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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

| (Mark One) 
:ANNUAL REPORT UNDER SECTION 13 OR   15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 **For the fiscal period ended December 31, 2006   
9
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE   EXCHANGE ACT 
For the transition period from ________to _______  
Commission File Number: **000-49768**
 
  **PREFERENTIAL EQUITIES CORP.    
(Name of small business issuer in its charter)           **Nevada  **91-2015980   
(State of other jurisdiction of incorporation or   organization)  
(I.R.S. Employer I.D. No.)          **P.O. Box 741, Bellevue, WA **98009  
(Address of principal executive offices) 
(Zip Code)          
Issuer's telephone number **(425) 453-0355** 
Securities Registered under Section 12(b) of the Exchange Act: **None**

Securities Registered pursuant to Section 12(g) of the Act:****
Title of each class
Name of each exchange on which registered**Common Stock $0.001 par value per share**NOT APPLICABLE****
Check whether the issuer is not required to file reports pursuant to Section13 or 15(d) of the Exchange Act 9
Check whether the Registrant (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the Registrant was required to file such reports) and (2)has been subject to such filing requirements for the past 90 days.

:    Yes 9    No
Check if there is no disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (229.405 of this chapter) contained herein, and no disclosurewill be contained, to the best of the Registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-KSB or any

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 amendment to this Form 10-KSB. :

Indicate by check mark whether the registrant is a shell company (as definedin Rule 12b-2 of the Exchange Act)

: Yes9 No
State Registrant's revenues for its most recent fiscal year: **$0**
State the aggregate market value of the voting and non-voting common equityheld by non-affiliates computed by reference to the price at which the commonequity was sold, or the average bid and asked prices of such common equity, asof a specified date within the past 60 days: 
**N/A****(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)**
Check whether the Registrant has filed all documents and reports required tobe filed by Section 12, 13 or 15(d) of the Exchange Act after the distributionof securities under a plan confirmed by a court. **N/A**
Yes 9 No9**(APPLICABLE ONLY TO CORPORATE REGISTRANTS)**
State the number of shares outstanding of each of the Registrant's classes ofcommon stock, as of the latest practicable date.

5,000,000 common shares issued and outstanding as of December 31, 2006.

 
**DOCUMENTS INCORPORATED BY REFERENCE****None.**
Transitional Small Business Disclosure Format (Check one): 

Yes 9 No:

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**Table of Contents**FORWARD LOOKING INFORMATION
1PART I
1 Item 1. Description of Business
1 Formation
1  Our Business
1  Employees
1  Reports to Securities Holders
1  Risk   Factors
1 Item 2. Description of Property
6 Item 3. Legal Proceedings
6 Item 4. Submissions of Matters to a   Vote of Security Holders
7PART II
7 Item 5. Market for Common Equity and   Related Stockholder Matters
7  General
7  Dividend Policy. Preferential has not paid any cash dividends   on its Common Stock and presently intends to continue a policy of retaining   earnings, if any, for reinvestment in its business
7  No Equity   Compensation Plan
7  Recent Sales of Unregistered Securities
7 Item 6. Management Discussion and Analysis or Plan of   Operations
7  2007 Business Environment
7  Plan of   Operations
7 Item 7. Financial Statements
9 Item 8. Changes In and Disagreements with Accountants on   Accounting and Financial Disclosure
20 Item 8A. Controls and Procedures
20     Evaluation of Disclosure Controls and Procedures
20  Changes in Internal Control over Financial Reporting
20Item 8B. Other Information
20PART III
20 Item 9. Directors and Executive Officers, Promoters, Control   Persons, and Corporate Governance; Compliance with Section 16(a) of the   Exchange Act
20  Identification of Directors and Executive Officers
20     Background of Officers and Directors
20  Significant Employees
21     Involvement in Certain Legal Proceedings
21  Family Relationships
21  Audit   Committee Financial Expert
21  Compliance with Section 16(a) of the Securities Exchange Act   of 1934
21  Code of   Ethics
21 Item 10. Executive Compensation
22  Summary   Compensation of Executive Officers
22  Compensation of Directors
22     Employment Contracts and Termination of Employment or Change of Control
22  Equity Compensation Plan
22 Item 11. Security Ownership of Certain Beneficial Owners and   Management and Related Stockholder Matters
23  Principle Stockholders
23  Equity   Compensation Plan
23  Changes in Control
23 Item 12. Certain Relationships and Related Transactions, and   Director Independence
23  Certain Relationships and Related Transactions
23  Director   Independence
23PART IV
24 Item 13. Exhibits, Financial Statement Schedules, and Reports   on Form 8-K
24 Item 14. Principal Accountant Fees   and Services
24SIGNATURES
25
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**FORWARD LOOKING INFORMATION**
This annual report contains forward-looking statements as that term isdefined in the Private Securities Litigation Reform Act of 1995. Thesestatements relate to future events or our future financial performance. In somecases, you can identify forward-looking statements by terminology such as "may","will", "should", "expects", "plans", "anticipates", "believes", "estimates","predicts", "potential" or "continue" or the negative of these terms or othercomparable terminology. These statements are only predictions and involve knownand unknown risks, uncertainties and other factors, including the risks in thesection entitled "Risk Factors", that may cause our or our industry's actualresults, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-lookingstatements are reasonable, we cannot guarantee future results, levels ofactivity, performance or achievements. Except as required by applicable law,including the securities laws of the United States, we do not intend to updateany of the forward-looking statements to conform these statements to actualresults.
**PART I****Item 1. Description of Business.
*Formation.***
Preferential Equities Corp. ("**Preferential**"), was incorporated onOctober 2, 2006 in the State of Nevada, to engage in any lawful corporateundertaking, including, but not limited to, selected mergers and acquisitions.Pursuant to the Articles of Incorporation, Preferential is authorized to issue100,000,000 shares of Common Stock at $0.001 par value. Each holder of theCommon Stock shall be entitled to one vote for each share of Common Stock held.As of March 28, 2007, there are 5,000,000 shares of Common Stock outstanding.
***Our Business.***
Preferential has been in the developmental stage since inception and has nooperations to date. Other than issuing shares to its shareholders, Preferentialnever commenced any operational activities. As such, Preferential can be definedas a "shell" or "blank check" company, whose sole purpose at this time is tolocate and consummate a merger or acquisition with a private entity. The Boardof Directors of Preferential has elected to commence implementation ofPreferential's principal business purpose. 

Preferential is filing this registration statement on a voluntary basisbecause the primary attraction of Preferential as a merger partner oracquisition vehicle will be its status as a reporting public company. Anybusiness combination or transaction may potentially result in a significantissuance of shares and substantial dilution to present stockholders ofPreferential. 

