U.S.
SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-KSB
 
 x
              Annual
      report under Section 13 or 15 (d) of the Securities Exchange Act of 1934
      for the fiscal year ended March 31, 2008o
              Transition
      report under Section 13 or 15 (d) of the Securities Exchange Act of 1934
      for the transition period from _____________ to
      ____________
  Commission
File Number 33-92894
 PREFERRED
VOICE, INC.
 (Name of
Small Business Issuer in its Charter)
 
 Delaware
              
              75-2440201(State
      or Other Jurisdiction of
              
              (I.R.S.
      EmployerIncorporation
      or Organization)
              
              Identification
      No.)6500
      Greenville AvenueSuite
      570Dallas,
      Texas
              
              75206(Address
      of Principal Executive Offices)
              
              (Zip
      code)
 
 214-265-9580
 (Issuer’s
Telephone Number, Including Area Code.)
 
 Securities
registered under Section 12(b) of the Exchange Act:
  Title of Each
      Class
              Name
      of Each ExchangeNONE
              on Which
      RegisteredN/A
 
 Securities
      registered under Section 12(g) of the Exchange Act:
              NONE(Title
      of class)
 
 Check
whether the issuer:  (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 past 90
days.
 
 Yes x
              No
 
 Indicate
by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not 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 10-KSB.  :
 
 State
issuer’s revenues for its most recent fiscal year:  $
3,541,586
 
 The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant as of June 28, 2008 was approximately $
1,412,692.
 
 As of
June 28, 2008, there were 6,130,184 shares of the common stock, $0.001 par
value, of the registrant issued and 6,125,684 shares outstanding.
 
 Transitional
Small Business Disclosure Format: Yes    
No  x
  
  Preferred
Voice, Inc.
 
 PagePART
      IItem
      1.
              Description
      of Business
              1Item
      2.
              Description
      of Properties
              8Item
      3.
              Legal
      Proceedings
              8Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              8PART
      IIItem
      5.
              Market
      for Common Equity and Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities
              9Item
      6.
              Management’s
      Discussion and Analysis or Plan of Operations
              9Item
      7.
              Financial
      Statements
              14Item
      8.
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
              14Item
      8A.
              Controls
      and Procedures
              14Item
      8B.
              Other
      Information.
              15PART
      IIIItem
      9.
              Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange Act
              15Item
      10.
              Executive
      Compensation
              16Item
      11.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              17Item
      12.
              Certain
      Relationships and Related Transactions and Director
      Independence
              19Item
      13.
              Exhibits
              20Item
      14.
              Principal
      Accountant Fees and Services
              21SIGNATURES
              22
  
  PART
I
  This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or
anticipated results, including those set forth under “Certain Risk Factors
Related to Our Business,” Certain Risk Factors Related to our Industry,”
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in, or incorporated by reference into, this
report.
 
 On
November 13, 2006, the Board of Directors approved a 1 for 5 reverse stock split
of its common stock.  All references in this report to the number of
shares of common stock, loss per share, and market price per share have been
retroactively restated to reflect the reverse stock split.
  Item
1:  Description of Business
 
 Background
of the Company
 
 We
integrate and market enhanced services to phone companies, to complement their
overall package of voice services.  Our Global Application Platform
(GAP) is designed as a
best-in-class architecture that can be leveraged to provide additional services
as they are developed. This base architecture supports a
multi-switch/multi-vendor environment on a basic platform that can scale for a
small regional carrier to a larger national carrier’s network. The GAP system
successfully integrates both speech and non-speech recognition applications
within the same platform.  The system is designed to utilize standard
industry hardware and a microprocessor-based computing system, with a Windows
2000-series server operating system that fits into a standard rack that can be
placed in the phone company’s switch room or can be remotely accessed through a
telephony network.
 
 We were
incorporated in Delaware in 1992 under the name of Direct Connect, Inc. and
began operations in the telecommunications industry under the name of Preferred
Telecom, Inc. in April 1994.  We began as a long distance
telecommunications carrier with a variety of enhanced services; however, in
February 1997 we sold a number of assets, including our end-user customer baseto Brite Voice Systems, Inc.  We
have since focused on enhanced telephone services that feature speech
recognition technology and end-user entertainment and personalization
features.  We believe that there are larger market opportunities in
offering enhanced services to phone companies.
 
 The
Market and Market Strategy
 
 Our
current marketing efforts are focused on cellular telephone service providers.
The cell phone market has grown from approximately 69 million subscribers in
1998 to approximately 255 million subscribers as of December 2007, and as prices
for cellular use drop, cellular use is becoming affordable to more economic
segments of the population.  Wireless phones are now a mass-market
consumer device with an overall wireless penetration rate of 84% of the U.S.
population.  These companies are already offering some enhanced
services to their subscribers, such as voice and picture messaging, e-mail
reading, short message services, voice activated services, and personalized
entertainment content.  In order to remain competitive, however, cell
phone companies need to provide their subscribers more enhanced services. We
believe that our GAP system, with its unique variety of integrated services,
provides a solution to satisfy this need.
 
 Our
Market Strategy
 
 We
utilize personal sales calls to contact and market our GAP system and services
to phone companies.  We utilize trade shows as a means to present our
product and to network with our potential customers.  The principal
elements of our strategy to achieve a leading position in the telecommunications
enhanced services market are as follows:
  1
  ●
              Target Tier II and Tier III
      carriers.  We believe that our experience in providing
      enhanced services positions us strongly in carrier markets with subscriber
      bases of less than 20 million.  Our ability to interconnect with
      various types of switches and billing formats gives us the opportunity to
      serve these carriers efficiently and economically.●
              Continue to enhance our phone
      company customer relationships.  We consider our
      relationships with our phone company customers to be
      strategic.  Our long-term revenue sharing agreements allow us to
      plan a joint, strategic deployment of services to a contracting phone
      company’s subscribers.●
              Develop strategic
      alliances.We are working to establish strategic
      relationships with other companies around the nation to broaden our
      services and provide our customers with additional services that we do not
      currently provide.  Our hosted network approach has allowed us
      to centralize operations and provide services to numerous phone companies
      from one location eliminating the need for our equipment to always be
      collocated at each phone company’s site.●
              Technological
      enhancements.  We believe that we provide high quality,
      reliable enhanced services to consumers through phone
      companies.  We intend to continue to develop services that we
      believe will enhance the services we are already providing or for which we
      believe there is a viable market.
 
 Primary
Market
 
 Cell Phone
Companies.  Of the approximately 700 cellular telephone markets
in the United States, there are approximately 400 rural service areas and 300
metropolitan service areas that have multiple cell phone companies serving the
same markets.  Cell phone companies are the primary market in which we
have focused our marketing efforts, offering these phone companies with a
revenue sharing opportunity.  We focus on these markets because the
phone companies in these markets have an existing subscriber base.
 
 We believe that our revenue sharing agreements whereby we provide
service equipment at or below cost and then share revenues generated from the
different services provided by the carrier to their subscriber base is a cost
effective way for phone companies to provide enhanced services.
 
 The cell phone companies who contract with us are responsible for
billing and collecting revenue generated from the GAP system’s enhanced
services.  However, our GAP system can produce subscriber information
for marketing or billing use.In addition, we assist
each phone company in marketing the services by providing various co-branded
advertising materials we have designed and by training the contracting cell
phone company’s sales force and customer service staff.  As of June
28, 2008, we are providing enhanced services to six carrier’s subscribers and
generating revenues for the cell phone companies and us.
 
 Standard Company
Contract.  We use a combined
software license and marketing agreement with each of our carrier
customers.  The software license agreement grants each contracting
phone company a license to use our software and all subsequent improvements to
the software in the carrier’s local calling areas.  We retain title to
the software and require that those who contract with us keep all information
related to the software confidential.
 
 The
agreement has provisions to remain in effect for up to ten years. Most of our
agreements are for an initial three year term which automatically renews unless
cancelled by either party on 60 days’ notice prior to the anniversary date of
the agreement after the initial term.  In our marketing agreement, we
agree to initiate service after a testing period by which the carrier can
evaluate the service within its network.  If we are unable to cure any
material deficiency of the service then either we or the contracting phone
company may terminate the contract on thirty (30) days’ written
notice.  If neither notice of problems nor an acceptance certificate
is provided to us by the end of the phone company’s thirty (30) day testing
period, then the contracting phone company is deemed to have accepted the GAP
services.
 
 The
agreement provides for revenue sharing in which the split ranges from seventy
percent (70%) to thirty percent (30%) depending on the service and the amount of
revenue obtained by the phone company through sale of our services to their
subscribers.  The cell phone company pays us either a percentage of
the revenues received from the phone company’s subscribers for the services we
offer in that area or a minimum amount for each of its subscribers subscribing
to our services.
 
 Once the
participating carrier has accepted the services, it must use its best efforts to
promote the sale of our services and applications to its
subscribers.  The contracting cell phone companies are responsible for
billing and collection on the services, but we and those with whom we contract
jointly agree on the pricing of those services.  The phone companies
with whom we contract agree that they will not install any system, for testing
or otherwise, that competes with our GAP services in the area designated under
the marketing agreement. We agree to provide marketing materials, technical
support and training to our partners and their personnel. We also provide in the
marketing agreement that we may provide services directly to our own subscribers
in the contracting phone companies’ designated areas.  Our marketing
agreements are subject to termination by either party on standard events of
default, such as breach of the agreement or insolvency.
  2
  Our
Product and Services
 
 The
Platform
 
 The
Global Application Platform (GAPSM) is a
unified platform integrating telecommunications applications, subscriber web
interfaces, billing and provisioning interfaces, and intelligent networking
technology.   The GAP system can be integrated with a variety of
switches from manufacturers including Nortel, Lucent, Motorola, Ericsson, and
others.  Voice channels on the GAP can operate with T1 and E1 trunks
or higher density links.  Signaling and call control are accomplished
using SS7, AIN/WIN, CAMEL, RLT, IS-41, ISDN PRI 2 B-Channel Transfer, and
traditional signaling methodologies.  The GAP system can be collocated
at a carrier switch site or services can be provided through our hosted network
system located in Allen, Texas.  To facilitate the integration of
services offered over the network with a carrier’s existing infrastructure, we
have developed several call management and subscriber maintenance programs. Our
call management program provides for the collection, analysis and reporting of
call data by service offering.  This data can be used to provide the
carrier and service provider with information regarding empirical user trends,
network usage and service functionality, all of which are necessary to the
parties’ technical and marketing analysis of the network services.
 
 Platform
Services
 
 In
September of 2004 we introduced our web enabled suite of services that we call
My Phone Services Suite.  Our bundled service suite was designed to
address the growing trend to personalize all aspects of telecommunications. The
suite has a core network based address book that is integrated with such
services as Rockin’
Ringback, RemindMe, Push-2-Connect, SmartLine, and Voice Activated
Dialing.  According to Strategy Analytics, the personalization
sector will command 8% of the global data revenues of $189 billion by 2009.
These products are continuously being added to or improved to include elements
that improve the subscriber’s experience.   The bundling feature
of the suite was created to address the fact that no one application will work
for all subscribers. Each subscriber will prefer and utilize various features of
each application differently. The applications can be customized, combined, and
configured to meet each carrier’s needs.
 
 Rockin’ RingbackTM This service allows you
to entertain callers while they wait!  Rockin’ RingbackTM lets
subscribers send a message through music – before a call is even answered. This
network-based service allows subscribers to replace the familiar ‘ring, ring’ that callers
normally hear with a popular song, personalized message or even an
advertisement. Ringbacks can be specified by caller, group, and by time of
day.  The service includes an integrated store where subscribers shop
from thousands of tunes created especially for ringback use.
 
 Content SuiteThis
service provides for the download of games, graphics, video, picture messaging
and polyphonic and monophonic ringtones to consumers phones.
 
 Digital
Signage.  Our digital signage offering provides for a turn-key
solution utilizing in-store touch screens and customizable interactive content
design to engage customers while they are shopping in a cellular telephone
retail store.
 
 Voice Activated
DialingSpeech recognition service that may be accessed by a
telephone subscriber that allows the subscriber to speak a name, number or
location from his or her personal directory or a common
directory.  The system then routes the call to the appropriate
party.  There is also an option for the disabled to access the
system.  By lifting the receiver or turning on the speakerphone and
waiting three seconds, the telephone switch will automatically activate the
system, and the system will prompt the subscriber to speak a name, number or
location to be dialed.
 
 Smart Line  This
application allows a subscriber to receive calls at any phone. The subscriber
must notify the VIP system of a change in his or her location by giving it voice
commands.  A name from the subscriber’s voice dialing directory can be
used as the new “locate” phone number.  Incoming calls for the
subscriber are routed to the pre-programmed “locate” phone
number.  That phone number can be either local or long distance, as
required.  The Smart Line may also be used to screen calls allowing
the subscriber to take the incoming call or forward it to voice
mail.
  3
  Push-2-ConnectTMApplication
that provides for reservationless conferencing
on-demand.   Seamless integration with the user’s network address
book allows for customized grouping and naming conventions so that multiple
contacts can be dialed simultaneously.
 
 Remind Me  This
application allows the subscriber to schedule a message that is delivered to the
subscriber on a predetermined date and time on a one time or recurring
basis.
 
 EMMA the Perfect
Receptionist.  Our software provides telephone subscribers with
the first remote accessed automated attendant service.  Emma answers
the subscriber’s phone with a custom greeting and listens as a caller
speaks a name, department, or location listed in the subscriber’s voice dialing
directory then routes the call to the person, department or location
requested.  On outbound calls, EMMA uses the same procedure to dial a
phone number from a subscriber’s directory upon a speech command such as “Call
John.”
 
 Competition
 
 The
enhanced services market is competitive and marked by rapid technological
innovations. We expect competition to continue to increase as wireless,
local, and competitive local telephone companies seek to offer their customers,
the subscribers, enhanced services and to distinguish themselves from other
phone companies.  Many of our current competitors have longer
operating histories, greater name recognition, established subscriber bases and
substantially greater financial, technical, marketing, sales and other resources
than us.  We believe that the principal factors affecting competition
in the enhanced services market are ease of use, overall technical performance,
price and reliability. The market for our products and services is constantly
evolving, and we may not be able to compete successfully against current and
potential future competitors.
 
 Major
competitors in the ringback service arena are WiderThan, NMS, Alcatel, Comverse
Technologies, Lucent, and Intervoice.  Even though we are much smaller
and have substantially less resources than these other providers we believe we
have competitive viability with carriers because we were the first provider of a
ringback service in the United States.
 
 Some of
our competitors in speech driven services are Sprint Corporation, BeVocal,
TellMe, Comverse Technologies, One Voice Technologies, and Glenayre Electronics,
Inc. All of these companies
provide directory driven speech services in varying but similar
form.
 
 Customer
Service
 
 We train
contracting phone companies’ customer service employees to be able to answer
standard questions related to the varying services we provide through the GAP
system, from product selection to individual product help.  We assist
contracting phone companies if there are problems with the GAP system platform
through our 24 hour, 7day a week technical support line.  In addition,
our systems are redundant where possible, but in the case of a component failure
back-up components, such as the telephony cards that help operate the system,
are inventoried for overnight shipment and replacement.  We believe
that this high level of customer service and technical support will help us
market the system to a greater number of telephone companies.
 
 Dependence
on one or a few major customers
 
 During
the year, approximately fifty-two percent of the Company’s revenue consisted of
sales and installation of ringback service equipment to one carrier
customer.  The sales and marketing team is aggressively marketing its
services to existing and prospective customers but dependence from revenue
sharing from this one carrier customer may continue through the fiscal year
ended March 31, 2009.
 
 Employees
 
 As of
June 28, 2008, we had 14 full time employees.  None of our employees
is represented by a labor organization.  We maintain various employee
benefit plans and we believe we have excellent relations with our
employees.
 
