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As Filed with the Securities and Exchange Commission on
May 16, 2005








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, 2005                                                 
|  
|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


þ o


þ


þ o






Documents Incorporated by Reference














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TABLE OF CONTENTS


|                                                         |  |                                                                                                                       |  |      |    | 
|-------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                         |  |                                                                                                                       |  | Page |   
|                                                         |  |                                                                                                                       |  |      |   
|                                                         |  | PART I                                                                                                                |  |      |    | 
|Item 1.                                                  |  | Business                                                                                                              |  |      | 3  | 
|                                                         |  | Overview                                                                                                              |  |      | 3  | 
|                                                         |  | Products and Services                                                                                                 |  |      | 3  | 
|                                                         |  | Markets                                                                                                               |  |      | 6  | 
|                                                         |  | Competition                                                                                                           |  |      | 7  | 
|                                                         |  | Sales and Marketing                                                                                                   |  |      | 7  | 
|                                                         |  | Strategic Alliances                                                                                                   |  |      | 8  | 
|                                                         |  | Backlog                                                                                                               |  |      | 8  | 
|                                                         |  | Research and Development                                                                                              |  |      | 8  | 
|                                                         |  | Proprietary Rights                                                                                                    |  |      | 9  | 
|                                                         |  | Manufacturing and Facilities                                                                                          |  |      | 10 | 
|                                                         |  | Employees                                                                                                             |  |      | 10 | 
|                                                         |  | Availability of Company Filings with the
    SEC                                                                      |  |      | 10 | 
|Item 2.                                                  |  | Properties                                                                                                            |  |      | 10 | 
|Item 3.                                                  |  | Legal Proceedings                                                                                                     |  |      | 10 | 
|Item 4.                                                  |  | Submission of Matters to a Vote of Security
    Holders                                                               |  |      | 13 | 
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of  Equity
    Securities |  |      | 13 | 
|Item 6.                                                  |  | Selected Financial Data                                                                                               |  |      | 14 | 
|Item 7.                                                  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                             |  |      | 15 | 
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                        |  |      | 32 | 
|Item 8.                                                  |  | Financial Statements and Supplementary
    Data                                                                       |  |      | 33 | 
|Item 9.                                                  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                              |  |      | 62 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                                               |  |      | 62 | 
|Item 9B.                                                 |  | Other Information                                                                                                     |  |      | 62 | 
|PART III                                                
|Item 10.                                                 |  | Directors and Executive Officers of the
    Registrant                                                                |  |      | 64 | 
|Item 11.                                                 |  | Executive Compensation                                                                                                |  |      | 64 | 
|Item 12.                                                 |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder  Matters                   |  |      | 64 | 
|Item 13.                                                 |  | Certain Relationships and Related
    Transactions                                                                    |  |      | 64 | 
|Item 14.                                                 |  | Principal Accountant Fees and Services                                                                                |  |      | 64 | 
|PART IV                                                 
|Item 15.                                                 |  | Exhibits and Financial Statement
    Schedules                                                                        |  |      | 65 | 
|Employment Agreement - Robert E. Ritchey                
|Subsidiaries                                            
|Consent of Independent Registered Public Accounting Firm
|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)         



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PART I







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




Overview













Products and Services




3



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Enterprise Solutions




| |                                 
| | --------------------------------
| | Omvia Interactive Voice Response





| |                      
| | ---------------------
| | Omvia Voice Framework







| |                      
| | ---------------------
| | Packaged Applications





| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Omvia Authenticator a voice authentication
    solution that uses speaker verification and other biometric
    technology to confirm the callers identity prior to
    providing access to accounts or agents to help reduce fraud and
    identity theft;
|
| | Omvia Locator a software application that
    provides callers quick and easy access to the location,
    including cross street information, of popular retail
    destinations such as ATMs or storefronts;                                              
|
| | Omvia Auto-Attendant an application that
    enables callers to reach their desired party by simply speaking
    the partys name rather than dialing an extension or
    punching out the partys name on the telephone keyboard;                         
|
| | Omvia Survey an application for creating,
    managing and reporting on effective and engaging speech-enabled
    surveys that allow organizations to build relationships with
    their customers; and                                                    

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| |                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Omvia Identifier a solution that provides
    complete reset functionality, including caller log-in and
    identification, authentication, a flexible range of PIN/password
    reset options, and a Voice User Interface that can be easily
    customized to meet any industry or service requirement.



| |                                                             
| | ------------------------------------------------------------
| | Professional Services for Custom Application
    Development



Network Solutions






| |                
| | ---------------
| | Omvia Messaging





| |                     
| | --------------------
| | Omvia Media Exchange







| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Omvia Communicator  next-generation voice mail
    functionality offering a common message store and common data
    base;                                                                                                            
|
| | Omvia Media Messaging  a media-independent
    message deposit utility that allows subscribers to record a
    voice message and have it delivered as a voicemail, email,
    Multi-Media Messaging Service (MMS) or animated message;
|
| | Omvia Voice Activated Dialing  a solution
    which lets end users create their own address books, store
    contact information and initiate calls with voice
    dialing; and                                                       
|
| | Omvia Personal Ringback Tone  software which
    offers subscribers a selection of ringback tones, including
    popular songs, jokes and infotainment.                                                                               



| |             
| | ------------
| | Omvia Portal



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| |              
| | -------------
| | Omvia Payment







