**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,
                2007


o
            Transition
                report under Section 13 or 15 (d) of the Securities Exchange Act
                of 1934
                for the transition periodfrom _____________ 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 Incorporation or Organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 **6500
                  Greenville Avenue****Suite
                  570****Dallas,
                  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 Exchange on Which RegisteredNONE
              
              N/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
o
 
 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. x
 
 State
        issuer’s revenues for its most recent fiscal year: $ 1,254,634
 
 The
        aggregate market value of the voting and non-voting stock held by non-affiliates
        of the registrant as of June 28, 2007 was approximately $ 3,210,664. For
        purposes of this computation, all executive officers, directors and 10%
        stockholders were deemed affiliates. Such a determination should not be
        construed as an admission that such executive officers, directors or 10%
        stockholders are affiliates.
 
 As
        of
        June 28, 2007, 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 o 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
                
                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 “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 base to 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 231 million subscribers as of December 2006, and as
        prices
        for cellular use drop, cellular use is becoming affordable to more economic
        segments of the population. 2005 was the third highest growth year for wireless
        adoption. Wireless phones are now a mass-market consumer device with an overall
        wireless penetration rate of 76% 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:
  ·
              *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.
  1
  ·
              *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, 2007, we are providing enhanced services to eight 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 (GAP SM )
        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.
 
 *The
        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.
 
 **Push-2-ConnectTM** Application
        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.
 
 **Content
        Suite** This
        service provides for the download of games, graphics, video, picture messaging
        and polyphonic and monophonic ringtones to consumers phones.
 
 **Voice
        Activated Dialing** Speech
        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.
 
 **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.
  3
  **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 seventy-seven 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, 2008.
 
 *Employees*
 
 As
        of
        June 28, 2007, we had 13 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.
 
 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.
  4
 
 We
        are
        not aware that any of our software products infringe the proprietary rights
        of
        third parties. There can be no assurance, however, that third parties will
        not
        claim that we have infringed on their proprietary rights with respect to
        our
        current or future products. We expect that software product developers will
        increasingly be subject to infringement claims. Any such claims, with or
        without
        merit, could be time-consuming, result in costly litigation, or require us
        to
        enter into royalty or licensing agreements. Such royalty or licensing
        agreements, if required, may not be available on terms we find acceptable,
        which
        could have a material adverse effect on our business, results of operations
        and
        financial condition.
 
 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 Application “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”.
 
 We
        have
        applied for patents on our Voice Integrated Platform and Method of Operation
        Thereof with Release Links, Group Plan Manager, and 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 nine years developing and enhancing our proprietary software
        in
        conjunction with differing hardware platforms and development of switch
        integration to create our GAP system. We estimate that we have spent approximately
        $800,000 during the last two fiscal years in direct core technology enhancement.
        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*
 
 *Decline
        in Voice Activated Dialing Customers.*
 
 We
        are
        experiencing declines in revenues from our voice dial service primarily due
        to
        acquisition activity of our carrier customers by carrier companies that do
        not
        want to continue to provide voice dial and are phasing the service out as
        they
        convert the end user subscribers to their networks. We are yet to derive
        enough
        revenue from our services to meet our monthly operating needs and we no longer
        believe that the voice dial product alone can provide us with sufficient
        revenues to meet such requirements. We therefore are dependant upon our ability
        to contract with carrier companies for our new My Phone Services Suite line
        of
        service that we only began to market in October of 2004. Accordingly, we
        have a
        limited sales history upon which our business and prospects may be evaluated
        based upon this new service offering. One should consider our prospects in
        light
        of this risk. Some of the risks and difficulties we face are reliance on
        the few
        phone companies with which we have current deployment of our services; creating
        recognition and widespread acceptance of our new service offering; significant
        capital outlays related to deployment of our services prior to recognition
        of
        any revenue; reliance on significant equity investment to continue operations;
        and the need to retain key management and software development personnel
        in a
        competitive labor market. Our inability to address these risks and difficulties
        could harm our business.
 
 *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 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.
 
 *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.
 
 *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.
  6
  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.
 
 *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.*
 
 We
        are
        not aware that any of our products, trademarks or other proprietary rights
        infringe the proprietary rights of others. However, we cannot provide any
        assurance that a third party will not assert infringement claims against
        us in
        connection with our current or future products. As the number of software
        products increases and the functions of these products overlaps, we expect
        that
        software developers may increasingly become subject to infringement claims.
        Any
        infringement claim, with or without merit, may be time consuming and expensive
        to defend, cause product and service delays or require us to enter into royalty
        or licensing agreements that may not be acceptable to us.
 
 *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.
  7
  *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.
 
 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**
 
 None
  **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**
 
 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, 2007 and
        March
        31, 2006. 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
                  2006**
              
              **Fiscal
                  2007**HIGH
              LOW
              
              
              HIGH
              LOW1stQuarter
              $1.25
              $0.75
              
              1stQuarter
              $0.40
              $0.352ndQuarter
              $1.40
              $0.75
              
              2ndQuarter
              $0.40
              $0.353rdQuarter
              $1.10
              $0.40
              
              3rdQuarter
              $1.00
              $0.354thQuarter
              $0.60
              $0.35
              
              4thQuarter
              $1.30
              $0.40
  On
        June
        28, 2007, the closing bid price of the Common Stock as reported on the OTC
        Electronic Bulletin Board was **$** 1.25.
 
 The
        number of holders of record of the Company’s common stock as of June 28, 2007
        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.
 
 *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 description of “Management’s Plan of Operation” 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.
  *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.
 9
 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,
        2007 we had six carrier customers providing My Phone Services Suite service
        in
        their marketplace. We have an additional two carriers in installation phase
        on
        the ringback service.
 
 We
        have
        focused on converting our systems structure to a robust data base system
        which
        will allow for scalability and addition of new services to the 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.
 
 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.
 
 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.
  10
  We
        recorded a net loss of $1,346,293, or $.22 per share, for the fiscal year
        ended
        March 31, 2007, compared to a net loss of $1,239,731, or $.20 per share,
        for the
        fiscal year ended March 31, 2006, and a net loss of $998,354, or $.20 per
        share,
        for the year ended March 31, 2005. The increase in loss experienced from
        fiscal
        year end 2005 to 2006 and then to 2007 was due to continued decline in our
        revenues from voice dial and increased expenses related to continued development
        and marketing of our new product suite.
  *Total
        Revenue*
 
 Total
        revenue for the fiscal year ended March 31, 2007 was $1,254,634 compared
        to
        $1,188,083 and $912,599 for the fiscal years ended March 31, 2006 and 2005
        respectively. The increase of revenue reflects continued increase of sales
        in
        our ringback service. Of the revenues booked for each fiscal year end, 99%
        was
        generated from marketing and licensing agreements, and 1% from direct sale
        service fees for “Emma the Perfect Receptionist” and “Smart Line”.
 
