##### Table of Contents



As Filed with the Securities and Exchange Commission on
May 15, 2006








UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year ended February 28, 2006                                                 
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             




Commission File Number: 1-15045


Intervoice, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                   |  |                                            
|---------------------------------------------------------------------------------- |  | -------------------------------------------
|Texas                                                                              |  | 75-1927578                                 
|(State of Incorporation)                                                           |  | (I.R.S. Employer
    Identification Number)
|17811 Waterview Parkway
     Dallas, Texas(Address of principal executive offices) |  | 75252(Zip Code)                            

Registrants telephone number, including area code:
(972) 454-8000


Securities registered pursuant to Section 12(b) of the
Act: None


Securities registered pursuant to Section 12(g) of the
Act:


Title of Each Class


Common Stock, No Par Value


Preferred Share Purchase Rights


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2 o þ o


12b-2 o þ






Documents Incorporated by Reference














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##### 










TABLE OF CONTENTS


|                                                |  |                                                                                                                      |  |      |    | 
|----------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                |  |                                                                                                                      |  | Page |   
|                                                |  |                                                                                                                      |  |      |   
|PART I                                         
|Item 1.                                         |  | Business                                                                                                             |  |      | 3  | 
|                                                |  | Overview                                                                                                             |  |      | 3  | 
|                                                |  | The Acquisition and Merger of Edify
    Corporation                                                                  |  |      | 4  | 
|                                                |  | Products and Services                                                                                                |  |      | 4  | 
|                                                |  | Markets                                                                                                              |  |      | 8  | 
|                                                |  | Competition                                                                                                          |  |      | 8  | 
|                                                |  | Sales and Marketing                                                                                                  |  |      | 9  | 
|                                                |  | Strategic Alliances                                                                                                  |  |      | 9  | 
|                                                |  | Backlog                                                                                                              |  |      | 10 | 
|                                                |  | Research and Development                                                                                             |  |      | 10 | 
|                                                |  | Proprietary Rights                                                                                                   |  |      | 10 | 
|                                                |  | Manufacturing and Facilities                                                                                         |  |      | 11 | 
|                                                |  | Employees                                                                                                            |  |      | 11 | 
|                                                |  | Availability of Company Filings with the
    SEC                                                                     |  |      | 11 | 
|Item 1A.                                        |  | Risk Factors                                                                                                         |  |      | 11 | 
|Item 1B.                                        |  | Unresolved Staff Comments                                                                                            |  |      | 15 | 
|Item 2.                                         |  | Properties                                                                                                           |  |      | 16 | 
|Item 3.                                         |  | Legal Proceedings                                                                                                    |  |      | 16 | 
|Item 4.                                         |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 19 | 
|PART II                                        
|Item 5.                                         |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 19 | 
|Item 6.                                         |  | Selected Financial Data                                                                                              |  |      | 20 | 
|Item 7.                                         |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 21 | 
|Item 7A.                                        |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |      | 34 | 
|Item 8.                                         |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 34 | 
|Item 9.                                         |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 65 | 
|Item 9A.                                        |  | Controls and Procedures                                                                                              |  |      | 65 | 
|Item 9B.                                        |  | Other Information                                                                                                    |  |      | 65 | 
|PART III                                       
|Item 10.                                        |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 67 | 
|Item 11.                                        |  | Executive Compensation                                                                                               |  |      | 67 | 
|Item 12.                                        |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 67 | 
|Item 13.                                        |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 67 | 
|Item 14.                                        |  | Principal Accountant Fees and Services                                                                               |  |      | 67 | 
|PART IV                                        
|Item 15.                                        |  | Exhibits and Financial Statement
    Schedules                                                                       |  |      | 67 | 
|Subsidiaries                                   
|Consent of Independent Auditors                
|Certification of CEO Pursuant to Rule 13a-14(a)
|Certification of CFO Pursuant to Rule 13a-14(a)
|Certification of CEO Pursuant to Rule 13a-14(b)
|Certification of CFO Pursuant to Rule 13a-14(b)



2



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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business




Overview




Mark-up


IP-based IP-based


IP-based




end-to


3



---



##### Table of Contents



® Mark-up







The Acquisition and Merger of Edify Corporation







Products and Services






| |                                   
| | ----------------------------------
| | The Intervoice Solutions Framework

go-to IP-based


4



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##### Table of Contents



Enterprise Solutions




| |                                      
| | -------------------------------------
| | Intervoice Interactive Voice Response

text-to




| |                                         
| | ----------------------------------------
| | Intervoice Media Exchange for Enterprise



end-to best-of




| |                        
| | -----------------------
| | Horizontal Applications





| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Personalize IT  a rules-based engine that
    enables the IVR to adapt its interaction with a user based on
    prior interactions                           
|
| | Survey Automation  provides an automated and
    confidential method of surveying customers, callers and clients                                             
|
| | Auto-Attendant  provides an easy and automated
    way to self direct calls in place of a live operator                                                      
|
| | Locator Automation  portal application that
    provides callers with detailed location information about nearby
    ATMs, stores or other destinations      
|
| | Password Reset (Identifier)  provides callers
    with a means to reset their password in the event they forget or
    lose it without going through an agent

5



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##### Table of Contents





| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Authenticator  provides voice authentication
    of a caller for access to sensitive or confidential applications
    or information                                        
|
| | Connect IT  a comprehensive contact center
    solution for routing calls and data associated with calls                                                                    
|
| | Voice IT for BEA  working with BEAs
    WebLogic Portal, VoiceIT accelerates a customers
    deployment for fully integrated, multi-channel customer service
    solutions
|
| | Service IT (Dispatch)  delivers voice-enabled,
    packaged solutions for improving the productivity of mobile
    workforces while reducing the cost to support them       



| |                      
| | ---------------------
| | Vertical Applications





| |                             
| | ----------------------------
| | Banking & Financial Services
| | Healthcare                  
| | Public Sector               
| | Retail & Manufacturing      
| | Telecommunications          
| | Transportation & Travel     
| | Utilities                   

Network Provider Solutions


IP-based




| |                            
| | ---------------------------
| | Media Exchange for Networks

IP-based








| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Communicator  next-generation voice mail and
    unified messaging functionality offering a common message store
    and common data base;                                  
|
| | Video Mail  a store and forward video solution
    for messaging                                                                                                            
|
| | Media Messaging  a media-independent message
    deposit utility that allows subscribers to record a voice
    message and have it delivered as a Multi-Media Message (MMS);
|
| | Voice Activated Dialing  a solution which lets
    end users create their own address books, store contact
    information and initiate calls with voice dialing            

6



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##### Table of Contents





| |          
| | ---------
| | Messaging

mailbox-to




| |       
| | ------
| | Portal





| |        
| | -------
| | Payment





Consulting Services


return-on


Recurring Services




| |                                 
| | --------------------------------
| | Maintenance and Software Support



®


7



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| |                 
| | ----------------
| | Managed Services

state-of SIP-based







Markets











Competition


text-to


8



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##### Table of Contents





IP-based





Sales and Marketing















Strategic Alliances


end-to




9



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##### Table of Contents



text-to





Backlog







Research and Development




text-to ® return-on







Proprietary Rights




10



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##### Table of Contents










Manufacturing and Facilities







Employees







Availability of Company Filings with the SEC


10-K, 10-Q, 8-K





Item 1A.     Risk
Factors


10-K 10-K,


11



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are prone to quarterly sales fluctuations. The sales
    value of an individual order for our solutions and services can
    range from a few thousand dollars to several million dollars
    depending on the complexity of our customers business need
    and the size of its operations. The quantity and size of large
    sales (sales valued at approximately $2.0 million or more)
    during any quarter can cause wide variations in our quarterly
    sales and earnings, as such sales are often unevenly distributed
    throughout the fiscal year. In addition, some of our sales
    transactions are completed in the same fiscal quarter as
    ordered. Our accuracy in estimating future sales is largely
    dependent on our ability to successfully qualify, estimate and
    close solution sales from our pipeline of sales opportunities
    during a quarter. No matter how promising a pipeline opportunity
    may appear, there is no assurance it will ever result in a sale.
    The accuracy of our estimate of future sales is also dependent
    on our ability to accurately estimate the amount of revenue to
    be contributed from beginning backlog and revenue from cash
    basis customers during any fiscal quarter. This estimate can be
    affected by factors outside our control, including changes in
    project timing requested by our customers. Accordingly, our
    actual sales for any fiscal reporting period may be
    significantly different than any estimate of sales we make for
    such period. See the discussion entitled Sales in Item 7 of
    Part II for a discussion of our system for estimating sales
    and tracking sales trends in our business.                                                                                                                                                                                  
|
| |  | We are subject to potential and pending lawsuits and other
    claims. We are subject to certain potential and pending
    lawsuits and other claims discussed in Item 3 Legal
    Proceedings of Part I of this Annual Report on
    Form 10-K.
    Furthermore, we may become subject to claims, including claims
    by the government, or other adverse consequences arising from
    the findings of the Audit Committee investigation and related
    SEC inquiries discussed in Item 3. We, and certain of our
    current and former officers and non-officer employees are
    currently responding to or have responded to SEC subpoenas to
    produce documents and provide testimony about the transactions
    that were the subject of the investigation. Any adverse
    judgment, penalty or settlement related to any lawsuit or other
    such claim could have consequences that would be material to our
    financial position or results of operations. We may be required
    to indemnify certain of our current and former directors and
    officers under existing arrangements in connection with the
    shareholders derivative suit in addition to the
    indemnification we are currently providing to certain
    individuals in connection with the class action lawsuit and the
    SEC investigation. Our insurance policies provide coverage for
    losses and expenses incurred by us and our current and former
    directors and officers in connection with claims made under the
    federal securities laws. These policies, however, exclude losses
    and expenses related to the Barrie class action lawsuit
    discussed in Item 3 or to other litigation based on claims
    that are substantially the same as the claims in the Barrie
    class action and contain other customary provisions to limit or
    exclude coverage for certain losses and expenses.
|
| |  | We may not be successful in integrating the operations and
    products and retaining the customers of Edify, and this could
    negatively impact our business. We believe we will be able
    to achieve certain cost savings and other synergies as a result
    of combining Intervoice and Edify, but there can be no assurance
    that such synergies will be realized. Our future success will
    depend in part upon our ability to integrate and operate Edify
    successfully with our business. Any inability to integrate the
    products of Intervoice and Edify while maintaining or increasing
    the market share that such products had prior to the merger
    could decrease the revenues historically generated from these
    products. Customers of Intervoice and Edify may delay their
    purchase of products or services from one or both companies to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

12



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | consider any potential implications the acquisition may have for
    products and services offered by either company. In addition,
    the integration process will require the dedication of
    management resources, which may temporarily distract attention
    from our day-to-day
    business. Our future success will also depend in part on our
    ability to retain and assimilate certain key employees of Edify.
    There can be no assurance that we will be able to efficiently
    integrate and operate Edify and its products with our business,
    maintain business relationships with Edifys customers and
    retain and assimilate key employees of Edify. Failure to do so
    could have a material adverse effect on our results of
    operations or our financial condition. Further, Edify provides
    products and services which are similar to our products and
    services and, accordingly, our Edify operations are generally
    subject to most of the other risk factors discussed in this
    Item 1A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We face intense competition based on product capabilities,
    and we experience ever increasing demands from our actual and
    prospective customers for our products to be compatible with a
    variety of rapidly proliferating computing, telephony and
    computer networking technologies and standards. Our success
    is dependent, to a large degree, on our effectiveness in
    allocating resources to developing and improving products
    compatible with those technologies, standards and
    functionalities that ultimately become widely accepted by our
    current and prospective customers. Our success is also
    dependent, to a large degree, on our ability to implement
    arrangements with vendors of complementary product offerings so
    that we can provide our current and prospective customers
    greater functionality. Our principal competitors include
    Genesys, Avaya, Nortel, Nuance Communications, Comverse
    Technology, Unisys and Lucent Technologies. Many of our
    competitors have greater financial, technological and marketing
    resources than we have, as well as greater name recognition.
    Although we have committed substantial resources to enhance our
    existing products and to develop and market new products, there
    is no assurance we will be successful. In addition, it is
    possible that new entrants to the market and strategic
    acquisitions and partnerships between existing companies could
    increase the competition in the markets in which we participate.
    An increase in such competition could materially adversely
    affect our ability to sell our products thereby adversely
    affecting our business, operating results and financial
    condition.                                                                                                                                                    
|
| |  | We may not be successful in transitioning our products and
    services to an open, standards-based business model.
    Intervoice has historically provided complete, bundled hardware
    and software solutions using internally developed components to
    address our customers total business needs. Increasingly,
    the markets for our products are requiring a shift to the
    development of products and services based on an open,
    standards-based architecture such as the J2EE and
    Microsofts®.NET
    environments utilizing VoiceXML and/or SALT standards. Such an
    open, standards-based approach allows customers to independently
    purchase and combine hardware components, standardized software
    modules, and customization, installation and integration
    services from individual vendors deemed to offer the best value
    in the particular class of product or service. In such an
    environment, we believe we may sell less hardware and fewer
    bundled systems and may become increasingly dependent on our
    development and sale of software application packages,
    customized software and consulting and integration services.
    This shift will place new challenges on us to transition our
    products and to hire and retain the mix of personnel necessary
    to respond to this business environment, to adapt to the
    changing expense structure that the new environment may tend to
    foster, and to increase sales of services, customized software
    and application packages to offset reduced sales of hardware and
    bundled solutions. Failure to develop, enhance, acquire and
    introduce new products to respond to changing market conditions
    or customer requirements, or lack of customer acceptance of our
    products will materially adversely affect our business, results
    of operations and financial condition.
|
| |  | We may not be able to retain our customer base, and, in
    particular, our more significant customers. Our success is
    heavily dependent on our ability to retain our significant
    customers, including those of Edify. The loss of one of our
    significant customers could negatively impact our operating
    results. Our installed base of customers generally is not
    contractually obligated to place further solutions orders with
    us or to extend their services contracts with us at the
    expiration of their current contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

