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, 2006.


or


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





Commission
      File Number 33-92894





**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 Offices)
            (Zip
                Code)





(214)
      265-9580


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





Not
      Applicable


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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter periods that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.


Yes  X No
      __








Applicable
      Only to Corporate Issuers





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





Common
      Stock, $ 0.001 Par Value - 30,629,039 shares as of August 10, 2006.





Transitional
      Small Business Format Yes__ No  X









INDEX








**Preferred
      Voice, Inc.**








Part
                I.
            Financial
                Information
            1Item
                1.
            Financial
              Statements
            1Balance
                Sheets-June 30, 2006 and March 31, 2006.Statements
                of Operations-Three Months Ended June 30, 2006 and 2005.Statements
                of Cash Flows-Three Months Ended June 30, 2006 and 2005.Notes
                to Financial Statements - June 30, 2006.Item
                2.
            Management’s
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            12Item
                3.
            Controls
                and Procedures
            14Part
                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
            15Item
                5.
            Other
                Information
            16Item
                6.
            Exhibits
                and Reports on Form 8-K
            16Signatures
            16








**PREFERRED
      VOICE, INC.**





**CONDENSED
      BALANCE SHEETS**


**JUNE
      30, 2006 AND MARCH 31, 2006**


**June
                  30,**
                **2006**
                **(unaudited)**
              
              
              **March
                  31,**
                **2006**
                **(audited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              57,995
              
              $
              209,466Accounts
                  receivable, net of allowance for doubtfulaccounts
                  of $5,325 and $5,325, respectively
              
              
              123,703
              
              
              210,392Total
                  current assets
              
              $
              181,698
              
              $
              419,858Property
                  and equipment:Computer
                  equipment
              
              $
              1,365,066
              
              $
              1,414,809Furniture
                  and fixtures
              
              
              22,317
              
              
              22,317Office
                  equipment
              
              
              29,028
              
              
              29,443$
              1,416,411
              
              $
              1,466,569Less
                  accumulated depreciation
              
              
              1,062,840
              
              
              1,091,236Net
                  property and equipment
              
              $
              353,571
              
              $
              375,333Other
                  assets:Capitalized
                  software development costs, net of accumulatedamortization
                  of $1,077,341 and $1,050,760, respectively
              
              $
              162,554
              
              $
              180,845Deposits
              
              
              4,485
              
              
              4,485Trademarks
                  and patents, net of accumulatedamortization
                  of $18,777 and $16,945, respectively
              
              
              102,629
              
              
              104,461Total
                  other assets
              
              $
              269,668
              
              $
              289,791Total
                  assets
              
              $
              804,937
              
              $
              1,084,982
   *See
              independent accountants’ review report.*
 *The
              accompanying notes are an integral part of these financial
              statements.*
 1
   **June
                  30,**
              
              
              **March
                  31,****2006**
              
              
              **2006****(unaudited)**
              
              
              **(audited)****Liabilities
                  and stockholders' equity (deficit)**Current
                  liabilities:Accounts
                  payable
              
              $
              138,131
              
              $
              191,147Accrued
                  operating expenses
              
              
              63
              
              
              34Accrued
                  vacation
              
              
              11,215
              
              
              7,802Accrued
                  payroll and payroll taxes
              
              
              16,934
              
              
              19,255Accrued
                  interest
              
              
              14,625
              
              
              58,500Current
                  portion- notes payable
              
              
              10,690
              
              
              14,144Total
                  current liabilities
              
              $
              191,658
              
              $
              290,882Long-term
                  liabilities:Debentures
                  payable - net of discounts
              
              $
              725,674
              
              $
              690,056Commitments
                  and contingencies (Note F)Stockholders'
                  equity (deficit):Common
                  stock, $.001 par value;100,000,000
                  shares authorized; 30,651,540and
                  29,815,826 shares issued, respectively
              
              $
              30,652
              
              $
              29,816Additional
                  paid-in capital
              
              
              19,715,788
              
              
              19,400,624Accumulated
                  deficit
              
              
              (19,857,329
              )
              
              (19,324,890
              )Treasury
                  stock- 22,500 shares at cost
              
              
              (1,506
              )
              