 We
        anticipate that revenues from our revenue sharing agreements on our voice
        dial
        product will continue to deteriorate. We do anticipate that revenues from
        the My
        Phone Services Suite to begin gradually and 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, 2007 was $716,937 compared to $845,889
        and $479,068 for the fiscal years ended March 31, 2006 and 2005, respectively.
        For each of the fiscal years reported, costs consisted of installed equipment,
        and network infrastructure costs, such as collocations, connectivity, system
        access, long-distance, depreciation and amortization. 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, 2007
        were $1,321,912 compared to $1,396,649 and $1,490,377 for the fiscal years
        ended
        March 31, 2006 and 2005, respectively. The decrease from 2005 to 2006 and
        then
        again 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, 2008, as we do have overhead expansion needs
        necessary to increase our sales, marketing and development activities.
 
 *I* *nterest
        Expense*
 
 Interest
        expense for the fiscal year ended March 31, 2007 were $544,231 compared to
        $203,429 and $6,081 for the fiscal years ended March 31, 2006 and 2005,
        respectively. During 2007, a total of $446,968 of the interest expense relates
        to: (i) $257,500 of intrinsic value of the beneficial conversion 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.
 
 *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
        $1,345,734  for
        enhancement of our core software and hardware technology as of March 31,
        2007.
 
 *Extraordinary
        Items*
 
 We
        have
        recognized income from the extinguishment of debt and negotiated vendor
        settlements of $0, $0, and $64,573, respectively, for the fiscal years ended
        March 31, 2007, 2006, and 2005.
  11
  *Income
        Taxes*
 
 As
        of
        March 31, 2007, we had cumulative federal net operating losses of approximately
        $20.1 million, which can be used to offset future income subject to federal
        income tax through the fiscal year 2027. 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, 2007 were $446,055, an increase of $236,589
        from $209,466 at March 31, 2006. 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 $870,524 for the year ended March 31, 2007
        compared to $829,882 for the year ended March 31, 2006. Net cash used for
        investing activities was $48,743 for the year ended March 31, 2007 compared
        to
        cash used in investing activities of $82,502 for the year ended March 31,
        2006.
        Net cash provided by financing activities was $1,155,856 for the year ended
        March 31, 2007 compared to net cash used by financing activities of $13,314
        for
        the year ended March 31, 2006.
 
 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 are in the
        Company's sales pipeline, 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.
 
 *Future
        Obligations*
 
 Management
        projects working capital needs to be approximately $1,440,000 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.
 
 12
  *Recently
        Issued Accounting Pronouncements*
  In
        December 2004, the Financial Accounting Standards Board issued SFAS No.
        153, *"Exchanges of Non-monetary Assets an amendment of APB No. 29."* This
        statement amends APB Opinion No. 29, *"Accounting
        for Non-monetary Transactions"* to
        clarify the accounting for non-monetary exchanges of similar productive assets
        and replaces it with a general exception from fair value accounting for
        exchanges of non-monetary assets that do not have commercial substance. A
        non-monetary exchange has commercial substance if the future cash flows of
        the
        Company are expected to change significantly as a result of the exchange.
        This
        statement will be applied prospectively and is effective for non-monetary
        asset
        exchanges occurring in fiscal periods beginning after June 15, 2005. Management
        does not believe adoption of this statement will have a material impact on
        the
        Company's financial position or results of operations.
 
 In
        July
        2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
        No. 48, *Accounting
        for Uncertainty in Income Taxe* s
        - an
        interpretation of SFAS No. 109 ("FIN 48"), which clarifies the accounting
        for
        uncertainty in tax positions. FIN 48 requires that the Company recognize
        in the
        financial statements the impact of a tax position if that position is more
        likely than not of being sustained upon audit, based on the technical merits
        of
        the position. FIN 48 is effective for fiscal years beginning after December
        15,
        2006. Management believes the adoption of FIN 48 will not have a significant
        effect on the Company's financial position or results of
        operations.
 
 In
        March
        2006, the EITF reached a tentative consensus on Issue No. 06-03, *How
        Sales Taxes Collected from Customers and Remitted to Governmental Authorities
        Should Be Presented in the Income Statement* (That
        Is, Gross Versus Net Presentation) (“EITF 06-03”). EITF 06-03 addresses income
        statement classification and disclosure requirements of externally-imposed
        taxes
        on revenue-producing transactions. EITF 06-03 is effective for periods beginning
        after December 15, 2006. Management is currently evaluating the effect
        implementation of EITF 06-03 will have on the Company's financial position,
        results of operations and 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.
 
 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. 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.
 
 13
 
 *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,
        2007, 2006 and 2005
  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. Controls and Procedures**
 
 Evaluation
        of disclosure controls and procedures. As of the end of the reporting period,
        March 31, 2007, we carried out an evaluation, under the supervision and with
        the
        participation of Chief Executive Officer, who also acts as our Chief Financial
        Officer, of the effectiveness of the design and operation of our disclosure
        controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange
        Act of 1934 (the "Exchange Act"), which disclosure controls and procedures
        are
        designed to insure that information required to be disclosed by a company
        in the
        reports that it files under the Exchange Act is recorded, processed, summarized
        and reported within required time periods specified by the SEC's rules and
        forms. Based upon that evaluation, the Chief Executive Officer concluded
        that
        our disclosure controls and procedures are effective in timely alerting them
        to
        material information relating to the Company required to be included in the
        Company's period SEC filings.
 
 Changes
        in internal controls. There were no changes in our internal controls over
        financial reporting identified in connection with our evaluation that occurred
        during our last fiscal quarter ended March 31, 2007 that materially affected,
        or
        was reasonably likely to materially affect our internal control over financial
        reporting.
 
 In
        connection with the audit of the period ended March 31, 2007, there were no
“Reportable Events” within the meaning of Item 304(a)(1)(iv) of
        Regulation S-B. However, the Company’s auditors communicated to the
        Registrant matters it considered to be a significant deficiency in the
        Registrant’s internal controls relating to the limited resources available in
        the accounting and finance department to maintain a complete segregation
        of
        accounting processes and duties. The Company does not currently have support
        staff in accounting and finance, consequently some of the duties that would
        normally be segregated for internal control purposes cannot be assigned to
        other
        company employees due to the technical accounting background needed to perform
        these duties. However, management oversight of the accounting and finance
        data
        gathering, processing and reporting mitigates the deficiency in segregation
        of
        duties.
 
 In
        accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the rules
        issued thereunder, we will be required to include in our Annual Report on
        Form
        10-KSB for the year ended March 31, 2008 a report on management’s
        assessment of the effectiveness of our internal controls over financial
        reporting. Our independent registered public accounting firm, Philip Vogel
&
Co. PC, may also be required to attest to and report on management’s assessment.
        The Company has not begun the necessary compliance work related to
        Section 404. Although we believe that the controls and procedures that were
        in place for the year ended March 31, 2006 provide reasonable assurance the
        Company’s control objectives are being met, neither we nor our auditors have
        confirmed that this will likewise be accurate with respect to Section 404’s
        requirements. As a result, there is the possibility that material weaknesses
        as
        defined in Section 404 could exist.
  14
  Limitations
        on the Effectiveness of Controls. The Company's management does not expect
        that
        their disclosure controls or their internal controls over financial reporting
        will prevent all error and fraud. A control system, no matter how well conceived
        and operated, can provide only reasonable, but not absolute, assurance that
        the
        objectives of a control system are met. Further, any control system reflects
        limitations on resources, and the benefits of a control system must be
        considered relative to its costs. These limitations also include the realities
        that judgments in decision-making can be faulty and that breakdowns can occur
        because of simple error or mistake. Additionally, controls can be circumvented
        by the individual acts of some persons, by collusion of two or more people
        or by
        management override of a control. A design of a control system is also based
        upon certain assumptions about potential future conditions; over time, controls
        may become inadequate because of changes in conditions, or the degree of
        compliance with the policies or procedures may deteriorate. Because of the
        inherent limitations in a cost-effective control system, misstatements due
        to
        error or fraud may occur and may not be detected.
 
