SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                FORM 10-KSB/A(1)

              Annual Report pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 1995.

              Transition Report pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

     For the transition period from _________________ to __________________.

                           Commission File No. 0-25480

                        ADVANCED VOICE TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                        62-1175379
          --------                                        ----------
(State of or other jurisdiction               (IRS Employer Identification No.)
of Incorporation or organization)

    369 Lexington Avenue
     New York,  NY 10017                                     10017
     -------------------                                     -----
    (Address of Principal                                  (Zip code)
     Executive Offices)

Registrant's telephone number, including area code: (212) 599-2062

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $.0001 per share
                                (Title of Class)

      Units consisting of one (1) shares of common stock, par value $.0001
     per share and one (1) Class A Redeemable Common Stock Purchase Warrant
                                (Title of Class)

                Class A Redeemable Common Stock Purchase Warrants
                                (Title of Class)




<PAGE>



     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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__

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 1 0-KSB. [X]

     Issuer's revenues for its most recent fiscal year were $651,452.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock as of
March 28, was approximately $19,282,005.

     Number of shares outstanding of the issuers common stock, as of March 28,
1996 was 3,721,495.



     DOCUMENTS INCORPORATED BY REFERENCE: NONE



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                    Forward Looking and Cautionary Statements

     From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined in the PRIVATE
SECURITIES LITIGATION REFORM ACT of 1995 (the "Act") or by the Securities and
Exchange Commission in its rules, regulations and releases. The Company
therefore cautions shareholders and investors that any such forward-looking
statements made by the Company are no guarantees of future performance and that
actual results may differ materially from those projected or suggested in any
forward-looking statements as the result of a wide variety of factors, which
include but are not limited to the factors and conditions set forth below (many
of the important factors below have been discussed in prior Securities an
Exchange Commission filings by the Company):

o    Competition within the call processing industry, including technological
     features and reliability, price and service or other activities necessary
     in order to preserve or gain market share, the timing of which cannot be
     foreseen by the Company;

o    Rapid technological change, characterized by frequent new product and
     feature introductions which effect the market for the Company's call
     processing products;

o    Difficulties in obtaining any PC-related hardware parts and components and
     any other items needed for the production the Company's communication
     system;

o    Difficulties or delays in the development, production, testing and
     marketing of the Company's communication system;

o    The Company's ability to protect the technology it develops;

o    Risks related to the AT&T co-marketing agreement, including failures in
     performance of either party or other difficulties, such as in customizing
     the communication system as required under the agreement;

o    The costs and effects of unanticipated legal and administrative
     proceedings.

     The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.


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Item 1. BUSINESS

GENERAL

     Advanced Voice Technologies, Inc., a Tennessee corporation (the "Company"
or "AVT") was formed in October, 1983 under the name Tech Source, Inc. The
Company was founded to develop custom hardware and software applications that
would support the then early stage voice processing industry. In September 1994,
the Company was merged with and into Advanced Voice Technologies, Inc., a
Delaware corporation.

     As the voice messaging market grew, the Company recognized that broad
consumer acceptance of voice technology has created commercial opportunities
that heretofore did not exist. To capitalize on the most promising of these, AVT
invested significant resources in the design and testing of products that serve
the market-specific needs of certain industries, including health care, real
estate, education and automobile retailing. The Company's most widely heralded
effort, the HOMEWORK HOTLINE(R) Communication System was designed to meet the
needs of the educational community. Over 400 primary and secondary schools have
installed the Company's HOMEWORK HOTLINE(R) Communication System.

     The Company maintains its executive offices at 369 Lexington Avenue, New
York, NY 10017, telephone number (212) 599-2062.

Industry Background

     The early voice processing industry (i.e., the industry that developed the
technological capability of voice messaging that is commonly referred to as
"voice mail"), like the computer industry, had its origins in large proprietary
systems and has grown to include smaller, more open systems. Early voice
processing systems were based on proprietary technology, which often could be
used only in conjunction with a single type of private branch exchange ("PBX")
switch. These systems were designated for use by large corporations and
typically cost several hundred thousand dollars. By the early 1980s, new market
entrants began to develop systems that were somewhat more affordable, often
costing $100,000 or more, but were still based on proprietary hardware and
operating system architecture. As the processing power of PC's increased and
disk storage, microprocessor and other microcomputer component costs fell, PC's
also became a viable platform for early processing applications. PC-based
products, utilizing standard open-architecture platforms and operating systems,
now offer small- to medium-sized businesses and offices the benefits of many of
the same features currently found in large proprietary systems, but at
substantially lower price points ranging from about $8,500 to over $50,000.

     Call processing has traditionally encompassed various types of computer
assistance to facilitate interaction over the telephone between a caller, one or
more persons and a 


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computer. With early processing technology, telephone users utilized voice and
touch-tone to manipulate calls, interact with computer databases, and access and
respond to messages or data from voice or other electronic media. thereby making
internal and external communications more efficient. Early in its life, AVT's
objective was to design simple, reliable applications of basic voice processing
technology.

     The Company was primarily an installer of proprietary software. As such,
much of its business was of a non-recurring nature. The Company still seeks to
actively market both its proprietary software and other products and programs to
new customers. To the extent the Company fails in attracting such new customers,
the loss of any one significant customer, or group of customers, could have a
severe negative impact on the Company in the near term.

BUSINESS AND PRODUCTS

     HOMEWORK HOTLINE(R) Communication System was developed in conjunction with
Dr. Jerold Bauch the Director of the Betty Philips Center for Parenthood
Education at the Peabody College of Vanderbilt University. Dr. Bauch's research
on the 'TransParent School Model' (which allows parents to see inside their
child's school) has received nationwide attention from educators and the news
media, alike. Dr. Bauch's area of expertise is in using voice technology to
increase parental involvement in their children's education, and he has spent
years perfecting the design which underlies AVT's HOMEWORK HOTLINE(R). Studies
that Dr. Bauch has done over the last three years consistently indicate that
when a school properly utilizes the HOMEWORK HOTLINE(R) Communication System,
absenteeism declines, homework completion jumps to almost 100%, and the overall
academic performance of its student body improves. HOMEWORK HOTLINE(R)
Communication System is a complete PC-based system.

     As a result of the opportunity presented by this market and by this
product, the Company decided to focus exclusively on serving the educational
market. Following this decision, the Company, in December 1994, granted an
exclusive license to Oak Tree Communications, L.L.C. ("Oak Tree") to market its
technology to non-educational markets. In addition, Oak Tree has agreed to
service and support the Company's non-educational customer base (including the
honoring of all warranties). See "Certain Relationships and Related
Transactions".

     HOMEWORK HOTLINE(R) Communication System is a specially tailored voice
processing system which allows teachers and school administrators to communicate
with all parents and students on a daily basis. This product can be customized
for the needs of a specific school or an entire school district. Teachers record
class-specific messages describing, among other matters, materials covered and
homework assigned during each school day. Parents are then afforded easy access
to this information so that they may take a more active role in their children's
education. In addition to its call-in feature, the HOMEWORK HOTLINE(R)
Communication System has call-out capabilities which allows 


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the school to deliver to parents critical and/or time sensitive information. For
the safety and security of the children, schools can confirm students' absences
or tardiness with their parents, families can be given procedures to follow in
case of an emergency or parents can be brought up-to-date on group-specific
activities. Importantly, the HOMEWORK HOTLINE(R) Communication System
automatically compiles statistical records on parental use of the system in
order to provide teachers and administrators with feedback on system
utilization. The HOMEWORK HOTLINE(R) Communication System can also include a
traditional voice messaging system and automated attendant functions.

     The HOMEWORK HOTLINE(R) Communication System has become the cornerstone of
a comprehensive parent involvement program, HOMEWORK HOTLINE(R) Educational
Services. An educational service provider, the Company is developing such
additional services as teacher staff development modules, parent and community
involvement assessment tools, parenting education, support materials and
helplines, and other services which are all focused on enabling parents to be
more actively and productively involved in their child's education.

     The Company believes that demand for its products and services will
continue to increase due to demographic trends, increasing discontent among
families and corporations with the public education system in this country, and
the recent enactment of federal legislation to address the need for educational
reform. In the Spring of 1994, federal legislation. entitled "Goals 2000:
Educate America Act", was enacted that mandates schools improve their
performance along eight key dimensions, among which is parental involvement.

     This legislation has increased awareness in the value of parental
involvement and the need for improvement in its implementation in most school
communities, and has broadened funding sources for products and services such as
those being developed by the Company, not only from the educational community,
but also from corporations, state and local governments, and not-for-profit
organizations, which have earmarked funds to improve the educational system
through investment in parent involvement programs.

     In October, 1995, the Company entered into a contract with Work/Family
Directions, Inc. ("Work/Family") to implement its parent involvement program in
100 schools in ten communities around the country during the 1995/1996 school
year. Work/Family is a service organization which creates and manages programs
on behalf of the American Business Collaboration, a consortium of Fortune 500
companies (the "Champions"), including such corporations as IBM, NYNEX and Aetna
Insurance (a few of the HOMEWORK HOTLINE(R) program's Champions), that have
decided to work together to develop and implement certain support services that
can help their employees better manage the juggling act between their work and
home responsibilities. Typically, Work/Family will create and pilot a new
program, compile and report the results of such pilot, and then, if successful,
work on behalf of the Champions to expand the program to a number of additional
markets. This ten community implementation is just such a pilot. This program
generated approximately 71% of the Company's net sales for the fiscal year ended
1995.


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     The contract called for total payments from Work/Family to the Company of
approximately $1.2 million for this pilot program. Of that money, $500,000 was
budgeted for the purchase of all necessary computer hardware. Such funds were
escrowed to facilitate and assure timely direct payment to the appropriate
hardware vendors, with any funds remaining in that escrow after the program had
been implemented in all 100 schools, reverting to the Company. Internal
budgeting done by the Company prior to the execution of the contract indicated
that it could expect to realize $170,000 in net profit from this pilot
implementation, once all staff and outside expenses had been covered. As of
December 31, 1995, 78 of the 100 schools were implemented. (For a description of
this program's status after December 31, 1995, See Management's Discussion and
Analysis of Financial Condition and Results of Operations ("MDNA")--Recent
Developments and the Company's Reports of Form 10-QSB/A for the Periods ended
March 31, 1996 and June 30, 1996).

     In addition, the Company has been selected as a provider of its service for
several large flagship projects in the State of California, with the New York
State Department of Education and for the Southern Westchester Board of
Cooperative Educational Services ("BOCES") in New York State during the
1996-1997 school year each involves working with corporations, school districts,
and community organizations to implement the Company's parent involvement
program on a community-wide scale.

     In the State of California, the Company is currently an active participant
in two significant technology programs: the Los Angeles County Office of
Education's Five-year Technology for Learning Initiative and the South Bay
Advanced Educational Technology Consortium. In each case, the Company is working
with the program's directors to coordinate corporate, foundation, and government
funding with parent, teacher, and school administrator demand to achieve broad
implementation of the Company's Homework Hotline(R) Communication Program.

     The New York Department of Education has publicly announced a partnership
with the Company and is currently instituting the Company's Homework Hotline(R)
Communication Program in five pilot locations as the first step in a state-wide
initiative.

     Finally, Southern Westchester BOCES has signed an agreement with the
Company under which the Company will be the sole vendor for parental involvement
programs centered around a telephonic voice message communication system in
districts that BOCES services which choose to purchase such voice messaging
systems through the cooperative. BOCES has contractually committed time, energy,
and marketing support to the Company to help ensure that some, if not most, of
the several hundred schools it serves will choose to implement the Company's
program during the 3-year duration of the agreement, using both state aid and
the discounts the Company has granted BOCES members under the terms of the
agreement to ameliorate the expense of such a purchase.

     The change of corporate strategy from a voice technology company to an
educational services company generated additional costs in software development
and program development and new marketing efforts. These costs exceeded
incremental sales in 1995. However, the software and programs as developed were
responsible for the contract realized with Work/Family Directions which brought
significant added revenue in the fourth 



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quarter, and for the opportunities the Company is currently pursuing in both
California and New York State. There can be, however, no assurance that any of
these opportunities will be successfully realized, or that if they are, that
they will bring meaningful revenue and profits to the Company.




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Marketing

     An advisory board of leading educators and school administrators has been
established by the Company to provide ongoing supervision of HOMEWORK HOTLINE(R)
Educational Services content, to help in the development of new products and
services, and to ensure and promote the Company's reputation as a leading
provider of educational services. Using the Homework Hotline(R) as the
cornerstone of a comprehensive parent involvement program, the Company is
developing such additional products and services as teacher/staff development
modules, parent and community involvement assessment tools, parenting education,
support materials and helplines, and other services which are all focused on
enabling parents to be more actively and productively involved in their child's
education. In addition to developing new products and services, the Company is
pursuing strategic partnerships, such as the co-marketing agreement entered into
by the Company and AT&T as reported in the Company's Current Report on Form 8-K
filed on August 28, 1996. (For a description of this co-marketing agreement and
its status, See Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MDNA")--Recent Developments; and the Company's Current
Report on Form 8-K filed with the SEC on August 28, 1996).

     In order to more effectively compete in the marketplace, the Company is
implementing a revised marketing and pricing policy which management believes
will improve sales. The Company's products and services are now being marketed
to communities and school districts rather than to individual schools. The
Company plans to charge a per student or per family monthly fee for accessing
these services.

     The plan assumes the under-development modification to the current
technology which will allow the system to reside, not only at an individual
school, but in a district office. Each school will have direct access to the
headquarters system via modem, but the hardware, software, and phone lines
required will be centralized. The Company believes that this modified system
will not only substantially reduce its cost of operations, but will facilitate a
broader utilization of the HOMEWORK HOTLINE(R) Educational Services as well.

Competition

     The Company's product HOMEWORK HOTLINE(R) Communication System competes
with at least two other companies (Parlant and PhoneMaster) which are as well
established as the Company and which have financial resources which are likely
at least as great as those of the Company. In addition, the call processing
industry in general is highly competitive, and the Company believes that the
competitive pressures it faces are likely to intensify. No significant
competitor has tied voice messaging to parent involvement as has AVT. It is
expected that this strategy will give the Company competitive advantage in the
educational marketplace and insulation from those companies that solely provide
voice messaging.

     The Company has limited patent protection for its products and believes
that patents generally will not impose significant barriers to entry into the
Company's market, especially 



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by companies with established technical capabilities and market positions in
related technologies. The Company anticipates intensified competition from
larger companies having substantially greater technical, financial and marketing
resources than the Company. The Company anticipates that it will encounter a
broader variety of competitors, including new entrants from related computer and
communications industries. See "Business and Products--Marketing." There can be
no assurance that the Company will continue to succeed in this competitive
environment, or that its sales or profit margins will not be adversely affected
by such intensified competition.

Customers

     For the initial 400 installations, the Company's customers for its HOMEWORK
HOTLINE(R) Communication System product consist primarily of individual public
schools. However, the Company is developing new marketing strategies whereby
HOMEWORK HOTLINE(R) Educational Services is being offered to entire school
districts so that the Company and the school may benefit from the resulting
economies of scale. For example, the Work/Family Directions, Inc. program of 100
schools was limited to 10 school districts. Future efforts will continue to
focus on clusters of schools rather than any single school individually.

Research and Development

     During the period January 1, 1992 through December 31, 1994, the Company
did not incur any research and development expenses. All research and
development expenses were incurred prior to January 1, 1992. The Company
launched a major research and development effort in 1995 with a two-fold
objective. The first objective was in regard to software. The objective was to
develop a HOMEWORK HOTLINE(R) Communication System software that could (1)
operate on an IBM compatible computer with a Windows 95 user interface, and (2)
operate in a network environment in a given school district. Development of
software will continue with the objective to add both communications power and
resources retrieval for schools to access. The second objective was to develop
parent involvement materials to provide a foundation for a complete school and
community oriented parent involvement program. These materials are designed to
make HOMEWORK HOTLINE(R) Educational Services a part of school and community
culture. The Company will continue to develop those materials and programs that
meet these objectives.

