ADVANCED VOICE TECHNOLOGIES INC, 10KSB/A, 1996-11-07

ADVANCED VOICE TECHNOLOGIES INC
10KSB/A, 1996-11-07
TELEPHONE & TELEGRAPH APPARATUS

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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.

<PAGE>

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

<PAGE>

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.

5
<PAGE>

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

6
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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.

7
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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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<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.

<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

<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

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

<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

<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.

<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').

<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

<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.

<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.

<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

<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.

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.

<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

<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

<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.

<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.

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.

<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

<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.

<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.

<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>

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>

<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.

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>

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.

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>

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>

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>

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>

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 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.

CONFIDENTIAL

AGREEMENT FOR VOICE MESSAGE SYSTEMS

This agreement is made as of September 1, 1995 between WORK/FAMILY
DIRECTIONS, INC. ("W/FD"), a corporation organized under the laws of the
Commonwealth of Massachusetts, whose address is 930 Commonwealth Avenue West,
Boston, MA 02215-1274, and ADVANCED VOICE TECHNOLOGIES, INC. ("AVT"), a
corporation organized under the laws of Delaware whose address is 369 Lexington
Avenue, 15th Floor, New York, NY 10017.

WHEREAS, AVT is in the business of providing and installing equipment
(hardware and software) to educational institutions and providing certain
services, including training, maintenance and upkeep, and written communications
materials to develop and support telephonic voice message communications systems
for school systems; and

WHEREAS, W/FD is in the business of providing services for business and
industry to assist employees with work and family issues, and, as part of such
business, manages funds for businesses wishing to develop services in
communities where their employees live and work, and disburses such funds as
agent for such businesses; and

WHEREAS, W/FD, on behalf of its business clients, wishes to engage AVT to
provide and install AVT's Homework Hotline Communications System, more fully
described in AVT's Proposal to W/FD dated March 1995 and in a facsimile
transmission dated June 15, 1995, (a revised version of such Proposal is
attached hereto and incorporated herein as Exhibit A) at certain designated
schools (as listed on Exhibit B attached hereto and made a part hereof), to
train school personnel and parents in its use, and to provide ongoing technical
assistance, maintenance and upgrades for three years after installation and
acceptance of each system on the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the parties agree as follows:

1. Statement of Work.

AVT shall provide all hardware, software, training programs, written
communication materials designed, respectively, for teachers, parents and
administrators, and ongoing technical assistance services to schools ("Schools")
located in each of the school systems named in Exhibit B (as such Exhibit may be
amended from time to time by agreement of the parties hereto) to this Agreement
("School Systems") as described in: (1) AVT's March 1995 "Proposal for A
Comprehensive Voice Messaging Communication System and Parental Involvement

<PAGE>

Program"; in a brochure entitled "Homework Hotline Communications System
Features"; and in a facsimile transmission dated June 15, 1995, describing the
"WORK/FAMILY DIRECTIONS" system features as compared to other systems available
through AVT (collectively, the "Proposal"). Schools are identified by W/FD and
listed in Exhibit B to this Agreement, which may be amended from time to time by
agreement of the parties hereto. The Proposal (as revised) is attached to this
agreement and incorporated herein in all particulars not inconsistent with the
body of this Agreement as Exhibit A. (In the case of any inconsistency between
the Proposal and any provision found in the body of this Agreement, the
Agreement shall control.) AVT shall deliver all goods and perform all services
described in Exhibit A to both W/FD's and School Systems' reasonable
satisfaction. AVT shall commence working with Schools immediately and shall
complete installment and training for all School Systems by on or before
November 30, 1995.

2. Compensation.

For the equipment installed and services rendered by AVT hereunder, W/FD
will pay to AVT an aggregate of $1,212,500 (based upon the installation of 97
Systems) as follows:

a. Upon execution of this Agreement, W/FD shall pay (i) $97,000 to AVT and
(ii) $727,500 to an escrow agent pursuant to an Escrow Agreement, a form of
which is attached hereto as Exhibit xx;

b. Within ten (10) days of receipt of an invoice, together with
documentation showing:

(i) the numbers, dates and locations of Systems installed to date; and

(ii) the numbers, expected dates of installation and locations of
Systems to be installed within the three week period following the
invoice, W/FD shall pay to AVT the amount of the invoice, not to
exceed an aggregate of $97,000 (based on the installation of 97
Systems);

c. Within ten (10) days following the installation of the last System, W/FD
shall pay to AVT the sum of $48,500;

d. Within ten (10) days following the Live Date of any System, W/FD shall
pay to AVT an amount equal to $2,000 (the "Live Date Payment"); and

e. Within ten (10) days after receipt of AVT's March 1996 report W/FD shall
pay to AVT $500 per System, toward AVT's costs of developing training materials.

<PAGE>

W/FD shall have no obligation to make any payment to AVT under this
Agreement in connection with any equipment or services other than those
specified in this Agreement and Exhibit A or unless first approved by an
authorized representative of W/FD. AVT shall have no obligations under this
Agreement other than those specified in this Agreement, including Exhibit A.

3. Definitions. For purposes of this Agreement:

a. "American Business Collaboration for Quality Dependent Care" (or "ABC")
shall mean a business collaboration, comprised of a number of W/FD's clients,
aimed at increasing the supply and enhancing the quality of a broad range of
dependent care programs.

b. "Downtime percentage" shall mean unavailable time divided by time
available (based upon a day of 12 hours). "Unavailable time" is time involved
while a hardware or software component of the System is inoperative or operates
inconsistently or erratically or is in the process of being maintained or
repaired. For purposes of this Section, no more than one consecutive weekend day
of downtime in any weekend shall be counted as Unavailable time.

c. "Live Date" with respect to a specific System shall mean the date upon
which all of the following shall have been completed:

(i) all hardware components of the System as listed in the Proposal
shall be installed and ready for use;

(ii)the software licensed hereunder is installed; and

(iii) the System shall have successfully been operated in the normal
course of the School's business for a period of 30 calendar days
during which period the Downtime Percentage shall be less than 5%.

d. "School" shall mean any school identified in Appendix B to this
Agreement to receive the System.

e. "System" shall mean any system installed at a specific location
consisting of the equipment, software, service support and maintenance described
in the Proposal, with sufficient hardware and phone lines to ensure that parents
and teachers will access the System with few busy signals in the ordinary course
of business.

4. Transfer of Title

Title to all hardware components of the System shall not pass to a
receiving School System and the System shall not be deemed accepted by such
School System

<PAGE>

until Live Date, except that risk of loss with respect to the equipment shall
pass from AVT to School Systems upon delivery. Payment by W/FD of any fees under
this Agreement prior to Live Date shall not constitute acceptance of the System
or be evidence thereof. On and after AVT's receipt of Live Date Payment with
respect to such System, all rights, title and interest in such hardware
components shall pass to the receiving School System.

5. Equipment.

a. AVT hereby expressly warrants and represents to W/FD that:

(i) the title to be conveyed to all hardware supplied to Schools in
accordance with this Agreement shall be good and marketable and the
equipment shall be free from any security interest or other lien or
encumbrance; and

(ii) all equipment supplied to a School hereunder will be new.

b. AVT shall be responsible for unpacking, uncrating and installing the
hardware including the installation of all necessary cabling.

c. W/FD will require School Systems to use Systems supplied under this
Agreement only for the use intended and in accordance with the owner's manuals
and related documentation applicable to such Systems. If a School improperly
uses the hardware or the software supporting its System and thereby causes a
breakdown or malfunction in such System, or if a School causes damage to the
System by its negligence or intentional misconduct, AVT may charge such School
its customary hourly rate for any services it provides to repair such breakdown
notwithstanding the provisions of Section 7 of this Agreement, after which
repair AVT's obligations under such Section 7 to maintain and repair without
charge shall be reinstated.

