United
States
 Securities
and Exchange Commission
 Washington,
D. C.  20549
 
 Form
10-Q
 
 xQuarterly
Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
for the
 Period
Ended December 31, 2008.
 or
 o  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
 
 PREFERRED
VOICE, INC.
 
 Delaware
              75-2440201(State
      or other jurisdiction of
              (I.R.S.
      Employer Identification No.)incorporation
      or organization)6500
      Greenville AvenueSuite
      570Dallas,  TX
              75206(Address
      of Principal Executive
              (Zip
      Code)Offices)
 
 (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
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
  Large accelerated filer   ̈
              Accelerated filer   ̈
              Non-accelerated filer   ̈
              Smaller reporting company  þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act
 Yes o       No  x
 
 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 practicable date.
 
 Common
Stock, $ 0.001 Par Value – 6,130,184 shares as of February 6, 2009.
 
 Transitional
Small Business Format    Yes o       No  x
 
 
  INDEX
  Preferred
Voice, Inc.
  Part
      I.
                Financial
      Information
                1Item
      1.
                Financial
      Statements
                1Balance
      Sheets - December 31, 2008 and March 31, 2008.
                1Statements
      of Operations - Three Months Ended December 31, 2008 and 2007 andNine
      Months Ended December 31, 2008 and 2007.
                3Statements
      of Cash Flows - Nine Months Ended December 31, 2008 and
    2007.
                4Notes
      to Financial Statements - December 31, 2008.
                6Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                11Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                14Item
      4.
                Controls
      and Procedures
                14Part
      II.
                Other
      Information
                14Item
      1.
                Legal
      Proceedings
                14Item
      2.
                Unregistered
      Sales of Securities and Use of Proceeds
                14Item
      3.
                Defaults
      upon Senior Securities
                14Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                14Item
      5.
                Other
      Information
                14Item
      6.
                Exhibits
      and Reports on Form 8-K
                14Signatures
                15
 
 
 
 PREFERRED
VOICE, INC.
 
 CONDENSED
BALANCE SHEETS
 DECEMBER
31, 2008 AND MARCH 31, 2008
  December
31,
                      
                      
                      March 31,2008
                      
                      
                      2008(unaudited)
                      
                      
                      (audited)AssetsCurrent
    assets:Cash and cash
      equivalents
                      
                      $
                      340,897
                      
                      
                      $
                      283,220Accounts receivable, net of
      allowance for doubtfulaccounts of $0 and 0,
      respectively
                      
                      
                      615,677
                      
                      
                      
                      638,210Inventory
                      
                      
                      33,768
                      
                      
                      
                      84,567Current portion deferred loan
      cost
                      
                      
                      6,321
                      
                      
                      
                      8,428Total current
      assets
                      
                      $
                      996,663
                      
                      
                      $
                      1,014,425Property and
      equipment:Computer
      equipment
                      
                      $
                      589,448
                      
                      
                      $
                      572,392Furniture and
      fixtures
                      
                      
                      22,317
                      
                      
                      
                      22,317Office
      equipment
                      
                      
                      19,271
                      
                      
                      
                      19,271$
                      631,036
                      
                      
                      $
                      613,980Less accumulated
      depreciation
                      
                      
                      466,829
                      
                      
                      
                      421,190Net property and
      equipment
                      
                      $
                      164,207
                      
                      
                      $
                      192,790Other
    assets:Capitalized software development
      costs, net of accumulatedamortization of $1,246,675 and
      $1,228,026, respectively
                      
                      $
                      11,254
                      
                      
                      $
                      29,902Deposits
                      
                      
                      29,485
                      
                      
                      
                      34,485Noncurrent portion deferred loan
      cost, net of accumulatedamortization of $18,963 and
      $12,642, respectively
                      
                      
                      -
                      
                      
                      
                      4,214Trademarks and patents, net of
      accumulatedamortization of $37,910 and
      $31,926, respectively
                      
                      
                      66,725
                      
                      
                      
                      68,763Total other
      assets
                      
                      $
                      107,464
                      
                      
                      $
                      137,364Total
assets
                      
                      $
                      1,268,334
                      
                      
                      $
                      1,344,579
   See
independent accountants’ review report.
 The
accompanying notes are an integral part of these financial
statements.
 1
  December
31,
                      