     During fiscal year 1995, research and development expenses of $64,930 were
incurred, primarily for the creation of prototypes of versions 1.2 and 2.0 of
the Company's Homework Hotline(R) communication software. An additional $666,421
was spent on software development: $113,326 to finalize version 1.2 of the
program, and the remaining $553,095 for the work still in progress on version
2.0. The Company completed development of version 1.2 in October 1995, and
anticipates completion of version 2.0 in May 1996. (For a description of the
status of this project, See Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDNA")--Recent Developments). None of the
costs of the Company's research and development activities are borne by its
customers, as all of the fruits of such activities are owned by the Company.




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Patents and Trademark

     The trademark HOMEWORK HOTLINE(R) is the property of the Company and has
been registered with United States Patent and Trademark Office ("PTO"). To the
Company's knowledge the Company has the common law right to use other trademarks
and service marks on its products and in the marketing of its services.

     In September of 1994, the Company received correspondence from Elk
Industries ("Elk") indicating that Elk believed that the Company's products,
including voice mail or voice messaging devices were infringing Elk's United
States Patent No. 4,124,773 (the "'773 patent"). In that correspondence, Elk
offered the Company an opportunity to purchase a license under that patent. The
Company responded by requesting further information to better enable it to
evaluate Elk's claim. The Company received no response to that request.

     However, in December of 1994, the Company received written confirmation
from its sole supplier of voiceboards, Dialogic, that Dialogic had acquired a
license from Elk which conferred upon the Company, as a purchaser of Dialogic
voiceboards, freedom from patent infringement claims by Elk on the '773 patent.
Apparently unaware of the Company's sole supplier relationship with Dialogic,
Elk's attorney sent the Company another letter in April of 1995. That letter
expressed an intention to take action against the Company to enforce the '773
patent upon completion of other legal proceedings, and once again offered the
Company a license. Acting on the advice of patent counsel, reviewing the
adequacy of Dialogic's representation and the patent's imminent expiration
(November 1996), the Company elected not to respond to Elk's April 1995 letter
and has since received no further communications from Elk Industries or its
attorneys. The Company believes that this matter will not have a material
adverse affect on the Company's operations.

Employees

     As of April 11, 1996, the Company has 17 full-time employees. Of these 17
employees, 3 are responsible for sales and marketing, 6 are responsible for
product development and technical support, one is a bookkeeper and one is a
financial executive and six are administrative employees including the
President. The Company enters into agreements containing confidentiality
restrictions, as well as provisions of non-competition during employment with
the Company. The Company has never had a work stoppage and no employees are
represented by a labor organization. The Company considers its employee
relations to be good.


Item 2. PROPERTIES

     The Company's engineering and manufacturing operations are located in
Nashville, Tennessee under a lease expiring on August 31, 1999 pursuant to which
it pays rent of approximately $3,600 per month plus taxes and insurance
premiums. The Company moved its headquarters to New York City in November, 1994,
so as to offer easy access to more 


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experienced, high level personnel as well as draw upon accomplished educators in
the Northeast.

     From January 1995 through November 1996, the Company leased office space in
New York for approximately $13,500 per month with an entity in which Nancy
Shalek, the Chairman of the Company, is a partner. As of November 1996, the
Company entered into a ten-year lease in midtown Manhattan with an unaffiliated
third party. Pursuant to this lease, the Company pays rent of $8,617.50 per
month for the first three years, $9,096.25 per month for the next four years and
$9,814.38 per month for the balance of the lease term. The Company believes that
these facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available as needed in the future on
commercially reasonable terms.


Item 3. LEGAL PROCEEDINGS

     The Company is not a party to any material pending legal proceedings.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.









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                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS.

       The Company's securities commenced trading in the over-the-counter
market on the effectiveness of the Company's Initial Public Offering on February
7, 1995 in the form of Units, each consisting of one share of Common Stock and
one Class A Redeemable Common Stock Purchase Warrant. Effective February 7,1995
the Company's Units. Common Stock, and Warrants have been quoted under the
symbols HMWKU, HMWK AND HMWKW. The Units, Common Stock and Class A Warrants are
regularly quoted and traded on the NASDAQ SmallCap Market ("NASDAQ").

        The following table indicates the High and Low bid prices for the
Company's Units, Common Stock and Class A Warrants based upon information
supplied by the NASDAQ system. Prices represent quotations between dealers
without adjustments for retail markups, markdowns or commissions and may not
represent actual transactions.

Units
-----                                                   Quoted Bid Price
                                                     ----------------------
     1995 Calendar Year                                High           Low
     ------------------                                ----           ---
     First Quarter(1)                                $ 19.50        $ 8.75
     Second Quarter                                    16.00          5.50
     Third Quarter                                      5.50          5.00
     Fourth Quarter                                     7.75          3.00

Common Stock
------------                                            Quoted Bid Price
                                                     ----------------------
     1995 Calendar Year                                High           Low
     ------------------                                ----           ---
     First Quarter(1)                                $ 14.00        $ 8.00
     Second Quarter                                    10.875         3.25
     Third Quarter                                      4.00          3.125
     Fourth Quarter                                     5.50          3.125

Class A Warrants
----------------                                        Quoted Bid Price
                                                     ----------------------
     1995 Calendar Year                                High           Low
     ------------------                                ----           ---
     First Quarter(1)                                $  6.125       $ 2.25
     Second Quarter                                     5.50          2.75
     Third Quarter                                      3.125         2.25
     Fourth Quarter                                     3.625         1.25

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

(1) February 7 through March 31, 1995.

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         On March 28, 1996, the closing price of the Units as reported on NASDAQ
was $8.00, the closing price of the Common Stock as reported on NASDAQ was
$5.625 and the closing price of the Class A Warrant reported on NASDAQ was
$2.50. On March 28, 1996, there were 57 holders of record of Common Stock.




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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the historical
financial statements of the Company and notes thereto included elsewhere herein.

Overview

     During the l980's and early 1990's, the Company invested significant
resources in the design and testing of voice messaging products that serve the
specific needs of certain markets, including education, health care, real
estate, and automobile sales. In 1989, through the initiation of Dr. Jerold
Bauch, a renowned educator at Vanderbilt University, the Company developed the
Homework Hotline(R), a voice-based communication system designed to specifically
and uniquely meet the needs of the education community. Since that time, over
four hundred Homework Hotline(R) installations in primary and secondary schools
in 32 states have proven the product's value and have helped build the Company's
presence in the educational market.

     In the schools in which it was installed, the Homework Hotline(R) has
proven to be a vital product. Results showed not only increases in homework
completion rates, higher attendance rates, higher school achievement, but also,
and perhaps most importantly, greater parent involvement. With that specific
advantage in the educational market, and greater competition in the generic
business voice messaging market, the Company, in September, 1994, made the
strategic decision to focus its financial and other resources exclusively on the
education market. Since that time, the Company has transformed itself from a
voice technology company to an educational services company. The Company is
focused on providing programs and resources for parents, teachers and
communities that improve parental involvement in children's education. The
Company is utilizing communications and computer technology as a medium for
delivering its educational services and products. The Company is continuing to
enhance its original and core product, the Homework Hotline Communication
System, with proprietary training and parent/teacher support materials designed
to broaden its appeal, reduce its competitive vulnerability, and increase the
efficiency and effectiveness of its school district implementation.

     Using the Homework Hotline(R) as the cornerstone of a comprehensive parent
involvement program, the Company is developing such additional services as
teacher staff development modules, parent and community involvement assessment
tools, parenting education, support materials and helplines, and other services
which are all focused on enabling parents to be more actively and productively
involved in their child's education. An advisory board of leading educators and
school administrators has been established to provide ongoing supervision of
existing program content, to help in the development and enhancement of new
products and services and to insure and promote the Company's reputation as the
leading provider of educational services. The Company plans to make its services
and resources accessible via multiple communication systems, including the
telephone, video, print, personal computer and interactive cable television.


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     The Company believes that demand for its products and services will
continue to increase due to demographic trends, increasing discontent among
families and corporations with the public education system in this country, and
the recent enactment of federal legislation to address the need for educational
reform. In the Spring of 1994, federal legislation, entitled "Goals 2000:
Educate America Act", was enacted that mandates schools improve their
performance along eight key dimensions, among which is parental involvement.

     This legislation has increased awareness in the value of parental
involvement in the education process and the need for improvement in its
implementation in most school communities, and has broadened funding sources for
products and services such as those being developed by the Company.
Additionally, funding is available not only from the educational community, but
also from corporations, state and local governments, and not-for-profit
organizations, which have earmarked funds to improve the educational system
through investment in parent involvement programs. There can be no assurance
that the Company will be successful at obtaining such funds to support its
specific parent involvement programs.

     In October 1995, the Company entered into a definitive contract with
Work/Family Directions, Inc. to implement its parent involvement program in ten
communities through out the country during the school year 1995/1996. The
contract price for this project is approximately $1.2 million. This amount is
offset by approximately $500,000 which was placed into an escrow account to
cover the equipment costs required for this contract. This project, is being
sponsored by a group of Fortune 500 corporations. The agreement provides for the
installation of 100 schools, 78 of which were completed in 1995. (For a
description of this program's status after December 31, 1995, See Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MDNA")--Recent Developments and the Company's Reports of Form 10-QSB/A for the
Periods ended March 31, 1996 and June 30, 1996).

     In addition, the Company has been selected as a provider of its service for
several large flagship projects in the State of California, with the New York
State Department of Education and for the Southern Westchester Board of
Cooperative Educational Services ("BOCES") during the 1996-1997 school year
which involve working with corporations, school districts, and community
organizations to implement the Company's parent involvement program on a
community-wide scale.

     Not surprisingly, the change of corporate strategy from a voice technology
company to an educational services company generated additional costs in
software development and program development and new marketing efforts. These
costs were not recouped by incremental sales in this calendar year. However the
software and programs developed were responsible for the contract realized with
Work/Family Directions, Inc. which brought added revenue in the fourth quarter
of 1995, as well as, for the opportunities the Company is currently in line with
the State of California, the New York State Department of Education and the
Southern Westchester BOCES.


                                       13

<PAGE>



     The Company's auditors issued a going concern report on March 26, 1996.
Management recognizes that the Company must generate additional resources and
generate cash from operations. Management's plans in this regard include
consideration of additional equity or debt financing and obtaining additional
contracts or agreements.

Recent Developments

     As of September 1996, the Company has completed the implementation of the
balance of the 100 schools in the Work/Family pilot program and Work/Family and
the Company had deemed the pilot successful. Work/Family and the Company are
currently working on plans to significantly expand the program during the
1996/1997 and 1997/1998 school years. In August 1996, the Company entered into a
three-year agreement with AT&T Corp. pursuant to which the Company will help
implement and support AT&T's program to offer voice messaging services to
primary and secondary schools across the United States. The agreement provides
for, among other things, an up-front non-refundable licensing fee of $1.8
million, which was paid upon signing, the payment of certain additional fees,
and the issuance of a warrant to AT&T. (For a more detailed description of this
agreement, see the Company's Current Report on Form 8-K filed with the SEC on
August 28, 1996). The completion of version 2.0 of the Homework Hotline(R)
communication program was delayed until the third quarter of 1996 as a result of
a diversion of software development efforts in order to support this AT&T
agreement. Version 2.0 will be beta-tested in the fourth quarter of 1996 and
management currently anticipates an initial roll-out of the new software in
January and February of 1997, in time for the second semester of the 1996/1997
school year. Management believes that the Company will meet its long-term
liquidity needs through additional installations of its Homework Hotline(R)
Communication System as a result of one or more of a renewal of the Work/Family
Directions, Inc. program, the co-marketing agreement with AT&T, and /or the
execution of initiatives previously noted in the states of California and New
York.

Year ended December 31, 1995 Compared to December 31, 1994

Results of Operations

     The Company's net losses for the twelve months ended December 31, 1995 and
1994 were $2,811,914 and $5,493,795, respectively. This decrease in net loss of
$2,681,881 is primarily a result of a decrease in non-cash compensation expense
of $4,293,319 offset by an increase in operating expenses. The increase in
operating expenses is in line with the Company's efforts to broaden its product
line, to build a strong presence and corporate image within its marketplace, and
to increase its market share for its Homework Hotline(R) Communication System.

     The Company spent significant time and moneys enhancing its hardware and
software offering and supplementing it with proprietary training and
parent/teacher support materials. The enhancements were designed to open the
Company up to larger, more profitable sales opportunities by broadening the
product's marketing appeal, reducing its competitive vulnerability, and
increasing the efficiency and effectiveness of its school district
implementation.


                                       14

<PAGE>



     The Company began executing its new marketing efforts in June 1995. These
efforts, which focused on communities and school district installations rather
than one school at a time, in themselves generated a longer selling cycle.
However, the fruits of the change in corporate strategy began to be realized in
the fourth quarter as the Company increased sales over the same period a year
ago by 627%. Further, as of the fourth quarter, the Company was in negotiation
for several large flagship projects. These projects involve working with the
largest states and cities in the country, corporations, and community
organizations to implement the Company's parent involvement program on all
impactful community-wide scale.

     The Company has been pursuing a plan to address any concerns about the
Company's ability to continue as a going concern. The Company's decision to
pursue an initial public offering arose as a result of a strategic analysis
conducted to assess both its short and long-term marketing opportunities and
their concomitant financial requirements. That process culminated in the
development of the Company's three year business plan, which set forth both the
tasks the Company would need to complete, as well as the moneies and time
required to complete each one. In that plan, the Company anticipated and
prepared for the increase in operating expenses it experienced in each of the
years ending December 31, 1994 and 1995. The Company further anticipated and
prepared for the investments it was able to make in research and development
during the last calendar year from the proceeds of its public offering.
Moreover, the Company limited the scope of its marketing activities, focusing
all of its efforts on key markets and key customers, with the full understanding
that doing so would likely forsake sales in the short term for the opportunity
to achieve greater sales and significant profit in the somewhat longer term.
Although as of December 31, 1995, the Company had insufficient revenue and gross
profit to meet its operating expenses, management believes that continued
adherence to its plans will enable it to generate additional resources and cash
from operations sufficient to address its ability to continue as a going
concern.

     Sales for the twelve months ended December 31, 1995 and 1994 were $651,452
and $727,611 respectively. This decrease in net sales is attributable primarily
to the Company's efforts to redirect the product emphasis. The Company entered
into a contract with Work/Family Directions, Inc. to install Homework Hotline(R)
in 100 schools. At December 31, 1995, the Company completed installation in 78
schools. It should be noted that the Company recognizes revenue for a given
system or program only when such system is installed.

     For the year ended December 31, 1995, the Company had net sales to one new
customer, Work/Family Directions, Inc., that generated approximately 71% of net
sales. The Company expects to receive another approximately $250,000 from
Work/Family during 1996 as payment for already contracted services. Moreover,
the Company anticipates expanding its relationship with Work/Family to encompass
implementation of its parent involvement program in additional markets once the
100 school pilot program has proven successful. The loss of this significant
customer could have a material adverse effect on the Company. (For a description
of this program's status after December 31, 1995, See Management's Discussion
and Analysis of Financial Condition and Results of Operations 


                                       15

<PAGE>


("MDNA")--Recent Developments and the Company's Reports of Form 10-QSB/A for the
Periods ended March 31, 1996 and June 30, 1996).

     The Company was primarily an installer of proprietary software. As such,
much of its business was of a non-recurring nature. The Company still seeks to
actively market both its proprietary software and parent involvement programs to
new customers. To the extent the Company fails in attracting such new customers
for its products, the loss of any one significant customer, or group of
customers, could have a severe negative impact on the Company in the near term.

     Gross margin for the twelve months ended December 31, 1995 and 1994 was
66.7% and 59.8%, respectively. The increase in the gross margin was caused by
the Company's ability to charge a higher unit price for its software.

     Selling expenses for the twelve months ended December 31, 1995 were
$1,110,037 versus $552,482 for the same period a year ago. The increase is
attributable to the hiring of consultants and sales personnel and their related
commissions of approximately $265,000, increased travel costs of approximately
$124,000 and costs associated with the heightened scope and intensity of the
Company's marketing efforts of approximately $158,000.

     General and administrative expenses for the twelve months ended December
31, 1995 were $1,771,405 versus $609,578 for the same period a year ago. This
increase is primarily attributable to an increase in salary expense of
approximately $487,000, an increase in occupancy and related expenses of
approximately $348,000 and an increase in consulting and professional fees of
approximately $242,000.

