**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,
                2006


o
            Transition
                report under Section 13 or 15 (d) of the Securities Exchange Act
                of 1934
                for the transition period from _____________ to
                ____________





Commission
      File Number 33-92894


**PREFERRED
      VOICE, INC.**


(Name
      of
      Small Business Issuer in its Charter)






**Delaware**
            
            **75-2440201**(State
                or Other Jurisdiction of 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 Exchangeon 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. :





State
      issuer’s revenues for its most recent fiscal year: $ 1,188,083





The
      aggregate market value of the voting and non-voting stock held by non-affiliates
      of the registrant as of June 23, 2006 was approximately $1,230,244. 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 23, 2006, there were 30,651,539 shares of the common stock, $0.001 par
      value, of the registrant issued and 30,629,039 shares outstanding.





Transitional
      Small Business Disclosure Format:     Yes oNo x







**Preferred
      Voice, Inc.**


PART
                I
              Item
                1. Description of Business
              Item
                2. Description of Properties
              Item
                3. Legal Proceedings
              Item
                4. Submission of Matters to a Vote of Security Holders
            Page
              
              1
              8
              8
              8PART
                II
              Item
                5. Market for Common Equity and Related Stockholder Matters
              Item
                6. Management’s Discussion and Analysis or Plan of Operations
              Item
                7. Financial Statements
              Item
                8. Changes In and Disagreements With Accountants on Accounting and
                Financial Disclosure
              Item
                8A. Controls and Procedures
              Item
                8B. Other Information
            9
              10
              14
              15
              15
              15PART
                III
              Item
                9. Directors, Executive Officers, Promoters and Control Persons;
                Compliance with Section 16(a) of the Exchange Act
              Item
                10. Executive Compensation
              Item
                11. Security Ownership of Certain Beneficial Owners and
                Management
              Item
                12. Certain Relationships and Related Transactions
              Item
                13. Exhibits
              Item
                14. Principal Accountant Fees and Services
            15
              16
              17
              18
              20
              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.





**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.
      Marketing effort will address local telephone companies with subscriber bases
      of
      10,000 and above, and competitive local exchange carriers, or competitive local
      telephone companies, in the future. The cell phone market has grown from
      approximately 69 million subscribers in 1998 to approximately 208 million
      subscribers as of December 2005, 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 70%
      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
          econonomically.
- *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.



1


*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 23, 2006, we are providing enhanced services to thirteen 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 five 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


*Opt-Out
      Contract for Voice Activated Dialing* .
      Through
      May of 2003, many of our contracts provided for the phone companies to put
      their
      entire subscriber base onto the GAP system’s voice activated dialing service.
      After receiving the service, any of the company’s subscribers may elect not to
      continue the service, effectively “opting out” of the voice activated dialing
      service program. However, for those subscribers that do not "opt-out," the
      contracting cell phone company will typically pay us fifty percent (50%) of
      all
      revenue generated from such service, but the company must typically pay us
      the
      greater of $1.00 per subscriber per month for the Voice Activated Dialing
      service or fifty percent (50%) of the revenue generated from the voice dialing
      service, as part of the revenue share arrangement for the service. The fifty
      percent (50%) revenue share split differs from the standard agreement in which
      the split ranges from seventy percent (70%) to thirty percent (30%) depending
      on
      the amount of revenue obtained by the phone company through sale to their
      subscribers.




*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 out 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.


3


**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.





**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, a subsidiary of SK
      Telecom, NMS, Alcatel, Comverse Technologies, Lucent, and Intervoice. Even
      though we are much smaller and have substantially less resources than these
      other providers we believe we have competitive viability with carriers because
      we were the first provider of a ringback service in the United
      States.





Some
      of
      our competitors in speech driven services are Sprint Corporation, BeVocal,
      TellMe, Comverse Technologies, One Voice Technologies, and Glenayre Electronics,
      Inc.   All
      of
      these companies provide directory driven speech services in varying but similar
      form.





*Customer
      Service*





We
      train
      contracting phone companies’ customer service employees to be able to answer
      standard questions related to the varying services we provide through the GAP
      system, from product selection to individual product help. We assist contracting
      phone companies if there are problems with the GAP system platform through
      our
      24 hour, 7day a week technical support line. In addition, our systems are
      redundant where possible, but in the case of a component failure back-up
      components, such as the telephony cards that help operate the system, are
      inventoried for overnight shipment and replacement. We believe that this high
      level of customer service and technical support will help us market the system
      to a greater number of telephone companies.





*Dependence
      on one or a few major customers*





During
      the year, approximately fifty-eight 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, 2007.





*Employees*





As
      of
      June 23, 2006, we had 10 full time employees and 1 part time employee. 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.





4


*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.





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 and Safety Talk. 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, 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 eight 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 two 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.





5


*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.





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. See “Executive Compensation—Employment Agreements.” The
      loss of any of our key employees’ services could have a negative effect on our
      ability to grow and achieve profitability.





*Our
      ability to generate revenue could be negatively affected if we, and those who
      contract with us, are unable to create a large enough market for the services
      we
      offer through our GAP system to justify the expenditures we need to make to
      implement and continue to enhance such services.*





Our
      business model depends on our ability to derive revenue from our revenue sharing
      contracts which allows contracting phone companies to sell the applications
      of
      our GAP system platforms to their subscribers. As a result, our future
      financial performance will depend in large part on the continued market
      acceptance of our enhanced services and primarily our new entertainment
      applications, our ability to market additional applications of our GAP system
      software and our ability to adapt and modify the GAP system to meet the evolving
      needs of phone companies who use our system. Revenues from our GAP system
      services depend in part on the generation of significant numbers of subscribers.
      It is uncertain whether we or our phone company customer will be able to develop
      and maintain at reasonable cost a significant subscriber base for our services.
      Competition and consumer adoption make the life cycle of our products and
      services difficult to estimate. The failure of our services to gain widespread
      acceptance, whether as a result of competition, technological change or
      otherwise, could have a material adverse effect on our ability to generate
      revenue and our business could be harmed.





*If
      we
      fail to continue to attract and retain strategic relationships with phone
      companies who provide the medium through which we market our services and
      service subscribers, we may be unable to sell our services and generate
      revenues, and our business could be harmed.*





We
      will
      continue to distribute our services through phone companies. The effectiveness
      of generating subscriber sales from strategic relationships with phone companies
      is dependent on the marketing and sales efforts of those phone companies with
      whom we contract, and their dedication of resources to providing new innovative
      products and enhanced services to their subscribers.





In
      addition, we cannot provide any assurance that we will be able to effectively
      manage potential conflicts in our strategic relationships, that economic
      conditions or industry demand will not adversely affect the phone companies
      with
      whom we contract or that such phone companies will not devote greater resources
      to market and support the services of other companies. Our future performance
      also will depend in part on our ability to attract additional phone companies
      that will be able to market and support our products effectively, especially
      in
      markets in which we have not previously sold our products or services. We also
      rely on phone companies to provide their subscribers who utilize our services
      customer support for our services. If those phone companies fail to provide
      adequate customer support, their subscribers who subscribe to our services
      could
      cease using our services which could harm our customer goodwill, adversely
      affect our ability to sell our services, and, therefore, impair our ability
      to
      generate revenue.





6


*We
      rely on our intellectual property rights to our proprietary technology, however,
      protection of our intellectual property rights is uncertain and could be costly.*





Our
      success depends to a large extent upon our proprietary technology. We regard
      our
      software applications as proprietary and rely primarily on a combination of
      contract, copyright, trademark and trade secret law to protect our proprietary
      rights. We have no patents on our products currently in commercial use, although
      we are in the process of applying for patents and registering trademarks on
      several of our products and service applications. The source code for our
      proprietary applications is protected by trade secret and copyright laws. It
      is
      our policy to enter into confidentiality agreements with our employees to
      protect our software, documentation and other written materials under trade
      secret and copyright laws.





Despite
      our efforts to protect our proprietary rights, unauthorized parties may attempt
      to copy or otherwise use our products or technology, to obtain and use
      information that we regard as proprietary or to independently develop similar
      or
      superior products or technology. Policing unauthorized use of our products
      is
      difficult, and while we are unable to determine the extent to which piracy
      of
      our software products exists, we expect that software piracy will be a
      persistent problem. In addition, we may make our source code or products
      available to our strategic partners, which may increase the likelihood that
      our
      products are misappropriated or misused.





*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 year ending March 31, 2006 and March
      31, 2005. 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
                2005**
            
            **Fiscal
                2006**HIGH
            LOW
            
            
            HIGH
            LOW1stQuarter
            $0.33
            $0.09
            
            1stQuarter
            $0.25
            $0.152ndQuarter
            $0.18
            $0.13
            
            2ndQuarter
            $0.28
            $0.153rdQuarter
            $0.25
            $0.11
            
            3rdQuarter
            $0.22
            $0.084thQuarter
            $0.18
            $0.10
            
            4thQuarter
            $0.12
            $0.07




On
      June
      23, 2006, the closing bid price of the Common Stock as reported on the OTC
      Electronic Bulletin Board was **$** 0.07.





