United States

                       Securities and Exchange Commission

                             Washington, D. C. 20549

                                   Form 10-QSB
[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the Period Ended June 30, 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
  incorporation or organization)                           Identification No.)

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

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

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

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

                 Yes                       No    X
                     -------                  -------


                      Applicable Only to Corporate Issuers

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

Common Stock, $ 0.001 Par Value - 13,103,879 shares as of December 31, 1999.

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

<PAGE>

                                     INDEX

                              Preferred Voice, Inc.

Part I.  Financial Information                                             1

Item 1.   Financial Statements                                             1

         Balance Sheets-June 30, 1999, June 30, 1998 and March 31, 1999.   1

         Statements of Operations-Three  Months Ended June 30, 1999
         and 1998 and for the Year Ended March 31, 1999.                   3

         Statements of Cash Flows-Three  Months Ended June 30, 1999
         and 1998 and for the Year Ended March 31, 1999.                   4

         Notes to Financial Statements - June 30, 1999.

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                             6

Part II. Other Information                                                 17

Item 1.  Legal Proceedings                                                 17

Item 2.  Changes in Securities                                             17

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                                  18

Signatures                                                                 19

<PAGE>

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

                                               Preferred Voice, Inc.

                                                    Balance Sheets

                                     June 30, 1999 and 1998 and March 31, 1999

<TABLE>
<CAPTION>
<S>                                                                     <C>                  <C>                   <C>
                                                                      June 30,             June 30,             March 31,
                                                                        1999                 1998                  1999
Assets                                                               (Unaudited)         (Unaudited)           (Audited)

      Current Assets:

          Cash and Cash Equivalents                                 $  390,731           $   18,053           $   41,750
      Accounts Receivable, net of allowance                              1,000                    -                  860
          for doubtful accounts of $ -0-, $-0-
          and $-0- respectively

          Employee Receivables                                               -                  814                2,500
                                                             ------------------ --------------------  -------------------
      Total Current Assets                                          $  391,731           $   18,867           $   45,110
                                                             ------------------ --------------------  -------------------

      Property and Equipment:

         Computer Equipment                                         $  270,062           $  141,297           $  223,046
         Furniture and Fixtures                                         20,119               18,134               16,934
         Office Equipment                                               12,493                9,303               12,493
         Computer Software                                             222,405              116,532              190,063
         LESS:  Accumulated Depreciation                              (189,215)            (89,673)            (161,049)
                                                             ------------------ --------------------  -------------------

      Net Property and Equipment                                    $  335,864           $  195,593           $  281,487
                                                             ------------------ --------------------  -------------------

      Other Assets:

         Deposits                                                   $   81,535           $   81,212           $   81,535
         Prepaid Expenses                                              761,018              761,018              761,018
                                                             ------------------ --------------------  -------------------
      Total Other Assets                                            $  842,553           $  842,230           $  842,553
                                                             ------------------ --------------------  -------------------

Total Assets                                                        $1,570,148           $1,056,690           $1,169,150
                                                             ================== ====================  ===================

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                     <C>                  <C>                   <C>
                                                                      June 30,            June 30,             March 31,
                                                                        1999                1998                 1999
Liabilities and Stockholder's Deficit                               (Unaudited)          (Unaudited)           (Audited)

      Current Liabilities:

        Accounts Payable                                            $   319,478         $   349,032           $   363,834
      Accrued Operating & Vacation Expenses                              19,611              29,714               19,611
       Accrued Payroll and Related Tax                                  187,057             140,712              226,755
       Accrued Interest Payable                                         262,937             358,309              248,967
       Notes Payable                                                    195,866           1,200,866              103,866
       Notes Payable-Related Parties                                    100,000             365,800              100,000
                                                             -------------------  ------------------   ------------------

      Total Current Liabilities                                     $ 1,084,949         $ 2,444,433           $1,063,033
                                                             -------------------  ------------------   ------------------

      Long Term Debt:

