##### Table of Contents

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United States

Securities and Exchange Commission

Washington, D. C. 20549



---



Form 10-QSB



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|x | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



for the Period Ended December 31, 2003.



or



| ̈ | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
|- | -----------------------------------------------------------------------------------------



for the Transition Period From
 to



Commission File Number 33-92894



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PREFERRED VOICE, INC.



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 75-2440201                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                            |  |           
|------------------------------------------- |  | ----------
|6500 Greenville Avenue Suite 570 Dallas, TX |  | 75206     
|(Address of Principal Executive Offices)    |  | (Zip Code)



(214) 265-9580

(Registrants Telephone Number, including area code.)



Not Applicable

(Former name, Former Address and Former Fiscal year, if changed since last report.)



---



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No ̈



Applicable Only to Corporate Issuers



Indicate the number of shares outstanding of each of the issuers
classes of Common Stock, as of the latest practical date.



Common Stock, $ 0.001 Par Value  18,407,493 shares as of February 10, 2004.



Transitional Small Business Format    Yes ̈No  x



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##### Table of Contents

INDEX



Preferred Voice, Inc.



|           |  |                                                                                                                          |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | --
|Part I.    |  | Financial Information                                                                                                    |  | 1 
|           |  |                                                                                                                         
|Item 1.    |  | Financial Statements                                                                                                     |  | 1 
|           |  |                                                                                                                         
|           |  | Balance Sheets - December 31, 2003 and March 31, 2003.                                                                   |  | 1 
|           |  |                                                                                                                         
|           |  | Statements of Operations-Three Months Ended December 31, 2003 and 2002 and Nine Months Ended December 31, 2003 and 2002. |  | 3 
|           |  |                                                                                                                         
|           |  | Statements of Cash Flows-Three Months Ended December 31, 2003 and 2002 and Nine Months Ended December 31, 2003 and 2002. |  | 4 
|           |  |                                                                                                                         
|           |  | Notes to Financial Statements - December 31, 2003.                                                                       |  | 6 
|           |  |                                                                                                                         
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                    |  | 13
|           |  |                                                                                                                         
|Item 3.    |  | Controls and Procedures                                                                                                  |  | 16
|           |  |                                                                                                                         
|Part II.   |  | Other Information                                                                                                        |  | 16
|           |  |                                                                                                                         
|Item 1.    |  | Legal Proceedings                                                                                                        |  | 16
|           |  |                                                                                                                         
|Item 2.    |  | Changes in Securities                                                                                                    |  | 16
|           |  |                                                                                                                         
|Item 3.    |  | Defaults upon Senior Securities                                                                                          |  | 16
|           |  |                                                                                                                         
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                      |  | 16
|           |  |                                                                                                                         
|Item 5.    |  | Other Information                                                                                                        |  | 16
|           |  |                                                                                                                         
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                         |  | 17
|           | 
|Signatures |  | 18                                                                                                                      



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##### Table of Contents

PREFERRED VOICE, INC.



CONDENSED BALANCE SHEETS

DECEMBER 31, 2003 AND MARCH 31, 2003



|                                                                                                               |  |                             |           |                        |   |          
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | ---------------------- | - | ---------
|                                                                                                               |  | December 31,2003(unaudited) |           | March 31,2003(audited)
|Assets                                                                                                         |  |                             |           |                        |   |          
|Current assets:                                                                                                |  |                             |           |                        |   |          
|Cash and cash equivalents                                                                                      |  | $                           | 43,925    |                        | $ | 55,760   
|Accounts receivable, net of allowance for doubtful accounts of $12,525 and $0, respectively                    |  |                             | 142,750   |                        |   | 220,706  
|Employee advances                                                                                              |  |                             | 0         |                        |   | 675      
|Prepaid expense                                                                                                |  |                             | 4,296     |                        |   | 4,730    
|                                                                                                               |  |                             |           |                        |   |          
|Total current assets                                                                                           |  | $                           | 190,971   |                        | $ | 281,871  
|                                                                                                               |  |                             |           |                        |   |          
|Property and equipment:                                                                                        |  |                             |           |                        |   |          
|Computer equipment                                                                                             |  | $                           | 1,607,999 |                        | $ | 1,726,289
|Furniture and fixtures                                                                                         |  |                             | 42,691    |                        |   | 42,691   
|Office equipment                                                                                               |  |                             | 62,997    |                        |   | 62,997   
|                                                                                                               |  |                             |           |                        |   |          
|                                                                                                               |  | $                           | 1,713,687 |                        | $ | 1,831,977
|Less accumulated depreciation                                                                                  |  |                             | 820,736   |                        |   | 690,430  
|                                                                                                               |  |                             |           |                        |   |          
|Net property and equipment                                                                                     |  | $                           | 892,951   |                        | $ | 1,141,547
|                                                                                                               |  |                             |           |                        |   |          
|Other assets:                                                                                                  |  |                             |           |                        |   |          
|Capitalized software development costs, net of accumulated amortization of $856,431 and $751,545, respectively |  | $                           | 137,769   |                        | $ | 225,032  
|Deposits                                                                                                       |  |                             | 15,187    |                        |   | 23,019   
|Trademarks and patents, net of accumulated amortization of $4,609 and $1,819, respectively                     |  |                             | 75,798    |                        |   | 74,539   
|                                                                                                               |  |                             |           |                        |   |          
|Total other assets                                                                                             |  | $                           | 228,754   |                        | $ | 322,590  
|                                                                                                               |  |                             |           |                        |   |          
|Total assets                                                                                                   |  | $                           | 1,312,676 |                        | $ | 1,746,008
|                                                                                                               |  |                             |           |                        |   |          



1

See independent accountants review report.