13



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We will be harmed if we lose key business and technical
    personnel. We rely upon the services of a relatively small
    number of key technical, project management and senior
    management personnel, most of whom do not have employment
    contracts. If we were to lose any of our key personnel,
    replacing them could be difficult and costly. If we were unable
    to successfully and promptly replace such personnel, our
    business could be materially harmed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Our reliance on significant vendor relationships could result
    in significant expense or an inability to serve our customers if
    we lose these relationships. Although we generally use
    standard parts and components in our products, some of our
    components, including semi-conductors and, in particular,
    digital signal processors manufactured by Texas Instruments, are
    available only from a small number of vendors. Likewise, we
    license speech recognition technology from a small number of
    vendors. Two of these vendors, ScanSoft, Inc. and Nuance
    Communications, Inc., recently completed a merger of their
    organizations and now the combined company has a dominant market
    position. As we continue to migrate to open, standards-based
    systems, we will become increasingly dependent on our component
    suppliers and software vendors. To date, we have been able to
    obtain adequate supplies of needed components and licenses in a
    timely manner, and we expect to continue to be able to do so.
    Nevertheless, if our significant vendors are unable to supply
    components or licenses at current levels, we may not be able to
    obtain these items from another source or at historical prices.
    In such instances, we would be unable to provide products and
    services to our customers or generate historical operating
    margins, and our business and operating results would suffer.                                                                                                                                                                                                                                                                                        
|
| |  | If third parties assert claims that our products or services
    infringe on their technology and related intellectual property
    rights, whether the claims are made directly against us or
    against our customers, we could incur substantial costs in
    connection with these claims. We believe software and
    technology companies, including Intervoice and others in our
    industry, increasingly may become subject to infringement
    claims. Such claims may require us to enter into costly license
    agreements or result in even more costly litigation. To the
    extent a licensing arrangement is required, the arrangement may
    not be available at all, or, if available, may be very expensive
    or even prohibitively expensive. As with any legal proceeding,
    there is no guarantee we will prevail in any litigation
    instituted against us asserting infringement of intellectual
    property rights. To the extent we suffer an adverse judgment, we
    might have to pay substantial damages, discontinue the use and
    sale of infringing products, repurchase infringing products from
    our customers in accordance with indemnity obligations, expend
    significant resources to acquire non-infringing alternatives,
    and/or obtain licenses to the intellectual property that has
    been infringed upon. As with licensing arrangements,
    non-infringing substitute technologies may not be available and,
    if available, may be very expensive, or even prohibitively
    expensive, to implement. Accordingly, for all of the foregoing
    reasons, a claim of infringement could ultimately have a
    material adverse effect on our business, financial condition and
    results of operations.
|
| |  | We are exposed to risks related to our international
    operations that could increase our costs and hurt our
    business. Our products are currently sold in more than 75
    countries. Our international sales were 45% of total sales for
    the fiscal year ended February 28, 2006 and 41% of total
    sales for fiscal years 2005 and 2004, respectively.
    International sales, personnel and property are subject to
    certain risks, including:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | terrorism;                                                                              
|
| |  | fluctuations in currency exchange rates;                                                
|
| |  | the difficulty and expense of maintaining foreign offices and
    distribution channels;
|
| |  | tariffs and other barriers to trade;                                                    
|
| |  | greater difficulty in protecting and enforcing intellectual
    property rights;        
|
| |  | general economic and political conditions in each country;                              
|
| |  | loss of revenue, property and equipment from expropriation;                             

14



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| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | import and export licensing requirements; and                                                                                                                                                                            
|
| |  | additional expenses and risks inherent in conducting operations
    in geographically distant locations, including risks arising
    from differences in language and cultural approaches to the
    conduct of business.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our inability to meet contracted performance targets could
    subject us to significant penalties. Many of our contracts,
    particularly for managed services, foreign contracts and
    contracts with telecommunication companies, include provisions
    for the assessment of damages for delayed project completion
    and/or for our failure to achieve certain minimum service
    levels. We have had to pay damages in the past and may have to
    pay additional damages in the future. Any such future damages
    could be significant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Increasing consolidation in the telecommunications and
    financial industries could adversely affect our revenues and
    profitability. The majority of our largest customers are in
    the telecommunications and financial industries. These
    industries are undergoing significant consolidation as a result
    of merger and acquisition activity. This activity could result
    in a decrease in the number of customers purchasing our products
    and/or in delayed purchases of our products by customers that
    are reviewing their strategic alternatives in light of a pending
    merger or acquisition. If these results occur, our revenues and
    profitability could decline.                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Our products are complex, and software defects could reduce
    our revenues and expose us to litigation. The software
    products we offer are complex and may contain errors or defects,
    even after extensive testing and quality control, particularly
    in early versions. Furthermore, because our products
    increasingly are designed around an open, standards based
    architecture incorporating elements developed by third parties,
    such errors or defects may be outside of our direct ability to
    control or correct. Any defects or errors could potentially
    result in loss of revenues, product returns or order
    cancellations, and could potentially hinder market acceptance of
    our products and harm our reputation. Accordingly, any defects
    or errors could have a material adverse effect on our business,
    results of operations and financial condition. Our customer
    license agreements typically contain provisions to limit our
    product warranty obligations and exposure to potential liability
    claims.  
|
| |  | We are implementing a new company-wide ERP system during
    fiscal 2007. During fiscal 2007, we expect to complete the
    implementation of a new, company-wide ERP system. Our new system
    will affect all facets of our business including our ability to
    quote, receive and process orders, track inventory and work in
    process, ship and bill completed orders, process and apply cash
    receipts from our customers and summarize and report the results
    of our operations. If we encounter problems in the
    implementation of our new system, our ability to conduct our
    daily operations in an efficient, effective and properly
    controlled manner could be compromised, and our operating
    results could suffer. In addition, any such implementation
    problems could cause us to expend significant time and other
    resources in an effort to resolve such problems, and this
    diversion of management and staff time could further adversely
    affect our ability to serve our customers and sustain our normal
    operations.






|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments



15



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|        |           
|------- | ----------
|Item 2. | Properties



|                                           |  |             |        | 
|------------------------------------------ |  | ----------- | ------ | 
|                                           |  | Square Feet |       
|                                           |  |             |       
|Santa Clara, California                    |  |             | 47,000 | 
|Orlando, Florida                           |  |             | 34,000 | 
|Manchester, United Kingdom                 |  |             | 27,000 | 
|Cambridge, United Kingdom                  |  |             | 12,000 | 
|Other domestic and international locations |  |             | 26,000 | 






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Intellectual Property Matters








Ronald A. Katz
Technology Licensing, L.P. v. Citibank, et al.;
No. 505CV 142


16



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Pending Litigation


David Barrie, et al., on Behalf of Themselves and All
Others Similarly Situated v. InterVoice-Brite, Inc.,
et al.


10b-5








17



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##### Table of Contents



Daniel Wardiman, derivatively on behalf of Nominal Defendant,
Intervoice-Brite, Inc. v. Daniel D. Hammond et. al.,


Barrie




Audit Committee Investigation








18



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##### Table of Contents












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






PART II







| |         |                                                                                                                     
| | ------- | --------------------------------------------------------------------------------------------------------------------
| | Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Common Stock






|                    |  |      |       |  |     |   |      | 
|------------------- |  | ---- | ----- |  | --- | - | ---- | 
|Fiscal 2006 Quarter |  | High |       |  | Low |  
|                    |  |      |       |  |     |  
|4th                 |  | $    | 9.25  |  |     | $ | 7.72 | 
|3rd                 |  | $    | 9.60  |  |     | $ | 8.20 | 
|2nd                 |  | $    | 9.84  |  |     | $ | 7.72 | 
|1st                 |  | $    | 12.40 |  |     | $ | 8.64 | 

|                    |  |      |       |  |     |   |       | 
|------------------- |  | ---- | ----- |  | --- | - | ----- | 
|Fiscal 2005 Quarter |  | High |       |  | Low |  
|                    |  |      |       |  |     |  
|4th                 |  | $    | 14.50 |  |     | $ | 10.30 | 
|3rd                 |  | $    | 13.50 |  |     | $ | 8.05  | 
|2nd                 |  | $    | 14.30 |  |     | $ | 7.23  | 
|1st                 |  | $    | 18.00 |  |     | $ | 11.06 | 



10-K,


19



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                                                   |                                                                                    |                                      |       |      |      |   |       |      |  |   |        |      |  |         |       |       |   |   |       |       |   |  |  |  | 
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------ | ----- | ---- | ---- | - | ----- | ---- |  | - | ------ | ---- |  | ------- | ----- | ----- | - | - | ----- | ----- | - |  |  |  | 
|                                                                                   |                                                                                    | Fiscal Year Ended February 28/29     |       |      |     
|                                                                                   |                                                                                    |                                      |       |      |     
|                                                                                   |                                                                                    | 2006*                                |       |      | 2005 |   |       | 2004 |  |   | 2003** |      |  | 2002*** |       |       |  
|                                                                                   |                                                                                    |                                      |       |      |      |   |       |      |  |   |        |      |  |         |       |       |  
|                                                                                   |                                                                                    | (In millions, except per share data) |       |      |     
|Sales                                                                              |                                                                                    | $                                    | 168.1 |      |      | $ | 183.3 |      |  | $ | 165.3  |      |  | $       | 156.2 |       |   | $ | 211.6 |       |   |  |  | 
|Income (loss) from operations                                                      |                                                                                    |                                      | 9.0   |      |      |   | 24.7  |      |  |   | 18.8   |      |  |         | (44.1 | )     |   |   | (51.6 | )     |   |  |  | 
|Income (loss) before the cumulative effect of a change in
    accounting principle |                                                                                    |                                      | 16.5  |      |      |   | 22.5  |      |  |   | 11.3   |      |  |         | (50.6 | )     |   |   | (44.7 | )     |   |  |  | 
|Net income (loss)                                                                  |                                                                                    |                                      | 16.5  |      |      |   | 22.5  |      |  |   | 11.3   |      |  |         | (66.4 | )     |   |   | (44.7 | )     |   |  |  | 
|Total assets                                                                       |                                                                                    |                                      | 158.1 |      |      |   | 134.9 |      |  |   | 111.6  |      |  |         | 101.0 |       |   |   | 175.4 |       |   |  |  | 
|Current portion of long term debt                                                  |                                                                                    |                                      |      |      |      |   | 0.4   |      |  |   |       |      |  |         | 3.3   |       |   |   | 6.0   |       |   |  |  | 
|Long term debt, net of current portion                                             |                                                                                    |                                      |      |      |      |   | 1.3   |      |  |   | 13.1   |      |  |         | 15.8  |       |   |   | 24.0  |       |   |  |  | 
|Per basic common share:                                                            |                                                                                    |                                      |       |      |      |   |       |      |  |   |        |      |  |         |       |       |   |   |       |       |   |  |  | 
|                                                                                   | Income (loss) before the cumulative effect of a change in
    accounting principle |                                      |       | 0.43 |      |   |       | 0.62 |  |   |        | 0.33 |  |         |       | (1.49 | ) |   |       | (1.34 | ) |  |  |  | 
|Net income (loss)                                                                  |                                                                                    |                                      | 0.43  |      |      |   | 0.62  |      |  |   | 0.33   |      |  |         | (1.95 | )     |   |   | (1.34 | )     |   |  |  | 
|Shares used in per basic common share calculation                                  |                                                                                    |                                      | 38.1  |      |      |   | 36.2  |      |  |   | 34.4   |      |  |         | 34.0  |       |   |   | 33.4  |       |   |  |  | 
|Per diluted common share:                                                          |                                                                                    |                                      |       |      |      |   |       |      |  |   |        |      |  |         |       |       |   |   |       |       |   |  |  | 
|                                                                                   | Income (loss) before the cumulative effect of a change in
    accounting principle |                                      |       | 0.42 |      |   |       | 0.59 |  |   |        | 0.32 |  |         |       | (1.49 | ) |   |       | (1.34 | ) |  |  |  | 
|                                                                                   | Net income (loss)                                                                  |                                      |       | 0.42 |      |   |       | 0.59 |  |   |        | 0.32 |  |         |       | (1.95 | ) |   |       | (1.34 | ) |  |  |  | 
|Shares used in per diluted common share calculation                                |                                                                                    |                                      | 39.0  |      |      |   | 38.5  |      |  |   | 35.7   |      |  |         | 34.0  |       |   |   | 33.4  |       |   |  |  | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | We acquired all of the outstanding stock of Edify on
    December 30, 2005. Beginning December 31, 2005, our
    financial results include the operations of Edify. During fiscal
    2006, we incurred approximately $1.9 million in charges in
    connection with restructuring expenses for severance and
    organizational changes affecting approximately 50 persons made
    at the time of the acquisition of Edify. In addition, during
    fiscal 2006, our income tax provision included benefits totaling
    $7.6 million resulting from the reversal of valuation
    allowances on certain deferred tax assets and from the
    resolution of tax contingencies, partially offset by a charge of
    $1.0 million related to the repatriation of foreign
    earnings.                   
|   
|**  | The fiscal 2003 loss from operations was impacted by special
    charges of $34.3 million related to staffing reductions,
    facilities closures, the write down of excess inventories, costs
    associated with loss contracts, loss on early extinguishment of
    debt, and impairment of certain intangible assets. The fiscal
    2003 net loss was also increased as a result of a
    $15.8 million charge for the cumulative effect of a change
    in accounting principle associated with our adoption of
    Statement of Financial Accounting Standards No. 142
    Accounting for Goodwill and Other Intangible Assets.
    Fiscal 2003 results benefited from a change in the
    U.S. federal tax law that allowed us to recognize net tax
    benefits of approximately $3.0 million.
|   
|*** | The fiscal 2002 loss from operations was impacted by special
    charges of $33.4 million related to the streamlining of
    product lines, the write down of excess inventories and
    non-productive assets, the closure of certain facilities, and
    staffing reductions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

20



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Critical Accounting Policies






| |                    
| | -------------------
| | Revenue Recognition

97-2), 00-21


Sale of Hardware and Software Solutions:








21



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Sale of Maintenance and Software Support:


Sale of Managed Services:




Loss Contracts:




| |            
| | -----------
| | Inventories

first-in,




| |                               
| | ------------------------------
| | Intangible Assets and Goodwill

Intangible Assets:


22



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Goodwill:




| |             
| | ------------
| | Income Taxes



23



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Results of Operations




|                                                      |  |                           |       |   |      |  |       |      |  |  |       |  
|----------------------------------------------------- |  | ------------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                      |  | Year Ended February 28/29 |      
|                                                      |  |                           |      
|                                                      |  | 2006                      |       |   | 2005 |  |       | 2004 | 
|                                                      |  |                           |       |   |      |  |       |      | 
|Sales                                                 |  |                           | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of goods sold                                    |  |                           | 43.7  |   |      |  | 44.2  |      |  |  | 45.5  |  
|                                                      |  |                           |       |   |      |  |       |      | 
|Gross margin                                          |  |                           | 56.3  |   |      |  | 55.8  |      |  |  | 54.5  |  
|                                                      |  |                           |       |   |      |  |       |      | 
|Research and development expenses                     |  |                           | 10.7  |   |      |  | 8.6   |      |  |  | 9.2   |  
|Selling, general and administrative expenses          |  |                           | 39.6  |   |      |  | 32.9  |      |  |  | 32.2  |  
|Amortization of acquisition related intangible assets |  |                           | 0.7   |   |      |  | 0.8   |      |  |  | 1.7   |  
|                                                      |  |                           |       |   |      |  |       |      | 
|Operating income                                      |  |                           | 5.3   |   |      |  | 13.5  |      |  |  | 11.4  |  
|Other income (expense), net                           |  |                           | 1.4   |   |      |  | 0.2   |      |  |  | (2.5  | )
|                                                      |  |                           |       |   |      |  |       |      | 
|Income before income taxes                            |  |                           | 6.7   |   |      |  | 13.7  |      |  |  | 8.9   |  
|Income taxes (benefit)                                |  |                           | (3.1  | ) |      |  | 1.4   |      |  |  | 2.0   |  
|                                                      |  |                           |       |   |      |  |       |      | 
|Net income                                            |  |                           | 9.8   | % |      |  | 12.3  | %    |  |  | 6.9   | %
|                                                      |  |                           |       |   |      |  |       |      | 