 Patents,
Trademarks and Copyright
 
 The
Preferred Voice name and logo, the GAP system, the SAM peripheral and the names
of products and services we offer are trademarks, registered trademarks, service
marks or registered service marks that we own.   We rely on a
combination of trade secret, copyright and non-disclosure/confidentiality
agreements to protect our proprietary rights in our software and
technology.  There can be no assurance that such measures are or will
be adequate to protect our proprietary technology.  Furthermore, there
can be no assurance that our competitors will not independently develop
technologies that are substantially equivalent or superior to our
technology.
  4
  Our
software is licensed to contracting phone companies under license agreements
containing provisions prohibiting the unauthorized use, copying and transfer of
the licensed program.  Policing unauthorized use of our products will
be difficult, and any significant piracy of our products could materially and
adversely affect our financial condition and results of operations.
 
 We have
received registered trademarks from the United States Patent and Trademark
Office for the following:  Preferred/telecom, Preferred Voice, Secure
Card, Use Your Voice, BusinessConnect, Rockin’ Ringback Safety Talk, and
Adback.  We have received notice of allowance on our U. S. Patent
Applications “Method and Apparatus That Provides a Reusable Voice Path in
Addition to Release Link Functionality for Use with a Platform Having a Voice
Activated Front End” and “ System Access Modules for Use with a
Telecommunications Switch, a Telephony Server System and a Method of Enabling a
Communications Session”.
 
 We have
applied for patents on our Group Plan Manager, Method of Customizing In-band
Signaling for a Communication in Progress, a Method of Identifying a Subscriber
to a Calling Party and a Tone Sequence Applicator Employing Either
Method.  We have not yet received confirmation of issuance of
such.
 
 Core
Technology and System Enhancement
 
 We have
spent the last ten years developing and enhancing our proprietary software in
conjunction with differing hardware platforms and development of switch
integration to create our GAP system. We continually evaluate and adjust our GAP
system.  The ever changing telephony and computer industry requires
companies like ours to continue developing new or improved methods to process
applications and as new technology emerges new processes are created to better
deploy our services.  In the past three fiscal years we achieved the
conversion to our high-density database structure that will allow for a very
efficient and scalable network based service deployment platform, we completed
the integration of web-enabled services in our My Phone Services Suite, we
deployed the first ringback service through a telephony carrier in the United
States and we have installed and tested our ringback service in a Tier II
multi-switch carrier network.  We currently have eight employees in
our software/hardware development and deployment department.
 
 Certain
Risk Factors Related to Our Business
 
 We
may expend significant resources to defend against claims of infringement by
third parties and if we are not successful, we could lose rights to our
technology and be required to enter into costly license or royalty
agreements.
 
 Our
success and ability to compete is dependent in part upon our proprietary
technology and ability to protect such technology.  We continue to
defend our proprietary technology against patent infringement litigation,
including the Ring Plus lawsuit (Item 3: Legal Proceedings).  There
can be no assurances that our expenses to defend the Ring Plus suit will not
exceed our estimate.  Also, if patent infringement judgments are
entered against us or unauthorized copying or misuse of our technology were to
occur to any substantial degree, our business, financial condition and results
of operations could be materially adversely affected.
 
 The
loss or significant reduction of business from  our major customer,
MetroPCS, would have a material adverse effect on our business.
  A
significant portion of our revenues in any particular period has been
attributable to a limited number of customers in the wireless telecommunications
business. This concentration of customers continues as MetroPCS represented 52%
revenues for the twelve months ended March 31, 2008.  MetroPCS is
expected to represent a significant percentage of our total revenues for the
foreseeable future.
 
 Our
limited funding may restrict our operations and our ability to implement our
strategy, and the availability of additional resources is
uncertain.
 
 Our
business model requires us to devote significant financial resources to the
continued enhancement and maintenance of our GAP system and integrated
applications.  If we are not able to successfully manage our existing
resources or to secure additional funding and other resources in a timely
manner, our ability to successfully provide these services and applications and
to generate sufficient revenues will be restricted.
  5
  We must
conserve cash because we continue to experience periods of negative cash flows
from operations.  We cannot guarantee that, in the future, we will be
able to raise sufficient money through sales of debt or equity.  The
unavailability or timing of increased revenues and financing could prevent or
delay the continued provision of our services and applications and may require
us to curtail our operations.  See Item 6, Management’s Discussion and
Analysis or Plan of Operations – Liquidity and Capital Resources.
 
 Our
ability to grow our business will be harmed if we cannot maintain our network
infrastructure that provides our services.
 
 Our
operations are dependent on our ability to maintain our computers,
switching  and
other  telecommunications  equipment  and  systems  in  effective
working  order and to protect
our  systems  against  damage  from
fire,  natural disaster, power loss,  telecommunications
failure or similar events. Any damage, failure or delay that causes
interruptions in our operations could have a material adverse effect on our
business,  financial  condition and results of
operations.
 
 Our
ability to grow our business will be harmed if we cannot retain our current key
personnel.
 
 Our
ability to continue to compete in the enhanced services market and grow our
business is dependent in large part on a number of key senior management, senior
software developers and engineers, and sales employees.  We do not
have written employment agreement with any of our executive officers, key
technical or managerial personnel.  The loss of any of our key
employees’ services could have a negative effect on our ability to grow and
achieve profitability.
 
 Our
ability to generate revenue could be negatively affected if we, and those who
contract with us, are unable to create a large enough market for the services we
offer through our GAP system to justify the expenditures we need to make to
implement and continue to enhance such services.
 
 Our
business model depends on our ability to derive revenue from our revenue sharing
contracts which allows contracting phone companies to sell the applications of
our GAP system platforms to their subscribers.  As a result, our
future financial performance will depend in large part on the continued market
acceptance of our enhanced services and primarily our new entertainment
applications, our ability to market additional applications of our GAP system
software and our ability to adapt and modify the GAP system to meet the evolving
needs of phone companies who use our system.  Revenues from our GAP
system services depend in part on the generation of significant numbers of
subscribers.  It is uncertain whether we or our phone company customer
will be able to develop and maintain at reasonable cost a significant subscriber
base for our services.  Competition and consumer adoption make the
life cycle of our products and services difficult to estimate.  The
failure of our services to gain widespread acceptance, whether as a result of
competition, technological change or otherwise, could have a material adverse
effect on our ability to generate revenue and our business could be
harmed.
 
 If
we fail to continue to attract and retain strategic relationships with phone
companies who provide the medium through which we market our services and
service subscribers, we may be unable to sell our services and generate
revenues, and our business could be harmed.
 
 We will
continue to distribute our services through phone companies.  The
effectiveness of generating subscriber sales from strategic relationships with
phone companies is dependent on the marketing and sales efforts of those phone
companies with whom we contract, and their dedication of resources to providing
new innovative products and enhanced services to their subscribers.
 
 In
addition, we cannot provide any assurance that we will be able to effectively
manage potential conflicts in our strategic relationships, that economic
conditions or industry demand will not adversely affect the phone companies with
whom we contract or that such phone companies will not devote greater resources
to market and support the services of other companies.  Our future
performance also will depend in part on our ability to attract additional phone
companies that will be able to market and support our products effectively,
especially in markets in which we have not previously sold our products or
services.  We also rely on phone companies to provide their
subscribers who utilize our services customer support for our
services.  If those phone companies fail to provide adequate customer
support, their subscribers who subscribe to our services could cease using our
services which could harm our customer goodwill, adversely affect our ability to
sell our services, and, therefore, impair our ability to generate
revenue.
  6
  We
rely on our intellectual property rights to our proprietary technology, however,
protection of our intellectual property rights is uncertain and could be
costly.
 
 Our
success depends to a large extent upon our proprietary technology.  We
regard our software applications as proprietary and rely primarily on a
combination of contract, copyright, trademark and trade secret law to protect
our proprietary rights.  We have no patents on our products currently
in commercial use, although we are in the process of applying for patents and
registering trademarks on several of our products and service
applications.  The source code for our proprietary applications is
protected by trade secret and copyright laws.  It is our policy to
enter into confidentiality agreements with our employees to protect our
software, documentation and other written materials under trade secret and
copyright laws.
 
 Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy or otherwise use our products or technology, to obtain and use
information that we regard as proprietary or to independently develop similar or
superior products or technology.  Policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our software products exists, we expect that software piracy will be a
persistent problem.  In addition, we may make our source code or
products available to our strategic partners, which may increase the likelihood
that our products are misappropriated or misused.
 
 Our
products can have a long sales and implementation cycle and, as a result, our
quarterly operating results and our stock price may fluctuate.
 
 The sales
cycle for the closing of one of our revenue sharing agreements is generally six
months but may be shorter or longer depending on the size and complexity of the
phone company customer and such customer’s telecommunications
network.  We may spend significant time educating and providing
information to prospective phone company customers regarding the use and
benefits of our services.  During this education period, we may expend
substantial sales, marketing and management resources.
 
 After we
sign a revenue sharing agreement with a contracting phone company, it may take
substantial time and resources to deploy and integrate our software and hardware
into contracting telephone companies’ existing systems.  Our current
average time from signing of a contract to deployment is approximately four
months.  Our agreement specifies acceptance criteria, and we do not
recognize service revenue until each installation is accepted and services are
provided and billed to the phone company’s subscribers.  We also have
in the past and may in the future experience other unexpected delays in
recognizing revenue.  Consequently, the length of our sales and
implementation cycles makes it difficult to predict the quarter in which revenue
recognition may occur and may cause service revenue and operating results to
vary significantly from period to period.  These facts could cause our
stock price to be volatile or to decline.
 
 Our
Marketing Agreements allow contracting phone companies to reject the GAP system
after installation and testing is completed and are generally terminable after
five years.
 
 Our
Marketing Agreements allow contracting phone companies to reject the GAP system
after installation and testing is completed if they provide us with written
notice of problems revealed to the phone company in its testing
period.  These agreements also allow either us or the participating
phone companies to terminate the contract on thirty (30) days’ written notice if
we are unable to cure any material deficiency of the GAP system within thirty
(30) days of when we commence testing.    If a number of the
cell phone companies with whom we contract choose to reject the GAP system, our
business, financial conditions and results of operations could be materially and
adversely affected.  In addition, our marketing agreements are
generally terminable on sixty (60) days notice after three (3) to five (5)
years.  If a number of telephone companies choose to terminate the
agreements at that time, our revenues would substantially decline and results of
operations could be substantially harmed.
 
 Certain
Risks Related to Our Industry
 
 The
market for our services may not continue to develop, which would substantially
impede our ability to generate revenues.
 
 Our
future financial performance depends in large part on growth in demand for our
enhanced services.  If the market for enhanced services and
applications does not develop or if we are unable to develop other enhanced
services capable of capturing a significant portion of that market either
directly or through the phone companies with whom we contract, our revenues and
our results of operations will be adversely affected.
  7
  The
market for enhanced services including speech recognition services is still
evolving.  Negative consumer perceptions regarding reliability, cost,
ease-of-use and quality of speech-based products affects consumer demand and may
impact the growth of the prospective phone company market.  In order
to achieve commercial acceptance, we will have to continue to educate
prospective phone company customers about the uses and benefits of our services
in general and our GAP system.  As a result, we cannot guarantee that
the market for enhanced service applications will grow or that consumers will
accept any of the services or applications provided through our GAP system
platform.
 
 If
we are unable to respond to rapid changes in technology, our systems could
become obsolete and we could lose revenue.
 
 The
telecommunications services market is characterized by rapid technological
change, changing consumer needs, frequent new product introductions and evolving
industry standards.  The introduction of products or services
embodying new technologies and the emergence of new industry standards could
render our enhanced service applications obsolete and
unmarketable.  Our success will depend upon our ability to timely
develop and introduce new products, services and applications, as well as
enhancements to our existing product, services and applications, to keep pace
with technological developments and emerging industry standards and address the
changing needs of those phone companies to whom we are providing our services
and applications and their subscribers.  We may not be successful in
developing and marketing new products and services that respond to technological
changes or evolving industry standards.  We may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of new products, services and
applications.  In addition, our new products, services and
applications may not adequately meet the requirements of the marketplace or
achieve market acceptance.
 
 Our
phone company customers are subject to a regulatory environment and to industry
standards that may change in a manner adverse to our interests.
 
 Our phone
company customers are subject to a number of government regulations and industry
standards.  Our products, services and applications must comply with
these regulations and standards. Changes to these standards may require us to
make periodic changes to our products and services.
 
 Item
2:  Description of Properties
 
 Our
executive offices are located in Dallas, Texas.  We lease 3,588 square
feet of space in a facility as a tenant.  The term of the lease is
through December 31, 2008 and the rent is presently $4,485 per
month.
 
 Item
3:  Legal Proceedings
 
 In
February, 2008, we were sued by Ring Plus, Inc. in the United States District
Court for the Central District of California alleging infringement of its U.S.
Patent No. 7,006,608 (the “608 Patent”) which pertains to ringback tone
replacement methods and algorithms. Ring Plus, Inc. is seeking declaratory
judgment that we have violated the 608 Patent, preliminary and permanent
injunctions, an order that we destroy all infringing items, and money damages in
a sum according to proof at trial.  We do not believe that we infringe
the 608 Patent and we believe we have meritorious defenses to the
action.
 
 Item 4:  Submission of Matters to a Vote of Security
Holders
  There
have been no matters submitted for vote to the security holders, through the
solicitation of proxies or otherwise in the fourth quarter of the fiscal year
covered by this report.
  8
 PART
II
 
 Item
5. Market for Common Equity and Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities
 
 The
Common Stock is listed on the OTC Electronic Bulletin Board. The following table
indicates the quarterly high and low bid price for the Common Stock on the OTC
Electronic Bulletin Board for the fiscal years ending March 31, 2008 and March
31, 2007.  Such inter-dealer quotations do not necessarily represent
actual transactions and do not reflect retail mark-ups, mark-downs or
commissions.
 
 OTC
ELECTRONIC BULLETIN BOARD BID PRICE
 
 Fiscal
      2008
              
              Fiscal
      2007HIGH
              LOW
              
              
              HIGH
              LOW1st
      Quarter
              $1.36
              $1.00
              
              1st
      Quarter
              $0.40
              $0.352nd
      Quarter
              $1.35
              $0.65
              
              2nd
      Quarter
              $0.40
              $0.353rd Quarter
              $0.65
              $0.65
              
              3rd Quarter
              $1.00
              $0.354th
      Quarter
              $0.70
              $0.65
              
              4th
      Quarter
              $1.30
              $0.40
 
 On June
28, 2008, the closing bid price of the Common Stock as reported on the OTC
Electronic Bulletin Board was $.55.
 
 The
number of holders of record of the Company’s common stock as of June 28, 2008
was 159 as reported by our transfer agent. This number does not include an
undetermined number of stockholders whose stock is held in “street” or “nominee”
name.
 
 We have
not declared or paid any cash or other dividends on the Common Stock to date for
the last two (2) fiscal years and have no intention of doing so in the
foreseeable future.
 
 We did
not repurchase any of our equity securities during the fourth quarter of fiscal
2008.
 
 Recent
Sales of Unregistered Securities not previously reported on the Company’s
10-QSB
 
 None
 
 Item
6. Management’s Discussion and Analysis or Plan of Operations
 
 The
following discussion and analysis constitutes forward-looking statements for
purposes of the Securities Act and the Exchange Act and as such involves known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements.  The words “expect”, “estimate”,
“anticipate”, “predict”, “believes”, “plan”, “seek”, “objective” and similar
expressions are intended to identify forward-looking statements or elsewhere in
this report.  Important factors that could cause our actual results,
performance or achievement to differ materially from our expectations are
discussed in detail in Item 1 above.  All written or oral
forward-looking statements attributable to us are expressly qualified in their
entirety by such factors.  We undertake no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.  Notwithstanding the
foregoing, we are not entitled to rely on the safe harbor for forward looking
statements under 27A of the Securities Act or 21E of the Exchange Act as long as
our stock is classified as a penny stock within the meaning of Rule 3a51-1 of
the Exchange Act.  A penny stock is generally defined to be any equity
security that has a market price (as defined in Rule 3a51-1) of less than $5.00
per share, subject to certain exceptions.
 
 On
November 13, 2006, the Board of Directors approved a 1 for 5 reverse stock split
of its common stock.  All references in this report to the number of
shares of common stock, loss per share, and market price per share have been
retroactively restated to reflect the reverse stock split.
 
