United States
                       Securities and Exchange Commission
                             Washington, D. C. 20549

                                  Form 10-QSB/A

                                (Amendment No. 1)

{X}  Quarterly  Report  Pursuant  to  Section  13 or 15 (d)  of  the  Securities
     Exchange Act of 1934 for the Period Ended December 31, 1999.

                                       or

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



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

                              PREFERRED VOICE, INC.

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

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

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

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

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

Yes  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 - 13,103,879 shares as of December 31, 1999.

Transitional Small Business Format    Yes                     No       X
                                             ---                      ---
<PAGE>

<TABLE>
<CAPTION>

                                      INDEX

                              Preferred Voice, Inc.
<S>                                                                                              <C>
Part I.  Financial Information                                                                   1

Item 1.   Financial Statements                                                                   1

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

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

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

         Notes to Financial Statements - December 31, 1999.                                      6

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

Part II. Other Information                                                                      18

Item 1.  Legal Proceedings                                                                      18

Item 2.  Changes in Securities                                                                  18

Item 3.  Defaults upon Senior Securities                                                        18

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

Item 5.  Other Information                                                                      18

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

Signatures                                                                                      20

</TABLE>

<PAGE>


<TABLE>
<CAPTION>


Part I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                                                     Preferred Voice, Inc.


                                                        Balance Sheets
                                         December 31, 1999 and 1998 and March 31, 1999


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

<S>                                                                     <C>                   <C>                  <C>
     Current Assets:
         Cash and Cash Equivalents                                      $  1,935,896          $       376          $   41,750
         Accounts Receivable, net of allowance                               391,382                  323                 860
         for doubtful accounts of $ -0-, $-0-
         and $-0- respectively
         Employee Receivables                                                   -0-                   -0-               2,500
         Inventory                                                           53,890                   -0-                 -0-
                                                                        -----------           -----------          ----------

     Total Current Assets                                               $ 2,381,168           $       699              45,110

                                                                        -----------           -----------          ----------
     Property and Equipment:
        Computer Equipment                                              $   285,453           $   329,950          $  223,046
        Furniture and Fixtures                                               24,495                16,934              16,934
        Office Equipment                                                     10,393                12,493              12,493
        Computer Software                                                   274,145               153,412             190,063
        LESS:  Accumulated Depreciation                                    (249,957)             (103,281)           (161,049)
                                                                        -----------           -----------          ----------

     Net Property and Equipment                                         $   349,069           $  409,508           $  281,487
                                                                        -----------           ----------           ----------

     Other Assets:
        Deposits                                                        $    85,114               81,012           $   81,535
        Deferred Stock Issue Costs                                              -0-               10,000                  -0-
        Prepaid Expenses                                                    761,018              761,018              761,018
                                                                        -----------           ----------           ----------
     Total Other Assets                                                 $   846,132           $  852,030           $  842,553
                                                                        -----------           ----------           ----------

Total Assets                                                            $ 3,576,369           $1,262,237           $1,169,150
                                                                        ===========           ==========           ==========

                                        1


<PAGE>


                                                                          December 31,         December 31,         March 31,
                                                                              1999                 1998                1999
Liabilities and Stockholder's Deficit                                     (Unaudited)          (Unaudited)          (Audited)
     Current Liabilities:
      Accounts Payable                                                  $   279,312           $  362,711           $  363,834

      Accrued Operating & Vacation Expenses                                  19,044               18,822               19,611
      Accrued Payroll and Related Tax                                       151,006              173,291              226,755
      Accrued Interest Payable                                              219,392              264,826              248,967
      Notes Payable                                                          90,866              463,866              103,866
      Notes Payable-Related Parties                                             -0-              100,000              100,000
      Deferred Revenue                                                      390,992                  -0-                  -0-
                                                                        -----------           ----------           ----------

     Total Current Liabilities                                          $ 1,150,612           $1,383,516           $1,063,033
                                                                        -----------           ----------           ----------