Sales






|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |       |    |  |   |       | 
|----------------------------------------- |  | ---- | ----- | ------------- | ---------- |  | ----- | ---- | ------------- | - | ---------- |  |  | ---- | ----- | -- |  | - | ----- | 
|                                          |  |      |       | % Change From |            |  |       |      | % Change From |   |            | 
|                                          |  | 2006 |       |               | Prior Year |  |       | 2005 |               |   | Prior Year |  |  | 2004 |      
|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |      
|Voice Automation/ IVR solution sales      |  | $    | 40.6  |               |            |  | (40.4 | )%   |               | $ | 68.1       |  |  |      | 29.7  | %  |  | $ | 52.5  | 
|Network portal solution sales             |  |      | 8.6   |               |            |  | 45.8  | %    |               |   | 5.9        |  |  |      | 247.1 | %  |  |   | 1.7   | 
|Messaging solution sales                  |  |      | 19.1  |               |            |  | 83.7  | %    |               |   | 10.4       |  |  |      | (3.7  | )% |  |   | 10.8  | 
|Payment solution sales                    |  |      | 9.8   |               |            |  | (39.1 | )%   |               |   | 16.1       |  |  |      | (13.4 | )% |  |   | 18.6  | 
|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |      
|Total solution sales                      |  |      | 78.1  |               |            |  | (22.3 | )%   |               |   | 100.5      |  |  |      | 20.2  | %  |  |   | 83.6  | 
|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |      
|Maintenance and related services revenues |  |      | 64.4  |               |            |  | 8.4   | %    |               |   | 59.4       |  |  |      | 4.2   | %  |  |   | 57.0  | 
|Managed services revenues                 |  |      | 25.6  |               |            |  | 9.4   | %    |               |   | 23.4       |  |  |      | (5.3  | )% |  |   | 24.7  | 
|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |      
|Total recurring services revenues         |  |      | 90.0  |               |            |  | 8.7   | %    |               |   | 82.8       |  |  |      | 1.3   | %  |  |   | 81.7  | 
|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |      
|Total Sales                               |  | $    | 168.1 |               |            |  | (8.3  | )%   |               | $ | 183.3      |  |  |      | 10.9  | %  |  | $ | 165.3 | 
|                                          |  |      |       |               |            |  |       |      |               |   |            |  |  |      |      

24



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|                          |       |      |      |               |            |  |       |      |               |   |            |       |  |      |       |      |   |   |      |       | 
|------------------------- | ----- | ---- | ---- | ------------- | ---------- |  | ----- | ---- | ------------- | - | ---------- | ----- |  | ---- | ----- | ---- | - | - | ---- | ----- | 
|                          |       |      |      | % Change From |            |  |       |      | % Change From |   |            |      
|                          |       | 2006 |      |               | Prior Year |  |       | 2005 |               |   | Prior Year |       |  | 2004 |      
|                          |       |      |      |               |            |  |       |      |               |   |            |       |  |      |      
|North America             |       | $    | 92.1 |               |            |  | (14.6 | )%   |               | $ | 107.8      |       |  |      | 10.3  | %    |   | $ | 97.7 |      
|Europe                    |       |      | 39.1 |               |            |  | (4.4  | )%   |               |   | 40.9       |       |  |      | 26.2  | %    |   |   | 32.4 |      
|Middle East and Africa    |       |      | 19.1 |               |            |  | (10.3 | )%   |               |   | 21.3       |       |  |      | (15.5 | )%   |   |   | 25.2 |      
|Central and South America |       |      | 12.6 |               |            |  | 85.3  | %    |               |   | 6.8        |       |  |      | (9.3  | )%   |   |   | 7.5  |      
|Pacific Rim               |       |      | 5.2  |               |            |  | (20.0 | )%   |               |   | 6.5        |       |  |      | 160.0 | %    |   |   | 2.5  |      
|                          |       |      |      |               |            |  |       |      |               |   |            |       |  |      |      
|                          | Total |      | $    | 168.1         |            |  |       | (8.3 | )%            |   | $          | 183.3 |  |      |       | 10.9 | % |   | $    | 165.3 | 
|                          |       |      |      |               |            |  |       |      |               |   |            |       |  |      |      



















25



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|                                                                                                 |  |                           |      |  |      |  |      |      |  |  |      | 
|------------------------------------------------------------------------------------------------ |  | ------------------------- | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                                                                                                 |  | Year Ended February 28/29 |     
|                                                                                                 |  |                           |     
|                                                                                                 |  | 2006                      |      |  | 2005 |  |      | 2004 | 
|                                                                                                 |  |                           |      |  |      |  |      |      | 
|                                                                                                 |  | (Based on Averages of     |     
|                                                                                                 |  | Quarterly Activity)       |     
|Sales from recurring service and support contracts, including
    contracts for managed services |  |                           | 54%  |  |      |  | 45%  |      |  |  | 49%  | 
|Sales from solutions backlog                                                                     |  |                           | 29%  |  |      |  | 41%  |      |  |  | 36%  | 
|Sales from the pipeline                                                                          |  |                           | 17%  |  |      |  | 14%  |      |  |  | 15%  | 
|                                                                                                 |  |                           |      |  |      |  |      |      | 
|                                                                                                 |  |                           | 100% |  |      |  | 100% |      |  |  | 100% | 
|                                                                                                 |  |                           |      |  |      |  |      |      | 







26



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®


Special Charges




| |            
| | -----------
| | Fiscal 2006



|                                        |  |         |     |  |             |   |     |                |  |   |       |  |  |   |     | 
|--------------------------------------- |  | ------- | --- |  | ----------- | - | --- | -------------- |  | - | ----- |  |  | - | --- | 
|                                        |  | Cost of |     |  | Research    |   |     | Selling,       |  |   |      
|                                        |  | Goods   |     |  | and         |   |     | General and    |  |   |      
|                                        |  | Sold    |     |  | Development |   |     | Administrative |  |   | Total | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 
|Severance payments and related benefits |  | $       | 0.5 |  |             | $ | 0.2 |                |  | $ | 1.2   |  |  | $ | 1.9 | 





| |            
| | -----------
| | Fiscal 2004





|                                        |  |         |     |  |             |   |     |                |  |   |       |  |  |   |     | 
|--------------------------------------- |  | ------- | --- |  | ----------- | - | --- | -------------- |  | - | ----- |  |  | - | --- | 
|                                        |  | Cost of |     |  | Research    |   |     | Selling,       |  |   |      
|                                        |  | Goods   |     |  | and         |   |     | General and    |  |   |      
|                                        |  | Sold    |     |  | Development |   |     | Administrative |  |   | Total | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 
|Severance payments and related benefits |  | $       | 0.6 |  |             | $ | 0.2 |                |  | $ | 0.6   |  |  | $ | 1.4 | 
|Separation settlement                   |  |         |    |  |             |   |    |                |  |   | 0.8   |  |  |   | 0.8 | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 
|Total                                   |  | $       | 0.6 |  |             | $ | 0.2 |                |  | $ | 1.4   |  |  | $ | 2.2 | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 

27



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Cost of Goods Sold




|                                   |  |      |      |   |      |   |      |      |  |   |      |  
|---------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                   |  | 2006 |      |   | 2005 |   |      | 2004 | 
|                                   |  |      |      |   |      |   |      |      | 
|Solution COGS                      |  | $    | 48.0 |   |      | $ | 52.1 |      |  | $ | 47.7 |  
|As percentage of solutions sales   |  |      | 61.5 | % |      |   | 51.9 | %    |  |   | 57.0 | %
|Services COGS                      |  | $    | 25.5 |   |      | $ | 28.9 |      |  | $ | 27.6 |  
|As percentage of services revenues |  |      | 28.4 | % |      |   | 35.0 | %    |  |   | 33.8 | %
|Total COGS                         |  | $    | 73.5 |   |      | $ | 81.0 |      |  | $ | 75.3 |  
|As percentage of total sales       |  |      | 43.7 | % |      |   | 44.2 | %    |  |   | 45.5 | %





Research and Development




|                                  |  |      |      |   |      |   |      |      |  |   |      |  
|--------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                  |  | 2006 |      |   | 2005 |   |      | 2004 | 
|                                  |  |      |      |   |      |   |      |      | 
|Research and development expenses |  | $    | 17.9 |   |      | $ | 15.8 |      |  | $ | 15.2 |  
|As percentage of total sales      |  |      | 10.7 | % |      |   | 8.6  | %    |  |   | 9.2  | %



28



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text-to ® return-on




Selling, General and Administrative




|                                             |  |      |      |   |      |   |      |      |  |   |      |  
|-------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                             |  | 2006 |      |   | 2005 |   |      | 2004 | 
|                                             |  |      |      |   |      |   |      |      | 
|Selling, general and administrative expenses |  | $    | 66.5 |   |      | $ | 60.3 |      |  | $ | 53.2 |  
|As percentage of total sales                 |  |      | 39.5 | % |      |   | 32.9 | %    |  |   | 32.2 | %

10-K


Amortization and Impairment of Goodwill and Acquired
Intangible Assets




|                                                      |  |      |     |  |      |   |     |      |  |   |     | 
|----------------------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                                      |  | 2006 |     |  | 2005 |   |     | 2004 | 
|                                                      |  |      |     |  |      |   |     |      | 
|Amortization of acquisition related intangible assets |  | $    | 1.2 |  |      | $ | 1.5 |      |  | $ | 2.8 | 

29



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|            |  |   |     | 
|----------- |  | - | --- | 
|Fiscal 2007 |  | $ | 2.5 | 
|Fiscal 2008 |  | $ | 2.4 | 
|Fiscal 2009 |  | $ | 2.2 | 
|Fiscal 2010 |  | $ | 1.4 | 
|Fiscal 2011 |  | $ | 1.0 | 



Interest Income




Interest Expense




Other Income (Expense)




Income Taxes






30



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Income From Operations and Net Income




Liquidity and Capital Resources




31



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| |                          
| | -------------------------
| | Letter of Credit Facility



32



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| |                              
| | -----------------------------
| | Summary of Future Obligations



|                                  |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |     |  |  |   |     | 
|--------------------------------- |  | --------------------------------- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  |  | - | --- | 
|                                  |  | Payments Due By Period            |    
|                                  |  | Fiscal Year Ending February 28/29 |    
|                                  |  |                                   |    
|Nature of commitment              |  | 2007                              |     |  | 2008 |   |     | 2009 |  |   | 2010 |  |  | 2011 |    
|                                  |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |    
|Operating lease payments          |  | $                                 | 1.9 |  |      | $ | 1.3 |      |  | $ | 0.9  |  |  | $    | 0.4 |  |  | $ | 0.4 | 
|Firm purchase commitments         |  |                                   | 3.0 |  |      |   | 1.6 |      |  |   |     |  |  |      |    |  |  |   |    | 
|                                  |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |    
|Total obligations and commitments |  | $                                 | 4.9 |  |      | $ | 2.9 |      |  | $ | 0.9  |  |  | $    | 0.4 |  |  | $ | 0.4 | 
|                                  |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |    









| |                    
| | -------------------
| | Impact of Inflation



Selected Quarterly Financial Data (Unaudited)


|                              |  |                                      |      |  |            |   |      |              |  |   |              |  |  |   |      |  
|----------------------------- |  | ------------------------------------ | ---- |  | ---------- | - | ---- | ------------ |  | - | ------------ |  |  | - | ---- | -
|                              |  | Three Months Ended                   |     
|                              |  |                                      |     
|                              |  | May 31,                              |      |  | August 31, |   |      | November 30, |  |   | February 28, | 
|Fiscal 2006                   |  | 2005                                 |      |  | 2005       |   |      | 2005         |  |   | 2006 *       | 
|                              |  |                                      |      |  |            |   |      |              |  |   |              | 
|                              |  | (In millions, except per share data) |     
|Sales                         |  | $                                    | 43.3 |  |            | $ | 43.3 |              |  | $ | 41.0         |  |  | $ | 40.5 |  
|Gross profit                  |  |                                      | 24.3 |  |            |   | 24.0 |              |  |   | 23.1         |  |  |   | 23.1 |  
|Income (loss) from operations |  |                                      | 4.5  |  |            |   | 4.5  |              |  |   | 2.8          |  |  |   | (2.8 | )
|Net income                    |  |                                      | 3.9  |  |            |   | 4.6  |              |  |   | 3.6          |  |  |   | 4.3  |  
|Net income per basic share    |  |                                      | 0.10 |  |            |   | 0.12 |              |  |   | 0.09         |  |  |   | 0.11 |  
|Net income per diluted share  |  |                                      | 0.10 |  |            |   | 0.12 |              |  |   | 0.09         |  |  |   | 0.11 |  

|                             |  |                                      |      |  |            |   |      |              |  |   |              |  |  |   |      | 
|---------------------------- |  | ------------------------------------ | ---- |  | ---------- | - | ---- | ------------ |  | - | ------------ |  |  | - | ---- | 
|                             |  | Three Months Ended                   |     
|                             |  |                                      |     
|                             |  | May 31,                              |      |  | August 31, |   |      | November 30, |  |   | February 28, | 
|Fiscal 2005                  |  | 2004                                 |      |  | 2004       |   |      | 2004         |  |   | 2005         | 
|                             |  |                                      |      |  |            |   |      |              |  |   |              | 
|                             |  | (In millions, except per share data) |     
|Sales                        |  | $                                    | 41.9 |  |            | $ | 44.3 |              |  | $ | 48.4         |  |  | $ | 48.7 | 
|Gross profit                 |  |                                      | 22.9 |  |            |   | 24.1 |              |  |   | 27.6         |  |  |   | 27.6 | 
|Income from operations       |  |                                      | 4.3  |  |            |   | 6.5  |              |  |   | 6.9          |  |  |   | 7.1  | 
|Net income                   |  |                                      | 3.2  |  |            |   | 5.1  |              |  |   | 7.0          |  |  |   | 7.2  | 
|Net income per basic share   |  |                                      | 0.09 |  |            |   | 0.14 |              |  |   | 0.20         |  |  |   | 0.20 | 
|Net income per diluted share |  |                                      | 0.08 |  |            |   | 0.13 |              |  |   | 0.18         |  |  |   | 0.18 | 






|  |                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | We acquired all of the outstanding stock of Edify on
    December 30, 2005. Beginning December 31, 2005, our
    financial results include the operations of Edify. During the
    fourth quarter of fiscal 2006, we incurred approximately
    $1.9 million in charges in connection with restructuring
    expenses for severance and