                      
                      March 31,2008
                      
                      
                      2008(unaudited)
                      
                      
                      (audited)Liabilities and stockholders'
      equity (deficit)Current
      liabilities:Accounts
      payable
                      
                      $
                      220,986
                      
                      
                      $
                      245,553Accrued
      vacation
                      
                      
                      5,943
                      
                      
                      
                      7,859Accrued payroll and payroll
      taxes
                      
                      
                      11,410
                      
                      
                      
                      19,735Accrued
      interest
                      
                      
                      17,550
                      
                      
                      
                      35,100Deferred
      revenue
                      
                      
                      292
                      
                      
                      
                      43,417Current portion debentures payable
      - net of discounts
                      
                      
                      2,074,506
                      
                      
                      
                      975,000Total current
      liabilities
                      
                      $
                      2,330,687
                      
                      
                      $
                      1,326,664Long-term
      liabilities:Debentures payable - net of
      discounts
                      
                      $
                      -
                      
                      
                      $
                      1,029,012Commitments and contingencies
      (Note E)Stockholders' equity
      (deficit):Common stock, $.001 par
      value;100,000,000 shares authorized;
      6,130,184and 6,130,184 shares issued,
      respectively
                      
                      $
                      6,130
                      
                      
                      $
                      6,130Additional paid-in
      capital
                      
                      
                      20,403,278
                      
                      
                      
                      20,403,278Accumulated
      deficit
                      
                      
                      (21,470,255
                      )
                      
                      
                      (21,418,999
                      )Treasury stock - 4,500 shares at
      cost
                      
                      
                      (1,506
                      )
                      
                      
                      (1,506
                      )Total stockholders' equity
      (deficit)
                      
                      $
                      (1,062,353
                      )
                      
                      $
                      (1,011,097
                      )Total liabilities and
      stockholders' equity (deficit)
                      
                      $
                      1,268,334
                      
                      
                      $
                      1,344,579
   2
  PREFERRED
VOICE, INC.
 
 CONDENSED
STATEMENTS OF OPERATIONS
 FOR
THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2008 AND 2007
 
 Three
months
                          
                          
                          Nine months
                          
                          
                          Three
months
                          
                          
                          Nine monthsended
                          
                          
                          ended
                          
                          
                          ended
                          
                          
                          endedDecember
31,
                          
                          
                          December
31,
                          
                          
                          December
31,
                          
                          
                          December
31,2008
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2007(unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)Net sales
                          
                          $
                          985,072
                          
                          
                          $
                          2,898,743
                          
                          
                          $
                          879,520
                          
                          
                          $
                          2,562,784Cost of
    sales
                          
                          
                          477,291
                          
                          
                          
                          1,502,646
                          
                          
                          
                          535,009
                          
                          
                          
                          1,508,663Gross
profit
                          
                          $
                          507,781
                          
                          
                          $
                          1,396,097
                          
                          
                          $
                          344,511
                          
                          
                          $
                          1,054,121General and administrative
      expenses
                          
                          $
                          419,414
                          
                          
                          $
                          1,279,760
                          
                          
                          $
                          488,310
                          
                          
                          $
                          1,439,816Income (loss) from
      operations
                          
                          $
                          88,367
                          
                          
                          $
                          116,337
                          
                          
                          $
                          (143,799
                          )
                          
                          $
                          (385,695
                          )Other income
      (expense):Interest
      expense
                          
                          $
                          (55,825
                          )
                          
                          $
                          (167,593
                          )
                          
                          $
                          (92,073
                          )
                          
                          $
                          (274,930
                          )Gain on sale of
      assets
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          0
                          
                          
                          
                          1,739Total other income
      (expense)
                          
                          $
                          (55,825
                          )
                          
                          $
                          (167,593
                          )
                          
                          $
                          (92,073
                          )
                          
                          $
                          (273,191
                          )Income (loss) from operations
      before income taxes
                          
                          $
                          32,542
                          
                          
                          $
                          (51,256
                          )
                          
                          $
                          (235,872
                          )
                          