              (1,506
              )Total
                  stockholders' equity (deficit)
              
              $
              (112,395
              )
              $
              104,044Total
                  liabilities and stockholders' equity (deficit)
              
              $
              804,937
              
              $
              1,084,982


2


**PREFERRED
      VOICE, INC.**





**CONDENSED
      STATEMENTS OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED** **JUNE
      30, 2006 AND 2005**





**Three
                  months**
              
              
              **Three
                  months****ended**
              
              
              **ended****June
                  30,**
              
              
              **June
                  30,****2006**
              
              
              **2005****(unaudited)**
              
              
              **(unaudited)**Net
                  sales
              
              $
              230,213
              
              $
              142,123Cost
                  of sales
              
              
              138,450
              
              
              123,857Gross
                  profit
              
              $
              91,763
              
              $
              18,266General
                  and administrative expenses
              
              $
              317,893
              
              $
              379,008Loss
                  from operations
              
              $
              (226,130
              )
              $
              (360,742
              )Other
                  income (expense):Interest
                  expense
              
              $
              (309,148
              )
              $
              (50,642
              )Gain
                  on sale of assets
              
              
              2,842
              
              
              18,758Total
                  other income (expense)
              
              $
              (306,306
              )
              $
              (31,884
              )Loss
                  from operations before income taxes
              
              $
              (532,436
              )
              $
              (392,626
              )Provision
                  for income taxes
              
              
              -
              
              
              -Net
                  loss
              
              $
              (532,436
              )
              $
              (392,626
              )Per
                  share amounts:Loss
                  from operations
              
              $
              (0.02
              )
              $
              (0.01
              )Net
                  loss
              
              $
              (0.02
              )
              $
              (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 FLOWS**


**FOR
      THE THREE MONTHS ENDED** **JUNE
      30, 2006 AND 2005**








**2006**
              
              
              **2005****(unaudited)**
              
              
              **(unaudited)**Cash
                  flows from operating activities:Cash
                  received from customers
              
              $
              316,902
              
              $
              136,718Cash
                  paid to suppliers and employees
              
              
              (432,487
              )
              
              (518,613
              )Interest
                  paid
              
              
              (1,406
              )
              
              (36,017
              )Net
                  cash used by operating activities
              
              $
              (116,991
              )
              $
              (417,912
              )Cash
                  flows from investing activities:Capital
                  expenditures
              
              $
              (85,481
              )
              $
              (62,841
              )Proceeds
                  from sale of assets
              
              
              54,455
              
              
              24,000Net
                  cash used by investing activities
              
              $
              (31,026
              )
              $
              (38,841
              )Cash
                  flows from financing activities:Repayment
                  of note payable
              
              $
              (3,454
              )
              $
              (3,251
              )Net
                  cash used by financing activities
              
              $
              (3,454
              )
              $
              (3,251
              )Net
                  decrease in cash and cash equivalents
              
              $
              (151,471
              )
              $
              (460,004
              )Cash
                  and cash equivalents:Beginning
                  of period
              
              
              209,466
              
              
              1,135,164End
                  of period
              
              $
              57,995
              
              $
              675,160





*See
            independent accountants’ review report.*
 *The
            accompanying notes are an integral part of these financial
            statements.*
 4


**2006**
            
            
            **2005****(unaudited)**
            
            
            **(unaudited)**Reconciliation
                of net loss to net cashused
                by operating activities:Net
                loss
            
            $
            (532,436
            )
            $
            (392,626
            )Adjustments
                to reconcile net loss to net cashused
                by operating activities:Depreciation
                and amortization
            
            $
            75,753
            
            $
            132,640Gain
                on sale of assets
            
            
            (2,844
            )
            
            (18,759
            )Intrinsic
                value of beneficial interest
            
            
            257,500
            
            
            -Changes
                in operating assets and liabilities:(Increase)
                decrease in accounts receivable
            
            
            86,689
            
            
            (5,405
            )Decrease
                in prepaid expenses
            
            
            -
            
            
            1,380Decrease
                in accounts payable
            
            
            (53,016
            )
            
            (125,711
            )Increase
                (decrease) in accrued expenses
            
            
            51,363
            
            
            (9,431
            )Total
                adjustments
            
            $
            415,445
            
            $
            (25,286
            )Net
                cash used by operating activities
            
            $
            (116,991
            )
            $
            (417,912
            )Schedule
                of noncash financing activities:Issuance
                of stock for accrued interest payable onconvertible
                debentures
            
            $
            58,500
            
            $
            -Intrinsic
                value of beneficial interest
            
            $
            257,500
            
            $
            -




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, 2006, Form 10KSB
      and should be read in conjunction with the financial statements for the three
      months  ended
      June 30, 2006, contained herein.