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

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

     Commitments and Contingencies (Note H)

     Stockholders Deficit:
      Common Stock, $0.001 par value
        20,000,000 shares authorized;
        shares issued 13,170,546,  9,113,045
        and 9,695,681, respectively                                     $    13,170           $    9,113           $    9,695
     Additional  Paid In Capital                                          8,737,244            4,935,721            5,192,033
     Accumulated Deficit                                                 (6,322,789)          (5,791,433)          (5,937,689)

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

     Total Stockholder Deficit                                          $ 2,425,757           $ (848,467)          $ (737,829)
                                                                        -----------           ----------           ----------

Total Liabilities and Stockholder Deficit                               $ 3,576,369           $1,262,237           $1,169,150
                                                                        ===========           ==========           ==========

</TABLE>
                                        2

<PAGE>
<TABLE>
<CAPTION>

                                                        Preferred Voice, Inc.

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

                                            Three Months Ended                        Nine Months Ended
                                       December 31,      December 31,          December 31,        December 31,          March 31,




                                           1999              1998                  1999                1998                 1999
                                       (Unaudited)        (Unaudited)          (Unaudited)          (Unaudited)          (Audited)
                                     ---------------    -----------------    ----------------    ----------------    ---------------
<S>                                  <C>                <C>                  <C>                 <C>                 <C>
Sales                                $      58,263      $      2,610         $     880,908       $      2,610        $   180,383

  Cost of Sales                             65,835             1,072               201,917              1,486             15,033
                                     -------------      ------------         -------------       ------------        -----------

  Gross Profit (loss)                $      (7,572)     $      1,538         $     678,991       $      1,124        $   165,350
                                     -------------      ------------         -------------       ------------        -----------

Costs and Expenses:
  General & Administrative                 482,259           162,107             1,072,070            483,160            768,024
  Interest Expense                           5,247            44,409                27,137            151,133            176,752
                                     -------------      ------------         -------------       ------------        -----------

  Total Costs and Expenses           $     487,506      $    206,516         $   1,099,207       $    634,293        $   944,776
                                     -------------      ------------         -------------       ------------        -----------

Gain/(Loss) Before Income Tax        $    (495,078)     $   (204,978)        $    (420,216)      $   (633,169)       $  (779,426)

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

Loss Before Extraordinary Item       $    (495,078)     $   (204,978)        $    (420,216)      $   (544,341)       $  (779,426)
                                     =============      ============         =============       ============        ===========

Extraordinary Item:
  Gain from Extinguishment of Debt           5,125               -0-                35,116             88,828             88,828
 (less applicable income taxes of -0-)
   (Note K)

Net Loss                             $    (489,953)    $    (204,978)        $    (385,100)      $   (544,341)       $  (690,598)
                                     =============     =============         =============       ============        ===========

Per Share Amounts:

 Gain/(Loss) from Operations         $       (0.04)    $       (0.03)        $       (0.04)      $      (0.10)       $     (0.11)

 Gain from Extinguishment of Debt    $           -     $           -         $           -       $       0.10        $      0.01

Net Gain/Loss (Per Share)            $       (0.04)    $       (0.03)        $       (0.04)      $      (0.09)       $     (0.10)

</TABLE>

                                        3
<PAGE>



<TABLE>
<CAPTION>


                              Preferred Voice, Inc.

                             Statement of Cash Flows

              For the Nine Months Ended December 31, 1999 and 1998
                      And For the Year Ended March 31, 1999

                                                                           December 31,         December 31,           March 31,
                                                                              1999                 1998                  1999
                                                                          (Unaudited)           (Unaudited)           (Audited)
                                                                      ------------------   -------------------   ------------------
<S>                                                                   <C>                  <C>                   <C>
     Cash Flows from Operating Activities:
       Cash Received from customers                                   $       823,868      $         7,532       $        179,510
       Cash Paid to suppliers and employees                                (1,306,402)            (354,519)              (500,572)
       Interest Paid                                                          (16,978)                 -0-                    -0-
                                                                      ------------------   -------------------   ------------------