 **Item
        8B. Other Information**
 
 None
 
 **PART
        III**
 
 **Item
        9. Directors, Executive Officers, Promoters, ntrol 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
                    Director**Mary
                    G. Merritt
                
                50
                
                Director,
                    Chief Executive Officer, Executive VP-Finance and
                    Secretary/Treasurer
                
                1994Scott
                    V. Ogilvie
                
                53
                
                Director
                
                2000Todd
                    Parker
                
                43
                
                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.
        Parker* was
        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.
 
 We
        are
        not aware of any “family relationships” (as defined in Item 401(c)of
        Regulation S-- Bpromulgated by the SEC) among directors, executive officers, or persons
        nominated or chosen by us to become directors or executive
        officers.
  15
  Except
        as
        set forth above, we are not aware of any event (as listed in Item 401(d) of
        Regulation S-Bpromulgated by the SEC)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,
        executive  officer,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*
 
 Section
        16(a) of the Exchange Act requires the Company's officers and directors,
        and
        persons who own more than ten percent of a registered class of the Company's
        equity securities pursuant to section 12, to file reports of ownership and
        changes in ownership with the Securities and Exchange Commission. Officers,
        directors and greater than ten-percent shareholders are required by SEC
        regulation to furnish the Company with copies of all Section 16(a) forms
        they
        file.
 
 Based
        solely on review of the copies of such forms furnished to the Company, or
        written representations that no Forms 5 were required, the Company believes
        that
        during the fiscal year ended February 29, 2004, no reports were required
        to be
        filed under Section 16 (a) of the Exchange Act by any of the Company's executive
        officers, directors or 10% beneficial owners because the Company does not
        have a
        class of stock which is registered under Section 12 of the Exchange
        Act.
 
 *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, 2007 and 2006.
 
 *Annual
        Compensation*
 **Name
                    &****Principal****Position**
                **Year**
                **Salary**
                  **($)**
                **Bonus**
                  **($)**
                **Stock****Awards**
                **Option****Awards**
                **Non-****Equity****Incentive****Plan****Compensation**
                **Non-****qualified****Deferred****Compensation****Earnings**<
                    /fo nt>
                **All
                    Other****Compensation**
                  **($)**
                **Total**Mary
                    G Merritt
                  Chief
                    Executive Officer, EVP - Finance(1)
                2007
                  2006
                $91,875
                  $103,400
                -
                  -
                -
                  -
                $11,649(2)
                -
                  -
                -
                  -
                -
                  -
                $103,524$103,400
 (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, 2007 to our executive
        officers:
 **Option
                    awards****Name**
                  **(a)**
                
                **Number
                    of securities underlying unexercised options**
                  **(#)**
                  **exercisable**
                  **(b)**
                
                **Number
                    of securities underlying unexercised options**
                  **(#)
                    unexercisable**
                  **(c)**
                
                **Equity
                    incentive plan awards:**
                  **Number
                    of securities underlying unexercised unearned
                    options**
                  **(#)**
                  **(d)**
                
                **Option
                    exercise price**
                  **($)**
                  **(e)**
                
                **Option
                    expiration date**
                  **(f)**Mary
                    Merritt
                
                
                15,000
                
                
                0
                
                
                0
                
                $
                0.60
                
                
                6/12/0814,133
                
                
                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 OutstandingOptions,
                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
              
              
              910,933
              
              $
              0.60
              
              
              910,933Equity
                  Compensation
                Plans
                  Not Approved by
                Security
                  Holders
              
              
              0
              
              
              0
              
              
              0Total
              
              
              910,933
              
              $
              0.60
              
              
              910,933
  *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, 2007, 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
        28,2007,
        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 Item  402(a)(2)of
        Regulation  S-Bpromulgated 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
        Regulation S-Bpromulgated 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,
        2007.
 
 17
  **Beneficial
        Ownership**  (1),
        (2)
 
 **Name
                  of Beneficial Owner**
              
              **Number
                  of Shares**
              
              **Percentage**Mary
                  G. Merritt(3)
              
              
              567,284
              
              
              8.78
              %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)
              
              
              875,284
              
              
              13.73
              %


*
            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 6,125,684 shares outstanding on June 28, 2007. Shares of common
                stock
                subject to options that are exercisable within 60 days of June 28,
                2007,
                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, 104,133 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.




18




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.




**Item
      12. Certain Relationships and Related Transactions** **and 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, 2007with 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. PC****31.1^
              
              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.




20




(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.




**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, 2006 and 2007:




2006
              
              2007Audit
                  Fees (a)
              
              $
              30,500
              
              $
              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, 2007, 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
              16, 2007
            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
                16,2007/s/
                Todd Parker
              Todd
                Parker
            Director
            July
                16,2007/s/
                Scott Ogilvie
              Scott
                Ogilvie
            Director
            July
                16,2007




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,
      2007 and 2006, and the related statements of operations, stockholders' equity
      (deficit) and cash flows for the years ended March 31, 2007, 2006 and 2005.
      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, 2007 and 2006, and the results of its operations and its cash flows for
      the
      years ended March 31, 2007, 2006 and 2005, 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. PC****Certified
              Public Accountants****Dallas,
              Texas****July
              9, 2007**





F-1




**PREFERRED
      VOICE, INC.**


**BALANCE
      SHEETS**


**MARCH
      31, 2007** **AND 2006**


**2007**
              
              **2006****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              446,055
              
              $
              209,466Accounts
                  receivable, net of allowance for doubtfulaccounts
                  of $0 and $5,325, respectively
              
              
              385,984
              
              
              210,392Inventory
              
              
              121,766
              
              
              -Current
                  portion of deferred loan cost
              
              
              8,428
              
              
              -Total
                  current assets
              
              $
              962,233
              
              $
              419,858Property
                  and equipment:Computer
                  equipment
              
              $
              827,947
              
              $
              1,414,809Furniture
                  and fixtures
              
              
              22,317
              
              
              22,317Office
                  equipment
              
              
              28,393
              
              
              29,443$
              878,657
              
              $
              1,466,569Less
                  accumulated depreciation
              
              
              621,209
              
              
              1,091,236Net
                  property and equipment
              
              $
              257,448
              
              $
              375,333Other
                  assets:Capitalized
                  software development costs, net of accumulatedamortization
                  of $1,157,517 and $1,050,760, respectively
              