The proposed business activities described herein classify Preferential as a"blank check" company. Many states have enacted statutes, rules and regulationslimiting the sale of securities of "blank check" companies in their respectivejurisdictions. Harry Miller, the primary shareholder of Preferential, hasexpressed his intention that he has no plan to sell his respective shares ofPreferential's common stock until such time as Preferential has successfullyconsummated a merger or acquisition and Preferential is no longer classified asa "blank check" company, and he has also expressed his intention not to sell hisshares unless the shares are subsequently registered or if an exemption fromregistration is available.**Competition**
We will compete with other blank check companies that have a businessobjective similar to ours. Some of our competitors are the remains of failed ordiscontinued businesses. As failed or discontinued businesses, these blank checkcompanies have ceased their day-to-day operations but have maintained theirpublic corporate structure. Some of our competitors are blank check companiesthat publicly distributed shares under Rule 419 of the *Securities ExchangeAct of 1934.*Some of our competitors file reports with the Securities andExchange Commission, and some do not. Some of our competitors have securitiesthat trade in the over-the-counter securities markets, and some do not.

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We believe that the principal competitive factors in our business may besummarized as follows:
******Speed in   Completing Transaction         ** Blank check companies that are able to   consummate merger or acquisition transactions quickly are more attractive to   owners of privately-held companies than those blank check companies that must   move more slowly to consummate a transaction.   **Control Status** Blank check companies that can offer a   controlling interest to the owners of a privately-held company are more   attractive than blank check companies that cannot implement a change in   control.   **Trading Status** Blank check companies that are listed for   trading or eligible for immediate listing are generally more attractive than   blank check companies that will be required to pursue a listing at a future   date.   **Available   Resources** Blank check companies that have available   resources, particularly cash resources, are generally more attractive than   blank check companies that have no available resources.   **Prior Operations** Blank check companies that have no prior   operations are generally more attractive than blank check companies that have   prior operations and the potential for contingent liabilities.   **Stock   Distribution** Blank check companies that have a substantial   number of existing stockholders and a relatively even distribution of stock   ownership are generally more desirable than blank check companies that have a   small number of stockholders, or a few stockholders who control large blocks   of stock. 
We believe Preferential will remain an insignificant participant among thecompanies which engage in the acquisition of business opportunities. There aremany established venture capital and financial concerns which have significantlygreater financial and personnel resources and technical expertise thanPreferential. In view of Preferential's combined extremely limited financialresources and limited management availability, Preferential will continue to beat a significant competitive disadvantage compared to Preferential'scompetitors.****
Research and Development.

Our Lack of Market Research or Marketing Organization Could Adversely AffectOur Ability to Successfully Find and Conclude a Merger or Acquisition.Preferential has neither conducted, nor have others made available to it,results of market research indicating that market demand exists for thetransactions contemplated by Preferential. Moreover, Preferential does not have,and does not plan to establish, a marketing organization. Even in the eventdemand is identified for a merger or acquisition contemplated by Preferential,there is no assurance Preferential will be successful in completing any suchbusiness combination.**Environmental Compliance.**
The nature of Preferential's business does not require special environmentalor local government approval. Preferential is compliant with all environmentallaws. There is no cost to Preferential for such compliance.
**Government Regulation.**
**Securities Exchange Act of 1934, as amended, (the "1934Act")**. Sections 13 and 15(d) of the 1934 Act requires companies subjectthereto to provide certain information about significant acquisitions, includingcertified financial statements for the company acquired, covering one, two, orthree years, depending on the relative size of the acquisition. The time andadditional costs that may be incurred by some target entities to prepare suchstatements may significantly delay or essentially preclude consummation of anotherwise desirable acquisition by the Company. 

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Acquisition prospects that do not have or are unable to obtainthe required audited statements may not be appropriate for acquisition so longas the reporting requirements of the 1934 Act are applicable. 

**New SEC Shell Company Rules**. On June 29, 2005,the Securities and Exchange Commission adopted final rules amending the Form S-8and the Form 8-K for shell companies. These rules were published in the FederalRegister on July 21, 2005 and were made effective as of August 22, 2005, exceptfor an amendment to Item 5.06 of the Form 8-K that became effective on November5, 2005. The amendments expand the definition of a shell company to be a companywith no or nominal operations, assets consisting of cash and cash equivalents,or assets consisting of any amount of cash and cash equivalents and nominalother assets. Shell companies, as a result of these rule changes:
- are now prohibited from using Form S-8 (the abbreviated registration statement used to register securities issued under employee benefit plans) until 60 days after it ceases to be a shell company;;
- must include current Form 10 or Form 10-SB information, including audited financial statements in the Form 8-K that the shell company files to report an event that causes it to cease being a shell company;
- must file financial statements within four days about the transaction; and 
- where an operating company acquires a shell company and the operating company survives the transaction; the operating company will have acquired control of the shell for purposes of the definition of "succession" under the final rules and the operating company, as the surviving entity, will be required to file a Form 8-K under Item 5.01. 

Prior to the new rules, financial statements of the acquiredprivate company were not required to be filed on Form 8-K until 75 days aftercompletion of the merger or acquisition. Also, detailed information about thebusiness and management of the acquired private company was not required untilthe reporting company filed its next annual report on Form 10-KSB. As a result,securities of the new entity could be traded for up to 75 days with investorshaving little or no access to vital information about the acquired privatecompany. These rule changes will add additional cost onto completing a merger oracquisition transaction and may make us less attractive as a means of goingpublic.

**Sarbanes-Oxley Act of 2002**. On July 30, 2002,President Bush signed into law the Sarbanes-Oxley Act of 2002, or the SOA. SOAimposes a wide variety of new requirements on both U.S. and non-U.S. companies,that file or are required to file periodic reports with the SEC (the "SEC")under the Securities Exchange Act of 1934. Many of these new requirements willeffect us and our board of directors. For instance, under SOA we are requiredto:
- form an audit committee in compliance with SOA;
- our chief executive office and chief financial officer are required to certify our financial statements;  ensure our directors and senior officers are required to forfeit all bonuses or other incentive-based compensation and profits received from the sale of our securities in the twelve month period following initial publication of any of our financial statements that later require restatement; 
- disclose any off-balance sheet transactions as required by SOA;
- prohibit all personal loans to directors and officers;
- ensure directors, officers and 10% holders file their Forms 4's within two days of a transaction; 
- adopt a code of ethics and file a Form 8-K whenever there is a change or waiver of this code; and ensure our auditor is independent as defined by SOA.

SOA has required us to review our current procedures andpolicies to determine whether they comply with the SOA and the new regulationspromulgated thereunder. We will continue to monitor our compliance with allfuture regulations that are adopted under the SOA and will take whatever actionsare necessary to ensure that we are in compliance. 

**Investment Company Act of 1940**. Although we aresubject to regulation under the Securities Act of 1933 and the SecuritiesExchange Act of 1934, we believe Preferential will not be subject to regulationunder the Investment Company Act of 1940 insofar as we are not engaged in thebusiness of investing or trading in securities. In the event that we engage in abusiness combination which results in us holding passive investment interests ina number of entities, we could be subject to regulation under the InvestmentCompany Act of 1940. In such an event, we would be required to register as aninvestment company and could be expected to incur significant registration andcompliance costs. We have obtained no formal determination from the SEC as tothe status of Preferential under the Investment Company Act of 1940 and,consequently, any violation of such Act would subject us to material adverseconsequences. Preferential presently believes it is exempt from the InvestmentCompany Act of 1940 via Regulation 3a-2 thereto. 