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

     Cash Flows from Investing Activities:
        Capital Expenditures                                          $      (158,592)     $      (114,222)      $       (151,772)
        Proceeds from Sale of Fixed Asse ts                                       250                1,300                  1,300
                                                                      ------------------   -------------------   ------------------

              Net Cash used by Investing Activities                   $      (158,342)     $      (112,922)      $       (150,472)
                                                                      ------------------   -------------------   ------------------
     Cash Flows from Financing Activities:
        Proceeds from Sale of Stock                                   $     2,570,000      $           -0-       $            -0-
        Proceeds from Notes Payable                                           200,000              298,000                351,000
        Note Principal Payments                                              (218,000)             (20,000)               (20,000)
        Proceeds from Sale -Leaseback Transaction                                 -0-              100,000                100,000

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

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

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

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

        End of Period                                                 $     1,935,896      $           376       $         41,750
                                                                      -------------------  -------------------   ------------------


     Supplemental Schedule of non-cash investing
     and financing activities:

          Issuance of Common Stock in                                 $       852,383      $     1,622,914       $      1,879,809
           Exchange for Debt
                                                                      -------------------  -------------------   ------------------

     Total Non-Cash Investing Activities                              $       852,383      $     1,622,914       $      1,879,809
                                                                      ===================  ===================   ==================



                                        4


<PAGE>

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

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

     Net Gain/(Loss)                                                  $      (385,100)     $      (544,342)      $       (690,598)

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

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

        Depreciation                                                  $        90,484      $        22,375       $         80,113
        Amortization                                                              -0-                2,869                  2,869
        (Gain) Loss on Sale of Fixed Assets                                       275                 (216)                  (186)

        Changes in Assets and Liabilities:
           (Increase) Decrease in Accounts Receivable                        (390,921)                (323)                  (860)
           (Increase) Decrease in Employee Receivables                          2,900                  -0-                 (2,500)
           (Increase) Decrease in Deposits                                     (3,579)               3,398                  2,875
           (Increase) Decrease in Prepaid Expenses                                -0-               38,982                 38,982
           (Increase) Decrease in Deferred Debt Issue Costs                       -0-               (7,131)                   -0-
           Increase (Decrease) in Accounts Payable                            (20,115)              20,864                 58,635
           Increase (Decrease) in Deferred Revenue                            390,992                  -0-                    -0-
           Increase (Decrease) in Accrued Expenses                           (184,448)             116,537                189,608
                                                                      ------------------   -------------------   ------------------

                  Total Adjustments                                   $      (114,412)     $       197,355       $        369,536
                                                                      ------------------   -------------------   ------------------

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

</TABLE>





                                        5


<PAGE>

Note A - General organization:

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

Note B - Summary of significant accounting policies:

Cash and cash equivalents
-------------------------

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

Accounts receivable
-------------------

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

Depreciation
------------

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

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

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

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

Income taxes
------------

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

                                        6

<PAGE>

Fair value of financial instruments
-----------------------------------

     The Company defines the fair value of a financial  instrument as the amount
at which the  instrument  could be  exchanged in a current  transaction  between
willing  parties.  Financial  instruments  included in the  Company's  financial
statements include cash and cash equivalents,  trade accounts receivable,  other
receivables,  other assets,  notes payable and long-term debt.  Unless otherwise
disclosed  in the  notes to the  financial  statements,  the  carrying  value of
financial  instruments is considered to approximate  fair value due to the short
maturity  and  characteristics  of  those  instruments.  The  carrying  value of
long-term debt  approximates  fair value as terms  approximate  those  currently
available for similar debt instruments.