     Research and development expenses for the twelve months ended December 31,
1995 were $64,930 versus $-0- for the same period a year ago. This increase is
primarily attributable to the Company's creation of prototype version's 1.2 and
2.0 of the Homework Hotline(R). Capitalized Software and Development costs will
be amortized over the lessor of three years or the term of future revenue once
development is complete. As of December 31, 1995, Software and Development costs
were $666,421. This included Software and Development costs of $113,326 for
version 1.2 of Homework Hotline(R) that was completed in October 1995 . As of
December 31, 1995 amortization of these costs was $9,444 . The Company
anticipates that version 2.0 of Homework Hotline(R) will be completed in May
1996. (For a description of the status of this project, See Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MDNA")--Recent Developments).

     Interest expense for the twelve months ended December 31, 1995 and 1994 was
$13,472 and $48,267, respectively.

Liquidity and Capital Resources

     At December 31,1995, the Company had a working capital of $346,709 and cash
and cash equivalents of $356,260. The Company utilized $3,133,912 and $156,552
for operations for the twelve months ended December 31, 1995 and 1994,
respectively. The 


                                       16
<PAGE>

Company used $1,385,019 and $-0- in investing activities for the twelve months
ended December 31, 1995 and 1994, respectively. The Company generated $4,796,459
for the twelve months ended December 31, 1995 from financing activities which
include the net proceeds from its public offering of $5,355,209 versus $232,400
for the same period in 1994.

     The Company's cash balance at April 1, 1996 was $57,783. Management
believes that it will continue to meet its short-term liquidity need by the
completion and collection of the Work/Family Directions, Inc. contract and the
collection of notes receivable. Management believes the Company will meet its
long-term liquidity need by additional installations via a renewal of the
Work/Family Directions, Inc. program, and/or the execution of initiatives
previously noted in California, with the New York State Department of Education
and the Southern Westchester Board of Cooperative Educational Services. The
Company has no material commitments (i.e., capital expenditures, consulting
arrangements, etc.) at this time that could affect the Company's liquidity.

     Should the Company require additional equity funding, it must first obtain
prior written consent from the underwriter of the public offering. This
restriction is for a period of 24 months after the effective date of the
registration statement, which occurred on February 6, 1995. Consequently, the
Company could be restricted by this underwriting agreement from meeting its
liquidity needs.

     The Company believes that it will derive additional cash flow from its
projected increased sales, as experienced in the fourth quarter, resulting from
new and expanded services and products.

New Authoritative Pronouncements

     The Financial Accounting Standards Board ["FASB"] issued Statement of
Financial Accounting Standards ["SFAS"] No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of
1995. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 could have a material impact on the Company's financial
statements.

     The FASB has also issued SFAS No. 123, Accounting for Stock-Based
Compensation, in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, Accounting for Stock Issued to Employees. The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial statement note disclosure purposes in any event. The
accounting requirements of SFAS No. 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995; the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995.



                                       17
<PAGE>

Impact of Inflation

     The Company does not believe that inflation has had a material adverse
effect on sales or income during the past periods. Increases in supplies or
other operating costs could adversely affect the Company's operations; however,
the Company believes it could increase prices to offset increases in costs of
goods sold or other operating costs.



                                       18
<PAGE>

Year ended December 31, 1994 Compared to December 31, 1993

Results of Operations

     The Company's operating losses for the years ended December 31, 1994 and
1993 were approximately $5,450,000.and $116,000, respectively. This increase in
the operating loss of approximately $5,334,000 is a direct result of a decrease
in sales of approximately $555,000 and a non cash compensation expense of
approximately $4,690,000 that was incurred as a result of 1,541,497 shares of
the Company's common stock issued [See Notes 7B and 9]. Selling expenses
increased to $552,482 for the years ended December 31, 1994, from $154,151 for
the year ended December 31, 1993. This increase of approximately $400,000 was
primarily due to an increase in consulting expenses for marketing services.

     During the period January 1, 1992 through December 31, 1994, the Company
did not incur any research and development expenses. All research and
development expenses were incurred prior to January 1, 1992. The Company will be
significantly expanding its technological capabilities of its system, as well as
enhancing it with the introduction of additional educational products and
services. Consequently, the Company anticipates research and development
expenses in the future.

     The aforementioned losses are attributable to both lower than expected
sales and a reduced average unit price due to competitive pressures. The Company
was delinquent on a significant amount of accounts payable and negotiated
settlements. However, none of the Company's suppliers stopped doing business
with the Company as a result of the Company's financial condition. In fact,
following the Company's public offering, several suppliers, which had previously
required that the Company remit payments on a COD basis, once again extended
standard payment terms to the Company.

     Sales for the years ended December 31, 1994 and 1993 were approximately
$728,000 and $1,282,000, respectively. Management believes that this decrease in
sales is primarily attributable to the continuing decline of the Company's basic
voice mail business combined with increasing competitive pressure for its
Homework Hotline(R) product. This increasing competitive pressure has had the
effect of both decreasing revenue realized per system sold and increasing
selling expense, thus squeezing the margins from 64% at December 31, 1993 to 59%
at December 31 , 1994 when certain selling expenses are added to the cost of
goods sold. The Company's net losses for the years ended December 31, 1994 and
1993 were $5,612,595 and $181,933, respectively. The Company anticipates that
sales in 1995 will increase as a result of managements efforts to increase its
sales force with regional offices strategically located throughout the United
States. Management believes that its projected increase in sales for 1995 will
help the Company improve its operations to a profitable entity. The Company
plans to return to profitable operations through broadening its market,
restructuring its pricing schedule, and refocusing and substantially enhancing
marketing efforts. Using the Homework Hotline(R) Communication System as its
launching pad, the Company plans to develop a broad parent involvement program,
including such services as distance learning modules, accredited coursework for
teachers, and other interactive and teleconferencing programs, which will all be
focused on enabling parents to be more actively and productively involved in
their child's education.


                                       19
<PAGE>

The Company plans to charge parents a per student or per family monthly fee for
accessing these services.

     Interest expense for the years ended December 31, 1994 and 1993 was $48,267
and $66,150, respectively.

Liquidity and Capital Resources

     At December 31, 1994, the Company had a working capital [deficit] of
$737,455 and cash of $78,732. The Company utilized $156,552 for operations for
the year ended December 31, 1994. The Company generated $232,400 from financing
activities for the year ended December 31, 1994. The Company believes that the
net proceeds from the public offering of $4,605,650, together with anticipated
cash generated from operations and bridge financing of $500,000 that was
received in September and October 1994, should be sufficient to conduct its
operations for at least eighteen months. Management believes that the conversion
of approximately $1,040,000 of debt into equity in September of 1994 will also
help the Company's working capital needs. The Company had no cash investing
activities for the year ended December 31, 1994.

     The Company has entered into annual employment and consulting agreements
aggregating approximately $1,000,000 for 1995. The Company's anticipated annual
lease rental [month to month] for 1995 is $225,000.

     The Company believes that it will derive additional cash flow from its
projected increased revenues, resulting from an expanded sales force. Therefore,
the Company believes that no additional financing beyond the registration
statement will be necessary.

     Management does not believe there are any known trends, events or
uncertainties that will affect its capital resources.




                                       20
<PAGE>


Item 7. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

     See financial statements following Item 13 of this Annual Report on Form
10-KSB.

Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE


     None.




                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
        PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT


     The following persons are the current executive officers and directors.

NAME                       AGE      POSITION
----                       ---      --------
Nancy G. Shalek            41       Chairman of the Board of Directors

Gwyeth Smith               51       C.E.O., President and Director

Gregory W. Harper          43       Senior Vice President of Operations
                                    and Technology and Director

Elizabeth Debold           40       Vice President, Strategic Planning &
                                    Education

Dr. Clayton Akin           71       Secretary, Director

Dr. Jerold Bauch           --       Advisor

Dr. Ellen Langer           --       Advisor



BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS

     Nancy G. Shalek is the Chairman of the Company's Board of Directors. She is
currently President of On Site Media which operates the out-of-home television
network, NBC ON SITE, a position which she has held since 1992. She is also the
Chairman of the Board of Directors of Com/Tech Communication Technologies, Inc.
Previously she served as President of The Shalek Agency, an advertising agency
that she formed in 1988. From 1987 to 1988 Ms. Shalek served as Executive Vice
President and West Coast Director of the W.B. Doner advertising agency. W.B.
Doner acquired Wexler Shalek, an agency which she co-founded in 1983. From 1983
through 1987, Ms. Shalek served as President of Wexler & Shalek. Prior to that
time, she was employed by the Carnation Company and by 



                                       21
<PAGE>

the Voit division of AMF Corporation. Ms. Shalek has received national and
western 'Advertising Woman of the Year' awards and has lectured at advertising
industry conference and business schools throughout the country. Ms. Shalek
holds a B.A. from the University of Pennsylvania and an M.B.A. from the
University of Southern California.

     Gwyeth Smith has been Chief Executive Officer, President and Director of
the Company since October 26, 1994. Prior to joining Advanced Voice, he spent 22
years in a variety of senior administrative positions, including acting
principal, for school districts in the New York area. Most recently, he served
as Director of Guidance for the Harborfields School District, a district of over
2,000 students. Mr. Smith has served on the Executive Board for the New York
State Association of College Admission Counselors, is a frequent presenter on
educational issues for The College Board and the National Association of College
Admissions Counselors, and has published numerous articles pertaining to
relevant issues in education. Mr. Smith holds a B.A from Adelphi University, a
M.S. in Guidance from Queens College and a Professional Diploma from Long Island
University in School Administration. Mr. Smith also serves as a director of
Com/Tech Communication Technologies, Inc.

     Gregory W. Harper is Senior Vice President, Operations and Technology, and
a Director of the Company. He is currently the Chief Executive Officer and a
Director of Com/Tech Communication Technologies, Inc., a designer and supplier
of interactive television systems for both education and entertainment, and has
two patents pending for his work on interactive distance learning. He also holds
the post of President of Com/Tech Communication Technologies, Inc., a television
production and telecommunications consulting company based in New York City.
Through Com/Tech, he has produced TV shows in the U.S. and Europe, and served as
advisor to a special cable television commission established by he Prime
Minister of France. He has served as the chairman of the International Liaison
Committee of the Electronic Industries Association and served on the U.S. State
Department study group for international technical standards. Prior to forming
Com/Tech, Mr. Harper was a member of the long-range planning group of PBS and a
news producer of CBS. He is a graduate of Amherst College.

     Elizabeth Debold is Vice President for Strategic Planning & Education. Ms.
Debold will be awarded the Doctorate of Education in Human Development and
Psychology from Harvard University in 1996. In 1988, she was awarded the Roy
Larsen Research Fellowship from Harvard University. Her book on mother-daughter
communication, Mother Daughter Revolution: From Good Girls to Great Woman
(written with Marie Wilson and Idelisse Malave) was a 1993 New York Times
Notable Book of the Year. From 1986 to the present, she has been a member of the
Harvard Project of Women's Psychology and Girl's Development, a research
collaborative studying girls' development in schools. Ms. Debold has consulted
to a variety of organizations in the areas of training, program development and
evaluation research, such as Children's Television Workshop and the Ms.
Foundation for Women, creators of Take Our Daughter to Work Day. Ms. Debold
holds a B.A. from Mount Holyoke College and M.Ed from Harvard University.

     Dr. Clayton L. Akin is Director of the Company. Since 1990 he has been
President of EDUCATE, an education consulting term located in Larchmont, New
York. He has 


                                       22
<PAGE>

served in administrative capacities in public and private schools, colleges,
educational research organizations and the United States Office of Education.
Specifically, his experiences include: 1974-1989., Superintendent of Schools,
Rye Neck District, Mamaroneck, New York; 1972-1974, Director of Educational
Research Council of America, Cleveland, Ohio; 1966-1972, Superintendent of
Schools, Wilton, Connecticut; 1964-1966, Director of Administration, Asher
Student foundation, Michigan State University; 1947-1964. He has also held
Superintendencies, Principalships, classroom teaching in Missouri and Minnesota.
During World War II, Dr. Akin was awarded the Distinguished Flying Cross and
three air medals. Dr. Akin holds a B.S. from Washington University in St. Louis
and both an M.A. and an Ed.D. from Columbia University.

     Dr. Jerold Bauch is a Professor of Education at The Peabody College of
Vanderbilt University. He is the director the Betty Philips Center for
Parenthood Education, a research and development center at Vanderbilt. He is the
developer of the TransParent School Model, the pioneer plan for using electronic
voice communications to link teachers and parents. His center publishes The
Parent Involvements Report, a newsletter for schools using the TransParent
School Model. Dr. Bauch is the director Early Childhood Education in the Schools
published by the National Education Association. He has served as an evaluator
and consultant for Project Head Start since 1966, as well as a consultant to the
Indian Head Start program since 1971. He is the Director of Training for the
DARCEE project, Peabody, and a Teacher Education Specialist with the Cognitive
Curriculum for Young Children project. He has also worked for the United Nations
in the Republic of Panama designing a model for early education for children in
poverty.

     Dr. Ellen J. Langer is a Professor of Psychology at Harvard University. She
holds the Chair of Social Psychology at Harvard and is a member of the Division
on Aging of the Faculty of Medicine at Harvard. The recipient of a Guggenheim
Fellowship, Dr. Langer is the author of over seventy-five journal articles and
chapters in scholarly works. Her most recent book, Mindfulness, presents fifteen
years of research on the relationship between mental mindsets, learning and
creativity. She is currently studying mindfulness as it applies to education. In
1988, Dr. Langer receive the American Psychological Association's Award for
Distinguished Contributions to Psychology in the Public Interest.


                                       23
<PAGE>


Item 10.  EXECUTIVE COMPENSATION

     The following table provides summary information concerning cash and
certain other compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Officer and each of the other most highly compensated
executive officers of the Company whose compensation exceeded $100,000 during
the last three fiscal years.

<TABLE>
<CAPTION>
                                                     SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               LONG-TERM COMPENSATION
------------------------------------------------------------------------------------------------------------------------------------
                                        ANNUAL COMPENSATION                             AWARDS                  PAYOUTS
------------------------------------------------------------------------------------------------------------------------------------
                                                                 Other                        Securities                       All
                                                                 Annual       Restricted      Underlying                      Other
                                                                Compen-         Stock          Options            LTIP        Comp-
Name and Principal         Year       Salary        Bonus       sastion        Award(s)          SARs           Payouts     ensation
Position                   (b)        ($)(d)       ($)(d)        ($)(e)         ($)(f)          ($)(g)           ($)(h)      ($)(i)
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>         <C>                                       <C>            <C>
James Sparks             1993        $137,105
------------------------------------------------------------------------------------------------------------------------------------
Gwyeth Smith, CEO        1994        $ 25,000                                  $99,000        $109,091
                         1995        $122,500
------------------------------------------------------------------------------------------------------------------------------------
Greg Harper              1995        $120,000                                                 $109,091
------------------------------------------------------------------------------------------------------------------------------------
Philip Brettschneider    1995        $ 73,333                                                 $ 48,487
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Each director of the Company is entitled to receive reimbursement for
reasonable expenses incurred in attending meetings of the Board of Directors of
the Company. The members of the Board of Directors intend to meet at least
quarterly during the Company's fiscal year, and at such other times duly called.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                           OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
                                                    (INDIVIDUAL GRANTS)
------------------------------------------------------------------------------------------------------------------------------
                                 NUMBER OF               PERCENT OF
                                SECURITIES                  TOTAL
                                UNDERLYING              OPTIONS/SARS
                               OPTIONS/SARS              GRANTED TO               EXERCISE OR               EXPIRATION
                                  GRANTED               EMPLOYEES IN              BASE PRICE                   DATE
        NAME(A)                   (#)(B)              FISCAL YEAR (C )             ($/SH)(D)                    (E)
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                       <C>                       <C>                       <C> <C> 
Gwyeth Smith                     109,091                   18.6%                     3.30                 June 30, 1998
------------------------------------------------------------------------------------------------------------------------------
Nancy Shalek                      45,458                    7.75%                    3.30                 June 30, 1998
------------------------------------------------------------------------------------------------------------------------------
Philip Brettschneider             48,487                    8.27%                    3.30                 June 30, 1998
------------------------------------------------------------------------------------------------------------------------------
Greg Harper                      109,091                   18.6%                     3.30                 June 30, 1998
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

EMPLOYMENT AGREEMENTS

     On May 1, 1995, the Company entered into a one year employment agreement
with Ann Armstrong, the Company's Vice President of Sales. The agreement
provided for a

                                       24

<PAGE>

salary of $125,000 per annum. The agreement also provided for a performance
based bonus consisting of both stock options and cash compensation. In addition,
Ms. Armstrong was granted an option to purchase 50,000 shares of the Company's
Common Stock at any time on or after December 31, 1995 and on or before December
31, 1998.