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***Investment Advisor Act of 1940. We are not an "investmentadviser" under the *Federal Investment Adviser Act of 1940*, whichclassification would involve a number of negative considerations. Accordingly,we do not and will not furnish or distribute advice, counsel, publications,writings, analysis or reports to anyone relating to the purchase or sale of anysecurities within the language, meaning and intent of Section 2(a)(11) of the *Investment Adviser Act of 1940*, 15 U.S.C. ***Employees.***

We have no full time or part time employees. Harry Miller,our president, has agreed to allocate a portion of his time to our activities,without compensation. We anticipate that our business plan can be implementedthrough the efforts of Mr. Miller who devotes up to 5% of his work week to ourbusiness affairs, consequently, conflicts of interest may arise with respect tothe limited time commitment by Mr. Miller. 
*Reports to Securities Holders.*
We are required to file annual reports on Form 10-KSB and quarterly reportson Form 10-QSB with the SEC on a regular basis, and will be required to timelydisclose certain material events (e.g., changes in corporate control;acquisitions or dispositions of a significant amount of assets other than in theordinary course of business; and bankruptcy) in a current report on Form 8-K.

You may read and copy any materials we file with the SEC at their PublicReference Room Office, 100 F Street, NE, Room 1580, Washington, D.C. 20549-0102.You may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internetsite (http://www.sec.gov) that contains reports, proxy and informationstatements and other information regarding issuers that file electronically withthe SEC.
***Risk Factors.*****Risks Related to Our Business and Industry****Preferential Has No Operating History That Can Be Used to Evaluate its FutureBusiness Prospects. Preferential was incorporated in the state of Nevada onOctober 2, 2006. Preferential has had no operating history nor any revenues orearnings from operations since inception. Preferential has little or no tangibleassets or financial resources. Preferential will, in all likelihood, continue tosustain operating expenses without corresponding revenues, at least until theconsummation of a business combination. This may result in Preferentialincurring a net operating loss which will increase continuously untilPreferential can consummate a business combination with a profitable businessopportunity.
**There Is No Assurance That Preferential's Proposed Operations Will BeSuccessful. The success of Preferential's proposed plan of operation willdepend to a great extent on the operations, financial condition and managementof the identified business opportunity. While management intends to seekbusiness combination(s) with entities having established operating histories,there can be no assurance that Preferential will be successful in locatingcandidates meeting such criteria. In the event Preferential completes a businesscombination, of which there can be no assurance, the success of Preferential'soperations may be dependent upon management of the successor firm or venturepartner firm and numerous other factors beyond Preferential's control. There isno assurance that Preferential can identify such a business opportunity andconsummate such a business combination. Preferential's sole officer and directordoes not have any direct experience with black check companies or relatedtransactions. Preferential has not made any attempts to negotiate or consummatea merger with, or acquisition of, a private company.
**Risks Related to Owning Our Common Stock

State Blue Sky Registration Laws Will Restrict the Resales of thePreferential's Stock. Transferability of the shares of Common Stock ofPreferential is very limited because a significant number of states have enactedregulations pursuant to their securities or so-called "blue sky" lawsrestricting or, in many instances, prohibiting, the 

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initial sale and subsequent resale of securities of "blank check" companiessuch as Preferential within that state. In addition, many states, while notspecifically prohibiting or restricting "blank check" companies, would notregister the securities of Preferential for sale or resale in their states.Because of these regulations, Preferential currently has no plan to register anysecurities of Preferential with any state. To ensure that any state laws are notviolated through the re-sales of the securities of Preferential, Preferentialwill refuse to register the transfer of any securities of Preferential, toresidents of any state, which prohibit such resale or if no exemption isavailable for such resale. It is not anticipated that a secondary trading marketfor Preferential's securities will develop in any state until subsequent toconsummation of a Business Combination, if at all.
**Preferential Will Face Scarcity of and Competition for Business Opportunitiesand Combinations and as a Result May Never Complete a Merger or Acquisition.Preferential is and will continue to be an insignificant participant in thebusiness of seeking mergers with, joint ventures with and acquisitions of smallprivate and public entities. A large number of established and well-financedentities, including venture capital companies, are active in mergers andacquisitions of companies which may be desirable target candidates forPreferential. Nearly all such entities have significantly greater financialresources, technical expertise and managerial capabilities than Preferentialand, consequently, Preferential will be at a competitive disadvantage inidentifying possible business opportunities and successfully completing abusiness combination. Moreover, Preferential will also compete in seeking mergeror acquisition candidates with numerous other small public companies.
**Preferential Has Not Entered into an Agreement for a SpecificBusiness Combination or Other Transaction and May Never be Successful in Findingor Concluding Such an Agreement. Preferential has no arrangement, agreementor understanding with respect to engaging in a merger with, joint venture withor acquisition of, a private or public entity. There can be no assurancePreferential will be successful in identifying and evaluating suitable businessopportunities or in concluding a business combination. Management has notidentified any particular industry or specific business within an industry forevaluation by Preferential. There is no assurance Preferential will be able tonegotiate a business combination on terms favorable to Preferential.Preferential has not established a specific length of operating history or aspecified level of earnings, assets, net worth or other criteria which it willrequire a target business opportunity to have achieved, and without whichPreferential would not consider a business combination in any form with suchbusiness opportunity. Accordingly, Preferential may enter into a businesscombination with a business opportunity having no significant operating history,losses, limited or no potential for earnings, limited assets, negative net worthor other negative characteristics.
**Mr. Miller, Our Sole Director and Officer, Will Only Devote PartTime Efforts to Preferential Due to His Involvement in Other Business InterestsWhich May Further Limit Our Likelihood of Success. While seeking a businesscombination, Harry Miller, President of Preferential anticipates devoting up toten hours per month to the business of Preferential. Harry Miller will be theonly person responsible in conducting the day to day operations of Preferentialincluding searches, evaluations, and negotiations with potential merger oracquisition candidates. Preferential has not entered into any written employmentagreement with Harry Miller and is not expected to do so in the foreseeablefuture. Preferential has not obtained key man life insurance on Harry Miller.The loss of the services of Harry Miller would adversely affect development ofPreferential's business and its likelihood of continuing operations. 
**Preferential May Have Potential Business Conflict of Interestswith Other Companies Formed by Mr. Miller, the Resolution of Which May NotNecessarily Be Favorable to Us . Harry Miller may in the future participatein business ventures which could be deemed to compete directly withPreferential. Additional conflicts of interest and non-arms length transactionsmay also arise in the future in the event Preferential's current and futureofficers or directors are involved in the management of any firm with whichPreferential transacts business. Management has adopted a policy thatPreferential will not seek a merger with, or acquisition of, any entity in whichmanagement serve as officers, directors or partners, or in which they or theirfamily members own or hold any ownership interest. 
**Our Lack of Market Research or Marketing Organization CouldAdversely Affect Our Ability to Successfully Find and Conclude a Merger orAcquisition. Preferential has neither conducted, nor have others madeavailable to it, results of market research indicating that market demand existsfor the transactions contemplated by Preferential. Moreover, Preferential doesnot have, and does not plan to establish, a marketing organization. Even in theevent demand is identified for a merger or acquisition contemplated byPreferential, there is no assurance Preferential will be successful incompleting any such business combination.
**Preferential Will Face Significant Legal Requirements That Havethe Potential to Subject Us to Substantial Liability and Increase Our Costs ofDoing Business if It is Characterized as an Investment Company. 

