United
      States


Securities
      and Exchange Commission


Washington,
      D. C. 20549





**Form
      10-QSB**





**{
      X }** Quarterly
      Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
      for the


Period
      Ended June 30, 2005.


or


{
      }
      Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
      Act of 1934 for the TransitionPeriod From _____________to
      _____________





Commission
      File Number 33-92894





**PREFERRED
      VOICE, INC.**




Delaware
              
              75-2440201(State
                  or other jurisdiction ofincorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)6500
                  Greenville AvenueSuite
                  570Dallas,
                  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 
      o





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 - 29,815,826 shares as of August 10, 2005.





Transitional
      Small Business Format  Yes  o      
      No 
      x











INDEX




**Preferred
      Voice, Inc.**




Part
                I.
            Financial
                Information
            1Item
                1.
            Financial
                Statements
            1Balance
                Sheets-June 30, 2005 and March 31, 2005.Statements
                of Operations-Three Months Ended June 30, 2005 and 2004.Statements
                of Cash Flows-Three Months Ended June 30, 2005 and 2004.Notes
                to Financial Statements - June 30, 2005.Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12Item
                3.
            Controls
                and Procedures
            15Part
                II.
            Other
                Information
            15Item
                1.
            Legal
                Proceedings
            15Item
                2.
            Unregistered
                Sales of Securities and Use of Proceeds
            15Item
                3.
            Defaults
                upon Senior Securities
            15Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            16Item
                5.
            Other
                Information
            16Item
                6.
            Exhibits
                and Reports on Form 8-K
            16Signatures
            17




PREFERRED
        VOICE, INC.CONDENSED BALANCE SHEETSJUNE 30, 2005 AND MARCH 31,
        2005
  **June
                    30,**
                
                **March
                    31,****2005**
                
                **2005****(unaudited)**
                
                **(audited)****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                675,160
                
                $
                1,135,164Accounts
                    receivable, net of allowance for doubtfulaccounts
                    of $5,325 and $5,325, respectively
                
                
                106,325
                
                
                100,920Prepaid
                    expense
                
                
                1,379
                
                
                2,759Total
                    current assets
                
                $
                782,864
                
                $
                1,238,843Property
                    and equipment:Computer
                    equipment
                
                $
                1,647,993
                
                $
                1,629,844Furniture
                    and fixtures
                
                
                32,046
                
                
                32,046Office
                    equipment
                
                
                61,044
                
                
                61,044$
                1,741,083
                
                $
                1,722,934Less
                    accumulated depreciation
                
                
                1,186,966
                
                
                1,143,905Net
                    property and equipment
                
                $
                554,117
                
                $
                579,029Other
                    assets:Capitalized
                    software development costs, net of accumulatedamortization
                    of $967,923 and $955,436, respectively
                
                $
                204,729
                
                $
                224,881Deposits
                
                
                4,485
                
                
                4,485Trademarks
                    and patents, net of accumulatedamortization
                    of $11,457 and $9,709, respectively
                
                
                109,949
                
                
                104,307Total
                    other assets
                
                $
                319,163
                
                $
                333,673Total
                    assets
                
                $
                1,656,144
                
                $
                2,151,545


*See
        independent accountants’ review report.*
 *The
        accompanying notes are an integral part of these financial statements.*


1


**June
                    30,**
                
                **March
                    31,****2005**
                
                **2005****(unaudited)**
                
                **(audited)****Liabilities
                    and stockholders' equity**Current
                    liabilities:Accounts
                    payable
                
                $
                77,498
                
                $
                203,209Accrued
                    operating expenses
                
                
                100
                
                
                60Accrued
                    vacation
                
                
                7,253
                
                
                5,667Accrued
                    payroll and payroll taxes
                
                
                14,148
                
                
                39,830Accrued
                    interest
                
                
                14,625
                
                
                -Current
                    portion- notes payable
                
                
                13,517
                
                
                13,315Total
                    current liabilities
                
                $
                127,141
                
                $
                262,081Long-term
                    liabilities:Notes
                    payable
                