                          $
                          (658,886
                          )Provision for income
      taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net income
      (loss)
                          
                          $
                          32,542
                          
                          
                          $
                          (51,256
                          )
                          
                          $
                          (235,872
                          )
                          
                          $
                          (658,886
                          )Per share
      amounts:Income (loss) from
      operations
                          
                          $
                          0.005
                          
                          
                          $
                          (0.008
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.11
                          )Net income
      (loss)
                          
                          $
                          0.005
                          
                          
                          $
                          (0.008
                          )
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.11
                          )
  See
independent accountants’ review report.
 The
accompanying notes are an integral part of these financial
statements.
 3
  PREFERRED
VOICE, INC.
 
 CONDENSED
STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED DECEMBER 31, 2008 AND 2007
  2008
                        
                        
                        2007(unaudited)
                        
                        
                        (unaudited)Cash flows from operating
      activities:Cash received from
      customers
                        
                        $
                        2,921,276
                        
                        
                        $
                        2,569,874Cash paid to suppliers and
      employees
                        
                        
                        (2,727,947
                        )
                        
                        
                        (2,419,948
                        )Interest
    paid
                        
                        
                        (114,649
                        )
                        
                        
                        (71,256
                        )Net cash provided by operating
      activities
                        
                        $
                        78,680
                        
                        
                        $
                        78,670Cash flows from investing
      activities:Capital
      expenditures
                        
                        $
                        (21,003
                        )
                        
                        $
                        (52,685
                        )Proceeds from sale of
      assets
                        
                        
                        -
                        
                        
                        
                        26,481Net cash used by investing
      activities
                        
                        $
                        (21,003
                        )
                        
                        $
                        (26,204
                        )Cash flows from financing
      activities:$
                        -
                        
                        
                        $
                        -Net cash provided (used) by
      financing activities
                        
                        $
                        -
                        
                        
                        $
                        -Net increase in cash and cash
      equivalents
                        
                        $
                        57,677
                        
                        
                        $
                        52,466Cash and cash
      equivalents:Beginning of
      period
                        
                        
                        283,220
                        
                        
                        
                        446,055End of
    period
                        
                        $
                        340,897
                        
                        
                        $
                        498,521
   See
independent accountants’ review report.
 The
accompanying notes are an integral part of these financial
statements.
 4
  2008
                      
                      
                      2007(unaudited)
                      
                      
                      (unaudited)Reconciliation of net loss to net
      cash provided (used)by operating
      activities:Net loss
                      
                      $
                      (51,256
                      )
                      
                      $
                      (658,886
                      )Adjustments to reconcile net loss
      to net cash provided (used)by operating
      activities:Depreciation and
      amortization
                      
                      $
                      76,593
                      
                      
                      $
                      147,123Amortization of debenture
      discount
                      
                      
                      70,494
                      
                      
                      
                      177,349Gain on sale of
      assets
                      
                      
                      -
                      
                      
                      
                      (1,739
                      )Compensation recognized from
      issuance of stock options
                      
                      
                      -
                      
                      
                      
                      266,766Changes in operating assets and
      liabilities:Decrease in accounts
      receivable
                      
                      
                      22,533
                      
                      
                      
                      7,090Decrease in
      deposits
                      
                      
                      5,000
                      
                      
                      
                      -Decrease in
      inventory
                      
                      
                      50,799
                      
                      
                      
                      11,168Increase (decrease) in accounts
      payable
                      
                      
                      (24,567
                      )
                      
                      
                      105,967Decrease in deferred
      revenue
                      
                      
                      (43,125
                      )
                      
                      
                      -Increase (decrease) in accrued
      expenses
                      
                      
                      (27,791
                      )
                      
                      
                      23,832Total
      adjustments
                      
                      $
                      129,936
                      
                      
                      $
                      737,556Net cash provided (used) by
      operating activities
                      
                      $
                      78,680
                      
                      
                      $
                      78,670
   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, 2008, Form 10KSB
and should be read in conjunction with the financial statements for the three
and nine monthsended
December 31, 2008 and 2007, contained herein.
 
 The
financial information included herein as of December 31, 2008, and for the three
and nine-month periods ended December 31, 2008 and 2007, 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.
 