Revenue recognition
-------------------

     The  Company is engaged as a provider  of  telecommunication  products  and
services.  Generally,  the Company  recognizes  revenue under the accrual method
when its services and products are provided.  During the nine month period ended
December 31, 1999, license fees and system sales were the two primary sources of
revenue,  even though there were  revenues  from  distributor  fees and customer
tests.  A one-time  only  license  fee is paid by  customers  who  purchase  the
Company's VIP system. This gives the customer the right to utilize the Company's
software  applications  on the customer's own equipment.  The license fee income
was derived from one major customer and was recognized  when the contract became
final. The license fee income was $-0-, and $570,000 for the three month and the
nine month period ended  December 31, 1999,  respectively;  and $-0- and $-0-for
the three month and the nine month period ended December 31, 1998,  respectively
and $-0- for the  period  ended  March  31,  1999.  System  sales  revenues  are
recognized  when the customer  accepts the system,  which is usually within five
days from  delivery  and  installation.  The system  sale  income was $-0-,  and
$195,496 for the three month and the nine month period ended  December 31, 1999,
respectively;  and $-0- and $-0-for  the three  month and the nine month  period
ended  December  31, 1998,  respectively  and -0- for the period ended March 31,
1999. A one-time only distributor fee is paid by master distributors in order to
obtain  distribution  rights  to  the  Company's  products  and  services.   The
distributor  fee income was  recognized  when the  contract  became  final.  The
distributor  fee income was $-0-,  and  $25,000 for the three month and the nine
month period ended  December  31, 1999,  respectively;  and $-0- and $-0-for the
three month and the nine month period ended December 31, 1998,  respectively and
170,000 for the period ended March 31, 1999.

Loss per share
--------------

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

     Loss  per  share  is  based  on  the  weighted  average  number  of  shares
outstanding  of 11,152,246  and  10,390,308 for the three months and nine months
ending  December 31, 1999,  respectively;  7,659,740 and 6,544,100 for the three
months and nine months ending December 31, 1998,  respectively and 7,205,065 for
the period ending March 31, 1999.

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

     Fees and  other  expenses  associated  with the  issuance  of  subordinated
convertible  debentures are being amortized on the straight-line method over the
term of the debentures  beginning in April, 1995.  Amortization expense was $-0-
and $-0-  for the  three  months  and  nine  months  ended  December  31,  1999,
respectively;  and $-0- and $2,869 for the three  months and nine  months  ended
December 30, 1998, respectively;  and $2,869 for the fiscal year ended March 31,
1999.


                                        7

<PAGE>



Transfers and servicing of financial assets and extinguishment of liabilities
-----------------------------------------------------------------------------

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

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

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

Comprehensive income
--------------------

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

Segments of an enterprise and related information
-------------------------------------------------

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

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

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

Note C - Notes payable:

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

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

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

                                       8
<PAGE>



Note payable to outside interests include:

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

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

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

Notes payable to related parties include:

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

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

Notes payable to a stockholder of the
Company.  The notes are unsecured and bear
interest at 10% per annum with the
principal and interest due on various
maturity dates through October 16, 1999.
Subsequent to the balance sheet date,
the notes were paid in full on
December 30, 1999.                                  0         100,000    100,000
                                            -----------   -----------  ---------

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

      Less current portion                          0         690,946    100,000
                                            -----------   -----------  ---------

      Long-term portion                     $       0     $         0  $ 590,946
                                            ===========   ===========  =========


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

     Interest  expense charged to operations  related to the related party notes
payable  was $2,500 and $8,485 for the three  months and the nine  months  ended
December 31, 1999, respectively; and $17,059 and $46,925 for the three

                                        9

<PAGE>

months and the nine months ended  December 31, 1998,  respectively;  $64,199 for
the fiscal year ended March 31, 1999.