     In connection with the September 1994 merger of the original Tennessee
corporation with and into the newly formed Delaware corporation, the Company
terminated the employment agreement of its then Chairman and Chief Executive
Officer, James W. Sparks. Under the terms of that agreement, Mr. Sparks was
entitled to termination compensation equal to the salary remaining under his
employment agreement (1 year and 9 months at an annual rate of $180,000) plus a
lump sum severance payment equal to 2.9 time his annual salary. Mr. Sparks
agreed to forego all such termination compensation in exchange for a total of
150,000 shares of the Company's unregistered Common Stock. As of December 31,
1995, Mr. Sparks owned a total of 191,383 shares of unregistered Common Stock:
the 150,000 shares noted herein, plus another 41,383 shares from the conversion
of $176,238 owing to Mr. Sparks, at a conversion rate of $4.25 per share. In
June of 1995, the Company entered into a new five year consulting agreement with
Mr. Sparks pursuant to which he has agreed to make himself available, on an as
needed basis, to provide such information and/or advice as may be required to
assure the Company's continued support of those customers who purchased Homework
Hotline(R) Communication Systems from the original Tennessee corporation prior
to its merger with and into the newly formed Delaware corporation. The new
agreement provides for a total payment of $190,000, payable as follows: $100,000
upon signing the agreement, $45,000 on December 1, 1995, and $45,000 on June 1,
1996. As of December 31, 1995, $45,000 was owed to Mr. Sparks under this
agreement.

     On November 1, 1994, the Company entered into a three year employment
agreement with Gwyeth Smith, the Company's Chief Executive Officer and
President. The agreement provides for a salary of $120,000, $135,000 and
$150,000 per annum for the three years of the agreement. The agreement provides
for a bonus at the discretion of the Board of Directors and the granting to Mr.
Smith of an irrevocable option to purchase 109,091 restricted shares of Common
Stock for $3.30 per share from July 1, 1995 to June 30, 1998. In addition, in
September 1994, the Company issued to Mr. Smith 30,000 restricted shares of
Common Stock valued on the Company's financial statements at $99,000 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for strategic planning services rendered by Mr. Smith prior to
November 1, 1994, and has leased a home for Mr. Smith at a rent of $2,200 per
month.

     On November 1, 1994, the Company entered into an employment agreement with
Philip Brettschneider for the period commencing December 1, 1994 and concluding
October 31, 1996. Mr. Brettschneider assumed the position of Chief Financial
Officer on December 1, 1994. The agreement provided for a salary of $80,000 per
annum and also provided for the issuance of an irrevocable option to purchase
48,487 shares of the Company's Common Stock for $3.30 per share from July 1,
1995 and June 30, 1998. In addition, in September 1994, the Company issued to
Mr. Brettschneider 15,000 restricted shares of Common Stock valued on the
Company's financial statements at $49,500 (as calculated at 60% of the
anticipated IPO price to reflect the restricted nature of the shares) for
financial and

                                       25

<PAGE>

accounting services rendered by Mr. Brettschneider prior to December 1, 1994.
This agreement was terminated by the Company's Chairman of the Board on November
30, 1995.

     As of July 1, 1994, the Company entered into a three year consulting
agreement with Nancy Shalek, the Chairman of the Company's Board of Directors.
Ms. Shalek has been retained to provide oversight of day-to-day management
activities, as well as to afford the Company marketing consulting services in
regard to new product and program development. The agreement provides for annual
payments of $50,000. The agreement also provides that the Company issue to Ms.
Shalek options to purchase 45,458 shares of the Company's Common Stock for $3.30
per share from July 1, 1995 through June 30, 1998. In addition, in September
1994, the Company issued to Ms. Shalek 25,000 shares of the Company's Common
Stock valued on the Company's financial statements at $742,500 (as calculated at
60% of the anticipated IPO price to reflect the restricted nature of the shares)
for services rendered prior to July of 1994 in regard to the restructuring of
both the Company's financial and strategic plans.

     In July 1994, the Company entered into a written two year consulting
agreement with Clayton Akin, the Company's Secretary and a member of the Board
of Directors which provided for consulting fees of $60,000 per annum. Dr. Akin
was retained to introduce the Company and its programs and products to schools
and school districts in Westchester County, New York, where Dr. Akin had
previously been a superintendent of schools. This consulting agreement was
canceled as of March 31, 1995, due to the fact that Dr. Akin was no longer able
to devote the time required to fulfill the intent of the agreement. In addition,
in September 1994, the Company issued to Dr. Akin 12,000 restricted shares of
Common Stock valued on the Company's financial statements at $39,600 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for services rendered as indicated above, prior to July of 1994
and an irrevocable option to purchase 36,364 restricted shares of the Company's
Common Stock for $3.30 per share from July 1, 1995 through June 30, 1998.

     In September 1994, the Company entered into a written three year consulting
agreement with Gregory Harper, the Company's Senior Vice President and a member
of the Board of Directors which provides for consulting fees of $120,000 per
annum. Mr. Harper has been retained to provide oversight of the Company's
technology development and operations planning. The agreement also provides that
the Company issue to Mr. Harper an irrevocable option to purchase 109,091
restricted shares of Common Stock tor $3.30 per share from July 1, 1995 through
June 30, 1998. As of December 31, 1995, $10,000 was owed to Mr. Harper for
payment of his December 1995 consulting fee. In addition, the Company issued to
Mr. Harper 24,000 restricted shares of Common Stock valued on the Company's
financial statements at $79,200 (as calculated at 60% of the anticipated IPO
price to reflect the restricted nature of the shares) for services rendered
prior to September of 1994 in regard to the redirection of the Company's
technology plans.

     In November 1994, the Company entered into a two year employment agreement
with Elizabeth Landau, the Company's assistant to the President and the
daughter-in-law of Carole Landau, a principal stockholder of the Company until
February 1995, providing for compensation of $72,000 per annum. The agreement
also provided that the Company issue

                                       26

<PAGE>

to Ms. Landau an irrevocable option to purchase 46,636 restricted shares of the
Company's Common Stock for $3.30 per share from July 1, 1995 through June 30,
1998. Elizabeth Landau was entitled to bonuses of $10,000 per quarter, payable
on the last day of the quarter valued on the Company's financial statements at
$33,000 (as calculated at 60% of the anticipated IPO price to reflect the
restricted nature of the shares) for strategic planning and management services
rendered by Ms. Landau prior to November 1, 1994. In addition, in September
1994, the Company issued to Ms. Landau 10,000 shares of Common Stock . Ms.
Landau resigned her position in October of 1995, thus terminating her right to
all future compensation and/or bonus payments.

     As of July 1, 1994, the Company entered into a one year consulting
agreement with Elizabeth Debold which provided for consulting fees of $50,000
per annum in compensation for Ms. Debold's active participation in the
development of educationally sound school implementation, teacher training, and
parent support materials for the Company's homework Hotline(R) Communications
Program. The agreement also provided that the Company issue to Ms. Debold an
irrevocable option to purchase 15,153 restricted shares of the Company's Common
Stock for $3.30 per share from July 1, 1995 through June 30, 1998. In addition,
in September 1994, the Company issued to Ms. Debold 6,000 restricted shares of
Common Stock valued on the Company's financial statements at $19,800 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for similar services rendered prior to July of 1994. As of
December 31, 1995, $16,669 was owed to Ms. Debold for payment of past due
consulting fees. Ms. Debold's contract was renewed on a month to month basis on
the same terms as the original agreement.

     As of July 1, 1994, the Company entered into a two year consulting
agreement with Ellen Langer which provides for consulting fees of $30,000 per
annum in compensation for Dr. Langer's development of a line of new products for
the Company based on theories she has advanced about "Mindless Education", as
well as her availability to act in an advisory capacity, reviewing other
products developed and/or acquired by the Company for their educational
integrity. The agreement also provides that the Company issue to Dr. Langer an
irrevocable option to purchase 18,182 restricted shares of Common Stock for
$3.30 per share from July 1, 1995 through June 30, 1998. In addition, in
September 1994, the Company issued to Dr. Langer 6,000 restricted shares of
Common Stock valued on the Company's financial statements at $19,800 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for development and advisory services rendered prior to July of
1994. As of December 31, 1995, $2,500 was owed to Dr. Langer for payment of her
December 1995 consulting fees.

STOCK OPTION PLANS AND AGREEMENTS

     Incentive Option and Stock Appreciation Rights Plan--As of September, 1994,
the Directors of the Company adopted-and the stockholders of the Company
approved the adoption of the Company's 1994 Incentive Stock Option and Stock
Appreciation Rights Plan ('Incentive Option Plan'). The purpose of the Incentive
Option Plan is to enable the Company to encourage key employees and Directors to
contribute to the success of the Company by granting such employees and
Directors incentive stock options ('ISOs') as well as non-qualified options and
stock appreciation rights ('SARs').

                                       27

<PAGE>

     The Incentive Option Plan will be administered by the Board of Directors or
a committee appointed by the Board of Directors (the 'Committee') which will
determine, in its discretion, among other things, the recipients of grants,
whether a grant will consist of ISOs, non-qualified options or SARs or a
combination thereof, and the number of shares to be subject to such options and
SARs.

     The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee of not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any exercise price. SARs granted in tandem with an option have the
same exercise price as the related option.

     The total number of shares with respect to which options and SARs may be
granted under the Incentive Option Plan is 2,000,000. ISOs may not be granted to
an individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the Incentive Option Plan after September 14, 2004 and no option or SAR may be
outstanding for more than ten years after its grant. Additionally, no option or
SAR can be granted for more than five years to a shareholder owning 10% or more
of the Company's outstanding Common Stock.

     Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock,
or in a combination of both. The Company may lend to the holder of an option
funds sufficient to pay the exercise price, subject to certain limitations. SARs
may be settled, in the Board of Directors' discretion, in cash, Common Stock, or
in a combination of cash-and Common Stock. The exercise of SARs cancels the
corresponding number of shares subject to the related option, if any, and the
exercise of an option cancels any associated SARs. Subject to certain
exceptions, options and SARs may be exercised any time up to three months after
termination of the holder's employment.

     The Incentive Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.

     To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted in the future, the number of shares which will be subject
to such options or SARs or the exercise prices to be fixed with respect to any
option or SAR.

     Non-Qualified Option Plan--As of September 1994, the Directors and
stockholders of the Company adopted the 1994 Non-Qualified Stock Option Plan
(the 'Non-Qualified Option Plan'). The purpose of the Non-Qualified Option Plan
is to enable the Company to encourage key employees, Directors, consultants,
distributors, professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors, consultants,
distributors, professionals and independent contractors non-qualified

                                       28

<PAGE>

options. The Non-Qualified Option Plan will be administered by the Board of
Directors or the Committee in the same manner as the Incentive Option Plan.

     The Non-Qualified Option Plan provides for the granting of non-qualified
options at such exercise price as may be determined by the Board of Directors,
in its discretion. The total number of shares with respect to which options may
be granted under the Non-Qualified Option Plan is 2,000,000. Pursuant to this
Plan, as of April 1, 1996, the Company granted options to purchase a total of
650,284 shares of Common Stock to its employees.

     Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment.

     The Non-Qualified Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Option Plan or materially increase
the benefits of participants.

                                       29

<PAGE>

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

     The following table sets forth information, as of March 28, 1996, with
respect to the beneficial ownership of the outstanding shares of the Company's
Common Stock by (i) any holder of more than five (5%) percent of the outstanding
shares; (ii) the Company's directors; and (iii) the directors and officers of
the Company as a group.

Name and Address                Amount and Nature            Approximate Percent
of Beneficial Owner(1)          of Beneficial Ownership      of Class
----------------------          -----------------------      -------------------
James Sparks                            191,383                     4.9%
Nancy Shalek(2)                         45,.458                     1.2%
Gwyeth Smith(3)                         139,091                     3.6%
Gregory Harper(4)                       133,091                     3.4%
Elizabeth Debold(5)                      21,153                      .5%
Clayton Akin(6)                          48,364                     1.2%
Jerold Bauch(7)                          60,364                     1.5%
Ellen Langer(8)                          24,182                      .6%

----------

(1) The address of each stockholder shown above is c/o Advanced Voice
Technologies, Inc., 369 Lexington Avenue, New York, NY 10017.

(2) Includes options issued to Ms. Shalek to purchase 45,458 shares of Common
Stock at $3.30 per share commencing July 1, 1995.

(3) Includes options issued to Mr. Smith to purchase 109,091 shares of Common
Stock exercisable at $3.30 per share commencing July 1, 1995.

(4) Includes options issued to Mr. Harper to purchase 109,091 shares of Common
Stock exercisable at $3.30 per share commencing July 1, 1995.

(5) Includes options issued to Ms. Debold to purchase 15,153 shares of Common
Stock exercisable at $3.30 per share commencing July 1, 1995.

(6) Includes options issued to Dr. Akin to purchase 36,364 shares of Common
Stock exercisable at $3.30 per share commencing July 1, 1995.

(7) Includes options issued to Dr. Bauch to purchase 36,364 shares of Common
Stock exercisable at $3.30 per share commencing July 1, 1995.

(8) Includes options issued to Ms. Langer to purchase 18,182 shares of Common
Stock exercisable at $3.30 per share commencing July 1, 1995.

                                       30

<PAGE>

Item 12. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS

     On July 1, 1991, the Company entered into a six year consulting agreement
with the Kelsey Partnership ("Kelsey"), under which Kelsey was to provide the
Company with general management services. The agreement was for an annual fee
equal to five percent of the Company's gross revenue. For the year ended
December 31, 1994, the consulting fee due under the agreement was $22,465. The
agreement was terminated in 1994, and there are no continuing obligations
thereunder. In the quarter ended September 30, 1994, a total of $151,664 in
consulting fees owing to Kelsey Partnership were converted into shares of the
Company's unregistered Common Stock. As of December 31, 1995, Kelsey Partnership
owned no shares of the Company's Common Stock. Its founding partners, however,
were each shareholders of the Company, owning shares of the Company's
unregistered Common Stock as follows: Edmund H. Doyle--58,750; J.E.
Doyle--81,711; J.R. Doyle--35,225; and Donald B. Lifton--58,227.

     On July 1, 1988, the Company entered into a three year consulting agreement
with the Whittier Partnership ("Whittier"), under which Whittier provided the
Company with general management services. This consulting agreement carried a
minimum consulting fee of $100,000 each year. The three year total of $300,000
was still owing on this agreement for services provided during the consulting
period prior to the Tennessee corporation's merger with and into the Delaware
corporation in September, 1994. At that time, the Chairman of the Board of
Directors of the Tennessee corporation, Edmund Doyle, classified a portion of
the $300,000 owing (a total of $131,692) as a "bridge note payable". The
remainder of the $300,000 debt (a total of $168,308) was converted into shares
of the Company's unregistered Common Stock at the time of the merger. On June
30, 1991, the Whittier Partnership was terminated, and its assets were assigned
to each of its three partners: Edmund H. Doyle, Donald B. Lifton, and John J.
Morrissey. Two of those partners, Edmund H. Doyle and Donald B. Lifton, joined
together with J.E. Doyle and J.T. Doyle to form Kelsey Partnership on July 1,
1991. Each of their share holdings of the Company's unregistered Common Stock is
noted above as part of the discussion of Kelsey Partnership. In addition, the
Estate of John J. Morrissey owns 47,438 shares of the Company's unregistered
Common Stock. As of December 31, 1995, no moneys were owed to Whittier
Partnership. A total of $37,500, however, was owed to a different corporation,
Doyco, Inc. ("Doyco"), under a Noncompetition and Consulting Agreement, signed
by Edmund H. Doyle, a former partner in Whittier and currently an officer of
Doyco. This agreement, which has been in effect since October 1, 1994, was
designed to insure Mr. Doyle's continuing cooperation and support during the two
year period following the completion of the merger of the original Tennessee
corporation with and into the newly formed Delaware corporation.