 Inventory
 
 Inventory, consisting of ringback
platforms and their related components was $0 and digital signage and their
related components was $32,940, is stated at the lower of cost or
market.  At March 31, 2008, inventory, consisting of ringback
platforms and their related components in the amount of $68,354 and digital
signage and their related components in the amount of $16,213 is stated at the
lower of cost or market.   Cost is determined using the first-in,
first-out method.
 
 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.
 
 6
  PREFERRED
VOICE, INC.
 NOTES
TO CONDENSED FINANCIAL STATEMENTS
 
 Note
B - Summary of significant accounting policies (continued):
 
 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
$36,612 and $64,707 as of December 31, 2008 and March 31, 2008,
respectively.
 
 Capitalized software
development
 
 The
Company has adopted the provisions of FASB No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed, to account
for its internally developed software costs since the Company is dependent on
the software to provide the 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 Recognitionwhich was
issued in December 2003.  In most cases, the services being performed
do not require significant production, modification or customization of the
Company’s software or services; therefore, revenues are recognized when evidence
of a completed transaction exists, generally when services have been
rendered.  In situations where the Company receives an initial payment
for future services, the Company defers recognition of revenue, and recognizes
the revenue over the life of the respective contract.  SAB No. 104
codified, revised and rescinded certain sections of Staff Accounting Bulletin
(SAB) No. 101, Revenue
Recognition in Financial Statements, in order to make this interpretive
guidance consistent with current authoritative accounting guidance and SEC rules
and regulations.
 
 7
 PREFERRED
VOICE, INC.
 NOTES
TO CONDENSED FINANCIAL STATEMENTS
 
 Note
B - Summary of significant accounting policies (continued):
 
 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, 2008 and
2007, no computation of diluted EPS has been performed.
 
 Income
and loss per share for the three and nine months ended December 31, 2008 and
2007, respectively is based on the weighted average number of shares outstanding
of 6,130,184 for both periods.
 
 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.
 
 8
 PREFERRED
VOICE, INC.
 NOTES
TO CONDENSED FINANCIAL STATEMENTS
 
 Note
B - Summary of significant accounting policies (continued):
 
 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
 
 Effective
April 1, 2006, the Company adopted the provisions of SFAS No. 123R, Share-Based Payment, which is
a revision of SFAS No. 123, Accounting for Stock-Based
Compensation.  This statement now requires the Company to
recognize compensation costs related to stock-based payment transactions (i.e.
granting of stock options and warrants to employees) in the financial
statements.  With limited exceptions, the amount of compensation cost
will be measured based on the grant-date fair value of the equity or liability
instruments issued.  In addition, liability awards will be remeasured
each reporting period.  Compensation cost will be recognized over the
period that an employee provides services in exchange for the
award.   Compensation expense of $-0- and $266,766  was
recognized for the nine months ended December 31, 2008 and 2007, respectively,
and $-0- and $89,658  for the three months ended December 31, 2008 and
2007, respectively.
 
 
 Note
C - Convertible debt and warrants:
 
 On March
31, 2005, the Company closed a Securities Purchase Agreement and issued $975,000
in principal amount of 6% Convertible Debentures due March 31, 2008, (the
"Debentures"), to a group of institutional and high net worth
investors.  The Debentures pay an interest rate of 6% on an annual
basis and are convertible into 1,950,000 shares of the Company’s common stock at
a price of $0.50 per share at which time the authorized shares increases to
65,000,000 shares.  The Company recorded the intrinsic value of the
beneficial conversion of $257,500 as interest expense as the shareholders
approved an increase in its authorized shares to 100,000,000 shares on April 27,
2006.  The investors also received warrants to purchase an additional
975,000 shares of common stock with an exercise price of $0.60 per share. The
maturity date on $875,000 of the Debentures has been extended to March 31, 2009.
$100,000 of the Debentures are currently in default.
 
 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 was amortized over the original
three-year term of the Debentures as additional interest
expense.  Amortization was $-0- and $106,854 for the nine months ended
December 31, 2008 and 2007 respectively and $-0- and $35,618 for three months
ended December 31, 2008 and 2007 respectively.
 