                $
                10,690
                
                $
                14,144Debentures
                    payable - net of discounts
                
                
                583,202
                
                
                547,583Total
                    long-term liabilities
                
                $
                593,892
                
                $
                561,727Commitments
                    and contingencies (Note G)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
                
                
                19,384,586
                
                
                19,384,794Accumulated
                    deficit
                
                
                (18,477,785
                )
                
                (18,085,158
                )Treasury
                    stock- 22,500 shares at cost
                
                
                (1,506
                )
                
                (1,506
                )Total
                    stockholders' equity
                
                $
                935,111
                
                $
                1,327,737Total
                    liabilities and stockholders' equity
                
                $
                1,656,144
                
                $
                2,151,545





*See
      independent accountants’ review report.*


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




2




PREFERRED
      VOICE, INC.CONDENSED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS
      ENDED JUNE 30, 2005 AND 2004




**Three
                  months**
              
              **Three
                  months****ended**
              
              **ended****June
                  30,**
              
              **June
                  30,****2005**
              
              **2004****(unaudited)**
              
              **(unaudited)**Net
                  sales
              
              $
              142,123
              
              $
              310,959Cost
                  of sales
              
              
              123,857
              
              
              116,929Gross
                  profit
              
              $
              18,266
              
              $
              194,030General
                  and administrative expenses
              
              
              379,008
              
              
              308,454Loss
                  from operations
              
              $
              (360,742
              )
              $
              (114,424
              )Other
                  income (expense):Interest
                  expense
              
              $
              (50,642
              )
              $
              (3,587
              )Negotiated
                  settlement
              
              
              -
              
              
              29,465Gain
                  on sale of assets
              
              
              18,758
              
              
              -Total
                  other income (expense)
              
              $
              (31,884
              )
              $
              25,878Loss
                  from operations before income taxes
              
              $
              (392,626
              )
              $
              (88,546
              )Provision
                  for income taxes
              
              
              -
              
              
              -Net
                  loss
              
              $
              (392,626
              )
              $
              (88,546
              )Per
                  share amounts:Loss
                  from operations
              
              $
              (0.01
              )
              $
              (0.01
              )Net
                  loss
              
              $
              (0.01
              )
              $
              (0.01
              )


*See
        independent accountants’ review report.*
 *The
        accompanying notes are an integral part of these financial statements.*


3


PREFERRED
      VOICE, INC.CONDENSED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS
      ENDED JUNE 30, 2005 AND 2004


**2005**
              
              **2004****(unaudited)**
              
              **(unaudited)**Cash
                  flows from operating activities:Cash
                  received from customers
              
              $
              136,718
              
              $
              332,599Cash
                  paid to suppliers and employees
              
              
              (518,613
              )
              
              (452,035
              )Interest
                  paid
              
              
              (36,017
              )
              
              (3,587
              )Net
                  cash used by operating activities
              
              $
              (417,912
              )
              $
              (123,023
              )Cash
                  flows from investing activities:Capital
                  expenditures
              
              $
              (62,841
              )
              $
              (90,669
              )Proceeds
                  from sale of assets
              
              
              24,000
              
              
              -Net
                  cash provided (used) by investing activities
              
              $
              (38,841
              )
              $
              (90,669
              )Cash
                  flows from financing activities:Proceeds
                  from stock issuance
              
              $
              -
              
              $
              1,100,000Repayment
                  of note payable
              
              
              (3,251
              )
              
              (15,561
              )Net
                  cash provided (used) by financing activities
              
              $
              (3,251
              )
              $
              1,084,439Net
                  increase (decrease) in cash and cash equivalents
              
              $
              (460,004
              )
              $
              870,747Cash
                  and cash equivalents:Beginning
                  of period
              
              
              1,135,164
              
              
              64,674End
                  of period
              
              $
              675,160
              
              $
              935,421





*See
        independent accountants’ review report.*
 *The
        accompanying notes are an integral part of these financial statements.*