The accompanying notes are an
integral part of these statements.



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##### Table of Contents

PREFERRED VOICE, INC.



CONDENSED BALANCE SHEETS

DECEMBER 31, 2003 AND MARCH 31, 2003



|                                                                                      |  |                              |             |   |                          |   |             |  
|------------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ------------------------ | - | ----------- | -
|                                                                                      |  | December 31,2003 (unaudited) |             |   | March 31, 2003 (audited) |  
|Liabilities and stockholders equity                                                  |  |                              |             |   |                          |   |             |  
|Current liabilities:                                                                  |  |                              |             |   |                          |   |             |  
|Accounts payable                                                                      |  | $                            | 298,591     |   |                          | $ | 299,369     |  
|Accrued operating expenses                                                            |  |                              | 30,248      |   |                          |   | 69,418      |  
|Accrued vacation                                                                      |  |                              | 6,485       |   |                          |   | 6,690       |  
|Accrued payroll and payroll taxes                                                     |  |                              | 12,655      |   |                          |   | 11,847      |  
|Accrued interest payable                                                              |  |                              | 0           |   |                          |   | 33,319      |  
|Notes payable                                                                         |  |                              | 95,866      |   |                          |   | 100,866     |  
|Accrued lawsuit settlement                                                            |  |                              | 143,750     |   |                          |   | 150,000     |  
|                                                                                      |  |                              |             |   |                          |   |             |  
|Total current liabilities                                                             |  | $                            | 587,595     |   |                          | $ | 671,509     |  
|                                                                                      |  |                              |             |   |                          |   |             |  
|Commitments and contingencies (Note L)                                                |  |                              |             |   |                          |   |             |  
|                                                                                      |  |                             
|Stockholders equity:                                                                 |  |                              |             |   |                          |   |             |  
|Common stock, $.001 par value; 50,000,000 shares authorized; 18,407,493 shares issued |  | $                            | 18,407      |   |                          | $ | 18,407      |  
|Additional paid-in capital                                                            |  |                              | 17,817,465  |   |                          |   | 17,817,465  |  
|Accumulated deficit                                                                   |  |                              | (17,109,285 | ) |                          |   | (16,759,867 | )
|Treasury stock- 22,500 shares at cost                                                 |  |                              | (1,506      | ) |                          |   | (1,506      | )
|                                                                                      |  |                              |             |   |                          |   |             |  
|Total stockholders equity                                                            |  | $                            | 725,081     |   |                          | $ | 1,074,499   |  
|                                                                                      |  |                              |             |   |                          |   |             |  
|Total liabilities and stockholders equity                                            |  | $                            | 1,312,676   |   |                          | $ | 1,746,008   |  
|                                                                                      |  |                              |             |   |                          |   |             |  



2

See independent accountants review report.

The accompanying notes are an
integral part of these statements.



---

##### Table of Contents

PREFERRED VOICE, INC.



CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2003 AND 2002



|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|---------------------------------------- |  | ----------------------------------------------- | ------- | - | ----------------------------------------------- | - | --------- | ---------------------------------------------- |  | - | ------------------------------------------- | - |  | - | ---------- | -
|                                         |  | Three months ended December 31,2003 (unaudited) |         |   | Nine months ended December 31, 2003 (unaudited) |   |           | Three monthsended December 31,2002 (unaudited) |  |   | Nine monthsendedDecember 31,2002(unaudited) |  
|Net sales                                |  | $                                               | 373,724 |   |                                                 | $ | 1,292,230 |                                                |  | $ | 577,724                                     |   |  | $ | 1,606,516  |  
|Cost of sales                            |  |                                                 | 128,186 |   |                                                 |   | 459,048   |                                                |  |   | 228,441                                     |   |  |   | 585,314    |  
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Gross profit                             |  | $                                               | 245,538 |   |                                                 | $ | 833,182   |                                                |  | $ | 349,283                                     |   |  | $ | 1,021,202  |  
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|General and administrative expenses      |  | $                                               | 336,951 |   |                                                 | $ | 1,292,599 |                                                |  | $ | 617,697                                     |   |  | $ | 2,228,477  |  
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Loss from operations                     |  | $                                               | (91,413 | ) |                                                 | $ | (459,417  | )                                              |  | $ | (268,414                                    | ) |  | $ | (1,207,275 | )
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Other income (expense):                  |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Interest income                          |  | $                                               | 0       |   |                                                 | $ | 247       |                                                |  | $ | 560                                         |   |  | $ | 5,116      |  
|Interest expense                         |  |                                                 | (5,406  | ) |                                                 |   | (10,984   | )                                              |  |   | (1,266                                      | ) |  |   | (3,766     | )
|Other expense                            |  |                                                 | (1      | ) |                                                 |   | (2,544    | )                                              |  |   | 0                                           |   |  |   | (2,015     | )
|Negotiated settlement                    |  |                                                 | 0       |   |                                                 |   | 8,413     |                                                |  |   | 342,579                                     |   |  |   | 342,579    |  
|Lawsuit settlement                       |  |                                                 | 0       |   |                                                 |   | 0         |                                                |  |   | (150,000                                    | ) |  |   | (150,000   | )
|Forgiveness of debt                      |  |                                                 | 0       |   |                                                 |   | 30,819    |                                                |  |   | 0                                           |   |  |   | 0          |  
|Gain on sale of assets                   |  |                                                 | 12,409  |   |                                                 |   | 84,048    |                                                |  |   | 0                                           |   |  |   | 0          |  
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Total other income (expense)             |  | $                                               | 7,002   |   |                                                 | $ | 109,999   |                                                |  | $ | 191,873                                     |   |  | $ | 191,914    |  
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Loss from operations before income taxes |  | $                                               | (84,411 | ) |                                                 | $ | (349,418  | )                                              |  | $ | (76,541                                     | ) |  | $ | (1,015,361 | )
|Provision for income taxes               |  |                                                 | 0       |   |                                                 |   | 0         |                                                |  |   | 0                                           |   |  |   | 0          |  
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Net loss                                 |  | $                                               | (84,411 | ) |                                                 | $ | (349,418  | )                                              |  | $ | (76,541                                     | ) |  | $ | (1,015,361 | )
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Per share amounts:                       |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Loss from operations                     |  | $                                               | (0.01   | ) |                                                 | $ | (0.02     | )                                              |  | $ | (0.01                                       | ) |  | $ | (0.05      | )
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  
|Net loss                                 |  | $                                               | (0.01   | ) |                                                 | $ | (0.02     | )                                              |  | $ | (0.01                                       | ) |  | $ | (0.05      | )
|                                         |  |                                                 |         |   |                                                 |   |           |                                                |  |   |                                             |   |  |   |            |  