As
      of  June
      23,2006,
      there were approximately 650
      holders of record of the Common Stock. We believe the number of beneficial
      owners is substantially greater than the number of record holders because
      brokers for the benefit of individual investors hold a significant amount of
      outstanding common stock in street 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*





We
      also
      hereby incorporate all the transactions listed in the “Certain Relationships and
      Related Transactions” section as recent sales of unregistered securities that
      should be listed as such pursuant to Item 701 of Regulation S-B.




On
      March
      31, 2004 we issued 200,000 shares of our common stock and a warrant to purchase
      250,000 shares of common stock of the Company at an exercise price of $0.10
      per
      share on or before December 31, 2005 to Landgem Office I Ltd, the Company’s
      landlord, in exchange for an amendment to the Company’s office lease agreement
      whereby the Company gave back 7,176 rentable square feet of office space and
      the
      landlord forgave $20,890.52 of past due rent.





On
      May
      18, 2004 we issued a number of warrants to employees related to their employment
      contribution during fiscal year ended March 31, 2004. We issued Bernard Bareis
      a
      warrant to purchase 100,000 shares of our common stock, each of Tom Sanders,
      Dipen Patel, Bobby Clark, Jr., and Monica Bareis a warrant to purchase 50,000
      shares of our common stock and Stacey Nelson a warrant to purchase 25,000 shares
      of our common stock at an exercise price of $.12 per share to be exercised
      on or
      before May 18, 2009.





On
      March
      3, 2006 we issued Crystal Research Associates a warrant to purchase 200,000
      shares of our common stock at an exercise price of $.10 per share on or before
      March 3, 2010, for the services they provided in conjunction with a research
      report conducted for our use.





On
      April
      17, 2006 we issued 835,713 shares of our common stock in lieu of a cash payment
      of accrued interest in the amount of $58,500 or $.07 per share to holders of
      our
      6% Convertible Debentures.





All
      of
      the transactions referred to above are exempt from registration under the
      Securities Act pursuant to Section 4(2) of the Securities Act. These
      transactions did not involve an underwriter and no underwriting discounts or
      commissions were paid. 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. Appropriate legends were affixed to the share certificates
      or warrants issued stating that the securities issued could not be sold or
      transferred without registration of the securities under the Securities Act
      or
      an opinion of counsel acceptable to the company that such sale or transfer
      is
      exempt from registration under the Securities Act.





9


On
      May
      18, 2004, we completed the sale of 220 units consisting of Fifty Thousand
      (50,000) shares of the common stock of the Company and a warrant to purchase
      Twenty-Five Thousand shares of common stock at a purchase price of $5,000.00
      per
      unit for an aggregate of $1.1 million. The Warrants are exercisable for 5 years
      at an exercise price of $.12 per share of common stock, subject to adjustments
      to the exercise price and number of shares issued on exercise on standard
      events, such as recapitalization or reorganization. The investors’ accreditation
      was determined by representations made by the respective investors regarding
      their accreditation in an investor questionnaire that accompanied each
      investor’s subscription agreement for the units purchased 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 a number of shares
      of
      the Company’s $.001 par value common stock equal to five percent (5%) of the
      total funds raised in the offering, exercisable for five years thereafter at
      $.12 per share.





On
      March
      31, 2005, 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 50,000 5-year warrants to purchase a share of Common Stock,
      $.001 par value per share, of the Company at an exercise price of $.12. The
      convertible notes bear simple interest at 6% per annum payable on each March
      31,
      commencing March 31, 2006 and on each conversion date. Each investor has the
      right to convert the convertible notes after the date of issuance and at any
      time, until paid in full, at the election of the investor into fully paid and
      nonassessable shares of our common stock. The conversion price per share is
      initially $0.10, but is subject to customary adjustments for stock splits,
      stock
      dividends, reclassifications and similar transactions. In addition, the
      conversion price of the convertible notes will be adjusted in the event that
      the
      Company issues any common stock, including securities convertible into common
      stock and options or warrants to purchase common stock, at a price of less
      than
      $0.10 per share. No conversion may take place until such time as the Company
      receives shareholder approval for increase in its authorized shares equal to
      or
      above 65,000,000 shares. The unconverted amount, if any, of the convertible
      notes is payable in full on March 31, 2008. We issued an aggregate of 4,875,000
      common stock purchase warrants exercisable until five years from the initial
      closing date at an initial exercise price of $0.12 per share. The exercise
      price
      of the warrants is subject to adjustments similar to those applicable to the
      convertible notes.  The
      investors’ accreditation was determined by representations made by the
      respective investors regarding their accreditation in an investor questionnaire
      that accompanied each investor’s subscription agreement for the units purchased
      in the offering and we filed a Form D with the SEC and in those states where
      such filing was required. T.R. Winston & Company Incorporated acted as
      placement agent in connection with the sale of the Units and was granted
      warrants to purchase a number of shares of the Company’s $.001 par value common
      stock equal to five percent (5%) of the total funds raised in the offering,
      exercisable for five years thereafter at $.12 per share. The company is required
      to file a registration statement on the shares of common stock issuable upon
      conversion of the debentures and the exercise of the warrants if at least a
      majority of the units requests it and more than 55% of the securities are
      included.




**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.





10


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.





Even
      though we believe voice activated products have viability in the
      telecommunications arena, we have concentrated our last two 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 23, 2006 we had one
      carrier customer providing My Phone Services Suite service in their marketplace
      and one customer that has launched the service in two of its seven market areas
      with the additional five market areas planning an early July launch. We have
      an
      additional two carriers in test phase on the ringback service.





We
      have
      focused the last twenty-four months 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.





11


*Results
      of Operations*





We
      currently provide our services to phone companies through sale and installation
      of equipment and revenue sharing agreements that provide
      revenue splits ranging from seventy percent (70%) to thirty percent (30%)
      depending on the amount of revenue obtained by the phone company through sale
      of
      our services to their subscribers. We license our software to contracting phone
      companies as we found that the revenue sharing arrangement embodied in our
      form
      Marketing Agreement could potentially provide a higher rate of return on
      investment to us over the life of our standard contract.





We
      recorded a net loss of $1,239,791, or $.04 per share, for the fiscal year ended
      March 31, 2006, compared to a net loss of $998,354, or $.04 per share, for
      the
      fiscal year ended March 31, 2005, and a net loss of $326,937, or $.02 per share,
      for the year ended March 31, 2004. The increase in loss experienced from fiscal
      year end 2004 to 2005 was due to reduced revenues in our voice dial service
      and
      increased market activity related to introduction of our new product suite.
      The
      increase in loss experienced from fiscal year end 2005 to 2006 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, 2006 was $1,188,083 compared to
      $912,599 and $1,631,785 for the fiscal years ended March 31, 2005 and 2004
      respectively. The decrease of revenue reflects loss of subscribers in our
      opt-out program. 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, 2006 was $845,889 compared to $479,068
      and $517,304 for the fiscal years ended March 31, 2005 and 2004, 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, 2006
      were $1,396,649 compared to $1,490,377 and $1,597,665 for the fiscal years
      ended
      March 31, 2005 and 2004, respectively. The decrease from 2004 to 2005 and then
      again from 2005 to 2006 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, 2007, as we do have overhead expansion needs
      necessary to increase our sales, marketing and development activities.





*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
      $1,353,011  for
      enhancement of our core software and hardware technology as of March 31, 2006
      in
      comparison to $1,264,836 as of March 31, 2005. The increase in expenditures
      is
      due to the continued enhancement of our core technology.





*Extraordinary
      Items*





We
      have
      recognized income from the extinguishment of debt and negotiated vendor
      settlements of $0, $64,573, and $90,098, respectively, for the fiscal years
      ended March 31, 2006, 2005, and 2004.


*Income
      Taxes*





As
      of
      March 31, 2006, we had cumulative federal net operating losses of approximately
      $19.1 million, which can be used to offset future income subject to federal
      income tax through the fiscal year 2026. 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.





12


*Liquidity
      and Capital Resources*





Our
      cash
      and cash equivalents at March 31, 2006 were $209,466, a decrease of $925,698
      from $1,135,164 at March 31, 2005. 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 $829,882 for the year ended March 31, 2006
      compared to $706,908 for the year ended March 31, 2005. Net cash used for
      investing activities was $82,502 for the year ended March 31, 2006 compared
      to
      cash used in investing activities of $270,638 for the year ended March 31,
      2005.
      Net cash used by financing activities was $13,314 for the year ended March
      31,
      2006 compared to net cash provided by financing activities of $2,048,036 for
      the
      year ended March 31, 2005.