6. Software.

a. AVT shall grant to each School System a non-transferable and
non-exclusive license or sublicense to use the software delivered and installed
under this Agreement, provided, however, that if after Live Date full payment is
not made, such license or sublicense shall be deemed revoked and of no further
effect.

b. AVT agrees that if at any time during the first three (3) years this
license is in effect hardware of the type specified in the Proposal shall be
generally unavailable for use with the software identified in such Proposal
(whether due to unavailability of spare or replacement parts, discontinuance of
manufacture or otherwise and whether or not such cause is within the reasonable
control of AVT) then AVT at its sole expense shall adapt, upgrade and modify the
software to

<PAGE>

operate with then available hardware of comparable features and capabilities, so
that data files created for the System can be utilized without substantial
adaptation on such other hardware and software will operate without loss of
efficiency or function.

c. AVT represents and warrants with respect to the software that AVT is the
sole owner of the software and has full power and authority to grant the rights
granted to W/FD and the receiving School Systems without the consent of any
other person. Neither the software or any of its elements nor the use by Schools
thereof will, to AVT's best knowledge, violate or infringe any copyright, trade
secret or other proprietary right of any other person.

d. AVT hereby agrees to keep and maintain a current copy of the source code
for the software. Release of the source code to W/FD and the receiving School
Systems is contemplated in the event of AVT's cessation, for any reason, to do
business, its insolvency, reorganization, bankruptcy or other proceeding for
relief of debtors or for failure to provide the continuing obligation of support
required in connection with the perpetual license granted hereunder.

e. AVT agrees that all future documentation, and revisions of existing
documentation developed for the System or similar systems which may be useful to
the receiving School Systems shall be furnished to the School Systems and W/FD
without charge.

f. AVT shall repair or replace damaged or lost software in machine-readable
object code. If the damage or defect is caused by AVT, or becomes apparent prior
to Live Date, such repair or replacement shall be at AVT's production costs for
such replacement and freight costs, if any.

g. For a period of three years following installation at each School, AVT
shall provide any and all software which it may develop or acquire to upgrade
the communication system together with any remote site training and technical
assistance necessary to install and operate the upgraded system as and when
upgrades become available at no additional cost to W/FD or to the receiving
School System. AVT shall offer and, if accepted, provide any and all such
upgrades to Schools and School Systems before offering and providing the
upgrades to any other AVT customers.

7. Maintenance.

a. For a period of three years from Live Date, and at no additional charge,
AVT agrees to provide all necessary maintenance and repair services to enable
the System to operate in each School, so long as W/FD has complied with the
compensation provisions contained in Section 2 of this Agreement with respect to
any such System and subject also to the provisions of Section 5c with respect to
any

<PAGE>

such System.

b. AVT may not assign its obligations to maintain the System without W/FD's
prior written consent, not to be unreasonably withheld or delayed. No assignment
shall relieve or discharge AVT of any liability in the event of non-performance
or breach by the assignee. Notwithstanding the foregoing, AVT may engage third
parties to assist it in its performance of such maintenance obligations.

c. AVT at its expense shall, upon request by a School, immediately replace
with new substitute components any component being maintained whose operating
characteristics exceed the following Downtime percentages: 10% in any 90 day
period.

d. AVT shall coordinate scheduling of preventative maintenance service with
Schools to coincide with periods of nonessential use.

e. AVT shall cause an adequate supply of replacement parts and an
adequately trained maintenance staff for the System to be available for each
receiving School System. AVT shall provide an off-site qualified maintenance
technician to respond to a telephone request by a School System within 6 hours
of notification in all instances; AVT shall use its best efforts to provide such
technician within 2 hours of such notice.

f. Failure by a School System to promptly notify AVT of a System failure or
inoperation shall not relieve AVT of any obligation to repair or replace the
System upon notice to AVT.

8. Communications Materials and Training.

a. AVT shall submit all written materials referring to this Agreement or
intended to publicize its activities under this Agreement to W/FD for its review
and approval, not to be unreasonably withheld or delayed, prior to AVT's use of
such materials and shall make no oral statements concerning the Agreement or any
activity under this Agreement without W/FD's specific prior review and
authorization, not to be unreasonably withheld or delayed. Without limitation
thereof, AVT may not offer or provide information to representatives of any news
media pertaining to this Agreement or to the activities contemplated under this
Agreement, or to ABC's, W/FD's or any individual company's potential or actual
involvement with AVT or with Schools or School Systems identified in this
Agreement, and AVT shall immediately notify W/FD about any inquiries by
representatives of any news media and make no response to such inquiries without
W/FD's prior approval, not to be unreasonably withheld or delayed.
Notwithstanding this provision, in response to inquiries about the Systems
installed under this Agreement, AVT may, without prior consultation with W/FD,
provide general information orally concerning the System, including describing
the numbers

<PAGE>

of Systems installed, the locations of the Systems and the uses to which Schools
intend to put the Systems.

b. AVT shall customize the Parent Communication Materials described in the
Proposal for each School with the name of the School, the telephone number for
hotline information, and a prominent statement crediting American Business
Collaboration for Quality Dependent Care and/or individual businesses identified
by W/FD using a format and text to be provided by W/FD in each case. AVT's
trademark(s) and/or logos, including but not limited to "Homework Hotline," may
appear on communications materials so long as AVT obtains W/FD's prior written
approval of the format and configuration of the appearance in each case, which
shall not be unreasonably withheld or delayed. Such materials shall be produced
in sufficient numbers for each student to have individual copies.

c. During the first year of implementation of this Agreement, AVT shall
provide the following elements of the training and communications services
described in the Proposal on an exclusive basis to Schools and School Systems
and to no other AVT customers:

(i) Newsletter; and

(ii)Customized materials (including, for example, refrigerator
magnets, tip booklet on how to help parents help their children and
stamp and ink pads for teachers).

d. Nothing contained in this Agreement shall be construed as conferring on
either party any right or license to use in writing or for public broadcast any
name, trade name, trademark, service mark, logo or other designation of the
other party or, in AVT's case, that of ABC, or any company which is a member of
ABC, or any contraction, abbreviation or simulation of any of the foregoing,
without the specific prior written permission of such entity.

9. Reports.

AVT shall submit to W/FD quarterly reports from September 30, 1995 through
March 31, 1996. Such reports shall include such information as may reasonably be
requested by W/FD from time to time in writing and at least fourteen (14) days
in advance of the date upon which such report is to be submitted to W/FD. Such
reports shall describe the status of all installations and training performed by
AVT under this Agreement during the previous month and the schedule for
installations and training for the following month, including a description of
any major problems or obstacles encountered in implementation of the Agreement,
how they were resolved and with what success. In addition, AVT shall provide
information on a continuing basis in response to such reasonable inquiries as
W/FD may make from time to time by telephone.

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AVT shall continue to provide information after the termination of this
Agreement in response to occasional reasonable inquiries from W/FD concerning
the work performed under this Agreement and the ongoing results of such work. In
such event, if AVT will incur material expense in formulating a response to any
such inquiries AVT and W/FD will negotiate in good faith to provide for
reimbursement to AVT for reasonable expenses.

10. Non-Disclosure of Information.

a. "Confidential Information" in the case of W/FD means all materials and
information given or disclosed to AVT by W/FD or prepared by AVT for W/FD under
this Agreement, (whether proprietary to W/FD or to others), all matters not
generally known outside W/FD and not readily ascertainable by someone outside
W/FD, such as, but not limited to, the existence and content of this Agreement,
the identities of any W/FD clients providing funds for services under this
Agreement, the identity of School Systems or Schools under this Agreement, the
schedule of any activities to be performed under this Agreement, developments
relating to existing and future materials, programs and services marketed or
used by W/FD, business methods, business plans, financial data, research
findings, identities of subcontractors, client relations, methods of operation,
formulas, design specifications, procurement specifications, procedures,
marketing plans, customer information, and other information relating to the
business of W/FD, regardless of whether in tangible form. Without limitation of
the foregoing, AVT agrees that W/FD and/or ABC and member companies of ABC shall
have the sole right to announce the installation of and/or intent to install the
System at any School or School System and AVT shall not disclose any information
whatsoever about this Agreement or any activities or intended activities
pursuant to this Agreement without W/FD's prior written permission and in no
event prior to announcement(s) by W/FD and/or ABC or its member companies. AVT
agrees to keep W/FD's Confidential Information strictly confidential and not to
disclose such information other than for the implementation of this Agreement or
in the course of privileged consultation with an attorney or accountant in a
professional relationship with AVT at any time, before or after the term of this
Agreement, without W/FD's prior written consent. AVT acknowledges that
unauthorized disclosure of such information poses a substantial risk of
irreparable harm to W/FD. In performing AVT's obligations under this Agreement,
AVT may learn information pertaining to others that has been provided to W/FD in
confidence. Any information provided to W/FD by a third party is presumed to be
proprietary and confidential to such third party and shall be treated in the
same manner as confidential information of W/FD itself.

b."Confidential Information" in the case of AVT means all matters not
generally known outside AVT and not readily ascertainable by someone outside
AVT, such as, developments relating to existing and future AVT materials,
programs and services marketed or used by AVT, business methods, business plans,

<PAGE>

financial data, research findings, identities of subcontractors, client
relations, methods of operation, formulas, design specifications, procurement
specifications, procedures, marketing plans, customer information, and other
information relating to the business of AVT, regardless of whether in tangible
form. W/FD agrees to keep AVT's Confidential Information strictly confidential
and not to disclose such information other than for the implementation of this
Agreement or in the course of privileged consultation with an attorney or
accountant in a professional relationship with W/FD at any time, before or after
the term of this Agreement, without AVT's prior written consent. W/FD
acknowledges that unauthorized disclosure of such information poses a
substantial risk of irreparable harm to AVT. W/FD may learn information
pertaining to others that has been provided to AVT in confidence. Any
information provided to AVT by a third party is presumed to be proprietary and
confidential to such third party and shall be treated in the same manner as
confidential information of AVT itself. Notwithstanding this provision, W/FD may
disclose Confidential Information to its clients and prospective clients as
necessary to implement this Agreement.