3

See independent accountants review report.

The accompanying notes are an
integral part of these statements.



---

##### Table of Contents

PREFERRED VOICE, INC.



CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2003 AND 2002



|                                                 |  |                 |            |   |                 |   |            |  
|------------------------------------------------ |  | --------------- | ---------- | - | --------------- | - | ---------- | -
|                                                 |  | 2003(unaudited) |            |   | 2002(unaudited) |  
|Cash flows from operating activities:            |  |                 |            |   |                 |   |            |  
|Cash received from customers                     |  | $               | 1,378,599  |   |                 | $ | 1,562,706  |  
|Cash paid to suppliers and employees             |  |                 | (1,425,974 | ) |                 |   | (2,606,573 | )
|Interest received                                |  |                 | 247        |   |                 |   | 5,116      |  
|Interest paid                                    |  |                 | (44,303    | ) |                 |   | (5,016     | )
|                                                 |  |                 |            |   |                 |   |            |  
|Net cash used by operating activities            |  | $               | (91,431    | ) |                 | $ | (1,043,767 | )
|                                                 |  |                 |            |   |                 |   |            |  
|Cash flows from investing activities:            |  |                 |            |   |                 |   |            |  
|Capital expenditures                             |  | $               | (41,903    | ) |                 | $ | (100,690   | )
|Proceeds from sale of assets                     |  |                 | 125,824    |   |                 |   | 0          |  
|Increase in notes receivable                     |  |                 | 0          |   |                 |   | (4,500     | )
|Repayment of employee advances                   |  |                 | 675        |   |                 |   | 1,077      |  
|                                                 |  |                 |            |   |                 |   |            |  
|Net cash provided (used) by investing activities |  | $               | 84,596     |   |                 | $ | (104,113   | )
|                                                 |  |                 |            |   |                 |   |            |  
|Cash flows from financing activities:            |  |                 |            |   |                 |   |            |  
|Repayment of note payable                        |  | $               | (5,000     | ) |                 | $ | 0          |  
|                                                 |  |                 |            |   |                 |   |            |  
|Net cash used by financing activities            |  | $               | (5,000     | ) |                 | $ | 0          |  
|                                                 |  |                 |            |   |                 |   |            |  
|Net decrease in cash and cash equivalents        |  | $               | (11,835    | ) |                 | $ | (1,147,880 | )
|                                                 |  |                
|Cash and cash equivalents:                       |  |                 |            |   |                 |   |            |  
|Beginning of period                              |  |                 | 55,760     |   |                 |   | 1,302,754  |  
|                                                 |  |                 |            |   |                 |   |            |  
|End of period                                    |  | $               | 43,925     |   |                 | $ | 154,874    |  
|                                                 |  |                 |            |   |                 |   |            |  



4

See independent accountants review report.

The accompanying notes are an
integral part of these statements.