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 50,000 5-year warrants to purchase a share of Common Stock,
      $.001 par value per share, of the Company at an exercise price of $.12 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 Fifty Thousand
      (50,000) shares of the common stock of the Company and a warrant to purchase
      Twenty-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. The Company will need to raise additional capital
      during 2006 to satisfy working capital and debt service requirements. There
      is
      no assurance that the Company will be able to raise the amount of debt or equity
      capital that may be required to meet its objectives. The Company's challenging
      financial circumstances may make the terms, conditions, and cost of any
      available capital relatively unfavorable. If additional debt or equity capital
      is not readily available, the Company will be forced to further scale back
      its
      operations, including its efforts to complete new sales. The Company's short
      term needs for capital may force it to consider and potentially pursue other
      strategic options sooner than it might otherwise have desired. These conditions
      raise substantial doubt about the Company's ability to continue as a going
      concern. The financial statements do not include any adjustments to reflect
      the
      possible future effects on the recoverability of and classification of assets,
      or the amounts and classification of liabilities that may result from the
      outcome of this uncertainty.





*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*





We
      project our working capital needs to be approximately $1,200,000 over the next
      twelve months for corporate overhead and equipment purchases to continue to
      deploy our services to carrier customers. Management believes that current
      cash
      and cash equivalents and cash that may be generated from operations will not
      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 we have experienced over the
      past six months with our currently installed customers and projected cash
      requirements to support installation, sales and marketing, and general overhead.
      We will be forced to raise additional capital through the issuance of new
      shares, the exercise of outstanding warrants, or reduce our current overhead.
      However, any projections of future cash needs and cash flows are subject to
      substantial uncertainty. If we are unable to secure such funding, we would
      be
      forced to rely on existing cash and cash from operations which would greatly
      impact our ability to complete our product development and product rollout
      until
      such time as necessary funds are secured.





13





**Item
      7. Financial Statements**





PREFERRED
      VOICE, INC.


FINANCIAL
      STATEMENTS


MARCH
      31,
      2006, 2005 and 2004





Independent Auditors’ Report
            F-1Financial
              StatementsBalance
              Sheets
            F-2Statements
              of
              Operations
            F-4Statement
              of
              Stockholders’ Equity (Deficit)
            F-5Statement
              of
              Cash Flows
            F-6Notes
              to
              Financial Statements
            F-8




14


**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,
        2006 and 2005, and the related statements of operations, stockholders' equity
        (deficit) and cash flows for the years ended March 31, 2006, 2005 and 2004.
        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, 2006 and 2005, and the results of its operations and its cash flows for
        the
        years ended March 31, 2006, 2005 and 2004, 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**
 
 **May
        24, 2006**
 
 F-1
  **PREFERRED
        VOICE, INC.**
 **BALANCE
        SHEETS**
 **MARCH
        31, 2006** **AND 2005**
  **2006**
                
                **2005****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                209,466
                
                $
                1,135,164Accounts
                    receivable, net of allowance for doubtfulaccounts
                    of $5,325 and $5,325, respectively
                
                
                210,392
                
                
                100,920Prepaid
                    expense
                
                
                -
                
                
                2,759Total
                    current assets
                
                $
                419,858
                
                $
                1,238,843Property
                    and equipment:Computer
                    equipment
                
                $
                1,414,809
                
                $
                1,629,844Furniture
                    and fixtures
                
                
                22,317
                
                
                32,046Office
                    equipment
                
                
                29,443
                
                
                61,044$
                1,466,569
                
                $
                1,722,934Less
                    accumulated depreciation
                
                
                1,091,236
                
                
                1,143,905Net
                    property and equipment
                
                $
                375,333
                
                $
                579,029Other
                    assets:Capitalized
                    software development costs, net of accumulatedamortization
                    of $1,050,760 and $955,436, respectively
                
                $
                180,845
                
                $
                224,881Deposits
                
                
                4,485
                
                
                4,485Trademarks
                    and patents, net of accumulatedamortization
                    of $16,945 and $9,709, respectively
                
                
                104,461
                
                
                104,307Total
                    other assets
                
                $
                289,791
                
                $
                333,673Total
                    assets
                
                $
                1,084,982
                
                $
                2,151,545
  *The
          accompanying notes are an integral part of these
          statements.*
 F-2
 **2006**
              
              
              **2005****Liabilities
                  and stockholders' equity**Current
                  liabilities:Accounts
                  payable
              $
              191,147
              
              $
              203,209Accrued
                  operating expenses
              
              34
              
              
              60Accrued
                  vacation
              
              7,802
              
              
              5,667Accrued
                  payroll and payroll taxes
              
              19,255
              
              
              39,830Accrued
                  interest
              
              58,500
              
              
              -Current
                  portion- notes payable
              
              14,144
              
              
              13,315Total
                  current liabilities
              $
              290,882
              
              $
              262,081Long-term
                  liabilities:Notes
                  payable
              $
              -
              
              $
              14,144Debentures
                  payable - net of discounts
              
              690,056
              
              
              547,583Total
                  long-term liabilities
              $
              690,056
              
              $
              561,727Commitments
                  and contingencies (Note J and L)Stockholders'
                  equity:Common
                  stock, $.001 par value;50,000,000
                  shares authorized; 29,815,826and
                  29,607,493 shares issued, respectively
              $
              29,816
              
              $
              29,607Additional
                  paid-in capital
              
              19,400,624
              
              
              19,384,794Accumulated
                  deficit
              
              (19,324,890
              )
              
              (18,085,158
              )Treasury
                  stock- 22,500 shares at cost
              
              (1,506
              )
              
              (1,506
              )Total
                  stockholders' equity
              $
              104,044
              
              $
              1,327,737Total
                  liabilities and stockholders' equity
              $
              1,084,982
              
              $
              2,151,545
  *The
          accompanying notes are an integral part of these
          statements.*
 
 F-3
 **PREFERRED
          VOICE, INC.**
 **STATEMENTS
          OF OPERATIONS**
 **FOR
          THE YEARS ENDED** **MARCH
          31, 2006** **,
          2005 AND 2004**
 
 **2006**
                
                **2005**
                
                **2004**Net
                    sales
                
                $
                1,188,083
                
                $
                912,599
                
                $
                1,631,785Cost
                    of sales
                
                
                845,889
                
                
                479,068
                
                
                517,304Gross
                    profit
                
                $
                342,194
                
                $
                433,531
                
                $
                1,114,481General
                    and administrative expenses
                
                $
                1,396,649
                
                $
                1,490,377
                
                $
                1,597,665Loss
                    from operations
                
                $
                (1,054,455
                )
                $
                (1,056,846
                )
                $
                (483,184
                )Other
                    income (expense):Interest
                    income
                
                $
                -
                
                $
                -
                
                $
                247Interest
                    expense
                
                
                (203,429
                )
                
                (6,081
                )
                
                (15,603
                )Gain
                    (loss) on sale of assets
                
                
                18,153
                
                
                -
                
                
                84,048Extinguishment
                    of debt
                
                
                -
                
                
                -
                
                
                81,685Negotiated
                    settlements
                
                
                -
                
                
                64,573
                
                
                8,413Other
                    expense
                
                
                -
                
                
                -
                
                
                (2,543
                )Total
                    other income (expense)
                
                $
                (185,276
                )
                $
                58,492
                
                $
                156,247Loss
                    from operations before income taxes
                
                $
                (1,239,731
                )
                $
                (998,354
                )
                $
                (326,937
                )Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                -Net
                    loss
                
                $
                (1,239,731
                )
                $
                (998,354
                )
                $
                (326,937
                )Per
                    share amounts:Net
                    loss per share
                
                $
                (0.04
                )
                $
                (0.04
                )
                $
                (0.02
                )
 
 *The
          accompanying notes are an integral part of these
          statements.*
 F-4
 
 **PREFERRED
        VOICE, INC.**
 **STATEMENTS
        OF STOCKHOLDERS' EQUITY**
 **FOR
        THE YEARS ENDED** **MARCH
        31, 2006** **,
        2005 AND 2004**
  **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, 2003
                
                
                50,000,000
                
                
                18,407,493
                
                
                18,384,993
                
                
                22,500
                
                $
                18,408
                
                $
                (1,506
                )
                $
                17,817,465
                
                $
                (16,759,868
                )
                $
                1,074,499Conversion
                      of accounts payable to common stock
                
                
                -
                
                
                200,000
                
                
                200,000
                
                
                -
                
                
                200
                
                
                -
                
                
                20,691
                
                
                -
                
                
                20,891Warrants
                    issued to non-employees
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                8,145
                
                
                -
                
                
                8,145Net
                    loss for the year ended March 31, 2004
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (326,937
                )
                
                (326,937
                )Balance
                    - March 31, 2004
                
                
                50,000,000
                
                
                18,607,493
                
                
                18,584,993
                
                
                22,500
                
                $
                18,608
                
                $
                (1,506
                )
                $
                17,846,301
                
                $
                (17,086,805
                )
                $
                776,598Issuance
                    of common stock net of fees $2,923
                
                
                -
                
                
                11,000,000
                
                
                11,000,000
                
                
                -
                
                
                11,000
                
                
                -
                
                
                1,086,077
                
                
                -
                
                
                1,097,077Exercise
                    of employee stock options - shares not issued as of
                    3/31/2005
                