 The
following discussion should be read in conjunction with the Financial
Statements, including the notes thereto.
 
 9
 
 Overview
 
 We began
operations in May 1994 as a traditional 1+ long-distance
reseller.  Recognizing the declines in telecommunications service
prices and the decreasing margins being experienced in long distance sales, we
decided to sell our long distance customer base and assets in early
1997.  Since June of 1997, we have focused on the development,
testing, and deployment of voice activated telecommunications services that
would allow any consumer the ability to “dial” their calls using their
voice.  In the last two fiscal years we have focused our efforts on
service applications that do not utilize voice recognition and will continue to
evaluate each product and the incorporation of voice in each product as it is
developed.
 
 Even
though we believe voice activated products have viability in the
telecommunications arena, we have concentrated our last three years of
development efforts on the growing trend in mobile entertainment.  We
therefore contracted with a leading content provider to distribute their library
of downloadable wireless games, picture messages, graphics and
ring-tones.  Our first content project was launched on June 18, 2004
with a full turnkey solution for the carrier that includes secure customer login
from the carrier website, viewing of content, download of content, and creation
of a billing record for the carriers billing system.  This initial
introduction to mobile entertainment led us to research the viability of
additional personalized entertainment services that could be delivered through
our network. On October 22, 2004 we announced the first commercial launch of a
ringback service in the United States with the launch of our Rockin’ Ringback
service.  Our personalized ringback service provides a network-based
personalized service that enables users to choose an audio file that callers
will listen to while the phone is ringing.  We believe that since we
already have a relationship with the carrier and are integrated with these
carriers customer service departments and billing departments that we have an
opportunity to introduce new products with minimal integration
effort.  We will continue to research and either develop or acquire
additional services that can be deployed through our platform.  As of
June 28, 2008 we had six carrier customers providing My Phone Services Suite
service in their marketplace.
 
 Our
systems structure is a robust data base system which will allow for scalability
and addition of new services to our platform in shorter development cycles than
were possible under our previous structure.  On September 15, 2004 we
announced the release of “My Phone Services Suite”, which incorporates our
network address book, network voice dialing, Push2Connect, and Rockin Ringback
services into one user-centric service that allows the subscriber to personalize
the look and feel of their communications service especially for their
personality. Revenue from these new products is expected to be slow with no
guarantees of market and/or customer acceptance. We also believe that we will
continue to see increased competition that along with many other factors may
have an impact on the company and its products.
 
 In April
of 2007, we started marketing a hosted digital signage content delivery system
to our customers that provided them with an in-store sales and marketing tool
that educates customers on their products and services while customers are
waiting for sales assistance.  The content is customized for each
customer and reflects the sales process that would normally be utilized by a
sales associate.  The content is delivered through a 32 inch touch
screen monitor via a network connection and can be changed and managed through a
scheduling interface. The user has the ability to search through an interactive
self-discovery mechanism that allows them to become familiar with the store
product and services.  For example, the menu can start with a listing
of phones.  With a touch on a particular phone the screen can display
the phone features and from there the screen could provide accessories for that
phone.  As of June 28, 2008 we have placed 62 screens in either
carrier retail outlets or wireless agent stores.
 
 The
implementation of our business plan is subject to risks inherent in the
establishment and deployment of technology.  In order for us to
succeed, we must:
 ●
              secure
      adequate financial and human resources to meet our requirements, including
      adequate numbers of technical support staff to provide service for our
      phone company customers;●
              establish
      and maintain relationships with phone companies;●
              make
      sure the GAP system works with the telephone switches of all of the major
      manufacturers;●
              achieve
      user acceptance for our services;●
              generate
      reasonable margins on our services;●
              continue
      to deploy and install GAP systems on a timely and acceptable
      schedule;●
              respond
      to competitive market developments;●
              mitigate
      risk associated with our technology by obtaining patents and copyrights
      and other protections of our intellectual property; and●
              continually
      update and add to our product offerings to meet the needs of
      consumers.
  10
  Failure
to achieve these objectives could adversely affect our business, operating
results and financial condition. Increased competition from other providers of
similar services can and have impacted our business.
 
 Results
of Operations
  We currently provide our services to
phone companies through sale and installation of equipment and revenue sharing
agreements that provide revenue splits ranging from seventy percent (70%) to
thirty percent (30%) depending on the amount of revenue obtained by the phone
company through sale of our services to their subscribers.  We license
our software to contracting phone companies as we found that the revenue sharing
arrangement embodied in our form Marketing Agreement could potentially provide a
higher rate of return on investment to us over the life of our standard
contract.
  We recorded a net loss of $747,816, or
$.12 per share, for the fiscal year ended March 31, 2008, compared to a net loss
of $1,346,293, or $.22 per share, for the fiscal year ended March 31, 2007, and
a net loss of $1,239,731, or $.20 per share, for the year ended March 31,
2006.  The decrease in loss experienced from fiscal year end 2007 to
2008 is a result of increased revenue being generated from our revenue share
agreements.  The increase in loss experienced from fiscal year end
2006 to 2007 was a result of charges related to the Company’s September 2006
convertible debenture offering as its loss from operations had actually
decreased in that period.
 
 Total Revenue
  Total revenue for the fiscal year ended
March 31, 2008 was $3,541,586 compared to $1,254,634 and $1,188,083 for the
fiscal years ended March 31, 2007 and 2006 respectively.  The increase
of revenue reflects continued increase of sales in our ringback, content and
digital signage services.
  Revenues from our revenue sharing
agreements on our voice dial product will cease in August of 2008 as our final
voice dial agreement will terminate.  We do anticipate that revenues
from the My Phone Services Suite to continue to build as new customers to the
service integrate and market the product to their subscriber base.
 
 Cost
of Sales
  Cost of sales for the fiscal year ended
March 31, 2008 was $2,043,454 compared to $716,937 and $845,889 for the fiscal
years ended March 31, 2007 and 2006, respectively. For each of the fiscal years
reported, costs consisted of installed equipment, network infrastructure costs,
such as collocations, connectivity, system access, long-distance, depreciation
and amortization, and content costs to third parties.  We believe
costs of sales for network infrastructure will continue to remain steady through
the next fiscal year as we utilize current capacity but will increase gradually
if and when new customers are added.
 
 Selling, General and
Administrative
 
 Selling, general and administrative
expenses for the fiscal year ended March 31, 2008 were $1,881,043 compared to
$1,321,912 and $1,396,649 for the fiscal years ended March 31, 2007 and 2006,
respectively.  The increase from 2007 to 2008 was primarily from
increased headcount and employee stock award compensation.  The
decrease from 2006 to 2007 was from an overall reduction in excess
capacity.
 
 We expect that selling, general and
administrative expenses will increase slightly through the fiscal year ending
March 31, 2009, as we do have overhead expansion needs necessary to increase our
sales, marketing and development activities.
 
 Interest
Expense
 
 Interest
expense for the fiscal year ended March 31, 2008 were $366,644 compared to
$544,231 and $203,429 for the fiscal years ended March 31, 2007 and 2006,
respectively. During 2008, a total of $236,464 of the interest expense relates
to: (i) $142,472 of amortization of loan discount value assigned to the warrants
issued in the March 31, 2005 offering, and (ii) $93,992 of amortization of loan
discount value assigned to the warrants issued in the September 29, 2006
offering.  During 2007, a total of $446,968 of the interest expense
relates to: (i) $257,500 of intrinsic value of the beneficial conversion feature
on the March 31, 2005 Convertible Debenture upon shareholder approval for the
increase of authorized shares to 100,000,000 on April 27, 2006, (ii) $142,472 of
amortization of loan discount value assigned to the warrants issued in the March
31, 2005 offering, and (iii) $46,996 of amortization of loan discount value
assigned to the warrants issued in the September 29, 2006
offering.  During 2006, a total of $142,472 of the interest expense
related to loan discount value assigned to the warrants issued in the March 31,
2005 offering.
  11
  Core
Technology Enhancements Software Applications and Hardware
  We have
not expensed any research and development costs for any of the periods stated on
our financial statements, but we have accumulated costs of $1,358,617 for
enhancement of our core software and hardware technology as of March 31,
2008.
 
 Extraordinary Items
  We have recognized income from the sale
of excess equipment of $1,739, $4,108, and $18,154, respectively, for the fiscal
years ended March 31, 2008, 2007, and 2006.
 
 Income
Taxes
  As of March 31, 2008, we had cumulative
federal net operating losses of approximately $20.7 million, which can be used
to offset future income subject to federal income tax through the fiscal year
2028.  Net operating loss limitations may be imposed if changes in
stock ownership of the company create a change of control as provided in Section
382 of the Internal Revenue Code of 1986.
 
 Liquidity
and Capital Resources
  Our cash and cash equivalents at March
31, 2008 were $283,220, a decrease of $162,835 from $446,055 at March 31,
2007.  The Company has relied primarily on the issuance of stock,
debentures and warrants to fund its operations since January of 1997 when we
sold our long-distance resale operation.
  Net cash used for operating activities
was $130,777 for the year ended March 31, 2008 compared to $870,524 for the year
ended March 31, 2007.  Net cash used for investing activities was
$32,058 for the year ended March 31, 2008 compared to cash used in investing
activities of $48,743 for the year ended March 31, 2007.  Net cash
provided by financing activities was $-0- for the year ended March 31, 2008
compared to net cash used by financing activities of $1,155,856 for the year
ended March 31, 2007.
 
 On
September 29, 2006, pursuant to Section 4(2) of the Securities Act and
Regulation D thereunder, we completed the sale of 117 units (“Units”) with each
Unit consisting of a 3-year, 6% Convertible Debenture in the principal amount of
$10,000.00, and 14,286 5-year warrants to purchase a share of Common Stock,
$.001 par value per share, of the Company at an exercise price of $.50 for an
aggregate of $1,170,000.
 
 On March
31, 2005, pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, we completed the sale of 97.5 units (“Units”) with each Unit
consisting of a 3-year, 6% Convertible Debenture in the principal amount of
$10,000.00, and 10,000 5-year warrants to purchase a share of Common Stock,
$.001 par value per share, of the Company at an exercise price of $.60 for an
aggregate of $975,000.
 
 On May
18, 2004, pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, we closed an offering of 220 units consisting of Ten Thousand
(10,000) shares of the common stock of the Company and a warrant to purchase
Five Thousand shares of common stock at a purchase price of $5,000 per unit for
an aggregate of $1,100,000.
 
 Due to
uncertainties regarding a number of new customer contracts that the Company just
launched, it is difficult for management to project the Company's revenue
performance, operating profits or loss, or cash requirements for more than a few
months.
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
  12
  Future
Obligations
 
 Management
projects working capital needs to be approximately $1,560,000 over the next
twelve months for corporate overhead and equipment purchases to continue to
deploy services to carrier customers.  Management believes that
current cash and cash equivalents and cash that may be generated from operations
will be sufficient to meet these anticipated capital requirements and to finance
marketing initiatives for the next twelve months.  Such projections
have been based on revenue trends from current customers and customers which are
already under contract utilizing the revenue rates that have been experienced
over the past six months with currently installed customers and projected cash
requirements to support installation, sales and marketing, and general
overhead.  However, any projections of future cash requirements and
cash flows are subject to substantial uncertainty.  If the Company’s
operating projections are not realized it may be forced to raise additional
capital through the issuance of new shares, the exercise of outstanding
warrants, or reduction of current overhead.
 
 Recently Issued Accounting
Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157; "Fair Value Measurements". This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year.  In November 2007, FASB
agreed to a one-year deferral of the effective date for nonfinancial assets and
liabilities that are recognized or disclosed at fair value on a recurring
basis.  We are currently evaluating the provisions of FASB 157 to
determine the future impact on the Company’s consolidated financial
statements.
 
 On
February 15, 2007, the FASB issued Statement of Financial Accounting
Standards No. 159,“The
Fair Value Option for Financial Assets and Financial Liabilities — Including an
Amendment of FASB Statement No. 115” (“SFAS 159”). This standard
permits an entity to measure financial instruments and certain other items at
estimated fair value. Most of the provisions of SFAS No. 159 are elective;
however, the amendment to FASB No. 115,“Accounting for Certain Investments
in Debt and Equity Securities,” applies to all entities that own trading
and available-for-sale securities. The fair value option created by SFAS 159
permits an entity to measure eligible items at fair value as of specified
election dates. The fair value option (a) may generally be applied
instrument by instrument, (b) is irrevocable unless a new election
date occurs, and (c) must be applied to the entire instrument and not to
only a portion of the instrument. SFAS 159 is effective as of the beginning of
the first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the previous fiscal year provided that the
entity (i) makes that choice in the first 120 days of that year,
(ii) has not yet issued financial statements for any interim period of such
year, and (iii) elects to apply the provisions of FASB157. Management is currently evaluating the impact of
SFAS 159, if any, on the Company’s financial statements. The adoption of SFAS
No. 159 is not expected to have a material effect on its financial position,
results of operations or cash flows.
 
 In
September 2006, the U.S. Securities and Exchange Commission, or SEC,
released Staff Accounting Bulletin No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements” (SAB No. 108). The interpretations in this Staff
Accounting Bulletin express the staff’s views regarding the process of
quantifying financial statement misstatements. The staff is aware of diversity
in practice. For example, certain registrants do not consider the effects of
prior year errors on current year financial statements, thereby allowing
improper assets or liabilities to be adjusted. While these errors may not be
material if considered only in relation to the balance sheets, correcting the
errors could be material to the current year income statement. Certain
registrants have proposed to the staff that allowing these errors to remain on
the balance sheet as assets or liabilities in perpetuity is an appropriate
application of generally accepted accounting principles. The staff believes that
approach is not in the best interest of the users of financial statements. The
interpretations in Staff Accounting Bulletin No. 108 are being issued to
address diversity in practice in quantifying financial misstatements and the
potential under current practice for the build up of improper amounts on the
balance sheet. Management believes that following the guidance set forth in SAB
No. 108 does not have a material impact on our financial
statements.
  13
  On
December 15, 2006 the Securities and Exchange Commission announced that it
is has modified reporting requirements for smaller public companies under
Section 404 of the Sarbanes-Oxley Act (SOX 404) of 2002. The Commission
granted relief to smaller public companies by extending the date by which
non-accelerated filers must start providing a report by management assessing the
effectiveness of the company’s internal control over financial reporting. The
compliance date for these companies was moved from fiscal years ending on or
after July 15, 2007, to fiscal years ending on or after December 15,
2007. The Commission also extended the date by which non-accelerated filers must
begin to comply with the Section 404(b) requirement to provide an auditor’s
attestation report on internal control over financial reporting in their annual
reports. This deadline was moved to the first annual report for a fiscal year
ending on or after December 15, 2008. This provision has been further extended
to 2009.  The extension requires all non-accelerated filers to
complete only the management’s portion of the internal control requirements in
their first year of compliance with SOX 404. This modification is intended to
provide cost savings and efficiency opportunities to smaller public companies
and to assist them as they prepare to comply fully with SOX 404 reporting
requirements. The extension will provide these issuers and their auditors an
additional year to consider, and adapt to, the changes in Auditing Standard
No. 2 that the Commission and the Public Company Accounting Oversight Board
intend to make, as well as the guidance for management the Commission has
issued, to improve the efficiency of the Section 404(b) auditor attestation
report process.
  Inflation
 
 Management
believes that inflation has not had a significant impact on the Company’s
financial position or results of operations.
 
 Item
7.  Financial Statements
 
 PREFERRED
VOICE, INC.
 FINANCIAL
STATEMENTS
 MARCH 31,
2008, 2007 and 2006
 
 Independent
      Auditors’ Report
              F-1Financial
      StatementsBalance
      Sheets
              F-2Statements
      of Operations
              F-5Statement
      of Stockholders’ Equity (Deficit)
              F-6Statement
      of Cash Flows
              F-8Notes
      to Financial Statements
              F-10
 
 
 Item
8.Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
 
 There
have been no changes in or disagreements with our accountants on accounting and
financial disclosures.
 