       Notes Payable-Related Parties                                  $     -0-         $   590,946           $  590,946
       Deferred Gain on Sale-Leaseback Transaction                          -0-             136,243                  -0-
       Long-Term Debt, Net Of Current Maturities                            -0-                 -0-              253,000
                                                             -------------------  ------------------   ------------------

      Total Long Term Debt                                            $     -0-         $   727,189           $  843,946
                                                             -------------------  ------------------   ------------------

      Commitments and Contingencies (Note H)

      Stockholders Deficit:
       Common Stock, $0.001 par value$
       20,000,000 shares authorized;
       shares issued 9,700,681, 6,173,470
       and 9,695,681 respectively                                  $     11,096       $       6,173         $      9,695
      Additional  Paid In Capital                                     6,100,961           3,380,205            5,192,033
      Accumulated Deficit                                           (5,624,990)         (5,499,442)          (5,937,689)
      Treasury Stock - at cost                                          (1,868)             (1,868)              (1,868)
                                                             -------------------  ------------------   ------------------

      Total Stockholder Deficit                                     $   485,199        $ (2,114,932)           $(737,829)
                                                             -------------------  ------------------   ------------------

Total Liabilities and Stockholder Deficit                          $  1,570,148        $  1,056,690         $  1,169,150
                                                             ===================  ==================   ==================

</TABLE>

<PAGE>

 Preferred Voice, Inc.

                                              Statements of Operations
                               For the Three Months Ended June 30, 1999 and 1998
                                        And For the Year Ended March 31, 1999

<TABLE>
<CAPTION>
<S>                                                                       <C>                  <C>                   <C>
                                                                        June 30,             June 30,            March 31,
                                                                          1999                 1998                1999
                                                                      (Unaudited)          (Unaudited)           (Audited)
                                                                  -------------------  -------------------  ------------------

      Sales                                                         $   595,175         $          -          $  180,383
      Cost of Sales                                                      44,916                    -              15,033

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

        Gross Profit (loss)                                         $   550,259         $          -          $  165,350
                                                                  -------------------  -------------------  ------------------
      Costs and Expenses:
        General & Administrative                                    $   233,175         $     50,828          $  768,024
        Interest Expense                                                 16,440              201,523             176,752
                                                                   -------------------  -------------------  ------------------

        Total Costs and Expenses                                    $   249,615         $    252,351          $  944,776
                                                                   -------------------  -------------------  ------------------

      Loss Before Income Tax                                        $   300,644         $  (252,351)          $(779,426)

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

      Loss Before Extraordinary Item                                $   300,644         $  (252,351)          $(779,426)

      Extraordinary Item:
      Gain/(Loss) from Extinguishment                                    12,056                                   88,828
        of  Debt (less applicable
        income taxes of -0-) (Note K)

      Net Gain/(Loss)                                               $   312,700         $  (252,351)          $(690,598)

      Per Share Amounts:

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

      Gain from Extinguishment of Debt                                        -                    -          $     0.01

      Net Gain/(Loss) Per Share                                     $      0.03         $     (0.04)          $   (0.10)
                                                                  ============================================================
</TABLE>

<PAGE>

                                              Preferred Voice, Inc.

                                             Statement of Cash Flows
                               For the Three Months Ended June 30, 1999 and 1998

                                       And For the Year Ended March 31, 1999

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

                                                                      June 30,             June 30,            March 31,
                                                                        1999                 1998                 1999
                                                                    (Unaudited)          (Unaudited)           (Audited)
                                                               -------------------  -------------------  -------------------

      Cash Flows from Operating Activities:
        Cash Received from customers                                $   595,035         $          -          $   179,510
        Cash Paid to suppliers and employees                          (318,045)            (154,144)            (500,572)
        Interest Paid                                                   (2,467)                    -                  -0-
                                                             -------------------  -------------------  -------------------

            Net Cash used by Operating Activities                   $   274,523         $  (154,144)          $ (321,062)
                                                             -------------------  -------------------  -------------------

      Cash Flows from Investing Activities
         Capital Expenditures                                       $  (82,542)         $   (55,088)          $ (151,772)
         Proceeds from Sale of Fixed Assets                                                                         1,300