11. Independent Contractor Status.

It is expressly agreed and understood that AVT is performing services under
this Agreement as an independent contractor and not as an employee, agent,
servant, partner, joint venturer or representative of W/FD. W/FD shall not be
responsible for AVT's acts or omissions and AVT shall not have the authority to
make any representations or incur any obligations on behalf of W/FD. AVT agrees
to pay all applicable taxes that may arise as a result of this

Agreement, including but not limited to social security, income tax
withholding, disability and other payroll tax requirements. AVT shall maintain
Worker's Compensation and/or Employer's Liability Insurance in the amount of at
least One Hundred Thousand Dollars ($100,000) covering any of AVT's employees as
required by statute in the applicable jurisdiction and shall provide to W/FD a
certificate of that insurance.

12. Conflict of Interest.

Neither AVT nor any of AVT's personnel shall engage, directly or
indirectly, in any work or undertaking that may conflict with AVT's performance
under this Agreement. AVT represents and warrants that there is no such present
conflict of interest to AVT's performance under this Agreement. So long as AVT
is not in breach of this Agreement, W/FD will do nothing to prevent AVT from
performing its obligations under this Agreement.

13. Indemnification.

AVT shall, at AVT's expense, indemnify, defend and hold harmless W/FD

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from and against all losses, costs, damages and expenses, including reasonable
attorney's fees, resulting directly or indirectly from AVT's performance of or
failure to perform its obligations under this Agreement; use of hardware and
related equipment provided by AVT; use of software or enhancements developed or
provided by AVT; or claims by third parties that any work product or service
provided by AVT to any School or School System under this Agreement is
infringing. This provision shall not limit any rights, damages or other relief
based on personal injury, death or damage to property.

14. Insurance.

AVT will maintain Commercial General Liability insurance in the amount of
at least one million dollars ($1,000,000.00) per occurrence, two million dollars
($2,000,000.00) aggregate. AVT shall provide certificates of such insurance to
W/FD upon execution of this Agreement.

15. Term and Termination.

This Agreement shall be effective as of September 1, 1995 and shall
continue in effect until at least December 31, 1998 or until all services have
been completed to W/FD's reasonable satisfaction or until terminated by W/FD
upon notice, with or without cause. Upon termination of the Agreement, AVT will
turn over to W/FD all materials obtained from or prepared exclusively for W/FD
under this Agreement including but not limited to databases, software, models,
partially completed work, descriptions and all other papers. Sections 5a, 6, 10,
11 and 13 shall survive termination of this Agreement.

16. Additional Restriction on Announcement.

The parties anticipate that ABC will formally announce the installation of
the System at Schools and School Systems pursuant to this Agreement by September
22, 1995. AVT shall not issue any written or oral statements announcing the
availability of any of its "Homework Hotline" products and services prior to
ABC's announcement of the Systems to be installed under this Agreement.
Notwithstanding this provision, AVT may issue such statements as it may be
required to make by law provided that it is so advised in writing by counsel.

17. Marketing Coordination.

a. AVT shall not market to or accept as a client for the purposes of
providing education-related services including but not limited to
voice-messaging systems (the "Services") any current W/FD client ("W/FD Client")
without first providing written notice, no less than fifteen (15) business days
prior to such contact, to Betty Southwick, W/FD's Director of Development. In
the event that a W/FD client contacts AVT without AVT first contacting such
client, AVT shall

<PAGE>

promptly notify W/FD of such contact and offer to coordinate marketing with W/FD
as provided herein. Such notice shall fully describe the project and/or services
with respect to which AVT desires to contact a W/FD Client, the W/FD Client
contact person (including name, title, and telephone number), and the
communities to be served. Upon W/FD's request to AVT during such notice period,
AVT agrees to attempt to reasonably coordinate its marketing efforts with W/FD.
For purposes of this Paragraph 17, the term "market" shall mean any efforts by
AVT, directly or indirectly, as principal, agent, consultant or employee, to
promote, sell or obtain funding for its Services, including AVT's provision of
the System or System components to a school and/or school system. For purposes
of this Paragraph 17, "W/FD Clients" shall mean those companies listed on
Exhibit D hereto. W/FD will, from time to time, update such client list as a
revised Exhibit D. If, after W/FD receives notice from AVT under this provision
that AVT wishes to market to a W/FD Client, W/FD advises a competitor of AVT of
the content of the notification, W/FD shall so notify AVT and the obligations of
AVT under this Paragraph 17 (a) shall terminate immediately.

b. Except as to the coordinated marketing efforts described in Paragraph
17(a), above, AVT shall not describe, promote or represent W/FD or W/FD services
to any W/FD Client without prior written approval by W/FD. Further, AVT shall
develop its own business contacts at W/FD Clients, and shall not use for its own
purposes any contacts and client lists it may acquire from W/FD during the
course of its performance under this Agreement. In particular, and without
intending to limit the foregoing, with respect to any services provided
hereunder to which particular W/FD Clients provide funding, AVT shall not under
any circumstances approach such W/FD Clients for continuation funding.

c. AVT warrants that the charges to W/FD for its services under this
Agreement will not be greater than those charged by AVT to any other entity for
substantially the same rights, services or products. AVT agrees that if, while
this Agreement is in effect, AVT offers to any other entity substantially the
same rights, services or products at lesser charges, thereupon and thereafter
W/FD shall be afforded the opportunity to purchase such goods and/or services at
such lesser charges. AVT shall notify W/FD at the time it begins charging such
lesser charges to other entities. If, during the first year of this Agreement,
AVT offers the System or a comparable System to any purchaser at a price below
the System price charged to W/FD under this Agreement (including the price of
services rendered by AVT under this Agreement), then AVT will reimburse to W/FD
an amount equal to the difference between the price charged to W/FD and such
lower price.

18. Miscellaneous.

a. Except to the extent that the provisions of the Agreement are clearly
inconsistent therewith, the Agreement shall be governed by any applicable

<PAGE>

provisions of the Uniform Commercial Code. To the extent this contract entails
delivery or performance of services, such services shall be deemed "goods"
within the meaning of the Uniform Commercial Code, except when to so deem such
services as "goods" would result in an absurdity.

b. This Agreement represents our entire understanding and may only be
amended in writing and signed by an authorized representative of each party. No
waiver shall be effective unless in writing signed by the waiving party.

c. This Agreement may be assigned by W/FD in its discretion. AVT shall not
assign this Agreement or any right or obligation hereunder without W/FD's prior
written consent which will not be unreasonably withheld, and any attempted
assignment without such written consent shall be deemed void.

d. This Agreement shall be binding upon and inure to the benefit of the
successors in business and assigns of W/FD and AVT's successors in business.

e. This Agreement shall be governed by the laws of The Commonwealth of
Massachusetts, excluding its conflict of laws rules.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first above written.

Advanced Voice Technologies, Inc. Work/Family Directions, Inc.

By: By:

Title: Title:

Proposal for

A Comprehensive Voice Messaging
Communication System
and
Parental Involvement Program

Submitted by

Advanced Voice Technologies, Inc.