The
      financial information included herein as of June 30, 2006, and for the
      three-month periods ended June 30, 2006 and 2005, 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.


6




**PREFERRED
      VOICE, INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**





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





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 $6,720 and $7,525 as of June 30, 2006
      and March 31, 2006, 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
      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.





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 June 30, 2006 and 2005, no computation
      of
      diluted EPS has been performed.





Loss
      per
      share is based on the weighted average number of shares outstanding of
      30,605,111 and 29,769,530 for the three months ended June 30, 2006 and 2005,
      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.





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 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**





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.





The
      Company has adopted the Modified Prospective Application method of accounting
      and disclosing transition to this new accounting policy. Under this method,
      this
      statement applies to new awards and to awards modified, repurchased, or
      cancelled after April 1, 2006. Additionally, compensation cost for the portion
      of awards for which the requisite service has not been rendered that are
      outstanding as of April 1, 2006, would be recognized as the requisite service
      is
      rendered after March 31, 2006. The compensation cost for those earlier awards
      would be attributed to periods beginning after March 31, 2006. The Company
      did
      have options outstanding as of April 1, 2006, for which the requisite service
      had not been performed, but the service was not performed during the three
      months ended June 30, 2006.





There
      was
      no compensation expense recognized during the three months ended June 30, 2006
      as there were no options issued or requisite service fulfilled during the
      three-month period.








**Note
      C - Notes payable:**





Notes
      payable consist  of the
      following:




**June
                  30,**
                **2006**
              
              
              **March
                  31,**
                **2006**Note
                  payable, 6% interest rate. Principal and interest due in monthly
                  installments through March 1, 2007. Note is unsecured.
              
              $
              10,690
              
              $
              14,144Less
                  current portion
              
              
              10,690
              
              
              14,144$
              -
              
              $
              -


Interest
      expense charged to operations related to notes payable was $197 and $399, for
      the three months ended June 30, 2006 and 2005, 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 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 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 was $35,618 for three
      months ended June 30, 2006 and 2005.





**Note
      E - Common stock:**





**Stock
      purchase warrants**





At
      June
      30, 2006, the Company had outstanding warrants to purchase 15,148,135 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, 2006, 15,148,135 shares of common stock were reserved for
      that
      purpose.





**Common
      stock reserved**





At
      June
      30, 2006, shares of common stock were reserved for the following
      purposes:


Exercise
                  of stock warrants
              
              
              15,148,135Exercise
                  of future grants of stock options and stock appreciation rights
                  under the
                  2000 stock option plan
              
              
              4,791,66719,939,802


**Note
      F - 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, 2006:





**Year
                  ending****March
                  31,**
              
              
              **Amount**2007
              
              $
              53,8202008
              
              
              40,3652009
              
              
              -2010
              
              
              -2011
              
              
              -$
              94,185





Total
      rent expense charged to operations was $14,240 and $15,077 for the three months
      ended June 30, 2006 and 2005, respectively.





10


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





**Note
      G - Going concern:**





Management
      projects working capital needs to be approximately $1,200,000 for the year
      ended
      March 31, 2007 for corporate overhead and equipment purchases to continue to
      deploy services to carrier customers. Management believes that current cash
      and
      cash equivalents and cash that may be generated from operations will not be
      sufficient to meet these anticipated capital requirements and to finance
      marketing initiatives for the year. Such projections were based on revenue
      trends from current customers and customers which were already under contract
      utilizing the revenue rates that have been experienced over the six-month period
      ended March 31, 2006, with currently installed customers and projected cash
      requirements to support installation, sales and marketing, and general overhead.
      The Company will be forced to raise additional capital through the issuance
      of
      new shares, the exercise of outstanding warrants, or reduction of current
      overhead. However, any projections of future cash needs and cash flows are
      subject to substantial uncertainty. If the Company is unable to secure such
      funding, the Company would be forced to rely on existing cash and cash from
      operations which would greatly impact their ability to complete product
      development and product rollout until such time as necessary funds were secured.



