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | organizational changes affecting approximately 50 persons made
    at the time of the acquisition of Edify. In addition, for the
    fourth quarter of fiscal 2006, our income tax provision included
    benefits totaling $6.8 million resulting from the reversal
    of valuation allowances on certain deferred tax assets and from
    the resolution of tax contingencies, partially offset by a
    charge of $1.0 million related to the repatriation of
    foreign earnings.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk



Foreign Currency Risks













|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data



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Report of Independent Registered Public Accounting Firm
















| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP





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INTERVOICE, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |   |         |         |  
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ------ | ------------ | - | ------- | ------- | -
|                                                                                                   |                                                                                                                                                                                        | February 28,              |         |        | February 28, |  
|                                                                                                   |                                                                                                                                                                                        | 2006                      |         |        | 2005         |  
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                   |                                                                                                                                                                                        | (In thousands, except     |        
|                                                                                                   |                                                                                                                                                                                        | share and per share data) |        
|ASSETS                                                                                            
|Current Assets                                                                                     |                                                                                                                                                                                        |                           |         |        |              |   |         |        
|                                                                                                   | Cash and cash equivalents                                                                                                                                                              |                           | $       | 42,076 |              |   | $       | 60,242  |  
|                                                                                                   | Trade accounts receivable, net of allowance for doubtful
    accounts of $1,701 in 2006 and $799 in 2005                                                                               |                           |         | 25,745 |              |   |         | 32,605  |  
|                                                                                                   | Inventory                                                                                                                                                                              |                           |         | 9,439  |              |   |         | 7,642   |  
|                                                                                                   | Prepaid expenses and other current assets                                                                                                                                              |                           |         | 4,406  |              |   |         | 4,339   |  
|                                                                                                   | Deferred income taxes                                                                                                                                                                  |                           |         | 3,047  |              |   |         |        |  
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                   |                                                                                                                                                                                        |                           | 84,713  |        |              |   | 104,828 |        
|Property and Equipment, net of accumulated depreciation of
    $59,002 in 2006 and $54,303 in 2005 |                                                                                                                                                                                        |                           | 28,893  |        |              |   | 21,755  |        
|Other Assets                                                                                       |                                                                                                                                                                                        |                           |         |        |              |   |         |        
|                                                                                                   | Intangible assets, net of accumulated amortization of $17,343 in
    2006 and $15,840 in 2005                                                                                          |                           |         | 10,284 |              |   |         | 4,707   |  
|                                                                                                   | Goodwill                                                                                                                                                                               |                           |         | 32,461 |              |   |         | 3,401   |  
|                                                                                                   | Long term deferred income taxes                                                                                                                                                        |                           |         | 1,330  |              |   |         |        |  
|                                                                                                   | Other assets                                                                                                                                                                           |                           |         | 454    |              |   |         | 168     |  
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                   |                                                                                                                                                                                        | $                         | 158,135 |        |              | $ | 134,859 |        
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              
|Current Liabilities                                                                                |                                                                                                                                                                                        |                           |         |        |              |   |         |        
|                                                                                                   | Accounts payable                                                                                                                                                                       |                           | $       | 10,154 |              |   | $       | 11,485  |  
|                                                                                                   | Accrued expenses                                                                                                                                                                       |                           |         | 15,176 |              |   |         | 13,745  |  
|                                                                                                   | Customer deposits                                                                                                                                                                      |                           |         | 6,157  |              |   |         | 6,871   |  
|                                                                                                   | Deferred income                                                                                                                                                                        |                           |         | 32,172 |              |   |         | 24,448  |  
|                                                                                                   | Current portion of long term borrowings                                                                                                                                                |                           |         |       |              |   |         | 400     |  
|                                                                                                   | Income taxes payable                                                                                                                                                                   |                           |         | 484    |              |   |         | 4,129   |  
|                                                                                                   | Deferred income taxes                                                                                                                                                                  |                           |         | 270    |              |   |         |        |  
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                   |                                                                                                                                                                                        |                           | 64,413  |        |              |   | 61,078  |        
|Long Term Borrowings                                                                               |                                                                                                                                                                                        |                           |        |        |              |   | 1,333   |        
|Commitments and Contingencies                                                                      |                                                                                                                                                                                        |                           |         |        |              |   |         |        
|Stockholders Equity                                                                               |                                                                                                                                                                                        |                           |         |        |              |   |         |        
|                                                                                                   | Preferred stock, $100 par value 
    2,000,000 shares authorized: none issued                                                                                                         |                           |         |        |              |   |         |         |  
|                                                                                                   | Common stock, no par value, at nominal assigned
    value  62,000,000 shares authorized: 38,470,087
    issued and outstanding in 2006, 37,196,216 issued and
    outstanding in 2005 |                           |         | 19     |              |   |         | 19      |  
|                                                                                                   | Additional capital                                                                                                                                                                     |                           |         | 92,050 |              |   |         | 85,421  |  
|                                                                                                   | Retained earnings (accumulated deficit)                                                                                                                                                |                           |         | 3,558  |              |   |         | (12,931 | )
|                                                                                                   | Accumulated other comprehensive loss                                                                                                                                                   |                           |         | (1,905 | )            |   |         | (61     | )
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                   |                                                                                                                                                                                        |                           | 93,722  |        |              |   | 72,448  |        
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  
|                                                                                                   |                                                                                                                                                                                        | $                         | 158,135 |        |              | $ | 134,859 |        
|                                                                                                   |                                                                                                                                                                                        |                           |         |        |              |  



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INTERVOICE, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                      |                    |                                       |         |        |              |   |         |              |  |   |         |        | 
|----------------------------------------------------- | ------------------ | ------------------------------------- | ------- | ------ | ------------ | - | ------- | ------------ |  | - | ------- | ------ | 
|                                                      |                    | Fiscal Year Ended                     |        
|                                                      |                    |                                       |        
|                                                      |                    | February 28,                          |         |        | February 28, |   |         | February 29, | 
|                                                      |                    | 2006                                  |         |        | 2005         |   |         | 2004         | 
|                                                      |                    |                                       |         |        |              |   |         |              | 
|                                                      |                    | (In thousands, except per share data) |        
|Sales                                                 |                    |                                       |         |        |              |   |         |              |  |   |         |       
|                                                      | Solutions          |                                       | $       | 78,107 |              |   | $       | 100,504      |  |   | $       | 83,612 | 
|                                                      | Recurring services |                                       |         | 89,996 |              |   |         | 82,754       |  |   |         | 81,666 | 
|                                                      |                    |                                       |         |        |              |   |         |              | 
|                                                      |                    |                                       | 168,103 |        |              |   | 183,258 |              |  |   | 165,278 |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Cost of goods sold                                    |                    |                                       |         |        |              |   |         |              |  |   |         |       
|                                                      | Solutions          |                                       |         | 48,007 |              |   |         | 52,116       |  |   |         | 47,675 | 
|                                                      | Recurring services |                                       |         | 25,534 |              |   |         | 28,928       |  |   |         | 27,603 | 
|                                                      |                    |                                       |         |        |              |   |         |              | 
|                                                      |                    |                                       | 73,541  |        |              |   | 81,044  |              |  |   | 75,278  |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Gross margin                                          |                    |                                       |         |        |              |   |         |              |  |   |         |       
|                                                      | Solutions          |                                       |         | 30,100 |              |   |         | 48,388       |  |   |         | 35,937 | 
|                                                      | Recurring services |                                       |         | 64,462 |              |   |         | 53,826       |  |   |         | 54,063 | 
|                                                      |                    |                                       |         |        |              |   |         |              | 
|                                                      |                    |                                       | 94,562  |        |              |   | 102,214 |              |  |   | 90,000  |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Research and development expenses                     |                    |                                       | 17,918  |        |              |   | 15,812  |              |  |   | 15,193  |       
|Selling, general and administrative expenses          |                    |                                       | 66,462  |        |              |   | 60,265  |              |  |   | 53,188  |       
|Amortization of acquisition related intangible assets |                    |                                       | 1,228   |        |              |   | 1,461   |              |  |   | 2,820   |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Income from operations                                |                    |                                       | 8,954   |        |              |   | 24,676  |              |  |   | 18,799  |       
|Interest income                                       |                    |                                       | 2,245   |        |              |   | 914     |              |  |   | 562     |       
|Interest expense                                      |                    |                                       | (31     | )      |              |   | (585    | )            |  |   | (1,966  | )     
|Loss on early extinguishment of debt                  |                    |                                       |        |        |              |   |        |              |  |   | (488    | )     
|Other income (expense)                                |                    |                                       | 56      |        |              |   | 60      |              |  |   | (2,212  | )     
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Income before income taxes                            |                    |                                       | 11,224  |        |              |   | 25,065  |              |  |   | 14,695  |       
|Income taxes (benefit)                                |                    |                                       | (5,265  | )      |              |   | 2,555   |              |  |   | 3,368   |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Net income                                            |                    | $                                     | 16,489  |        |              | $ | 22,510  |              |  | $ | 11,327  |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Net income per share  basic                          |                    | $                                     | 0.43    |        |              | $ | 0.62    |              |  | $ | 0.33    |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Shares used in basic per share computation            |                    |                                       | 38,064  |        |              |   | 36,214  |              |  |   | 34,447  |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Net income per share  diluted                        |                    | $                                     | 0.42    |        |              | $ | 0.59    |              |  | $ | 0.32    |       
|                                                      |                    |                                       |         |        |              |   |         |              | 
|Shares used in diluted per share computation          |                    |                                       | 39,044  |        |              |   | 38,461  |              |  |   | 35,728  |       
|                                                      |                    |                                       |         |        |              |   |         |              | 



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INTERVOICE, INC.


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |   |        |        |   |   |        |        |  
|---------------------------- | --------------------------------------------------------------------------- | --------------------------------- | ---------- | --------- | ---------- | -------- | -------- | ------------ | ----------- | ----- | ------------- | ----- |  | ---- | ------- | ------ | ----- | - | ------ | ------ | - | - | ------ | ------ | -
|                             |                                                                             |                                   |            |           |            | Retained |          |              | Accumulated |       |               |      
|                             |                                                                             | Common Stock                      |            |           |            |          | Earnings |              |             | Other |               |       | 
|                             |                                                                             |                                   |            |           | Additional |          |          | (Accumulated |             |       | Comprehensive |       |  |     
|                             |                                                                             | Shares                            |            |           | Amount     |          |          | Capital      |             |       | Deficit)      |       |  | Loss |         |        | Total |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             |                                                                             | (In thousands, except share data) |           
|Balance at February 28, 2003 |                                                                             |                                   | 34,111,101 |           |            | $        | 17       |              |             | $     | 65,144        |       |  | $    | (46,768 | )      |       | $ | (3,410 | )      |   | $ | 14,983 |       
|                             | Net income                                                                  |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         | 11,327 |       |   |        |       |   |   |        | 11,327 |  
|                             | Foreign currency translation adjustment, including tax benefits
    of $419 |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         |       |       |   |        | 2,810  |   |   |        | 2,810  |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             | Comprehensive income                                                        |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |   |        |        |   |   |        | 14,137 |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             | Tax benefit from exercise of stock options                                  |                                   |            |          |            |          |          |             |             |       |               | 594   |  |      |         |       |       |   |        |       |   |   |        | 594    |  
|                             | Extension of stock options                                                  |                                   |            |          |            |          |          |             |             |       |               | 279   |  |      |         |       |       |   |        |       |   |   |        | 279    |  
|                             | Exercise of stock options                                                   |                                   |            | 1,580,288 |            |          |          | 1            |             |       |               | 9,259 |  |      |         |       |       |   |        |       |   |   |        | 9,260  |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|Balance at February 29, 2004 |                                                                             |                                   | 35,691,389 |           |            |          | 18       |              |             |       | 75,276        |       |  |      | (35,441 | )      |       |   | (600   | )      |   |   | 39,253 |       
|                             | Net income                                                                  |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         | 22,510 |       |   |        |       |   |   |        | 22,510 |  
|                             | Foreign currency translation adjustment                                     |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         |       |       |   |        | 539    |   |   |        | 539    |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             | Comprehensive income                                                        |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |   |        |        |   |   |        | 23,049 |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             | Tax benefit from exercise of stock options                                  |                                   |            |          |            |          |          |             |             |       |               | 939   |  |      |         |       |       |   |        |       |   |   |        | 939    |  
|                             | Exercise of stock options                                                   |                                   |            | 1,504,827 |            |          |          | 1            |             |       |               | 9,206 |  |      |         |       |       |   |        |       |   |   |        | 9,207  |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|Balance at February 28, 2005 |                                                                             |                                   | 37,196,216 |           |            | $        | 19       |              |             | $     | 85,421        |       |  | $    | (12,931 | )      |       | $ | (61    | )      |   | $ | 72,448 |       
|                             | Net income                                                                  |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         | 16,489 |       |   |        |       |   |   |        | 16,489 |  
|                             | Foreign currency translation adjustment                                     |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         |       |       |   |        | (1,844 | ) |   |        | (1,844 | )
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             | Comprehensive income                                                        |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |   |        |        |   |   |        | 14,645 |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|                             | Tax benefit from exercise of stock options                                  |                                   |            |          |            |          |          |             |             |       |               | 952   |  |      |         |       |       |   |        |       |   |   |        | 952    |  
|                             | Exercise of stock options                                                   |                                   |            | 652,567   |            |          |          |             |             |       |               | 3,152 |  |      |         |       |       |   |        |       |   |   |        | 3,152  |  
|                             | Exercise of warrants                                                        |                                   |            | 621,304   |            |          |          |             |             |       |               | 2,500 |  |      |         |       |       |   |        |       |   |   |        | 2,500  |  
|                             | Non-cash compensation  restricted stock units                              |                                   |            |          |            |          |          |             |             |       |               | 25    |  |      |         |       |       |   |        |       |   |   |        | 25     |  
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  
|Balance at February 28, 2006 |                                                                             |                                   | 38,470,087 |           |            | $        | 19       |              |             | $     | 92,050        |       |  | $    | 3,558   |        |       | $ | (1,905 | )      |   | $ | 93,722 |       
|                             |                                                                             |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |        |       |  