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Although Preferential will be subject to regulation under the *Securities Exchange Act of 1934*, management believes Preferential will notbe subject to regulation under the *Investment Company Act of 1940*,insofar as Preferential will not be engaged in the business of investing ortrading in securities. In the event Preferential engages in businesscombinations which result in Preferential holding passive investment interestsin a number of entities, Preferential could be subject to regulation under the*Investment Company Act of 1940.*In such event, Preferential would berequired to register as an investment company and could be expected to incursignificant registration and compliance costs. Preferential has obtained noformal determination from the Securities and Exchange Commission as to thestatus of Preferential under the *Investment Company Act of 1940*and,consequently, any violation of such Act would subject Preferential to materialadverse consequences.
**The Successful Completion of a Merger or Acquisition TransactionWill Likely Result in a Change in Control And Our Current Management Will NotHave Any Power to Influence Preferential after a Consummated Merger orAcquisition Transaction. A business combination involving the issuance ofPreferential's Common Shares will, in all likelihood, result in shareholders ofa private company obtaining a controlling interest in Preferential. Any suchbusiness combination may require management of Preferential to sell or transferall or a portion of Preferential's Common Shares held by them, or resign asmembers of the Board of Directors of Preferential. The resulting change incontrol of Preferential could result in the removal of Harry Miller and acorresponding reduction in or elimination of his participation in the futureaffairs of Preferential.
**Preferential May Face Significant Delays and Disadvantages if itEmbarks Upon a Blank Check Offering Prior to Completion of A Merger orAcquisition. Preferential may enter into a business combination with anentity that desires to establish a public trading market for its shares. Abusiness opportunity may attempt to avoid what it deems to be adverseconsequences of undertaking its own public offering by seeking a businesscombination with Preferential. Such consequences may include, but are notlimited to, time delays of the registration process, significant expenses to beincurred in such an offering, loss of voting control to public shareholders andthe inability or unwillingness to comply with various federal and state lawsenacted for the protection of investors.
**Taxation Concerns May Influence Whether a Future IdentifiedBusiness Opportunity Proceeds. Federal and state tax consequences will, inall likelihood, be major considerations in any business combination Preferentialmay undertake. Currently, such transactions may be structured so as to result intax-free treatment to both companies, pursuant to various federal and state taxprovisions. Preferential intends to structure any business combination so as tominimize the federal and state tax consequences to both Preferential and thetarget entity; however, there can be no assurance that such business combinationwill meet the statutory requirements of a tax- free reorganization or that theparties will obtain the intended tax-free treatment upon a transfer of stock orassets. A non-qualifying reorganization could result in the imposition of bothfederal and state taxes which may have an adverse effect on both parties to thetransaction.
**Requirement of Audited Financial Statements May DisqualifyBusiness Opportunities. Section 13 and 15(d) of the *Securities ExchangeAct of 1934*(the "Exchange Act"), require companies subject thereto toprovide certain information about significant acquisitions, including certifiedfinancial statements for Preferential acquired, covering one, two or threeyears, depending on the relative size of the acquisition. The time andadditional costs that may be incurred by some target entities to prepare suchstatements may preclude consummation of an otherwise desirable acquisition byPreferential. Acquisition prospects that do not have or are unable to obtain therequired audited financial statements may not be appropriate for acquisition solong as the reporting requirements of the*Securities Exchange Act of 1934*are applicable. ******Item 2.Description of Property.**
Preferential currently maintains a mailing address at P.O. Box 741, Bellevue,Washington 98009, which is the address of its President. Preferential pays norent for the use of this mailing address. Preferential does not believe that itwill need to maintain an office at any time in the foreseeable future in orderto carry out its plan of operations described herein.
**Item 3. Legal Proceedings.**
Preferential is not a party to any legal proceedings.

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**Item 4. Submissions of Matters to a Vote of SecurityHolders.**
No matter was submitted during the fourth quarter of our fiscal year to avote of our security holders through the solicitation of proxies or otherwise.
**PART II****Item 5. Market for Common Equity and Related StockholderMatters.
*General.***
Preferential's Common Stock has never been traded. It is unlikely thatPreferential's stock will be accepted for trading on any exchange or quotationsystem until completion of a merger or acquisition. It is likely if any suchtrading market developed it would be on one the over the counter markets and beconsidered a "penny stock". There is no assurance that a trading market willever develop or, if such a market does develop, that it will continue. 

As of March 28, 2007, we had one stockholder of recordholding 5,000,000 common shares. 
***Dividend Policy.Preferential has not paid any cash dividends on its Common Stock and presentlyintends to continue a policy of retaining earnings, if any, for reinvestment inits business.******No Equity CompensationPlan.***
Preferential does not have an equity compensation plan and does not plan toimplement such a plan.
***Recent Sales ofUnregistered Securities.On October 2, 2006, we issued 5,000,000 shares of our Common Stock to Mr.Miller, for an aggregate total of $5,000. We relied on the exemption provided bySection 4(2) of the *Securities Act of 1933*, as amended, for the issuanceof these securities. All of these shares are "restricted" shares as defined inRule 144 under the *Securities Act of 1933*, as amended. These shares maynot be offered for public sale except under Rule 144, or otherwise, pursuant to*Securities Act of 1933*.
**Item 6. Management Discussion and Analysis or Plan ofOperations.
*2007 Business Environment.***
Interest in becoming public, either through an initial publicoffering or through a merger with a reporting company increased in 2006.Although our President, Mr. Miller, has reviewed a number of proposals he didnot find one which he believed to be suitable for Preferential. Managementbelieves the securities market in 2007 will be stronger than they have been thatpast five years. If, however, the markets remain unstable in 2007 it may be thatwe will be unable to complete a merger or acquisition with a suitable businesscandidate this year despite our investigation of interested parties.
***Plan of Operations.***
Our business purpose is to seek, investigate and, if suchinvestigation warrants, merge or acquire an interest in business opportunitiespresented to us by persons or companies who or which desire to seek theperceived advantages of a *Securities Exchange Act of 1934*registeredcorporation. We have not restricted our search to any specific business,industry, or geographical location and we may participate in a business ventureof virtually any kind or nature. This discussion of the proposed business ispurposefully general and is not meant to be restrictive of our virtuallyunlimited discretion to search for and enter into potential businessopportunities. We may seek a business opportunity with entities which haverecently commenced operations, or which wish to utilize the public marketplacein order to raise additional capital in order to expand into new products ormarkets, to develop a new product or service, or for other corporate purposes.We may acquire assets and establish wholly-owned subsidiaries in variousbusinesses or acquire existing businesses as subsidiaries.