 Item
8A(T). Controls and Procedures
 
 Evaluation of disclosure controls
and procedures.  We maintain “disclosure controls and
procedures,” as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, or the Exchange Act, that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, who is also our Chief
Financial Officer, or persons performing similar functions, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Our disclosure controls and
procedures have been designed to meet reasonable assurance standards.
Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures. The design of any
disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
  Based on
their evaluation as of the end of the period covered by this Annual Report on
Form 10-KSB, our Chief Executive Officer has concluded that, as of that
date, our disclosure controls and procedures were effective.
 14
  Management’s Annual Report on
Internal Control over Financial Reporting.  Our management is
responsible for establishing and maintaining internal control over our financial
reporting. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation
of the effectiveness of internal control to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with policies or procedures may deteriorate. Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, assessed the
effectiveness of our internal control over financial reporting as of
March 31, 2008. In making this assessment, management used the criteria set
forth by the [Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework]. Based on the assessment using
those criteria, management concluded that, as of March 31, 2008, our
internal control over financial reporting was effective.
  This
Annual Report on Form 10-KSB does not include an attestation report of our
independent registered public accounting firm regarding our internal control
over financial reporting. Management’s report was not subject to attestation by
our independent registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit us to provide only
management’s report in this Annual Report on
Form 10-KSB.
  Item
8B. Other Information
 
 None
  PART
III
 
 Item
9. Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance;
 Compliance
with Section 16(a) of the Exchange Act
 
 Directors,
Executive Officers, Promoters and Control Persons
 
 The Board
of Directors currently consists of three (3) people. Directors serve until the
next annual meeting and until their successors are elected and
qualified.  The following table sets forth information about all of
our Directors and executive officers and all persons nominated or chosen to
become such:
 
 Name
              Age
              Office
              Year
      First
                Elected
      DirectorMary
      G. Merritt
              51
              Director,
      Chief Executive Officer, Executive VP-Finance and
      Secretary/Treasurer
              1994Scott
      V. Ogilvie
              54
              Director
              2000Todd
      Parker
              44
              Director
              2005
 
 
 Ms. Merritt is a founder of
Preferred Voice and has been a director since May 1994.  She has
served as Chief Executive Officer since February 2005, Chief Operating Officer
from May 2004, and has served as Executive Vice President – Finance and
Secretary/Treasurer since inception.  She served as President of Star
of Texas, Inc., from 1989 to May 1994.  She also served as Controller
of United Medicorp for several months during 1992.  Ms. Merritt is a
certified public accountant and was employed by Ernst & Whinney from 1981 to
1989.
 
 Mr. Ogilvie was elected as a
director of Preferred Voice in February 20, 2000.  Mr. Ogilvie is a
Managing Director with Capital Investment Company and has been so since
September of 2000.  From January 1998 to 2000, Mr. Ogilvie was
employed by Classic Residence by Hyatt as Managing Director of
Development-Western Division.  From 1993 through 1998, Mr. Ogilvie was
a partner in the John Buck Company, a full service real estate brokerage,
development and property management company.   Mr. Ogilvie is the
sole member of our Audit Committee.
 
 Mr. Parkerwas elected as a
Director of the company on March 31, 2005.  Mr. Parker is a Managing
Partner with Hidden River LLC, a merger and acquisition firm specializing in the
wireless industry, and has been so since 2002.  From early 2000 until
early 2002, Mr. Parker was founder and CEO of HR One, a human resource software
business.  Prior to that, and from 1989 until 2000, Mr. Parker held
various management positions at AirTouch Communications/Pacific
Telesis.
  15
  We are
not aware of any “family relationships” (as defined in Item 401(c) of RegulationS-­B promulgated by the SEC) among directors, executive officers,
or persons nominated or chosen by us to become directors or executive
officers.
 
 Except as
set forth above, we are not aware of any event (as listed in Item 401(d)of Regulation S-B
promulgated by theSEC) that occurred during the past
five years that are material to an evaluation of the ability or integrity of any
director, person nominated to become a director, executiveofficer, promoter or control person of
the company.
 
 The Board
of Directors has determined that Mr. Ogilvie and Mr. Parker are “independent” as
such term is defined by the listing standards of Nasdaq and the rules of the
SEC.  Ms. Merritt is not “independent” since she is an employee of the
Company.
 
 Compliance with Section 16(a) of the
Exchange Act
 
 Due
to our status as a Section 15(d) reporting company, our executive officers,
directors, and persons who beneficially own more than 10% of a registered class
of our equity securities are not required to file with the SEC reports of
ownership and changes in ownership of Preferred Voice's equity securities
pursuant to Section 16(a) of the Securities Exchange Act of 1934.
 
 Code of Ethics
 
 The Board
of Directors has adopted a code of business ethics that applies to its
directors, officers and management employees generally. A copy of this code of
business ethics may be obtained, at no cost, by writing or telephoning the
Company at Preferred Voice, Inc., 6500 Greenville Avenue, Suite 570, Dallas,
Texas 75206, 214-265-9580, Attn: Secretary.
 
 Audit, Nominating and Compensation
Committees
 
 Mr.
Ogilvie is currently the only member of the Audit Committee.  The
Board of Directors has determined that Mr. Ogilvie is qualified as a “financial
expert” under the provisions of the Sarbanes-Oxley Act of 2002 and the rules and
regulations of the SEC.  The Company does not currently have either a
Nominating or Compensation Committee.
  Item
10.  Executive Compensation
 
 The
following tables set forth the compensation paid by the Company to our executive
officers during the fiscal years ended March 31, 2008 and 2007.
 
 Annual
Compensation
 
 Name &
                Principal
                Position
              Year
              
              Salary
                ($)
              
              
              Bonus
                ($)
              
              
              Stock
                Awards
              
              
              Option
                Awards
              
              
              Non- Equity Incentive Plan Compensation
              
              
              Non- qualified Deferred Compensation Earnings
              
              
              All Other Compensation
                ($)
              
              
              TotalMary
      G MerrittChief
      Executive
              2008
              
              $
              105,000
              
              
              -
              
              
              -
              
              
              $
              55,839
              (2)
              
              -
              
              
              -
              
              
              -
              
              
              $
              160,839Officer,
      EVP –Finance(1)
              2007
              
              $
              91,875
              
              
              -
              
              
              -
              
              
              $
              11,649
              (2)
              
              -
              
              
              -
              
              
              -
              
              
              $
              103,524
 (1)Ms. Merritt
has served as Chief Executive Officer since February, 2005.
 (2)
Reflects an option award of 150,000 shares of common stock granted on January
23, 2007 at an exercise price of $.60. The options to purchase one-half of the
shares may be exercised at any time six months from the date of the grant, and
all shares may be exercised at any time on or after the first anniversary of the
date of the grant and terminate on the fifth anniversary of the date of the
grant.  The dollar amount reflected in the table is the fair value
under the Black-Scholes option-pricing model amortized over the service period
of the award.
  16
  Outstanding
Equity Awards at Fiscal Year-End Table
 
 We have
not granted any stock awards other than as stock options.  The
following table reflects all option awards outstanding at March 31, 2008 to our
executive officers:
  Name
                (a)
              
              Number
      of
                securities
                underlying
      unexercised
                options
                (#)
                exercisable
                (b)
              
              
              Number
      of
                securities
                underlying
      unexercised
                options
                (#)
                unexercisable
                (c)
              
              
              Option
      awards
                Equity
      incentive
                plan
      awards:
                Number
      of
                securities
                underlying
      unexercised
                unearnedoptions
                (#)
                (d)
              
              
              Option
                exercise
      price
                ($)
                (e)
              
              Option
                expiration
      date
                (f)Mary
      Merritt
              
              
              15,000
              
              
              
              0
              
              
              
              0
              
              
              $
              0.60
              
              6/12/0914,133
              
              
              
              0
              
              
              
              0
              
              
              $
              0.60
              
              4/2/090
              
              
              
              150,000
              
              
              
              0
              
              
              $
              0.60
              
              1/24/12
 
 
 Equity
Compensation Plan
 
 Plan Category
              
              Number
      of Securities To be
                Issued
      Upon Exercise of
                Outstanding
      Options,
                Warrants and Rights(a)
              
              
              Weighted-Average
      Exercise
                Price
      of Outstanding
                Options,
                Warrants and Rights(b)
              
              
              Number
      of Securities Remaining
                Available
      For Future Issuance Under
                Equity
      Compensation Plans
                (excluding securities in column
      (a))(c)Equity
      Compensation
                Plans
      Approved by
                Security
      Holders
              
              899,133
              
              
              $0.60
              
              
              899,133Equity
      Compensation
                Plans
      Not Approved by
                Security
      Holders
              
              0
              
              
              0
              
              
              0Total
              
              899,133
              
              
              $0.60
              
              
              899,133
  Compensation
of Directors
 
 We do not
currently pay any cash fees to our directors, but we pay directors' expenses in
attending board meetings. During the year ended March 31, 2008, no director
expenses were reimbursed.
 
 Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 
 The
following table sets forth, as of the close of business on June 28, 2008, information as to the
beneficial ownership of shares of the Company common stock for all directors,
each of the named executive officers (as defined in Item402(a)(2) of RegulationS-B promulgated by the Commission), for all
directors and executive officers as a group, and any person or “group” (as that
term is defined in Item 403 of RegulationS-B
promulgated by the Commission) who or which is known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Company common
stock.  In addition, except as set forth below, the Company does not
know of any person or group who or which owns beneficially more than 5% of its
outstanding shares of Company common stock as of the close of business on June
28, 2008.
 
 17
  Beneficial Ownership (1),
(2)
 
  Name of Beneficial Owner
              
              Number of
                Shares
              
              
              PercentageMary
      G. Merritt(3)
              
              
              642,284
              
              
              
              9.82
              %Scott
      Ogilvie(4)
              
              
              58,000
              
              
              
              *Todd
      Parker(5)
              
              
              250,000
              
              
              
              4.01
              %JMG
      Capital Partners, L.P.(6)
              
              
              1,622,102
              
              
              
              22.66
              %JMG
      Triton Offshore Fund Ltd.(7)
              
              
              1,621,502
              
              
              
              22.65
              %J.
      Steven Emerson(8)
              
              
              2,847,316
              
              
              
              35.24
              %Bristol
      Investment Fund, Ltd.(9)
              
              
              1,377,600
              
              
              
              19.21
              %G.
      Tyler Runnels(10)
              
              
              2,706,339
              
              
              
              33.51
              %All
      Directors and executive officers as a group (three persons)(11)
              
              
              950,284
              
              
              
              14.77
              %
 
 *
              Less
      than one percent (1%).1)
              SEC
      rules provide that, for purposes hereof, a person is considered the
      “beneficial owner” of shares with respect to which the person, directly or
      indirectly, has or shares the voting or investment power, irrespective of
      his/her/its economic interest in the shares.  Unless otherwise
      noted, each person identified possesses sole voting and investment power
      over the shares listed, subject to community property
  laws.2)
              Based
      on 6,130,184 shares outstanding on June 28, 2008.  Shares of
      common stock subject to options that are exercisable within 60 days of
      June 28, 2008, are deemed beneficially owned by the person holding such
      options for the purposes of calculating the percentage of ownership of
      such person but are not treated as outstanding for the purpose of
      computing the percentage of any other person.3)
              Includes
      143,857 shares issuable upon exercise of warrants, 179,133 issuable upon
      exercise of employee stock options, 85,714 shares issuable upon conversion
      of notes, and 6,000 shares held by minor children.4)
              Includes
      58,000 shares issuable upon exercise of warrants.5)
              Includes
      100,000 shares issuable upon exercise of warrants.6)
              Includes
      442,857 shares issuable upon exercise of warrants and 585,714 shares
      issuable upon conversion of notes.  JMG Capital Partners’
      address is11601
      Wilshire Blvd, Suite 2180, Los Angeles,
      California  90025.  JMG Capital Partners has advised
      us that Jonathan M. Glaser is the member-manager of JMG Capital
      Management, LLC, which is the general partner of JMG Capital Partners, and
      is the natural person with sole voting power over the shares held by JMG
      Capital Partners.7)
              Includes
      442,857 shares issuable upon exercise of warrants and 585,714 shares
      issuable upon conversion of notes.  JMG Triton Offshore Fund
      Ltd.’s address is Citco Building, Wickhams Cay, Road Town, Tortola,
      British Virgin Islands.  We have been informed by JMG Triton
      Offshore Fund Ltd. that Jonathan M. Glaser is the member-manager of
      Pacific Assets Management, LLC, which is the general partner of JMG Triton
      Offshore Fund Ltd., and he is the natural person who has sole voting power
      over the shares held by JMG Triton Offshore Fund Ltd.8)
              Includes
      100,000 shares issuable upon exercise of warrants, and 200,000 shares
      issuable upon conversion of notes, 727,057 shares held in Mr. Emerson’s
      retirement accounts, 550,000 shares issuable upon exercise of warrants
      held in Mr. Emerson’s retirement accounts and 500,000 shares issuable upon
      conversion of notes issued to Mr. Emerson’s retirement account, 2,000
      shares held by Emerson Partners, 100,000 shares issuable upon exercise of
      warrants held by Emerson Partners, 200,000 shares issuable upon conversion
      of notes issued to Emerson Partners, for which Mr. Emerson has voting
      power over the shares held by Emerson Partners, 100,000 shares issuable
      upon exercise of warrants held by Emerson Family Foundation, and 200,000
      shares issuable upon conversion of notes issued to Emerson Family
      Foundation, for which Mr. Emerson has voting power over the shares held by
      Emerson Family Foundation.9)
              Includes
      414,286 shares issuable upon exercise of warrants and 628,572 shares
      issuable upon conversion of notes.  Bristol Investment Fund,
      Ltd’s address is Caledonian House, Jennett Street, Georgetown, Grand
      Cayman, Cayman Islands.  Bristol Capital Advisors, LLC ("BCA")
      is the investment advisor to Bristol Investment Fund, Ltd.
      ("Bristol").  As manager of BCA and a director of Bristol, Paul
      Kessler has voting and investment power over the shares held by
      Bristol.  Mr. Kessler disclaims beneficial ownership of such
      shares.10)
              Includes
      273,292 shares issuable upon exercise of warrants, 130,000 shares held by
      The Runnels Family Trust, 350,714 shares issuable upon exercise of
      warrants held by The Runnels Family Trust and 571,429 shares issuable upon
      conversion of notes issued to The Runnels Family Trust, 327,259 shares
      held by High Tide, LLC, 250,000 shares issuable upon exercise of warrants
      held by High Tide, LLC and 400,000 shares issuable upon conversion of
      notes issued to High Tide, LLC for which Mr. Runnels has sole voting power
      over the shares held by High Tide, LLC and 272,456 held by T.R. Winston
      & Company Incorporated  and 101,351 issuable upon exercise
      of warrants held by T.R. Winston & Company Incorporated for which Mr.
      Runnels has voting power over the shares held by T.R. Winston &
      Company Incorporated .11)
              Includes
      the shares described in footnotes 3 through
5.
  18
  Item
12. Certain Relationships and Related Transactionsand
Director Independence
  In a
private offering we closed on September 29, 2006, the company entered into
securities purchase agreements with JMG Capital Partners, JMG Triton Offfshore
Fund, J. Steven Emerson, Runnels Family Trust, High Tide, LLC, and Bristol
Investment Fund Ltd. for the issuance of 6% convertible debentures in the
aggregate amount of $760,000.  The notes bear interest at 6%, mature
on September 29, 2009, and are convertible into the company’s common stock at
the holders’ option at $0.35 per common share. In addition the company issued an
aggregate of 1,085,714 warrants to purchase shares of our common stock, at an
exercise price of $.50 per share on or before September 29,
2011.  These convertible debentures and warrants were issued to each
entity or individual at the same price as that paid by other investors in the
offering.  T.R. Winston & Company Incorporated acted as placement
agent in connection with the sale of the Units and was granted warrants to
purchase 167,143 shares at $.50 per share on or before September 29,
2011.
 