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INTERVOICE, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |        |   |        |         |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------- | ------- | ------------ | - | ------ | ------------ | ------ | - | ------ | ------- | ------ | -
|                                                 |                                                                                       | Fiscal Year Ended                                      |        
|                                                 |                                                                                       |                                                        |        
|                                                 |                                                                                       | February 28,                                           |         |         | February 28, |   |        | February 29, |       
|                                                 |                                                                                       | 2006                                                   |         |         | 2005         |   |        | 2004         |       
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|                                                 |                                                                                       | (In thousands)                                         |        
|Operating activities                             |                                                                                       |                                                        |         |         |              |   |        |              |        |   |        |        
|                                                 | Net income                                                                            |                                                        | $       | 16,489  |              |   | $      | 22,510       |        |   | $      | 11,327  |       
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                        |         |         |              |   |        |              |        |   |        |         |       
|                                                 |                                                                                       | Depreciation and amortization                          |         |         | 8,602        |   |        |              | 7,733  |   |        |         | 9,750  |  
|                                                 |                                                                                       | Deferred income taxes                                  |         |         | (4,082       | ) |        |              |       |   |        |         |       |  
|                                                 |                                                                                       | Provision for doubtful accounts                        |         |         | 506          |   |        |              | 312    |   |        |         | 342    |  
|                                                 |                                                                                       | Write down of inventories                              |         |         | 501          |   |        |              | 57     |   |        |         | 34     |  
|                                                 |                                                                                       | Disposal of equipment                                  |         |         | 23           |   |        |              | (4     | ) |        |         | 7      |  
|                                                 |                                                                                       | Foreign exchange loss (gain)                           |         |         | (233         | ) |        |              | (271   | ) |        |         | 1,981  |  
|                                                 |                                                                                       | Loss on early extinguishment of debt acquisition costs |         |         |             |   |        |              |       |   |        |         | 488    |  
|                                                 |                                                                                       | Tax benefit for exercise of stock options              |         |         | 952          |   |        |              | 939    |   |        |         | 594    |  
|                                                 |                                                                                       | Non-cash compensation  restricted stock units         |         |         | 25           |   |        |              |       |   |        |         |       |  
|                                                 | Changes in operating assets and liabilities:                                          |                                                        |         |         |              |   |        |              |        |   |        |         |       
|                                                 |                                                                                       | Accounts receivable                                    |         |         | 10,085       |   |        |              | (8,701 | ) |        |         | 3,290  |  
|                                                 |                                                                                       | Inventories                                            |         |         | (3,296       | ) |        |              | 807    |   |        |         | 127    |  
|                                                 |                                                                                       | Prepaid expenses and other assets                      |         |         | 546          |   |        |              | 895    |   |        |         | 711    |  
|                                                 |                                                                                       | Accounts payable and accrued expenses                  |         |         | (3,977       | ) |        |              | 1,822  |   |        |         | (4,191 | )
|                                                 |                                                                                       | Income taxes payable                                   |         |         | (3,506       | ) |        |              | (3,280 | ) |        |         | 501    |  
|                                                 |                                                                                       | Customer deposits                                      |         |         | (714         | ) |        |              | 385    |   |        |         | (2,641 | )
|                                                 |                                                                                       | Deferred income                                        |         |         | 4,817        |   |        |              | 1,732  |   |        |         | (4,163 | )
|                                                 |                                                                                       | Other                                                  |         |         | (16          | ) |        |              | 560    |   |        |         | 952    |  
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Net cash provided by operating activities        |                                                                                       |                                                        | 26,722  |         |              |   | 25,496 |              |        |   | 19,109 |        
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Investing activities                             |                                                                                       |                                                        |         |         |              |   |        |              |        |   |        |        
|                                                 | Purchase of Edify Corporation, net of cash acquired                                   |                                                        |         | (34,341 | )            |   |        |             |        |   |        |        |       
|                                                 | Purchase of property and equipment                                                    |                                                        |         | (13,182 | )            |   |        | (7,253       | )      |   |        | (5,495  | )     
|                                                 | Other                                                                                 |                                                        |         | (300    | )            |   |        |             |        |   |        | (28     | )     
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Net cash used in investing activities            |                                                                                       |                                                        | (47,823 | )       |              |   | (7,253 | )            |        |   | (5,523 | )      
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Financing activities                             |                                                                                       |                                                        |         |         |              |   |        |              |        |   |        |        
|                                                 | Paydown of debt                                                                       |                                                        |         | (1,733  | )            |   |        | (19,368      | )      |   |        | (10,611 | )     
|                                                 | Premium on early extinguishment of debt                                               |                                                        |         |        |              |   |        | (5           | )      |   |        | (20     | )     
|                                                 | Borrowings                                                                            |                                                        |         |        |              |   |        | 8,000        |        |   |        | 4,601   |       
|                                                 | Restricted cash                                                                       |                                                        |         |        |              |   |        | 2,750        |        |   |        | (2,750  | )     
|                                                 | Exercise of stock options                                                             |                                                        |         | 3,152   |              |   |        | 9,207        |        |   |        | 9,260   |       
|                                                 | Exercise of warrants                                                                  |                                                        |         | 2,500   |              |   |        |             |        |   |        |        |       
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Net cash provided by financing activities        |                                                                                       |                                                        | 3,919   |         |              |   | 584    |              |        |   | 480    |        
|Effect of exchange rate on cash                  |                                                                                       |                                                        | (984    | )       |              |   | 556    |              |        |   | 582    |        
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Increase (decrease) in cash and cash equivalents |                                                                                       |                                                        | (18,166 | )       |              |   | 19,383 |              |        |   | 14,648 |        
|Cash and cash equivalents, beginning of period   |                                                                                       |                                                        | 60,242  |         |              |   | 40,859 |              |        |   | 26,211 |        
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       
|Cash and cash equivalents, end of period         |                                                                                       | $                                                      | 42,076  |         |              | $ | 60,242 |              |        | $ | 40,859 |        
|                                                 |                                                                                       |                                                        |         |         |              |   |        |              |       



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|         |                        
|-------- | -----------------------
|Note A  | Description of Business





|         |                                
|-------- | -------------------------------
|Note B  | Significant Accounting Policies

Principles of Consolidation:


Use of Estimates:


Cash and Cash Equivalents:


Inventories: first-in,


Property and Equipment:


Intangible Assets and Impairment of Long-Lived Assets:


40



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Goodwill: 


Other Assets:


Customer Deposits:


Deferred Income:


Product Warranties:


Revenue Recognition: 97-2), 00-21 00-21).


41



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Sale of Hardware and Software Solutions:










42



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Sale of Maintenance and Software Support:


Sale of Managed Services:




Loss Contracts:


Research and Development:


Advertising Costs:


Income Taxes:


Stock Compensation:




43



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                          |                       |      |      |      |      |   |      |      |  |   |      |      | 
|------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                                                                                                          |                       | 2006 |      |      | 2005 |   |      | 2004 | 
|                                                                                                                          |                       |      |      |      |      |   |      |      | 
|Net income as reported                                                                                                    |                       | $    | 16.5 |      |      | $ | 22.5 |      |  | $ | 11.3 |     
|Add: stock-based employee compensation expense included in
    reported net income net of related tax effect              |                       |      |     |      |      |   |     |      |  |   | 0.3  |     
|Deduct: total stock-based employee compensation expense
    determined under fair value method, net of related tax effect |                       |      | (5.2 | )    |      |   | (7.5 | )    |  |   | (4.1 | )   
|                                                                                                                          |                       |      |      |      |      |   |      |      | 
|Pro forma net income (loss)                                                                                               |                       | $    | 11.3 |      |      | $ | 15.0 |      |  | $ | 7.5  |     
|                                                                                                                          |                       |      |      |      |      |   |      |      | 
|Net income per share:                                                                                                     |                       |      |      |      |      |   |      |      |  |   |      |     
|                                                                                                                          | Basic  as reported   |      | $    | 0.43 |      |   | $    | 0.62 |  |   | $    | 0.33 | 
|                                                                                                                          | Basic  pro forma     |      | $    | 0.30 |      |   | $    | 0.42 |  |   | $    | 0.22 | 
|                                                                                                                          | Diluted  as reported |      | $    | 0.42 |      |   | $    | 0.59 |  |   | $    | 0.32 | 
|                                                                                                                          | Diluted  pro forma   |      | $    | 0.30 |      |   | $    | 0.40 |  |   | $    | 0.21 | 







44



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note C  Acquisition of Edify Corporation




|                                          |                           |   |      |      | 
|----------------------------------------- | ------------------------- | - | ---- | ---- | 
|Cash                                      |                           | $ | 0.2  |     
|Accounts receivable, net                  |                           |   | 4.8  |     
|Prepaid expenses                          |                           |   | 0.7  |     
|Property and equipment, net               |                           |   | 0.5  |     
|Separately identifiable intangible assets |                           |   | 6.8  |     
|Goodwill                                  |                           |   | 29.1 |     
|Other assets                              |                           |   | 0.3  |     
|                                          |                           |   |     
|                                          | Total assets acquired     |   | $    | 42.4 | 
|                                          |                           |   |     
|Accounts payable                          |                           | $ | 0.3  |     
|Accrued restructuring costs               |                           |   | 0.5  |     
|Other accrued liabilities                 |                           |   | 2.8  |     
|Deferred income                           |                           |   | 3.3  |     
|                                          |                           |   |     
|                                          | Total liabilities assumed |   | $    | 6.9  | 
|                                          |                           |   |     
|Total purchase price                      |                           | $ | 35.5 |     
|                                          |                           |   |     







45



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |                   |       |  |      |   |       | 
|------------------------------ |  | ----------------- | ----- |  | ---- | - | ----- | 
|                               |  | Fiscal Year Ended |      
|                               |  | February 28       |      
|                               |  |                   |      
|                               |  | 2006              |       |  | 2005 |  
|                               |  |                   |       |  |      |  
|                               |  | (Unaudited)       |      
|Sales                          |  | $                 | 198.4 |  |      | $ | 220.4 | 
|Income before income taxes     |  |                   | 11.4  |  |      |   | 23.0  | 
|Net income                     |  |                   | 16.6  |  |      |   | 20.6  | 
|Net income per share  diluted |  |                   | 0.43  |  |      |   | 0.54  | 

Note D  Goodwill and Intangible Assets




|                                 |  |   |      | 
|-------------------------------- |  | - | ---- | 
|Balance at February 29, 2004     |  | $ | 3.4  | 
|Additions                        |  |   |     | 
|Impairment charges               |  |   |     | 
|                                 |  |   |     
|Balance at February 28, 2005     |  | $ | 3.4  | 
|Additions  Acquisition of Edify |  |   | 29.1 | 
|Impairment charges               |  |   |     | 
|                                 |  |   |     
|Balance at February 28, 2006     |  | $ | 32.5 | 
|                                 |  |   |     



|                               |       |              |            |                   |          |   |      |              |  |   |             |      |  |   |     |      | 
|------------------------------ | ----- | ------------ | ---------- | ----------------- | -------- | - | ---- | ------------ |  | - | ----------- | ---- |  | - | --- | ---- | 
|                               |       |              |            | February 28, 2006 |         
|                               |       |              |            |                   |         
|                               |       |              |            | Gross             |          |   |     
|                               |       | Amortization |            |                   | Carrying |   |      | Accumulated  |  |   | Unamortized |     
|Amortized Intangible Assets    |       | Period       |            |                   | Amount   |   |      | Amortization |  |   | Balance     |     
|                               |       |              |            |                   |          |   |      |              |  |   |             |     
|Customer relationships  Brite |       |              | 10 years   |                   |          | $ | 18.6 |              |  | $ | 15.3        |      |  | $ | 3.3 |     
|Developed technology  Edify   |       |              | 5 years    |                   |          |   | 4.0  |              |  |   | 0.1         |      |  |   | 3.9 |     
|Customer relationships  Edify |       |              | 8 years    |                   |          |   | 2.5  |              |  |   | 0.1         |      |  |   | 2.4 |     
|Trademark/trade name  Edify   |       |              | 18 months  |                   |          |   | 0.3  |              |  |   |            |      |  |   | 0.3 |     
|Other intangibles              |       |              | 5-12 years |                   |          |   | 2.3  |              |  |   | 1.9         |      |  |   | 0.4 |     
|                               |       |              |            |                   |          |   |      |              |  |   |             |     
|                               | Total |              |            |                   |          |   | $    | 27.7         |  |   | $           | 17.4 |  |   | $   | 10.3 | 
|                               |       |              |            |                   |          |   |      |              |  |   |             |     

46



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                               |       |              |            |                   |          |   |      |              |  |   |             |      |  |   |     |     | 
|------------------------------ | ----- | ------------ | ---------- | ----------------- | -------- | - | ---- | ------------ |  | - | ----------- | ---- |  | - | --- | --- | 
|                               |       |              |            | February 28, 2005 |         
|                               |       |              |            |                   |         
|                               |       |              |            | Gross             |          |   |     
|                               |       | Amortization |            |                   | Carrying |   |      | Accumulated  |  |   | Unamortized |     
|Amortized Intangible Assets    |       | Period       |            |                   | Amount   |   |      | Amortization |  |   | Balance     |     
|                               |       |              |            |                   |          |   |      |              |  |   |             |     
|Customer relationships  Brite |       |              | 10 years   |                   |          | $ | 18.6 |              |  | $ | 14.3        |      |  | $ | 4.3 |    
|Other intangibles              |       |              | 5-12 years |                   |          |   | 2.0  |              |  |   | 1.6         |      |  |   | 0.4 |    
|                               |       |              |            |                   |          |   |      |              |  |   |             |     
|                               | Total |              |            |                   |          |   | $    | 20.6         |  |   | $           | 15.9 |  |   | $   | 4.7 | 
|                               |       |              |            |                   |          |   |      |              |  |   |             |     



|            |  |   |     | 
|----------- |  | - | --- | 
|Fiscal 2007 |  | $ | 2.5 | 
|Fiscal 2008 |  | $ | 2.4 | 
|Fiscal 2009 |  | $ | 2.2 | 
|Fiscal 2010 |  | $ | 1.4 | 
|Fiscal 2011 |  | $ | 1.0 | 

Note E  Inventory




|                 |  |      |     |  |      |   |     | 
|---------------- |  | ---- | --- |  | ---- | - | --- | 
|                 |  | 2006 |     |  | 2005 |  
|                 |  |      |     |  |      |  
|Purchased parts  |  | $    | 3.9 |  |      | $ | 3.8 | 
|Work in progress |  |      | 5.5 |  |      |   | 3.8 | 
|                 |  |      |     |  |      |  
|                 |  | $    | 9.4 |  |      | $ | 7.6 | 
|                 |  |      |     |  |      |  