              $
              93,146
              
              $
              180,845Deposits
              
              
              4,485
              
              
              4,485Noncurrent
                  portion deferred loan cost, net of accumulatedamortization
                  of $4,214 and $0, respectively
              
              
              12,642
              
              
              -Trademarks
                  and patents, net of accumulatedamortization
                  of $24,273 and $16,945, respectively
              
              
              70,798
              
              
              104,461Total
                  other assets
              
              $
              181,071
              
              $
              289,791Total
                  assets
              
              $
              1,400,752
              
              $
              1,084,982


*The
        accompanying notes are an integral part of these
        statements.*


F-2


**2007**
              
              **2006****Liabilities
                  and stockholders' equity (deficit)**Current
                  liabilities:Accounts
                  payable
              
              $
              115,812
              
              $
              191,147Accrued
                  operating expenses
              
              
              41
              
              
              34Accrued
                  vacation
              
              
              7,661
              
              
              7,802Accrued
                  payroll and payroll taxes
              
              
              35,473
              
              
              19,255Accrued
                  interest
              
              
              35,100
              
              
              58,500Current
                  portion notes payable
              
              
              -
              
              
              14,144Current
                  portion debentures payable - net of discounts
              
              
              832,528
              
              
              -Total
                  current liabilities
              
              $
              1,026,615
              
              $
              290,882Long-term
                  liabilities:Debentures
                  payable - net of discounts
              
              $
              935,019
              
              $
              690,056Total
                  long-term liabilities
              
              $
              935,019
              
              $
              690,056Commitments
                  and contingencies (Note J and L)Stockholders'
                  equity (deficit):Common
                  stock, $.001 par value;100,000,000
                  shares authorized; 6,130,185and
                  5,963,166 shares issued, respectively
              
              $
              6,130
              
              $
              5,963Additional
                  paid-in capital
              
              
              20,105,677
              
              
              19,424,477Accumulated
                  deficit
              
              
              (20,671,183
              )
              
              (19,324,890
              )Treasury
                  stock 4,500 shares at cost
              
              
              (1,506
              )
              
              (1,506
              )Total
                  stockholders' equity (equity)
              
              $
              (560,882
              )
              $
              104,044Total
                  liabilities and stockholders' equity (deficit)
              
              $
              1,400,752
              
              $
              1,084,982





F-3


**PREFERRED
      VOICE, INC.**


**STATEMENTS
      OF OPERATIONS**


**FOR
      THE YEARS ENDED** **MARCH
      31, 2007** **,
      2006 AND 2005**


**2007**
              
              **2006**
              
              **2005**Net
                  sales
              
              $
              1,254,634
              
              $
              1,188,083
              
              $
              912,599Cost
                  of sales
              
              
              716,937
              
              
              845,889
              
              
              479,068Gross
                  profit
              
              $
              537,697
              
              $
              342,194
              
              $
              433,531General
                  and administrative expenses
              
              $
              1,321,912
              
              $
              1,396,649
              
              $
              1,490,377Loss
                  from operations
              
              $
              (784,215
              )
              $
              (1,054,455
              )
              $
              (1,056,846
              )Other
                  income (expense):Interest
                  expense
              
              $
              (544,231
              )
              $
              (203,429
              )
              $
              (6,081
              )Gain
                  (loss) on sale of assets
              
              
              4,108
              
              
              18,153
              
              
              -Extinguishment
                  of debt
              
              
              -
              
              
              -
              
              
              64,573Impairment
                  expense
              
              
              (32,014
              )
              
              -
              
              
              -Other
                  income (expense)
              
              
              10,059
              
              
              -
              
              
              -Total
                  other income (expense)
              
              $
              (562,078
              )
              $
              (185,276
              )
              $
              58,492Loss
                  from operations before income taxes
              
              $
              (1,346,293
              )
              $
              (1,239,731
              )
              $
              (998,354
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (1,346,293
              )
              $
              (1,239,731
              )
              $
              (998,354
              )Per
                  share amounts:Net
                  loss per share
              
              $
              (0.22
              )
              $
              (0.20
              )
              $
              (0.20
              )
 *The
          accompanying notes are an integral part of these
          statements.*
 F-4





**PREFERRED
      VOICE, INC.**


**STATEMENTS
      OF STOCKHOLDERS’ EQUITY (DEFICIT)**


**FOR
      THE YEARS ENDED** **MARCH
      31, 2007** **,
      2006 AND 2005**


**Shares
                  of common stock**
              
              **Amounts****Authorized**
              
              **Issued**
              
              **Outstanding**
              
              **In
                  treasury**
              
              **Common
                  stock $0.001 par value**
              
              **Treasury
                  stock**
              
              **Additional
                  paid-in capital**
              
              **Accummulated
                  deficit**
              
              **Total
                  stockholders'**
                **equity**Balance
                  - March 31, 2004
              
              
              50,000,000
              
              
              3,721,499
              
              
              3,716,999
              
              
              4,500
              
              $
              3,721
              
              $
              (1,506
              )
              $
              17,861,188
              
              $
              (17,086,805
              )
              $
              776,598Issuance
                  of common stock net of fees $2,923
              
              
              -
              
              
              2,200,000
              
              
              2,200,000
              
              
              -
              
              
              2,200
              
              
              -
              
              
              1,094,877
              
              
              -
              
              
              1,097,077Exercise
                  of employee stock options - shares not issued as of
                  3/31/2005
              
              
              -
              
              
              -
              
              
              41,667
              
              
              -
              
              
              -
              
              
              -
              
              
              25,000
              
              
              -
              
              
              25,000Proceeds
                  from the issuance of the debentures allocated to the
                  warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              427,416
              
              
              -
              
              
              427,416Net
                  loss for the year ended March 31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (998,354
              )
              
              (998,354
              )Balance
                  - 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 - shares issued 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 authroized shares of common stock
              
              
              50,000,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of stock for accrued interest payable on convertible
                  debentures
              
              
              -
              
              
              167,143
              
              
              167,143
              
              
              -
              
              
              167
              
              
              -
              
              
              58,332
              
              
              -
              
              
              58,499Decrease
                  in common stock for fractional shares
              
              
              -
              
              
              (124
              )
              
              (124
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Intrinsic
                  value of beneficial conversion feature
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              257,500
              
              
              -
              
              
              257,500Warrants
                  issued for goods and services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              25,285
              
              
              -
              
              
              25,285Compensation
                  expense recognized on vested employee stock options
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              58,106
              
              
              -
              
              
              58,106Proceeds
                  from the issuance of the debentures allocated 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
              
              
              6,130,185
              
              
              6,125,685
              
              
              4,500
              
              $
              6,130
              
              $
              (1,506
              )
              $
              20,105,677
              
              $
              (20,671,183
              )
              $
              (560,882
              )
 *The
          accompanying notes are an integral part of these
          statements.*
 F-5





**PREFERRED
      VOICE, INC.**


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE YEARS ENDED** **MARCH
      31, 2007** **,
      2006 AND 2005**