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, 2006. Notwithstanding the foregoing, the Company is not
      entitled to rely on the safe harbor for forward looking statements under 27A
      of
      the Securities Act or 21E of the Exchange Act as long as the Company’s stock is
      classified as a penny stock within the meaning of Rule 3a51-1 of the Exchange
      Act. A penny stock is generally defined to be any equity security that has
      a
      market price (as defined in Rule 3a51-1) of less than $5.00 per share, subject
      to certain exceptions.





*Overview*





We
      began
      operations in May 1994 as a traditional 1+ long-distance reseller. Recognizing
      the declines in telecommunications service prices and the decreasing margins
      being experienced in long distance sales, we decided to sell our long distance
      customer base and assets in early 1997. Since June of 1997, we have focused
      on
      the development, testing, and deployment of voice activated telecommunications
      services that would allow any consumer the ability to “dial” their calls using
      their voice. In the last two fiscal years we have focused our efforts on service
      applications that do not utilize voice recognition and will continue to evaluate
      each product and the incorporation of voice in each product as it is developed.





Even
      though we believe voice activated products have viability in the
      telecommunications arena, we have concentrated our last two years of development
      efforts on the growing trend in mobile entertainment. We therefore contracted
      with a leading content provider to distribute their library of downloadable
      wireless games, picture messages, graphics and ring-tones. Our first content
      project was launched on June 18, 2004 with a full turnkey solution for the
      carrier that includes secure customer login from the carrier website, viewing
      of
      content, download of content, and creation of a billing record for the carriers
      billing system. This initial introduction to mobile entertainment led us to
      research the viability of additional personalized entertainment services that
      could be delivered through our network. On October 22, 2004 we announced the
      first commercial launch of a ringback service in the United States with the
      launch of our Rockin’ Ringback service. Our personalized ringback service
      provides a network-based personalized service that enables users to choose
      an
      audio file that callers will listen to while the phone is ringing. We believe
      that since we already have a relationship with the carrier and are integrated
      with these carriers customer service departments and billing departments that
      we
      have an opportunity to introduce new products with minimal integration effort.
      We will continue to research and either develop or acquire additional services
      that can be deployed through our platform. As of August 10, 2006 we had ten
      carriers providing our voice dialing service. Additionally, we had two carrier
      customers providing ringback service through our My Phone Services Suite
      platform with a possible 2.2 million addressable customer base. We have an
      additional carrier in implementation phase that we believe will launch ringback
      in the fourth quarter of 2006.





We
      have
      focused the last twenty-four months on converting our systems structure to
      a
      robust data base system which will allow for scalability and 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:





12




·
            secure
                adequate financial and human resources to meet our requirements,
                including
                adequate numbers of technical support staff to provide service for
                our
                phone company customers; ·
            establish
                and maintain relationships with phone companies; ·
            make
                sure the GAP system works with the telephone switches of all of the
                major
                manufacturers; ·
            achieve
                user acceptance for our services; ·
            generate
                reasonable margins on our services; ·
            continue
                to deploy and install GAP systems on a timely and acceptable schedule; ·
            respond
                to competitive market developments; ·
            mitigate
                risk associated with our technology by obtaining patents and copyrights
                and other protections of our intellectual
              property;
                and ·
            continually
                update and add to our product offerings to meet the needs of consumers.





Failure
      to achieve these objectives could adversely affect our business, operating
      results and financial condition. Increased competition from other providers
      of
      similar services can and have impacted our business.





*Results
      of Operations*





We
      recorded a net loss of $532,436 or $0.02 per share, for the period ended June
      30, 2006, compared to a net loss of $392,626 or $0.01 per share, for the period
      ended June 30, 2005.





*Total
      Sales*





Total
      revenue for the period ended June 30, 2006, was $230,213 compared to $142,123
      for the period ended June 30, 2005.