 In a
private offering we closed on September 29, 2006, the company entered into
securities purchase agreements with Kevin and Mary Merritt, as joint tenants,
for the issuance of 6% convertible debentures in the aggregate amount of
$30,000.  The notes bear interest at 6%, mature on September 29, 2009,
and are convertible into the company’s common stock at the holders’ option at
$0.35 per common share. In addition the company issued an aggregate of 42,857
warrants to purchase shares of our common stock, at an exercise price of $.50
per share on or before September 29, 2011.  These convertible
debentures and warrants were issued to each entity or individual at the same
price as that paid by other investors in the offering.  Ms. Merritt is
our Chief Executive Officer.
 
 All of
the transactions referred to in this section involving the issuance of shares of
our common stock or warrants are exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act.  Each transaction
was a privately negotiated transaction without general solicitation or
advertising with persons or entities that we believed were “sophisticated
investors” within the meaning of the Securities Act and had access to all
information concerning our company that each such person or entity deemed
necessary to make an informed investment decision with respect to the
transaction.
 
 See Item
9 above for information concerning director independence.
  19
  Item
13. Exhibits
 
 (a)
              Exhibits
 
 Exhibit
                Number
              Description of
      Exhibit3.1(1)
              Certificate
      of Incorporation, filed on August 3, 1992 with the Secretary of State of
      Delaware (Exhibit 3.1)3.2(1)
              Certificate
      of Amendment, filed on May 2, 1994 with the Secretary of State of Delaware
      (Exhibit 3.2)3.3(1)
              Certificate
      of Amendment, filed on March 21, 1995 with the Secretary of State of
      Delaware (Exhibit 3.3)3.4(2)
              Certificate
      of Amendment, filed on July 27, 1995 with the Secretary of State of
      Delaware (Exhibit 3.5)3.5(3)
              Certificate
      of Amendment, filed on March 7, 1997 with the Secretary of State of
      Delaware (Exhibit 3.5)3.6^
              Certificate
      of Amendment, filed on April 27, 2007 with the Secretary of State of
      Delaware (Exhibit 3.1)3.7(1)
              Bylaws
      of the registrant (Exhibit 3.4)10.1(4)
              Form
      of Warrant Certificate and Schedule of Warrant Certificates (Exhibit
      10.1)10.2(6)
              Form
      of Subscription Agreement between Preferred Voice, Inc. and certain
      purchasers of Preferred Voice, Inc. common stock (Exhibit
      10.1)10.3(6)
              Form
      of Warrant Certificate (Exhibit 10.2)10.4(6)
              Warrant
      No. 122 issued to Stifel, Nicolaus & Company, Inc. (Exhibit
      10.3)10.5(5)
              Second
      Amendment to Lease between Dallas Office Portfolio, L.P., as successor in
      interest to Greenville Avenue Properties, Ltd. and Preferred Voice, Inc.
      (Exhibit 10.3)10.6(1)
              Preferred/telecom,
      Inc. 1994 Stock Plan for Incentive and Non-Qualified Stock Options
      (Exhibit 10.5)10.7(7)
              2000
      Stock Plan for Incentive Stock Options and Other Equity Participation
      (Exhibit 10.1)10.8(8)
              Form
      of Subscription Agreement by and between Preferred Voice, Inc. and certain
      signatories thereto (Exhibit 10.1)10.9(8)
              Form
      of Warrant Certificate, issued by Preferred Voice, Inc. pursuant to the
      Subscription Agreement filed as Exhibit 10.9 hereto (Exhibit
      10.2)10.10(9)
              Patent
      License Agreement by and between Preferred Voice, Inc. and
      KoninKlijkePhilips Electronics N.V.*(Exhibit 10.2)10.11(10)
              Form
      of Subscription Agreement, by and between Preferred Voice, Inc. and
      certain signatories thereto (Exhibit 10.1)10.12(11)
              Form
      of Subscription Agreement, by and between Preferred Voice, Inc. and
      certain signatories thereto (Exhibit 10.1)23^
              Consent
      of Philip Vogel & Co. PC31.1^
              Section
      302 Certification32.1^
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
 _____________
 ^
              Filed
      herewith.(1)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Registration
      Statement on Form S-1, filed with the Securities and Exchange Commission
      on June 15, 1995.(2)
              Incorporated
      by reference to the exhibit shown in parenthesis to Amendment No. 1 to our
      Registration Statement, filed with the Securities and Exchange Commission
      on August 7, 1995.(3)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Annual Report on
      Form 10-KSB for the period ended March 31, 1999, filed by us with the
      Securities and Exchange Commission.(4)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Registration
      Statement on Form SB-2, filed with the Securities Exchange Commission on
      March 8, 2001(5)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on September
      15, 2000.(6)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Quarterly Report
      on Form 10-QSB for the quarter ended December 31, 2000, filed by us with
      the Securities and Exchange Commission.(7)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on May 7,
      2001.(8)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Quarterly Report
      on Form 10-QSB for the quarter ended September 30, 2001, filed
      by us with the Securities and Exchange Commission.(9)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on
      November 21, 2001.(10)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on May
      18, 2004.(11)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on
      February 24, 2005.(12)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on April
      5, 2005.(13)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on
      November 1, 2005.(14)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on
      January 25, 2006.(15)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on
      October 3, 2006.(16)
              Incorporated
      by reference to the exhibit shown in parenthesis to our Current Report on
      Form 8-K, filed with the Securities and Exchange Commission on
      November 15, 2006.
 
 20
 
 
 Item
14.  Principal Accountant Fees and Services
  Our independent auditors, Philip Vogel
& Co., P.C., have no direct or indirect interest in the Company and have
been the Company’s Independent Registered Public Accounting Firm since
1995.  The following table sets forth the fees billed and estimated
fees for professional audit services provided by such firm for the fiscal years
ended March 31, 2008 and 2007:
 2008
              
              
              2007Audit
      Fees (a)
              
              $
              35,000
              
              
              $
              31,000Audit-Related
      Fees (b)
              
              $
              0
              
              
              $
              0Tax
      Fees (c)
              
              $
              0
              
              
              $
              0All
      Other Fees
              
              $
              0
              
              
              $
              0
 
 
 (a)
              Includes
      fees for services related to the audits of our annual financial statements
      and the reviews of our interim financial statements and assistance with
      SEC filings.(b)
              Includes
      fees for services related to transaction due diligence and consultations
      with respect to compliance with Section 404 of the Sarbanes-Oxley
      Act.(c)
              Includes
      fees for services related to tax compliance, preparation and planning
      services (including U.S. federal, state and local returns) and tax
      examination assistance.
  Our Audit Committee established a
policy whereby the outside auditors are required to seek pre-approval on an
annual basis of all audit, audit-related, tax and other services by providing a
prior description of the services to be performed.  For the year ended
March 31, 2008, 100% of all audit-related services, tax services and other
services were pre-approved by the Audit Committee, which concluded that the
provision of such services by Philip Vogel & Co., P.C. was compatible with
the maintenance of that firm’s independence in the conduct of its auditing
functions.
  21
  SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-KSB to be signed on its behalf by the undersigned thereto duly
authorized.
 
 Preferred
      Voice, Inc.(Registrant)Date:
      July 11, 2008
              By:
              /s/ Mary G. MerrittMary
      G. Merritt, Chairman
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this annual report
on Form 10-KSB has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
 SIGNATURE
              
              TITLE
              
              DATE/s/ Mary G.
      Merritt
                Mary
      G. Merritt
              
              Chairman
      and Chief Executive Officer
                (Principal
      Executive Officer) Secretary, Treasurer,
                Executive
      Vice President of Finance and Director
                (Principal
      Financial and Accounting Officer)
              
              July
      11, 2008/s/ Todd
      Parker
                Todd
      Parker
              
              Director
              
              July
      11, 2008/s/ Scott
      Ogilvie
                Scott
      Ogilvie
              
              Director
              
              July
      11, 2008
  22
 
 INDEPENDENT
AUDITORS’ REPORT
 
 
 The
Board of Directors
 and
Shareholders
 Preferred
Voice, Inc.
 
 
 We have
audited the accompanying balance sheets of Preferred Voice, Inc. as of March 31,
2008 and 2007, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended March 31, 2008, 2007 and
2006.  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 the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits 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 Preferred Voice, Inc. as of March
31, 2008 and 2007, and the results of its operations and its cash flows for the
years ended March 31, 2008, 2007 and 2006, in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note L to the
financial statements, the Company has suffered recurring losses from
operations.  This raises 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 L.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 
 PHILIP
      VOGEL & CO. PCCertified
      Public Accountants
 
 Dallas,
Texas
 
 July
11, 2008
 
 23
  PREFERRED
VOICE, INC.
 BALANCE
SHEETS
 MARCH
31, 2008 AND 2007
 
 2008
                
                
                2007AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                283,220
                
                
                $
                446,055Accounts
      receivable, net of allowance for doubtfulaccounts
      of $0 and $0, respectively
                
                
                638,210
                
                
                
                385,984Inventory
                
                
                84,567
                
                
                
                121,766Current
      portion of deferred loan cost
                
                
                8,428
                
                
                
                8,428Total
      current assets
                
                $
                1,014,425
                
                
                $
                962,233Property
      and equipment:Computer
      equipment
                
                $
                572,392
                
                
                $
                827,947Furniture
      and fixtures
                
                
                22,317
                
                
                
                22,317Office
      equipment
                
                
                19,271
                
                
                
                28,393$
                613,980
                
                
                $
                878,657Less
      accumulated depreciation
                
                
                421,190
                
                
                
                621,209Net
      property and equipment
                
                $
                192,790
                
                
                $
                257,448Other
      assets:Capitalized
      software development costs, net of accumulatedamortization
      of $1,228,026 and $1,157,517, respectively
                
                $
                29,902
                
                
                $
                93,146Deposits
                
                
                34,485
                
                
                
                4,485Noncurrent
      portion deferred loan cost, net of accumulatedamortization
      of $12,642 and $4,214, respectively
                
                
                4,214
                
                
                
                12,642Trademarks
      and patents, net of accumulatedamortization
      of $31,926 and $24,273, respectively
                
                
                68,763
                
                
                
                70,798Total
      other assets
                
                $
                137,364
                
                
                $
                181,071Total
      assets
                
                $
                1,344,579
                
                
                $
                1,400,752
   The
accompanying notes are an integral part of these statements.
 24
  2008
                
                
                2007Liabilities
      and stockholders' equity (deficit)Current
      liabilities:Accounts
      payable
                
                $
                245,553
                
                
                $
                115,812Accrued
      operating expenses
                
                
                -
                
                
                
                41Accrued
      vacation
                
                
                7,859
                
                
                
                7,661Accrued
      payroll and payroll taxes
                
                
                19,735
                
                
                
                35,473Accrued
      interest
                
                
                35,100
                
                
                
                35,100Deferred
      Revenue
                
                
                43,417
                
                
                
                -Current
      portion debentures payable - net of discounts
                
                
                975,000
                
                
                
                832,528Total
      current liabilities
                
                $
                1,326,664
                
                
                $
                1,026,615Long-term
      liabilities:Debentures
      payable - net of discounts
                
                $
                1,029,012
                
                
                $
                935,019Total
      long-term liabilities
                
                $
                1,029,012
                
                
                $
                935,019Commitments
      and contingencies (Note J, K and L)Stockholders'
      equity (deficit):Common
      stock, $.001 par value;100,000,000
      shares authorized; 6,130,184and
      6,130,184 shares issued, respectively
                
                $
                6,130
                
                
                $
                6,130Additional
      paid-in capital
                
                
                20,403,278
                
                
                
                20,105,677Accumulated
      deficit
                
                
                (21,418,999
                )
                
                
                (20,671,183
                )Treasury
      stock 4,500 shares at cost
                
                
                (1,506
                )
                
                
                (1,506
                )Total
      stockholders' equity (deficit)
                
                $
                (1,011,097
                )
                
                $
                (560,882
                )Total
      liabilities and stockholders' equity (deficit)
                
                $
                1,344,579
                
                
                $
                1,400,752
  25
  PREFERRED
VOICE, INC.
 STATEMENTS
OF OPERATIONS
 FOR
THE YEARS ENDED MARCH 31, 2008, 2007 AND 2006
 
 2008
                
                
                2007
                
                
                2006Net
      sales
                
                $
                3,541,586
                
                
                $
                1,254,634
                
                
                $
                1,188,083Cost
      of sales
                
                
                2,043,454
                
                
                
                716,937
                
                
                
                845,889Gross
      profit
                
                $
                1,498,132
                
                
                $
                537,697
                
                
                $
                342,194General
      and administrative expenses
                
                $
                1,881,043
                
                
                $
                1,321,912
                
                
                $
                1,396,649Loss
      from operations
                
                $
                (382,911
                )
                
                $
                (784,215
                )
                
                $
                (1,054,455
                )Other
      income (expense):Interest
      expense
                
                $
                (366,644
                )
                
                $
                (544,231
                )
                
                $
                (203,429
                )Gain
      (loss) on sale of assets
                
                
                1,739
                
                
                
                4,108
                
                
                
                18,153Impairment
      expense
                
                
                -
                
                
                
                (32,014
                )
                
                
                -Other
      income (expense)
                
                
                -
                
                
                
                10,059
                
                
                
                -Total
      other income (expense)
                
                $
                (364,905
                )
                
                $
                (562,078
                )
                
                $
                (185,276
                )Loss
      from operations before income taxes
                
                $
                (747,816
                )
                
                $
                (1,346,293
                )
                
                $
                (1,239,731
                )Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -Net
      loss
                
                $
                (747,816
                )
                
                $
                (1,346,293
                )
                
                $
                (1,239,731
                )Per
      share amounts:Net
      loss per share
                
                $
                (0.12
                )
                
                $
                (0.22
                )
                
                $
                (0.20
                )
  The
accompanying notes are an integral part of these statements.
 26
  PREFERRED
VOICE, INC.
 STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
 FOR
THE YEARS ENDED MARCH 31, 2008, 2007 AND 2006
 
 
 Shares
      of common stock
                
                
                AmountsCommon
                
                
                
                
                
                Additional
                
                
                
                
                
                Totalstock
      $0.001
                
                
                Treasury
                
                
                paid-in
                
                
                Accummulated
                
                
                stockholders'Authorized
                
                
                Issued
                
                
                Outstanding
                
                
                In
      treasury
                
                
                par
      value
                
                
                stock
                
                
                capital
                
                
                deficit
                
                
                equityBalance
      - March 31, 2005
                
                50,000,000
                
                
                
                5,921,499
                
                
                
                5,958,666
                
                
                
                4,500
                
                
                $
                5,921
                
                
                $
                (1,506
                )
                
                $
                19,408,481
                
                
                $
                (18,085,159
                )
                
                $
                1,327,737Exercise
      of employee stock options - sharesissued
      4/21/2005
                
                -
                
                
                
                41,667
                
                
                
                -
                
                
                
                -
                
                
                
                42
                
                
                
                -
                
                
                
                (42
                )
                
                
                -
                
                
                
                -Warrants
      issued to non-employees
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                16,038
                
                
                
                -
                
                
                
                16,038Net
      loss for the year ended March 31, 2006
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,239,731
                )
                
                
                (1,239,731
                )Balance
      - March 31, 2006
                
                50,000,000
                
                
                
                5,963,166
                
                
                
                5,958,666
                
                
                
                4,500
                
                
                $
                5,963
                
                
                $
                (1,506
                )
                
                $
                19,424,477
                
                
                $
                (19,324,890
                )
                
                $
                104,044Increase
      in authorized shares of commonstock
                
                50,000,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Issuance
      of stock for accrued interestpayable
      on convertible debentures
                
                -
                
                
                
                167,143
                
                
                
                167,143
                
                
                
                -
                
                
                
                167
                
                
                
                -
                
                
                
                58,332
                
                
                
                -
                
                
                
                58,499Decrease
      in common stock for fractionalshares
                
                -
                
                
                
                (123
                )
                
                
                (123
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Intrinsic
      value of beneficial conversion feature
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                257,500
                
                
                
                -
                
                
                
                257,500Warrants
      issued for goods and services
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                25,285
                
                
                
                -
                
                
                
                25,285Compensation
      expense recognized onvested
      employee stock options
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                58,106
                
                
                
                -
                
                
                
                58,106Proceeds
      from the issuance of the debenturesallocated
      to the warrants
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                281,977
                
                
                
                -
                
                
                
                281,977Net
      loss for the year ended March 31, 2007
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,346,293
                )
                
                
                (1,346,293
                )Balance
      - March 31, 2007
                
                100,000,000
                
                
                
                6,130,184
                
                
                
                6,125,684
                
                
                
                4,500
                
                
                $
                6,130
                
                
                $
                (1,506
                )
                
                $
                20,105,677
                
                
                $
                (20,671,183
                )
                
                $
                (560,882
                )Compensation
      expense recognized onvested
      employee stock options
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                297,601
                
                
                
                -
                
                
                
                297,601Net
      loss for the year ended March 31, 2008
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (747,816
                )
                
                
                (747,816
                )Balance
      - March 31, 2008
                
                100,000,000
                
                
                
                6,130,184
                
                
                
                6,125,684
                
                
                
                4,500
                
                
                $
                6,130
                
                
                $
                (1,506
                )
                
                $
                20,403,278
                
                
                $
                (21,418,999
                )
                
                $
                (1,011,097
                )
 The
accompanying notes are an integral part of these statements.
 