Note F  Property & Equipment




|                                            |  |              |       |   |              |   |       |  
|------------------------------------------- |  | ------------ | ----- | - | ------------ | - | ----- | -
|                                            |  | February 28, |       |   | February 28, |  
|                                            |  | 2006         |       |   | 2005         |  
|                                            |  |              |       |   |              |  
|Land and buildings                          |  | $            | 16.9  |   |              | $ | 16.9  |  
|Computer equipment and software             |  |              | 42.8  |   |              |   | 34.0  |  
|Furniture and fixtures                      |  |              | 3.2   |   |              |   | 3.3   |  
|Managed services equipment                  |  |              | 16.3  |   |              |   | 12.6  |  
|Maintenance services equipment              |  |              | 8.7   |   |              |   | 9.3   |  
|                                            |  |              |       |   |              |  
|                                            |  |              | 87.9  |   |              |   | 76.1  |  
|                                            |  |              |       |   |              |  
|Less allowance for accumulated depreciation |  |              | (59.0 | ) |              |   | (54.3 | )
|                                            |  |              |       |   |              |  
|Property and equipment, net                 |  | $            | 28.9  |   |              | $ | 21.8  |  
|                                            |  |              |       |   |              |  



47



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                 
|-------- | ----------------
|Note G  | Accrued Expenses



|                                                                                      |  |      |      |  |      |   |      | 
|------------------------------------------------------------------------------------- |  | ---- | ---- |  | ---- | - | ---- | 
|                                                                                      |  | 2006 |      |  | 2005 |  
|                                                                                      |  |      |      |  |      |  
|Accrued compensation and other employee related costs, including
    accrued vacation |  | $    | 8.7  |  |      | $ | 7.7  | 
|Other                                                                                 |  |      | 6.5  |  |      |   | 6.0  | 
|                                                                                      |  |      |      |  |      |  
|                                                                                      |  | $    | 15.2 |  |      | $ | 13.7 | 
|                                                                                      |  |      |      |  |      |  



|         |                     
|-------- | --------------------
|Note H  | Long-Term Borrowings



|                                                                                                                                                                                                                                            |  |              |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --- | 
|                                                                                                                                                                                                                                            |  | February 28, |    
|                                                                                                                                                                                                                                            |  | 2005         |    
|                                                                                                                                                                                                                                            |  |              |    
|Term loan, bearing interest, payable monthly, accruing at a rate
    equal to the prime rate plus 0.50% or the London Inter-Bank
    Offering Rate plus 2.25% (4.875% at February 28, 2005);
    principal repaid in full during March 2005 |  | $            | 1.7 | 
|                                                                                                                                                                                                                                            |  |              |    
|Total debt outstanding                                                                                                                                                                                                                      |  |              | 1.7 | 
|Less: current portion                                                                                                                                                                                                                       |  |              | 0.4 | 
|                                                                                                                                                                                                                                            |  |              |    
|Long-term debt, net of current portion                                                                                                                                                                                                      |  | $            | 1.3 | 
|                                                                                                                                                                                                                                            |  |              |    



| |                          
| | -------------------------
| | Letter of Credit Facility





| |               
| | --------------
| | Line of Credit





48



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | Cash Interest Paid





|         |             
|-------- | ------------
|Note I  | Income Taxes



|            |  |            |      |  |            |   |     |       |  |   |      | 
|----------- |  | ---------- | ---- |  | ---------- | - | --- | ----- |  | - | ---- | 
|            |  | Domestic   |      |  | Foreign    |   |     |      
|Fiscal Year |  | Operations |      |  | Operations |   |     | Total | 
|            |  |            |      |  |            |   |     |       | 
|2006        |  | $          | 5.8  |  |            | $ | 5.4 |       |  | $ | 11.2 | 
|2005        |  |            | 15.4 |  |            |   | 9.7 |       |  |   | 25.1 | 
|2004        |  |            | 7.2  |  |            |   | 7.5 |       |  |   | 14.7 | 



|                                |           |         |                |   |      |      |     |      |      |     |     |   |     |     | 
|------------------------------- | --------- | ------- | -------------- | - | ---- | ---- | --- | ---- | ---- | --- | --- | - | --- | --- | 
|                                |           | 2006    |                |   | 2005 |      |     | 2004 |     
|                                |           |         |                |   |      |      |     |      |     
|Income tax provision (benefit): |           |         |                |   |      |      |     |      |      |     |     |  
|                                | Current:  |         |                |   |      |      |     |      |      |     |     |   |    
|                                |           | Federal |                | $ | (1.1 | )    |     | $    | 0.6  |     |     | $ | 2.0 |    
|                                |           | State   |                |   | (0.1 | )    |     |      | (0.1 | )   |     |   | 0.3 |    
|                                |           | Foreign |                |   |     |      |     |      | 2.1  |     |     |   | 1.1 |    
|                                |           |         |                |   |      |      |     |      |     
|                                |           |         | Total current  |   |      | (1.2 | )   |      |      | 2.6 |     |   |     | 3.4 | 
|                                |           |         |                |   |      |      |     |      |     
|                                | Deferred: |         |                |   |      |      |     |      |      |     |     |   |    
|                                |           | Federal |                |   | (4.4 | )    |     |      |     |     |     |   |    |    
|                                |           | State   |                |   |     |      |     |      |     |     |     |   |    |    
|                                |           | Foreign |                |   | 0.3  |      |     |      |     |     |     |   |    |    
|                                |           |         |                |   |      |      |     |      |     
|                                |           |         | Total deferred |   |      | (4.1 | )   |      |      |    |     |   |     |    | 
|                                |           |         |                |   |      |      |     |      |     
|                                |           | $       | (5.3           | ) |      | $    | 2.6 |      |      | $   | 3.4 |  
|                                |           |         |                |   |      |      |     |      |     

49



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                 |  |      |      |   |      |  |     |      |  |   |      |   |  |  |     |   |  |   |       |   |  |  |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | - | ---- |  | --- | ---- |  | - | ---- | - |  |  | --- | - |  | - | ----- | - |  |  | --- | -
|                                                                                                                                                 |  | 2006 |      |   | 2005 |  |     | 2004 | 
|                                                                                                                                                 |  |      |      |   |      |  |     |      | 
|Federal income taxes (benefit) at statutory rates                                                                                                |  | $    | 3.9  |   |      |  | 35  | %    |  | $ | 8.8  |   |  |  | 35  | % |  | $ | 5.1   |   |  |  | 35  | %
|AJCA repatriation tax                                                                                                                            |  |      | 1.0  |   |      |  | 9   |      |  |   |     |   |  |  |    |   |  |   |      |   |  |  |    |  
|Deemed dividends and other taxable income from wholly owned
    foreign subsidiaries                                                             |  |      |     |   |      |  |    |      |  |   | 1.3  |   |  |  | 5   |   |  |   | 13.6  |   |  |  | 92  |  
|Release of valuation allowance in February 2006                                                                                                  |  |      | (4.4 | ) |      |  | (39 | )    |  |   |     |   |  |  |    |   |  |   |      |   |  |  |    |  
|Change in valuation allowance, primarily as a result of the use
    of net operating losses and tax credits carried forward from
    prior years |  |      | (0.6 | ) |      |  | (5  | )    |  |   | (6.2 | ) |  |  | (25 | ) |  |   | (13.8 | ) |  |  | (94 | )
|Resolution of tax contingencies                                                                                                                  |  |      | (3.2 | ) |      |  | (29 | )    |  |   | (0.9 | ) |  |  | (4  | ) |  |   |      |   |  |  |    |  
|Other foreign tax adjustments                                                                                                                    |  |      | (0.4 | ) |      |  | (4  | )    |  |   |     |   |  |  |    |   |  |   | (2.1  | ) |  |  | (14 | )
|Effect of non-U.S. tax rates                                                                                                                     |  |      | (0.6 | ) |      |  | (5  | )    |  |   | (0.2 | ) |  |  | (1  | ) |  |   |      |   |  |  |    |  
|State taxes, net of federal effect                                                                                                               |  |      | (0.1 | ) |      |  | (1  | )    |  |   | (0.1 | ) |  |  |    |   |  |   | 0.3   |   |  |  | 2   |  
|Other                                                                                                                                            |  |      | (0.9 | ) |      |  | (8  | )    |  |   | (0.1 | ) |  |  |    |   |  |   | 0.3   |   |  |  | 2   |  
|                                                                                                                                                 |  |      |      |   |      |  |     |      |  |   |      |   |  |  |     |   |  |  
|                                                                                                                                                 |  | $    | (5.3 | ) |      |  | (47 | )%   |  | $ | 2.6  |   |  |  | 10  | % |  | $ | 3.4   |   |  |  | 23  | %
|                                                                                                                                                 |  |      |      |   |      |  |     |      |  |   |      |   |  |  |     |   |  |  











50



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                          |                                            |                                |   |      |      |   |   |       |      |  
|------------------------- | ------------------------------------------ | ------------------------------ | - | ---- | ---- | - | - | ----- | ---- | -
|                          |                                            | 2006                           |   |      | 2005 |  
|                          |                                            |                                |   |      |      |  
|Deferred Tax Assets:      |                                            |                                |   |      |      |   |   |      
|                          | Net operating loss carryforwards           |                                | $ | 3.9  |      |   | $ | 5.0   |     
|                          | Tax credit carryforwards                   |                                |   | 3.1  |      |   |   | 4.2   |     
|                          | Accrued expenses                           |                                |   | 1.8  |      |   |   | 1.8   |     
|                          | Inventory                                  |                                |   | 1.5  |      |   |   | 1.5   |     
|                          | Depreciation and amortization              |                                |   | 1.0  |      |   |   | 1.1   |     
|                          | Deferred revenue                           |                                |   | 0.1  |      |   |   | 0.4   |     
|                          | Allowance for doubtful accounts            |                                |   | 0.4  |      |   |   | 0.2   |     
|                          | Other items                                |                                |   | 0.9  |      |   |   | 1.2   |     
|                          |                                            |                                |   |      |      |  
|                          |                                            | Total deferred tax assets      |   |      | 12.7 |   |   |       | 15.4 |  
|                          | Valuation allowance                        |                                |   | (6.4 | )    |   |   | (13.3 | )   
|                          |                                            |                                |   |      |      |  
|                          |                                            | Net deferred tax assets        |   |      | 6.3  |   |   |       | 2.1  |  
|                          |                                            |                                |   |      |      |  
|Deferred tax liabilities: |                                            |                                |   |      |      |   |   |      
|                          | Acquisition-related identified intangibles |                                |   | (1.2 | )    |   |   | (1.5  | )   
|                          | Other items                                |                                |   | (1.0 | )    |   |   | (0.6  | )   
|                          |                                            |                                |   |      |      |  
|                          |                                            | Total deferred tax liabilities |   |      | (2.2 | ) |   |       | (2.1 | )
|                          |                                            |                                |   |      |      |  
|                          |                                            | Net deferred tax assets        |   | $    | 4.1  |   |   | $     |     |  
|                          |                                            |                                |   |      |      |  







51



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                     
|-------- | --------------------
|Note J  | Stockholders Equity

7-year 10-year




|                |  |        |           |                  |                |                  |                  |          |  |  |      | 
|--------------- |  | ------ | --------- | ---------------- | -------------- | ---------------- | ---------------- | -------- |  |  | ---- | 
|                |  |        |           |                  |                | Weighted Average |                 
|                |  |        |           |                  |                | Remaining        |                 
|                |  |        |           | Weighted Average |                |                  | Contractual Life |         
|Exercise Prices |  | Shares |           |                  | Exercise Price |                  |                  | in Years | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $6.97   |  |        | 1,329,360 |                  |                | $                | 3.49             |          |  |  | 4.87 | 
|$7.00 - $8.35   |  |        | 1,207,474 |                  |                | $                | 7.20             |          |  |  | 7.22 | 
|$8.55 - $9.11   |  |        | 1,763,015 |                  |                | $                | 9.04             |          |  |  | 8.09 | 
|$9.22 - $9.54   |  |        | 1,636,094 |                  |                | $                | 9.53             |          |  |  | 6.37 | 
|$9.69 - $28.88  |  |        | 1,158,060 |                  |                | $                | 12.64            |          |  |  | 5.62 | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $28.88  |  |        | 7,094,003 |                  |                | $                | 8.39             |          |  |  | 6.54 | 
|                |  |        |           |                  |                |                  |                  |          | 



|                |  |        |           |                  |                |                  |                  |          |  |  |      | 
|--------------- |  | ------ | --------- | ---------------- | -------------- | ---------------- | ---------------- | -------- |  |  | ---- | 
|                |  |        |           |                  |                | Weighted Average |                 
|                |  |        |           |                  |                | Remaining        |                 
|                |  |        |           | Weighted Average |                |                  | Contractual Life |         
|Exercise Prices |  | Shares |           |                  | Exercise Price |                  |                  | in Years | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $5.00   |  |        | 919,039   |                  |                | $                | 2.88             |          |  |  | 4.70 | 
|$5.15 - $9.00   |  |        | 1,075,007 |                  |                | $                | 7.02             |          |  |  | 6.36 | 
|$9.05 - $9.50   |  |        | 763,062   |                  |                | $                | 9.11             |          |  |  | 8.38 | 
|$9.54 - $9.73   |  |        | 1,070,191 |                  |                | $                | 9.58             |          |  |  | 5.86 | 
|$10.11- $28.88  |  |        | 605,084   |                  |                | $                | 13.85            |          |  |  | 4.87 | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $28.88  |  |        | 4,432,383 |                  |                | $                | 8.07             |          |  |  | 6.04 | 
|                |  |        |           |                  |                |                  |                  |          | 