---

##### Table of Contents

|                                                                            |  |                 |          |   |                 |   |            |  
|--------------------------------------------------------------------------- |  | --------------- | -------- | - | --------------- | - | ---------- | -
|                                                                            |  | 2003(unaudited) |          |   | 2002(unaudited) |  
|Reconciliation of net loss to net cash used by operating activities:        |  |                 |          |   |                 |   |            |  
|                                                                            |  |                
|Net loss                                                                    |  | $               | (349,418 | ) |                 | $ | (1,015,360 | )
|                                                                            |  |                 |          |   |                 |   |            |  
|Adjustments to reconcile net loss to net cash used by operating activities: |  |                 |          |   |                 |   |            |  
|                                                                            |  |                
|Depreciation and amortization                                               |  | $               | 335,332  |   |                 | $ | 329,330    |  
|Gain on sale of assets                                                      |  |                 | (87,196  | ) |                 |   | 0          |  
|Impairment of intangibles                                                   |  |                 | 2,543    |   |                 |   | 0          |  
|                                                                            |  |                
|Changes in operating assets and liabilities:                                |  |                 |          |   |                 |   |            |  
|(Increase) decrease in accounts receivable                                  |  |                 | 77,956   |   |                 |   | (41,771    | )
|Decrease in prepaid expenses                                                |  |                 | 434      |   |                 |   | 1,171      |  
|Decrease in deposits                                                        |  |                 | 7,832    |   |                 |   | 0          |  
|Increase in patents and trademarks                                          |  |                 | (778     | ) |                 |   | (22,673    | )
|Decrease in accounts payable                                                |  |                 | (39,170  | ) |                 |   | (45,828    | )
|Increase (decrease) in accrued expenses                                     |  |                 | (38,966  | ) |                 |   | 95,982     |  
|Decrease in customer deposits                                               |  |                 | 0        |   |                 |   | (344,618   | )
|                                                                            |  |                 |          |   |                 |   |            |  
|Total adjustments                                                           |  | $               | 257,987  |   |                 | $ | (28,407    | )
|                                                                            |  |                 |          |   |                 |   |            |  
|Net cash used by operating activities                                       |  | $               | (91,431  | ) |                 | $ | (1,043,767 | )
|                                                                            |  |                 |          |   |                 |   |            |  



5

See independent accountants review report.

The accompanying notes are an
integral part of these statements.



---

##### Table of Contents

PREFERRED VOICE, INC

NOTES TO FINANCIAL STATEMENTS



Note A - General organization:



Preferred Voice, Inc. (the Company) is a Delaware corporation incorporated in 1992. On February 25, 1997, the Companys stockholders
approved changing the name of the Company to better reflect the nature of the Companys business. The Company commenced business on May 13, 1994, and was in the development stage until August 1, 1995. The Company provides voice recognition
services to the telecommunications industry throughout the United States and maintains its principal offices in Dallas, Texas.



Note B - Summary of significant accounting policies:



Basis of presentation



The accounting policies followed by Preferred Voice, Inc. are set forth in the Companys financial statements that are a part of its
March 31, 2003, Form 10KSB and should be read in conjunction with the financial statements for the three and nine months ended December 31, 2003, contained herein.



The financial information included herein as of December 31, 2003, and for the three and nine-month periods
ended December 31, 2003 and 2002, has been presented without an audit, pursuant to accounting principles for the interim financial information generally accepted in the United States of America and the rules of the Securities and Exchange
Commission. The Company believes that the disclosures are adequate to make the information presented not misleading. The information presented reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair statement of results for the period.



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.



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 which reflects its opinion of amounts which 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.



Receivables and credit policies



Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the
invoice date. Unpaid accounts receivable with invoice dates over 30 days old bear no interest.



Accounts receivable are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days are
considered delinquent.



Payments of accounts
receivable are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the earliest unpaid invoice.



The carrying amount of accounts receivable is reduced by a valuation allowance that reflects
managements best estimate of amounts that will not be collected. Management individually reviews all accounts receivable balances that exceed 90 days from invoice date and, based on an assessment of current creditworthiness, estimates that
portion, if any, of the balance that will not be collected. Accounts receivable past 90 days due are $20,725 and $13,244 as of December 31, 2003 and March 31, 2003, respectively.



6



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##### Table of Contents

PREFERRED VOICE, INC

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 voice recognition 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.



Depreciation



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 years
|Furniture and fixtures |  | 5 years
|Office equipment       |  | 5 years



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.



Revenue recognition



For recognizing revenue, the Company applies the provisions
of SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. 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.



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 were exercised or converted into common stock. Since the Company incurred a loss from operations for the periods ended December 31, 2003 and 2002, no computation of diluted EPS has
been performed.



Loss per share is based on
the weighted average number of shares outstanding of 18,407,493 for each of the three and nine months ended December 31, 2003 and 2002.



7



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##### Table of Contents

PREFERRED VOICE, INC

NOTES TO FINANCIAL STATEMENTS



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



Income taxes



Income
taxes are accounted for using the liability method under the provisions of SFAS 109, Accounting for Income Taxes.



Trademarks and patents



Certain costs incurred for the registration of trademarks and patents are capitalized and amortized. The amortization is calculated using
the straight-line method, beginning when it is approved and continuing over its estimated useful or legal life, generally between 5 and 15 years.



Impairment of long-lived assets and long-lived assets to be disposed of



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, Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to Be Disposed Of, 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.



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.



Reclassification



Certain amounts were reclassified in the prior years. The
purpose of the reclassification is to give a more accurate representation of the Companys operations. The reclassification did not affect the representation of the Companys overall performance or net income or losses.