 27
 PREFERRED
VOICE, INC.
 STATEMENTS
OF CASH FLOWS
 FOR
THE YEARS ENDED MARCH 31, 2008, 2007 AND 2006
 
 
 2008
                
                
                2007
                
                
                2006Cash
      flows from operating activities:Cash
      received from customers
                
                $
                3,289,360
                
                
                $
                1,079,042
                
                
                $
                1,078,611Cash
      paid to suppliers and employees
                
                
                (3,289,958
                )
                
                
                (1,887,403
                )
                
                
                (1,906,037
                )Interest
      paid
                
                
                (130,179
                )
                
                
                (62,163
                )
                
                
                (2,456
                )Net
      cash used by operating activities
                
                $
                (130,777
                )
                
                $
                (870,524
                )
                
                $
                (829,882
                )Cash
      flows from investing activities:Capital
      expenditures
                
                $
                (57,581
                )
                
                $
                (99,311
                )
                
                $
                (114,065
                )Proceeds
      from sale of assets
                
                
                25,523
                
                
                
                50,568
                
                
                
                31,563Net
      cash used by investing activities
                
                $
                (32,058
                )
                
                $
                (48,743
                )
                
                $
                (82,502
                )Cash
      flows from financing activities:Proceeds
      from issuance of convertible debt and warrants
                
                $
                -
                
                
                $
                1,170,000
                
                
                $
                -Repayment
      of note payable
                
                $
                -
                
                
                
                (14,144
                )
                
                
                (13,314
                )Net
      cash provided (used) by financing activities
                
                $
                -
                
                
                $
                1,155,856
                
                
                $
                (13,314
                )Net
      (decrease) increase in cash and cash equivalents
                
                $
                (162,835
                )
                
                $
                236,589
                
                
                $
                (925,698
                )Cash
      and cash equivalents:Beginning
      of year
                
                
                446,055
                
                
                
                209,466
                
                
                
                1,135,164End
      of year
                
                $
                283,220
                
                
                $
                446,055
                
                
                $
                209,466
   The
accompanying notes are an integral part of these statements.
 28
  2008
                
                
                2007
                
                
                2006Reconciliation
      of net loss to netcash
      used by operating activities:Net
      loss
                
                $
                (747,816
                )
                
                $
                (1,346,293
                )
                
                $
                (1,239,731
                )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Depreciation
      and amortization
                
                $
                172,163
                
                
                $
                264,298
                
                
                $
                348,233Gain
      on sale of assets
                
                
                (1,739
                )
                
                
                (4,108
                )
                
                
                (18,154
                )Compensation
      recognized from issuance of stock options
                
                
                297,601
                
                
                
                58,106
                
                
                
                -Impairment
      of assets
                
                
                -
                
                
                
                32,014
                
                
                
                -Intrinsic
      value of beneficial interest
                
                
                -
                
                
                
                257,500
                
                
                
                -Fair
      value of stock warrants issued in exchange for services
                
                
                -
                
                
                
                -
                
                
                
                16,038Changes
      in operating assets and liabilities:Increase
      in accounts receivable
                
                
                (252,226
                )
                
                
                (175,592
                )
                
                
                (109,472
                )Decrease
      (increase)  in inventory
                
                
                37,199
                
                
                
                (121,766
                )
                
                
                -Decrease
      in prepaid expenses
                
                
                -
                
                
                
                -
                
                
                
                2,759Increase
      in deposits
                
                
                (30,000
                )
                
                
                -
                
                
                
                -Increase
      (decrease) in accounts payable
                
                
                129,741
                
                
                
                (75,335
                )
                
                
                (12,062
                )Increase
      in deferred revenue
                
                
                43,417
                
                
                
                -
                
                
                
                -Increase
      in accrued expenses
                
                
                220,883
                
                
                
                240,652
                
                
                
                182,507Total
      adjustments
                
                $
                617,039
                
                
                $
                475,769
                
                
                $
                409,849Net
      cash used by operating activities
                
                $
                (130,777
                )
                
                $
                (870,524
                )
                
                $
                (829,882
                )Supplemental
      schedule of non-cash investing andfinancing
      activitiesIssuance
      of stock for accrued interest payable onconvertible
      debentures
                
                $
                -
                
                
                $
                58,500
                
                
                $
                -Fair
      value of stock warrants issued in exchange for services
                
                $
                -
                
                
                $
                25,284
                
                
                $
                -
  29
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 Note
A - General organization:
 
 Preferred
Voice, Inc. (the "Company") is a Delaware corporation incorporated in 1992. On
February 25, 1997, the Company’s stockholders approved changing the name of the
Company to better reflect the nature of the Company’s business. The Company
commenced business on May 13, 1994, and was in the development stage until
August 1, 1995.  The Company provides enhanced services to the
telecommunications industry throughout the United States and maintains its
principal offices in Dallas, Texas.
 
 
 Note
B - Summary of significant accounting policies:
 
 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 amounts reported in
the financial statements and accompanying notes.  Actual results could
differ from these estimates.
 
 Cash and cash
equivalents
 
 For purposes of reporting cash
flows, cash and cash equivalents include all amounts due from banks with
original maturities of three months or less.
  The Company maintains cash balances
at a financial institution located in Dallas, Texas, which at times may exceed
federally insured limits.  The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on cash and cash equivalents.
 
 Receivables and credit
policies
  The Company has adopted the
provisions of the American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) No. 01-06, Accounting by Certain Entities
(Including Entities with Trade Receivables) That Lend to or Finance the
Activities of Others. This SOP provides certain presentation and
disclosure changes for entities with trade receivables and is effective for
periods beginning January 1, 2002, and thereafter.
  Accounts receivable are
uncollateralized customer obligations due under normal trade terms requiring
payment within 30 days from the invoice date.   Unpaid accounts
receivable with invoice dates over 30 days old bear no
interest.  Accounts receivable are stated at the amount billed to the
customer. Customer account balances with invoices dated over 90 days are
considered delinquent.  Payments of accounts receivable are allocated
to the specific invoices identified on the customer’s remittance advice or, if
unspecified, are applied to the earliest unpaid invoice.
  The Company estimates the allowance for
doubtful accounts based on an analysis of specific customers, taking into
consideration the age of past due accounts and an assessment of the customer’s
ability to pay.
 
 Inventory
  Inventory, consisting of ringback
platforms and their related components in the amount of $68,354 and $121,766 and
digital signage and their related components in the amount of $16,213 and $-0-
for the years ended March 31, 2008 and 2007, respectively, are stated at the
lower of cost or market.  Cost is determined using the first-in,
first-out method.
 
 Property and
equipment
  The cost of property and equipment
is depreciated over the estimated useful lives of the related
assets.  Depreciation is computed on the straight-line method for
financial reporting purposes and the double declining method for income tax
purposes. Maintenance and repairs are charged to operations when
incurred.  Betterments and renewals are capitalized.
 
 30
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 Note
B - Summary of significant accounting policies (continued):
 
 The useful lives of property and
equipment for purposes of computing depreciation are as follows:
 
 Computer
      equipment
              5
      yearsFurniture
      and fixtures
              5
      yearsOffice
      equipment
              5
      years
 
 Depreciation expense for the years
ended March 31, 2008, 2007 and 2006 was $85,574, $145,999, and $245,672,
respectively.
 
 Capitalized software
development
  The Company has adopted the
provisions of FASB No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed, to account for its internally developed software costs since
the Company is dependent on the software to provide the enhanced
services.  Under the provisions of FASB No. 86, costs incurred prior
to the product’s technological feasibility are expensed as
incurred.  The capitalization of software development costs begins
when a product’s technological feasibility has been established and ends when
the product is available for use and released to
customers.  Capitalized software development costs include direct
costs incurred subsequent to establishment of technological feasibility for
significant product enhancements.  Amortization is computed on an
individual product basis using the straight-line method over the estimated
economic life of the product, generally three years.
  During the years ended March 31,
2008, 2007 and 2006, software development costs capitalized were $8,224,
$19,058, and $49,470, respectively.  The amortization of capitalized
software development costs for the years ended March 31, 2008 2007 and 2006 was
$70,509, $106,757, and $95,325, respectively.
 
 The estimated aggregate amortization
expense for capitalized software development costs for each of the five
succeeding fiscal years is as follows:
 
 Year
      endingMarch
      31,
                
                Amount2009
                
                $
                20,9982010
                
                
                6,6902011
                
                
                2,2142012
                
                
                -2013
                
                
                -Total
                
                $
                29,902
  Trademarks and
patents
  Trademarks and patents are recorded
at cost.  Amortization is computed on the straight-line method over
the identifiable lives of the trademarks and patents.  The Company has
adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other
Intangible Assets, effective for periods beginning January 1, 2002, and
thereafter.  SFAS 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible
Assets.  Specifically, the statement addresses how intangible
assets that are acquired should be accounted for in financial statements upon
their acquisition, as well as how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements.  The statement requires intangible assets to be reviewed
for impairment whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable and that a loss shall be recognized if
the carrying amount of an intangible exceeds its fair value.  The
Company tested its intangible assets for impairment as of March 31, 2008 and
found  no event or changes in circumstance that have impaired its
intangible assets.
 
 31
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
B - Summary of significant accounting policies (continued):
 
 The amortization of trademarks and
patents for the years ended March 31, 2008, 2007 and 2006 was $7,652, $7,328,
and $7,236 and, respectively.
 
 The estimated aggregate amortization
expense for trademarks and patents for each of the five succeeding fiscal years
is as follows:
  Year
      endingMarch
      31,
                
                Amount2009
                
                $
                7,9732010
                
                
                7,9732011
                
                
                7,9732012
                
                
                7,9732013
                
                
                7,973Total
                
                $
                39,865
 
 Advertising
expense
 
 The Company expenses advertising
costs when the advertisement occurs.  Total advertising expense
amounted to $-0- for the years ended March 31, 2008, 2007 and 2006.
 
 Fair value of financial
instruments
  The Company defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.  Financial
instruments included in the Company’s financial statements include cash and cash
equivalents, trade accounts receivable, other receivables, other assets, notes
payable and long-term debt.  Unless otherwise disclosed in the notes
to the financial statements, the carrying value of financial instruments is
considered to approximate fair value due to the short maturity and
characteristics of those instruments.  The carrying value of long-term
debt approximates fair value as terms approximate those currently available for
similar debt instruments.
 
 Concentration of business,
market and credit risks
  In the normal course of business,
the Company extends unsecured credit to its customers with payment terms
generally 30 days.  Because of the credit risk involved, management
provides an allowance for doubtful accounts that reflects its opinion of amounts
that will eventually become uncollectible. In the event of complete
nonperformance by the Company’s customers, the maximum exposure to the Company
is the outstanding accounts receivable balance at the date of
nonperformance.
  During the years ended March 31,
2008, 2007 and 2006, approximately $1,843,144 (52.0%), $963,000 (76.7%), and
$685,000 (57.7%), respectively, of the Company’s total sales were derived from
one customer respectively.  At March 31, 2008 two customer’s balances
of approximately $552,412 (86%), and for March 31, 2007 and 2006 one customer’s
balances of approximately $358,000 (93%), and $169,000 (79%), accounted for a
material portion of accounts receivable.
 
 The
Company maintains accounts with financial institutions which periodically exceed
federally insured amounts.  The excess balance at March 31, 2008,
was approximately $405,000.
 
 Revenue
recognition
  For
recognizing revenue, the Company applies the provisions of SEC Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognitionwhich was
issued in December 2003.  In most cases, the services being performed
do not require significant production, modification or customization of the
Company’s software or services; therefore, revenues are recognized
when
  32
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
  Note
B - Summary of significant accounting policies (continued):
 
 evidence
of a completed transaction exists, generally when services have been
rendered.  In situations where the Company receives an initial payment
for future services, the Company defers recognition of revenue, and recognizes
the revenue over the life of the respective contract.  SAB No. 104
codified, revised and rescinded certain sections of Staff Accounting Bulletin
(SAB) No. 101, Revenue
Recognition in Financial Statements, in order to make this interpretive
guidance consistent with current authoritative accounting guidance and SEC rules
and regulations.
  During the years ended March 31,
2008 and 2007, the majority of the Company’s revenue consisted of platform
sales, ringback service sales, and entertainment content sales.  The
Ringback product is a service that allows for the playing of a song, message, or
other audible during the usual “ring ring” heard until a phone is
answered.
 
 The
amount of sales by product segment, for the years ended March 31, 2008, 2007 and
2006, was as follows:
 
 Product
      and Service
                
                2008
                
                
                2007
                
                
                2006Voice
      Activated Dialing
                
                $
                33,806
                
                
                $
                214,581
                
                
                $
                386,308Push
      2 Connect Conferencing
                
                
                -
                
                
                
                -
                
                
                
                230Telephone
      Receptionist
                
                
                449
                
                
                
                643
                
                
                
                1,882Smart
      Business Line
                
                
                494
                
                
                
                2,314
                
                
                
                2,570Digital
      Signage
                
                
                482,515
                
                
                
                -
                
                
                
                -Content
      Sales
                
                
                1,370,671
                
                
                
                364,641
                
                
                
                23,571Ringback
      Service
                
                
                943,952
                
                
                
                271,200
                
                
                
                -Platform
      Sales
                
                
                664,949
                
                
                
                271,638
                
                
                
                621,388Maintenance
      and Support Agreements
                
                
                19,750
                
                
                
                66,500
                
                
                
                -Customer
      Applications
                
                
                25,000
                
                
                
                63,117
                
                
                
                152,134Total
      revenue
                
                $
                3,541,586
                
                
                $
                1,254,634
                
                
                $
                1,188,083
  Income
taxes
  Income taxes are accounted for under
the asset and liability method.  Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis.  Deferred tax assets and
liabilities are measured using enacted tax rates that will apply in the years in
which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
  The Company adopted the provisions
of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(“FIN 48”), on December 1, 2007. Previously, the Company had accounted for tax
contingencies in accordance with SFAS No. 5, Accounting for Contingencies.
As required by Interpretation 48, which clarifies SFAS No. 109, Accounting
for Income Taxes, the Company recognizes the financial statement benefit of a
tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions
meeting this standard, the amount recognized in the financial statements is the
largest benefit that has a greater than 50 percent likelihood of being realized
upon ultimate settlement with the relevant tax authority. At the adoption date,
the Company applied Interpretation 48 to all tax positions for which the statute
of limitations remained open. The adoption of FIN 48 did not have a material
impact in the financial statements during the year ended March 31,
2008.
 