**2007**
              
              **2006**
              
              **2005**Cash
                  flows from operating activities:Cash
                  received from customers
              
              $
              1,079,042
              
              $
              1,078,611
              
              $
              945,221Cash
                  paid to suppliers and employees
              
              
              (1,887,403
              )
              
              (1,906,037
              )
              
              (1,646,048
              )Interest
                  paid
              
              
              (62,163
              )
              
              (2,456
              )
              
              (6,081
              )Net
                  cash used by operating activities
              
              $
              (870,524
              )
              $
              (829,882
              )
              $
              (706,908
              )Cash
                  flows from investing activities:Capital
                  expenditures
              
              $
              (99,311
              )
              $
              (114,065
              )
              $
              (270,638
              )Proceeds
                  from sale of assets
              
              
              50,568
              
              
              31,563
              
              
              -Net
                  cash provided (used) by investing activities
              
              $
              (48,743
              )
              $
              (82,502
              )
              $
              (270,638
              )Cash
                  flows from financing activities:Proceeds
                  from issuance of stock
              
              $
              -
              
              $
              -
              
              $
              1,097,077Proceeds
                  from issuance of convertible debt and warrants
              
              
              1,170,000
              
              
              -
              
              
              975,000Proceeds
                  from exercise of stock options
              
              
              -
              
              
              -
              
              
              25,000Repayment
                  of note payable
              
              
              (14,144
              )
              
              (13,314
              )
              
              (49,041
              )Net
                  cash provided (used) by financing activities
              
              $
              1,155,856
              
              $
              (13,314
              )
              $
              2,048,036Net
                  increase (decrease) in cash and cash equivalents
              
              $
              236,589
              
              $
              (925,698
              )
              $
              1,070,490Cash
                  and cash equivalents:Beginning
                  of year
              
              
              209,466
              
              
              1,135,164
              
              
              64,674End
                  of year
              
              $
              446,055
              
              $
              209,466
              
              $
              1,135,164
 *The
          accompanying notes are an integral part of these
          statements.*
 F-6
 **2007**
                
                **2006**
                
                **2005**Reconciliation
                    of net loss to netcash
                    used by operating activities:Net
                    loss
                
                $
                (1,346,293
                )
                $
                (1,239,731
                )
                $
                (998,354
                )Adjustments
                    to reconcile net loss to net cashused
                    by operating activities:Depreciation
                    and amortization
                
                $
                264,298
                
                $
                348,233
                
                $
                383,383Gain
                    on sale of assets
                
                
                (4,108
                )
                
                (18,154
                )
                
                -Compensation
                    recognized from issuance of stock options
                
                
                58,106
                
                
                -
                
                
                -Impairment
                    of assets
                
                
                32,014
                
                
                -
                
                
                -Intrinsic
                    value of beneficial interest
                
                
                257,500Fair
                    value of stock warrants issued in exchange for services
                
                
                -
                
                
                16,038
                
                
                -Changes
                    in operating assets and liabilities:(Increase)
                    decrease in accounts receivable
                
                
                (175,592
                )
                
                (109,472
                )
                
                32,622Increase
                    in inventory
                
                
                (121,766
                )
                
                -
                
                
                -Decrease
                    in prepaid expenses
                
                
                -
                
                
                2,759
                
                
                92Increase
                    (decrease) in accounts payable
                
                
                (75,335
                )
                
                (12,062
                )
                
                1,130Increase
                    (decrease) in accrued expenses
                
                
                240,652
                
                
                182,507
                
                
                (125,781
                )Total
                    adjustments
                
                $
                475,769
                
                $
                409,849
                
                $
                291,446Net
                    cash used by operating activities
                
                $
                (870,524
                )
                $
                (829,882
                )
                $
                (706,908
                )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
                
                $
                -
                
                $
                -





F-7





**PREFERRED
      VOICE**


**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.





**Inventory**





Inventory,
      consisting primarily of ringback platforms and their related components, is
      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.





F-8




**PREFERRED
        VOICE**
 **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, 2007, 2006 and 2005 was $145,999, $245,672
      and $296,490, 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, 2007, 2006 and 2005, software development costs
      capitalized were $19,058, $49,470 and $186,117, respectively. The amortization
      of capitalized software development costs for the years ended March 31, 2007,
      2006 and 2005 was $106,757, $95,325 and $121,127, respectively.





The
      estimated aggregate amortization expense for capitalized software development
      costs for each of the five succeeding fiscal years is as follows:


**Year
                  ending****March
                  31,**
              
              **Amount**2008
              
              $
              70,2762009
              
              
              18,5752010
              
              
              4,2952011
              
              
              -2012
              
              
              -Total
              
              $
              93,146


**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, 2007 as the Company abandoned the pursuance of
      certain trademarks; the result was an impairment loss of $30,436 that is
      included in other expenses.




F-9




**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**




**Note
      B - Summary of significant accounting policies
      (continued):**





The
      amortization of trademarks and patents for the years ended March 31, 2007,
      2006
      and 2005 was $7,328, $7,236 and $4,129, respectively.





The
      estimated aggregate amortization expense for trademarks and patents for each
      of
      the five succeeding fiscal years is as follows:


**Year
                  ending****March
                  31,**
              
              **Amount**2008
              
              $
              9,5072009
              
              
              9,5072010
              
              
              9,5072011
              
              
              9,5072012
              
              
              9,507Total
              
              $
              47,535




**Advertising
      expense**





The
      Company expenses advertising costs when the advertisement occurs. Total
      advertising expense amounted to $-0-, $-0- and $14,735 for the years ended
      March
      31, 2007, 2006 and 2005, respectively.





**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, 2007, 2006 and 2005, approximately $963,000 (76.7%),
      $685,000 (57.7%), and $319,000 (33.1%), respectively, of the Company’s total
      sales were derived from one, one and three customers respectively. At March
      31,
      2007, 2006, 2005 one customer’s balances of approximately $358,000 (93%),
      $169,000 (79%) and $38,000 (36%), respectively, accounted for a material portion
      of accounts receivable.





F-10


**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**


**Note
      B - Summary of significant accounting policies
      (continued):**





**Revenue
      recognition**




For
      recognizing revenue, the Company applies the provisions of SEC Staff Accounting
      Bulletin (SAB) No. 104, *Revenue
      Recognition* which
      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 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 Bulleting (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.