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Mr. Miller has limited experience in managing companiessimilar to Preferential and we shall now be relying upon hisefforts inaccomplishing the business purposes of Preferential. It is not anticipated thatany outside consultants or advisors will be utilized by Preferential toeffectuate its business purposes described herein. However, if Preferential doesretain such an outside consultant or advisor, any cash fee earned by such partywill need to be paid by the prospective merger/acquisition candidate, asPreferential has no cash assets with which to pay such obligation. There havebeen no contracts or agreements with any outside consultants and none areanticipated in the future.
**Marketing. Mr. Miller, our President, has contacted acouple of broker-dealer, venture capitalist and other members of the financialcommunity who he had a pre-existing relationship and who were likely to haveclients, associates and contacts interested in a blank check company such asPreferential. To date, Mr. Miller has reviewed the business plans and met theprincipals of at least two potential reverse merger/acquisition candidates. Mr.Miller did not, however, find a suitable privately held company seeking toconsummate a reverse merger/acquisition transaction. Mr. Harry Miller plans oncontinuing to tap into his extensive network of business contacts in NorthAmerica in seeking a suitable business entity to consummate a reversemerger/acquisition transaction for Preferential. Mr. Miller has not identified aspecific potential merger or acquisition candidate at this time.
**Evaluation of Acquisition Opportunities. Mr. Millerwill obtain from potential private company candidates written materialsregarding these privately held companies prior to considering a reversemerger/acquisition transaction with said companies. Mr. Miller plans onrequesting or will request such items as:
- a description of products, services and company history;
- management resumes;
- available projections with related assumptions upon which they are based;
- an explanation of proprietary products and services;
- evidence of existing patents, trademarks or service marks or rights thereto;
- present and proposed forms of compensation to management;
- a description of transactions between the privately-held company and its affiliates during relevant prior periods;
- a description of present and required facilities;
- an analysis of risks and competitive conditions;
- a financial plan of operation and estimated capital requirements;  **audited
 financial statements; and
other information deemed relevant.

Mr. Miller will endeavor to personally meet with managementand key personal of companies which he considers are serious candidates forconcluding a reverse merger or acquisition. Preferential will also attempt toobtain independent analysis or verification of certain information provided,check references of management and key personnel and take other reasonableinvestigative measures, to the extent of Preferential's limited financialresources. Preferential will not acquire or merge with any company for whichcurrent audited financial statements cannot be obtained prior to or within areasonable period of time after closing of the proposed transaction. 

Mr. Miller intends to take into consideration the followingfactors when analyzing a company for its potential as a reversemerger/acquisition candidate:
- potential for growth, indicated by new technology, anticipated market expansion or new products;
- competitive position compared to other companies of similar size and experience within the privately-held company's industry segment as well as within the industry as a whole;
- strength and diversity of management; either in place or scheduled for recruitment;
- capital requirements and anticipated availability of required funds to be provided by us or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
- the extent to which the business of the privately-held company can be advanced; 
- The regulatory environment within the privately-held company's industry;

8
- the market performance of equity securities of similarly situated companies in the privately-held company's industry; and
- reputation of owners, principals and/or managers for complying with and not violating federal and/or state securities laws.

The time, effort and expense required to evaluate aprivately-held company for a reverse merger/acquisition transaction withPreferential and to effectuate such a transaction cannot be predicted with anydegree of accuracy. Preferential does not have any full-time employees and Mr.Miller, the sole unpaid employee of Preferential, is not required to devote anyspecific amount of time to the business of Preferential.

Preferential does not intend to merge with or acquire abusiness or company in which Mr. Miller has, directly or indirectly, anownership interest in. 
**Treatment of Reverse Merger/Acquisition Transaction.The SEC considers a reverse merger/acquisition transaction to be a capitaltransaction in substance, rather than a business combination. That is, thetransaction will be equivalent to the issuance of stock by the privately-heldcompany for the net monetary assets of Preferential, accompanied by arecapitalization. As a result, the post-reverse merger/acquisition comparativehistorical financial statements for Preferential will be those of theprivately-held company, with appropriate footnote disclosure concerning thechanges in the capital structure of the privately-held company, effected at thereverse merger/acquisition transaction date.
**Cost Projections. It is anticipated that Preferentialwill incur nominal expenses in the implementation of its business plan. Our maincost is related to compliance with our ongoing reporting issuer obligations withthe SEC. Because Preferential has no capital with which to pay these anticipatedexpenses, Tokay has verbally agreed to pay these charges with its personalfunds. Any monies loaned to Preferential by Tokay will be unsecured and non-interest bearing. We expect that any loans made to us by Tokay will be repaidfrom cash generated from our operations after we have merged or acquired aprivately held company. Tokay has agreed that the repayment of any loans made byit to Preferential will not impede, or be made conditional in any manner, toconsummation of a proposed transaction. 
**Item 7. Financial Statements.**
The financial statements and schedules that constitute Item 7 of Form 10-KSBimmediately follow on the next page. 

9

**PREFERENTIAL EQUITIES CORP.
Index

 **
Report of Independent Registered Public   Accounting Firm                                                                                                                 
 1 
   Financial Statements:  
 
            Balance Sheet - December 31, 2006         
2 
   
            Statement of Operations - October 2, 2006 - December 31, 2006               
    3 
   
            Statement of Stockholders' Equity - October 2, 2006 - December 31, 2006          
   4 
   
            Statement of Cash Flows - October 2, 2006 - December 31, 2006              
  5 
                                                                                                               Notes to Financial Statements    
     6-9 
10

GEORGE STEWART, CPA2301 SOUTH JACKSON STREET, SUITE 101-GSEATTLE, WASHINGTON 98144(206) 328-8554 FAX(206) 328-0383
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 

To the Board of DirectorsPreferential Equities Corp.

I have audited the accompanying balance sheet of Preferential Equities Corp. (ADevelopment Stage Company) as of December 31, 2006, and the related statement ofoperations, stockholders' equity and cash flows for the period from October 2,2006 (inception) to December 31, 2006. These financial statements are theresponsibility of the Company's management. My responsibility is to express anopinion on these financial statements based on my audit.

I conducted my audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that I planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. I believe that my audit provides a reasonablebasis for my opinion.

In my opinion, the financial statements referred to above present fairly, inall material respects, the financial position of Preferential Equities Corp., (ADevelopment Stage Company) as of December 31, 2006, and the results of itsoperations and cash flows from October 2, 2006 (inception) to December 31, 2006in conformity with generally accepted accounting principles in the United Statesof America.

The accompanying financial statements have been prepared assuming the Companywill continue as a going concern. As discussed in Note #3 to the financialstatements, the Company has had no operations and has no established source ofrevenue. This raises substantial doubt about its ability to continue as a goingconcern. Management's plan in regard to these matters is also described in Note# 3. The financial statements do not include any adjustments that might resultfrom the outcome of this uncertainty.