 Stock based
compensation
 
 On
April 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB No. 25, Accounting for Stock Issued to
Employees.  This statement requires the Company to recognize
compensation costs related to stock-based payment transactions (i.e. granting of
stock options and warrants) in the financial statements.  With limited
exceptions, the amount of compensation cost is
  33
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
   Note
B - Summary of significant accounting policies (continued):
 
 measured
based on the grant-date fair value of the equity or liability instruments
issued.  In addition, liability awards will be remeasured each
reporting period.  Compensation cost will be recognized over the
period that an employee provides services in exchange for the
award.  This new standard is effective for awards that are granted,
modified or settled in cash in annual financial periods beginning after December
15, 2005.  In addition, this new standard applies to unvested options
granted prior to the effective date.  This standard was adopted during
the first quarter of 2006.
  The
Company adopted SFAS 123R using the modified prospective transition method,
which requires the application of the accounting standard as of April 1,
2006, the first day of the Company’s 2007 fiscal year. Our consolidated
financial statements for the year ended March 31, 2008, reflect the impact of
SFAS 123R.  In accordance with the modified prospective transition
method, our consolidated financial statements for prior periods have not been
restated to include the impact of SFAS 123R. Stock-based compensation expense
recognized under SFAS 123R for the year ended March 31, 2008 and 2007 was
$297,601 and $58,106, respectively. Stock-based compensation expense which would
have been recognized under the fair value based method would have been
approximately $201,000 during the year ended March 31, 2006.  As of
March 31, 2008, there were no unrecognized compensation costs related to
non-vested share-based compensation arrangements.  Disclosures
required by this statement are in Notes F and G.
 
 Loss per
share
  The Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share.  SFAS No. 128 reporting requirements replace primary and
fully-diluted earnings per share (EPS) with basic and diluted
EPS.  Basic EPS is calculated by dividing net income or loss
(available to common stockholders) by the weighted average number of common
shares outstanding for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, such as stock options, warrants, convertible preferred stock and
convertible debentures, were exercised or converted into common
stock.  Since the Company incurred a loss from operations for the
years ended March 31, 2008, 2007 and 2006, no computation of diluted EPS has
been performed.
  Loss per share is based on the
weighted average number of shares outstanding of 6,130,184, 6,129,844, and
5,961,314 for the years ended March 31, 2008, 2007 and 2006,
respectively.
 
 Reporting comprehensive
income and operating segments
  The Company has adopted the
provisions of SFAS No. 130, Reporting Comprehensive Incomeand SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information.  SFAS No. 130 requires that
an enterprise report, by major components and as a single total, the change in
its net assets during the period from non-owner sources. SFAS No. 131
establishes annual and interim reporting standards for an enterprise’s operating
segments and related disclosures about its products, services, geographic areas
and major customers. Adoption of these statements has had no impact on the
Company’s financial position, results of operations, cash flow or related
disclosures.
  Comprehensive income is the total of
(1) net income plus (2) all other changes in net assets arising from non-owner
sources, which are referred to as other comprehensive income.  In
accordance with SFAS No. 130, the Company presents a statement of operations
that includes other comprehensive income when applicable.  An analysis
of changes in components of accumulated other comprehensive income is presented
in the statement of changes in stockholders’ equity.  There were no
transactions related to other comprehensive income for the two years ended March
31, 2008.
 
 Impairment of long-lived
assets and long-lived assets to be disposed of
  The Company previously adopted the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of.  This statement requires that long-lived assets and certain
identified intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison on the carrying amount of an asset to future net cash flows
expected to be generated by the asset.  If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets.  Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs
  34
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
B - Summary of significant accounting policies (continued):
 
 to
sell.  An impairment loss in the amount of $-0-, $1,577, and $-0- was
recognized during the years ended March 31, 2008, 2007, and 2006,
respectively.
  The Company adopted the provisions
of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assetseffective for periods
beginning January 1, 2002 and thereafter.  SFAS 144 replaces SFAS 121
and, among other matters, addresses financial accounting and reporting for the
impairment or disposal of long-lived assets.  SFAS 144 retains the
basic provisions of SFAS 121, but broadens its scope and establishes a single
model for long-lived assets to be disposed of by sale.
 
 Gain from extinguishment of
debt
  In April 2002, the FASB issued SFAS
No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections effective for period beginning May 15, 2002 and
thereafter.  The Company adopted the provision of SFAS No. 145 for the
fiscal year ending March 31, 2003.  SFAS No. 145, among other
matters, addresses financial accounting and reporting for the extinguishment of
debt, concluding that debt extinguishments are often routine, recurring
transactions and concluded that classifying the associated gains and losses as
extraordinary items in all cases would be inconsistent with the criteria of ABP
Opinion 30.
 
 Recent accounting
pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157; "Fair Value Measurements". This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year.  In November 2007, FASB
agreed to a one-year deferral of the effective date for nonfinancial assets and
liabilities that are recognized or disclosed at fair value on a recurring
basis.  We are currently evaluating the provisions of FASB 157 to
determine the future impact on the Company’s consolidated financial
statements.
  On February 15, 2007, the FASB
issued Statement of Financial Accounting Standards No. 159,“The Fair Value Option for Financial
Assets and Financial Liabilities — Including an Amendment of FASB Statement
No. 115” (“SFAS 159”). This standard permits an entity to measure
financial instruments and certain other items at estimated fair value. Most of
the provisions of SFAS No. 159 are elective; however, the amendment to FASB
No. 115,“Accounting for
Certain Investments in Debt and Equity Securities,” applies to all
entities that own trading and available-for-sale securities. The fair value
option created by SFAS 159 permits an entity to measure eligible items at fair
value as of specified election dates. The fair value option (a) may
generally be applied instrument by instrument, (b) is irrevocable
unless a new election date occurs, and (c) must be applied to the entire
instrument and not to only a portion of the instrument. SFAS 159 is effective as
of the beginning of the first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of the previous fiscal
year provided that the entity (i) makes that choice in the first
120 days of that year, (ii) has not yet issued financial statements
for any interim period of such year, and (iii) elects to apply the
provisions of FASB 157. Management is currently evaluating the impact of SFAS
159, if any, on the Company’s financial statements. The adoption of SFAS No. 159
is not expected to have a material effect on its financial position, results of
operations or cash flows.
  Note
C - Notes payable:
 
 An
unsecured note was paid off in March of 2007.  Interest expense charged to
operations related to this note was -0-, $467, and $1,288 for the years ended
March 31, 2008, 2007 and 2006, respectively.
 
 35
 
 PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
D - Convertible debt and warrants:
 
 On March
31, 2005, the Company closed a Securities Purchase Agreement and issued $975,000
in principal amount of 6% Convertible Debentures due March 31, 2008,
subsequently extended to June 30, 2008, (the "Debentures"), to a group of
institutional and high net worth investors.  The Debentures pay an
interest rate of 6% on an annual basis and are convertible into 1,950,000 shares
of the Company’s common stock at a price of $0.50 per share at which time the
authorized shares increases to 65,000,000 shares.  The Company
recorded the intrinsic value of the beneficial conversion feature of $257,500 as
interest expense as the shareholders approved an increase in its authorized
shares to 100,000,000 shares on April 27, 2006.  The investors also
received warrants to purchase an additional 975,000 shares of common stock with
an exercise price of $0.60 per share.
 
 The
Company has allocated the proceeds from the issuance of the Debentures to the
warrants and the Debentures based on their relative fair market values at the
date of issuance.  The value assigned to the warrants of $427,416 has
been recorded as an increase in additional paid in capital.  The
assignment of a value to the warrants results in a loan discount being recorded
for the same amount.  The discount is being amortized over the
original three-year term of the Debentures as additional interest
expense.  Amortization for the years ended March 31, 2008, 2007 and
2006, was $142,472.  The loan costs incurred on the issuance of the
Debentures amounted to $2,430.
 
 On
September 29, 2006, the Company closed a Securities Purchase Agreement and
issued $1,170,000 in principal amount of 6% Convertible Debentures due September
29, 2009 (the "Debentures"), to a group of institutional and high net worth
investors.  The Debentures pay an interest rate of 6% on an annual
basis and are convertible into 3,342,857 shares of the Company’s common stock at
a price of $0.35 per share.   The investors also received
warrants to purchase an additional 1,671,429 shares of common stock with an
exercise price of $0.50 per share.
 
 The
Company has allocated the proceeds from the issuance of the Debentures to the
warrants and the Debentures based on their relative fair market values at the
date of issuance.  The value assigned to the warrants of $281,977 has
been recorded as an increase in additional paid-in capital.  The
assignment of a value to the warrants results in a loan discount being recorded
for the same amount.  The discount is being amortized over the
original three-year term of the Debentures as additional interest
expense.    Amortization for the years ended March 31, 2008
and 2007 was $93,992 and $46,996, respectively.
 
 167,143
warrants were issued in exchange for consulting services provided for in the
issuance of the Securities Purchase Agreement.  These warrants are
exercisable at price of $0.50 per share and were valued using the relative fair
market value at the date of issuance.  The value assigned to the
warrants of $25,285 has been recorded as deferred loan cost and is being
amortized over the original three-year term of the debentures as financing
cost.  Amortization for the year ended March 31, 2008 and 2007 was
$8,428 and $4,214, respectively.
  Note
E - Common stock:
 
 On
November 13, 2006, the Board of Directors approved a 1 for 5 reverse stock split
of its common stock.  All references in the accompanying financial
statements to the number of shares of common stock and loss per share have been
retroactively restated to reflect the reverse stock split.
 
 Stock purchase
warrants
 
 At March 31, 2008 the Company had
outstanding warrants to purchase 4,591,072 shares of the Company's common stock
at prices that ranged from $0.50 per share to $0.85 per share.  The
warrants are exercisable at any time and expire through September 29,
2011.  At March 31, 2008, 4,591,072 shares of common stock were
reserved for that purpose.
  36
 
 PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
E - Common stock (continued):
 
 Common stock
reserved
 
 At March
31, 2008, shares of common stock were reserved for the following
purposes:
 
 Exercise
      of future grants of stock options and stock appreciation rights under the
      2000 stock option plan
                
                
                899,133Exercise
      of stock warrants and debt conversion
                
                
                9,883,92910,783,062
 Note
F – Employee stock option plans:
 
 1994
Plan
 
 On November 1, 1994, the Company
adopted a stock award and incentive plan (“1994 Plan”) which permitted the
issuance of options and stock appreciation rights to selected employees and
independent contractors of the Company.  The 1994 Plan expired October
31, 2004.  At March 31, 2005 there were 1,000 shares still outstanding
so the Plan did not expire as a whole, until the expiration of the outstanding
shares in April 2005.  The 1994 Plan reserved 90,000 shares of common
stock for grant and provided that the term of each award be determined by the
committee of the Board of Directors (Committee) charged with administering the
Plan.
  Under the terms of the 1994 Plan,
options granted could be either nonqualified or incentive stock options, and the
exercise price, determined by the Committee, could not be less than the fair
market value of a share on the date of grant.  Stock appreciation
rights granted in tandem with an option would be exercisable only to the extent
the underlying option was exercisable and the grant price was equal to the
exercise price of the underlying option.  As of March 31, 2006, the
Plan had expired and there were no options outstanding and no stock appreciation
rights had been granted.
  As of March 31, 2008, 22,577 of
these options were exercised, 106,776 were forfeited and 1,000 were
expired.  At March 31, 2008, the remaining weighted average
contractual life was 0 years.
 
 2000
Plan
  On September 29, 2000, the Company
adopted an incentive stock option and other equity participation plan (“2000
Plan”) which permits the issuance of stock purchase agreements, stock awards,
incentive stock options, non-qualified stock options and stock appreciation
rights to selected employees and independent contractors of the
Company.  The 2000 Plan reserved 400,000 shares of common stock for
grant and provides that the term of each award be determined by the committee of
the Board of Directors (Committee) charged with administering the
Plan.  In February 2006, the Committee revised the plan to reserve
1,000,000 shares of common stock for grant.  These stock options vest
over a period of one to two years and expire five years from the grant
date.
  Under the terms of the 2000 Plan,
options granted may be either nonqualified or incentive stock options, and the
exercise price, determined by the Committee, may not be less than the fair
market value of a share on the date of the grant.  Stock appreciation
rights granted in tandem with an option shall be exercisable only to the extent
the underlying option is exercisable and the grant price shall be equal to the
exercise price of the underlying option.  At March 31, 2008, options
to purchase 899,133 shares at an exercise price of $0.60 to $1.25 per share were
outstanding.  No stock appreciation rights had been granted at March
31, 2008.
  As of March 31, 2008, 41,667 options
have been exercised, 371,965 have been forfeited, 109,550 expired, 899,133
remain outstanding, and 899,133 were vested and exercisable.  At March
31, 2008, the remaining weighted average contractual life was 3.4
years.
 
 37
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
F – Employee stock option plans (continued):
 
 Employee
warrants
  As of
March 31, 2008, none of the employee warrants have been exercised or forfeited,
731,000 expired, 412,000 remain outstanding, and 412,000 were vested and
exercisable.  At March 31, 2008, the remaining weighted average
contractual life was approximately 1.1 years.
  Note
G - Proforma information related to employee stock options and
warrants:
 
 The
Company used the Black-Scholes option-pricing model (“Black-Scholes”) as its
method of valuation under SFAS 123R in fiscal year 2008. This fair value is then
amortized on a straight-line basis over the requisite service periods of the
awards, which is generally the vesting period. Black-Scholes was also previously
used for our pro forma information required under SFAS 123 for periods prior to
fiscal year 2007. The fair value of share-based payment awards on the date of
grant as determined by the Black-Scholes model is affected by our stock price as
well as other assumptions. The following weighted-average assumptions were used
in the pricing model:
 
 2008
                
                2007
                
                2006Expected
      dividend yield
                
                0.00%
                
                0.00%
                
                0.00%Risk-free
      interest rate
                
                4.54%
                
                4.73%
      - 4.81%
                
                2.10%
      - 4.18%Expected
      life
                
                5
      years
                
                5
      years
                
                3 -
      5 yearsExpected
      volatility
                
                140%
                
                146%
      - 151%
                
                179%
      - 266%
 
 Prior to
the adoption of SFAS 123R, the Company applied APB Opinion No. 25 in accounting
for its plan for stock options and warrants and, accordingly, recognized no
compensation expense for stock options granted at exercise prices at least equal
to the market value of the Company’s stock.  Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123R, the Company’s net loss and loss per share
would have been increased to the proforma amounts indicated below:
  2008
                
                
                2007
                
                
                2006Net
      loss, as reported under APB 25 for theprior
      periods
                
                
                N/A
                
                
                
                N/A
                
                
                $
                (1,239,731
                )Less
      total compensation expense determined under fair value based method for
      all awards, net of tax effectsunder
      fair value based method for all awards,net
      of tax effects
                
                
                (297,601
                )
                
                
                (58,106
                )
                
                
                (200,560
                )Net
      loss including the effect of stock-basedcompensation
      expense
                
                $
                (747,816
                )
                
                $
                (1,346,293
                )
                
                $
                (1,440,291
                )Loss
      per common share:As
      reported
                
                $
                (0.12
                )
                
                $
                (0.22
                )
                
                $
                (0.20
                )Proforma
                
                $
                (0.12
                )
                
                $
                (0.22
                )
                
                $
                (0.24
                )
  38
 
 PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
G - Proforma information related to employee stock options and warrants
(continued):
 
 Following
is a summary of warrants issued to employees:
 
 1994
      stock award and incentive plan (1994 Plan)2008
                
                
                2007
                
                
                2006Weighted
                
                
                
                
                
                Weighted
                
                
                
                
                
                Weightedaverage
                
                
                
                
                
                average
                
                
                
                
                
                averageNumber
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exerciseshares
                
                
                price
                
                
                shares
                
                
                price
                
                
                shares
                
                
                priceOutstanding
      at beginningof
      year
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                1,000
                
                
                $
                2.50Granted
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,000
                )
                
                
                2.50Outstanding
      at end of year
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -Options
      exercisable at endof
      year
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -2000
      stock award and incentive plan (2000 Plan)2008
                
                
                2007
                
                
                2006Weighted
                
                
                
                
                
                
                Weighted
                
                
                
                
                
                
                Weightedaverage
                
                
                
                
                
                
                average
                
                
                
                
                
                
                averageNumber
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exerciseshares
                