Prior
      to
      the year ended March 31, 2006, the majority of the Company’s revenue consisted
      of revenue sharing receipts. Revenue sharing income is recognized when the
      voice
      dialing services are provided, generally monthly. During the years ended March
      31, 2007 and 2006, the majority of the Company’s revenue consisted of the
      ringback service equipment purchases and installation. 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, 2007, 2006
      and
      2005, was as follows:


**Product**
              
              **2007**
              
              **2006**
              
              **2005**Voice
                  Activated Dialing
              
              $
              214,581
              
              $
              386,308
              
              $
              850,107Push
                  2 Connect Conferencing
              
              
              -
              
              
              230
              
              
              6,760Telephone
                  Receptionist
              
              
              4,215
              
              
              1,882
              
              
              1,960Smart
                  Business Line
              
              
              2,314
              
              
              2,570
              
              
              2,370Customer
                  Application Services
              
              
              -
              
              
              -
              
              
              48,695Downloadable
                  Content
              
              
              10,474
              
              
              23,571
              
              
              2,707Rockin
                  Ringback
              
              
              960,005
              
              
              685,112
              
              
              -Subscriber
                  Notification System
              
              
              63,045
              
              
              88,410
              
              
              -Total
                  revenue
              
              $
              1,254,634
              
              $
              1,188,083
              
              $
              912,599




**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.





F-11


**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**


**Note
      B - Summary of significant accounting policies
      (continued):**





**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 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, 2007, 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, 2007 was approximately $58,000.
      Stock-based compensation expense which would have been recognized under the
      fair
      value based method would have been approximately $201,000 and $179,000 during
      the years ended March 31, 2006 and 2005, respectively. As of March 31, 2007,
      there was $279,940 total unrecognized compensation cost related to nonvested
      share-based compensation arrangements, which is expected to be recognized over
      the next year. 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, 2007,
      2006
      and 2005, no computation of diluted EPS has been performed.





Loss
      per
      share is based on the weighted average number of shares outstanding of
      6,129,844, 5,961,314 and 5,658,721 for the years ended March 31, 2007, 2006
      and
      2005, respectively.





**Reporting
      comprehensive income and operating segments**





The
      Company has adopted the provisions of SFAS No. 130, *Reporting
      Comprehensive Income* and
      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 nonowner 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,
      2007.




F-12


**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**




**Note
      B - Summary of significant accounting policies
      (continued):**





**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 to sell. An impairment loss in
      the
      amount of $1,577, $-0- and $2,543 was recognized during the years ended March
      31, 2007, 2006, and 2005, respectively.





The
      Company adopted the provisions of SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* effective
      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
      December 2004, the Financial Accounting Standards Board issued SFAS No.
      153, *"Exchanges of Non-monetary Assets an amendment of APB No. 29."* This
      statement amends APB Opinion No. 29, *"Accounting
      for Non-monetary Transactions"* to
      clarify the accounting for non-monetary exchanges of similar productive assets
      and replaces it with a general exception from fair value accounting for
      exchanges of non-monetary assets that do not have commercial substance. A
      non-monetary exchange has commercial substance if the future cash flows of
      the
      Company are expected to change significantly as a result of the exchange. This
      statement will be applied prospectively and is effective for non-monetary asset
      exchanges occurring in fiscal periods beginning after June 15, 2005. Management
      does not believe adoption of this statement will have a material impact on
      the
      Company's financial position or results of operations.





In
      July
      2006, the Financial Accounting Standards Board ("FASB") issued Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxe* s
      - an
      interpretation of SFAS No. 109 ("FIN 48"), which clarifies the accounting for
      uncertainty in tax positions. FIN 48 requires that the Company recognize in
      the
      financial statements the impact of a tax position if that position is more
      likely than not of being sustained upon audit, based on the technical merits
      of
      the position. FIN 48 is effective for fiscal years beginning after December
      15,
      2006. Management believes the adoption of FIN 48 will not have a significant
      effect on the Company's financial position or results of
      operations.





In
      March
      2006, the EITF reached a tentative consensus on Issue No. 06-03, *How
      Sales Taxes Collected from Customers and Remitted to Governmental Authorities
      Should Be Presented in the Income Statement* (That
      Is, Gross Versus Net Presentation) (“EITF 06-03”). EITF 06-03 addresses income
      statement classification and disclosure requirements of externally-imposed
      taxes
      on revenue-producing transactions. EITF 06-03 is effective for periods beginning
      after December 15, 2006. Management is currently evaluating the effect
      implementation of EITF 06-03 will have on the Company's financial position,
      results of operations and cash flows.





F-13


**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**




**Note
      C - Notes payable:**





Notes
      payable consist of the following:


**2007**
              
              **2006**Note
                  payable, 6% interest rate. Principal and interest payable monthly.
                  Note
                  maturity date was March 1, 2007. Note is unsecured.
              
              $
              -
              
              $
              14,144Less
                  current portion
              
              
              -
              
              
              14,144Total
              
              $
              -
              
              $
              -





Interest
      expense charged to operations related to the notes payable was $467, $1,288
      and
      $4,788 for the years ended March 31, 2007, 2006 and 2005,
      respectively.








**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 (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 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, 2007, 2006 and 2005, was $142,472, $142,472 and $-0-, respectively.
      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 year ended
      March
      31, 2007, was $46,996.





F-14




**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**





**Note
      D - Convertible debt and warrants (continued):**





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, 2007 was $4,214.




**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, 2007 the Company had outstanding warrants to purchase 4,611,072 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, 2007, 4,611,072 shares of common stock were reserved
      for
      that purpose.





**Common
      stock reserved**





At
      March
      31, 2007, 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
              
              
              910,933Exercise
                  of stock warrants and debt conversion
              
              
              4,611,0725,522,005




**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. At March 31, 2007, the
      Plan had expired and there were no options outstanding. No stock appreciation
      rights had been granted at March 31, 2007.





F-15


**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**




**Note
      F - Employee stock option plans (continued):**





As
      of
      March 31, 2007, 22,577 of these options were exercised, 106,776 were forfeited
      and 1,000 were expired. At March 31, 2007, 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, 2007, options
      to purchase 910,933 shares at an exercise price of $0.60 to $.80 per share
      were
      outstanding. No stock appreciation rights had been granted at March 31,
      2007.





As
      of
      March 31, 2007, 41,667 options have been exercised, 341,965 have been forfeited,
      77,750 expired, 910,933 remain outstanding, and 165,933 were vested and
      exercisable. At March 31, 2007, the remaining weighted average contractual
      life
      was 4.2 years.





**Employee
      warrants**





As
      of
      March 31, 2007, none of the employee warrants have been exercised or forfeited,
      711,000 expired, 432,000 remain outstanding, and 432,000 were vested and
      exercisable. At March 31, 2007, the remaining weighted average contractual
      life
      was approximately 1.9 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 2007. 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:


**2007**
              
              **2006**
              
              **2005**Expected
                  dividend yield
              
              0.00%
              
              0.00%
              
              0.00%Risk-free
                  interest rate
              
              4.73%
                  - 4.81%
              
              2.10%
                  - 4.18%
              
              3.15%
                  - 4.02%Expected
                  life
              
              5
                  years
              
              3
                  -
                  5 years
              
              5
                  yearsExpected
                  volatility
              
              146%
                  - 151%
              
              179%
                  - 266%
              
              185%
                  - 209%




F-16
 
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**


**Note
      G - Proforma information related to employee stock options and warrants
      (continued):**





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 lease
      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:


**2007**
              
              **2006**
              
              **2005**Net
                  loss, as reported under APB 25 for the prior periods
              
              
              N/A
              
              $
              (1,239,731
              )
              $
              (998,354
              )Less
                  total compensation expense determined under fair value based method
                  for
                  all awards, net of tax effects under fair value based method for
                  all
                  awards, net of tax effects
              
              
              (58,106
              )
              