 

/s/ George Stewart, CPA 

Bellevue, WashingtonMarch 24, 2007

11
** ****Preferential Equities Corp.    (A Development Stage Company)   Balance Sheet            
         **ASSETS
 **As of   December 31,   2006**** **Current Assets**Cash 
     $  
                -Subscription Receivable
3,000     **Total Current   Assets**
3,000  **TOTAL ASSETS**   $    
**3,000**    **LIABILITIES & STOCKHOLDERS' EQUITY **Current   Liabilities**Accounts Payable                      $  
0    **Total Current   Liabilities**
      - **Total Liabilities**
     - **Stockholders'   Equity**Common stock, ($0.001   par value, 100,000,000 shares authorized; 5,000,000   shares issued and outstandingas of December 31,   2006
5,000 Additional paid-in   capital
       - Deficit accumulated   during exploration stage
(2,000)    **Total   Stockholders' Equity**
3,000 **TOTAL LIABILITIES &** **STOCKHOLDERS' EQUITY**               $  
**3,000** ***See Notes to Financial Statements***
12
********Preferential Equities Corp.    (A Development Stage Company)   Statement of Operations ** ** **October 2, 2006**(inception) **through **December 31,**2006** **Revenues** Revenues
$
-  **Total Revenues**
- **General & Administrative Expenses**
2,000   **Total General & Administrative Expenses**
**(2,000)**** ****Net   Income (Loss)**$
**(2,000)** **Basic earnings per share**$
(0.00) **Weighted average number of****common shares outstanding**
5,000,000  ***See Notes to Financial Statements

13
**Preferential Equities Corp.  (A Development Stage Company)  Statement of Changes in Stockholders' Equity   From October 2, 2006 (Inception) through December 31, 2006                    **Deficit    **Common**Common**Additional **Accumulated  **Stock**Stock**Paid-in**During **Total  **Amount**Capital**Development  **Stage  ** ** 
 ** ** 
 ** ** ** **   **Balance, October 2, 2006****- 
$** - 
$** - 
$**- 
$** -  Stock  issued for cash on October 2, 2006             @  $0.001 per share
5,000,000 
5,000 
- 
- 
5,000  Net  loss, December 31, 2006
(2,000)
(2,000)          
 

 **Balance, December 31, 2006****5,000,000 **$ ** 5,000 **$ ** - **$ ** (2,000)** $**3,000 
 ***See Notes to Financial Statements

14
**Preferential Equities Corp.   (A Development Stage Company)   Statement of Cash Flows     **CASH FLOWS FROM OPERATING ACTIVITIES****October 2, 2006   (inception)    through    December 31,   2006   Net income (loss)   
$
(2,000)    Adjustments to   reconcile net loss to net cash  provided by (used   in) operating activities:  Changes in   operating assets and liabilities: Subscription   Receivable
(3,000)       ***Net cash   provided by (used in) operating activities***
**(5,000) ** **CASH FLOWS FROM INVESTING ACTIVITIES**    ***Net cash   provided by (used in) investing activities***
**      -  ** **CASH FLOWS FROM FINANCING ACTIVITIES**  Issuance of common   stock
5,000   Additional paid-in   capital
 -       ***Net cash   provided by (used in) financing activities***
**5,000 **  ** **  ***Net increase   (decrease) in cash***
**     -   **  ***Cash at   beginning of period***
**-   **    ***Cash at end   of year***
$
**-    ** ** ** **SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION** Cash   paid during year for:  Interest
$
-       Income Taxes
$
-     ***See Notes to Financial Statements
****
15
**PREFERENTIAL EQUITIES CORP.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2006

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS**
Preferential Equities, Corp. (the Company) was incorporatedunder the laws of the State of Nevada on October 2, 2006. The Company ispursuing their business as may be necessary, convenient or desirable toaccomplish.

The Company is in the development stage. Its activities todate have been limited to capital formation, organization and development of itsbusiness plan. The Company has not commenced operations.
**NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES****a.   Basis of Accounting
The Company's financial statements are prepared using theaccrual method of accounting. The Company has elected a December 31, year-end.
**b.   Basic Earnings per Share**
In February 1997, the FASB issued Statement of FinancialAccounting Standards ("SFAS") No. 128, "Earnings Per Share", which specifies thecomputation, presentation and disclosure requirements for earnings (loss) pershare for entities with publicly held common stock. SFAS No. 128 supersedes theprovisions of APB No. 15, and requires the presentation of basic earnings (loss)per share and diluted earnings (loss) per share. The Company has adopted theprovisions of SFAS No. 128 effective October 2, 2006 (date of inception). 

Basic net loss per share amounts is computed by dividing thenet loss by the weighted average number of common shares outstanding. Dilutedearnings per share are the same as basic earnings per share due to the lack ofdilutive items in the Company. 
**c.   Cash Equivalents**
The Company considers all highly liquid investments purchasedwith an original maturity of three months or less to be cash equivalents.
**d.   Use of Estimates and Assumptions
The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during 

16
**PREFERENTIAL EQUITIES CORP.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2006

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**
the reporting period. Actual results could differ from thoseestimates. In accordance with FASB 16 all adjustments are normal and recurring.
**e.   Income Taxes
Income taxes are provided in accordance with SFAS 109,"Accounting for Income Taxes". A deferred tax asset or liability is recorded forall temporary differences between financial and tax reporting and net operatingloss carryforwards. Deferred tax expense (benefit) results from the net changeduring the year of deferred tax assets and liabilities.

Deferred tax assets are reduced by a valuation allowancewhen, in the opinion of management, it is more likely than not that some portionof all of the deferred tax assets will be realized. Deferred tax assets andliabilities are adjusted for the effects of changes in tax laws and rates on thedate of enactment. 

**NOTE 3. GOING CONCERN**
The accompanying financial statements are presented on agoing concern basis. The Company had no operations during the period fromOctober 2, 2006 (date of inception) to December 31, 2006, generated no revenues,and incurred losses of $ 2,000. This condition raises substantial doubt aboutthe Company's ability to continue as a going concern. Because the Company iscurrently in the development stage and has minimal expenses, management believesthat the company's current cash of $3,000 is sufficient to cover the expensesthey will incur during the next twelve months in a limited operations scenarioor until they raise additional funding.  

**NOTE 4. WARRANTS AND OPTIONS****
There are no warrants or options outstanding to acquire anyadditional shares of common stock. 

**NOTE 5. RELATED PARTY TRANSACTIONS**
The sole officer and director of the Company may, in thefuture, become involved in other business opportunities as they becomeavailable, he may face a conflict in selecting between the Company and his otherbusiness opportunities. The Company has not formulated a policy for theresolution of such conflicts.