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

            Net Cash used by Investing Activities                   $  (82,542)         $   (55,088)          $ (150,472)
                                                             -------------------  -------------------  -------------------

      Cash Flows from Financing Activities:
         Proceeds from Sale of Stock                                $         -         $                     $        -0-
         Proceeds from Notes Payable                                    200,000                45,000              351,000
         Note Principal Payments                                       (43,000)                                   (20,000)
         Proceeds from Sale -Leaseback Transaction                                            100,000              100,000
                                                             -------------------  -------------------  -------------------


      Net Cash provided by Financing Activities                     $   157,000         $    145,000          $   431,000
                                                             -------------------  -------------------  -------------------

      Net Increase (Decrease) in                                    $   348,981         $   (64,232)          $  (40,534)
        Cash and Cash Equivalents


      Cash and Cash Equivalents:
         Beginning of Period                                             41,750               82,285               82,284
                                                             -------------------  -------------------  -------------------
         End of Period                                              $   390,731         $     18,053          $    41,750
                                                             ===================  ===================  ===================

      Supplemental Schedule of non-cash investing
        and financing activities:
           Issuance of Common Stock in
            Exchange for Debt                                       $   910,329         $     64,459          $ 1,879,809
                                                             -------------------  -------------------  -------------------
      Total Non-Cash Investing Activities                            $  910,329         $     64,459          $ 1,879,809
                                                             ===================  ===================  ===================
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                     <C>                  <C>                   <C>
                                                                      June 30,             June 30,            March 31,
                                                                        1999                 1998                 1999
                                                                    (Unaudited)         (Unaudited)           (Audited)
                                                                ------------------  -------------------  ------------------

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

      Net Gain/(Loss)                                               $   312,700         $  (252,351)          $  (690,598)
                                                               ------------------  -------------------  -------------------

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

         Depreciation                                               $    28,166         $      6,455          $    80,113
         Amortization                                                         -                2,669                2,869
         (Gain) Loss on Sale of Fixed Assets                                  -                    -                (186)

         Changes in Assets and Liabilities:
            (Increase) Decrease in Accounts Receivable                    (140)                    -                (860)
            (Increase) Decrease in Employee Receivables                   2,500                (814)              (2,500)
            (Increase) Decrease in Deposits                                   -                3,398                2,875
            (Increase) Decrease in Prepaid Expenses                           -               38,982               38,982
            (Increase) Decrease in Deferred Debt Issue Costs                  -                2,669                    -
            Increase (Decrease) in Accounts Payable                    (44,356)             (11,680)               58,635
            Increase (Decrease) in Accrued Expenses                    (24,347)               56,528              189,608
                                                               ------------------  -------------------  -------------------

                   Total Adjustments                                $  (38,177)         $     98,207          $   369,536
                                                               ------------------  -------------------  -------------------

      Net Cash used by Operating Activities                         $   274,523         $  (154,144)          $ (321,062)
                                                               ==================  ===================  ===================
</TABLE>

<PAGE>

Note A - General organization:

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

Note B - Summary of significant accounting policies:

Cash and cash equivalents

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

Accounts receivable

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

Depreciation

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

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

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

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

Income taxes

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

Fair value of financial instruments

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

<PAGE>

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 their  services  and  products  are  provided.  During the current  period,
however,  a majority of the  Company's  revenue  consisted  of license  fees.  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 for the period  ended June 30,  1999,  and 1998 and March 31,
1999 was $570,000, $-0- and $-0-, respectively.  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 derived from one
customer and was recognized when the contract became final.  The distributor fee
income was $25,000,  -0-,  and $170,000 for the period ended June 30, 1999,  and
1998 and March 31, 1999, respectively.

Advertising expense

     The Company expenses advertising costs when the advertisement occurs. Total
advertising  expense  amounted  to $3,568,  $42,269,  and $42,269 for the period
ended June 30, 1999, and 1998 and March 31, 1999, respectively.