CONFIDENTIAL AND PROPRIETARY INFORMATION

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Submitted To:
Work/Family Directions, Inc.
March 1995

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II. PROJECT SPECIFICS

A. Technological Capabilities and Specifications

Homework Hotline Educational Services will provide each of the 100 schools in
the Work/Family Directions initiative with a customized Homework Hotline
Communications System that provides all functions required by the Transparent
School Model as well as the additional features requested by Work/Family
Directions in its proposal. Each system is programmable and controllable by
school personnel. The System is available to parents and teachers 24-hours a
day, 7 days a week. The capabilities and specifications of the Homework Hotline
Communications System are presented below.

It is important to note that Homework Hotline Educational Services is providing
schools with state-of-the-art hardware and software which will enable the
Transparent School Model to develop new ways of increasing school-family
communications. Working with Dr. Bauch, Homework Hotline Educational Services is
looking to expand the Transparent School Model so that teachers and parents can
communicate even more efficiently using the latest in technology, including
electronic mail, the Internet, and interactive cable television. As Homework
Hotline Educational Services develops further parent involvement programming,
the technological capacities of the System -- such as the CD-ROM drive, inkjet
printer, fax modem, and Pentium 90 processor -- will be able to provide
multimedia educational programming and access to information sources to assist
parents and teachers in creating learning challenges for children. Through the
Homework Hotline Communications System, the school districts in Work/Family
Directions' initiative will be ready not only to move into a new era of
school-home communications through the Transparent School Model but also to move
onto the Infobahn and into the 21st Century.

School-based hardware and software. Homework Hotline Educational Services is
committed to ensuring success in each and every school that participates in its
parent involvement program. The Homework Hotline Communications System uses the
most advanced, multimedia and interactive hardware available. In addition, this
leading edge hardware platform is being specified by the Company to ensure that
participating schools will not have to incur additional hardware costs as new
communications capabilities become part of the Transparent School Model.

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For Work/Family Directions, the following hardware and software will be
provided:

Hardware:
Pentium 90 Processor
(16) meg RAM
(840) MB (megabyte) Hard Drive
3 1/2" Diskette Drive
Tape back-up
(15 inch) VGA [Color] Monitor
(28.8) Fax Modem
CD-ROM Drive (Quad Speed)
Inkjet Printer
Push-button Phone
Network Card (Built-in Networking)

HHES Voice Components
Dialogic D41 (4 port) Voice Card
Associated hardware
Phone cables/splitters
Additional voice card as necessary, based on school enrollment (w/
approximately 100 additional voice cards based on unusually high average
enrollment in schools chosen by W/F D.)

Software:
Proprietary Homework HotlineO Software
Remote Diagnostic Software
System Operating Software

All hardware and software are fully documented and easy to use. The Homework
Hotline Communications System comes with an Installation Manual, and phone
demonstrations to assist in initial set up and customization of the System.

Minimal ongoing operating costs for schools: To minimize the ongoing operating
costs to schools, each system will be configured with the fewest possible
dedicated telephone lines. A critical contributing factor to success of the
Transparent School Model is the ratio of students to the number of dedicated
lines provided for the Homework Hotline Communications System. Experience with,
and research on, the Transparent School Model has revealed that an insufficient
number of dedicated

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lines will sabotage a home-school communications program by frustrating and
discouraging both parents and teachers. Constant busy signals are a turn off to
parents, teachers and students using the Transparent School Model. The current
industry trend is to reduce both the initial hardware costs as well as the
projected ongoing operating phone costs for schools by underequipping systems
with voice cards and phone lines. Homework Hotline Educational Services is
committed to ensuring success in each and every participating school, and
therefore installs the sufficient number of voice cards and dedicated phone
lines based on the size of each school population.

The Homework Hotline Communications System uses a metric developed through more
than five years of experience and research. The Company uses the metric of 200
students per line for elementary schools and 150 students per line in middle
schools, junior highs and high schools. The difference in these ratios is due to
the increased flow of information that occurs at both the middle and high school
levels. Thus, an average elementary school with 500 students will require 3
dedicated lines and an average middle or high school will require 4 dedicated
lines. Reducing the number of dedicated lines below these numbers will
significantly increase the likelihood that both parents and teachers will
receive repeated busy signals when they attempt to access the system, and
thereby discourage teachers from recording their messages and parents from
calling in. The proposed configuration assures that there are at least two lines
available for teachers and parents even if the system is making outgoing calls.
The system has the capacity to be expanded up to (16) lines.

The phone lines and, in some states, phone charges per call, are the only
operating cost that participating schools in the Work/Family Directions
initiative will have to pay to support the Homework Hotline Communications
System. See Section F, Operating Costs for Participating Schools.

At least one 2-way voice mailbox for each teacher which parents can access to
listen to and to leave messages. The Homework Hotline Communications System can
provide up to 10,000 individual voice mailboxes for each school. Each of these
mailboxes can be customized based on the school's unique requirements. Thus, in
even the largest school with several thousand students, the Company's system
(can) enable every teacher, student, administrator, sports and other
extracurricular organization to have at least one 2-way voice mailbox, while
still leaving mailbox capacity for any desired community and corporate partners.
All messages on the system can be changed or modified to meet changing needs and
requests.

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Classroom Information: The system allows teachers to record daily
information about what has happened in the classroom and what
assignments and responsibilities children have for the days and weeks
ahead. Teachers can record information 24 hours a day, from school,
home or anywhere with a push-button phone. There is no practical limit
to the number of messages that the system can hold. The system
administrator in each school can determine the length of messages with
a maximum length of 16 minutes. This is the core of the Transparent
School Model -- making school-home communication easy, helpful and
frequent.

General Information: The system can provide single-digit access to
general school information that is easily programmable by the school.
This means that parents can call and, for example, press 1 for PTA
information, press 2 for the cafeteria menu, etc. Options can be
changed at any time. This "bulletin board" function is a component of
the Transparent School Model.

Automated outcalling capability. The Homework Hotline has an easy to use
database of student and family information, (ultimately to include) phone and
fax numbers. Groups of students and/or parents can be selected quickly and
easily, and call groups can be activated remotely. Importantly, the Homework
Hotline will link all outbound messages for a given student/parent and thereby
deliver multiple messages with one telephone call. In addition, the Homework
Hotline is capable of simultaneously placing and receiving calls. For example,
if a school has four dedicated lines, three lines can be used for outcalling and
the other one will be reserved for inbound calls.

Absentee(/) Tardy Notification: The system will automatically call the
homes of absent or tardy students to deliver an absentee message or
the school's tardy policy message. The message can be programmed to be
delivered in the language understood by the household, e.g., Spanish,
French, Vietnamese, etc. The message can be easily changed. If an
answering machine picks up the call, the system (will play the message
twice to maximize the chance that) insures that the full message will
be recorded. Moreover, the system records when calls were initiated
and completed. This statistical information is available to school
administration.

General Notification: School administrators can record an important
message, e.g., about an upcoming school event or fundraising drive,
and automatically call and deliver that message to all students' homes
or to a

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select group of homes. The system keeps track of when these
messages were delivered to each home -- and will persist in calling
when the line is busy or there is no answer. The system has the
ability to record a message and select the students to be called using
any touch-tone telephone. The system can deliver up to 100 different
and unique messages at the same time.

Emergency Notification: The system allows the school to record an
emergency message. This message preempts the normal system greeting
and is the first message a person hears when the system is called. The
system allows the school to record this message from a remote
telephone, e.g., from the principal's home to cancel school in the
event of an emergency.

Absence Message: The system allows parents to call in at anytime and
leave a message in the event that their child is going to be absent
from school. The system provides voice messaging for internal use of
teachers and administrators.

Customize Use: The system has the flexibility for a school to
implement solutions to unique information needs.

Multi-lingual capability. With the Homework Hotline, both mailbox and outcall
functions are easily adaptable to multi-lingual capability. All pre-recorded
outbound messages, such as absentee notification, can be delivered to homes in
the preferred language automatically. The Homework Hotline Communications System
can actively process and deliver messages in up to 100 languages. Homework
Hotline Educational Services is currently accommodating several school customers
throughout the country who have more than dual-language needs. The Company is
highly focused on addressing this growing cultural requirement.

Ease of use. All of the Homework Hotline Communications System's voice prompts
are easy to follow and completely interruptible. The system is designed with
engaging graphics screens that are inviting to the user. The Homework Hotline
Communications System allows "barging" so that it is not necessary for anyone
calling the Homework Hotline to listen to any information which they would
rather bypass.