Reporting comprehensive income and operating segments



The Company has adopted the provisions of
SFAS No. 130, Reporting Comprehensive Incomeand SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 130 requires that an enterprise report, by major components and as a single total, the change
in its net assets during the period from non-owner sources. SFAS No. 131 establishes annual and interim reporting standards for an enterprises operating segments and related disclosures about its products, services, geographic areas and major
customers. Adoption of these statements has had no impact on the Companys financial position, results of operations, cash flow or related disclosures.



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.



8



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##### Table of Contents

PREFERRED VOICE, INC

NOTES TO FINANCIAL STATEMENTS



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



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.



Gain from extinguishment of debt



The Company has adopted the provisions of 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. 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.



Note C
- Notes payable:



Notes payable consist of the following:



|                                                                                                                                                                                                                              |  |                  |        |               |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------ | ------------- | - | -------
|                                                                                                                                                                                                                              |  | December 31,2003 |        | March 31,2003
|Note payable, Brite Voice Systems, Inc., dated January 31, 1997. Note is unsecured.                                                                                                                                           |  | $                | 50,866 |               | $ | 50,866 
|                                                                                                                                                                                                                              |  |                 
|Note payable, 10% interest rate. Principal and accrued interest payable on September 30, 2003. Convertible into shares of the Companys
common stock at a conversion rate of $2.00 of indebtedness per share of common stock. |  |                  | 45,000 |               |   | 50,000 
|                                                                                                                                                                                                                              |  |                  |        |               |   |        
|                                                                                                                                                                                                                              |  | $                | 95,866 |               | $ | 100,866
|                                                                                                                                                                                                                              |  |                  |        |               |   |        



The
note to Brite Voice Systems, Inc. (Brite) is currently in dispute, and effective April 1997 the Company discontinued the accrual of interest expense. Subsequent to December 31, 2003, the Company wrote off the Brite note and recognized other income
of $50,866.



Interest expense charged to
operations related to notes payable was $1,250 for each of the three months ended December 31, 2003 and 2002, respectively.



Note D - Common stock:



Common stock authorized



On September 29, 2000, the Companys Board of Directors adopted a resolution to increase the number of authorized shares of common
stock from 20,000,000 to 50,000,000. The increase in authorized shares was approved by the Companys stockholders on September 21, 2001.



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##### Table of Contents

PREFERRED VOICE, INC

NOTES TO FINANCIAL STATEMENTS



Note D -
Common stock (continued):



Stock purchase
warrants



At December 31, 2003, the
Company had outstanding warrants to purchase 3,453,500 shares of the Companys common stock at prices which ranged from $0.50 per share to $3.53 per share. The warrants are exercisable at any time and expire through November 20, 2006. At
December 31, 2003, 3,453,500 shares of common stock were reserved for that purpose.



Common stock reserved



At December 31, 2003, shares of common stock were reserved for the following purposes:



|                                                                                                          |  |          
|--------------------------------------------------------------------------------------------------------- |  | ---------
|Exercise of stock warrants                                                                                |  | 3,453,500
|Exercise of future grants of stock options and stock appreciation rights under the 1994 stock option plan |  | 337,132  
|Exercise of future grants of stock options and stock appreciation rights under the 2000 stock option plan |  | 2,000,000
|                                                                                                          |  |          
|                                                                                                          |  | 5,790,632
|                                                                                                          |  |          



Note E - 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:



|                        |  |               |  |              
|----------------------- |  | ------------- |  | -------------
|                        |  | 2003          |  | 2002         
|Expected dividend yield |  | 0.00%         |  | 0.00%        
|Risk-free interest rate |  | 2.28% - 4.13% |  | 2.28% - 4.13%
|Expected life           |  | 2.5 years     |  | 2.5 years    
|Expected volatility     |  | 165% - 191%   |  | 133% - 191%  



The Company applies
APB Opinion No. 25 in accounting for its plan 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:



|                                                                                                                                    |  |                               |          |   |                               |   |            |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | -------- | - | ----------------------------- | - | ---------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                    |  | Nine months ended December 31 |          |   | Three months endedDecember 31 |  
|                                                                                                                                    |  | 2003                          |          |   | 2002                          |   |            | 2003 |  |   | 2002    |  
|Net loss, as reported                                                                                                               |  | $                             | (349,418 | ) |                               | $ | (1,015,361 | )    |  | $ | (84,411 | ) |  | $ | (76,541 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effects |  |                               | (77,897  | ) |                               |   | (156,946   | )    |  |   | (6,796  | ) |  |   | (6.796  | )
|                                                                                                                                    |  |                               |          |   |                               |   |            |      |  |   |         |   |  |   |         |  
|Proforma net loss                                                                                                                   |  | $                             | (427,315 | ) |                               | $ | (1,172,307 | )    |  | $ | (91,207 | ) |  | $ | (83,337 | )
|                                                                                                                                    |  |                               |          |   |                               |   |            |      |  |   |         |   |  |   |         |  
|Loss per common share:                                                                                                              |  |                               |          |   |                               |   |            |      |  |   |         |   |  |   |         |  
|As reported                                                                                                                         |  | $                             | (0.02    | ) |                               | $ | (0.05      | )    |  | $ | (0.01   | ) |  | $ | (0.01   | )
|                                                                                                                                    |  |                               |          |   |                               |   |            |      |  |   |         |   |  |   |         |  
|Proforma                                                                                                                            |  | $                             | (0.02    | ) |                               | $ | (0.06      | )    |  | $ | (0.01   | ) |  | $ | (0.01   | )
|                                                                                                                                    |  |                               |          |   |                               |   |            |      |  |   |         |   |  |   |         |  