 On
September 29, 2006, the Company closed a Securities Purchase Agreement and
issued $1,170,000 in principal amount of 6% Convertible Debentures due September
29, 2009 (the "Debentures"), to a group of institutional and high net worth
investors.  The Debentures pay an interest rate of 6% on an annual
basis and are convertible into 3,342,857 shares of the Company’s common stock at
a price of $0.35 per share.   The investors also received
warrants to purchase an additional 1,671,429 shares of common stock with an
exercise price of $0.50 per share.
 
 The
Company has allocated the proceeds from the issuance of the Debentures to the
warrants and the Debentures based on their relative fair market values at the
date of issuance.  The value assigned to the warrants of $281,977 has
been recorded as an increase in additional paid-in capital.  The
assignment of a value to the warrants results in a loan discount being recorded
for the same amount.  The discount is being amortized over the
original three-year term of the Debentures as additional interest
expense.    Amortization was $70,494 for the nine months
ended December 31, 2008 and 2007 and $23,498 for three months ended December 31,
2008 and 2007.
  9
 PREFERRED
VOICE, INC.
 NOTES
TO CONDENSED FINANCIAL STATEMENTS
 
 Note
C - Convertible debt and warrants (continued):
 
 167,143
warrants were issued in exchange for consulting services provided for in the
issuance of the Securities Purchase Agreement.  These warrants are
exercisable at price of $0.50 per share and were valued using the relative fair
market value at the date of issuance.  The value assigned to the
warrants of $25,285 has been recorded as deferred loan cost and is being
amortized over the original three-year term of the debentures as financing
cost.  Amortization was $6,321 for the nine months ended December 31,
2008 and 2007 and $2,107 for the three months ended December 31, 2008 and
2007.
 
 
 Note
D - Common stock:
 
 On
November 13, 2006, the Board of Directors approved a 1 for 5 reverse stock split
of its common stock.  All references in the accompanying financial
statements to the number of shares of common stock and loss per share have been
retroactively restated to reflect the reverse stock split.
 
 Stock purchase
warrants
 
 At
December 31, 2008, the Company had outstanding warrants to purchase 4,591,072
shares of the Company's common stock at prices which ranged from $0.50 per share
to $0.85 per share.  The warrants are exercisable at any time and
expire through September 29, 2011.  At December 31, 2008, 4,591,072
shares of common stock were reserved for that purpose.
 
 Common stock
reserved
 
 At
December 31, 2008, shares of common stock were reserved for the following
purposes:
 
 Exercise of stock warrants and
      debt conversion
                          
                          9,883,929Exercise of future grants of stock
      options and stockappreciation rights under the 2000
      stock option plan
                          
                          869,13310,753,062
 
 Note
E - Commitments:
 
 The
Company leases its office facilities and office equipment under operating leases
expiring through June 30, 2009.  Following is a schedule of future
minimum lease payments required under the above operating leases as of March 31,
2008:
 
 Year endingMarch 31,
                                  
                                  Amount2009
                                  
                                  $
                                  55,5052010
                                  
                                  
                                  13,8762011
                                  
                                  
                                  -2012
                                  
                                  
                                  -2013
                                  
                                  
                                  -$
                                  69,381
   Total rent expense charged to
operations was $46,974 and $45,691 for the nine months ended December 31, 2008
and 2007, respectively, and $15,280 and $15,240 for the three months ended
December 31, 2008 and 2007.
 
 10
  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, 2008.  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.  Originally we 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.  Even
though we believe voice activated products have viability in the
telecommunications arena, we have concentrated our last two years of development
efforts on the growing trend in mobile entertainment.
 
 We first
contracted with a leading content provider to distribute their library of
downloadable wireless games, picture messages, graphics and
ring-tones.  Our first content project was launched on June 18, 2004
with a full turnkey solution for the carrier that includes secure customer login
from the carrier website, viewing of content, download of content, and creation
of a billing record for the carriers billing system.  This initial
introduction to mobile entertainment led us to research the viability of
additional personalized entertainment services that could be delivered through
our network. On October 22, 2004 we announced the first commercial launch of a
ringback service in the United States with the launch of our Rockin’ Ringback
service.  Our personalized ringback service provides a network-based
personalized service that enables users to choose an audio file that callers
will listen to while the phone is ringing.  We believe that since we
already have a relationship with the carrier and are integrated with these
carriers customer service departments and billing departments that we have an
opportunity to introduce new products with minimal integration
effort.  We will continue to research and either develop or acquire
additional services that can be deployed through our platform.  As of
February 6, 2009 we had five carrier customers providing ringback service
through our My Phone Services Suite platform with a possible 5 million
addressable customer base.
 