4




**2005**
              
              **2004****(unaudited)**
              
              **(unaudited)**Reconciliation
                  of net loss to net cashused
                  by operating activities:Net
                  loss
              
              $
              (392,626
              )
              $
              (88,546
              )Adjustments
                  to reconcile net loss to net cashused
                  by operating activities:Depreciation
                  and amortization
              
              $
              132,640
              
              $
              93,711(Gain)
                  on sale of assets
              
              
              (18,759
              )
              
              -Fair
                  value of stock warrants issued in exchangefor
                  services
              
              
              -
              
              
              646Changes
                  in operating assets and liabilities:(Increase)
                  in accounts receivable
              
              
              (5,405
              )
              
              (7,825
              )Decrease
                  in prepaid expenses
              
              
              1,380
              
              
              1,464Increase
                  (decrease) in accounts payable
              
              
              (125,711
              )
              
              18,274(Decrease)
                  in accrued expenses
              
              
              (9,431
              )
              
              (140,747
              )Total
                  adjustments
              
              $
              (25,286
              )
              $
              (34,477
              )Net
                  cash used by operating activities
              
              $
              (417,912
              )
              $
              (123,023
              )





*See
        independent accountants’ review report.*
 *The
        accompanying notes are an integral part of these financial
        statements.*


5
 **PREFERRED
            VOICE, INC.**
 **NOTES
            TO CONDENSED 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, 2005, Form 10KSB
      and should be read in conjunction with the financial statements for the three
      months  ended
      June 30, 2005, contained herein.





The
      financial information included herein as of June 30, 2005, and for the
      three-month periods ended June 30, 2005 and 2004, 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 $10,566 and $25,109 as of June 30,
      2005
      and March 31, 2005, respectively.





6
 **PREFERRED
            VOICE, INC.**
 **NOTES
            TO CONDENSED 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.





**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




**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. 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.





**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 June 30, 2005 and 2004, no computation
      of
      diluted EPS has been performed.




7
 **PREFERRED
            VOICE, INC.**
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**




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





Loss
      per
      share is based on the weighted average number of shares outstanding of
      29,769,530 and 23,863,049 for the three months ended June 30, 2005 and 2004,
      respectively.





**Income
      taxes**





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





**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.





**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 accounting principles
      generally accepted in the United States of America 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.





**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.





**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*




8
 **PREFERRED
            VOICE, INC.**
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**





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




*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.





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.





**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.





**Note
      C - Notes payable:**





Notes
      payable consist  of the
      following:


**June
                  30, 2005**
              
              **March
                  31, 2005**Note
                  payable, 6% interest rate. Principal and interest due in monthly
                  installments through March 1, 2007. Note is unsecured.
              
              $
              24,207
              
              $
              27,459Less
                  current portion
              
              
              13,517
              
              
              13,315$
              10,690
              
              $
              14,144





Interest
      expense charged to operations related to notes payable was $399 and $1,415
      for
      the three months ended June 30, 2005 and 2004, respectively.





9
 **PREFERRED
            VOICE, INC.**
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**




**Note
      D - Convertible debt and warrants:**





On
      March
      31, 2005, the Company closed a Securities Purchase Agreement and issued $975,000
      in principal amount of 6% Convertible Debentures due March 31, 2008 (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 three months
      ended June 30, 2005, was $35,618.








**Note
      E - Common stock:**





**Stock
      purchase warrants**





At
      June
      30, 2005, the Company had outstanding warrants to purchase 16,378,000 shares
      of
      the Company's common stock at prices which 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 June 30, 2005, 16,378,000 shares of common stock were reserved for
      that
      purpose.