Recurring Services




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









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








Markets




6



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Competition













Sales and Marketing






7



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Strategic Alliances




tm









Backlog







Research and Development






8



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Proprietary Rights






9



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Manufacturing and Facilities







Employees







Availability of Company Filings with the SEC









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



|                                           |  |             |         | 
|------------------------------------------ |  | ----------- | ------- | 
|                                           |  | Square Feet |        
|                                           |  |             |        
|Allen, Texas                               |  |             | 130,000 | 
|Orlando, Florida                           |  |             | 34,000  | 
|Manchester, United Kingdom                 |  |             | 27,000  | 
|Cambridge, United Kingdom                  |  |             | 12,000  | 
|Other domestic and international locations |  |             | 13,000  | 








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

Intellectual Property Matters




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Pending Litigation






11



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Audit Committee Investigation








12



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

|                    |  |      |       |  |     |   |      | 
|------------------- |  | ---- | ----- |  | --- | - | ---- | 
|Fiscal 2004 Quarter |  | High |       |  | Low |  
|                    |  |      |       |  |     |  
|4th                 |  | $    | 14.44 |  |     | $ | 9.10 | 
|3rd                 |  | $    | 11.12 |  |     | $ | 7.05 | 
|2nd                 |  | $    | 8.45  |  |     | $ | 3.16 | 
|1st                 |  | $    | 3.73  |  |     | $ | 1.50 | 





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



|                                                                                   |                                                                                    |                                      |       |      |      |   |       |       |  |   |        |       |   |         |       |       |   |   |       |       |  
|---------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------ | ----- | ---- | ---- | - | ----- | ----- |  | - | ------ | ----- | - | ------- | ----- | ----- | - | - | ----- | ----- | -
|                                                                                   |                                                                                    | Fiscal Year Ended February 28/29     |      
|                                                                                   |                                                                                    |                                      |      
|                                                                                   |                                                                                    | 2005                                 |       |      | 2004 |   |       | 2003* |  |   | 2002** |       |   | 2001*** |      
|                                                                                   |                                                                                    |                                      |       |      |      |   |       |       |  |   |        |       |   |         |      
|                                                                                   |                                                                                    | (In millions, except per share data) |      
|Sales                                                                              |                                                                                    | $                                    | 183.3 |      |      | $ | 165.3 |       |  | $ | 156.2  |       |   | $       | 211.6 |       |   | $ | 274.7 |      
|Income (loss) from operations                                                      |                                                                                    |                                      | 24.7  |      |      |   | 18.8  |       |  |   | (44.1  | )     |   |         | (51.6 | )     |   |   | 0.4   |      
|Income (loss) before the cumulative effect of a change in
    accounting principle |                                                                                    |                                      | 22.5  |      |      |   | 11.3  |       |  |   | (50.6  | )     |   |         | (44.7 | )     |   |   | 9.5   |      
|Net income (loss)                                                                  |                                                                                    |                                      | 22.5  |      |      |   | 11.3  |       |  |   | (66.4  | )     |   |         | (44.7 | )     |   |   | (2.3  | )    
|Total assets                                                                       |                                                                                    |                                      | 134.9 |      |      |   | 111.6 |       |  |   | 101.0  |       |   |         | 175.4 |       |   |   | 256.8 |      
|Current portion of long term debt                                                  |                                                                                    |                                      | 0.4   |      |      |   |      |       |  |   | 3.3    |       |   |         | 6.0   |       |   |   | 18.5  |      
|Long term debt, net of current portion                                             |                                                                                    |                                      | 1.3   |      |      |   | 13.1  |       |  |   | 15.8   |       |   |         | 24.0  |       |   |   | 31.1  |      
|Per basic common share:                                                            |                                                                                    |                                      |       |      |      |   |       |       |  |   |        |       |   |         |       |       |   |   |       |      
|                                                                                   | Income (loss) before the cumulative effect of a change in
    accounting principle |                                      |       | 0.62 |      |   |       | 0.33  |  |   |        | (1.49 | ) |         |       | (1.34 | ) |   |       | 0.29  |  
|                                                                                   | Net income (loss)                                                                  |                                      |       | 0.62 |      |   |       | 0.33  |  |   |        | (1.95 | ) |         |       | (1.34 | ) |   |       | (0.07 | )
|Shares used in per basic common share calculation                                  |                                                                                    |                                      | 36.2  |      |      |   | 34.4  |       |  |   | 34.0   |       |   |         | 33.4  |       |   |   | 32.7  |      
|Per diluted common share:                                                          |                                                                                    |                                      |       |      |      |   |       |       |  |   |        |       |   |         |       |       |   |   |       |      
|                                                                                   | Income (loss) before the cumulative effect of a change in
    accounting principle |                                      |       | 0.59 |      |   |       | 0.32  |  |   |        | (1.49 | ) |         |       | (1.34 | ) |   |       | 0.28  |  
|                                                                                   | Net income (loss)                                                                  |                                      |       | 0.59 |      |   |       | 0.32  |  |   |        | (1.95 | ) |         |       | (1.34 | ) |   |       | (0.07 | )
|Shares used in per diluted common share calculation                                |                                                                                    |                                      | 38.5  |      |      |   | 35.7  |       |  |   | 34.0   |       |   |         | 33.4  |       |   |   | 34.3  |      