Loss per share

     The Company  adopted the  provisions  of Statement of Financial  Accounting
Standards  (SFAS) No. 128,  Earnings per Share,  during the year ended March 31,
1998.  SFAS No. 128 reporting  requirements  replace  primary and  fully-diluted
earnings per share (EPS) with basic and diluted EPS.  Basic EPS is calculated by
dividing net income  (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 9,315,182  and 5,749,848 and 7,205,065 for the period ended June
30, 1999, and 1998 and March 31, 1999, respectively.

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-,
$2,669,  and $2,869 for the period ended June 30,  1999,  and 1998 and March 31,
1999, respectively.

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

<PAGE>

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 June 30, 1999 and 1998, and March 31,
1999:

                                       June 30,        June 30,       March 31,
                                        1999            1998            1999
                                   --------------  --------------  -------------

  Outside interests                  $  50,866        $  50,866      $  50,866
  Related parties                            0          956,746        690,946
                                   --------------  --------------  -------------
                                     $  50,866      $ 1,007,612      $ 741,812
                                   ==============  ==============  =============

Note payable to outside interests include:

<TABLE>
<CAPTION>
<S>                                                                        <C>         <C>           <C>
                                                                        June 30,     June 30,    March 31,
                                                                          1999         1998        1999
                                                                      -----------  ----------- ------------


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

</TABLE>


     The note to Brite Voice Systems, Inc. is currently in dispute and beginning
April  1996,  the  Company has  discontinued  the  accrual of interest  expense.
Interest  expense  charged to operations  related to the note payable to outside
parties was $-0- for each of the periods ended June 30, 1999 and 1998, and March
31, 1999 respectively.

<PAGE>

Notes payable to related parties include:

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

                                                                                June 30,      June 30,      March 31,
                                                                                  1999          1998           1999
                                                                               ------------  ------------  -------------

  Note payable to a director and officer,  dated September 1, 1994, due on
  December 31, 1998, and unsecured,  interest was payable semi-annually at
  the rate of prime +2 (8.5% at March 31,  1998).  This note was converted
  into 15,000 shares of common stock on September 30, 1998.                  $        0    $    7,500    $         0

  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 and several  affiliated
  trusts of which the stockholder is the trustee. The notes were unsecured
  and bore  interest  at rates  ranging  from 9% to 10% and prime (8.5% at
  March 31, 1998) with principal and accrued  interest  payable at various
  dates through December 31, 1998. These notes were converted into 869,276
  shares of common stock on September 3, 1998.                                        0       348,300              0

  Note payable to an officer  dated May 20, 1996,  secured by common stock
  with  principal  and accrued  interest  due at maturity on May 20, 1998.
  This note was converted into 33,975 shares of common stock on
  September 30, 1998.                                                                 0        10,000              0

  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.         100,000             0        100,000
                                                                             ------------  ------------  -------------

                  Total related party notes payable                          $  100,000    $  956,746    $   690,946

                   Less current portion                                         100,000       956,746        100,000
                                                                             ------------  ------------  -------------
                 Long-term portion                                           $        0    $        0    $   590,946
                                                                             ============  ============  =============

</TABLE>

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

     Interest  expense charged to operations  related to the related party notes
payable was $3,485,  $23,774 and $64,199 for the periods ended June 30, 1999 and
1998, and March 31, 1999 respectively.

Note D - Long-term debt:

         Long-term debt consisted of  the  following  at June 30, 1999 and 1998,
and March 31, 1999:

<TABLE>
<CAPTION>
<S>                                                                                <C>          <C>           <C>
                                                                                 June 30,     June 30,      March 31,
                                                                                   1999         1998          1999
                                                                                -----------  ------------ -------------

  12% convertible debentures due December 25, 1997, convertible into
  shares of common  stock at a  conversion  price of $.87 per share.
  Principal  and  interest  were  payable  on  demand  at  maturity.
  Convertible  debentures  were secured by a media  purchase  credit
  (see Note J). These notes were converted into 367,816 shares of
  common stock on September 30, 1998.                                        $        0    $   320,000    $        0

  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.                                                   60,000        785,000        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              0        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              0        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         45,000        93,000