Note D - Long-term debt:

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

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

Notes payable dated various dates from
May 20, 1996 through September 9, 1996,
secured by common stock with principal
and accrued interest due at maturity on
various dates through September 9, 1998.
216,250 warrants to purchase shares of
common stock at $3.00 per share expiring
on various dates through September 9,
1998 were issued to the note holders.
These notes were converted into 1,555,458
shares of common stock on various dates
through June 30, 1999.                        $   30,000   $  220,000  $  60,000

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

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


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

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



                                       10

<PAGE>


Note payable to an individual.  This note is
unsecured and bears interest at 12% per annum
with the principal and interest due on
March 30, 2000.  This note is convertible
into shares of common stock at a conversion
price of $1.00 per share.  This note was paid
in full on June 16, 1999.                              0            0     43,000
                                              ----------   ----------  ---------

                                              $   40,000   $  413,000  $ 306,000
Less current portion                              40,000      413,000     53,000
                                              ----------   ----------  ---------

Total                                         $        0   $        0  $ 253,000
                                              ==========   ==========  =========


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

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

Note E - Common stock:

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

   At  December  31,  1999,  the Company  had  outstanding  warrants to purchase
2,303,203 shares of the Company's common stock at prices which ranged from $0.50
per share to $4.00 per  share.  The  warrants  are  exercisable  at any time and
expire on dates  ranging from June 12, 2000 to March 31,  2004.  At December 31,
1999, 2,303,203 shares of common stock were reserved for that purpose.

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

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

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

                                                                  2,726,203
                                                              =============

Note F - Income taxes:

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

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

                                       11


<PAGE>




     The provision for income taxes consists of:

                                      Sept. 30,      Sept. 30,         March 31,
                                        1999           1998             1999
                                      ---------      ---------         ---------

Current income taxes                  $       0      $       0         $       0

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

                                      $       0      $       0         $       0
                                      =========      =========         =========

Deferred tax (liabilities) assets consist of the following:

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

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

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

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

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

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

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

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

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

Note G - Stock option plan:

     On November 1, 1994,  the Company  adopted a stock award and incentive plan
which permits the issuance of options and stock appreciation  rights to selected
employees and independent  contractors of the Company. The plan reserved 450,000
shares of common stock for grant,  of which 27,000  shares have been  purchased,
and provides that

                                       12


<PAGE>




the term of each award be  determined by the committee of the Board of Directors
(Committee) charged with administering the plan.

     Under the terms of the plan, options granted may be either  nonqualified or
incentive stock options,  and the exercise  price,  determined by the Committee,
may not be less  than the  fair  market  value of a share on the date of  grant.
Stock appreciation  rights granted in tandem with an option shall be exercisable
only to the extent the  underlying  option is  exercisable  and the grant  price
shall be equal to the exercise price of the underlying  option.  At December 31,
1999,  options to purchase  412,750 shares at exercise  prices of $0.20 to $1.50
per share had been  granted.  No stock  appreciation  rights had been granted at
December 31, 1999.

Note H - Commitments and contingencies:

Lease commitments
-----------------

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

     Minimum future rentals to be paid on  non-cancelable  leases as of December
31, 1999 for each of the next five years and in the aggregate are:

  Year ending

   March 31,                                   Amount

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

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

                                          $        414,894
                                          ================

     Total rent expense  charged to  operations  was $19,988 and $47,999 for the
three months and the nine months ended  December  31,  1999,  respectively;  and
$6,846 and $20,383 for the three months and the nine months  ended  December 31,
1998, respectively; $27,416 for the fiscal year ended March 31, 1999.

Note I - Barter transaction:

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


                                       13


<PAGE>

Note J - Sale - leaseback transaction:

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

Note K - Extinguishment of debt:

     During the periods ended December 31, 1999 and 1998 and March 31, 1999, the
Company  negotiated  settlements  of amounts  owed to certain of its vendors and
employees.  The negotiated  settlements resulted in a reduction of the Company's
accounts  payable  and  accrued  operating  expenses in the amount of $5,125 and
$35,116  for the three  months and the nine  months  ended  December  31,  1999,
respectively;  and $-0- and  $88,828  for the three  months and the nine  months
ended  December  31, 1998,  respectively;  and $88,828 for the fiscal year ended
March  31,  1999  which  has  been  reported  as an  extraordinary  item  in the
accompanying statements of operations.