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PREFERRED VOICE, INC

NOTES TO FINANCIAL STATEMENTS



Note F -
Commitments:



The Company leases its office facilities and
various office equipment under operating leases expiring through December 2005. Following is a schedule of future minimum lease payments required under the above operating leases as of March 31, 2003:



|                      |  |        |        
|--------------------- |  | ------ | -------
|Year ending March 31, |  | Amount
|2004                  |  | $      | 229,287
|2005                  |  |        | 194,532
|2006                  |  |        | 147,118
|                      |  |        |        
|                      |  | $      | 570,937
|                      |  |        |        



Total rent expense
charged to operations was $33,901, $124,147, $51,975 and $155,967 for the three and nine months ended December 31, 2003 and 2002, respectively.



Note G - Operation and managements intent:



Operating losses



The Company has incurred substantial operating losses to date. These losses have significantly depleted the Companys cash balances.
The Company does not have enough cash to continue to fund large operating losses. The ability of the Company to continue as a going concern is dependent on its ability to eliminate these operating losses.



Overview



The Company 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, the Company decided to sell their long distance customer base and assets in early 1997. Since
June 1997, they have focused solely on the development, testing, and deployment of voice activated telecommunications services that would allow any consumers the ability to dial calls using their voice.



In December 1998, the Company realized that it would need
extensive amounts of working capital to sell and market its services directly to individual consumers. Therefore, the Company began researching venues which already had inherent customer or subscriber bases. The first distribution channel that the
Company explored was the use of master distributors, and currently has deployed service in Miami, Florida and Chicago, Illinois. The second distribution channel is directly with (1) Incumbent Local Exchange Carriers or local telephone companies, (2)
Wireless Communication Carriers or cell phone companies and (3) Competitive Local Exchange Carriers or competitive local telephone companies. This avenue of distribution is extremely attractive because these companies already have the subscriber
bases and the infrastructure to service large numbers of subscribers. The third distribution channel is through the network services division which provides third party service application providers access to wireline and wireless carriers through
voice over internet protocol (VOIP) network hosted by a web-hosting provider.



The Company first attempted to sell its hardware and license application software but after only one such agreement decided to pursue revenue sharing whereby the Company provides all hardware, software applications
and support in exchange for a portion of revenue generated from the service provided by the customer to their subscribers. The entire sales force focuses on marketing revenue sharing agreements and, to date, has signed fifty-one (51) local telephone
company and cell phone company multi-year contracts. Nineteen contracts have been fully implemented so that the systems installed pursuant to such contracts are generating revenues. As of December 31, 2003, these nineteen contracts were generating
revenues of approximately $125,000 per month. The revenue sharing agreement, and not the sale of hardware, is the primary method in which the Company intends to contract with customers to generate revenue going forward. With a new technology it is
difficult to project continued satisfaction with the product; therefore, revenues will fluctuate with subscriber additions and deletions.



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##### Table of Contents

PREFERRED VOICE, INC

NOTES TO FINANCIAL STATEMENTS



Note G -
Operation and managements intent (continued):



The Company is still at an early stage of implementing their business plan. It is subject to risks inherent in the establishment and deployment of technology with which consumers have limited experience. The Company
believes their services are services that any consumer who uses a phone can utilize. For example, any cell phone user who wants to speak a name or use the dial number feature without punching buttons on his cell phone would be a user, or a company
who wants their employees accessed by the caller saying an employee name instead of asking the caller to punch in an extension or spell a name on the key pad. These services are generic to cell phone users as well as landline users, children as well
as the elderly. As voice recognition becomes more prevalent in everyday life, such as in computer programs, reservation systems and telecommunications information systems, the Company believes the public will be more apt to accept and utilize
voice-related features. In order to succeed, the Company must:



| |  | secure adequate financial and human resources to meet requirements, including adequate numbers of technical support staff to provide service for their phone company customers;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | establish and maintain relationships with phone companies;
| | - | ----------------------------------------------------------



| |  | make sure the VIP system works with the telephone switches of all of the major manufacturers;
| | - | ---------------------------------------------------------------------------------------------



| |  | establish a lead time for delivery of hardware;
| | - | -----------------------------------------------



| |  | achieve user acceptance for services;
| | - | -------------------------------------



| |  | generate reasonable margins on services;
| | - | ----------------------------------------



| |  | deploy and install VIP systems on a timely and acceptable schedule;
| | - | -------------------------------------------------------------------



| |  | respond to competitive developments;
| | - | ------------------------------------



| |  | mitigate risk associated with technology by obtaining patents and copyrights and other protections of the Companys intellectual property; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  | continually update software to meet the needs of consumers.
| | - | -----------------------------------------------------------



Failure to achieve these objectives could adversely affect business, operating results and financial condition.



Future Obligations



Management believes that current cash and cash equivalents
and cash that may be generated from operations will be sufficient to meet anticipated capital requirements and to finance current operations. Such projections are based on continued growth from current customers and customers which are already under
contract utilizing the revenue rates that the Company has 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 may 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.