  Note payable to Equity  Communication.  This note is unsecured,
  non-interest bearing, and due upon demand.                                     10,000              0        10,000

  Note payable to an  individual.  This note is unsecured  and bears
  interest at 12% per annum with the  principal  and interest due on
  April 22,  2000.  This note is  convertible  into shares of common
  stock at a conversion price of $1.00 per share.  Subsequent to the
  balance  sheet  date,  $37,500  of the note  was used to  exercise
  75,000  warrant  shares at $.50 per share and the  remaining  note
  balance of $37,500 was paid in full on July 8, 1999.                           37,500              0             0

  Note payable to an  individual.  This note is unsecured  and bears
  interest at 12% per annum with the  principal  and interest due on
  April 23,  2000.  This note is  convertible  into shares of common
  stock at a conversion price of $1.00 per share.  Subsequent to the
  balance  sheet  date,  $37,500  of the note  was used to  exercise
  75,000  warrant  shares at $.50 per share and the  remaining  note
  balance of $37,500 was paid in full on July 8, 1999.                           37,500              0             0

<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
                                                                                -----------  ------------ --------------

                                                                             $  145,000    $ 1,150,000   $   306,000
              Less current portion                                              145,000      1,150,000        53,000
                                                                                -----------  ------------ --------------

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

</TABLE>

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

     Interest  expense  charged to operations  related to the long-term debt was
$2,700,  $26,768 and $112,553 for the periods ended June 30, 1999 and 1998,  and
March 31, 1999 respectively.

Note E - Common stock:

Stock purchase warrants

         At June 30,  1999,  the  Company had  outstanding  warrants to purchase
2,405,500 shares of the Company's common stock at prices which ranged from $0.20
per share to $4.88 per  share.  The  warrants  are  exercisable  at any time and
expire on dates  ranging  from  August 31, 1999 to March 31,  2004.  At June 30,
1999, 2,405,500 shares of common stock were reserved for that purpose.

Common stock reserved

     At June 30, 1999,  shares of common stock were  reserved for the  following
purposes:

  Exercise of stock warrants                                       2,405,500
  Exercise and future grants of stock
     options and stock appreciation rights                           423,000
                                                                --------------
                                                                   2,828,500
                                                                ==============


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.

<PAGE>

     The provision for income taxes consists of:

<TABLE>
<CAPTION>
<S>                                                   <C>             <C>               <C>
                                                   June 30,          June 30,         March 31,
                                                    1999              1998              1999
                                               ---------------   ----------------  -------------

  Current income taxes                            $     0            $     0          $     0

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

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

</TABLE>


Deferred tax (liabilities) assets consist of the following:

<TABLE>
<CAPTION>
<S>                                                      <C>               <C>
                                                        1999              1998
                                                  ---------------   ----------------

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

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

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

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

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


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

</TABLE>

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

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

<PAGE>

     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 June 30, 1999,
options to  purchase  382,750  shares at  exercise  prices of $0.20 to $1.25 per
share had been granted.  No stock  appreciation  rights had been granted at June
30, 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 June 30,
1999 for each of the next five years and in the aggregate are:

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

             2000                            $   59,414
             2001                               101,060
             2002                               103,540
             2003                               104,856
             2004                                80,364
                                           -----------------
                                             $  449,234
                                           =================


     Total rent expense  charged to operations  was $14,352,  $6,692 and $27,416
for the periods ended June 30, 1999 and 1998 and March 31, 1999, respectively.

Note I - Barter transaction:

     On June 3, 1996, the Company  entered into a media  purchase  agreement for
the  promotion  of its  products  and services  with  Proxhill  Marketing,  Ltd.
(Proxhill).  Under the terms of the agreement, the Company committed to purchase
$1,200,000 of media  advertising  time in exchange for 200,000  shares of common
stock at a value of $4.00 per share,  and $400,000 in cash. The agreement is for
a period of five years. For each purchase of media advertising time, the Company
will receive a barter credit equal to 66.67% of the  transaction  value with the
remaining  balance  payable in cash.  A prepaid  barter  credit in the amount of
$761,018 is included in other  assets in the  accompanying  balance  sheet as of
June 30, 1999 and 1998 and March 31, 1999, respectively. In connection with this
agreement,  the Company  issued to  Proxhill  50,000  warrants  to purchase  the
Company's common stock at a price of $4.00 per share. The options expire June 3,
2001.