52



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |           |        |           |                  |           |   |      |       | 
|---------------------------- | --------- | ------ | --------- | ---------------- | --------- | - | ---- | ----- | 
|                             |           |        |           | Weighted Average |          
|                             |           |        |           | Exercise Price   |          
|                             |           | Shares |           |                  | per Share |  
|                             |           |        |           |                  |           |  
|Balance at February 28, 2003 |           |        | 5,511,006 |                  |           | $ | 7.71 |      
|                             | Granted   |        |           | 2,271,875        |           |   |      | 5.90  | 
|                             | Exercised |        |           | (1,126,134       | )         |   |      | 7.50  | 
|                             | Forfeited |        |           | (548,281         | )         |   |      | 9.53  | 
|                             |           |        |           |                  |           |  
|Balance at February 29, 2004 |           |        | 6,108,466 |                  |           | $ | 6.91 |      
|                             | Granted   |        |           | 2,303,310        |           |   |      | 9.77  | 
|                             | Exercised |        |           | (1,413,952       | )         |   |      | 5.86  | 
|                             | Forfeited |        |           | (634,939         | )         |   |      | 8.42  | 
|                             |           |        |           |                  |           |  
|Balance at February 28, 2005 |           |        | 6,362,885 |                  |           | $ | 8.03 |      
|                             | Granted   |        |           | 2,067,928        |           |   |      | 9.38  | 
|                             | Exercised |        |           | (652,567         | )         |   |      | 4.83  | 
|                             | Forfeited |        |           | (684,243         | )         |   |      | 11.43 | 
|                             |           |        |           |                  |           |  
|Balance at February 28, 2006 |           |        | 7,094,003 |                  |           | $ | 8.39 |      
|                             |           |        |           |                  |           |  



| |                       
| | ----------------------
| | Restricted Stock Units



|                             |           |        |        |                  |                 |   |      |      | 
|---------------------------- | --------- | ------ | ------ | ---------------- | --------------- | - | ---- | ---- | 
|                             |           |        |        | Weighted Average |                
|                             |           | Shares |        |                  | Price per Share |  
|                             |           |        |        |                  |                 |  
|Balance at February 28, 2005 |           |        |       |                  |                 | $ |     |     
|                             | Granted   |        |        | 46,875           |                 |   |      | 8.20 | 
|                             | Exercised |        |        |                 |                 |   |      |     | 
|                             | Forfeited |        |        |                 |                 |   |      |     | 
|                             |           |        |        |                  |                 |  
|Balance at February 28, 2006 |           |        | 46,875 |                  |                 | $ | 8.20 |     
|                             |           |        |        |                  |                 |  

53



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

12-month


|                             |           |        |         |                  |           |   |       |       | 
|---------------------------- | --------- | ------ | ------- | ---------------- | --------- | - | ----- | ----- | 
|                             |           |        |         | Weighted Average |          
|                             |           |        |         | Exercise Price   |          
|                             |           | Shares |         |                  | per Share |  
|                             |           |        |         |                  |           |  
|Balance at February 28, 2003 |           |        | 498,369 |                  |           | $ | 1.84  |      
|                             | Granted   |        |         | 103,808          |           |   |       | 10.09 | 
|                             | Exercised |        |         | (444,517         | )         |   |       | 1.84  | 
|                             | Forfeited |        |         | (53,852          | )         |   |       | 1.84  | 
|                             |           |        |         |                  |           |  
|Balance at February 29, 2004 |           |        | 103,808 |                  |           | $ | 10.09 |      
|                             | Granted   |        |         |                 |           |   |       |      | 
|                             | Exercised |        |         | (90,875          | )         |   |       | 10.09 | 
|                             | Forfeited |        |         | (12,933          | )         |   |       | 10.09 | 
|                             |           |        |         |                  |           |  
|Balance at February 28, 2005 |           |        |        |                  |           |   |      |      
|                             |           |        |         |                  |           |  



| |                                
| | -------------------------------
| | Preferred Share Purchase Rights





| |         
| | --------
| | Warrants



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                               
| | ------------------------------
| | Accumulated Comprehensive Loss



|                             |                                          |   |      |      |  
|---------------------------- | ---------------------------------------- | - | ---- | ---- | -
|Balance at February 28, 2003 |                                          | $ | (3.4 | )   
|                             | Foreign currency translation adjustments |   |      | 2.8  |  
|                             |                                          |   |     
|Balance at February 29, 2004 |                                          | $ | (0.6 | )   
|                             | Foreign currency translation adjustments |   |      | 0.5  |  
|                             |                                          |   |     
|Balance at February 28, 2005 |                                          | $ | (0.1 | )   
|                             | Foreign currency translation adjustments |   |      | (1.8 | )
|                             |                                          |   |     
|Balance at February 28, 2006 |                                          | $ | (1.9 | )   
|                             |                                          |   |     

Note K  Leases




|            |      |        |     |     | 
|----------- | ---- | ------ | --- | --- | 
|Fiscal Year |      | Amount |    
|            |      |        |    
|            | 2007 |        | $   | 1.9 | 
|            | 2008 |        | $   | 1.3 | 
|            | 2009 |        | $   | 0.9 | 
|            | 2010 |        | $   | 0.4 | 
|            | 2011 |        | $   | 0.4 | 
|Thereafter  |      | $      | 0.2 |    

Note L  Special Charges




| |            
| | -----------
| | Fiscal 2006



|                                        |  |         |     |  |             |   |     |                |  |   |       |  |  |   |     | 
|--------------------------------------- |  | ------- | --- |  | ----------- | - | --- | -------------- |  | - | ----- |  |  | - | --- | 
|                                        |  | Cost of |     |  | Research    |   |     | Selling,       |  |   |      
|                                        |  | Goods   |     |  | and         |   |     | General and    |  |   |      
|                                        |  | Sold    |     |  | Development |   |     | Administrative |  |   | Total | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 
|Severance payments and related benefits |  | $       | 0.5 |  |             | $ | 0.2 |                |  | $ | 1.2   |  |  | $ | 1.9 | 



55



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Fiscal 2004





|                                        |  |         |     |  |             |   |     |                |  |   |       |  |  |   |     | 
|--------------------------------------- |  | ------- | --- |  | ----------- | - | --- | -------------- |  | - | ----- |  |  | - | --- | 
|                                        |  | Cost of |     |  | Research    |   |     | Selling,       |  |   |      
|                                        |  | Goods   |     |  | and         |   |     | General and    |  |   |      
|                                        |  | Sold    |     |  | Development |   |     | Administrative |  |   | Total | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 
|Severance payments and related benefits |  | $       | 0.6 |  |             | $ | 0.2 |                |  | $ | 0.6   |  |  | $ | 1.4 | 
|Separation settlement                   |  |         |    |  |             |   |    |                |  |   | 0.8   |  |  |   | 0.8 | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 
|Total                                   |  | $       | 0.6 |  |             | $ | 0.2 |                |  | $ | 1.4   |  |  | $ | 2.2 | 
|                                        |  |         |     |  |             |   |     |                |  |   |       | 



Note M  Earnings Per Share




|                                           |                                                   |                           |      |     |      |   |      |      |  |   |      |     | 
|------------------------------------------ | ------------------------------------------------- | ------------------------- | ---- | --- | ---- | - | ---- | ---- |  | - | ---- | --- | 
|                                           |                                                   | Year Ended February 28/29 |     
|                                           |                                                   |                           |     
|                                           |                                                   | 2006                      |      |     | 2005 |   |      | 2004 | 
|                                           |                                                   |                           |      |     |      |   |      |      | 
|                                           |                                                   | (In millions, except per  |     
|                                           |                                                   | share data)               |     
|Numerator:                                 |                                                   |                           |      |     |      |   |      |      |  |   |      |    
|Net income                                 |                                                   | $                         | 16.5 |     |      | $ | 22.5 |      |  | $ | 11.3 |    
|                                           |                                                   |                           |      |     |      |   |      |      | 
|Denominator:                               |                                                   |                           |      |     |      |   |      |      |  |   |      |    
|Denominator for basic earnings per share   |                                                   |                           | 38.1 |     |      |   | 36.2 |      |  |   | 34.4 |    
|Effect of dilutive securities:             |                                                   |                           |      |     |      |   |      |      |  |   |      |    
|                                           | Employee stock options and restricted stock units |                           |      | 0.9 |      |   |      | 1.9  |  |   |      | 1.0 | 
|                                           | Outstanding warrants                              |                           |      |    |      |   |      | 0.4  |  |   |      | 0.3 | 
|                                           |                                                   |                           |      |     |      |   |      |      | 
|Denominator for diluted earnings per share |                                                   |                           | 39.0 |     |      |   | 38.5 |      |  |   | 35.7 |    
|                                           |                                                   |                           |      |     |      |   |      |      | 
|Net income per share  basic               |                                                   | $                         | 0.43 |     |      | $ | 0.62 |      |  | $ | 0.33 |    
|                                           |                                                   |                           |      |     |      |   |      |      | 
|Net income per share  diluted             |                                                   | $                         | 0.42 |     |      | $ | 0.59 |      |  | $ | 0.32 |    
|                                           |                                                   |                           |      |     |      |   |      |      | 



Note N  Operating Segment Information and
Major Customers




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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                          |  |      |       |  |      |   |       |      |  |   |       | 
|----------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                          |  | 2006 |       |  | 2005 |   |       | 2004 | 
|                                          |  |      |       |  |      |   |       |      | 
|Voice Automation/ IVR solution sales      |  | $    | 40.6  |  |      | $ | 68.1  |      |  | $ | 52.5  | 
|Network portal solution sales             |  |      | 8.6   |  |      |   | 5.9   |      |  |   | 1.7   | 
|Messaging solution sales                  |  |      | 19.1  |  |      |   | 10.4  |      |  |   | 10.8  | 
|Payment solution sales                    |  |      | 9.8   |  |      |   | 16.1  |      |  |   | 18.6  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total solution sales                      |  |      | 78.1  |  |      |   | 100.5 |      |  |   | 83.6  | 
|                                          |  |      |       |  |      |   |       |      | 
|Maintenance and related services revenues |  |      | 64.4  |  |      |   | 59.4  |      |  |   | 57.0  | 
|Managed services revenues                 |  |      | 25.6  |  |      |   | 23.4  |      |  |   | 24.7  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total recurring services revenues         |  |      | 90.0  |  |      |   | 82.8  |      |  |   | 81.7  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total sales                               |  | $    | 168.1 |  |      | $ | 183.3 |      |  | $ | 165.3 | 
|                                          |  |      |       |  |      |   |       |      | 



| |                      
| | ---------------------
| | Geographic Operations



|                          |       |      |      |       |      |   |       |       |  |   |      |       | 
|------------------------- | ----- | ---- | ---- | ----- | ---- | - | ----- | ----- |  | - | ---- | ----- | 
|                          |       | 2006 |      |       | 2005 |   |       | 2004  | 
|                          |       |      |      |       |      |   |       |       | 
|North America             |       | $    | 92.1 |       |      | $ | 107.8 |       |  | $ | 97.7 |      
|Europe                    |       |      | 39.1 |       |      |   | 40.9  |       |  |   | 32.4 |      
|Middle East and Africa    |       |      | 19.1 |       |      |   | 21.3  |       |  |   | 25.2 |      
|Central and South America |       |      | 12.6 |       |      |   | 6.8   |       |  |   | 7.5  |      
|Pacific Rim               |       |      | 5.2  |       |      |   | 6.5   |       |  |   | 2.5  |      
|                          |       |      |      |       |      |   |       |       | 
|                          | Total |      | $    | 168.1 |      |   | $     | 183.3 |  |   | $    | 165.3 | 
|                          |       |      |      |       |      |   |       |       | 



|               |  |      |      |  |      |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | 
|               |  | 2006 |      |  | 2005 |  
|               |  |      |      |  |      |  
|United States  |  | $    | 27.4 |  |      | $ | 20.4 | 
|United Kingdom |  |      | 1.5  |  |      |   | 1.4  | 
|               |  |      |      |  |      |  
|               |  | $    | 28.9 |  |      | $ | 21.8 | 
|               |  |      |      |  |      |  



| |                         
| | ------------------------
| | Concentration of Revenue



Note O  Concentrations of Credit Risk




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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Note P  Employee Benefit Plan




Note Q  Contingencies




| |                              
| | -----------------------------
| | Intellectual Property Matters







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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Ronald A.
Katz Technology Licensing, L.P. v. Citibank, et al.;
No. 505CV 142








| |                   
| | ------------------
| | Pending Litigation

David Barrie, et al., on Behalf of Themselves and All
Others Similarly Situated v. InterVoice-Brite, Inc.,
et al.


10b-5


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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










Daniel Wardiman, derivatively on behalf of Nominal Defendant,
Intervoice-Brite, Inc. v. Daniel D. Hammond et. al.,


Barrie






| |                              
| | -----------------------------
| | Audit Committee Investigation



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |              
| | -------------
| | Other Matters



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


















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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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SCHEDULE II


INTERVOICE, INC.


VALUATION AND QUALIFYING ACCOUNTS


|                              |                                 |               |   |     |                  |  |   |                  |  |  |            |     |            |               |   |      |      |  |   |     | 
|----------------------------- | ------------------------------- | ------------- | - | --- | ---------------- |  | - | ---------------- |  |  | ---------- | --- | ---------- | ------------- | - | ---- | ---- |  | - | --- | 
|Column A                      |                                 | Column B      |   |     | Column C         |  |   | Column D         |  |  | Column E   |    
|                              |                                 |               |   |     |                  |  |   |                  |  |  |            |    
|                              |                                 | Balance at    |   |     | Additions (1)    |  |   | Additions (2)    |  |  |            |     |           
|                              |                                 | Beginning of  |   |     | Charged to Costs |  |   | Charged to Other |  |  |            |     | Balance at |              
|Description                   |                                 | Period        |   |     | and Expenses     |  |   | Accounts         |  |  | Deductions |     |            | End of Period |  
|                              |                                 |               |   |     |                  |  |   |                  |  |  |            |     |            |               |  
|                              |                                 | (In millions) |  
|Year Ended February 28, 2006: |                                 |               |   |     |                  |  |   |                  |  |  |            |     |            |               |   |      |      |  |   |    
|                              | Allowance for doubtful accounts |               | $ | 0.8 |                  |  | $ | 0.5              |  |  | $          | 0.5 | (B)        |               | $ | (0.1 | )(A) |  | $ | 1.7 | 
|Year Ended February 28, 2005: |                                 |               |   |     |                  |  |   |                  |  |  |            |     |            |               |   |      |      |  |   |    
|                              | Allowance for doubtful accounts |               | $ | 0.9 |                  |  | $ | 0.3              |  |  |            |    |            |               | $ | (0.4 | )(A) |  | $ | 0.8 | 
|Year Ended February 29, 2004: |                                 |               |   |     |                  |  |   |                  |  |  |            |     |            |               |   |      |      |  |   |    
|                              | Allowance for doubtful accounts |               | $ | 2.5 |                  |  | $ | 0.3              |  |  |            |    |            |               | $ | (1.9 | )(A) |  | $ | 0.9 | 






|    |  |                                                  
|--- |  | -------------------------------------------------
|(A) |  | Accounts written off.                            
|   
|(B) |  | Allowance accounts included in Edify acquisition.

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Item 9.     Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure







Item 9A.     Controls and
Procedures


Evaluation of disclosure controls and procedures. 13a-15(e)


Managements Report on Internal Control over Financial
Reporting. 13a-15(f)




Internal Control  Integrated
Framework.




Changes in Internal Control Over Financial Reporting.