We
      anticipate that revenues from our revenue sharing agreements on our voice dial
      product will continue to deteriorate in the fiscal year ending March 31, 2007.
      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, 2006 was $138,450 compared to $123,857
      for
      the period ended June 30, 2005. 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.





*Selling,
      General and Administrative*





Selling,
      general and administrative expenses for the period ended June 30, 2006 were
      $317,893 compared to $379,008 for the period ended June 30, 2005. The decrease
      reflects overhead cost reductions initiated in 2005. 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, 2006 and 2005, software development costs capitalized were $8,290 and
      $10,410 respectively. The amortization of capitalized software development
      costs
      for the periods ended June 30, 2006 and 2005 was $28,413 and $24,917
      respectively.





*Other
      Income and Expense*





During
      the period ended June 30, 2006 and 2005, the Company made a sale of excess
      equipment that generated net revenue of $2,842 and $18,758.





13


*Income
      Taxes*





As
      of
      June 30, 2006, we had cumulative federal net operating losses of approximately
      $19.1 million, which can be used to offset future income subject to federal
      income tax through the fiscal year 2026. Net operating loss limitations may
      be
      imposed if changes in stock ownership of the company create a change of control
      as provided in Section 382 of the Internal Revenue Code of 1986.





*Liquidity
      and Capital Resources*





Our
      cash
      and cash equivalents at June 30, 2006 were approximately $57,995, a decrease
      of
      $151,471 from $209,466 at March 31, 2006. 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.





Due
      to
      uncertainties regarding a number of new customer contracts that are in the
      Company's sales pipeline, it is difficult for management to project the
      Company's revenue performance, operating profits or loss, or cash requirements
      for more than a few months. The Company will need to raise additional capital
      during 2006 to satisfy working capital and debt service requirements. There
      is
      no assurance that the Company will be able to raise the amount of debt or equity
      capital that may be required to meet its objectives. The Company's challenging
      financial circumstances may make the terms, conditions, and cost of any
      available capital relatively unfavorable. If additional debt or equity capital
      is not readily available, the Company will be forced to further scale back
      its
      operations, including its efforts to complete new sales. The Company's short
      term needs for capital may force it to consider and potentially pursue other
      strategic options sooner than it might otherwise have desired. These conditions
      raise substantial doubt about the Company's ability to continue as a going
      concern. The financial statements do not include any adjustments to reflect
      the
      possible future effects on the recoverability of and classification of assets,
      or the amounts and classification of liabilities that may result from the
      outcome of this uncertainty.





*Off-Balance
      Sheet Arrangements*





We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources that are material to investors.





*Future
      Obligations*





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





**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





14


*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, 2006 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.





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





Our
      Stockholders met for the 2006 Annual Meeting of the Stockholders on April 27,
      2006





At
      that
      meeting, the following directors were elected : Mary G. Merritt, Scott V.
      Ogilvie and Todd Parker. Set forth in the following chart are the matters voted
      upon and the votes cast for, against or withheld, as well as abstentions and
      broker non-votes, on each such matter:





Proposals
            For
            Withhold/
              Against
            Abstain
            Broker
                Non- VotesDirectors:Mary
                G. Merritt
            17,769,180
            147,925Scott
                V. Ogilvie
            17,764,580
            152,525Todd
                Parker
            17,769,180
            147,925Latif
                Nathani
            5,743,546
            12,173,559Amend
                Company’s 2000 Stock Plan for Incentive Stock Options and Other Equity
                Participation, as amended
            16,415,372
            1,457,033
            44,700
            0Increase
                of Authorized shares from 50,000,000 to 100,000,000
            16,512,520
            1,370,585
            34,000
            0








15





Item
      5.  Other
      Information.





None





Item
      6.
      Exhibits and Reports on Form 8-K





(a)  *Exhibits*





Exhibit
              Number
            Exhibit
              Description  31.1
            Certification
                of Chief Executive Officer and Chief Financial
                Offier


32.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002





(b)  *Reports
      on Form 8-K*





None








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.**August
                14, 2006
            
            /s/
                Mary G. MerrittDate
            
            Mary
                G. MerrittChairman
                and Chief Executive Officer(Principal
                Executive Officer)








16