Note J - Sale - leaseback transaction:

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

<PAGE>

Note K - Extinguishment of debt:

     During the  periods  ended June 30, 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 $12,056,  -0-
and $88,828,  respectively,  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 June 2000 which  would  obligate  KMC to pay the  Company  monthly
license fees of $131,500,  subject to certain  adjustments,  beginning July 2002
and continuing through July 2009.

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

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


<PAGE>

                 Item 2. Management's Discussion and Analysis of

                  Financial Condition and Results of Operations

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

Overview

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

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

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

         In December of 1998, the Company realized that the resources  necessary
to sell and market its services  directly to subscribers would require extensive
amounts of working  capital  and began  researching  venues  which  already  had
inherent  customer  bases.  The  first  distribution  channel  that the  Company
explored  was  master  distributors  in various  cities  and  states  around the
country.  The Company  believes this will be a source of customer  addition once
the  Company  is in the  position  to  locate  its  VIP  Systems  in the  master
distributor marketing areas. The second is through revenue sharing directly with
incumbent local exchange carriers ("ILECs"), wireless communications carriers
("WCCs"),  and competitive local exchange carriers.  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
Line(sm),  Emma-The  Perfect   Receptionist(sm),  ** Talk(sm),  My  One  Special
Number(sm) , and Safety*Talk(sm).

         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

<PAGE>

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

         The Company  recorded a net gain of $312,700  for the period ended June
30, 1999, compared to a net loss of $252,351 for the period ended June 30, 1998.

         Total Revenue

         Total revenue for the period ended June 30, 1999, was $595,175 compared
to -0- for the period ended June 30, 1998. Total revenues  consisted of $570,000
from licensing  fees for the Company's VIP  application  software,  $25,000 from
master  distributor  fees for specific  marketing  rights and the remaining from
service fees for the Company's "Emma the Perfect Receptionist" and "Smart Line".
The Company anticipates that revenues from the sale of its  services  will  grow
gradually in the first half of 2000 as it installs VIP Systems in the ILECs  and
WCCs which have already signed revenue sharing agreements and as VIP Systems are
purchased and installed at KMCs switch locations.   The Company's agreement with
KMC is for 39 VIP Systems which are  expected to  be installed by the end of the
year 2000.  The Company does not intend to sell its systems in the future but to
enter into revenue sharing agreements where the Company retains title to the VIP
Systems.  The Company does not anticipate substantial revenue going forward from
master distributor agreements.

         Cost of Sales

         Cost of sales for the period  ended June 30, 1999 was $44,916  compared
to -0- for the period ended June 30, 1998. Cost of sales consisted  primarily of
direct costs associated with the licensing agreement completed during the period
and system  access costs  related to the basic  infrastructure  requirements  to
provide the Company's "Emma the Perfect  Receptionist"  and "Smart Line" service
to current and future end users.

         Selling, General and Administrative

         Selling,  general and administrative expenses for the period ended June
30, 1999 were  $233,175  compared to $50,828 for the period ended June 30, 1998.
The  increase in the period  ended June 30, 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 expectes that selling, general and adminstrative expenses
will increase in fiscal year 2000, such expenses to include costs related to the
number of employees,  office  space requirements and general overhead.  However,
the  Company  believes that such expenses will not increase proportionately with
revenues from sales.

         Extraordinary Items

         The Company has recognized  income from the  extinguishment  of debt of
$12,056, -0-, and $88,828 for the period ended June 30, 1999 and 1998, and March
31, 1999, respectively.