              (200,560
              )
              
              (179,284
              )Net
                  loss including the effect of stock-based compensation
                  expense
              
              $
              (1,346,293
              )
              $
              (1,440,291
              )
              $
              (1,177,638
              )Loss
                  per common share:As
                  reported
              
              $
              (0.22
              )
              $
              (0.20
              )
              $
              (0.20
              )Proforma
              
              $
              (0.22
              )
              $
              (0.24
              )
              $
              (0.21
              )





F-17
 
 **PREFERRED
          VOICE**
 **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:


**1994
                  stock award and incentive plan (1994 Plan)****2007**
              
              **2006**
              
              **2005**Weighted
              
              
              
              Weighted
              
              
              
              Weightedaverage
              
              
              
              average
              
              
              
              averageNumber
                  of
              
              exercise
              
              Number
                  of
              
              exercise
              
              Number
                  of
              
              exerciseshares
              
              price
              
              shares
              
              price
              
              shares
              
              priceOutstanding
                  at beginningof
                  year
              
              
              -
              
              $
              -
              
              
              1,000
              
              $
              2.50
              
              
              1,000
              
              $
              2.50Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -
              
              
              (1,000
              )
              
              2.50
              
              
              -
              
              
              -Outstanding
                  at end of year
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              1,000
              
              $
              2.50Options
                  exercisable at endof
                  year
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              
              1,000
              
              $
              2.50




**2000
                    stock award and incentive plan (2000 Plan)****2007**
                
                **2006**
                
                **2005**Weighted
                
                
                
                Weighted
                
                
                
                Weightedaverage
                
                
                
                average
                
                
                
                averageNumber
                    of
                
                exercise
                
                Number
                    of
                
                exercise
                
                Number
                    of
                
                exerciseshares
                
                price
                
                shares
                
                price
                
                shares
                
                priceOutstanding
                    at beginningof
                    year
                
                
                294,733
                
                $
                0.60
                
                
                322,733
                
                $
                0.60
                
                
                140,400
                
                $
                2.50Granted
                
                
                745,000
                
                
                0.60
                
                
                -
                
                
                -
                
                
                246,000
                
                
                0.60Exercised
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (41,667
                )
                
                0.60Forfeited
                
                
                (110,000
                )
                
                0.60
                
                
                (28,000
                )
                
                0.60
                
                
                (22,000
                )
                
                0.60Cancelled
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Expired
                
                
                (18,800
                )
                
                0.60
                
                
                -
                
                
                -
                
                
                -
                
                
                -Outstanding
                    at end of year
                
                
                910,933
                
                $
                0.60
                
                
                294,733
                
                $
                0.60
                
                
                322,733
                
                $
                0.60Options
                    exercisable at endof
                    year
                
                
                165,993
                
                $
                0.60
                
                
                137,233
                
                $
                0.60
                
                
                152,733
                
                $
                0.60Weighted
                    average fair valueof
                    options granted duringthe
                    year
                
                
                
                
                $
                0.45
                
                
                
                
                $
                -
                
                
                
                
                $
                0.35


F-18


**PREFERRED
        VOICE**
 **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:


**2007**
              
              **2006**
              
              **2005**Weighted
              
              
              
              Weighted
              
              
              
              Weightedaverage
              
              
              
              average
              
              
              
              averageNumber
                  of
              
              exercise
              
              Number
                  of
              
              exercise
              
              Number
                  of
              
              exerciseshares
              
              price
              
              shares
              
              price
              
              shares
              
              priceOutstanding
                  at beginningof
                  year
              
              
              532,000
              
              $
              0.70
              
              
              492,000
              
              $
              0.70
              
              
              43,000
              
              $
              7.20Granted
              
              
              -
              
              
              -
              
              
              40,000
              
              
              0.75
              
              
              1,060,000
              
              
              0.75Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              (100,000
              )
              
              0.88
              
              
              -
              
              
              -
              
              
              (611,000
              )
              
              0.90Outstanding
                  at end of year
              
              
              432,000
              
              $
              0.67
              
              
              532,000
              
              $
              0.70
              
              
              492,000
              
              $
              0.70Warrants
                  exercisable at endof
                  year
              
              
              432,000
              
              $
              0.67
              
              
              532,000
              
              $
              0.70
              
              
              292,000
              
              $
              0.60Weighted
                  average fair valueof
                  warrants granted duringthe
                  year
              
              
              
              
              $
              -
              
              
              
              
              $
              0.65
              
              
              
              
              $
              0.50





**Note
      H - Stock warrants:**





During
      the years ended March 31, 2007, 2006 and 2005, the Company issued 167,143,
      40,000 and 50,000 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, 2007, 2006 and 2005, the Company recognized $-0-, $16,038 and
      $-0-, respectively, as compensation expense and $-0- as stock issuance cost
      during the years ended March 31, 2007, 2006 and 2005 related to warrants issued
      to non-employees.





As
      of
      March 31, 2007, 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, 2007, the remaining weighted average contractual life was
      approximately 4.2 years.




For
      the
      years ended March 31, 2007, 2006 and 2005, the Company issued 1,671,428, -0-
      and
      2,282,500 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, 2007, 2006 and 2005.





As
      of
      March 31, 2007, 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,
      2007, the remaining weighted average contractual life was approximately 3.4
      years.




F-19


**PREFERRED
        VOICE**
 **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:


**2007**
              
              **2006**
              
              **2005**Expected
                  dividend yield
              
              0.00%
              
              0.00%
              
              0.00%Risk-free
                  interest rate
              
              4.67
              
              4.75
              
              3.15%
                  - 4.18%Expected
                  life
              
              5
                  years
              
              3
                  years
              
              5
                  yearsExpected
                  volatility
              
              56%
              
              144%
              
              201%
                  - 209%




Following
      is a summary of warrants issued to non-employees in exchange for goods and
      services:


**2007**
              
              **2006**
              
              **2005**Weighted
              
              
              
              Weighted
              
              
              
              Weightedaverage
              
              
              
              average
              
              
              
              averageNumber
                  of
              
              exercise
              
              Number
                  of
              
              exercise
              
              Number
                  of
              
              exerciseshares
              
              price
              
              shares
              
              price
              
              shares
              
              priceOutstanding
                  at beginningof
                  year
              
              
              100,107
              
              $
              6.05
              
              
              110,107
              
              $
              5.55
              
              
              123,607
              
              $
              5.85Granted
              
              
              167,143
              
              
              0.50
              
              
              40,000
              
              
              0.50
              
              
              50,000
              
              
              0.70Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              (60,107
              )
              
              9.74
              
              
              (50,000
              )
              
              0.50
              
              
              (63,500
              )
              
              2.30Outstanding
                  at end of year
              
              
              207,143
              
              $
              0.50
              
              
              100,107
              
              $
              6.05
              
              
              110,107
              
              $
              5.55Warrants
                  exercisable at endof
                  year
              
              
              207,143
              
              $
              0.50
              
              
              100,107
              
              $
              6.05
              
              
              110,107
              
              $
              5.55Weighted
                  average fair valueof
                  warrants granted duringthe
                  year
              