Harry Miller, sole officer and director of the Company, willnot be paid for any underwriting services that he performs on behalf of theCompany with respect to the Company's upcoming SB-2 offering. He will also notreceive any interest on any funds that he advances to the Company for offeringexpenses prior to the offering being closed which will be repaid from theproceeds of the offering.
****
17
**PREFERENTIAL EQUITIES CORP.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2006********NOTE 6. INCOME TAXES** **As of December  31, 2006  Deferred tax assets:
300    Net operating tax carryforwards
$ -0-    Other
-0-    Gross deferred tax assets
-0-    Valuation allowance
(300)    Net deferred tax  assets
$ -0-    
Realization of deferred tax assets is dependent uponsufficient future taxable income during the period that deductible temporarydifferences and carryforwards are expected to be available to reduce taxableincome. As the achievement of required future taxable income is uncertain, theCompany recorded a valuation allowance. 

**NOTE 7. NET OPERATING LOSSES**
As of December 31, 2006, the Company has net operating losscarryforwards of $2,000. Net operating loss carryforward expires twenty yearsfrom the date the loss was incurred. 

**NOTE 8. STOCK TRANSACTIONS**
Transactions, other than employees' stock issuance, are inaccordance with paragraph 8 of SFAS 123 "Share-Based Payment". Thus issuancesshall be accounted for based on the fair value of the consideration received.Transactions with employees' stock issuance are in accordance with paragraphs(16-44) of SFAS 123. These issuances shall be accounted for based on the fairvalue of the consideration received or the fair value of the equity instrumentsissued, or whichever is more readily determinable. 

On October 2, 2006 the Company issued a total of 5,000,000shares of common stock to a director for cash in the amount of $0.001 per sharefor a total of $5,000.

18
**PREFERENTIAL EQUITIES CORP.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2006

 

NOTE 8. STOCK TRANSACTIONS (Continued)**
As of December 31, 2006 the Company had 5,000,000 shares ofcommon stock issued and outstanding. 

**NOTE 9. STOCKHOLDERS' EQUITY**
The stockholders' equity section of the Company contains thefollowing classes of capital stock as of December 31, 2006:

Common stock, $ 0.001 par value: 100,000,000 sharesauthorized; 5,000,000 shares issued and outstanding.

19
**Item 8. Changes In and Disagreements with Accountants onAccounting and Financial Disclosure.**
Preferential has not changed accountants since its formation and there are nodisagreements with the findings of said accountants.
**Item 8A. Controls and Procedures.
*Evaluation of Disclosure Controls and Procedures***
Mr. Miller has evaluated the effectiveness of our disclosure controls andprocedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the periodcovered by this report. Based on that evaluation, she has concluded that ourcurrent disclosure controls and procedures are effective. 
***Changes in Internal Control over Financial Reporting***
There was no change during the fiscal year ended December 31, 2006 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.
**Item 8B. Other Information.**
None
**PART III****Item 9. Directors and Executive Officers, Promoters,Control Persons, and Corporate Governance; Compliance with Section 16(a) of theExchange Act.
*Identification of Directors and Executive Officers***
The following table sets forth the names, positions and ages of our executiveofficer and directors. 
**Name****Age****Position****Since**    Harry Miller72President, CEO, CFO, Treasurer,  Principal Accounting Officer, Secretary and DirectorOctober 2, 2006
Ms. Pineda has held the above offices/positions since inception and isexpected to hold said offices/positions until the next meeting of stockholders.
***Background of Officers and Directors***
The principal occupation and business experience during the last five yearsfor each of our present director and executive officer is as follows:

Harry Miller, has been President, Chief Executive Officer, Secretary,Treasurer, Acting Chief Financial Officer and sole director of Preferentialsince October 2, 2006. Mr. Miller has years of experience in starting newenterprises; having spent the last thirty years in forming many companies andproviding consulting services to a variety of businesses. Many of thesecompanies were in the medical products and health care industries. Currently heis associated with Eastside Mortgage, LLC. of Bellevue, Washington where hemaintains a real estate license and analyzes funding proposals, primarilyconstruction loans for his investment portfolio and that of the principal of thefirm. In 1991, Mr. Miller established Solar Health Care of Florida, investing inthe Medicaid HMO industry. As CEO of Solar Health Care, he developed itsbusiness plan that included leasing office space, preparing and filing thecomplex application to the state, hiring staff and negotiating the purchase ofan existing HMO. During the subsequent five year period, Mr. Miller entered intoa contractual arrangement to provide medical care to over 8,000 patients. 

20

At the end of his tenure intense competitive pressures caused the company tobe wound up. Mr. Miller is the former director and officer of the followingreporting issuers: (1) Coronation Acquisition Corp., a former blank checkcompany, now known as Supreme Realty Investments, Inc. ("SRLT.OB"); (2) BlackGardenia Corp., a former blank check company, now known as Asia InteractiveMedia Inc.; (3) Medina Coffee, Inc., an espresso cart and cafe company, nowknown as China Bak Battery Inc. ("CBBT.OB"); and Dentalserv.com, a dentalsoftware company which changed control in December 2006 ("DSRV.OB"). 
***Significant Employees.***
Preferential has no employees who are not executive officers, but who areexpected to make a significant contribution to our business. 
***Involvement in CertainLegal Proceedings.***
During the past five years, none of our directors or officers have been:
- a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time; 
- convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); 
- subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or 
- found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
***Family Relationships.***
Not Applicable. We currently have only one director and officer, Mr. HarryMiller.
***Audit Committee FinancialExpert.***
Preferential does not have a standing Audit Committee. The functions of theAudit Committee are currently assumed by our Board of Directors. Additionally,Preferential does not have a member on its board of directors that has beendesignated as an audit committee "financial expert." Preferential does notbelieve that the addition of such an expert would add anything meaningful toPreferential at this time. It is also unlikely Preferential would be able toattract an independent financial expert to serve on its Board of Directors atthis stage of its development. In order to entice such a director to join itsBoard of Directors Preferential would probably need to acquire directors' errorsand omission liability insurance and provide some form of meaningfulcompensation to such a director; two things Preferential is unable to afford atthis time.
***Compliance with Section16(a) of the Securities Exchange Act of 1934.***
Under the securities laws of the United States, our directors, executiveofficers (and certain other officers) and any persons holding more than 10% ofour outstanding voting securities are required to report their ownership in oursecurities and any changes in that ownership to the SEC. Based solely uponreliance on the verbal and written representations of our director and officer,we believe we are in compliance with Section 16(a) of the *Securities ExchangeAct of 1934*. Under this section Mr. Harry Miller is now required to file aForm 3 initial report with the Securities and Exchange Commission and file aForm 4 on any subsequent changes. Mr. Miller has not bought or sold anysecurities since the 
***Code of Ethics.***
Preferential has not adopted a Code of Ethics at this time and the Board ofDirectors of Preferential is reviewing the necessity of adopting such a documentat this time by Preferential given the composition of its Board of Directors andOfficer and its scale of its operations at this time.