24-hour access for teachers and parents. The Homework Hotline and the
accompanying voice mail system can be accessed by teachers, parents, students
and administrators 24 hours a day, seven days a week.

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Integration with existing school databases and student information management
programs. The Homework Hotline Communications System maintains a student
database with information specific to each student that can be easily downloaded
from an existing student database. The system has the capability of interfacing
with (many) of the major national student information management systems. The
Company also has the technical resources to develop interfaces with most other
student information systems -- including "homegrown" systems found in many small
school districts. In addition, the Company's next generation software will
employ industry standard database techniques facilitating the interface to
future student information management systems which are anticipated to use
industry standards as well.

In addition to the student database, the Homework Hotline Communications System
has the capability to store the class schedule of each student and play the
messages for all classes when a student's ID is entered. Personal messages for
each student can also be recorded and sent.

The system can create "master codes" for each teacher so that all classes for
that teacher can be accessed through one code. This feature is designed to make
it simpler and less time consuming for teachers in secondary schools to record
their messages given that they often teach five to seven different classes. By
using the "master code," a teacher with multiple classes can enter simply one
number and the system will prompt him/her to record messages for each of his/her
classes. In addition, the system will allow teachers to leave one message for
multiple class mailboxes.

Internal voice mail for school personnel. The Company's Homework Hotline offers
full-featured voice mail for internal use by all school personnel to promote
teacher-to-teacher and school-to-school communications.

Comprehensive reporting system. The Homework Hotline compiles detailed daily
statistics for all features of the system, including incoming call volume per
teacher per class, overall system call volume, and outbound calls attempted and
completed. Statistical reports can be generated on a daily,
monthly/month-to-date, and annual/ year-to-date basis.

Program evaluation. All statistical reports can be quickly and easily generated
to provide the appropriate information for overall program evaluation, as well
as to

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provide detailed feedback to individual teachers about parent usage. In addition
to the built-in software features which enable program evaluation, the Company
will provide, on a quarterly basis, personalized support and guidance for each
school to help them evaluate and improve their program's effectiveness. The
Company's proprietary program evaluation framework and specific criteria are the
result of the many years of working directly with Dr. Bauch in helping schools
evaluate their Homework Hotline program.

In addition to the features and applications required, the Company believes that
its Homework Hotline Communications System offers a number of important, and
possibly unique, features. These are highlighted below:

Student class schedule: The system has the capability to store the
class schedule of each student and play all class messages when a
student ID is entered. Thus, parents and students do not need to
remember multiple class codes, and the length of the call is
minimized.

Remote activation of notification messages: The system will allow the
school to activate remotely all notification features from any touch
tone phone. For example, a coach could notify parents while the team
is on the road if the team is experiencing a delay in their return to
campus from an away game.

Message stringing: If one student exists on multiple call lists that
have been activated to call the home with a message, all messages will
be delivered in one call, thereby minimizing utilization of phone
lines while providing one call convenience to the home.

Parent identification number: The school can assign a parent
identification number for selected parents to ensure that the parent
receives all notification calls. This is particularly valuable in
disciplinary situations.

Private student messages: When using the student ID number to access
information, the teacher can leave a personal and private message for
an individual student. The student and/or parent will receive this
message when they can into the Homework Hotline and punch in their ID
number.

Rotating sponsor message: When using multiple sponsor messages, the
Homework Hotline automatically rotates the messages per call.

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Modification of recordings: The system allows all messages, including
internal system prompts, to be changed (i.e., rerecorded) at any time
from any touch tone phone.

Remote diagnostics: The Homework Hotline has an internal modem with a
remote diagnostics program that enables remote file transfer and
trouble shooting.

B. Installation
Installation capabilities: To meet the objectives of the Transparent School
Model, proper installation of any school voice messaging system goes far beyond
installing hardware and connecting phone lines. To be effective, each system has
to be customized to the specific needs of an individual school. The Company's
experience has shown that site-specific customization is a key factor in
determining the success of the overall parent involvement program. For this
reason, Homework Hotline Educational Services has always conducted personalized
on-site installation and customization at each school. The Company has been
alone in providing such a comprehensive, personalized approach. In response to
the current time constraints and scope of the Work/Family Directions project,
the Company has developed an alternate, yet equally effective, installation plan
which will provide the same degree of personalized, site-specific customization
while meeting the highly compressed installation timetable. The revised
installation plan is as follows:

Step 1: Detailed pre-installation site survey: Homework Hotline
Educational Services will conduct a detailed survey of each school at
least one month prior to installation to ensure that all necessary
steps are taken to prepare the school for installation of the Homework
Hotline. Each school will receive a comprehensive pre-installation
packet, which contains detailed checklists of decisions to be made and
actions to be taken, an overview of the system and its components,
guidelines for ordering telephone lines, and guidelines for file
conversion to download student data onto the Homework Hotline. The
Company's operations manager and his team of installers will
personally follow up with each school to provide any assistance
necessary and to schedule an installation date.

Step 2: Community installation/customization orientation meeting: The
Company will conduct an orientation meeting in each of the ten
participating communities for all of the designated site-based system
administrators. The

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meeting will be conducted by the Company's Regional Director who is
assigned to that community. The meeting will provide a basic
introduction to the overall program and the important role that system
administrators will play. The Regional Directors will outline the
exact steps that will take place when the system administrator returns
to his/her respective school to install and customize the Homework
Hotline. As a nice touch, a conference call will be placed to
introduce the installation/customization team in Nashville and begin
the one-on-one interaction.

Step 3: Personalized on-line installation and customization. To
facilitate a smooth installation, each system administrator will be
linked via phone and computer to the Company's
installation/customization team in Nashville. On a one-on-one basis,
the system administrator will be walked through the detailed process
of installing and customizing his/her system. The Company's remote
diagnostics technology will enable its installation/customization
consultants in Nashville to see what the system administrator sees and
keys into his/her computer. In addition, the Regional Director who
conducted the orientation meeting will travel to each location to make
sure that the installation/customization process is effective.

Step 4: Comprehensive start-up testing. Once the system has been
installed and customized, the installation consultant will conduct a
remote test to make sure that each feature is working properly.

Step 5: Start up refresher. Since all of these systems will be
installed during the summer months, Homework Hotline will schedule, if
desired, another teleconference when the school year begins for the
system administrator to speak with one of the Company's installation
consultants to address any remaining questions and/or concerns and to
help refresh him/her on any of the features of the system.

Step 6: Follow up support. During Fall, 1995, the Company's Regional
Directors will conduct another meeting of all the system
administrators in each community to ensure that the program is running
smoothly. The Regional Director will also help set up an ongoing user
group among system administrators. This is in addition to the ongoing,
unlimited, 24 hour 800 number support provided.

Coordination with local phone companies: As part of the pre- installation
process,

14
<PAGE>

the Homework Hotline installation/customization team will assume the
responsibility for coordinating and paying for the installation of required
dedicated phone lines for each school. As a note, Work/Family Directions should
be aware that the telephone line installation charges can become a significant
variable expense as these costs can vary tremendously from community to
community.

15
<PAGE>

(SEE RIDER)

[Strike Through Text]

16
<PAGE>

[Strike Through Text]

<PAGE>

D. Warranties/Technical Assistance/Upgrades

Hardware and software warranties: The Company will provide a three year warranty
on all system hardware and software. The system is warranted to be free from
defects and perform the functions described for three years.

Technology/software upgrades at no additional costs: The Company will provide at
no additional cost three years of software upgrades including, but not limited
to, those features requested in this proposal.

Availability and quality of technical assistance: The Company is renowned for
the quality, consistency and responsiveness of its technical support. The
average tenure of the Company's technical support team is over eight years.
Under this proposal, the Company will provide three years of unlimited technical
support through a toll free number for all participating schools. (By no later
than November 1, 1995,) Technical support will be available 24 hours a day, 7
days a week. This technical support will include, not only assistance with
hardware and software issues, but also, and importantly, ongoing assistance in
helping schools customize the applications of the Homework Hotline to optimize
the effectiveness of the Transparent School Model.

In addition to technical support, the Company will provide extensive educational
services support to teachers and school administrators as outlined in the
various sections in this proposal. This educational support will link schools
and teachers with our staff of educational consultants, who are qualified to
provide advice on a full range of parental involvement issues.