                
                -
                
                
                -
                
                
                208,333
                
                
                -
                
                
                -
                
                
                -
                
                
                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
                
                
                29,607,493
                
                
                29,793,326
                
                
                22,500
                
                $
                29,608
                
                $
                (1,506
                )
                $
                19,384,794
                
                $
                (18,085,159
                )
                $
                1,327,737Exercise
                    of employee stock options - shares issued 4/21/2005
                
                
                -
                
                
                208,333
                
                
                -
                
                
                -
                
                
                208
                
                
                -
                
                
                (208
                )
                
                -
                
                
                -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
                
                
                29,815,826
                
                
                29,793,326
                
                
                22,500
                
                $
                29,816
                
                $
                (1,506
                )
                $
                19,400,624
                
                $
                (19,324,890
                )
                $
                104,044
 *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, 2006** **,
          2005 AND 2004**
  **2006**
              
              **2005**
              
              **2004**Cash
                  flows from operating activities:Cash
                  received from customers
              
              $
              1,078,611
              
              $
              945,221
              
              $
              1,718,949Cash
                  paid to suppliers and employees
              
              
              (1,906,037
              )
              
              (1,646,048
              )
              
              (1,756,421
              )Interest
                  received
              
              
              -
              
              
              -
              
              
              247Interest
                  paid
              
              
              (2,456
              )
              
              (6,081
              )
              
              (18,103
              )Net
                  cash used by operating activities
              
              $
              (829,882
              )
              $
              (706,908
              )
              $
              (55,328
              )Cash
                  flows from investing activities:Capital
                  expenditures
              
              $
              (114,065
              )
              $
              (270,638
              )
              $
              (48,757
              )Proceeds
                  from
                  sale of assets
              
              
              31,563
              
              
              -
              
              
              125,824Employee
                  repayments
              
              
              -
              
              
              -
              
              
              675Net
                  cash provided (used) by investing activities
              
              $
              (82,502
              )
              $
              (270,638
              )
              $
              77,742Cash
                  flows from financing activities:Proceeds
                  from
                  issuance of stock
              
              $
              -
              
              $
              1,097,077
              
              $
              -Proceeds
                  from
                  issuance of convertible debt and warrants
              
              
              -
              
              
              975,000
              
              
              -Proceeds
                  from
                  exercise of stock options
              
              
              -
              
              
              25,000
              
              
              -Repayment
                  of
                  note payable
              
              
              (13,314
              )
              
              (49,041
              )
              
              (13,500
              )Net
                  cash provided (used) by financing activities
              
              $
              (13,314
              )
              $
              2,048,036
              
              $
              (13,500
              )Net
                  increase (decrease) in cash and cash equivalents
              
              $
              (925,698
              )
              $
              1,070,490
              
              $
              8,914Cash
                  and cash equivalents:Beginning
                  of
                  year
              
              
              1,135,164
              
              
              64,674
              
              
              55,760End
                  of year
              
              $
              209,466
              
              $
              1,135,164
              
              $
              64,674
  *The
          accompanying notes are an integral part of these
          statements.*
 F-6
  **2006**
              
              **2005**
              
              **2004**Reconciliation
                  of net loss to netcash
                  used by operating activities:Net
                  loss
              
              $
              (1,239,731
              )
              $
              (998,354
              )
              $
              (326,937
              )Adjustments
                  to reconcile net loss to net cashused
                  by operating activities:Depreciation
                  and amortization
              
              $
              348,233
              
              $
              383,383
              
              $
              424,593Gain
                  on sale of assets
              
              
              (18,154
              )
              
              -
              
              
              (84,048
              )Extinguishment
                  of debt
              
              
              -
              
              
              -
              
              
              (81,685
              )Impairment
                  of intangibles
              
              
              -
              
              
              -
              
              
              2,543Fair
                  value of stock warrants issued in exchange for services
              
              
              16,038
              
              
              -
              
              
              8,145Changes
                  in operating assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              (109,472
              )
              
              32,622
              
              
              87,164Decrease
                  in prepaid expenses
              
              
              2,759
              
              
              92
              
              
              1,879Decrease
                  in deposits
              
              
              -
              
              
              -
              
              
              7,832Increase
                  (decrease) in accounts payable
              
              
              (12,062
              )
              
              1,130
              
              
              (25,697
              )Increase
                  (decrease) in accrued expenses
              
              
              182,507
              
              
              (125,781
              )
              
              (69,117
              )Total
                  adjustments
              
              $
              409,849
              
              $
              291,446
              
              $
              271,609Net
                  cash used by operating activities
              
              $
              (829,882
              )
              $
              (706,908
              )
              $
              (55,328
              )Supplemental
                  schedule of non-cash investing andand
                  financing activities:Conversion
                  of accounts payable to common stock
              
              $
              -
              
              $
              -
              
              $
              71,593Extinguishment
                  of accrued interest
              
              $
              -
              
              $
              -
              
              $
              30,819Extinguishment
                  of notes payable
              
              $
              -
              
              $
              -
              
              $
              50,866Proceeds
                  allocated to warrants related to issuance ofconvertible
                  debt and warrants
              
              $
              -
              
              $
              427,416
              
              $
              -
  The
        accompanying notes are an integral part of these
        statements.
 
 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.
 
 **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.
 
 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, 2006, 2005 and 2004 was $245,672, $296,490
        and $299,705, respectively.
 
 F-8
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        B - Summary of significant accounting policies
        (continued):**
 
 **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, 2006, 2005 and 2004, software development costs
        capitalized were $49,470, $186,117 and $17,623, respectively. The amortization
        of capitalized software development costs for the years ended March 31, 2006,
        2005 and 2004 was $95,325, $82,764 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**2007
                
                $
                104,3652008
                
                
                63,7852009
                
                
                12,2232010
                
                
                -2011
                
                
                -Total
                
                $
                180,373
 
 **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, 2004 as the Company abandoned the pursuance of
        certain trademarks; the result was an impairment loss of $2,543 that is included
        in other expenses. The Company has not tested its intangible assets for
        impairment subsequent to 2004 as there have been no events or changes in
        circumstances that would indicate that the intangible assets have been impaired
        as the patents and trademarks are not product specific.
 
 The
        amortization of trademarks and patents for the years ended March 31, 2006,
        2005
        and 2004 was $7,236, $4,129 and $3,761, respectively.
  F-9
  **** **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        B - Summary of significant accounting policies
        (continued):**
 
 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**2007
                
                $
                7,3282008
                
                
                7,3282009
                
                
                7,3282010
                
                
                7,3282011
                
                
                7,328Total
                
                $
                36,640
 
 **Advertising
        expense**
 
 The
        Company expenses advertising costs when the advertisement occurs. Total
        advertising expense amounted to $-0-, $14,735 and $11 for the years ended
        March
        31, 2006, 2005 and 2004, 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, 2006, 2005 and 2004, approximately $685,000 (57.7%),
        $319,000 (33.1%), and $429,000 (23.53%), respectively, of the Company’s total
        sales were derived from one, three and two customers respectively. At March
        31,
        2006, 2005, 2004 approximately $169,000 (79%), $38,000 (36%) and $20,000
        (14%),
        respectively, accounted for a material portion of accounts receivable.
 
 **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.
 
 
 F-10
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        B - Summary of significant accounting policies
        (continued):**
 
 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 year ended March
        31, 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, 2006, 2005
        and
        2004, were as follows:
 **Product**
                
                **2006**
                
                **2005**
                
                **2004**Voice
                    Activated Dialing
                
                $
                386,308
                
                $
                850,107
                
                $
                1,578,508Push
                    2 Connect Conferencing
                
                
                230
                
                
                6,760
                
                
                39,674Telephone
                    Receptionist
                
                
                1,882
                
                
                1,960
                
                
                11,008Smart
                    Business Line
                
                
                2,570
                
                
                2,370
                
                
                2,220Personal
                    Assistant
                
                
                -
                
                
                -
                
                
                253Family
                    Friends Smart Line
                
                
                -
                
                
                -
                
                
                122Customer
                    Application Services
                
                
                -
                
                
                48,695
                
                
                -Downloadable
                    Content
                
                
                23,571
                
                
                2,707
                
                
                -Rockin
                    Ringback
                
                
                685,112
                
                
                -
                
                
                -Subscriber
                    Notification System
                
                
                88,410
                
                
                -
                
                
                -Total
                    revenue
                
                $
                1,188,083
                
                $
                912,599
                
                $
                1,631,785
 **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.
 
 **Stock
        based compensation**
 
 Prior
        to
        January 1, 1996, the Company accounted for its stock option plans in accordance
        with the provisions of Accounting Principles Board (APB) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        related interpretations. As such, compensation expense would be recorded
        on the
        date of grant only if the current market price of the underlying stock exceeds
        the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, *Accounting
        for Stock-Based Compensation* ,
        which
        permits entities to recognize, as expense over the vesting period, the fair
        value of all stock-based awards on the date of grant. Alternatively, SFAS
        No.
        123 allows entities to continue to apply the provisions of APB Opinion No.
        25
        and provide proforma net income and proforma earnings per share disclosures
        for
        employee stock option grants made in 1996 and future years as if the
        fair-valued-based method defined in SFAS No. 123 had been applied. The Company
        has elected to continue to apply the provisions of APB Opinion No. 25 and
        provide the proforma disclosure provisions of SFAS No. 123.
 
