  GTE  and  others  have  recently
announced  speech  recognition  products.  Development  and  utilization  of new
technology by the Company's competitors may have a significant adverse impact on
the  Company's  ability to activate  its new  business  plan.  In  addition,  an
important factor is the Company's ability to raise sufficient capital to execute
its business plan and meet its obligations.  It also must work out payment terms
with its  creditors  in order to avoid  having the  creditors  take actions that
would subvert the Company's operations.  Therefore,  the actual results that are
achieved may differ materially from any such forward looking information.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

The Company is not involved in any material legal proceedings.

Item 2.  Changes in Securities.

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

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

(c)  In November,  1996, the Company  granted an option ("the Option") to Bisbro
Investments, to purchase 600,000 shares of the Company's Common Stock, par value
$ 0.001 per share,  with an exercise  price of $ 0.50 per share,  which exercise
price is based on a 2:1  reverse  split of  outstanding  shares of Common  Stock
being  consummated.  The Option is  exercisable  for a period of three (3) years
from the date of  issuance,  November  12,  1996.  The  Option  was  granted  in
connection with a loan made by Bisbro to the Company in the principal  amount of
$ 150,000 (the "Note").  The Note bears  interest at prime and is secured by the
media  purchase  agreement  discussed in Section H of the Notes to the Financial
Statements.  Principal  and interest on the note is due  February  10,  1997.The
Option was issued in a transaction exempt from the registration  requirements of
the  Securities  Act of 1933,  as amended (the  "Securities  Act"),  pursuant to
Section 4(2) of the Securities Act.

Item 3.  Defaults upon Senior Securities.

None.

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

None.

Item  5. Other Information.

Subsequent  Events. On February 4, 1997 an Asset Purchase  Agreement was entered
into with Brite Voice Systems,  Inc.  whereby the Company will sell to Brite all
right,  title and interest in certain assets.  These specific assets include the
Company's  end-user  customer  base  as of  February  1,  1997  to  include  all
documents,  notebooks,  files and records on each customer  relating to customer
billing,  collection and customer service operations;  all documents,  files and
records relating to tariffs,  both state and federal;  all documents,  files and
records  relating to  individual  authority  to do  business  in various  states
throughout the United States;  the currently being developed software system for
billing and customer service; all rights in the Company's Carrier Identification
Code  (CIC);  all Section 214  authority  granted by the Federal  Communications
Commission;  and certain portions of the Barter Agreement. The purchase does not
include  Accounts  Receivable  for any traffic  prior to  February 1, 1997.  The
Company  will  provide  Brite with  Billing,  Collection  and  Customer  Service
assistance  for six (6)  months  on a  contract  basis  only to  enable a smooth
transition.  The total  purchase price is $ 743,000 which will be distributed as
follows:  $  250,000  to MCI in  full  and  final  settlement  of the  Company's
liability,  $ 143,000 in partial  payment of the November note to Brite, $ 9,000
for Brite services  November,  1996 through  January,  1997 and $ 341,000 to the
Company.  A new note to Brite  was  executed  for the  balance  of $  84,831.31,
payable in monthly installments beginning March 1, 1997. It is anticipated these
funds will allow the Company to make partial  payments to creditors and maintain
reduced operations through March.

                                       -4-
<PAGE>
Item 6.  Exhibits and Reports on Form 8-K.

       EXHIBIT
      NUMBER                                DESCRIPTION

2.1  Asset   Purchase   Agreement   between  Brite  Voice   Systems,   Inc.  and
     Preferred/telecom, Inc. dated February 4, 1997.

10.1 Restated Loan Agreement and Promissory Note to Bisbro Investments  Company,
     LTD. in original principal amount of $ 150,000, dated November 12, 1996.

10.2 Option Agreement for 600,000 shares of Common Stock with Bisbro Investments
     Company,  Ltd. in connection  with the  Promissory  Note dated November 12,
     1996.

10.3 Amendment to Loan  Agreement and  Promissory  Note with Bisbro  Investments
     Company,  LTD.  stating that loan was funded in two portions,  $ 100,000 on
     November 12, 1996 and $ 50,000 on December 27, 1996.

10.4 Promissory Note dated November 1, 1996 to Brite Voice Systems,  Inc. in the
     amount  of $  222,154.21,  payable  in  monthly  installments  and  cancels
     previous note of $ 216,500. for monthly minimums due.

10.5 Promissory Note to Lawrence E. Steinberg, in original principal amount of $
     40,000, dated as of October 11, 1996. (Incorporated by reference to Exhibit
     10.2 to the Company's Quarterly Report on Form 10-QSB for the quarter ended
     September 30, 1996, which was filed November 15, 1996.)

10.6 Promissory Note to Lawrence E. Steinberg, in original principal amount of $
     20,000, dated as of October 14, 1996. (Incorporated by reference to Exhibit
     10.3 to the Company's Quarterly Report on Form 10-QSB for the quarter ended
     September 30, 1996, which was filed November 15, 1996.)

27.0 Financial Data Schedule

The Company did not file herewith any reports on Form 8-K during the three
months ended December 31, 1996.


                                       -5-
<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/TELECOM, INC.

February 13, 1997                       /s/Dennis Lee Gundy
------------------                      --------------------------------
Date                                    Dennis Lee Gundy, President
                                        (Principal Executive Officer)




February 13, 1997                       /s/Mary G. Merritt
------------------                      --------------------------------
Date                                    Mary G. Merritt, Secretary/Treasurer
                                        (Principal Financial Officer)




                                       -6-