     On October 31, 1990, the Company entered into a two year marketing
consulting and non-competition agreement with the Company's former president,
Michael Frank. Mr. Frank had previously resigned as the President and a member
of the Board of Directors of the original Tennessee corporation. As part of his
consideration under this consulting and non-competition agreement, Mr. Frank was
granted rights to buy, in anticipation of resale, any of the Company's voice
messaging products for a price equal to 20% below the

                                       31

<PAGE>

Company's regular dealer list price. A total of six Homework Hotline(R)
Communication Systems were purchased and sold to Mr. Frank during the
agreement's two year life. As further consideration under this agreement, the
Company agreed to ameliorate its $49,500 existing loan payable to Mr. Frank by
crediting Mr. Frank an additional $750 against the purchase price of each
Homework Hotline(R) Communication System he sold until such time as $70,000 in
such sales "commissions" had been realized by Mr. Frank. As of December 31,
1994, the Company's records indicated that $58,750 was still owing to Mr. Frank
for repayment of his loan to the Company. That liability was satisfied in full,
from the proceeds of the public offering, on March 23, 1995.

     In July 1994, the Company entered into a written two year consulting
agreement with Clayton Akin, the Company's Secretary and a member of the Board
of Directors which provided for consulting fees of $60,000 per annum. Dr. Akin
was retained to introduce the Company and its programs and products to schools
and school districts in Westchester County, New York, where Dr. Akin had
previously been a superintendent of schools. This consulting agreement was
canceled as of March 31, 1995, due to the fact that Dr. Akin was no longer able
to devote the time required to fulfill the intent of the agreement. In addition,
in September 1994, the Company issued to Dr. Akin 12,000 restricted shares of
Common Stock valued on the Company's financial statements at $39,600 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for services rendered as indicated above, prior to July of 1994
and an irrevocable option to purchase 36,364 restricted shares of the Company's
Common Stock for $3.30 per share from July 1, 1995 through June 30, 1998.

     As of July 1, 1994, the Company entered into a three year consulting
agreement with Nancy Shalek, the Chairman of the Company's Board of Directors.
Ms. Shalek has been retained to provide oversight of day-to-day management
activities, as well as to afford the Company marketing consulting services in
regard to new product and program development. The agreement provides for annual
payments of $50,000. The agreement also provides that the Company issue to Ms.
Shalek options to purchase 45,458 shares of the Company's Common Stock for $3.30
per share from July 1, 1995 through June 30, 1998. In addition, in September
1994, the Company issued to Ms. Shalek 225,000 shares of the Company's Common
Stock valued on the Company's financial statements at $742,500 (as calculated at
60% of the anticipated IPO price to reflect the restricted nature of the shares)
for services rendered prior to July of 1994 in regard to the restructuring of
both the Company's financial and strategic plans.

     In September 1994, the Company entered into a written three year consulting
agreement with Gregory Harper, the Company's Senior Vice President and a member
of the Board of Directors which provides for consulting fees of $120,000 per
annum. Mr. Harper has been retained to provide oversight of the Company's
technology development and operations planning. The agreement also provides that
the Company issue to Mr. Harper an irrevocable option to purchase 109,091
restricted shares of Common Stock tor $3.30 per share from July 1, 1995 through
June 30, 1998. As of December 31, 1995, $10,000 was owed to Mr. Harper for
payment of his December 1995 consulting fee. In addition, the Company issued to
Mr. Harper 24,000 restricted shares of Common Stock valued on the

                                       32

<PAGE>

Company's financial statements at $79,200 (as calculated at 60% of the
anticipated IPO price to reflect the restricted nature of the shares) for
services rendered prior to September of 1994 in regard to the redirection of the
Company's technology plans.

     In September 1994, the Company borrowed the aggregate amount of $500,000 in
bridge loans from nine affiliated and unaffiliated lenders at a rate of 8%
simple interest due and payable upon the earlier of thirteen months or closing
of the initial public offering (the 'Bridge Loans'). In further consideration of
the Bridge Loans, the Company issued 300,000 shares of Common Stock, 600,000
Class A Warrants and 300,000 Class B Warrants. In recognition of the value of
this stock and warrants package, the Company booked a total compensation expense
of $990,000 ($594,000 for the year ending December 31, 1994, and $396,000 for
the year ending December 31, 1995). Combining the 8% simple interest on the loan
with the $990,000 in additional compensation expense realized created an
effective interest rate for the Bridge Loans of 495%. The proceeds of the Bridge
Loans were used for working capital and as a source of funds to pay expenses
associated with the initial public offering. The Bridge Loans were paid off in
February, 1995 from the proceeds of the Company's initial public offering.

     In connection with the September 1994 merger of the original Tennessee
corporation with and into the newly formed Delaware corporation, the Company
terminated the employment agreement of its then Chairman and Chief Executive
Officer, James W. Sparks. Under the terms of that agreement, Mr. Sparks was
entitled to termination compensation equal to the salary remaining under his
employment agreement (1 year and 9 months at an annual rate of $180,000) plus a
lump sum severance payment equal to 2.9 time his annual salary. Mr. Sparks
agreed to forego all such termination compensation in exchange for a total of
150,000 shares of the Company's unregistered Common Stock. As of December 31,
1995, Mr. Sparks owned a total of 191,383 shares of unregistered Common Stock:
the 150,000 shares noted herein, plus another 41,383 shares from the conversion
of $176,238 owing to Mr. Sparks , at a conversion rate of $4.25 per share. In
June of 1995, the Company entered into a new five year consulting agreement with
Mr. Sparks pursuant to which he has agreed to make himself available, on an as
needed basis, to provide such information and/or advice as may be required to
assure the Company's continued support of those customers who purchased Homework
Hotline(R) Communication Systems from the original Tennessee corporation prior
to its merger with and into the newly formed Delaware corporation. The new
agreement provides for a total payment of $190,000, payable as follows: $100,000
upon signing the agreement, $45,000 on December 1, 1995, and $45,000 on June 1,
1996. As of December 31, 1995, $45,000 was owed to Mr. Sparks under this
agreement.

     The aggregate amount of 76,497 shares of the Company's Common Stock, valued
at approximately $252,440, were issued to nine consultants and employees of the
Company, none of whom are officers, directors or principal stockholders of the
Company, in September 1994.

     In September 1994, 11 unaffiliated lenders, holding promissory notes issued
by the Company in 1990 and 1991 in the aggregate principle amount of $500,000,
agreed with the

                                       33

<PAGE>

Chairman of the new Delaware corporation, Nancy Shalek, to exchange their debt
for a total of 639,511 shares of the Company's Common Stock (at $0.78 per
share), 50% of which total (or 319,756 shares) were to be registered in
connection with the Company's initial public offering. The Company believes
that, as of December 31, 1995, all of the shares which were registered are in
the hands of the public. In addition, other creditors of the Company owed a
total of $745,116, agreed with Ms. Shalek to exchange their debts for a total of
180,000 shares of the Company's unregistered Common Stock (of which one
creditor's debt of $30,500 was exchanged for 12,200 shares or ($2.50 per share),
and the remaining creditors' debt of $714,616 were exchanged for 167,800 shares
(or $4.25 per share)).

     In March 1992, the Company entered into a two year consulting agreement
with Dr. Jerold Bauch, designed to enable him to continue the development of his
"TransParent School Model", the underlying educational framework upon which the
Company's Homework Hotline(R) Communication System is based. The agreement
provided for Dr. Bauch to receive consulting fees of $50,000 per annum. In
September 1994, outstanding payments of $30,500 owing to Dr. Bauch under this
agreement, were converted (at $2.50 per share) into 12,200 shares of the
Company's unregistered Common Stock (Note: the 12,200 shares and $30,500 are
included as part of the totals of 180,000 shares and $714,616 in total debt
exchanged by creditors as noted above.) At the same time, Dr. Bauch was issued
an additional 12,000 shares of the Company's unregistered Common Stock, valued
at $39,600 on the Company's financial statements (as calculated at 60% of the
anticipated IPO price to reflect the restricted nature of the shares) for
services rendered prior to October of 1994 in regard to the development of the
underlying educational framework for the Homework Hotline(R) Communication
System. In October 1994, the Company entered into a new two year consulting
agreement with Dr. Bauch which provides for annual fees of $60,000, as well as
an irrevocable option to purchase 36,364 restricted shares of Common Stock for
$3.30 per share from July 1, 1995 through June 30, 1998. Through this new
agreement, Dr. Bauch was once again retained to continue development work on his
"TransParent School Model." As of December 31, 1995, $10,684 was owed to Mr.
Bauch for payment of past due consulting fees totaling $10,000 and reimbursement
of expenses totaling $684.

     In September 1994, the Company entered into a written three year consulting
agreement with Bigelow Ventures, in payment for which the Company issued 450,000
restricted shares of stock valued at $1,485,000 on the Company's financial
statements (as calculated at 60% of the anticipated IPO price to reflect the
restricted nature of the shares). Bigelow was retained to provide financial
consulting services to aid the Company in successfully completing its initial
public offering as well as to support it with on-going financial advice in the
first few years thereafter.

     As of July 1, 1994, the Company entered into a written three year
consulting agreement with The MarketLink Group, Ltd. to provide marketing
consulting services in regards to developing and implementing a focused
corporate sales strategy. In addition, The MarketLink Group, Ltd. is charged
with identifying and pursuing potential acquisition candidates for the Company
as well as effectuating certain key strategic alliances. The agreement provides
that the Company issue to The MarketLink Group, Ltd. options to

                                       34

<PAGE>

purchase 45,458 shares of the Company's Common Stock for $3.30 per share from
July 1, 1995 through June 30, 1998. The agreement also provides for annual
payments of $50,000 and for the issuance of 225,000 shares to The MarketLink
Group, Ltd. or its designee. At the request of The MarketLink Group, Ltd., in
September 1994, the Company issued to Carole Landau, The MarketLink Group's sole
shareholder, and her children 225,000 restricted shares of common stock valued
on the Company's financial statements at $742,500 (as calculated at 60% of the
anticipated IPO price to reflect the restricted nature of the shares) in full
payment of the aforementioned contractual obligation.

     On December 7, 1994, the Company entered into an exclusive license
agreement with Oak Tree Communications, L.L.C. ("Oak Tree"), a company whose
president is Edward Doyle, the former chairman of the precedent Tennessee
corporation, but who is unaffiliated with the current Company. The license
agreement provides that the Company has granted to Oak Tree the exclusive
license to market, use and sublicense the Company's technology to the
non-educational market. In consideration for the license, Oak Tree shall pay the
Company royalty payments and has also assumed all of the Company's obligations
to service, support and honor all warranties to the Company's existing customer
base in the non-educational market. Such warranties cover, to varying extent,
those voice messaging systems sold by the precedent Tennessee corporation over
the past three years, primarily to small business customers numbering, in total,
less that 100.

     On November 1, 1994, the Company entered into a three year employment
agreement with Gwyeth Smith, the Company's Chief Executive Officer and
President. The agreement provides for a salary of $120,000, $135,000 and
$150,000 per annum for the three years of the agreement. The agreement provides
for a bonus at the discretion of the Board of Directors and the granting to Mr.
Smith of an irrevocable option to purchase 109,091 restricted shares of Common
Stock for $3.30 per share from July 1, 1995 to June 30, 1998. In addition, in
September 1994, the Company issued to Mr. Smith 30,000 restricted shares of
Common Stock valued on the Company's financial statements at $99,000 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for strategic planning services rendered by Mr. Smith prior to
November 1, 1994, and has leased a home for Mr. Smith at a rent of $2,200 per
month.

     On November 1, 1994, the Company entered into an employment agreement with
Philip Brettschneider for the period commencing December 1, 1994 and concluding
October 31, 1996. Mr. Brettschneider assumed the position of Chief Financial
Officer on December 1, 1994. The agreement provided for a salary of $80,000 per
annum and also provided for the issuance of an irrevocable option to purchase
48,487 shares of the Company's Common Stock for $3.30 per share from July 1,
1995 and June 30, 1998. In addition, in September 1994, the Company issued to
Mr. Brettschneider 15,000 restricted shares of Common Stock valued on the
Company's financial statements at $49,500 (as calculated at 60% of the
anticipated IPO price to reflect the restricted nature of the shares) for
financial and accounting services rendered by Mr. Brettschneider prior to
December 1, 1994. This agreement was terminated by the Company's Chairman of the
Board on November 30, 1995.

                                       35

<PAGE>

     In November 1994, the Company entered into a two year employment agreement
with Elizabeth Landau, the Company's assistant to the President and the
daughter-in-law of Carole Landau, principal stockholder of the Company until
February 1995, providing for compensation of $72,000 per annum. The agreement
also provided that the Company issue to Ms. Landau an irrevocable option to
purchase 46,636 restricted shares of the Company's Common Stock for $3.30 per
share from July 1, 1995 through June 30, 1998. Elizabeth Landau was entitled to
bonuses of $10,000 per quarter, payable on the last day of the quarter valued on
the Company's financial statements at $33,000 (as calculated at 60% of the
anticipated IPO price to reflect the restricted nature of the shares) for
strategic planning and management services rendered by Ms. Landau prior to
November 1, 1994. In addition, in September 1994, the Company issued to Ms.
Landau 10,000 shares of Common Stock . Ms. Landau resigned her position in
October of 1995, thus terminating her right to all future compensation and/or
bonus payments.

     As of July 1, 1994, the Company entered into a one year consulting
agreement with Elizabeth Debold which provided for consulting fees of $50,000
per annum in compensation for Ms. Debold's active participation in the
development of educationally sound school implementation, teacher training, and
parent support materials for the Company's Homework Hotline(R) Communication
Program. The agreement also provided that the Company issue to Ms. Debold an
irrevocable option to purchase 15,153 restricted shares of the Company's Common
Stock for $3.30 per share from July 1, 1995 through June 30, 1998. In addition,
in September 1994, the Company issued to Ms. Debold 6,000 restricted shares of
Common Stock valued on the Company's financial statements at $19,800 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for similar services rendered prior to July of 1994. As of
December 31, 1995, $16,669 was owed to Ms. Debold for payment of past due
consulting fees. Ms. Debold's contract was renewed on a month to month basis on
the same terms as the original agreement.

     As of July 1, 1994, the Company entered into a two year consulting
agreement with Ellen Langer which provides for consulting fees of $30,000 per
annum in compensation for Dr. Langer's development of a line of new products for
the Company based on theories she has advanced about "Mindless Education", as
well as her availability to act in an advisory capacity, reviewing other
products developed and/or acquired by the Company for their educational
integrity. The agreement also provides that the Company issue to Dr. Langer an
irrevocable option to purchase 18,182 restricted shares of Common Stock for
$3.30 per share from July 1, 1995 through June 30, 1998. In addition, in
September 1994, the Company issued to Dr. Langer 6,000 restricted shares of
Common Stock valued on the Company's financial statements at $19,800 (as
calculated at 60% of the anticipated IPO price to reflect the restricted nature
of the shares) for development and advisory services rendered prior to July of
1994. As of December 31, 1995, $2,500 was owed to Dr. Langer for payment of her
December 1995 consulting fees.

     In January, 1995, the Company entered into a month-to-month lease with
MarketLink, a partnership in which the Company's Chairman has an interest, for
payments of approximately $13,500 per month for office space located in New
York.

                                       36

<PAGE>

     In July, 1995, the Company advanced $160,000 to MarketLink, a partnership
in which the Company's Chairman has an interest, in exchange for a demand note.
This demand note accrued interest quarterly at a rate of 2% above the prime
interest rate, an aggregate of 10.25%. As of December 31, 1995, interest of
$7,883 was accrued. On April 1, 1996, $45,000 of this note was repaid and on
April 12, 1996, the balance of $115,000 was repaid with interest.

GENERAL

     The Company believes that material affiliated transactions and loans
between the Company and its directors, principal shareholders or any affiliates
thereof have been and will be in the future on terms no less favorable than
could be obtained from unaffiliated third parties.


PART IV

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) Financial Statements.

     The following financial statements are included in Part II, Item 8:

Index to Financial Statements and Schedules

Independent Auditor's Report                                       F-l

Balance sheet as of December 31, 1995                              F-2 - F-3

Statements of Operations for the years ended
December 31, 1995 and 1994                                         F-4

Statement of Stockholders' Equity for the years
ended December 31, 1995 and 1994                                   F-5

Statements of Cash Flows for the years ended
December 31, 1995 and 1994                                         F-6 - F-7

Notes to Financial Statements                                      F-8 - F-13

                                       37

<PAGE>

(a)(3) Exhibits.