 In
        addition, the Company has adopted the provisions of Financial Accounting
        Standards Board Interpretation (FIN) 44, *Accounting
        for Certain Transactions Involving Stock Compensation* ,
        which
        became effective July 1, 2000. FIN 44 clarifies the application of APB Opinion
        No. 25 for certain issues. Among other issues, this interpretation clarifies
        the
        definition of an employee for purposes of applying APB Opinion No. 25, the
        criteria for qualification of a plan as compensatory, the consequences of
        modifications to the terms of the plan, and the treatment of stock compensation
        issued to service providers who are not employees. The issuance of this
        interpretation does not change the current accounting policies of the Company,
        and has had no effect on the accompanying financial statements.
 
 F-11
 **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        B - Summary of significant accounting policies
        (continued):**
 
 In
        December 2002, the Financial Accounting Standards Board issued SFAS No. 148, *Accounting
        for Stock-Based Compensation - Transition and Disclosure* ,
        which
        amends SFAS No. 123. SFAS No. 148 provides alternative methods of transition
        for
        a voluntary change to the fair value based method of accounting for stock-based
        compensation. In addition, SFAS No. 148 amends the disclosure requirements
        of
        SFAS No. 123 to require more prominent and more frequent disclosures in
        financial statements about the effects of stock-based compensation. The
        transition guidance and annual disclosure provisions are effective for years
        ending after December 15, 2002. The interim disclosure provisions are effective
        financial reports containing financial statement for interim periods beginning
        after December 15, 2002. The transition rules of this standard are not
        applicable since the Company continues to account for stock-based compensation
        under the guidance of APB Opinion 25. The other requirements of this standard
        have been adopted by the Company for periods beginning January 1, 2003.
        Disclosures required by this statement are in Notes G and H.
 
 **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, 2006,
        2005
        and 2004, no computation of diluted EPS has been performed.
 
 Loss
        per
        share is based on the weighted average number of shares outstanding of
        29,806,567, 28,293,604 and 18,384,993 for the years ended March 31, 2006,
        2005
        and 2004, 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,
        2006.
 
 **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 $-0-, $-0- and $2,543 was recognized during the years ended March
        31,
        2006, 2005, and 2004, respectively.
 
 F-12
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        B - Summary of significant accounting policies
        (continued):**
 
 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. The adoption resulted in a reclassification
        of
        extraordinary gains into ordinary loss, with no effect on net loss for the
        year
        ended March 31, 2003.
 
 **Recent
        accounting pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board issued 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 will require 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 will be 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
        will
        be effective for awards that are granted, modified or settled in cash during
        the
        first interim or annual financial periods of the registrants first fiscal
        year
        beginning after December 15, 2005. In addition, this new standard will apply
        to
        unvested options granted prior to the effective date. This standard will
        be
        adopted during the first quarter of 2006; however, management has not yet
        determined what impact this statement will have on the Company's financial
        position or results of operations.
 
 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.
 
 
 **Note
        C - Notes payable:**
 
 Notes
        payable consist of the following:
 **2006**
                
                **2005**Note
                        payable, 6% interest rate. Principal and interest payable
                        monthly. Note
                        maturity date is March 1, 2007. Note is
                        unsecured.
                
                $
                14,144
                
                $
                27,459Less
                    current portion
                
                
                14,144
                
                
                13,315Total
                
                $
                -
                
                $
                14,144
  F-13
 
 **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 
 **Note
        C - Notes payable (continued):**
  Maturities
        under note payable agreements are as follows:
 
 **Year
                    ending****March
                    31,**
                
                **Amount**2007
                
                $
                14,144Total
                
                $
                14,144
 Interest
        expense charged to operations related to the notes payable was $1,288, $4,788
        and $5,016 for the years ended March 31, 2006, 2005 and 2004,
        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 9,750,000 shares of the Company’s common stock at a price of $0.10 per
        share when the company receives shareholder approval for an increase in its
        authorized shares equal to or above 65,000,000 shares at which time the Company
        will record the intrinsic value of the beneficial conversion of $257,500
        as
        interest expense. The investors also received warrants to purchase an additional
        4,875,000 shares of common stock with an exercise price of $0.12 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 year ended
        March
        31, 2006 and 2005, was $142,472 and $-0-, respectively. The loan costs incurred
        on the issuance of the Debentures amounted to $2,430.
 
 
 **Note
        E - Common stock:**
 
 **Stock
        purchase warrants**
 
 At
        March
        31, 2006 the Company had outstanding warrants to purchase 16,242,285 shares
        of
        the Company's common stock at prices that ranged from $0.10 per share to
        $3.53
        per share. The warrants are exercisable at any time and expire through March
        31,
        2010. At March 31, 2006, 16,242,285 shares of common stock were reserved
        for
        that purpose.
 
 **Common
        stock reserved**
 
 At
        March
        31, 2006, 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
                1,791,667Exercise
                    of stock warrants
                16,242,28518,033,952
 F-14
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **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 5,000 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 450,000 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, 2006,
        the
        Plan had expired and there were no options outstanding. No stock appreciation
        rights had been granted at March 31, 2006.
 
 As
        of
        March 31, 2006, 112,868 of these options were exercised, 533,882 were forfeited
        and 5,000 were expired. At March 31, 2006, 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 reserves 2,000,000 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. These stock options vest over a period of two years.
 
 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, 2006,
        options
        to purchase 1,473,667 shares at an exercise price of $0.12 to $0.20 per share
        were outstanding. No stock appreciation rights had been granted at March
        31,
        2006.
 
 As
        of
        March 31, 2006, 208,333 options have been exercised, 1,159,825 have been
        forfeited, 294,750 expired, 1,473,667 remain outstanding, and 1,198,667 were
        vested and exercisable. At March 31, 2006, the remaining weighted average
        contractual life was 7.8 years.
 
 **Employee
        warrants**
 
 As
        of
        March 31, 2006, none of the employee warrants have been exercised or forfeited,
        3,055,000 expired, 2,660,000 remain outstanding, and 2,660,000 were vested
        and
        exercisable. At March 31, 2006, the remaining weighted average contractual
        life
        was approximately 3.1 years.
 
 F-15
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        G - Proforma information related to employee stock options and
        warrants:**
 
 The
        per
        share weighted-average fair value of stock options granted was determined
        using
        the Black Scholes Option-Pricing Model. The following weighted-average
        assumptions were used in the pricing model:
 
 2006
              
              2005
              
              2004Expected
                  dividend yield
              0.00%
              
              0.00%
              
              0.00%Risk-free
                  interest rate
              2.10%-
                  4.18%
              
              3.15%-
                  4.02%
              
              1.00%Expected
                  life
              3
                  -
                  5years
              
              5
                  years
              
              1.0
                  - 2.5 yearsExpected
                  volatility
              179%-
                  266%
              
              185%-
                  209%
              
              133%
                  - 145%
 
 
 The
        Company applies APB Opinion No. 25 in accounting for its plan for stock options
        and warrants (as described in Note F) and, accordingly, has recognized no
        compensation expense for stock options granted at exercise prices at least
        equal
        to the market value of the Company’s common stock. Had the Company determined
        compensation cost based on the fair value at the grant date for its stock
        options under SFAS No. 123, the Company’s net loss and loss per share would have
        been increased to the proforma amounts indicated below:
  **2006**
                
                **2005**
                
                **2004**Net
                    loss :As
                    reported
                
                $
                (1,239,731
                )
                $
                (998,354
                )
                $
                (326,937
                )Less
                        total compensation expense determined under fair value based
                        method for
                        all awards, net of tax effects
                
                
                (200,560
                )
                
                (179,284
                )
                
                (51,449
                )Proforma
                    net
                    loss
                
                $
                (1,440,291
                )
                $
                (1,177,638
                )
                $
                (378,386
                )Loss
                    per common share:As
                    reported
                
                $
                (0.04
                )
                $
                (0.04
                )
                $
                (0.02
                )Proforma
                
                $
                (0.05
                )
                $
                (0.04
                )
                $
                (0.02
                )
  F-16
 
 **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)****2006**
                
                **2005**
                
                **2004**Weighted
                
                
                
                Weighted
                
                
                
                Weightedaverage
                
                
                
                average
                
                
                
                averageNumber
                    of
                
                exercise
                
                Number
                    of
                
                exercise
                
                Number
                    of
                
                exerciseshares
                
                price
                
                shares
                
                price
                
                shares
                
                priceOutstanding
                      at beginning of year
                5,000
                
                
                $0.50
                
                5,000
                
                
                $0.50
                
                252,000
                
                
                $0.98Granted
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Exercised
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Forfeited
                -
                
                
                -
                
                -
                
                
                -
                
                (247,000)
                
                
                0.50Expired
                (5,000
                )
                