12



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial

Condition and Results of Operations



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 herein under Managements Discussion and Analysis of Financial Condition and
Results of Operations and those set forth in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-KSB for the fiscal year ended March 31, 2003. Notwithstanding the
foregoing, the Company is 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 the Companys 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.



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 solely on the development, testing, and deployment
of enhanced services for the telecommunications industry with concentration in voice recognition applications that would allow consumers the ability to utilize their voice to dial calls.



We currently use two distribution channels to provide our services to
end-users, master distributors and telecommunications carriers. Currently there are two master distributors marketing services in Miami, Florida, and Chicago, Illinois. The master distributors provide customers with the Companys Emma service,
an automated receptionist service and SmartLine, a personal call manager. The second distribution channel is directly with Incumbent Local Exchange Carriers, or local telephone companies, Wireless Communication Carriers, or cell phone companies, and
Competitive Local Exchange Carriers, or competitive local telephone companies. This avenue of distribution is extremely attractive because these companies already have the subscriber bases and the infrastructure to service large numbers of
subscribers. The carriers provide the Companys voice dial product Safety Talk, and one carrier is now providing Push2Connect. The Company believes there is a market in being the conduit and transport facility for various application providers
to our customer carriers. Therefore, we are aggressively pursuing a third distribution channel that is through our network services division which provides third party service application providers access to wireline and wireless carriers through
our voice over internet protocol (VOIP) network hosted by a web hosting provider.



We first attempted to sell our hardware and license our application software but after only one such agreement we decided to pursue revenue sharing whereby we provide all hardware, software applications and support in
exchange for a portion of revenue generated from the service provided by our customer to their subscribers. As of December 31, 2003, we had nineteen carrier contracts that were generating revenues of approximately $125,000 per month. The revenue
sharing agreement, and not the sale of our hardware, is the primary method in which we intend to contract with customers to generate revenue going forward. With a new technology it is difficult to project continued satisfaction with the product;
therefore, revenues will fluctuate with subscriber additions and deletions. One contracted phone company is in the system acceptance and early marketing stages, and we should generate revenues from this contract in the fourth quarter of the fiscal
year ending March 31, 2004.



Our business plan is subject to
risks inherent in the establishment and deployment of technology with which consumers have limited experience. We believe our services are services that any consumer who uses a phone can utilize. For example, any cell phone user who wants to speak a
name or use our dial number feature without punching buttons on his cell phone would be a user, or a company who wants their employees accessed by the caller saying an employee name instead of asking the caller to punch in an extension or spell a
name on the key pad. Our services are generic to cell phone users as well as land line users, children as well as the elderly. As voice recognition becomes more prevalent in everyday life, such as in computer programs, reservation systems and
telecommunications information systems, we believe the public will be more apt to accept and utilize voice-related features. 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | establish and maintain relationships with phone companies;
| | - | ----------------------------------------------------------



| |  | make sure the VIP system works with the telephone switches of all of the major manufacturers;
| | - | ---------------------------------------------------------------------------------------------



| |  | achieve user acceptance for our services;
| | - | -----------------------------------------



| |  | deploy and install VIP systems on a timely and acceptable schedule;
| | - | -------------------------------------------------------------------



| |  | respond to competitive developments;
| | - | ------------------------------------



| |  | mitigate risk associated with our technology by obtaining patents and copyrights and other protections of our intellectual property; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | continually update our software to meet the needs of consumers.
| | - | ---------------------------------------------------------------



Failure to achieve these objectives could adversely affect our business, operating results and financial condition.



Results of Operations



We recorded a net loss of $349,418 or $0.02 per share, for the nine-month period ended December 31, 2003, compared to a net
loss of $1,015,361 or $0.5 per share, for the nine-month period ended December 31, 2002. For the three-month period ended December 31, 2003, we recorded a net loss of $84,411, or $.01 per share compared to a net loss of $76,541 or $.01 per share for
the three-month period ended December 31, 2002.



Total Sales



Total revenue for the nine-month
period ended December 31, 2003, was $1,292,230 compared to $1,606,516 for the nine-month period ended December 31, 2002. Total revenue for the three-month period ended December 31, 2003, was $373,724 compared to $577,724 for the three-month period
ended December 31, 2002. Revenues in both the nine-month and three-month periods for both years consisted of revenue sharing receipts from our customer phone companies and billing our direct end-users for individual services. The decrease of
revenues reflects loss of subscribers in the companys all bill program.



We anticipate that revenues from the sale of our services will continue to grow very gradually throughout fiscal year 2004 as we continue to rollout our full suite of enhanced services which include our two newer
products Push 2 Connect and ReMind Me.



Cost of Sales



Cost of sales for the nine-month period ended December
31, 2003 was $459,048 compared to $585,314 for the nine-month period ended December 31, 2002. Cost of sales for the three-month period ended December 31, 2003 was $128,186 compared to $228,441 for the three-month period ended December 31, 2002. Cost
of sales consisted entirely of costs for network infrastructure such as collocations, connectivity, system access and long distance to end-users during both periods. The decrease in costs of sales reflects favorable renegotiated terms with the
Companys network provider.