              
              
              
              $
              0.15
              
              
              
              
              $
              0.40
              
              
              
              
              $
              0.15




F-20


**PREFERRED
        VOICE**
 **NOTES
        TO FINANCIAL STATEMENTS**


**Note
      H - Stock warrants (continued):**





The
      following is a summary of warrants issued in connection with stock and debenture
      offerings:


**2007**
              
              **2006**
              
              **2005**Weighted
              
              
              
              Weighted
              
              
              
              Weightedaverage
              
              
              
              average
              
              
              
              averageNumber
                  of
              
              exercise
              
              Number
                  of
              
              exercise
              
              Number
                  of
              
              exerciseshares
              
              price
              
              shares
              
              price
              
              shares
              
              priceOutstanding
                  at beginningof
                  year
              
              
              2,616,350
              
              $
              1.55
              
              
              2,673,493
              
              $
              1.80
              
              
              449,493
              
              $
              8.75Granted
              
              
              1,671,428
              
              
              0.50
              
              
              -
              
              
              -
              
              
              2,282,500
              
              
              0.60Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              (315,850
              )
              
              8.42
              
              
              (57,143
              )
              
              13.15
              
              
              (58,500
              )
              
              6.90Outstanding
                  at end of year
              
              
              3,971,928
              
              $
              0.56
              
              
              2,616,350
              
              $
              1.55
              
              
              2,673,493
              
              $
              1.80Warrants
                  exercisable at endof
                  year
              
              
              3,971,928
              
              $
              0.56
              
              
              2,616,350
              
              $
              1.55
              
              
              2,673,493
              
              $
              1.80Weighted
                  average fair valueof
                  warrants granted duringthe
                  year
              
              
              
              
              $
              0.50
              
              
              
              
              $
              -
              
              
              
              
              $
              0.60


Following
      is an overall summary of the stock warrants activity, including warrants issued
      to employees (see Note G):


**2007**
              
              
              
              **2006**
              
              
              
              **2005**Weighted
              
              
              
              Weighted
              
              
              
              Weightedaverage
              
              
              
              average
              
              
              
              averageNumber
                  of
              
              exercise
              
              Number
                  of
              
              exercise
              
              Number
                  of
              
              exerciseshares
              
              price
              
              shares
              
              price
              
              shares
              
              priceOutstanding
                  at beginningof
                  year
              
              
              3,248,457
              
              $
              1.55
              
              
              3,275,600
              
              $
              1.75
              
              
              616,100
              
              $
              8.05Granted
              
              
              1,838,571
              
              
              0.50
              
              
              80,000
              
              
              0.65
              
              
              3,392,500
              
              
              0.65Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              (475,957
              )
              
              7.00
              
              
              (107,143
              )
              
              7.25
              
              
              (733,000
              )
              
              1.50Outstanding
                  at end of year
              
              
              4,611,071
              
              $
              0.57
              
              
              3,248,457
              
              $
              1.55
              
              
              3,275,600
              
              $
              1.75Warrants
                  exercisable at endof
                  year
              
              
              4,611,071
              
              $
              0.57
              
              
              3,248,457
              
              $
              1.55
              
              
              3,275,600
              
              $
              1.80Weighted
                  average fair valueof
                  warrants granted duringthe
                  year
              
              
              
              
              $
              0.50
              
              
              
              
              $
              0.55
              
              
              
              
              $
              0.55
  F-21
 **PREFERRED
          VOICE**
 **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:


**2007**
              
              **2006**
              
              **2005**Current
                  income taxes
              
              $
              -
              
              $
              -
              
              $
              -Change
                  in deferred income taxes due totemporary
                  differences
              
              
              -
              
              
              -
              
              
              -$
              -
              
              $
              -
              
              $
              -





The
      provision for income taxes for the years ended March 31, 2007, 2006 and 2005,
      differs from the “expected” tax benefit (computed using the 34% U.S. federal
      corporate rate to income before income taxes) as follows:


**2007**
              
              **2006**
              
              **2005**Computed
                  “expected” tax benefit
              
              $
              (458,000
              )
              $
              (422,000
              )
              $
              (339,000
              )Nondeductible
                  items
              
              
              88,000
              
              
              32,000
              
              
              2,000Temporary
                  differences
              
              
              11,000
              
              
              17,000
              
              
              27,000Net
                  operating loss carry-forward
              
              
              359,000
              
              
              373,000
              
              
              310,000Provision
                  for income taxes
              
              $
              -
              
              $
              -
              
              $
              -
  F-22





**Note
      I - Income taxes (continued):**





Deferred
      tax (liabilities) assets as of March 31 consist of the following:


**2007**
              
              **2006**
              
              **2005**Accumulated
                  depreciation
              
              $
              (107,000
              )
              $
              (96,000
              )
              $
              (80,000
              )Gross
                  deferred tax liabilities
              
              $
              (107,000
              )
              $
              (96,000
              )
              $
              (80,000
              )Stock
                  compensation
              
              $
              -
              
              $
              31,000
              
              $
              -Accounts
                  receivable
              
              
              -
              
              
              2,000
              
              
              -Net
                  operating loss carry-forward
              
              
              6,821,000
              
              
              6,463,000
              
              
              6,091,000Gross
                  deferred tax assets
              
              $
              6,821,000
              
              $
              6,496,000
              
              $
              6,091,000Valuation
                  allowance
              
              
              (6,714,000
              )
              
              (6,400,000
              )
              
              (6,011,000
              )$
              107,000
              
              $
              96,000
              
              $
              80,000Net
                  deferred tax assets
              
              $
              -
              
              $
              -
              
              $
              -The
                  change in the deferred tax valuationallowance
                  is as follows:
              
              $
              314,000
              
              $
              389,000
              
              $
              336,000





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, 2007, a net operating loss carry-forward
      of
      approximately $20,063,000, which can be used to offset future taxable income
      through the year 2027. 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,
      2007:


**Year
                  ending****March
                  31,**
              
              **Amount**2008
              
              $
              55,5052009
              
              
              41,6292010
              
              
              -2011
              
              
              -2012
              
              
              -$
              97,134
  F-23




**Note
      J - Commitments (continued):**





Total
      rent expense charged to operations was $56,421, $60,341 and $61,424 for the
      years ended March 31, 2007, 2006 and 2005, respectively.





**Note
      K - Extinguishment of debt:**





During
      the year ended March 31, 2004, the Company negotiated settlements of amounts
      owed to certain holders of notes payable by the Company. The negotiated
      settlements resulted in a reduction of the Company’s notes and accrued interest
      payable in the amount of $81,685 for the year ended March 31, 2004. During
      the
      year ended March, 31, 2005, the Company negotiated settlements of amounts owed
      to certain vendors and holders of notes payable by the Company in the amount
      of
      $64,573.





**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 $1,346,293, $1,239,731 and
      $998,354 for the years ended March 31, 2007, 2006 and 2005, respectively. The
      Company also has negative cash flows from operations of $870,524, $829,882
      and
      $706,908 for the years ended March 31, 2007, 2006 and 2005, 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 $1,440,000 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.





F-24