 Our
system structure is a robust data base system which will allow for scalability
and the addition of new services to the platform in shorter development cycles
than were possible under our previous structure.  On September 15,
2004 we announced the release of “My Phone Services Suite”, which incorporates
our network address book, network voice dialing, Push2Connect, and Rockin
Ringback services into one user-centric service that allows the subscriber to
personalize the look and feel of their communications service especially for
their personality. Revenue from these new products is expected to be slow with
no guarantees of market and/or customer acceptance. We also believe that we will
continue to see increased competition that along with many other factors may
have an impact on the company and its products.
 
 The
implementation of our business plan is subject to risks inherent in the
establishment and deployment of technology.  In order for us to
succeed, we must:
 
 ·
                secure
      adequate financial and human resources to meet our requirements, including
      adequate numbers of technical support staff to provide service for our
      phone company customers;
 ·
                establish
      and maintain relationships with phone
companies;
 ·
                make
      sure the GAP system works with the telephone switches of all of the major
      manufacturers;
 ·
                achieve
      user acceptance for our services;
 ·
                generate
      reasonable margins on our services;
 ·
                continue
      to deploy and install GAP systems on a timely and acceptable
      schedule;
 ·
                respond
      to competitive market developments;
 
 
  11
  ·
                  mitigate
      risk associated with our technology by obtaining patents and copyrights
      and other protections of our intellectual property;
  and
 ·
                  continually
      update and add to our product offerings to meet the needs of
      consumers.
 Failure
to achieve these objectives could adversely affect our business, operating
results and financial condition. Increased competition from other providers of
similar services can and have impacted our business.
 
 Results
of Operations
 
 We
recorded a net loss of $51,256 or $.008 per share, for the nine-month period
ended December 31, 2008, compared to a net loss of $658,886 or $0.11 per share,
for the nine-month period ended December 31, 2007. For the three-month period
ended December 31, 2008, we recorded net income of $32,542, or $.005 per share
compared to a net loss of $235,872 or $.04 per share for the three-month period
ended December 31, 2007.
 
 Total
Sales
  Total revenue for the nine-month period
ended December 31, 2008, was $2,898,743 compared to $2,562,784 for the
nine-month period ended December 31, 2007. Total revenue for the three-month
period ended December 31, 2008, was $985,072 compared to $879,520 for the
three-month period ended December 31, 2007. Revenues in both periods consisted
of revenue sharing receipts from our customer phone companies and billing our
direct end-users for individual services.
 
 We
anticipate that revenues from the My Phone Services Suite to continue to build
gradually as new customers to the service integrate and market the product to
their subscriber base.
 
 Cost
of Sales
 
 Cost of
sales for the nine-month period ended December 31, 2008 was $1,502,646 compared
to $1,508,663 for the nine-month period ended December 31, 2007. Cost of sales
for the three-month period ended December 31, 2008 was $477,291 compared to
$535,009 for the three-month period ended December 31, 2007. Cost of sales
consisted of content licensing fees, costs for equipment sold to customers,
network infrastructure such as collocations, connectivity, system access and
long distance to end-users during both periods.
 
 Selling,
General and Administrative
  Selling,
general and administrative expenses for the nine-month period ended December 31,
2008 were $1,279,760 compared to $1,439,816 for the nine-month period ended
December 31, 2007. Selling, general and administrative expenses for the
three-month period ended December 31, 2008 were $419,414 compared to $488,310
for the three-month period ended December 31, 2007.  We expect that
selling, general and administrative expenses will remain steady through fiscal
year 2009, 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 endedDecember 31,
2008 and 2007, software development costs capitalized were $-0- and $3,225
respectively.  The amortization of capitalized software development
costs for the periods endedDecember 31, 2008 and 2007 was
$18,648 and $64,428 respectively.
 