Selling, General and
Administrative



Selling, general and administrative
expenses for the nine-month period ended December 31, 2003 were $1,292,599 compared to $2,228,477 for the nine-month period ended December 31, 2002. Selling, general and administrative expenses for the three-month period ended December 31, 2003 were
$336,951 compared to $617,697 for the three-month period ended December 31, 2002. The decrease from 2002 to 2003, are due to decreases in staffing and general overhead. We expect that selling, general and administrative expenses will remain steady
through fiscal year 2004, such expenses to include costs related to the number of employees, office space requirements and general overhead.



14



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##### Table of Contents

Core Technology Enhancements Software Applications and Hardware



The capitalization of software development costs begins when a
products technological feasibility has been established and ends when the product is available for general release to customers. Capitalized software development costs include direct costs incurred subsequent to establishment of technological
feasibility for significant product enhancements. During the periods ended December 31, 2003 and 2002, software development costs capitalized were $11,623 and $68,941 respectively. The amortization of capitalized software development costs for the
periods ended December 31, 2003 and 2002 was $107,676 and $122,331 respectively.



Other Income and Expense



During the period ended December 31, 2003, the Company made a sale of equipment to two customers that generated one-time net revenues of $84,048. The company was also able to negotiate settlement of $39,232 of outstanding accounts payable.



Income Taxes



As of December 31, 2003, we had cumulative federal net operating losses of
approximately $17 million, which can be used to offset future income subject to federal income tax through the fiscal year 2022. Net operating loss limitations may be imposed if changes in our stock ownership create a change of control as provided
in Section 382 of the Internal Revenue Code of 1986.



Liquidity and Capital
Resources



Our cash and cash equivalents at December 31,
2003 were approximately $44,000, a decrease of $11,835 from $55,760 at March 31, 2003. We have relied primarily on the issuance of stock and warrants to fund our operations since January of 1997 when we sold our long-distance resale operation.



We began collecting revenues from our revenue sharing
agreements in January of 2001. These revenues are approximately $125,000 per month and we expect these to continue to rise slowly as we continue to deploy new customers and new services to our current customers.



We have also issued stock or convertible securities to fulfill certain
obligations or motivate various people. We have issued warrants to purchase shares of our common stock in connection with services provided by various individuals and entities in their capacity as members of our Board of Directors, Council of
Advisors, various forms of consulting services, capital raising (such as a private offering), and marketing distributors. These warrants are always priced at the fair market value of our common stock on the date of issuance. We have utilized our
common stock as actual compensation in only one instance where 5,000 shares were issued as compensation for consulting services. These services were valued at total fair market value for the 5,000 shares on the date of completion of services.



Future Obligations



We project our working capital needs to be $720,000 over the next six months
for corporate overhead and equipment purchases to continue to deploy our systems in carrier locations. Management believes that current cash and cash equivalents and cash that may be generated from operations will be sufficient to meet these
anticipated capital requirements and to complete scheduled customer deployments. 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 had matured debt of $200,000 due October 1, 2003 that was not substantiated. A payment schedule has been agreed upon to
substantiate this debt but management is still renegotiating specific terms that will allow the company to continue its current level of operations. If terms cannot be agreed to we may be forced to raise additional capital through the issuance of
new shares, the exercise of outstanding warrants, sale of equipment, promissory notes, or reduce our current overhead. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. We do not make any assurance
that we will be able to raise any additional capital or to raise capital on terms satisfactory to us. If further funding is required, and none is received, we would be



15



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##### Table of Contents

forced to rely on our existing cash in the bank or secure short-term loans. If such funding were not available, we would be forced to eliminate current
overhead that will greatly impact our ability to continue to deploy services to our customers.



Item 3. Controls and Procedures



| | 1. | Evaluation of disclosure controls and procedures. Our principal executive officer and our principal financial officer, after evaluating the effectiveness of our disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d- 14(c) as of a date (the Evaluation Date) within 90 days before the filing date of this quarterly report, have concluded that as of the
Evaluation Date our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Changes in internal controls. There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART II. OTHER INFORMATION



Item 1.     Legal Proceedings.



We are not a party to any material legal proceedings.



Item 2.     Changes in Securities.



|(a) | There have been no material changes in securities during the period
|--- | -------------------------------------------------------------------



|(b) | There have been no material changes in the class of securities or the rights of the holders of the registered securities.
|--- | -------------------------------------------------------------------------------------------------------------------------



|(c) | Recent Sales of Unregistered Securities
|--- | ---------------------------------------



None



Item 3.     Defaults upon Senior Securities.



None.



Item 4.     Submission of Matters to a Vote of Security Holders.



None



Item 5.     Other Information.



None



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##### Table of Contents

Item 6.     Exhibits and Reports on Form 8-K



|(a) | Exhibits
|--- | --------



|               |  |                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Description                                                                                                   
|31.1           |  | Certification Pursuant to Section 302 of the Sarbanes*Oxley Act of 2002                                               
|               | 
|32.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|(b) | Reports on Form 8-K
|--- | -------------------



None



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                  |  |                                                   
|----------------- |  | --------------------------------------------------
|                  |  | PREFERRED VOICE, INC.                             
|                  | 
|February 13, 2004 |  | /s/ Mary G. Merritt                               
|Date              |  | Mary G. Merritt                                   
|                  |  | Secretary, Treasurer and Vice President of Finance
|                  |  | (Principal Executive Officer)                     



18