21
**Item 10. Executive Compensation.*****Summary Compensation of Executive Officers***
The following table contains information concerning the compensation paidduring our fiscal years ended December 31, 2006 to the persons who served as ourChief Executive Officers, and each of the two other most highly compensatedexecutive officers during 2006 (collectively, the "**Named Executive Officers**").
**SUMMARY COMPENSATION TABLEName and Principal Position Year 
Salary ($)
Bonus ($)
Stock Awards  ($)
Option Awards  ($) 
Non-Equity Incentive Plan Compen-  sation   ($)
Nonquali-fied Deferred Compen-sation ($)
All Other  Compen-sation  ($) 
Total  ($)Harry Miller  President CEO, Treasurer, Secretary, Acting CFO and Director(1)2006
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil**Notes**:
(1) Mr. Miller was  appointed President, CEO, Treasurer, Secretary and a Director of the Company  on October 2, 2006, the date of our formation.***Compensation of Directors***
Preferential's sole officer and director has not received any compensationfor his services rendered to Preferential since inception. Harry Miller hasagreed to act without compensation until authorized by the Board of Directors,which is not expected to occur until Preferential has generated revenues fromoperations after consummation of a merger or acquisition. As of the date of thisregistration statement, Preferential has no funds available to pay Harry Miller.Further, Harry Miller is not accruing any compensation pursuant to any agreementwith Preferential.

It is possible that, after Preferential successfully consummates a merger oracquisition with an unaffiliated entity, that entity may desire to employ orretain Mr. Miller for the purposes of providing services to the survivingentity, or otherwise provide other compensation to Mr. Miller. However,Preferential has adopted a policy whereby the offer of any post-transactionremuneration to members of management will not be a consideration inPreferential's decision to undertake any proposed transaction.

Preferential may also compensate Harry Miller, President of Preferentialshares of Common Stock of Preferential for his services in connection withcompletion of an acquisition or merger. Preferential does not intend tocompensate any other individual or consultants in connection with completion ofan acquisition or merger.
***Employment Contracts and Termination of Employment orChange of Control.***
We have no plans or arrangements in respect of remuneration received or thatmay be received by our executive officers to compensate such officers in theevent of termination of employment (as a result of resignation or retirement).

No retirement, pension, profit sharing, stock option or insurance programs orother similar programs have been adopted by Preferential for the benefit of itsemployees. 
***Equity Compensation Plan.***
Preferential does not have an equity compensation plan and does not plan toimplement such a plan.

22
**Item 11. Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.
*Principle Stockholders***
The following table sets forth certain information as of March 28, 2007,regarding the beneficial ownership of Preferential's Common Stock by (i) eachstockholder known by Preferential to be the beneficial owner of more than 5% ofPreferential's Common Stock, (ii) by each Director and executive officer ofPreferential and (iii) by all 

executive officer and Directors of Preferential as a group. Each of thepersons named in the table has sole voting and investment power with respect toCommon Stock beneficially owned.
**Name and Address   of Beneficial Owner**Amount and Nature of   Beneficial Ownership (1)**Percent of ClassHarry Miller   Bellevue, WA
5,000,000   (Restricted securities as defined in the*Securities Act of 1933*)
100%All officers and directors   as a group (1 person). 
5,000,000   (Restricted securities as defined in the*Securities Act of 1933*)
100%**Notes:   (1)Unless otherwise   indicated, the named party is believed to have sole investment and voting   control of the shares set forth in the above table.
There are currently no options, warrants, rights or other securitiesconversion privileges granted to our officer, director or beneficial owner. 

***Equity Compensation Plan***
We did not have an equity compensation plan in place during the fiscal yearended December 31, 2006. 
***Changes in Control.***
There are no present arrangements or pledges of Preferential's securities whichmay result in a change in control of Preferential.
**Item 12. Certain Relationships and Related Transactions,and Director Independence.
*Certain Relationships and Related Transactions.***
We were formed on October 2, 2006. On October 2, 2006, we issued 5,000,000shares of our common stock to Mr. Harry Miller, for an aggregate purchase priceof $5,000. Mr. Harry Miller, is our President, Chief Financial Officer,Secretary, and a director. 

There have been no other related party transactions, or any othertransactions or relationships required to be disclosed pursuant to Item 404 ofRegulation S-B.
***Director Independence.***
We currently do not have any independent directors, as the term "independent"is defined by the rules of the Nasdaq Stock Market (Note: Our shares of commonstock are not listed on NASDAQ or any other national securities exchange andthis reference is used for definition purposes only). We currently only have onedirector on our Board of Directors.

23
**PART IV
**Item 13. Exhibits, Financial Statement Schedules, andReports on Form 8-K.

 ****Exhibit Number** **Exhibit Title**   3.1 Articles of Incorporation   (incorporated by reference from our Form 10-SB Registration Statement, filed   December 4, 2006)3.3 Bylaws (incorporated by reference   from our Form 10-SB Registration Statement, filed December 4, 2006)31.a Section   906 Certificate of CEO31.b Section   906 Certificate of CFO32.a Section   302 Certificate of CEO & CFO** 

Item 14. Principal Accountant Fees and Services.

Fees and Services**
We were formed October 2, 2006. George Stewart, CPA, audited our financialstatements for fiscal 2006. The following is an aggregate of fees billed foreach of the last year for professional services rendered by our principalaccountants:
 **2006 Audit fees - auditing of our  annual financial statements and preparation of auditors' report.
$     2,000 Audit-related fees - review of  each of the quarterly financial statements.
0 Tax fees - preparation and filing  of three major tax-related forms and tax planning.
- All other fees - other services  provided by our principal accountants.
- Total fees paid or accrued to our  principal accountants
$   2,000 **Notes**:(1)This number is an estimate only.**Pre-Approval Polices and Procedures**
We understand the need for our principal accountants to maintain objectivityand independence in their audit of our financial statements. To minimizerelationships that could appear to impair the objectivity of our principalaccountants, our audit committee has restricted the non-audit services that ourprincipal accountants may provide to us primarily to tax services and reviewassurance services.

We are only to obtain non-audit services from our principal accountants whenthe services offered by our principal accountants are more effective oreconomical than services available from other service providers, and, to theextent possible, only after competitive bidding. These determinations are amongthe key practices adopted by the audit committee effective during fiscal 2006.The board has adopted policies and procedures for pre-approving work performedby our principal accountants.

After careful consideration, the audit committee of the board of directorshas determined that payment of the above audit fees is in conformance with theindependent status of our company's principal independent accountants. 

24

Before engaging the auditors in additional services, the audit committeeconsiders how these services will impact the entire engagement and independencefactors.

The Board of Directors has pre-approved specifically identified non-auditrelated services, including tax compliance, review of tax returns, documentationof processes and controls as submitted to the Board of Directors from time totime.
**SIGNATURES**
In accordance with Section 13 or 15(d) of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized. 
 **PREFERENTIAL EQUITIES CORP.**    
/s/ Harry Miller     
 By: Harry Miller,   President, CEO, Secretary, Treasurer, CFO,    Principal Accounting Officer and sole Director
Date:March 29, 2007
 

In accordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities indicated,on March 20, 2007. 

 
 /s/ Harry Miller     
 By:      Harry Miller,   President, CEO, Secretary, Treasurer, CFO,    Principal Accounting Officer and sole Director
Date:     March 29, 2007
25

 

 

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