 Other Income and Expense
 
 During the periods ended December 31,
2008 and 2007, the Company made a sale of excess equipment that generated
one-time net revenue of $-0- and $1,739 respectively.
 
 12
 Income
Taxes
 
 As of
December 31, 2008, we had cumulative federal net operating losses of
approximately $20.8 million, which can be used to offset future income subject
to federal income tax through the fiscal year 2028.  Net operating
loss limitations may be imposed if changes in stock ownership of the company
create a change of control as provided in Section 382 of the Internal Revenue
Code of 1986.
 
 Liquidity
and Capital Resources
 
 Our cash and cash equivalents at
December 31, 2008 were approximately $340,897, an increase of $57,677 from
$283,220 at March 31, 2008.  We have relied primarily on the issuance
of stock, convertible debentures 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 10,000 5-year warrants to purchase a share of Common Stock,
$.001 par value per share, of the Company at an exercise price of $.60 for an
aggregate of $975,000.
 
 On
September 29, 2006, pursuant to Section 4(2) of the Securities Act and
Regulation D thereunder, we completed the sale of 117 units (“Units”) with each
Unit consisting of a 3-year, 6% Convertible Debenture in the principal amount of
$10,000.00, and 14,286 5-year warrants to purchase a share of Common Stock,
$.001 par value per share, of the Company at an exercise price of $.50 for an
aggregate of $1,170,000.
 
 Due to
uncertainties regarding a number of new customer contracts that are in the
Company's sales pipeline, it is difficult for management to project the
Company's revenue performance, operating profits or loss, or cash requirements
beyond the next twelve months.  Even though the Company has been able
to secure additional financing to provide current working capital, there is no
assurance that the Company will be able to generate the required revenues to
sustain its current working capital requirements or to raise additional debt or
equity capital that may be required to meet its objectives in the
future.  The Company's challenging financial circumstances may make
the terms, conditions, and cost of any available capital relatively unfavorable.
If additional debt or equity capital is not readily available, the Company will
be forced to further scale back its operations, including its efforts to
complete new sales. The Company's short-term needs for capital may force it to
consider and potentially pursue other strategic options sooner than it might
otherwise have desired. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability of and classification of assets, or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
 
 Future
Obligations
 
 We
project our working capital needs to be approximately $1,600,000 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
currently in trial utilizing the revenue rates that we have experienced over the
past six months with our currently installed customers and projections from
trial carrier models 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.
 
 13
  Item
3. Quantitative and Qualitative Disclosures About Market Risk
 
 The
disclosure is not applicable because we are a smaller reporting
company.
 
 
 Item
4. 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-Q.  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-Q are effective as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange
Act.
 
 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 merit the cost of these
resources.
 
 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 December 31, 2008 that materially
affected, or was reasonably likely to materially affect our internal control
over financial reporting.
   PART
      II.
                  OTHER
      INFORMATIONItem
      1.
                  Legal
      Proceedings.
 
 In February, 2008, we
were sued by Ring Plus, Inc. in the United States District Court for the Central
District of California alleging infringement of its U.S. Patent No. 7,006,608
(the “608 Patent”) which pertains to ringback tone replacement methods and
algorithms. Ring Plus, Inc. is seeking declaratory judgment that we have
violated the 608 Patent, preliminary and permanent injunctions, an order that we
destroy all infringing items, and money damages in a sum according to proof at
trial.  We do not believe that we infringe the 608 Patent and we
believe we have meritorious defenses to the action.
  Item
      2.
                  Unregistered
      Sales of Securities and Use of ProceedsNone.Item
      3.
                  Defaults
      upon Senior Securities.None.Item
      4.
                  Submission
      of Matters to a Vote of Security Holders.NoneItem
      5.
                  Other
      Information.NoneItem
      6.
                  Exhibits ExhibitNumber
                    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
  14
 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,
      2009
              /s/ Mary G.
      MerrittDate
              Mary
      G. MerrittChairman
      and Chief Executive Officer(Principal
      Executive Officer)




15