Note L -  Going concern:

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

     On June 3, 1999, the Company entered into a software license agreement with
KMC Telecom Holdings, Inc. (KMC). Under the terms of the agreement, KMC paid the
Company an initial license fee of $570,000.  The agreement is for a period of 10
years and provides for a total of 39 installations and grants KMC the ability to
add up to 81 additional  installations.  The agreement also calls for KMC to pay
the Company a monthly  license  fee ranging  from $1,000 to $3,500 per month for
each software and hardware  installation  beginning in the 25th month after each
installation.  The  Company  anticipates  having the  initial  39  installations
completed by December 2000 which would  obligate KMC to pay the Company  monthly
license fees of $131,500,  subject to certain  adjustments and to KMC's right to
terminate  the entire  contract  on standard  events of default by the  Company,
beginning January 2003 and continuing through January 2010.

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

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

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

                                       14


<PAGE>


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

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

Overview

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

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

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

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

                                       15



<PAGE>



         The Company is at a very early stage of implementing its business plan.
It is  subject  to  risks  inherent  in  the  establishment  and  deployment  of
technology  with  which  the  consumer  has  very  little  experience.  As voice
recognition  becomes  more  prevalent  in  everyday  life,  such as in  computer
programs,  reservation systems and  telecommunications  information systems, the
public will be more apt to accept and utilize  its many  features.  In order for
the Company to succeed it must secure adequate  financial and human resources to
meet   its   requirements;    establish   and   maintain    relationships   with
telecommunications   providers;   facilitate  integration  with  various  switch
environments;  establish a lead time for  delivery  of  hardware;  achieve  user
acceptance for its services; generate reasonable margins on its services; deploy
and  install  VIP  Systems  on a timely  and  acceptable  schedule;  respond  to
competitive  developments;  mitigate risk associated with obtaining  patents and
copyrights  and other  protections of  intellectual  property;  and  continually
update its  software  to meet the needs of end users.  Failure to achieve  these
objectives could adversely effect the Company's business,  operating results and
financial condition.

Results of Operations

     For the nine month period ended December 31,1999,  the Company recorded net
loss of $385,100,  or $.04 per share compared to a net loss of $544,341, or $.09
per share for the nine month period ended December 31, 1998. For the three month
period ended December 31, 1999, the Company recorded a net loss of $489,953,  or
$.04 per share  compared  to a net loss of  $204,978,  or $.03 per share for the
three month period ended December 31, 1998.

     Total Revenue

     Total  revenue for the nine months  period ended  December  31,  1999,  was
$880,908  compared to $2,610 for the nine months period ended December 31, 1998.
Of the revenue booked in the nine months period ended December 31, 1999, 65% was
generated  from one-time  licensing fees to KMC Telecom  Holdings,  22% was from
sales of its VIP systems,  10% from customer tests, 2.5% from master distributor
fees for specific  marketing rights, and the remaining .5% from service fees for
the Company's "Emma the Perfect  Receptionist"  and "Smart Line".  Total revenue
for the three  months  period ended  December  31, 1999 was $58,263  compared to
$2,610 for the three month period ended December 31, 1998. Of the revenue booked
in the three months period ended December 31, 1999, 97% was from customer tests,
and 3% from service fees for the Company's "Emma the Perfect  Receptionist"  and
"Smart Line".  For the fiscal period ended March 31, 1999,  revenues of $180,383
were  generated  94% from  master  distributor  fees and the  remaining  6% from
service  fees  for the  Company's  end  user  customers.  The  Company  does not
anticipate significant revenue growth from either direct sales to ILECs and WCCs
as negotiated with KMC or through master  distributorships.  However the Company
does anticipate  significant  revenue growth in the second half of the year 2000
from its revenue  sharing  agreements and as more ILEC, WCC and CLEC  agreements
are completed.