Liquidity and Capital Resources

         The Company's cash and cash  equivalents at June 30, 1999 were $390,731
an increase of $348,981 from $41,750 at March 31, 1999.  The improved  liquidity
was due primarily to the proceeds received on the licensing of the Company's VIP
application software to KMC Telecom Holdings, Inc. (KMC). Under the terms of the
agreement,  KMC paid  the  Company  an  initial  license  fee of  $570,000.  The
agreement  is  for  a  period  of 10  years  and  provides  for  a  total  of 39
installations   and  grants  KMC  the  ability  to  add  up  to  81   additional
installations.  The  agreement  also calls for KMC to pay the  Company a monthly
license  fee  ranging  from  $1,000 to $3,500  per month for each  software  and
hardware installation  beginning in the 25th month after each installation.  The
Company  anticipates having the initial 39 installations  completed by June 2000
which would  obligate KMC to pay the Company  monthly  license fees of $131,500,
subject to certain adjustments,  beginning July 2002 and continuing through July
2009.

         On July 1, 1999 pursuant to Section 4(2) of the Securities Act of 1933,
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.

<PAGE>

         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  40
additional persons during the next twelve (12) months,  primarily to support its
expanding marketing  activities and system  installations.  At January 15, 2000,
the Company employed fifteen (16) 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  $3,000,000 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  $900,000 to retire its debt.
There is no assurance that the Company will be able to secure any such financing
or extensions of its current debt.

Year 2000 Compliance

         Many currently  installed  computer  systems and software  products are
coded to accept only two digit  entries in the date code field.  These date code
fields will need to accept four digit entries to distinguish  21st century dates
from 20th century dates. As a result,  many companies'  computer  systems and/or
software  may need to be  upgraded  or  replaced to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance.

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

         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.

<PAGE>

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.

<PAGE>

(c)  Recent Sales of Unregistered Securities

On May 3, 1999,  the Company  issued  John  Meleky a warrant to  purchase  1,250
shares of common stock of the Company at an exercise price of $1.37 per share on
or before May 3, 2001.

On May 3, 1999,  the  Company  issued Karl  Koelker a warrant to purchase  2,672
shares of common stock of the Company at an exercise price of $1.37 per share on
or before May 3, 2001.

On May 3, 1999,  the  Company  issued  Louis R.  Battista a warrant to  purchase
10,539  shares of common stock of the Company at an exercise  price of $1.37 per
share on or before May 3, 2001.

On May 3, 1999,  the Company  issued Mark Battista a warrant to purchase  10,539
shares of common stock of the Company at an exercise price of $1.37 per share on
or before May 3, 2001.

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

Additional  sales of unregistered  securities  made during the reporting  period
covered by this Form  10-QSB  have been  previously  reported  in Part II of the
Company's  10-KSB  for the  fiscal  year ended  March 31,  1999,  filed with the
Securities and Exchange Commission on December 1, 1999.

Item 3.   Defaults upon Senior Securities.

None.

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

None.

Item 5.   Other Information.

None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

Exhibit

Number    Description of Exhibits

<TABLE>
<CAPTION>
<S>       <C>
10.1*     Warrant Certificate No. 93 issued to John Meleky, dated May 3, 1999
10.2*     Warrant Certificate No. 94 issued to Karl Koelker, dated May 3, 1999
10.3*     Warrant Certificate No. 95 issued to Louis R. Battista, dated May 3, 1999
10.4*     Warrant Certificate No. 96 issued to Mark Battista, dated May 3, 1999
10.5**    Master Distributor Agreement between Voice Retrieval, Inc. and Preferred Voice, Inc.
10.6**    Software License Agreement between KMC Telecom Holdings, Inc. and Preferred Voice, Inc.
10.7*     Form of Promissory Note and Schedule

</TABLE>

* Filed herewith.
** 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

<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.


                                          /s/ G. Ray Miller
February 10, 2000                         --------------------------------------
                                          G. Ray Miller
                                          President, Chief Executive Officer
                                          and Chairman of the Board of Directors
                                          (Principal Executive Officer)





                                          /s/ Mary G. Merritt
February 10, 2000                         --------------------------------------
                                          Mary G. Merritt
                                          Secretary, Treasurer and
                                          Vice President of Finance
                                          (Principal Financial Officer)