                
                price
                
                
                shares
                
                
                price
                
                
                shares
                
                
                priceOutstanding
      at beginningof
      year
                
                
                910,933
                
                
                $
                0.60
                
                
                
                294,733
                
                
                $
                0.60
                
                
                
                322,733
                
                
                $
                0.60Granted
                
                
                50,000
                
                
                
                1.25
                
                
                
                745,000
                
                
                
                0.60
                
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                (30,000
                )
                
                
                0.60
                
                
                
                (110,000
                )
                
                
                0.60
                
                
                
                (28,000
                )
                
                
                0.60Cancelled
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                (31,800
                )
                
                
                0.60
                
                
                
                (18,800
                )
                
                
                0.60
                
                
                
                -
                
                
                
                -Outstanding
      at end of year
                
                
                899,133
                
                
                $
                0.60
                
                
                
                910,933
                
                
                $
                0.60
                
                
                
                294,733
                
                
                $
                0.60Options
      exercisable at endof
      year
                
                
                874,133
                
                
                $
                0.62
                
                
                
                165,993
                
                
                $
                0.60
                
                
                
                137,233
                
                
                $
                0.60Weighted
      average fair valueof
      options granted duringthe
      year
                
                
                
                
                
                $
                0.49
                
                
                
                
                
                
                $
                0.45
                
                
                
                
                
                
                $
                -
  39
 
 PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
  Note
G - Proforma information related to employee stock options and warrants
(continued):
 
 Following
is a summary of the stock award and incentive plans:
 
 2008
                
                
                2007
                
                
                2006Weighted
                
                
                
                
                
                Weighted
                
                
                
                
                
                Weightedaverage
                
                
                
                
                
                average
                
                
                
                
                
                averageNumber
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exerciseshares
                
                
                price
                
                
                shares
                
                
                price
                
                
                shares
                
                
                priceOutstanding
      at beginningof
      year
                
                
                432,000
                
                
                $
                0.67
                
                
                
                532,000
                
                
                $
                0.70
                
                
                
                492,000
                
                
                $
                0.70Granted
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                40,000
                
                
                
                0.75Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                (20,000
                )
                
                $
                0.60
                
                
                
                (100,000
                )
                
                
                0.88
                
                
                
                -
                
                
                
                -Outstanding
      at end of year
                
                
                412,000
                
                
                $
                0.67
                
                
                
                432,000
                
                
                $
                0.67
                
                
                
                532,000
                
                
                $
                0.70Warrants
      exercisable at endof
      year
                
                
                412,000
                
                
                $
                0.67
                
                
                
                432,000
                
                
                $
                0.67
                
                
                
                532,000
                
                
                $
                0.70Weighted
      average fair valueof
      warrants granted duringthe
      year
                
                
                
                
                
                $
                -
                
                
                
                
                
                
                $
                -
                
                
                
                
                
                
                $
                0.65
  Note
H - Stock warrants:
 
 During
the years ended March 31, 2008, 2007 and 2006, the Company issued -0-, 167,143,
and 40,000 warrants to certain service providers and business partners at
exercise prices ranging from $0.50 to $0.75.  The warrants can be
exercised at any time and expire at various dates through September 29,
2011.
 
 In
accordance with SFAS No. 123, the Company accounts for warrants issued to
non-employees at fair value of the warrants at the grant date.  For
the years ended March 31, 2008, 2007 and 2006, the Company
recognized  $-0-, $-0-, and $16,038, respectively, as compensation
expense and $-0- as stock issuance cost during the years ended March 31, 2008,
2007 and 2006 related to warrants issued to non-employees.
 
 As of
March 31, 2008, none of the total warrants issued to non-employees for goods and
services have been exercised; none have been forfeited; 323,607 have expired;
and 207,143 remain outstanding, of which 207,143 were vested and
exercisable.  At March 31, 2008, the remaining weighted average
contractual life was approximately 3.2 years.
 
 For the
years ended March 31, 2008, 2007 and 2006, the Company issued -0-, 1,671,428,
and -0- warrants, respectively, in connection with stock offerings. These
warrants were not issued in exchange for goods and services; therefore, no
compensation expense was recognized by the Company during the years ended March
31, 2008, 2007 and 2006.
 
 As of
March 31, 2008, 204,499 of the total warrants issued for stock offerings have
been exercised; none have been forfeited; 431,493 have expired; and 3,971,928
remain outstanding, of which 3,971,928 were vested and
exercisable.  At March 31, 2008, the remaining weighted average
contractual life was approximately 2.4 years.
  40
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
   Note
H - Stock warrants (continued):
 
 The per
share weighted-average fair value of warrants granted to non-employees in
exchange for goods and services was determined using the Black Scholes
Option-Pricing Model.  The following weighted-average assumptions were
used in the pricing model:
 
 2008
                
                2007
                
                2006Expected
      dividend yield
                
                0.00%
                
                0.00%
                
                0.00%Risk-free
      interest rate
                
                0
                
                4.67
                
                4.75Expected
      life
                
                5
      years
                
                5
      years
                
                3
      yearsExpected
      volatility
                
                0%
                
                56%
                
                144%
 
 Following
is a summary of warrants issued to non-employees in exchange for goods and
services:
 
 2008
                
                
                2007
                
                
                2006Weighted
                
                
                
                
                
                Weighted
                
                
                
                
                
                Weightedaverage
                
                
                
                
                
                average
                
                
                
                
                
                averageNumber
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exerciseshares
                
                
                price
                
                
                shares
                
                
                price
                
                
                shares
                
                
                priceOutstanding
      at beginningof
      year
                
                
                207,143
                
                
                $
                0.50
                
                
                
                100,107
                
                
                $
                6.05
                
                
                
                110,107
                
                
                $
                5.55Granted
                
                
                -
                
                
                
                -
                
                
                
                167,143
                
                
                
                0.50
                
                
                
                40,000
                
                
                
                0.50Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -
                
                
                
                (60,107
                )
                
                
                9.74
                
                
                
                (50,000
                )
                
                
                0.50Outstanding
      at end of year
                
                
                207,143
                
                
                $
                0.50
                
                
                
                207,143
                
                
                $
                0.50
                
                
                
                100,107
                
                
                $
                6.05Warrants
      exercisable at endof
      year
                
                
                207,143
                
                
                $
                0.50
                
                
                
                207,143
                
                
                $
                0.50
                
                
                
                100,107
                
                
                $
                6.05Weighted
      average fair valueof
      warrants granted duringthe
      year
                
                
                
                
                
                
                -
                
                
                
                
                
                
                $
                0.15
                
                
                
                
                
                
                $
                0.40
  41
 
 PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
H - Stock warrants (continued):
 
 The
following is a summary of warrants issued in connection with stock and debenture
offerings:
  2008
                
                
                2007
                
                
                2006Weighted
                
                
                
                
                
                Weighted
                
                
                
                
                
                Weightedaverage
                
                
                
                
                
                average
                
                
                
                
                
                averageNumber
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exerciseshares
                
                
                price
                
                
                shares
                
                
                price
                
                
                shares
                
                
                priceOutstanding
      at beginningof
      year
                
                
                3,971,928
                
                
                $
                0.56
                
                
                
                2,616,350
                
                
                $
                1.55
                
                
                
                2,673,493
                
                
                $
                1.80Granted
                
                
                -
                
                
                
                -
                
                
                
                1,671,428
                
                
                
                0.50
                
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -
                
                
                
                (315,850
                )
                
                
                8.42
                
                
                
                (57,143
                )
                
                
                13.15Outstanding
      at end of year
                
                
                3,971,928
                
                
                $
                0.56
                
                
                
                3,971,928
                
                
                $
                0.56
                
                
                
                2,616,350
                
                
                $
                1.55Warrants
      exercisable at endof
      year
                
                
                3,971,928
                
                
                $
                0.56
                
                
                
                3,971,928
                
                
                $
                0.56
                
                
                
                2,616,350
                
                
                $
                1.55Weighted
      average fair valueof
      warrants granted duringthe
      year
                
                
                
                
                
                
                -
                
                
                
                
                
                
                $
                0.50
                
                
                
                
                
                
                $
                -
  Following
is an overall summary of the stock warrants activity, including warrants issued
to employees (see Note G):
 
 2008
                
                
                2007
                
                
                2006Weighted
                
                
                
                
                
                Weighted
                
                
                
                
                
                Weightedaverage
                
                
                
                
                
                average
                
                
                
                
                
                averageNumber
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exercise
                
                
                Number
      of
                
                
                exerciseshares
                
                
                price
                
                
                shares
                
                
                price
                
                
                shares
                
                
                priceOutstanding
      at beginningof
      year
                
                
                4,611,071
                
                
                $
                0.57
                
                
                
                3,248,457
                
                
                $
                1.55
                
                
                
                3,275,600
                
                
                $
                1.75Granted
                
                
                -
                
                
                
                -
                
                
                
                1,838,571
                
                
                
                0.50
                
                
                
                80,000
                
                
                
                0.65Exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Expired
                
                
                (20,000
                )
                
                
                0.60
                
                
                
                (475,957
                )
                
                
                7.00
                
                
                
                (107,143
                )
                
                
                7.25Outstanding
      at end of year
                
                
                4,591,071
                
                
                $
                0.57
                
                
                
                4,611,071
                
                
                $
                0.57
                
                
                
                3,248,457
                
                
                $
                1.55Warrants
      exercisable at endof
      year
                
                
                4,591,071
                
                
                $
                0.57
                
                
                
                4,611,071
                
                
                $
                0.57
                
                
                
                3,248,457
                
                
                $
                1.55Weighted
      average fair valueof
      warrants granted duringthe
      year
                
                
                
                
                
                
                -
                
                
                
                
                
                
                $
                0.50
                
                
                
                
                
                
                $
                0.55
  42
 PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 Note
I - Income taxes:
 
 The
Company uses the liability method of accounting for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109. Under the
liability method, a provision for income taxes is recorded based on taxes
currently payable on income as reported for federal income tax purposes, plus an
amount which represents the change in deferred income taxes for the
year.
 
 Deferred
income taxes are provided for the temporary differences between the financial
reporting basis and the tax-reporting basis of the Company's assets and
liabilities.  The major areas in which temporary differences give rise
to deferred taxes are accounts receivable, accrued liabilities, start-up
expenditures, accumulated depreciation, and net operating loss
carry-forwards.  Deferred income taxes are classified as current or
non-current depending on the classification of the assets and liabilities to
which they relate. Deferred income taxes arising from temporary differences that
are not related to an asset or liability are classified as current or
non-current depending on the years in which the temporary differences are
expected to reverse.
 
 The
provision for income taxes as of March 31 consists of:
 
 2008
                
                
                2007
                
                
                2006Current
      income taxes
                
                $
                -
                
                
                $
                -
                
                
                $
                -Change
      in deferred income taxes due totemporary
      differences
                
                
                -
                
                
                
                -
                
                
                
                -$
                -
                
                
                $
                -
                
                
                $
                -
  The
provision for income taxes for the years ended March 31, 2008, 2007 and 2006,
differs from the “expected” tax benefit (computed using the 34% U.S. federal
corporate rate to income before income taxes) as follows:
 
 2008
                
                
                2007
                
                
                2006Computed
      “expected” tax benefit
                
                $
                (254,000
                )
                
                $
                (458,000
                )
                
                $
                (422,000
                )Nondeductible
      items
                
                
                2,000
                
                
                
                88,000
                
                
                
                32,000Temporary
      differences
                
                
                28,000
                
                
                
                11,000
                
                
                
                17,000Net
      operating loss carry-forward
                
                
                224,000
                
                
                
                359,000
                
                
                
                373,000Provision
      for income taxes
                
                $
                -
                
                
                $
                -
                
                
                $
                -
  43
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
   Note
I - Income taxes (continued):
 
 Deferred
tax (liabilities) assets as of March 31 consist of the following:
 
 2008
                
                
                2007
                
                
                2006Accumulated
      depreciation
                
                $
                (135,000
                )
                
                $
                (107,000
                )
                
                $
                (96,000
                )Gross
      deferred tax liabilities
                
                $
                (135,000
                )
                
                $
                (107,000
                )
                
                $
                (96,000
                )Stock
      compensation
                
                $
                -
                
                
                $
                -
                
                
                $
                31,000Accounts
      receivable
                
                
                -
                
                
                
                -
                
                
                
                2,000Net
      operating loss carry-forward
                
                
                7,045,000
                
                
                
                6,821,000
                
                
                
                6,463,000Gross
      deferred tax assets
                
                $
                7,045,000
                
                
                $
                6,821,000
                
                
                $
                6,496,000Valuation
      allowance
                
                
                (6,910,000
                )
                
                
                (6,714,000
                )
                
                
                (6,400,000
                )$
                135,000
                
                
                $
                107,000
                
                
                $
                96,000Net
      deferred tax assets
                
                $
                -
                
                
                $
                -
                
                
                $
                -The
      change in the deferred tax valuationallowance
      is as follows:
                
                $
                196,000
                
                
                $
                314,000
                
                
                $
                389,000
 
 The
Company has recorded a valuation allowance amounting to the entire deferred tax
asset balance because of the Company's uncertainty as to whether the deferred
tax asset is realizable.  However, if the Company is able to utilize
the deferred tax asset in the future, the valuation allowance will be reduced
through a credit to income.
 
 The
Company has available at March 31, 2008, a net operating loss carry-forward of
approximately $20,722,000, which can be used to offset future taxable income
through the year 2028.  Utilization of net operating loss
carry-forwards in the future may be limited if changes in the Company’s stock
ownership create a change of control as provided in Section 382 of the Internal
Revenue Code.
  Note
J - Commitments:
 
 The
Company leases its office facilities and some office equipment under operating
leases expiring through December 2008.  Following is a schedule of
future minimum lease payments required under the above operating leases as of
March 31, 2008:
 
 Year
      endingMarch
      31,
                
                Amount2009
                
                $
                41,6292010
                
                
                -2011
                
                
                -2012
                
                
                -2013
                
                
                -$
                41,629
 
 Total
rent expense charged to operations was $55,654, $56,421, and $60,341 for the
years ended March 31, 2008, 2007 and 2006, respectively.
 
 44
  PREFERRED
VOICE, INC.
 NOTES
TO FINANCIAL STATEMENTS
   Note
K – Legal proceedings:
 
 In
February, 2008, the Company was sued by Ring Plus, Inc. in the United States
District Court for the Central District of California alleging infringement of
its U.S. Patent No. 7,006,608 (the “608 Patent”) which pertains to ringback tone
replacement methods and algorithms. Ring Plus, Inc. is seeking declaratory
judgment that the Company has violated the 608 Patent, preliminary and permanent
injunctions, an order that the Company destroy all infringing items, and money
damages in a sum according to proof at trial.  The Company does not
believe that they infringe the 608 Patent and believes it has meritorious
defenses to the action.
 
 
 Note L – Going concern:
  The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has suffered significant operating
losses in the current and prior years.  As shown in the accompanying
financial statements, the Company has incurred net losses of $747,816,
$1,346,293, and $1,239,731 for the years ended March 31, 2008, 2007 and 2006,
respectively.  The Company also has negative cash flows from
operations of $130,777, $870,524, and $829,882 for the years ended March 31,
2008, 2007 and 2006, respectively.  These factors, among others, may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.  Management’s
plans in regard to this matter are described below.
 
 Management
projects working capital needs to be approximately $1,560,000 over the next
twelve months for corporate overhead and equipment purchases to continue to
deploy services to carrier customers.  Management believes that
current cash and cash equivalents and cash that may be generated from operations
will be sufficient to meet these anticipated capital requirements and to finance
marketing initiatives for the next twelve months.  Such projections
have been based on revenue trends from current customers and customers which are
already under contract utilizing the revenue rates that have been experienced
over the past six months with currently installed customers and projected cash
requirements to support installation, sales and marketing, and general
overhead.  However, any projections of future cash requirements and
cash flows are subject to substantial uncertainty.  If the Company’s
operating projections are not realized it may be forced to raise additional
capital through the issuance of new shares, the exercise of outstanding
warrants, or reduction of current overhead.
  45