                0.50
                
                -
                
                
                -
                
                -
                
                
                -Outstanding
                    at end of year
                -
                
                
                $-
                
                5,000
                
                
                $0.50
                
                5,000
                
                
                $0.50Options
                      exercisable at end of year
                -
                
                
                $-
                
                5,000
                
                
                $0.50
                
                5,000
                
                
                $0.50
 **2000
                    stock award and incentive plan (2000 Plan)****2006**
                
                **2005**
                
                **2004**Weighted
                
                
                
                Weighted
                
                
                
                Weightedaverage
                
                
                
                average
                
                
                
                averageNumber
                    of
                
                
                exercise
                
                Number
                    of
                
                exercise
                
                Number
                    of
                
                exerciseshares
                
                
                price
                
                shares
                
                price
                
                shares
                
                priceOutstanding
                      at beginning of year
                1,613,667
                
                
                $
                0.12
                
                702,000
                
                $
                0.50
                
                1,163,875
                
                $
                1.29Granted
                -
                
                
                
                -
                
                1,230,000
                
                
                0.12
                
                330,000
                
                
                0.50Exercised
                -
                
                
                
                -
                
                (208,333
                )
                
                0.12
                
                -
                
                
                -Forfeited
                (140,000
                )
                
                
                0.12
                
                (110,000
                )
                
                0.12
                
                (497,125
                )
                
                0.73Cancelled
                -
                
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Expired
                -
                
                
                
                -
                
                -
                
                
                -
                
                (294,750
                )
                
                1.20Outstanding
                    at end of year
                1,473,667
                
                
                $
                0.12
                
                1,613,667
                
                $
                0.12
                
                702,000
                
                $
                0.50Options
                      exercisable at end of year
                686,167
                
                
                $
                0.12
                
                763,667
                
                $
                0.12
                
                543,563
                
                $
                0.50Weighted
                    average fair value
 
 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 warrants issued to employees:
  **2006**
                
                **2005**
                
                **2004**Weighted
                
                
                
                Weighted
                
                
                
                Weightedaverage
                
                
                
                average
                
                
                
                averageNumber
                    of
                
                exercise
                
                Number
                    of
                
                exercise
                
                Number
                    of
                
                exerciseshares
                
                price
                
                shares
                
                price
                
                shares
                
                priceOutstanding
                      at beginning of year
                2,460,000
                
                $
                0.14
                
                215,000
                
                $
                1.44
                
                795,000
                
                $
                1.09Granted
                200,000
                
                
                0.15
                
                5,300,000
                
                
                0.15
                
                -
                
                
                -Exercised
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Forfeited
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Expired
                -
                
                
                -
                
                (3,055,000
                )
                
                0.18
                
                (580,000
                )
                
                0.95Outstanding
                    at end of year
                2,660,000
                
                $
                0.14
                
                2,460,000
                
                $
                0.14
                
                215,000
                
                $
                1.44Warrants
                      exercisable at end of year
                2,660,000
                
                $
                0.14
                
                1,460,000
                
                $
                0.12
                
                215,000
                
                $
                1.44Weighted
                      average fair value of warrants granted during the
                      year
                
                
                $
                0.13
                
                
                
                $
                0.10
                
                
                
                $
                -
 **Note
        H - Stock warrants:**
 
 During
        the years ended March 31, 2006, 2005 and 2004, the Company issued 200,000,
        250,000 and 250,000 warrants to certain service providers and business partners
        at exercise prices ranging from $0.10 to $3.53. The warrants can be exercised
        at
        any time and expire at various dates through March 3, 2010.
 
 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, 2006, 2005 and 2004, the Company recognized $16,038, $-0-
        and
        $8,145, respectively, as compensation expense and $-0- as stock issuance
        cost
        during the years ended March 31, 2006, 2005 and 2004 related to warrants
        issued
        to non-employees.
 
 As
        of
        March 31, 2006, none of the total warrants issued to non-employees for goods
        and
        services have been exercised; none have been forfeited; 1,317,500 have expired;
        and 500,535 remain outstanding, of which 500,535 were vested and exercisable.
        At
        March 31, 2006, the remaining weighted average contractual life was
        approximately 1.9 years.
  For
        the
        years ended March 31, 2006, 2005 and 2004, the Company issued -0-, 11,412,500
        and -0- warrants, respectively, in connection with stock offerings. These
        warrants were not issued in exchange for goods and services; therefore, no
        compensation expense was recognized by the Company during the years ended
        March
        31, 2006, 2005 and 2004.
 
 As
        of
        March 31, 2006, 1,022,493 of the total warrants issued for stock offerings
        have
        been exercised; none have been forfeited; 578,215 have expired; and 13,081,750
        remain outstanding, of which 13,081,750 were vested and exercisable. At March
        31, 2006, the remaining weighted average contractual life was approximately
        3.1
        years.
   F-18
 **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:
 
 **2006**
                
                **2005**
                
                **2004**Expected
                    dividend yield
                0.00%
                
                0.00%
                
                0.00%Risk-free
                    interest rate
                4.75
                
                3.15%-
                    4.18%
                
                1.48%Expected
                    life
                3
                    years
                
                5
                    years
                
                1.75
                    yearsExpected
                    volatility
                144%
                
                201%-
                    209%
                
                76%
   Following
          is a summary of warrants issued to
          non-employees in exchange for goods and services:
 
 **2006**
                
                **2005**
                
                **2004**Weighted
                
                
                
                Weighted
                
                
                
                Weightedaverage
                
                
                
                average
                
                
                
                averageNumber
                    of
                
                exercise
                
                Number
                    of
                
                exercise
                
                Number
                    of
                
                exerciseshares
                
                price
                
                shares
                
                price
                
                shares
                
                priceOutstanding
                      at beginning of year
                550,535
                
                $
                1.11
                
                618,035
                
                $
                1.17
                
                756,035
                
                $
                1.76Granted
                200,000
                
                
                0.10
                
                250,000
                
                
                0.14
                
                250,000
                
                
                0.10Exercised
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Forfeited
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Expired
                (250,000
                )
                
                0.10
                
                (317,500
                )
                
                0.46
                
                (388,000
                )
                
                1.91Outstanding
                    at end of year
                500,535
                
                $
                1.21
                
                550,535
                
                $
                1.11
                
                618,035
                
                $
                1.17Warrants
                      exercisable at end of year
                550,535
                
                $
                1.21
                
                550,535
                
                $
                1.11
                
                618,035
                
                $
                1.17Weighted
                        average fair value of warrants granted during the
                        year
                
                
                $
                0.08
                
                
                
                $
                0.03
                
                
                
                $
                0.03
 
 F-19
 
 **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 
  **Note
        H - Stock warrants (continued):**
 
 The
        following is a summary of warrants issued in connection with stock
        offerings:
 
 
 **2006**
                
                **2005**
                
                **2004**Weighted
                
                
                
                Weighted
                
                
                
                Weightedaverage
                
                
                
                average
                
                
                
                averageNumber
                    of
                
                exercise
                
                Number
                    of
                
                exercise
                
                Number
                    of
                
                exerciseshares
                
                price
                
                shares
                
                price
                
                shares
                
                price
  Outstanding
                    at beginningof year
                13,367,465
                
                $
                0.36
                
                2,247,465
                
                $
                1.75
                
                2,532,668
                
                $
                1.64Granted
                -
                
                
                -
                
                11,412,500
                
                
                0.12
                
                -
                
                
                -Exercised
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Forfeited
                -
                
                
                -
                
                -
                
                
                -
                
                -
                
                
                -Expired
                (285,715
                )
                
                2.63
                
                (292,500
                )
                
                1.38
                
                (285,203
                )
                
                1.82Outstanding
                    at end of year
                13,081,750
                
                $
                0.31
                
                13,367,465
                
                $
                0.36
                
                2,247,465
                
                $
                1.75Warrants
                      exercisable at end of year
                13,081,750
                
                $
                0.31
                
                13,367,465
                
                $
                0.36
                
                2,247,465
                
                $
                1.75Weighted
                        average fair value of warrants granted during the
                        year
                
                
                $
                -
                
                
                
                $
                0.12
                
                
                
                $
                -
  Following
        is an overall summary of the stock warrants activity, including warrants
        issued
        to employees (see Note G):
 
 **2006**
                
                **2005**
                
                **2004**Number
                      of
                      shares
                
                Weighted
                  average
                  exercise
                  price
                
                Number
                        ofshares
                
                Weighted
                      averageexercise
                    price
                
                Number
                        ofshares
                
                Weighted
                      average
                      exercise
                      priceOutstanding
                    at beginning of year
                
                
                16,378,000
                
                $
                0.35
                
                
                3,080,500
                
                $
                1.61
                
                
                4,083,703
                
                $
                1.67Granted
                
                
                400,000
                
                
                0.13
                
                
                16,962,500
                
                
                0.13
                
                
                250,000
                
                
                0.10Exercised
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Forfeited
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Expired
                
                
                (535,715
                )
                
                1.45
                
                
                (3,665,000
                )
                