Item 9B.     Other
Information




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Report of Independent Registered Public Accounting Firm on


Internal Control over Financial Reporting




















| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP





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PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

10-K. 10-K







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules



| |    |   |  |                                                                                                                                      |  |  |    | 
| | -- | - |  | ------------------------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
| |    |   |  | Page                                                                                                                                 | 
| |    |   |  |                                                                                                                                      | 
| | (1 | ) |  | Financial Statements                                                                                                                 |  |  |    | 
| |    |   |  | Report of Independent Registered Public Accounting Firm                                                                              |  |  | 35 | 
| |    |   |  | Consolidated Balance Sheets at February 28, 2006 and 2005                                                                            |  |  | 36 | 
| |    |   |  | Consolidated Statements of Operations for each of the three
    years in the period ended February 28, 2006                          |  |  | 37 | 
| |    |   |  | Consolidated Statements of Changes in Stockholders Equity
    for each of the three years in the period ended
    February 28, 2006 |  |  | 38 | 
| |    |   |  | Consolidated Statements of Cash Flows for each of the three
    years in the period ended February 28, 2006                          |  |  | 39 | 
| |    |   |  | Notes to Consolidated Financial Statements                                                                                           |  |  | 40 | 
| | (2 | ) |  | Financial Statement Schedule II Valuation and Qualifying
    Accounts                                                                |  |  | 64 | 



Exhibits:




| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | The exhibits required to be filed by this Item 15 are set
    forth in the Index to Exhibits accompanying this report.

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##### Table of Contents



SIGNATURES






| |                 
| | ----------------
| | INTERVOICE, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ ROBERT E. RITCHEY

| |                                      
| | -------------------------------------
| |                                      
| | Robert E. Ritchey                    
| | President and Chief Executive Officer





|                                                   |  |                                                      |  |              |  | 
|-------------------------------------------------- |  | ---------------------------------------------------- |  | ------------ |  | 
|Signature                                          |  | Title                                                |  | Date        
|                                                   |  |                                                      |  |             
|                                                  
|/s/ ROBERT E. RITCHEYRobert
    E. Ritchey         |  | President and Chief Executive Officer                |  | May 15, 2006
|                                                  
|/s/ CRAIG E. HOLMESCraig
    E. Holmes             |  | Executive Vice President and Chief Financial Officer |  | May 15, 2006
|                                                  
|/s/ MARK C. FALKENBERGMark
    C. Falkenberg       |  | Chief Accounting Officer                             |  | May 15, 2006
|                                                  
|/s/ GERALD F. MONTRYGerald
    F. Montry           |  | Chairman of the Board                                |  | May 15, 2006
|                                                  
|/s/ SAJ-NICOLE A. JONISaj-nicole
    A. Joni       |  | Director                                             |  | May 15, 2006
|                                                  
|/s/ JOSEPH J. PIETROPAOLOJoseph
    J. Pietropaolo |  | Director                                             |  | May 15, 2006
|                                                  
|/s/ GEORGE C. PLATTGeorge
    C. Platt             |  | Director                                             |  | May 15, 2006
|                                                  
|/s/ DONALD B. REEDDonald
    B. Reed               |  | Director                                             |  | May 15, 2006
|                                                  
|/s/ JACK P. REILYJack
    P. Reily                 |  | Director                                             |  | May 15, 2006

68



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##### Table of Contents



INDEX TO EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Agreement and Plan of Merger dated November 18, 2005 by and
    among Corporation, Edify Corporation, Edify Holding Company,
    Inc., Intervoice, Inc. and Arrowhead I, Inc.(28)                                                               
|        | 3  | .1          |  | Articles of Incorporation, as amended, of Registrant.(1)                                                                                                                                                                                        
|        | 3  | .2          |  | Amendment to Articles of Incorporation of Registrant.(7)                                                                                                                                                                                        
|        | 3  | .3          |  | Amendment to Articles of Incorporation of Registrant.(12)                                                                                                                                                                                       
|        | 3  | .4          |  | Third Restated Bylaws of Registrant.(18)                                                                                                                                                                                                        
|        | 4  | .1          |  | Third Amended and Restated Rights Agreement dated as of
    May 1, 2001 between the Registrant and Computershare
    Investor Services, LLC, as Rights Agent.(3)                                                                                
|        | 4  | .2          |  | Registration Rights Agreement, dated as of May 29, 2002,
    between the Registrant and each of the Buyers under a Securities
    Purchase Agreement.(10)                                                                                       
|        | 4  | .3          |  | First Amendment to Third Amended and Restated Rights Agreement
    dated as of May 29, 2002, between the Registrant and
    Computershare Investor Services, LLC, as Rights Agent.(10)                                                          
|        | 10 | .1          |  | The InterVoice, Inc. 1990 Incentive Stock Option Plan, as
    Amended.(5)                                                                                                                                                                       
|        | 10 | .2          |  | The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for
    Non-Employees, as amended.(2)                                                                                                                                                  
|        | 10 | .3          |  | InterVoice, Inc. Restricted Stock Plan.(4)                                                                                                                                                                                                      
|        | 10 | .4          |  | InterVoice, Inc. 1998 Stock Option Plan.(6)                                                                                                                                                                                                     
|        | 10 | .5          |  | Acquisition Agreement and Plan of Merger dated as of
    April 27, 1999, by and among the Company, InterVoice
    Acquisition Subsidiary III, Inc. (Acquisition
    Subsidiary) and Brite Voice Systems, Inc.(8)                              
|        | 10 | .6          |  | Patent License Agreement between Lucent Technologies GRL Corp.
    and InterVoice Limited Partnership, effective as of
    October 1, 1999. Portions of this exhibit have been
    excluded pursuant to a request for confidential treatment.(7)
|        | 10 | .7          |  | Intervoice, Inc. 1999 Stock Option Plan.(9)                                                                                                                                                                                                     
|        | 10 | .8          |  | Second Amended Employment Agreement dated as of
    February 18, 2002, between the Company and David W.
    Brandenburg.(11)                                                                                                                    
|        | 10 | .9          |  | Employment Agreement dated as of October 23, 2002, between
    the Company and Robert E. Ritchey.(13)                                                                                                                                           
|        | 10 | .10         |  | Separation Agreement with Rob-Roy J. Graham dated June 25,
    2003.(14)                                                                                                                                                                        
|        | 10 | .11         |  | Intervoice, Inc. Employee Stock Purchase Plan, as amended and
    restated effective June 24, 2003.(15)                                                                                                                                         
|        | 10 | .12         |  | Employment Agreement with Craig E. Holmes effective
    August 27, 2003.(15)                                                                                                                                                                    
|        | 10 | .13         |  | Credit and Security Agreement dated as of January 26, 2004,
    between the Company and Wells Fargo Bank, N.A.(16)                                                                                                                              
|        | 10 | .14         |  | Amended and Restated Credit Agreement dated as of June 3,
    2004, between the Registrant and Wells Fargo Bank, National
    Association (Wells Fargo).(18)                                                                                  
|        | 10 | .15         |  | First Amendment to Credit Agreement dated as of August 17,
    2004, between Registrant and Wells Fargo.(19)                                                                                                                                    
|        | 10 | .16         |  | Fiscal Year 2005 Transition Year Incentive Plan Summary.(19)                                                                                                                                                                                    
|        | 10 | .17         |  | Intervoice, Inc. 2003 Stock Option Plan.(19)                                                                                                                                                                                                    
|        | 10 | .18         |  | Letter Agreement dated November 18, 2004 between Registrant
    and David W. Brandenburg.(21)                                                                                                                                                   
|        | 10 | .19         |  | Summary of Fiscal Year 2005 Second Half Incentive Plan.(20)                                                                                                                                                                                     
|        | 10 | .20         |  | Summary of Fiscal Year 2006 Annual Incentive Compensation
    Plan.(22)                                                                                                                                                                         
|        | 10 | .21         |  | Summary of Fiscal Year 2006 Non-Employee Director Cash
    Compensation.(23)                                                                                                                                                                    
|        | 10 | .22         |  | Employment Agreement effective December 1, 2004 between
    Registrant and Robert E. Ritchey.(29)                                                                                                                                               



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .23         |  | Statement of Terms and Conditions of Employment for Francis
    Sherlock.(24)                                                                                                                                                                                                       
|        | 10 | .24         |  | Intervoice, Inc. 2005 Stock Incentive Plan Summary of Stock
    Option Grant and Stock Option Award Agreement for Employees.(25)                                                                                                                                                    
|        | 10 | .25         |  | Intervoice, Inc. 2005 Stock Incentive Plan Summary of Stock
    Option Grant and Stock Option Award Agreement for Non-employee
    Directors.(25)                                                                                                                                   
|        | 10 | .26         |  | Intervoice, Inc. 2005 Stock Incentive Plan.(26)                                                                                                                                                                                                                                     
|        | 10 | .27         |  | Extension of Health Care Coverage to Non-Employee Directors.(27)                                                                                                                                                                                                                    
|        | 10 | .28         |  | Salary Increases for Executive Officers.(27)                                                                                                                                                                                                                                        
|        | 14 |             |  | Code of Ethics.(17)                                                                                                                                                                                                                                                                 
|        | 21 |             |  | Subsidiaries.(30)                                                                                                                                                                                                                                                                   
|        | 23 |             |  | Consent of Independent Auditors.(30)                                                                                                                                                                                                                                                
|        | 31 | .1          |  | Certification of Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-14(a) or Rule 15d-14(a).(30)                                                                                                                                                                   
|        | 31 | .2          |  | Certification of Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-14(a) or Rule 15d-14(a).(30)                                                                                                                                                                   
|        | 32 | .1          |  | Certification by Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-14(b) and 18 U.S.C.
    Section 1350.(30)*                                                                                                                                                     
|        | 32 | .2          |  | Certification by Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-14(b) and 18 U.S.C.
    Section 1350.(30)*                                                                                                                                                     
|        | 99 | .1          |  | Pages 12, 13, 18, 38-40, 43 and 45 of the Registration
    Statement on Form S-4, as amended (incorporated by
    reference to pages 12, 13, 18, 38-40, 43 and 45 of the
    Registration Statement on Form S-4/A (Amendment No. One)
    filed by the Company on July 13, 1999).(7)






| |     |                                                                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to exhibits to the Companys 1995
    Annual Report on
    Form 10-K for the
    fiscal year ended February 28, 1995, filed with the SEC on
    May 30, 1995.                                                                                   
|
| | (2) | Incorporated by reference to exhibits to the Companys
    Registration Statement on
    Form S-8 filed
    with the SEC on April 6, 1994, with respect to the
    Companys 1990 Nonqualified Stock Option Plan for Non-
    Employees, Registration
    Number 33-77590.
|
| | (3) | Incorporated by reference to exhibits to
    Form 8-A/ A
    (Amendment 3) filed with the SEC on May 9, 2001.                                                                                                                                                             
|
| | (4) | Incorporated by reference to exhibits to the Companys 1996
    Annual Report on
    Form 10-K for the
    fiscal year ended February 29, 1996, filed with the SEC on
    May 29, 1996.                                                                                   
|
| | (5) | Incorporated by reference to the Companys 1997 Annual
    Report on
    Form 10-K for the
    fiscal year ended February 28, 1997, filed with the SEC on
    May 29, 1997.                                                                                               
|
| | (6) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended August 31, 1998, filed with the SEC on
    October 14, 1998.                                                                                
|
| | (7) | Incorporated by reference to the Companys Quarterly Report
    on Form 10-Q for
    the fiscal quarter ended August 31, 1999, filed with the
    SEC on October 14, 1999.                                                                                                
|
| | (8) | Incorporated by reference to Exhibit 99(b)(1) of the
    Schedule 14-D1
    filed by Brite Voice systems, Inc. and Intervoice Acquisition
    Subsidiary III, Inc. on May 3, 1999.                                                                                        
|
| | (9) | Incorporated by reference to Registration Statement on
    Form S-8 filed
    with the SEC on October 15, 1999, Registration
    Number 333-89127.                                                                                                                        



|     |                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to exhibits to the Companys
    Current Report on
    Form 8-K, filed
    with the SEC on May 30, 2002.                                                        
|    
|(11) | Incorporated by reference to exhibits to the Companys 2002
    Annual Report on
    Form 10-K for the
    fiscal year ended February 28, 2002, filed with the SEC on
    May 30, 2002.   
|    
|(12) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended August 31, 2002, filed with the SEC on
    October 15, 2002.
|    
|(13) | Incorporated by reference to exhibits to the Companys
    Annual Report on
    Form 10-K for the
    fiscal year ended February 28, 2003, filed with the SEC on
    May 29, 2003.        



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##### Table of Contents





|     |                                                                                                                                                                                             
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Incorporated by reference to exhibits to Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended May 31, 2003, filed with the SEC on
    July 15, 2003.            
|    
|(15) | Incorporated by reference to exhibits to Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended August 31, 2003, filed with the SEC on
    October 14, 2003.      
|    
|(16) | Incorporated by reference to exhibits to the Companys
    Current Report on
    Form 8-K, filed
    with the SEC on January 26, 2004.                                                      
|    
|(17) | Incorporated by reference to exhibits to the Companys
    Annual Report on
    Form 10-K for the
    fiscal year ended February 29, 2004, filed with the SEC on
    May 14, 2004.          
|    
|(18) | Incorporated by reference to exhibits to the Companys
    Current Report on
    Form 8-K, filed
    with the SEC on June 4, 2004.                                                          
|    
|(19) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended August 31, 2004, filed with the SEC on
    October 12, 2004.  
|    
|(20) | Incorporated by reference to exhibits to the Companys
    Current Report on
    Form 8-K, filed
    with the SEC on November 19, 2004.                                                     
|    
|(21) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended November 30, 2004, filed with the SEC
    on January 10, 2005.
|    
|(22) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    with the SEC on April 28, 2005.                                                                        
|    
|(23) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed
    with the SEC on January 21, 2005.                                                                      
|    
|(24) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended November 30, 2005, filed with the SEC
    on January 9, 2006. 
|    
|(25) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended August 31, 2005, filed with the SEC on
    October 7, 2005.   
|    
|(26) | Incorporated by reference to exhibits to the Companys
    Current Report on
    Form 8-K, filed
    with the SEC on June 3, 2005.                                                          
|    
|(27) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on
    Form 10-Q for the
    fiscal quarter ended May 31, 2005, filed with the SEC on
    July 8, 2005.         
|    
|(28) | Incorporated by reference to exhibits to the Companys
    Current Report on
    Form 8-K, filed
    with the SEC on January 3, 2006.                                                       
|    
|(29) | Incorporated by reference to exhibits to the Companys
    Annual Report on
    Form 10-K for the
    fiscal year ended February 28, 2005, filed with the SEC on
    May 16, 2005.          
|    
|(30) | Filed herewith.                                                                                                                                                                             



| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | The certifications attached as Exhibit 32.1 and
    Exhibit 32.2 accompany the
    Form 10-K pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
    not be deemed filed by the Company for purposes of
    Section 18 of the Securities Exchange Act of 1934.