3.01+     Certificate of Incorporation of the Company.

3.02+     By-Laws of the Company.

4.01+     Specimen Certificate tor shares of Common Stock.

4.02+     Specimen Certificate tor Class A Redeemable Common Stock Purchase
          Warrant.

4.03+     Form of Warrant Agreement by and among the Company and American Stock
          Transfer & Trust Company.

4.04+     Form of Underwriter's Unit Purchase Option.

10.01+    Employment Agreement between the Company and Gwyeth Smith, dated
          November 1, 1994.

10.02+    Employment Agreement between the Company and Philip Brettschneider
          dated November 1, 1994.

10.03+    Consulting Agreement between the Company and Nancy Shalek dated July
          1, 1994

10.05+    Consulting Agreement between the Company and Clayton Akin dated July
          1, 1994

10.06+    September 1994 Bridge Loan Agreements

10.07+    Consulting Agreement between the Company and Gregory Harper dated July
          1, 1994

10.08+    Employment Agreement between the Company and Elizabeth Landau dated
          July 1, 1994.

10.09+    Consulting Agreement between the Company and The MarketLink Group,
          Ltd. Dated July 1,1994

10.10+    License Agreement between the Company and Oak Tree Communications,
          L.L.C. dated December 7, 1994

10.11     + Consulting Agreement between the Company and Bigelow Ventures, Inc.
          dated September 1994

10.12+    Consulting Agreement between the Company and Jerold Bauch dated
          October 1994

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

+   Incorporated by reference to Registration Statement on Form SB-2, File No.
    33-86202.

                                       38

<PAGE>

10.13+    Consulting Agreement between the Company and Elizabeth Debold dated
          July 1, 1994

10.14+    Consulting Agreement between the Company and Ellen Langer dated July
          1, 1994.

10.15     Agreement For Voice Messaging Systems between the Company and
          Work/Family Directions, Inc. dated as of September 1, 1995.

10.16     Agreement between the Company and Southern Westchester Board of
          Cooperative Educational Services (SW BOCES) dated as of March 28,
          1996.

23.01+    Consent of Bernstein & Wasserman (to be included in Exhibit 5.01)

23.02+    Consent of Mortenson and Associates, P.C.


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

+   Incorporated by reference to Registration Statement on Form SB-2, File No.
    33-86202.

                                       39

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated:  New York, New York
        October 31, 1996.

                                        ADVANCED VOICE TECHNOLOGIES, INC.


                                        By:  /s/ Gwyeth Smith
                                             ----------------------------------
                                             Gwyeth Smith
                                             Chief Executive Officer


                                        By:  /s/ Nancy Shalek
                                             ----------------------------------
                                             Nancy Shalek
                                             Chief Financial Officer and
                                             Principal Accounting Officer

     Pursuant to the requirements of the Exchange Act, this Report or Amendments
thereto has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
Signature                                        Title                                Date
---------                                        -----                                ----

<S>                                     <C>                                     <C> 
/s/ Nancy Shalek                        Chairman of the Board                   October 31, 1996
---------------------------             and Chief Financial Officer
Nancy Shalek


/s/ Gwyeth Smith                        Chief Executive                         October 31, 1996
--------------------------              Officer, President
Gwyeth Smith                            and Director


/s/ Gregoy Harper                       Senior-Vice President                   October 31, 1996
-------------------------               and Director
Gregory Harper


-------------------------               Secretary and Director                  October 31, 1996
Clayton Akin
</TABLE>

<PAGE>
Item 7:  Financial Statements

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                                                                      <C>
Independent Auditor's Report...........................................................................  F-1

Balance Sheet as of December 31, 1995 .................................................................  F-2 . F-3

Statements of Operations for the years ended December 31, 1995 and 1994 ...............................  F-4

Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994 .....................  F-5

Statements of Cash Flows for the years ended December 31, 1995 and 1994 ...............................  F-6 . F-7

Notes to Financial Statements..........................................................................  F-8 . F-13
</TABLE>

                       . . . . . . . . . . . . . . . . . .

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors and Stockholders of
  Advanced Voice Technologies, Inc.
  New York, New York

     We  have  audited  the   accompanying   balance  sheet  of  Advanced  Voice
Technologies,  Inc. as of December  31,  1995,  and the  related  statements  of
operations,  stockholders'  equity,  and cash flows for each of the two years in
the  period  ended  December  31,  1995.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Voice Technologies,
Inc. as of December  31,  1995,  and the result of its  operations  and its cash
flows  for each of the two years in the  period  ended  December  31,  1995,  in
conformity with generally accepted accounting principles.

     The  accompanying  financial  statements  have been prepared  assuming that
Advanced Voice Technologies,  Inc. will continue as a going concern. As shown in
the  financial  statements,  and  as  discussed  in  Note  10 to  the  financial
statements,  the  Company  suffered  a loss  from  operations  of  approximately
$3,000,000,  utilized  approximately  $3,100,000 in cash for  operations and had
insufficient  revenues and gross profit to meet its  operating  expenses.  These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 10. The financial  statements do not include any adjustments  that might
result from the outcome of this uncertainty.





                                        MORTENSON AND ASSOCIATES, P. C.
                                         Certified Public Accountants.

Cranford, New Jersey
March 26, 1996

                                       F-1

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1995.
--------------------------------------------------------------------------------

Assets:
Current Assets:
   Cash and Cash Equivalents                                        $   356,260
   Accounts Receivable - Net                                            325,058
   Inventory                                                             28,098
   Prepaid and Other Current Assets                                     178,005
   Note Receivable - Related Party                                      160,000
   Miscellaneous Receivables - Related Party                             10,000
                                                                    -----------

   Total Current Assets                                               1,057,421
                                                                    -----------
Equipment:
   Furniture, Fixtures and Equipment                                    343,492
   Less:  Accumulated Depreciation                                      (49,052)
                                                                    -----------
   Equipment - Net                                                      294,440
                                                                    -----------

Trademarks                                                                2,931

Less:  Accumulated Amortization                                          (2,345)
                                                                    -----------
   Trademarks - Net                                                         586
                                                                    -----------

Other Assets:
   Deposits                                                              10,456
   Capitalized Software and Development Costs - Net                     656,977
   Capitalized Promotional Items - Net                                  247,712
   Other Assets                                                         165,167
                                                                    -----------

   Total Other Assets                                                 1,080,312
                                                                    -----------
   Total Assets                                                     $ 2,432,759
                                                                    ===========

The Accompanying Notes are an Integral Part of These Financial Statements.

                                       F-2

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1995.
--------------------------------------------------------------------------------

Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts Payable                                                $    546,720
   Accrued Payroll Taxes                                                 40,954
   Accrued Expenses                                                      78,038
   Accrued Consulting Fees                                               45,000
                                                                   ------------

   Total Current Liabilities                                            710,712

Commitments and Contingencies [4]                                            --

Stockholders' Equity:
   Common Stock - $.0001 Par Value, 25,000,000 Shares
     Authorized; 3,721,497 Shares Issued and Outstanding                    371

   Additional Paid-in Capital                                        13,510,595

   Accumulated Deficit                                              (11,788,919)
                                                                   ------------
   Total Stockholders' Equity                                         1,722,047
                                                                   ------------
   Total Liabilities and Stockholders' Equity                      $  2,432,759
                                                                   ============

The Accompanying Notes are an Integral Part of These Financial Statements.

                                       F-3

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        Years ended
                                                                        December 31,
                                                                ----------------------------
                                                                  1 9 9 5          1 9 9 4
                                                                -----------      -----------

<S>                                                             <C>              <C>        
Sales - Net                                                     $   651,452      $   727,611

Cost of Goods Sold                                                  216,294          292,272
                                                                -----------      -----------

   Gross Profit                                                     435,158          435,339
                                                                -----------      -----------

Operating Expenses:
   Selling Expenses                                               1,110,037          552,482
   General and Administrative Expense                             1,771,405          609,578
   Bad Debt Expense                                                  12,760           27,884
   Depreciation and Amortization                                     33,486            2,577
   Compensation Expense - Issuance of Stock                         396,000        4,689,319
   Research and Development Costs                                    64,930               --
                                                                -----------      -----------

   Total Operating Expenses                                       3,388,618        5,881,840
                                                                -----------      -----------

   Operating [Loss]                                              (2,953,460)      (5,446,501)
                                                                -----------      -----------

Other Income [Expenses]:
   Interest Income                                                  117,580               --
   Interest Expense                                                 (13,472)         (48,267)
   Miscellaneous Income                                              37,438              973
                                                                -----------      -----------

   Total Other Income [Expenses] - Net                              141,546          (47,294)
                                                                -----------      -----------

   Net [Loss]                                                   $(2,811,914)     $(5,493,795)
                                                                ===========      ===========

   Net [Loss] Per Share                                         $      (.79)     $     (2.14)
                                                                ===========      ===========

   Weighted Average Number of Shares Outstanding                  3,579,716        2,571,497
                                                                ===========      ===========
</TABLE>

The Accompanying Notes are an Integral Part of These Financial Statements.

                                       F-4

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   Common Stock        Additional      Retained           Total
                                                               -------------------      Paid-in        Earnings        Stockholders'
                                                                 Shares     Amount      Capital        [Deficit]          Equity
                                                               ---------    ------    -----------     ------------      -----------
<S>                                                              <C>         <C>      <C>             <C>               <C>         
Balance - December 31, 1993                                      210,489     $ 21     $ 2,091,042     $ (3,483,210)     $(1,392,147)

   Conversion of Debt to Equity                                  819,511       81       1,245,273             --          1,245,354

   Issuance of Stock - Employees and Consultants               1,241,497      124       4,096,816             --          4,096,940

   Issuance of Stock - Bridge Loan                               300,000       30         989,970             --            990,000

   Net [Loss]                                                       --        --             --         (5,493,795)      (5,493,795)
                                                               ---------     ----     -----------     ------------      -----------

Balance - December 31, 1994                                    2,571,497      256       8,423,101       (8,977,005)        (553,648)

   February 1995 - Issuance of 1,150,000 Shares
   [Net of Offering Costs of $1,237,391]                       1,150,000      115       5,087,494             --          5,087,609

   Net [Loss]                                                       --        --             --         (2,811,914)      (2,811,914)
                                                               ---------     ----     -----------     ------------      -----------

Balance - December 31, 1995                                    3,721,497     $371     $13,510,595     $(11,788,919)     $ 1,722,047
                                                               =========     ====     ===========     ============      ===========
</TABLE>

The Accompanying Notes are an Integral Part of These Financial Statements.

                                       F-5

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               Years ended
                                                                               December 31,
                                                                      ----------------------------
                                                                        1 9 9 5          1 9 9 4
                                                                      -----------      -----------
<S>                                                                   <C>              <C>         
Operating Activities:
   Net [Loss]                                                         $(2,811,914)     $(5,493,795)
                                                                      -----------      -----------
   Adjustments to Reconcile Net [Loss] to Net Cash
     [Used] by Operating Activities:
     Depreciation and Amortization                                         33,486            2,577
     Non Cash Compensation - Stock Issuance                               396,000        4,689,319
     Bad Debt Expense                                                      12,810               --

   Changes in Assets and Liabilities:
     [Increase] Decrease in:
       Accounts Receivable - Trade                                       (310,499)          25,130
       Inventory                                                          (26,613)           3,686
       Prepaid Expenses and Deposits                                     (102,074)         (16,800)
       Interest Receivables                                                (7,883)              --
       Other Assets                                                       (65,806)              --
       Prepaid Expenses - Long-Term                                      (165,167)              --

     Increase [Decrease] in:
       Accounts Payable                                                  (188,467)         585,800
       Related Party Payable                                                   --           16,124
       Customer Deposits                                                       --          (16,860)
       Interest Payable                                                   (29,233)          48,267
       Accrued Expenses and Other Liabilities                             131,448               --
                                                                      -----------      -----------

     Total Adjustments                                                   (321,998)       5,337,243
                                                                      -----------      -----------

   Net Cash - Operating Activities - Forward                           (3,133,912)        (156,552)
                                                                      -----------      -----------

Investing Activities:
   Capital Expenditures                                                  (324,152)              --
   Software and Development Costs                                        (656,978)              --
   Development Costs of Promotional Items                                (247,712)              --
   Other                                                                    5,392               --
   Related Party Receivable                                              (160,000)              --
   Miscellaneous Receivable - Related Party                                (1,569)              --
                                                                      -----------      -----------

   Net Cash - Investing Activities - Forward                          $(1,385,019)     $        --
</TABLE>

The Accompanying Notes are an Integral Part of These Financial Statements.

                                       F-6

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        Years ended
                                                                        December 31,
                                                                 ------------------------
                                                                   1 9 9 5       1 9 9 4
                                                                 -----------    ---------

<S>                                                              <C>            <C>       
   Net Cash - Operating Activities - Forwarded                   $(3,133,912)   $(156,552)
                                                                 -----------    ---------

   Net Cash - Investing Activities - Forwarded                    (1,385,019)          --
                                                                 -----------    ---------

Financing Activities:
   Cash Proceeds from Initial Public Offering                      6,325,000           --
   Cash Proceeds from Bridge Notes Payable                                --      500,000
   Offering Costs                                                   (969,791)    (267,600)
   Repayment of Bridge Loans                                        (500,000)          --
   Repayment of Note Payable                                         (58,750)          --
                                                                 -----------    ---------

   Net Cash - Financing Activities                                 4,796,459      232,400
                                                                 -----------    ---------

   Net Increase in Cash and Cash Equivalents                         277,528       75,848

Cash and Cash Equivalents - Beginning of Years                        78,732        2,884
                                                                 -----------    ---------

   Cash and Cash Equivalents - End of Years                      $   356,260    $  78,732
                                                                 ===========    =========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the years for:
     Interest                                                    $    15,000    $      --
     Income Taxes                                                $        --    $      --
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

     During  the  quarter  ended  September  30,  1994,  the  Company  converted
$1,040,000  of debt into equity.  During  1994,  the Company was  successful  in
obtaining  forgiveness  of  interest  that  was  due to the  bridge  lenders  of
$205,403. This has been treated as a capital contribution.

     In September 1994, the Company incurred a non cash compensation  expense of
$4,096,940 for the issuance of 1,241,497 shares of the Company's common stock.

     The  Company  incurred  a  non-cash  compensation  charge of  approximately
$990,000 from the issuance of 300,000 shares of common stock in connection  with
the bridge financing.  $594,000 was expensed in 1994 and the balance of $396,000
was expensed in 1995.

The Accompanying Notes are an Integral Part of These Financial Statements.

                                       F-7

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

[1] Organization and Business

Advanced Voice  Technologies,  Inc. [the  "Company"] a Delaware  Corporation was
incorporated in the State of Tennessee on October 17, 1983, originally under the
name of Tech-Source,  Inc. In September of 1994, the Company  reincorporated  in
the State of  Delaware.  The Company  was  originally  organized  to develop and
manufacture voice messaging technology.  In June 1995, the Company began its new
marketing  efforts for  educational  services  and products to  communities  and
school  districts.  The Company uses  communications  technology  to deliver its
services and products.

[2] Summary of Significant Accounting Policies

[A]  Equipment and  Depreciation  - Equipment  consists  primarily of furniture,
fixtures,  telephones  and  computers  and are stated at cost.  Depreciation  is
provided over the estimated  useful asset lives using the  straight-line  method
over 5 years for computer and telephone equipment and 7 years for furniture.

[B]  Revenue  Recognition  - The  Company's  policy  is to record  revenue  upon
installation of software. The Company recognizes hardware sales when the related
system is completely installed.  The Company recognizes revenue on services when
the services are performed.  The Company  estimates  unearned income and this is
recognized over the time period that the related services are performed.

[C] Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.

[D] Use of Estimates - The  preparation  of financial  statements  in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

[E]  Inventory - Inventory  is comprised  of computer  hardware and  accessories
necessary for the installation of the Company's software. The hardware is stated
at the lower of cost or market using the first-in, first-out [FIFO] method.

[F] Net Loss Per Share - Net loss per share was calculated based on the weighted
average number of shares outstanding during the periods presented. Shares issued
in  connection  with  debt  conversions  or  bridge  financing  were  considered
outstanding for the entire periods.  All share data has been adjusted to reflect
the 5 for 1 stock split in September of 1994.