                0.30
                
                
                (1,253,203
                )
                
                1.44Outstanding
                    at end of year
                
                
                16,242,285
                
                $
                0.31
                
                
                16,378,000
                
                $
                0.35
                
                
                3,080,500
                
                $
                1.61Warrants
                      exercisable at end of year
                
                
                16,242,285
                
                $
                0.31
                
                
                15,378,000
                
                $
                0.36
                
                
                3,080,500
                
                $
                1.61Weighted
                      average fair value of warrants granted during the
                      year
                
                
                
                
                $
                0.11
                
                
                
                
                $
                0.11
                
                
                
                
                $
                0.03
 F-20
  **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:
 
 **2006**
                
                **2005**
                
                **2004**Current
                    income taxes
                
                $
                -
                
                $
                -
                
                $
                -Change
                    in deferred income taxes due totemporary
                    differences
                
                
                -
                
                
                -
                
                
                -$
                -
                
                $
                -
                
                $
                -
 
 The
        provision for income taxes for the years ended March 31, 2006, 2005 and 2004,
        differs from the “expected” tax benefit (computed using the 34% U.S. federal
        corporate rate to income before income taxes) as follows:
  **2006**
                
                **2005**
                
                **2004**Computed
                    “expected” tax benefit
                
                $
                (422,000
                )
                $
                (339,000
                )
                $
                (111,000
                )Nondeductible
                    items
                
                
                32,000
                
                
                2,000
                
                
                3,000Temporary
                    differences
                
                
                17,000
                
                
                27,000
                
                
                (6,000
                )Net
                    operating loss carry-forward
                
                
                373,000
                
                
                310,000
                
                
                114,000Provision
                    for income taxes
                
                $
                -
                
                $
                -
                
                $
                -
  F-21
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **Note
        I - Income taxes (continued):**
 
 Deferred
        tax (liabilities) assets as of March 31 consist of the following:
  **2006**
                
                **2005**
                
                **2004**Accumulated
                    depreciation
                
                $
                (96,000
                )
                $
                (80,000
                )
                $
                (57,000
                )Gross
                    deferred tax liabilities
                
                $
                (96,000
                )
                $
                (80,000
                )
                $
                (57,000
                )Stock
                    compensation
                
                $
                31,000
                
                $
                -
                
                $
                3,000Accounts
                    receivable
                
                
                2,000
                
                
                -
                
                
                2,000Accrued
                    liabilities
                
                
                -
                
                
                -
                
                
                3,000Net
                    operating loss carry-forward
                
                
                6,463,000
                
                
                6,091,000
                
                
                5,724,000Gross
                    deferred tax assets
                
                $
                6,496,000
                
                $
                6,091,000
                
                $
                5,732,000Valuation
                    allowance
                
                
                (6,400,000
                )
                
                (6,011,000
                )
                
                (5,675,000
                )$
                96,000
                
                $
                80,000
                
                $
                57,000Net
                    deferred tax as sets
                
                $
                -
                
                $
                -
                
                $
                -The
                      change in the deferred tax valuation allowance is as follows
                      :
                
                $
                389,000
                
                $
                336,000
                
                $
                115,000
  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, 2006, a net operating loss carry-forward
        of
        approximately $19,010,000, which can be used to offset future taxable income
        through the year 2026. 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,
        2006:
  **Year
                    ending****March
                    31,**
                
                **Amount**2006
                
                $
                55,7052007
                
                
                53,8202008
                
                
                40,3652009
                
                
                -2010
                
                
                -$
                149,890
 
 Total
        rent expense charged to operations was $60,341, $61,424 and $201,949 for
        the
        years ended March 31, 2006, 2005 and 2004, respectively.
 
 F-22
  **PREFERRED
          VOICE**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **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 $1,239,731, $998,354 and
        $326,937 for the years ended March 31, 2006, 2005 and 2004, respectively.
        The
        Company also has negative cash flows from operations of $829,882, $706,908
        and
        $55,328 for the years ended March 31, 2006, 2005 and 2004, 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 $1,200,000 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 not
        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.
        The Company will be forced to raise additional capital through the issuance
        of
        new shares, the exercise of outstanding warrants, or reduction of current
        overhead. However, any projections of future cash needs and cash flows are
        subject to substantial uncertainty. If the Company is unable to secure such
        funding, the Company would be forced to rely on existing cash and cash from
        operations which would greatly impact their ability to complete product
        development and product rollout until such time as necessary funds were
        secured.
  **Note
        M -**  **Subsequent
        events:**
 
 During
        April 2006, the accrued interest associated with the convertible debentures
        payable was converted to common stock at a rate of $.07 per share.
 
 On
        April
        27, 2006 at the Annual Meeting of the Stockholders, the stockholders voted
        to
        amend the Company’s 2000 Stock Plan for Incentive Stock Options and Other Equity
        Participation to increase the shares reserved for issuance under the Plan
        from 2
        million to 5 million shares.
 
 On
        April
        27, 2006 at the Annual Meeting of the Stockholders, the stockholders voted
        to
        amend the Company’s Certificate of Incorporation to increase the number of
        authorized shares of common stock, $.001 par value, from 50 million to 100
        million.
 
 F-23


**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**





1.  Evaluation
      of disclosure controls and procedures. As of the end of the reporting period,
      March 31, 2006, 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.





2.
      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, 2006 that materially
      affected, or was reasonably likely to materially affect our internal control
      over financial reporting.





**Item
      8B. Other Information**





None





**PART
      III**





**Item
      9. Directors, Executive Officers, Promoters and Control Persons;**


**Compliance
      with Section** **16(a)****of the Exchange Act**





**Directors,
      Executive Officers, Promoters and Control Persons**





The
      Board
      of Directors currently consists of four (4) 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
            
            49
            
            Director,
              Chief
              Executive Officer, Executive VP-Finance and Secretary/Treasurer
            
            1994Scott V. Ogilvie
            
            52
            
            Director
            
            2000Todd
                Parker
            
            42
            
            Director
            
            2005




15


*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 a 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.





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 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.








**Item
      10. Executive Compensation**





The
      following tables set forth the compensation paid by the Company to certain
      executive officers during the fiscal years ended March 31, 2006, 2005, and
      2004.





**Annual
      Compensation**


**Long
                Term**
              **Compensation****Name/Principal
                Position**
            
            **Year**
              **Ending**
              **March
                31**
            
            **Salary**
            
            **Bonus**
            
            **Other**
              **Annual**
              **Compensation**
            
            **Securities**
              **Underlying
                Options**
              **Warrants
                Granted**Mary
                G. Merritt
              Chief
                Executive Officer, EVP - Finance
            
            2006
              2005
              2004
            
            $103,400
              $99,430
              $89,250
            
            ―
              ―
              ―
            
            ―
              ―
              ―
            
            ―
              300,000
              150,000


No
      other
      stock options or convertible securities were granted to the aforementioned
      executive officers during the fiscal years ended March 31, 2006, 2005, and
      2004.





**Option/SAR
      Grants in Fiscal Year 2006**





No
      individual grants of stock options, whether or not in tandem with stock
      appreciation rights ("SARs") and freestanding SARs have been made to any
      executive officer or any director during our fiscal year ended March 31,
      2006.





16


**Aggregated
                Option Exercises in Fiscal Year 2005 and March 31, 2005 Option
                Values**





No
      individual exercises of stock options, whether or not in tandem with stock
      appreciation rights ("SARs") and freestanding SARs have been made by executive
      officer or any director during our fiscal year ended March 31,
      2006.








**Equity
      Compensation Plan**





Plan
                Category
            
            Number
                of Securities To be Issued Upon Exercise ofOutstanding
                Options,Warrants
                and Rights(a)
            
            Weighted-Average
                Exercise Price of Outstanding Options,Warrants
                and Rights(b)
            
            Number
                of Securities Remaining Available For Future Issuance Under
              Equity
                Compensation Plans(excluding
                securities in column (a))(c)Equity
                Compensation
              Plans
                Approved by
              Security
                Holders
            
            1,473,667
            
            $0.12
            
            318,000Equity
                Compensation
              Plans
                Not Approved by
              Security
                Holders
            
            0
            
            0
            
            0Total
            
            1,473,667
            
            $0.12
            
            318,000








**Item
      11. Security Ownership of Certain Beneficial Owners and
      Management**





The
      following table sets forth, as of the close of business on  June
      23,2006,
      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 23,
      2006.