<PAGE>

[Strike Through Text]

19
<PAGE>

[Strike Through Text]

A stamp and ink pad for each teacher which contains the Homework
Hotline number and an urge for parents to call in daily

Parent introduction and involvement packets developed in
conjunction with Dr. Bauch. These packets will contain
introductory information about the Homework Hotline parental
involvement program, a quick reference guide designed to be
mounted on the refrigerator which will outline how to access and
effectively navigate the Homework Hotline, a pressure sensitive
sticker to be placed on any home phone, and a tips booklet to
help parents help their children continue the learning process at
home.

F. Operating Costs for Participating Schools

The only operating costs incurred by schools as a result of installing the
Homework Hotline will be ongoing phone line charges. As described in the section
on technology requirements, Homework Hotline Educational Services strongly
recommends that a sufficient number of dedicated telephone lines be installed in
each participating school. Based on the Company's years of experience and
research, elementary schools should install one dedicated phone line for every
200 students, and middle, junior and high schools should install one dedicated
phone line for every 150 students. Thus, an average elementary school with 500
students would require a Homework Hotline with three dedicated phone lines,
whereas an average middle or high school would require four dedicated phone
lines. The operating cost for these phone lines varies dramatically from state
to state, based on the fee structure and whether the state permits a discount on
phone charges for educational purposes.

20
<PAGE>

G. Other Organizations/Subcontractors

Homework Hotline Educational Services is committed to implementing an aggressive
affirmative action plan for the Company. Senior management believes that the
Company must serve as the industry's model in hiring practices and in developing
a subcontracting agreement for its hardware if the Company is to provide
services to our nation's schools. To that end, the Company has reached an
agreement with a minority business enterprise (MBE) whereby the Company will
purchase all hardware from this subcontractor. Many school districts now require
participation with MBEs before approving vendors for work in the school
district. Prior to January 1, 1995, Homework Hotline Educational Services
employed ten (10) individuals, all of whom are Caucasian. Since January 1, 1995,
the Company has hired ten (10) individuals, four of whom are either Hispanic or
Afro-American.

H. Replication

Homework Hotline Educational Services has approached this proposal with
replication very much in mind. The Company is offering significant savings to
Work/Family Directions even during this initial pilot year. The normal cost of
providing the technology and services outlined in this proposal exceeds $17,000
per school. Due to the efficiencies of replication achieved in dealing with
Work/Family Directions and with a project of this scope and design, the Company
is able to provide the services and technology for $15,000 per school.

The Company anticipates being able to maintain these cost savings in future
years and will pass along all computer hardware cost savings
that are realized as hardware prices continue to fall, or as the size of the
Work/Family Directions' initiative increases.

Over half of Homework Hotline Educational Services' costs are based on "people
intensive" installation, training, and support services. Replication cost
savings in these areas are harder to affect. However, the Company is highly
sensitive to the cost pressures in both the corporate and educational
communities. The Company will continue to seek ways to deliver its programs,
resources, and ongoing support in the most efficient way possible, without
jeopardizing the effectiveness and impact which the programs are designed to
have on schools, communities, and, most importantly, involved families.

21
<PAGE>

I. Additional Plans and Proposals

Through its recent influx of capital resources, Homework Hotline Educational
Services has made a substantial commitment to bring the Homework Hotline
Communications System into the 21st Century. Today, voice is the common
denominator for communication between home and school. However, the Company
recognizes that other forms of communication such as the personal computer and
interactive cable television are rapidly increasing their penetration into homes
with school-aged children. As an example, the dramatic increase in PC purchases
during last year's holiday season was largely due to parents buying computers
for their children.

Homework Hotline Educational Services, in its determination to keep its product
on the cutting edge of technology, is actively developing new modules to permit
communication on these new digital highways, in additional to continuing to
enhance its voice-based module. These new communication modules are planned to
include, but not be limited to, the ability for schools and homes to interact
through electronic mail via Internet access, as well as through interfaces to
leading interactive television systems.

The hardware architecture currently being deployed by the Company is specified
to permit these next generation communication modules to exist simultaneously
with a voice based product without requiring costly hardware upgrades in the
future. In short, the Company is installing the most advanced hardware available
today so that schools will be able to take advantage of these new communication
links in the future with no additional hardware investment. Interfaces are also
being developed to make the Homework Hotline Communications System compatible
with new industry standard voice protocols which will permit easy interface to
future products by Homework Hotline Educational Services and third parties. In
essence, the hardware architecture will allow the Homework Hotline product to
evolve into a virtual communications server for the entire local community.

The product specified in this proposal, and the product that will be delivered,
operates on standard telephone lines. However, the Company's software
architecture easily permits the substitution of the standard analog lines with
digital lines (e.g., ISDN) which are anticipated to reduce operating costs and
increase capacity. Once these digital lines become widely available and more
cost efficient than traditional phone lines, schools using the Company's
Homework Hotline will

22
<PAGE>

be able to reduce their ongoing operating costs by making this substitution.

As open architecture continues to promote industry standards to facilitate
interconnectivity of different software and hardware applications, the Company
is taking advantage of this trend and building the most open system available.
As a result, the Homework Hotline will be able to interface easily with [Strike
Through Text] (most) current, as well as future, gradebook software, student
information management systems, classroom computers and personal digital
assistants.

In addition to expanding the technical functionality of the Homework Hotline
Communications Server, the Company is deeply committed to aggressively expand
the scope and depth of its parental involvement and parenting programs,
resources, and access points. Working with Dr. Bauch and several other leading
educational researchers and professionals, the Company is devoting significant
financial and management resources to enhancing its educational programming.
During school year 1995/1996, the Company will be able to deliver additional
programs using the already enhanced technological capabilities of the Company's
leading edge hardware/software platforms.

Three of these services include: access to a private Homework Hotline parental
involvement area on the Internet; a fax-on-demand service to provide parents and
teachers with relevant articles on numerous topics relating to parental
involvement and parenting effectiveness; and a virtual parent newsletter
service.

Access to a private Homework Hotline parental involvement area on the
Internet:

Participating schools will be able to access this area directly
through the Internet or through standard dial-up modem, both of which
will be available through the Homework Hotline Communications Server.
The Company will provide the required access software, training and
support to participating schools. In this area of the Internet,
schools will find news and information on parent involvement and
parenting in general. The Company's team of experts will continuously
peruse the Internet on a worldwide basis to find and connect users
with relevant articles and other valuable information (e.g., grant and
funding opportunities for parental involvement programs). In addition,
the Company will create an area for a high level bulletin board for
members of the Homework Hotline family in which ideas can be shared
and help can be solicited. Thus, by accessing the Company's "Home
Page" on the Internet, schools will be able to find "one stop
shopping" for all information

23
<PAGE>

and expert advice on parent involvement and parenting.

A parental involvement and parenting effectiveness fax-on-demand
service. This service allows teachers, parents, and school
administrators to receive faxed copies of articles and briefs from an
extensive collection of parental involvement articles and reports.
This information database is being assembled, and will be maintained,
by the Company's staff of educational researchers and educational
professionals. A planned extension of this service will provide access
and referrals to, as well as summary information about, local
community resources and social services.

A virtual parent newsletter. This service will enable schools, and
even individual teachers, with minimal time and effort to produce a
customized newsletter which will have a highly professional and
published look with the relevance and impact of a grass roots
communication. This unique and innovative service, accessed through
the Homework Hotline, will let schools and teachers create their own
newsletter through

o selecting several relevant articles through searching an on-line
database of pre-approved and edited articles and downloading the few
entries they would like to insert in their newsletter

o entering any additional school-specific information (e.g., awards,
sports schedules, other important announcements)

o choosing a format template from a wide range of options, which can
be customized with the school with name and logo

o choosing, if desired, from a file of clip art and photographs

o and, finally, with a few key strokes, accessing a software program
to turn the chosen and written material into a professional looking
newsletter

III. IMPLEMENTATION SCHEDULE
The implementation schedule that Homework Hotline Educational Services has
developed to meet the scope and timing of the Work/Family Directions' project is
presented in the implementation timetable attached at the end of this document.

<PAGE>

IV. INSURANCE

Homework Hotline Educational Services presently holds Commercial General
Liability (see attachment) for $1,000,000 each occurrence and $2,000,000 General
Aggregate. [Strike Through Text]

The Company has hired auto and non-owned auto liability for $1,000,000.

Please see attachment of photocopied insurance certificates.

Employees in the Company's New York City and Nashville offices are covered by
Employer's Liability/Worker's Compensation to statutory limits.