[G] Business  Concentrations  - The Company  provides  educational  services and
products  for  parents and  teachers to help  improve  student  achievement  and
parental  involvement in communities  throughout the United States.  The Company
utilizes  communications  and  computer  technology  to deliver its services and
products.

The Company utilized standard PC-related hardware for its products.  Voiceboards
are  available in quantity  only from a few domestic  suppliers.  If the Company
were to experience significant delays, interruptions or reductions in its supply
of voiceboards, the Company's revenues and profits could be adversely affected.

For the year ended December 31, 1994, the Company had net sales to two customers
that derived approximately 15% and 11% of net sales.

For the year ended  December  31,  1995,  the  Company  had net sales to one new
customer, Work Family Directions, that generated approximately 71% of net sales.
The loss of this  significant  customer could have a material  adverse effect on
the  Company.  In  addition,  the Company has been  primarily  an  installer  of
proprietary  software.  As such,  most of the  Company's  business has been of a
nonrecurring  nature.  The Company must continually  market both its proprietary
software and parent  involvement  programs to new customers.  To the extent, the
Company is unsuccessful  in attracting new customers for its products,  the loss
of any one  significant  customer,  or group of  customers,  will  have a severe
negative impact to the Company in the near term.

                                       F-8

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENTS, Sheet #2
--------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies [Continued]

[G]  Business  Concentrations  -  [Continued]  Most  of the  Company's  business
activity is with educational facilities or their representatives. The receivable
balance is  presented  net of unearned  income of  approximately  $85,000 and an
allowance of approximately $13,000.

The Company normally requires deposits as a condition of sales.

[H] Capitalized  Software and  Development  Costs -  Capitalization  of software
development  costs begins upon the  establishment of technological  feasibility.
The  establishment  of technological  feasibility and the ongoing  assessment of
recoverability of capitalized  software  development costs require  considerable
judgment by management with respect to certain external factors,  including, but
not limited to, anticipated future revenues, estimated economic life and changes
in software and hardware  technologies  that are significant and are susceptible
to change in the near term.  Capitalization  of software  costs  ceases when the
product  is  available  for  general  release  to  customers.   Amortization  of
capitalized  software  development costs is based upon the straight-line  method
over three years or projected future revenues whichever is less. At each balance
sheet date, the unamortized  capitalized costs of a computer software product is
compared to the net  realizable  value of that product.  The amount by which the
unamortized  capitalized  costs of a computer  software  product  exceed the net
realizable  value of that asset is written off.  Research and development  costs
incurred before  technological  feasibility has been  established are charged to
operations  and for the years ended  December 31, 1995 and 1994 were $64,930 and
$-0-, respectively.

[I] Capitalized Promotional Items - Capitalized promotional items consist of the
cost of the production of promotional videos and booklets. These items are being
amortized over an 18 month period.  Amortization for the year ended December 31,
1995 was approximately $50,000.

[J] Cash  Concentration  - In 1995,  the Company has  approximately  $350,000 in
financial  institutions  that are subject to normal  credit risk beyond  insured
amount.

[K]  Advertising  Costs - The Company  expenses  advertising  costs as incurred.
Advertising  expense was  approximately  $73,100 for the year ended December 31,
1995.

[3] Related Party Transactions

[A] Consulting Agreements

(i) On July 1, 1991, the Company  entered into a written  management  consulting
agreement  until June 30,  1997 for an annual  fee equal to five  percent of the
gross revenues of the Company. In the quarter ended September 30, 1994, the debt
to this  consultant  totaling  $151,664 was converted  into 74,572 shares of the
Company's  common stock.  Consulting  fees for the years ended December 31, 1995
and 1994 were $-0- and $22,465,  respectively.  This agreement was terminated in
1994.

(ii) On June  30,  1988,  the  Company  entered  into a  three  year  consulting
agreement with a partnership  for general  management  services for a minimum of
$100,000  per year  beginning  July 1,  1988 and  ending  June 30,  1991.  As of
September 30, 1994,  $131,692 on this obligation was classified as a bridge note
payable and $168,308 was converted  into 49,143  shares of the Company's  common
stock.  This  partnership was terminated as of June 30, 1991 and its assets were
transferred to the three  individual  partners.  In October of 1994, the Company
entered  into  a new  two  year  consulting  and  non-compete  agreement  with a
corporation  whereby a shareholder  was also a former partner in the partnership
terminated  in June of 1991.  As of  December  31,  1995,  $37,500  was due this
corporation.

(iii)  On  March  11,  1992,  the  Company  entered  into an  agreement  with an
individual  for  consulting  services for $50,000 per year.  For the years ended
December  31, 1995 and 1994,  the expense  was $-0- and  $52,500,  respectively.
During  the  quarter  ended  September  30,  1994,  the debt of  $30,500 to this
consultant was converted into 12,200 shares of the Company's common stock.  This
agreement was terminated in 1994.

                                       F-9

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENTS, Sheet #3
--------------------------------------------------------------------------------

[3] Related Party Transactions [Continued]

[A] Consulting Agreements [Continued]

(iv) On June 1, 1995,  the Company  entered into a 5 year  consulting  agreement
contract  with a stockholder  for  $190,000.  The terms of the contract call for
$100,000  payment at signing and two payments of $45,000 due on December 1, 1995
and June 1, 1996. The $45,000 payment due on December 31, 1995 was not paid. The
total amortization on this agreement as of December 31, 1995 was $12,500.

[B]  Office  Rental  -  In  January  of  1995,   the  Company   entered  into  a
month-to-month  lease for New York office  space for  approximately  $13,500 per
month with an entity in which one of the  partners  is also the  Chairman of the
Company.

[C] Demand  Note - In July 1995,  the  Company in  exchange  for a demand  note,
advanced  $160,000  to a  partnership,  which  the  Company's  Chairman  has  an
interest.  The demand  note  accrues  interest  quarterly  at a rate of 2% above
prime.  Interest of $7,883 was  accrued  and due at December  31, 1995 [See Note
11].

[D] Facility and Equipment Lease - On January 15,1995,  the Company entered into
a 13-month  lease for space at a monthly  rental of $2,200 for the  benefit of a
related party.

[4] Commitments

[A]  Employment  Agreements  - On  October  15,  1993,  the  Company  extended a
three-year  employment agreement which was due to expire June 30, 1994, with its
former  Chairman and Chief  Executive  Officer until June 30, 1996 for an annual
salary of $180,000.  This  employment  agreement was terminated in July of 1994.
During the quarter ended  September 30, 1994,  the liability to this  individual
totaling $176,238 was converted into 41,383 shares of the Company's stock.

[B] Facility and Equipment Lease - The Company leases office and warehouse space
in  Nashville,  Tennessee  for  approximately  $3,600  per month  plus taxes and
insurance premiums.  This lease expires on September 30, 1996. In addition,  the
Company has an annual lease of approximately $3,100 for a copier [See Note 3B].

[C] License Agreement - On June 15, 1986, the Company signed a license agreement
under  patents  with a  licensor  to pay  royalties  to the  licensor  for voice
messaging  products  sold by the Company.  As of December 31, 1995,  $106,025 is
reflected  as a  liability  from 1992 for this  agreement;  however,  management
believes that it will not be liable for this entire  amount.  As there can be no
assurances  that  management  will be successful in contacting  the licensor and
resolving this liability,  the entire amount has been accrued in these financial
statements.

[D] Royalties - The Company entered into a royalty  agreement with a licensor on
November 8, 1984 to pay royalties on computer software that was developed by the
licensor. The royalty is $35.00 per unit sold by the Company. In August of 1995,
this agreement was terminated. The liability at December 31, 1995 is $3,815.

[E] Consulting and Employment  Agreements - As of December 31, 1995, the Company
has 11  outstanding  agreements  for a  monthly  compensation  of  approximately
$60,000. In addition, the Company in 1994 had issued 585,466 options to purchase
restricted shares of common stock of the Company exercisable at $3.30 per share.
During  1995,  the  Company  issued an  additional  50,000  options to  purchase
restricted  shares of the Company's common stock at an option price of $3.40 per
share,  and 30,000 options to purchase  restricted  shares at an option price of
$3.50.  All options are  exercisable  regardless of conclusion or termination of
contract.

                                      F-10

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
--------------------------------------------------------------------------------

[4] Commitments [Continued]

[E]  Consulting and  Employment  Agreements  [Continued] - The following are the
annual consulting and employment commitments for the years ended December 31:

1996                              $ 514,593
1997                                255,000
                                  ---------
   Total                          $ 769,593
                                  =========

[5] Income Taxes

The Company has net operating loss carryovers of approximately  $6,500,000 as of
December  31,  1995,  expiring  in the year 2003.  However,  based upon  present
Internal  Revenue  regulations  governing the  utilization of net operating loss
carryovers where the corporation has issued  substantial  additional stock, most
of this loss carryover may not be available to the Company.

Generally Accepted Accounting Principles ["GAAP"] require the establishment of a
deferred tax asset for all deductible  temporary  differences and operating loss
carryforwards.  However,  because  of  the  uncertainty  of  realization  of the
operating loss carryforward,  any deferred tax asset established for utilization
of  the  Company's  tax  loss  carryforwards  would  correspondingly  require  a
valuation  allowance of the same amount.  Accordingly,  no deferred tax asset is
reflected in these financial statements.

[6] New Authoritative Pronouncements

The Financial  Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting  Standards  ["SFAS"]  No.  121,  Accounting  for  the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes  accounting  standards for the impairment of long-lived
assets, certain identifiable  intangibles,  and goodwill related to those assets
to be held  and  used,  and  for  long-lived  assets  and  certain  identifiable
intangibles  to be  disposed  of.  SFAS  No.  121  is  effective  for  financial
statements  issued for fiscal years beginning after December 15, 1995.  Adoption
of SFAS  No.  121  could  have a  material  impact  on the  Company's  financial
statements.

The FASB has also issued SFAS No. 123, Accounting for Stock-Based  Compensation,
in October 1995.  SFAS No. 123 uses a fair value based method of accounting  for
stock  options and similar  equity  instruments  as  contrasted to the intrinsic
value based method of  accounting  prescribed  by  Accounting  Principles  Board
["APB"]  Opinion No. 25,  Accounting for Stock Issued to Employees.  The Company
has not  decided if it will adopt SFAS No. 123 or  continue to apply APB Opinion
No. 25 for financial  reporting  purposes.  SFAS No. 123 will have to be adopted
for financial  statement note disclosure  purposes in any event.  The accounting
requirements  of SFAS No. 123 are  effective  for  transactions  entered into in
fiscal years that begin after December 15, 1995; the disclosure  requirements of
SFAS No. 123 are effective for financial  statements for fiscal years  beginning
after December 15, 1995.

[7] Litigation

The Company is not involved in any legal proceeding  which  management  believes
would have a material  effect on the  Company's  financial  position,  operating
results, or cash flows.

[8] Capital Stock

Per share data for all  periods  presented  have been  adjusted  to reflect  the
5-for-1 stock split approved September 16, 1994.

                                      F-11

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
--------------------------------------------------------------------------------

[8] Capital Stock [Continued]

In  September  of 1994,  150,000  shares  of  common  stock  were  issued to the
Company's Chairman and Chief Executive Officer,  whose employment  agreement was
terminated  in July of 1994.  An  additional  1,091,497  shares of the Company's
common  stock  were  issued to  consultants  and  employees  of the  Company  in
September  of 1994.  A  compensation  expense of  approximately  $4,100,000  was
incurred in the September  1994 quarter as a result of the issuance of the total
of these 1,241,497 shares of Company's common stock.

In September of 1994, the Company  converted  $350,452 of debt to 135,915 shares
of the  Company's  common  stock to related  parties [See Note 3A]. In addition,
accounts payable balances totaling $176,238 were converted to 44,085 shares.

In 1990 and 1991,  bridge loans  totaling  $310,808 and $189,192,  respectively,
were obtained to provide  working  capital to the Company.  These notes totaling
$500,000  were  converted  to 639,511  shares of the  Company's  common stock in
September of 1994.

In September and October of 1994, the Company received  $500,000 in bridge notes
with 8% interest per annum which were repaid with proceeds from the close of the
public  offering  in  February  1995.  The bridge  loans have  300,000  units as
additional consideration with each unit having one share of the Company's common
stock,  two  Class A  Warrants  exercisable  at $6.00  per share and one Class B
Warrant  exercisable  at  $10.00  per  share.  The total  300,000  shares of the
Company's common stock represent a financing cost of approximately $990,000 that
will be  amortized  through the  completion  of the public  offering,  which was
February  16, 1995.  Compensation  expense of $594,000 was recorded for the year
ended December 31, 1994 and the balance of $396,000 was recorded as compensation
expense for the year ended December 31, 1995.

The Company filed a registration statement of 1,000,000 units at $5.50 per unit,
which was  declared  effective in February of 1995.  Each unit  consisted of one
share of common stock and one Class A redeemable  common warrant  exercisable at
$6.00 per share  during  the  three-year  period  commencing  two years from the
effective date of the registration  statement.  In February of 1995, the Company
successfully closed this public offering with an over allotment of 150,000 units
exercised  and  received net  proceeds of  $4,605,650.  Bridge notes of $515,000
including  accrued  interest,  underwriting  costs of  $1,104,350  and a prepaid
consulting  fee of $100,000  were paid at the closing.  Additional  underwriting
costs amounting to $133,041 were paid after the closing date.

[9] Forgiveness of Interest Payable

During 1994,  the Company was  successful in obtaining  forgiveness  of interest
that was due to the bridge  lenders of  $205,403.  This was treated as a capital
contribution.

[10] Going Concern

The Company's  financial  statements for the year ended December 31, 1995,  have
been prepared on a going concern basis which  contemplates  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business. As shown in the financial statements, the Company suffered a loss from
operations of approximately  $3,000,000,  utilized  approximately  $3,100,000 in
cash for operations and had  insufficient  revenues and gross profit to meet its
operating  expenses.  These matters raise  substantial doubt about the Company's
ability to continue as a going concern.  Management  recognizes that the Company
must  generate   additional   resources  and  generate  cash  from   operations.
Management's  viable plans in this regard  include  consideration  of additional
equity or debt financing, as well as the continuation of its efforts to maximize
and accelerate the realization of meaningful revenues from both new and existing
clients. However, no assurances can be given that the Company will be successful
regarding their plans. Further, there can be no assurance,  assuming the Company
successfully   raises   additional   funds,   that  the  Company   will  achieve
profitability or attain positive cash flows from operations.

                                      F-12

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #6
--------------------------------------------------------------------------------

[11] Fair Value of Financial Instruments

Effective  December  31,  1995,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  No.  107,  "Disclosure  About  Fair  Value  of  Financial
Instruments" which requires  disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial  instruments disclosed herein is not necessarily
representative  of the amount that could be  realized  or settled,  nor does the
fair value amount consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions,  which were based on estimates of market  conditions
and risks  existing at that time.  For certain  instruments,  including cash and
cash  equivalents,  trade  receivables,  related party and note receivable,  and
trade  payables,  it was concluded that the carrying  amount  approximated  fair
value for these instruments because of their short maturities.

[12] Subsequent Events [Unaudited]

[A] On April 1, 1996, $45,000 of the note receivable was repaid and on April 12,
1996 the balance of $115,000 was repaid with interest from a related party.


                               . . . . . . . . . .

                                      F-13

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

The  following  discussion  should be read in  conjunction  with the  historical
financial statements of the Company and notes thereto included elsewhere herein:

Overview

During the 1980's and early 1990's, the Company invested  significant  resources
in the design and testing of voice  messaging  products  that serve the specific
needs of certain markets,  including  education,  healthcare,  real estate,  and
automobile  sales.  In 1989,  through the  initiation  of Dr,  Jerold  Bauch,  a
renowned educator at Vanderbilt  University,  the Company developed the Homework
Hotline(R),  a voicebased  communications  system designed to  specifically  and
uniquely meet the needs of the education  community.  Since that time, over four
hundred Homework Hotline(R) installations in primary and secondary schools in 32
states  have proven the  product's  value and have  helped  build the  Company's
presence in the educational market.