**Beneficial
      Ownership**  (1),
      (2)


**Name
                of Beneficial Owner**
            
            **Number
                of**
              **Shares**
            
            **Percentage**





Mary
                G. Merritt(3)
            
            2,218,574
            
            7.09%Scott
                Ogilvie(4)
            
            290,000
            
            *Todd
                Parker(5)
            
            1,250,000
            
            4.01%Leslie
                Melzer(6)
            
            2,361,500
            
            7.56%JMG
                Capital Partners, L.P.(7)
            
            4,455,155
            
            13.77%JMG
                Triton Offshore Fund Ltd.(8)
            
            4,452,155
            
            13.76%J.
                Steven Emerson(9)
            
            6,765,286
            
            20.21%Bristol
                Investment Fund, Ltd.(10)
              
              G.
                Tyler Runnels(11)
            
            2,630,714
              
              4,484,583
            
            8.31%
              
              13.57%All
                Directors and executive officers as a group (six persons)(16)
            
            3,758,574
            
            12.04%




17


*  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 30,651,539 shares outstanding on June 23, 2006. Shares of common
                stock
                subject to options that are exercisable within 60 days of June 23,
                2006,
                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
                505,000 shares issuable upon exercise of warrants, 145,667 issuable
                upon
                exercise of employee stock options, 30,000 shares held by minor
                children.


4)
            Includes
                290,000 shares issuable upon exercise of
                warrants.


5)
            Includes
                500,000 shares issuable upon exercise of warrants.


6)
            Includes
                180,000 issuable upon exercise of warrants and 400,000 shares issuable
                upon exercise of warrants held by Paragon Ranch,
                Inc.


7)
            Includes
                1,700,000 shares issuable upon exercise of warrants. 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.


8)
            Includes
                1,700,000 shares issuable upon exercise of warrants. 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.


9)
            Includes
                3,635,286 shares held in Mr. Emerson’s retirement accounts and 2,830,000
                shares issuable upon exercise of warrants held in Mr. Emerson’s retirement
                accounts.


10)
            Includes
                1,000,000 shares issuable upon exercise of warrants. 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.


11)
            Includes
                781,460 shares issuable upon exercise of warrants, 1,231,217 shares
                held
                by The Runnels Family Trust and 857,000 shares issuable upon exercise
                of
                warrants held by The Runnels Family Trust, and 715,714 shares held
                by High
                Tide, LLC and 750,000 shares issuable upon exercise of warrants held
                by
                High Tide, LLC for which Mr. Runnels has sole voting power over the
                shares
                held by High Tide, LLC.


12)
            Includes
                the shares described in footnotes 3 through 5.





**Item
      12. Certain Relationships and Related Transactions**





On
      April
      2, 2004 we issued G. Ray Miller, Scott Ogilvie, and Leslie Melzer each warrants
      to purchase 100,000 shares of our common stock at an exercise price of $.12
      per
      share on or before April 2, 2007 related to their positions as directors of
      the
      company.




In
      a
      private offering we closed on May 18, 2004, JMG Capital Partners, JMG Triton
      Offfshore Fund, J. Steven Emerson IRA II, Runnels Family Trust, High Tide,
      LLC.,
      and Mary Merritt purchased 1,500,000, 1,500,000, 3,000,000, 650,000, 500,000
      and
      500,000 shares of our common stock, respectively, and warrants to purchase
      750,000, 750,000, 1,500,000, 325,000, 250,000 and 250,000 shares of our common
      stock, respectively, at an exercise price of $.12 per share. The warrants are
      exercisable at any time prior to May 18, 2009. These shares and warrant were
      issued to each entity or individual at the same price as that paid by other
      investors in the offering.





On
      May
      18, 2004 we issued Mary Merritt a warrant to purchase 175,000 shares of our
      common stock at an exercise price of $.12 per share to be exercised on or before
      May 18, 2009. The warrants were issued related to her management contribution
      during fiscal year ended March 31, 2004.





18


On
      May
      18, 2004 we issued Latif Nathani four warrants each for 750,000 shares of our
      common stock at an exercise price of $.12 to be exercisable at any time after
      three months from grant, at an exercise price of $.15 to be exercisable at
      any
      time after six months from grant, at an exercise price of $.18 at any time
      after
      nine months from grant, and at an exercise price of $.20 at any time after
      the
      one year anniversary of grant. All of the warrants expire on May 18, 2009 or
      60
      days after Mr. Nathani ceases to be a Director, whichever is earlier. On
      February 21, 2005, Mr. Nathani resigned his position as Chief Executive Officer
      and relinquished all rights to the warrants described above.





On
      February 21, 2005, we issued Latif Nathani a warrant to purchase 500,000 shares
      of our common stock at an exercise price of $.12 per share to be exercised
      on or
      before May 18, 2009 for his position as a director of the company. Additionally,
      Mr. Nathani was issued four warrants each for 125,000 shares of our common
      stock
      at an exercise price of $.13 to be exercisable at any time after three months
      from grant, at an exercise price of $.16 to be exercisable at any time after
      six
      months from grant, at an exercise price of $.19 at any time after nine months
      from grant, and at an exercise price of $.22 at any time after the one year
      anniversary of grant. All of the warrants expire on February 21, 2010 or 60
      days
      after Mr. Nathani ceases to be a Director, whichever is earlier.





On
      March
      31, 2005 we issued Todd Parker four warrants each for 125,000 shares of our
      common stock at an exercise price of $.17 to be exercisable at any time after
      three months from grant, at an exercise price of $.17 to be exercisable at
      any
      time after six months from grant, at an exercise price of $.17 at any time
      after
      nine months from grant, and at an exercise price of $.17 at any time after
      the
      one year anniversary of grant. All of the warrants expire on March 31, 2010
      or
      60 days after Mr. Parker ceases to be a Director, whichever is earlier.





On
      March
      31, 2005, the company entered into securities purchase agreements with JMG
      Capital Partners, JMG Triton Offfshore Fund, J. Steven Emerson IRA II, Runnels
      Family Trust, High Tide, LLC and Bristol Investment Fund Ltd. for the issuance
      of 6% convertible debentures in the aggregate amount of $850,000. The notes
      bear
      interest at 6%, mature on March 31, 2008, and are convertible into the company’s
      common stock at the holders’ option at $.10 per common share. In addition the
      company issued an aggregate of 4,250,000 warrant to purchase shares of our
      common stock, at an exercise price of $.12 per share on or before March 31,
      2010. These convertible debentures and warrant were issued to each entity or
      individual at the same price as that paid by other investors in the offering.





On
      September 7, 2005 we issued G. Ray Miller and Scott Ogilvie, each warrants
      to
      purchase 100,000 shares of our common stock at an exercise price of $.15 per
      share on or before September 7, 2008 related to their positions as directors
      of
      the company.





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.





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(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(5)
            
            Volume
                License Agreement between Philips Speech Processing North America,
                a
                division of Philips Electronics North America Corporation and Preferred
                Voice, Inc. (Exhibit 10.31)10.3(6)
            
            Form
                of Subscription Agreement between Preferred Voice, Inc. and certain
                purchasers of Preferred Voice, Inc. common stock (Exhibit
                10.1)10.4(6)
            
            Form
                of Warrant Certificate (Exhibit 10.2)10.5(6)
            
            Warrant
                No. 122 issued to Stifel, Nicolaus & Company, Inc. (Exhibit
                10.3)10.6(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)10.7(1)
            
            Preferred/telecom,
                Inc. 1994 Stock Plan for Incentive and Non-Qualified Stock Options
                (Exhibit 10.5)10.8(7)
            
            2000
                Stock Plan for Incentive Stock Options and Other Equity Participation
                (Exhibit 10.1)10.9(8)
            
            Form
                of Subscription Agreement by and between Preferred Voice, Inc. and
                certain
                signatories thereto (Exhibit 10.1)10.10(8)
            
            Form of Warrant
              Certificate, issued by Preferred Voice, Inc. pursuant to the Subscription
              Agreement filed as Exhibit 10.9 hereto (Exhibit 10.2)10.11(9)
            
            Patent License
              Agreement by and between Preferred Voice, Inc. and KoninKlijkePhilips
              Electronics N.V.*(Exhibit 10.2)10.12(10)
            
            Form of Subscription
              Agreement, by and between Preferred Voice, Inc. and certain signatories
              thereto (Exhibit 10.1)10.13(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
              32.1^
            
            Section
                302 Certification
              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 Amendment No.
                1 to
                Form 10-KSB for the period ended March 31, 2000, filed by us with
                the
                Securities and Exchange Commission.


(6)
            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.


(7)
            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.


(8)
            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.


(9)
            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.


(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
                November 21, 2001.


(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 May
                18, 2004.


(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
                February 24, 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 April
                5, 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
                November 1, 2005.


(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
                January 25, 2006.





20








**Item
      14. Principal Accountant Fees and Services**





Our
      independent auditors, Philip Vogel & Co., P.C., have no direct or indirect
      interest in the Company and have been the Company’s Independent Registered
      Public Accounting Firm since 1995. The following table sets forth the fees
      billed and estimated fees for professional audit services provided by such
      firm
      for the fiscal years ended March 31, 2005 and 2006:




2005
            
            2006Audit Fees (a)
            
            $30,300
            
            $30,000Audit-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 has 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, 2006, 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)By:/s/
              Mary G. MerrittDate: July 14, 2006
            
            Mary 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
                14,2006/s/
                Todd Parker
              Todd
                Parker
            
            Director
            
            July
                14,2006/s/
                Scott Ogilvie
              Scott
                Ogilvie
            
            Director
            
            July
                14,2006








22