<PAGE>

V. PROGRAM BUDGET

Homework Hotline Educational Services is able to provide Work/Family Directions
with the technology and services outlined in this proposal for $15,000 per
school. Below is a brief description of the technology and services and the
normal associated cost for each component/element for each school. While the
normal costs, and projected variable costs, far exceed this amount, the Company
will maintain this all-inclusive price of $15,000 per school. This cost also
includes any additional services/technology/programs developed by the Company
during the 1995/1996 school year.

A. Technology

Hardware
* Pentium 90
* (16) meg RAM
* 750 MB (megabyte) Hard Drive
* 3 1/2" Floppy Drive *
* Tape back-up
* (15 inch) VGA Monitor
* (28.8) Fax Modem
* CD-ROM Drive(Quad Speed)
* Inkjet Printer
* Phone
* Network Card
* Documentation
* Optional Uninterrupted Power Source

..........................................................$3,200
HHES Voice Components
* Dialogic D41 (4 Port) voice card
* Associated hardware
* Phone cables/splitters
* Assembly
* Documentation

..........................................................$2,400

* Additional Dialogic D41 voice cards for
schools with more than 500 students
........................$1,500
(* Approximately 100 additional boards

26
<PAGE>

required becuase of school selected W/F
D.)
Software
* Proprietary Homework HotlineO Software
* Remote Diagnostic software
* System Operating software

.........................................................$4,900

Sub-total for technology ....................................$10,500+

B. Installation

* Shipping

* Six step personalized installation/customization program

* Installation Manual for System Administrator (Qty 2)

* Estimated installation charges for new phone lines
installed at each school

........................................................$1,450

[Strike Through Text]

(SEE ATTACHED)

[Strike Through Text]

27
<PAGE>

[Strike Through Text]

........................................................$2,300
* Additional per teacher training charge for schools
with over 30 teachers
.........................................................$85/ea

D. Warranties/Technical Assistance/Upgrades

* Three (3) year warranty/service contract on hardware and software
The system is warranted to be free from defects and perform the
functions described for three (3) years.

* Annual technical assistance/support for system
administrator(s) on hardware and
software set-up/customization, system maintenance,
troubleshooting, etc.
- Unlimited 800 number for Technical Assistance Help-Desk for
individualized support
- Training and support for any new administrators

* Three years of software upgrades including, but not limited to
those features requested in this proposal
.......................................................$1,900

[Strike Through Text]

<PAGE>

[Strike Through Text]

(SEE ATTACHED)

.........................................................$900

F. Additional Services/Technology Proposed

* Access to the private Homework Hotline Parental
Involvement "Home Page" on the Internet

* Parental involvement and parenting effectiveness fax-on-
demand service

* Virtual newsletter

..........................................................TBD

CONFIDENTIAL
------------

Agreement between
Southern Westchester Board of Cooperative
Educational Services at 17 Berkley Drive
Rye Brook, NY 10573 and HOMEWORK HOTLINE
EDUCATIONAL SERVICES

This agreement is made as of March 28, 1996 between Homework Hotline Educational
Services ("HHES"), (a wholly-owned subsidiary of Advanced Voice Technologies,
Inc. ("AVT"), a public corporation organized under the laws of Delaware), whose
address is 369 Lexington Avenue, 15th Floor, New York, NY 10017, and Southern
Westchester Board of Cooperative Educational Services ("SW BOCES"), a regional
public education collaborative which functions in New York State as an extension
of local school districts and whose address is 17 Berkley Drive, Rye Brook, NY
10573.

WHEREAS, HHES is in the business of providing parental involvement
programs which include parent and teacher training and communications materials
in the form of audio guides, video guides, periodic newsletters and a variety of
collateral support materials, all calculated to enhance parental involvement
with teachers, school administration (both within the building and within the
district) and school activities, (the "Program Materials") and which are to be
used in conjunction with a telephonic voice message communications system which
HHES offers to deliver, install and support (the "Homework Hotline
Communications System"); and

<PAGE>

WHEREAS, SW BOCES: a) determines ongoing educational needs which could be
met most efficiently on a regional, cooperative basis; b) introduces and
responds to program requests and initiatives from local school districts and the
New York State Education Department; c) provides services and facilities and
personnel to meet mutual needs of local school districts; and d) receives and
administers grants for a broad array of services for students, staff members and
community residents in local districts; and

WHEREAS, SW BOCES wishes to engage HHES as the SOLE vendor to provide
parental involvement programs centered around a telephonic voice message
communications system and, to that end, to install its Homework Hotline
Communications

System in the school districts that SW BOCES serves in Southern
Westchester, Rockland and Putnam Counties, i.e., in the schools and districts
which elect to implement such system, to train school personnel and parents in
its use, and to provide ongoing technical assistance, maintenance and upgrades
for three years after installation of each system, and to provide the parental
involvement and teacher support materials supporting HHES' three-year program,
on the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other goods and valuable consideration, the parties agree as follows:

1. Incorporation of the Recitals by Reference:

The foregoing recitals are hereby incorporated into the body of this
Agreement so as to constitute a part of it.

2. Statement of Work:

HHES shall provide the complete Homework Hotline Communications System and
Program Materials, including all hardware, software, training programs, written
communications material, video and audio aids and collateral support materials
listed in Exhibit A, together with ongoing maintenance of the

<PAGE>

system and technical support services throughout the three year program period,
to schools electing to implement same for the compensation set forth below
provided that the implementing school is named and located in one of the 62
school districts listed in Exhibit B (the "designated school districts"). There
are currently 350 schools within the designated school districts.

The delivery, installation and support of the Homework Hotline
Communications System (HHCS) and related Program Materials, as specifically set
forth in the list of deliverables identified in Exhibit A, or, as may be
applicable any part thereof, shall take place in phases, the first of which is
to be the installation of site-based Systems in select schools (i.e. without
networking hardware and System software).

The delivery, installation and support of the Homework Hotline
Communications System (HHCS) and related Program Materials, as specifically set
forth in the list of deliverables identified in Exhibit A, or, as may be
applicable any part thereof, shall take place in phases, the first of which is
to be the installation of site-based systems in select schools (i.e., without
networking hardware and software).

Under the first phase, HHES will install the Homework Hotline
Communications System (items 2-5 in Exhibit A) and have it operational in Daniel
Webster on or before February 15, 1996. Other schools will receive site-based
systems as the needs and funding are identified by HHES and SW BOCES.

Under the second phase, SW BOCES will participate on an advisory basis, by
providing input on demographics and other key issues, with HHES in the selection
process to identify target schools for further installations of HHCSs.

The second phase will extend from signing of this agreement through March
31, 1999. During such time, HHES will also install a Homework Hotline
Communications System network, if economies of scale dictate, comprised of
network hardware and network software, and have it for any or all schools
serviced by the SW BOCES for which site-based hardware and software and program

<PAGE>

materials were purchased. During such second phase, HHES will, as well, connect
to this network the Homework Hotline Communications Systems that were installed
during Phase I. Pricing for network hardware and HHCS version 2.0 software will
be made available to SW BOCES after HHES has completed its Beta Test. SW BOCES
will actively assist HHES in the design of the infrastructure of the network by
providing technologists affiliated with the school systems to collaborate with
HHES on technical issues relating to the network and SW BOCES shall provide such
further information and assistance respecting school facilities as may
reasonably be required by HHES in designing and installing the network its
site-based components. If economies of scale do not dictate that a network
installation is economical, HHES and SW BOCES will remain with site based
systems.

Throughout the second phase and beyond, HHES will provide all implementing
schools, their administrators, teachers, and students, with the training,
support and related Program Materials as listed in Exhibit A. SW BOCES will
assist HHES in garnering support for this initiative from school administrators,
teachers, PTA's and other involved groups.

3. Funding Efforts:

Beginning immediately, HHES and SW BOCES will work collaboratively to
secure funding for the delivery, installation, and support of the Homework
Hotline Communications Systems and related Program Materials to service all
school districts desiring to purchase either site-based or networked HHCS.
Funding will be sought from 1) government, 2) business, 3) communities and 4) if
and as appropriate, schools. SW BOCES will collect and disburse the funds
received from each of the foregoing four sources, but shall apply them
exclusively to the purchase of the HHES program, including the deliverables set
forth in the statement of work.