In the schools in which it was installed,  the Homework Hotline(R) has proven to
be a vital product.  Results  showed not only  increases in homework  completion
rates, higher attendance rates, higher school achievement, but also, and perhaps
most importantly,  greater parent  involvement.  With that specific advantage in
the educational  market,  and greater  competition in the generic business voice
messaging market, the Company,  in September,  1994, made the strategic decision
to focus its financial and other resources  exclusively on the education market.
Since that time,  the Company  has  transformed  itself from a voice  technology
company to an educational  services company, The Company is focused on providing
programs and  resources  for  parents,  teachers  and  communities  that improve
parental  involvement  in  children's   education.   The  Company  is  utilizing
communications  and  computer   technology  as  a  medium  for  delivering  it's
educational  services and  products.  The Company is  continuing  to enhance its
original and core  product,  the Homework  Hotline  Communication  System,  with
proprietary  training and  parent/teacher  support materials designed to broaden
its appeal,  reduce its competitive  vulnerability,  and increase the efficiency
and effectiveness of its school district implementation.

Using the Homework  Hotline(R)  as the  cornerstone  of a  comprehensive  parent
involvement  program,  the Company is  developing  such  additional  services as
teacher staff development modules,  parent and community involvement  assessment
tools, parenting education,  support materials and helplines, and other services
which are all focused on enabling  parents to be more actively and  productively
involved in their child's education.  An advisory board of leading educators and
school  administrators  has been  established to provide ongoing  supervision of
existing  program  content,  to help in the  development  and enhancement of new
products and services and to insure and promote the Company's  reputation as the
leading provider of educational services. The Company plans to make its services
and  resources  accessible  via multiple  communication  systems,  including the
telephone, video, print, personal computer and interactive cable television.

The Company  believes that demand for its products and services will continue to
increase due to demographic  trends,  increasing  discontent  among families and
corporations  with the public education  system in this country,  and the recent
enactment of federal  legislation to address the need for educational reform. In
the Spring of 1994, federal  legislation,  entitled "Goals 2000: Educate America
Act", was enacted that mandates  schools improve their  performance  along eight
key dimensions, among which is parental involvement.

This legislation has increased awareness in the value of parental involvement in
the education  process,  the need for improvement in its  implementation in most
school communities,  and has broadened funding sources for products and services
such as those being developed by the Company. Additionally, funding is available
not only from the educational community,  but also from corporations,  state and
local governments, and not-for-profit organizations,  which have earmarked funds
to improve the  educational  system  through  investment  in parent  involvement
programs.  There can be no  assurances  that the Company will be  successful  in
obtaining such funding to support its specific parent involvement programs.

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Overview [Continued]

The  Company has been  selected  as a provider of its service for several  large
flagship projects in the State of California, with the New York State Department
of  Education  and the Southern  Westchester  Board of  Cooperative  Educational
Services  ["BOCES"]  for the 1996-1997  school year which  involve  working with
corporations,  school  districts,  and community  organizations to implement the
Company's parent involvement program on a community-wide scale.

Not  surprisingly,  the change of  corporate  strategy  from a voice  technology
company  to an  educational  services  company  generated  additional  costs  in
software  development and program  development and new marketing efforts.  These
costs were not recouped by incremental sales in this calendar year. However, the
software and programs  developed were responsible for the contract realized with
Work/Family  Directions,  Inc. which brought added revenue in the fourth quarter
of 1995, as well as, for the opportunities the Company is currently in line with
the State of  California,  the New York State  Department  of Education  and the
Southern Westchester BOCES.

The  Company's  auditors  issued  a going  concern  report  on March  26,  1996.
Management  recognizes that the Company must generate  additional  resources and
generate cash from operations.  Management's viable plans in this regard include
consideration of additional equity or debt financing,  and obtaining  additional
contracts or agreements.

Year ended December 31, 1995 Compared to December 31, 1994

Results of Operations

The Company's net losses for the twelve months ended  December 31, 1995 and 1994
were  $2,811,914  and  $5,493,795,  respectively.  This  decrease in net loss of
$2,681,881 is primarily a result of a decrease in non-cash  compensation expense
of  $4,293,319  offset by an increase in  operating  expenses.  The  increase in
operating  expenses is in line with the Company's efforts to broaden its product
line, to build a strong presence and corporate image within its marketplace, and
to increase its market share for its Homework Hotline(R) Communications System.

The  Company  spent  significant  time and moneys  enhancing  its  hardware  and
software offering and supplementing  its Homework Hotline  Communication  System
with proprietary training and parent/teacher support materials. The enhancements
were  designed  to  open  the  Company  up  to  larger,  more  profitable  sales
opportunities  by  broadening  the  product's  marketing  appeal,  reducing  its
competitive  vulnerability,  and increasing the efficiency and  effectiveness of
its school district implementation.

The  Company  began  executing  its new  marketing  efforts in June 1995.  These
efforts,  which focused on communities and school district  installations rather
than one school at a time,  in  themselves  generated  a longer  selling  cycle.
However,  the fruits of the change in corporate strategy began to be realized in
the fourth  quarter as the Company  increased  sales over the same period a year
ago by 627%. Further,  as of the fourth quarter,  the Company was in negotiation
for several large flagship  projects.  These projects  involve  working with the
largest  states  and  cities  in  the  country,   corporations,   and  community
organizations  to implement  the  Company's  parent  involvement  program on all
impactful community-wide scale.

Sales for the twelve  months ended  December 31, 1995 and 1994 were $651,452 and
$727,611,  respectively. This decrease in net sales is attributable primarily to
the Company's efforts to redirect the product emphasis. The Company entered into
a contract with Work/Family  Directions,  Inc. to install Homework Hotline(R) in
100 schools.  At December 31, 1995,  the Company  completed  installation  in 78
schools.  It should be noted that the  Company  recognizes  revenue  for a given
system or program only when such system is installed.

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Year ended December 31, 1995 Compared to December 31, 1994

Results of Operations [Continued]

For the year ended  December  31,  1995,  the  Company  had net sales to one new
customer, Work Family Directions, that generated approximately 71% of net sales.
The  Company  anticipates  receiving  an  additional  $250,000  from Work Family
Direction  in 1996 as payment for already  contracted  services.  Moreover,  the
Company  anticipates  expanding its  relationship  with Work Family to encompass
implementation of its parent involvement  program in additional markets once the
100 school pilot program has proven successful.  The Company believes this pilot
program will be successful  The loss of this  significant  customer could have a
material adverse effect on the Company. In addition, the Company is primarily an
installer of proprietary software. As such, most of the Company's business is of
a nonrecurring  nature.  The Company must continually market its products to new
customers.  Unless the Company is successful in attracting new customers for its
products, the loss of any one significant customer, or group of customers,  will
have a severe negative impact to the Company in the near term.

Gross margin for the twelve  months  ended  December 31, 1995 and 1994 was 66.7%
and 59.8%,  respectively.  The  increase  in the gross  margin was caused by the
Company's ability to charge a higher unit price for its software.

Selling  expenses for the twelve months ended December 31, 1995 were  $1,110,037
versus  $552,482 for the same period a year ago. The increase is attributable to
the hiring of consultants and sales  personnel and their related  commissions of
approximately  $265,000,  increased travel costs of  approximately  $124,000 and
costs  associated  with the  heightened  scope and  intensity  of the  Company's
marketing efforts of approximately $158,000.

General and  administrative  expenses for the twelve  months ended  December 31,
1995 were  $1,771,405  versus  $609,578  for the same  period a year  ago.  This
increase  is  primarily  attributable  to  an  increase  in  salary  expense  of
approximately  $487,000,  an  increase  in  occupancy  and  related  expenses of
approximately  $348,000 and an increase in consulting and  professional  fees of
approximately $242,000.

Research and development  expenses for the twelve months ended December 31, 1995
were  $64,930  versus  $-0- for the same  period a year ago.  This  increase  is
primarily  attributable to the Company's creation of prototype version's 1.2 and
2.0 of the Homework Hotline(R).  Capitalized Software and Development costs will
be amortized  over the lessor of three years or the term of future  revenue once
development is complete. As of December 31, 1995, Software and Development costs
were  $666,421.  This included  Software and  Development  costs of $113,326 for
version 1.2 of Homework  Hotline(R)  that was  completed in October  1995. As of
December  31,  1995  amortization  of  these  costs  was  $9,444.   The  Company
anticipates  that  version 2.0 of Homework  Hotline(R)  will be completed in May
1995.

Interest  expense for the twelve  months  ended  December  31, 1995 and 1994 was
$13,472 and $48,267, respectively.

Liquidity and Capital Resources

At December 31,1995,  the Company had a working capital of $346,709 and cash and
cash equivalents of $356,260.  The Company utilized  $3,133,912 and $156,552 for
operations for the twelve months ended December 31, 1995 and 1994, respectively.
The Company  used  $1,385,019  and $-0- in investing  activities  for the twelve
months ended  December 31, 1995 and 1994,  respectively.  The Company  generated
$4,796,459  for the  twelve  months  ended  December  31,  1995  from  financing
activities which include the net proceeds from its public offering of $5,355,209
versus $232,400 for the same period in 1994.

The  Company's  cash balance at April 1, 1996 was $57,783.  Management  believes
that it will continue to meet its  short-term  liquidity  need by the completion
and collection of the Work/Family  Directions,  Inc. contract and the collection
of notes  receivable.  Management  believes the Company will meet its  long-term
liquidity  need by  additional  installations  via a renewal of the  Work/Family
Directions,  Inc. program,  and/or the execution of initiatives previously noted
in California,  with the New York State Department of Education and the Southern
Westchester Board of Cooperative Educational Services.

The  Company  has no  material  commitments  that  could  affect  the  Company's
liquidity.

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Year ended December 31, 1995 Compared to December 31, 1994

Liquidity and Capital Resources [Continued]

Should the Company require additional equity funding, it must first obtain prior
written consent from the underwriter of the public offering. This restriction is
for a  period  of 24  months  after  the  effective  date  of  the  registration
statement, which occurred on February 16, 1995. Consequently,  the Company could
be restricted by this underwriting agreement from meeting its liquidity needs.

The Company believes that it will derive additional cash flow from its projected
increased  sales, as experienced in the fourth  quarter,  resulting from new and
expanded services and products.

New Authoritative Pronouncements

The Financial  Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting  Standards  ["SFAS"]  No.  121,  Accounting  for  the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes  accounting  standards for the impairment of long-lived
assets, certain identifiable  intangibles,  and goodwill related to those assets
to be held  and  used,  and  for  long-lived  assets  and  certain  identifiable
intangibles  to be  disposed  of.  SFAS  No.  121  is  effective  for  financial
statements  issued for fiscal years beginning after December 15, 1995.  Adoption
of SFAS  No.  121  could  have a  material  impact  on the  Company's  financial
statements.

The FASB has also issued SFAS No. 123, Accounting for Stock-Based  Compensation,
in October 1995.  SFAS No. 123 uses a fair value based method of accounting  for
stock  options and similar  equity  instruments  as  contrasted to the intrinsic
value based method of  accounting  prescribed  by  Accounting  Principles  Board
["APB"]  Opinion No. 25,  Accounting for Stock Issued to Employees.  The Company
has not  decided if it will adopt SFAS No. 123 or  continue to apply APB Opinion
No. 25 for financial  reporting  purposes.  SFAS No. 123 will have to be adopted
for financial  statement note disclosure  purposes in any event.  The accounting
requirements  of SFAS No. 123 are  effective  for  transactions  entered into in
fiscal years that begin after December 15, 1995; the disclosure  requirements of
SFAS No. 123 are effective for financial  statements for fiscal years  beginning
after December 15, 1995.

Impact of Inflation

The Company does not believe that inflation has had a material adverse effect on
sales or  income  during  the  past  periods.  Increases  in  supplies  or other
operating costs could adversely affect the Company's  operations;  however,  the
Company  believes it could increase prices to offset increases in costs of goods
sold or other operating costs.

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Year ended December 31, 1994 Compared to December 31, 1993

Results of Operations

The Company's  operating  losses for the years ended  December 31, 1994 and 1993
were approximately $5,450,000 and $116,000,  respectively.  This increase in the
operating loss of  approximately  $5,334,000 is a direct result of a decrease in
sales  of  approximately  $555,000  and  a  non  cash  compensation  expense  of
approximately  $4,690,000  that was incurred as a result of 1,541,497  shares of
the  Company's  common  stock  issued  [See  Notes 7B and 9].  Selling  expenses
increased to $552,482 for the years ended  December 31, 1994,  from $154,151 for
the year ended December 31, 1993.  This increase of  approximately  $400,000 was
primarily due to an increase in consulting expenses for marketing services.

During the period January 1, 1992 through December 31, 1994, the Company did not
incur any  research and  development  expenses.  All  research  and  development
expenses  were  incurred   prior  to  January  1,  1992.  The  Company  will  be
significantly expanding its technological capabilities of its system, as well as
enhancing  it with the  introduction  of  additional  educational  products  and
services.   Consequently,  the  Company  anticipates  research  and  development
expenses in the future.

The aforementioned losses are attributable to both lower than expected sales and
a reduced  average  unit price due to  competitive  pressures.  The  Company was
delinquent  on  a  significant   amount  of  accounts   payable  and  negotiated
settlements.  A portion of the net proceeds from the  offering,  will be used to
reduce any remaining  delinquent  liabilities.  None of the Company's  suppliers
have  stopped  doing  business  with the  Company  as a result of the  Company's
financial  condition.  In fact,  several  suppliers,  requiring that the Company
remit  payments on a COD basis,  have  changed the terms under which the Company
does business with them. Upon the successful  completion of the Company's public
offering of common stock in February of 1995,  many of the  Company's  suppliers
once again extended standard payment terms.

Sales for the years ended December 31, 1994 and 1993 were approximately $728,000
and $1,282,000, respectively. Management believes that this decrease in sales is
primarily  attributable  to the continuing  decline of the Company's basic voice
mail business  combined with  increasing  competitive  pressure for its Homework
Hotline product. This increasing competitive pressure has had the effect of both
decreasing revenue realized per system sold and increasing selling expense, thus
squeezing  the margins from 64% at December 31, 1993 to 59% at December 31, 1994
when certain selling expenses are added to the cost of goods sold. The Company's
net losses for the years ended  December 31, 1994 and 1993 were  $5,612,595  and
$181,933, respectively. The Company anticipates that sales in 1995 will increase
as a result of  managements  efforts to increase  its sales force with  regional
offices strategically located throughout the United States.  Management believes
that its projected  increase in sales for 1995 will help the Company improve its
operations  to a profitable  entity.  The Company  plans to return to profitable
operations  through  broadening its market,  restructuring its pricing schedule,
and refocusing and substantially enhancing marketing efforts. Using the Homework
Hotline Communications System as its launching pad, the Company plans to develop
a broad parent involvement program, including such services as distance learning
modules,   accredited  coursework  for  teachers,   and  other  interactive  and
teleconferencing  programs,  which will all be focused on enabling parents to be
more actively and productively involved in their child's education.  The Company
plans to charge  parents a per student or per family  monthly fee for  accessing
these services.

Interest  expense for the years ended December 31, 1994 and 1993 was $48,267 and
$66,150, respectively.

<PAGE>

ADVANCED VOICE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Liquidity and Capital Resources

At December 31, 1994,  the Company had a working  capital  [deficit] of $737,455
and cash of $78,732.  The Company utilized  $156,552 for operations for the year
ended  December  31,  1994.  The  Company  generated   $232,400  from  financing
activities for the year ended  December 31, 1994. The Company  believes that the
net proceeds from the public offering of $4,605,650,  together with  anticipated
cash  generated  from  operations  and bridge  financing  of  $500,000  that was
received in September  and October  1994,  should be  sufficient  to conduct its
operations for at least eighteen months. Management believes that the conversion
of  approximately  $1,040,000 of debt into equity in September of 1994 will also
help the Company's  working  capital  needs.  The Company had no cash  investing
activities for the year ended December 31, 1994.

The  Company  has  entered  into annual  employment  and  consulting  agreements
aggregating  approximately $1,000,000 for 1995. The Company's anticipated annual
lease rental [month to month] for 1995 is $225,000.

The Company believes that it will derive additional cash flow from its projected
increased  revenues,  resulting  from an expanded  sales force.  Therefore,  the
Company believes that no additional financing beyond the registration  statement
will be necessary.

Management does not believe there are any known trends,  events or uncertainties
that will affect its capital resources.