**Common
      stock reserved**





At
      June
      30, 2005, shares of common stock were reserved for the following
      purposes:


Exercise
                  of stock warrants
              
              
              16,378,000Exercise
                  of future grants of stock options and stockappreciation rights under
                  the 2000 stock option plan
              
              
              1,791,66718,169,667





**Note
      F - 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. There were no options granted during
      the
      three-month period ended June 30, 2005. The following weighted-average
      assumptions were used in the pricing model:


**2004**Expected
                  dividend yield
              
              0.00%Risk-free
                  interest rate
              
              1.00%
                  - 3.79%Expected
                  life
              
              1-5
                  yearsExpected
                  volatility
              
              94%
                  - 197%




10
 **PREFERRED
            VOICE, INC.**
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**




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





The
      Company applies APB Opinion No. 25 in accounting for its option plan and
      warrants and, accordingly, has recognized no compensation expense for stock
      options and warrants 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 and
      warrants under SFAS No. 123, the Company’s net loss and loss per share would
      have been increased to the proforma amounts indicated below:


**Three
                  months****ended****June
                  30,****2005**
              
              **2004**Net
                  loss, as reported
              
              $
              (392,626
              )
              $
              (88,546
              )Less
                  total compensation expense determined under fair value based method
                  for
                  all awards, net of tax effects
              
              
              (73,905
              )
              
              (45,145
              )Proforma
                  net loss
              
              $
              (466,531
              )
              $
              (133,691
              )Loss
                  per common share:As
                  reported
              
              $
              (0.01
              )
              $
              (0.01
              )Proforma
              
              $
              (0.02
              )
              $
              (0.01
              )





**Note
      G - Commitments:**





The
      Company leases its office facilities and various 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, 2005:




**Year
                  ending****March
                  31,**
              
              **Amount**2006
              
              $
              60,9002007
              
              
              55,7052008
              
              
              53,8202009
              
              
              40,3652010
              
              
              -$
              210,790


Total
      rent expense charged to operations was $15,077 and $14,583 for the three months
      ended June 30, 2005 and 2004, respectively.




11




**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, 2005. 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*





*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 this last fiscal year we developed and deployed two 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.





We
      currently provide services through two distribution channels master distributors
      and telecommunications carriers. Our telecommunications 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.
      We have service deployment in Miami, Florida, with a master distributor but
      to
      date revenues generated from that channel have been minimal.





Our
      contracts in most instances are revenue sharing contracts whereby we provide
      hardware, software applications and support in exchange for a portion of revenue
      generated from the service provided by our customer to their subscribers. Our
      sales force focuses on marketing our revenue sharing agreements and currently
      we
      are providing service to fourteen (14) wireless carriers nationwide. As of
      June
      30, 2005, these fourteen contracts were generating revenues of approximately
      $45,000 per month from our primary product voice dial. The revenue sharing
      agreement is the primary method by which we intend to contract with customers
      to
      generate revenue going forward.





We
      have
      concentrated our efforts in searching for services that our current carrier
      customers and potential carrier customers would like to provide their customers.
      We determined that there was a 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.




12


We
      have
      focused the last eighteen 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. As of August 10, 2005 we had one carrier customer providing My Phone
      Services Suite service in their marketplace, one carrier anticipating launch
      in
      late second quarter, and two carriers in test phase on the ringback service.





The
      implementation of our business plan is subject to risks inherent in the
      establishment and deployment of technology. We believe our services are services
      that any consumer who uses a phone can utilize. Our services are generic to
      cell
      phone users as well as land line users, children as well as adults. 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 and the impact of features available in cell phones can and
      have impacted our business.





*Results
      of Operations*





We
      recorded a net loss of $392,626 or $0.01 per share, for the period ended June
      30, 2005, compared to a net loss of $88,546 or $0.01 per share, for the period
      ended June 30, 2004.





*Total
      Sales*




Total
      revenue for the period ended June 30, 2005, was $142,123 compared to $310,959
      for the period ended June 30, 2004. Revenues in both periods consisted entirely
      of revenue sharing receipts from our customer phone companies and billing our
      direct end-users for individual services.