4. Compensation:

<PAGE>

For the delivery, installation and support of the Homework Hotline
Communications System and related Program Materials, as specifically set forth
in the list of deliverables identified in Exhibit A, or, as may be applicable
any part thereof, SW BOCES agrees to pay HHES the corresponding fees as set
forth in the corresponding price schedule appended to this agreement as Exhibit
C.

5. Transfer of Title and Retention by HHES of Applicable Proprietary Rights:

All right, title and interest to all hardware and software components of
the System and the specific Program materials shall pass to SW BOCES upon
receipt by HHES of the full payment specified in Exhibit C. HHES shall not bear
the risk of loss in relation to any deliverable at any time subsequent to the
initial delivery of the System to the receiving school, irrespective of whether
title has passed.

HHES shall retain ownership of all copyrights, know-how, trademarks, trade
secrets, patents and other proprietary rights (collectively, the "intellectual
property rights") which exist in the deliverables. Each receiving school is
licensed to the use of the software delivered by HHES at the premises of the
purchasing school only, and to the display, dissemination and use of the Program
Materials solely within the community of parents, teachers and administration
specific to that receiving school.

6. Warranties Respecting Equipment:

HHES hereby expressly warrants and represents to SW BOCES that:

(i) the title to be conveyed to all hardware supplies to SW BOCES in
accordance with this Agreement shall be good and marketable and the equipment
shall be free from any security interest or other lien or encumbrance; and

(ii) all equipment supplied to SW BOCES hereunder will be new and,
following unpacking, uncrating and installation by HHES, will be operable.

<PAGE>

SW BOCES will require Schools to use Systems supplied under this Agreement
only for the use intended and in accordance with the owner's manual and related
documentation applicable to such Systems. If a School improperly uses the
hardware or the software supporting its System and thereby causes a breakdown or
malfunction in such System, or if a School causes damage to the System by its
negligence or intentional misconduct, HHES may charge such School its customary
hourly rate for any services it provides to repair such breakdown
notwithstanding the provisions of Section 7 of this Agreement, after which
repair AVT's obligations under such Section 7 to maintain and repair without
charges shall be reinstated.

7. Software:

a. HHES grants to SW BOCES a non-transferable, non-exclusive license for
each school district, or, as may be applicable, sublicense to use the software
delivered and installed under this Agreement at the premises of the receiving
school only. In the event that payment is not timely made under this Agreement
or the Agreement otherwise terminated in accordance with its provisions or by
operation of law, each license and sublicense shall be deemed revoked and of no
further effect.

b. HHES reserves the right to upgrade or replace the specified hardware or
software, program materials, or any combination of them, with later revisions of
that hardware or software or other hardware or software of at least comparable
quality at HHES' expense (whether such action is due to unavailability of spare
or replacement parts, discontinuance of manufacture and whether such cause is
within the reasonable control of HHES). HHES shall confer upon the receiving
school the

<PAGE>

same scope of license rights in respect to any upgrades or replacements
subsequently provided which were conferred by this Agreement in relation to the
original deliverables.

c. HHES represents and warrants that HHES is an owner or licensee of the
software and has full power and authority to grant the rights granted to SW
BOCES and the receiving school without the consent of any other person.

d. HHES agrees that all future documentation, and revisions of existing
documentation developed for the System or similar systems which may be useful to
the receiving School shall be furnished to the School and SW BOCES without
charge.

e. HHES shall repair or replace damaged or lost software in
machine-readable object code. If the damage or defect is caused by HHES, such
repair or replacement shall be at no more than HHES' production costs for such
replacement and freight costs, if any.

8. Maintenance:

a. For a period of three years from delivery, and at no additional charge,
HHES agrees to provide all necessary maintenance and repair services to enable
the system to operate in each School, so long as SW BOCES has complied with the
compensation provisions contained in Exhibit C of this Agreement with respect to
any such system and subject to the provisions of paragraph 5 above.

b. HHES may not assign its obligations to maintain the System without SW
BOCES's prior written consent, not to be unreasonably withheld or delayed.

<PAGE>

No assignment shall relieve or discharge any liability in the event of
non-performance or breach by the assignee. Notwithstanding the foregoing, HHES
may engage third parties to assist it in its performance of such maintenance
obligations.

c. HHES shall coordinate scheduling of preventative maintenance service
with schools to coincide with periods of non-essential use.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as the
date first above written.

Homework Hotline Southern Westchester Board of
Educational Services Cooperative Educational Services

By:______________________ By:_____________________

<PAGE>

Title:_____________________ Title:___________________

<PAGE>

Exhibit A

Homework Hotline Educational Services:
Parent Involvement Program Components

I. Network Hardware & Software
Network Installation & Training

II. Site-based Hardware & Software
Site-Based Installation & Training

III. Administrator Materials:
A. Leadership Strategies Kit
B. "How to Use the Hotline" Guide
C. Introductory Video
D. Banner

IV. Teacher Materials:
B. Motivational Video
C. Audio Training Tapes
D. Teacher Training Guide
E. Teacher Guide Cards
F. Teacher Newsletters (4x/yr, 3 levels)

V. Parent Materials:
B. Magnets (incldg Yrs 2 & 3 replace)
C. Telephone Stickers (incldg Yrs 2 & 3 replace)
D. Introductory Video
E. Parent Newsletters (4x/yr,3 levels)
10

<PAGE>

F. Parent Booklets (4x/yr, 3 levels)
G. TBD "Back to School" Item Yr 2
H. TBD "Back to School" Item Yr 3

<PAGE>

Exhibit B
Designated School Districts
<S> <C> <C>
Southern Putnam Northern Rockland County
Westchester County Westchester County

Ardsley Bedford Clarkstown
Blind Brook Brewster East Ramapo
Bronxville Briarcliff Manor Haverstraw-Stony Point
Byram Hills Carmel Nanuet
Dobbs Ferry Chappaqua Nyack
Eastchester Croton Harmon Pearl River
Edgemont Garrison Ramapo Central
Elmsford Haldane South Orangetown
Greenburgh Abbott Hendrick Hudson
Greenburgh Central Seven Katonah Lewisboro
Greenburgh Eleven Lakeland
Greenburgh Graham Mahopac
Greenburgh St. Christopher North Salem
Harrison
Hastings Ossining
Hawthorne Cedar Knolls Peekskill
Irvington Putnam Valley
Mamaroneck Somers
Mount Pleasant Blythedale Yorktown
Mount Pleasant Central

</TABLE>

<PAGE>

Mount Pleasant Cottage
Mount Vernon
New Rochelle
Pelham
Pleasantville
Pocantico Hills
Port Chester
Rye City
Rye Neck
Scarsdale
The Tarrytowns
Tuckahoe
Valhalla
White Plains
Yonkers

Exhibit C

Pricing: Site-Based Systems

Base System: Software, Voice Board & Parent Involvement Materials

Option 1: Onsite Installation & System Administrator Training

Option 2: One Year Unlimited Technical Support

Option 3: Turnkey Standard Hardware

Option 4: Turnkey Enhanced Hardware

<PAGE>

- --------------------------- ------------------------- ------------------------- -------------------------
Purchase Options 1 to5 Systems 6 to 10 Systems 11 + Systems
- --------------------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Base System* $9,400 $9,125 $7,950
- --------------------------- ------------------------- ------------------------- -------------------------
Option 1 $1,300 $1,250 $1,180
- --------------------------- ------------------------- ------------------------- -------------------------
Option 2 $ 900 $ 850 $ 800
- --------------------------- ------------------------- ------------------------- -------------------------
Option 3 $4,400 $4,400 $4,400
- --------------------------- ------------------------- ------------------------- -------------------------
Option 4 $5,400 $5,400 $5,400
- --------------------------- ------------------------- ------------------------- -------------------------
</TABLE>

* Plus Shipping

Assumptions:
1. 500 students and 25 teachers per school.
2. Each additional student over 500 = $15.00
3. Price of each additional student over 500 covers additional teacher
expense.
4. Additional Dailogic Boards = $1050 each:
- Middle/High > 600 and<1200 students = 1 additional board
- Middle/High >1200 and <1800 students = 2 additional boards
- Middle/High >1800 and <2400 students = 3 additional boards
- Elementary >800 and <1600 students = 1 additional board
5. Free 2 day seminar for SW BOCES trainers on HHCS version 1.2
6. Free 10 hours of technical support per year for SW BOCES personnel.
Additional hotline support available at $50.00 per hour.