     Cost of Sales

     Cost of sales  for the nine  months  period  ended  December  31,  1999 was
$201,917  compared to $1,486 for the nine months period ended December 31, 1998.
Cost of sales for the three months  period  ended  December 31, 1999 was $65,835
compared to $1,072 for the three months period ended  December 31, 1998. For the
nine months  period ended  December  31, 1999,  55% of costs were for VIP system
hardware  purchased by KMC, 16% direct costs  associated with the closing of the
KMC  licensing   agreement,   and  29%  for  network   infrastructure   such  as
collocations, connectivity, system access and long distance.

     Selling, General and Administrative

     Selling,  general and  administrative  expenses for the nine months  period
ended December 31, 1999 was $1,072,070  compared to $488,635 for the nine months
period ended December 31, 1998. Selling, general and administrative expenses for
the three  months  period  ended  December  31,  1999 was  $482,259  compared to
$162,107 for the three months  period ended  December 31, 1998.  The increase in
the period ended December 31, 1998 and the same period in 1999 was primarily due
from the staffing  increases  and increased  marketing  efforts of the Company's
revenue sharing program to wireline and wireless carriers.

     The Company expects that selling,  general and administrative expenses will
increase  significantly  as it  begins  its full  deployment  of its  sales  and
marketing plan. To date the Company infrastructure has focused on system

                                       16


<PAGE>




development  and now must  support its sales,  marketing  and  customer  service
departments, as such, the Company believes fiscal 2000 will experience increases
in cost related to increased headcount, lease space, and general overhead.

     Extraordinary Items

     The  Company  has  recognized  income  from the  extinguishment  of debt of
$35,116 and $88,828  respectively  for the nine months period ended December 31,
1999 and 1998. For the three months period ended December 31, 1999 and 1998, the
Company  recognized  income  from  extinguishment  of debt of  $5,125  and $-0-,
respectively.

Liquidity and Capital Resources

         The  Company's  cash and cash  equivalents  at  December  31, 1999 were
$1,935,896 an increase of $1,894,146 from $41,750 at March 31, 1999.

Liquidity  was  enhanced  by the  licensing  of the  Company's  VIP  application
software to KMC Telecom Holdings,  Inc. (KMC). Under the terms of the agreement,
KMC paid the Company an initial license fee of $570,000.  The agreement is for a
period of 10 years and provides for a total of 39  installations  and grants KMC
the ability to add up to 81 additional  installations.  The agreement also calls
for KMC to pay the Company a monthly  license fee ranging  from $1,000 to $3,500
per month for each  software  and  hardware  installation  beginning in the 25th
month after each  installation.  The Company  anticipates  having the initial 39
installations  completed  by December  2000 which would  obligate KMC to pay the
Company monthly license fees of $131,500,  subject to certain adjustments and to
KMC's right to terminate  the entire  contract on standard  events of default by
the Company, beginning January 2003 and continuing through January 2010.

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

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

         Future Obligations

         During the next twelve months,  the Company  plans,  subject to raising
adequate capital, to increase substantially the marketing of its VIP Systems, to
introduce  new  services,  and to continue  refining  the  services it currently
provides.  Subject to the Company's ability to fund the cost, management expects
the Company to hire or contract with  approximately 50 additional persons during
the next twelve  (12)  months,  primarily  to support  its  expanding  marketing
activities and system installations.  At February 17, 2000, the Company employed
22 employees.

         The  ability of the  Company  to raise  capital  is, in the  opinion of
management,  the primary  constraint on the implementation of its business plan.
Management  estimates that during the next twelve (12) months,  the Company will
require approximately $15,000,000 of equity and/or long term debt to finance its
costs of marketing, system deployment, and continued refinement of its services.
In addition,  the Company will be required to obtain  extensions  of its current
debt or raise  additional  funds of  approximately  $500,000 to retire its debt.
There is no assurance that the Company will be able to secure any such financing
or extensions of its current debt.