We
      anticipate that revenues from our revenue sharing agreements on our voice dial
      product will continue to deteriorate gradually in the fiscal year ending March
      31, 2006. 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 period ended June 30, 2005 was $123,857 compared to $116,929
      for
      the period ended June 30, 2004. 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 and marketing enhancements to
      our
      opt-out customers.





13


*Selling,
      General and Administrative*




Selling,
      general and administrative expenses for the period ended June 30, 2005 were
      $379,008 compared to $308,454 for the period ended June 30, 2004. The increase
      from 2004 to 2005, are due to increases in staffing. We expect that selling,
      general and administrative expenses will remain steady through fiscal year
      2006,
      such expenses to include costs related to the number of employees, office space
      requirements and general overhead.





*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
      June
      30, 2005 and 2004, software development costs capitalized were $10,410 and
      $75,690 respectively. The amortization of capitalized software development
      costs
      for the periods ended June 30, 2005 and 2004 was $24,917 and $17,827
      respectively.





*Other
      Income and Expense*





During
      the period ended June 30, 2005, the Company made a sale of excess equipment
      that
      generated one-time net revenue of $18,758. The company was also able to
      negotiate settlement of outstanding accounts payable for the periods ended
      June
      30, 2004 of $29,465.





*Income
      Taxes*





As
      of
      June 30, 2005, we had cumulative federal net operating losses of approximately
      $17.9 million, which can be used to offset future income subject to federal
      income tax through the fiscal year 2025. Net operating loss limitations may
      be
      imposed if changes in stock ownership of the company create a change of control
      as provided in Section 382 of the Internal Revenue Code of 1986.





*Liquidity
      and Capital Resources*





Our
      cash
      and cash equivalents at June 30, 2005 were approximately $675,160, a decrease
      of
      $460,004 from $1,135,164 at March 31, 2005. 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.





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.





Our
      revenues are approximately $45,000 per month primarily from our voice dial
      contracts. We will continue to experience declines in revenue from this product
      as more of our multi year contracts expire and carriers do not extend their
      contracts. We are optimistic that our new services through My Phone Services
      Suite, primarily the Rockin Ringback product, will begin to generate revenues
      by
      end of second quarter of this fiscal year.





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.





14





*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 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 may 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 further funding is required, and 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.





**Item
      3. Controls and Procedures**





*Evaluation
      of disclosure controls and procedures* .
      The
      Chief Executive Officer, who also acts as our Chief Financial Officer, of the
      Company has evaluated the effectiveness of the Company’s disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the
      quarter covered by this Quarterly Report on Form 10-QSB.  Based on that
      evaluation, the Chief Executive Officer of the Company has concluded that the
      Company’s disclosure controls and procedures as of the end of the quarter
      covered by this Quarterly Report on Form 10-QSB are effective to provide
      assurance that information required to be disclosed by the Company in the
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms
      of the Securities and Exchange Commission. However, due to the limited number
      of
      Company employees engaged in the authorization, recording, processing and
      reporting of transactions, there is inherently a lack of segregation of duties.
      The Company periodically assesses the cost versus benefit of adding the
      resources that would remedy or mitigate this situation and currently, does
      not
      consider the benefits to





*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 June 30, 2005 that materially affected, or was reasonably likely to
      materially affect our internal control over financial reporting.




**PART
      II.**  **OTHER
      INFORMATION**




Item
      1. Legal
      Proceedings.





We
      are not a party to any material legal proceedings.





Item
      2. Unregistered
      Sales of Securities and Use of Proceeds





None





Item
      3. Defaults
      upon Senior Securities.





None.





15


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





None





Item
      5. Other
      Information.





None





Item
      6.Exhibits and
      Reports on Form 8-K





(a) *Exhibits*










Exhibit
              Number
            Exhibit
              Description31.1
            Certification
                of Chief Executive Officer and Chief Financial Offier32.1
            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




16




**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**.Date: August
              12, 2005
            By:
            /s/ Mary
              G. MerrittMary
              G. MerrittChairman
                and Chief Executive Officer(Principal
                Executive Officer)






17