         Year 2000 Compliance

         Many currently  installed  computer  systems and software  products are
coded to accept only two digit  entries in the date code field.  These date code
fields will need to accept four digit entries to distinguish  21st century dates
from 20th century dates. As a result,  many companies'  computer  systems and/or
software may need to be upgraded or

                                       17

<PAGE>

replaced to comply with such "Year 2000" requirements.  Significant  uncertainty
exists in the software industry concerning the potential effects associated with
such compliance.

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

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

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

PART II.          OTHER INFORMATION

Item 1.  Legal Proceedings.

The Company is not involved in any material legal proceedings.

Item 2.  Changes in Securities.

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

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

(c)  Recent Sales of Unregistered Securities

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

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

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

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

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

On December 22, 1999,  the Company  issued 333,334 shares of common stock to JMG
Triton  Offshore  Fund  Ltd.  at  a  purchase  price  of  $1.50  per  share  for
$500,000.00.  On the same day, the Company also issued  333,334 shares of common
stock to JMG Capital  Partners,  L.P. at a purchase price of $1.50 per share for
$500,000.00; 333,334

                                       18


<PAGE>

shares of common  stock to Marciano  Financial  Holdings at a purchase  price of
$1.50 per share  for  $500,000.00;  166,667  shares of common  stock to  Windsor
Capital  Management  Ltd. at a purchase  price of $1.50 per share for  $250,000;
100,000  shares  of common  stock to J.  Steven  Emerson  IRA  Rollover  II at a
purchase price of $1.50 per share for $150,000; 66,667 shares of common stock to
Jacob Wizman at a purchase price of $1.50 per share for $100,000;  66,667 shares
of common  stock to David  Tyrrell  at a  purchase  price of $1.50 per share for
$100,000;  33,334 shares of common stock to Stephen C. Thayer, IRA at a purchase
price of $1.50 per  share  for  $50,000;  33,334  shares of common  stock to Tom
Wittenbraker  at a purchase price of $1.50 per share for $50,000;  33,334 shares
of  common  stock to Dan D.  Warren at a  purchase  price of $1.50 per share for
$50,000;

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

Item 3.   Defaults upon Senior Securities

None.

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

None.

Item 5.   Other Information.

None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

Exhibit
Number               Description of Exhibits
-------------------  -----------------------------------------------------------
10.1*                Subscription Agreement and Letter of Investment Intent of
                     Triton Capital Investments, Ltd., dated July 1, 1999
10.2*                Subscription Agreement and Letter of Investment Intent of
                     JMG Capital Partners, L.P., dated July 1, 1999
10.3*                Second Amendment to Lease between Dallas Office Portfolio,
                     L.P. as successor in interest to Greenville Avenue
                     Properties, Ltd. and Preferred Voice, Inc.
10.4**               Software License Agreement between Southwest Texas
                     Telephone Company and Preferred Voice, Inc. (10.28)
10.5**               Marketing Agreement between Southwest Texas Telephone
                     Company and Preferred Voice, Inc. (10.29)
10.6*                Warrant Certificate No. 98 issued to Southwest Texas
                     Telephone Company, dated September 21, 1999
10.7**               Software License Agreement between Rural Cellular
                     Corporation and Preferred Voice, Inc. (10.26)
10.8**               Marketing Agreement between Rural Cellular Corporation and
                     Preferred Voice, Inc. (10.27)
27*                  Financial Data Schedule

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


(b)      Reports on Form 8-K

         None

                                       19


<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.


June 22, 2000                              /s/  G. Ray Miller
-------------                             --------------------------------------
Date                                      G. Ray Miller
                                          President, Chief Executive Officer and
                                          Chairman of the Board of Directors
                                          (Principal Executive Officer)





June 22, 2000                             /s/ Mary G. Merritt
-------------                             --------------------------------------
Date                                      Mary G. Merritt
                                          Secretary, Treasurer and Vice
                                          President of Finance
                                          (Principal Financial Officer)


                                       20