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | 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. (See
    Special Charges and Amortization and
    Impairment of Goodwill and Acquired Intangible Assets
    under Item 7.) 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 (see Special Charges under
    Item 7).



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*** | The fiscal 2001 income from operations was impacted by special
    charges of $8.2 million related to changes in our
    organizational structure and product offerings. Income before
    the cumulative effect of a change in accounting principle was
    impacted by those special charges of $8.2 million
    ($5.4 million net of taxes) and by a $21.4 million
    ($13.8 million net of taxes) gain on the sale of
    SpeechWorks International, Inc. common stock. Sales, income from
    operations, income before the cumulative effect of a change in
    accounting principle and net loss also were affected by
    Intervoices adoption of Staff Accounting
    Bulletin No. 101 (SAB 101) effective
    March 1, 2000. During fiscal 2001, we recognized
    $22.4 million in revenue whose contribution to income was
    included in the cumulative effect adjustment as of March 1,
    2000.

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

Cautionary Disclosures to Qualify Forward-Looking
Statements






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    this Item 7 for a discussion of our system for estimating
    sales and 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. We believe the pending lawsuit to which we are
    subject is without merit, and we intend to defend the matter
    vigorously. There can be no assurances, however, that we will
    prevail in this matter. Furthermore, we may become subject to
    claims, including claims by the government, or other adverse
    consequences arising from the findings of an Audit Committee
    investigation we completed in December 2004. We and two of our
    former officers are currently responding to SEC subpoenas
    requesting information 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. 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 and contain other customary
    provisions to limit or exclude coverage for certain losses and
    expenses.                                                                                                                                                                          
|
| |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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, Edify, Comverse Technology, Huawei and
    Lucent Technologies. Many of our competitors have greater
    financial, technological and marketing resources than we have.
    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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | 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. The shift to open
    standards will also challenge us to accurately estimate the
    level of R&D expenditures that will be necessary in future
    periods to comply with existing standards and, potentially, to
    migrate to new open standards. If we are unsuccessful in
    resolving one or more of these challenges, our revenues and
    profitability could decline.
|
| |  | 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. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | 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. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 to
    defend 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 41% of total sales in
    each of fiscal 2005, 2004 and 2003. 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;                                                                                                                                                              
|
| |  | 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 liquidated damages for delayed project
    completion and/or for our failure to achieve certain minimum
    service levels. We have had to pay liquidated damages in the
    past and may have to pay additional liquidated damages in the
    future. Any such future liquidated 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.

17



---



##### Table of Contents



Leadership Changes








Results of Operations




|                                                                                                    |  |                           |       |   |      |  |       |       |  |  |       |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------- | ----- | - | ---- |  | ----- | ----- |  |  | ----- | -
|                                                                                                    |  | Year Ended February 28/29 |      
|                                                                                                    |  |                           |      
|                                                                                                    |  | 2005                      |       |   | 2004 |  |       | 2003* | 
|                                                                                                    |  |                           |       |   |      |  |       |       | 
|Sales                                                                                               |  |                           | 100.0 | % |      |  | 100.0 | %     |  |  | 100.0 | %
|Cost of goods sold                                                                                  |  |                           | 44.2  |   |      |  | 45.5  |       |  |  | 56.3  |  
|                                                                                                    |  |                           |       |   |      |  |       |       | 
|Gross margin                                                                                        |  |                           | 55.8  |   |      |  | 54.5  |       |  |  | 43.7  |  
|                                                                                                    |  |                           |       |   |      |  |       |       | 
|Research and development expenses                                                                   |  |                           | 8.6   |   |      |  | 9.2   |       |  |  | 14.5  |  
|Selling, general and administrative expenses                                                        |  |                           | 32.9  |   |      |  | 32.2  |       |  |  | 42.2  |  
|Amortization of goodwill and acquisition related intangible
    assets                              |  |                           | 0.8   |   |      |  | 1.7   |       |  |  | 4.5   |  
|Impairment of goodwill and acquisition related intangible assets                                    |  |                           |      |   |      |  |      |       |  |  | 10.7  |  
|                                                                                                    |  |                           |       |   |      |  |       |       | 
|Operating income (loss)                                                                             |  |                           | 13.5  |   |      |  | 11.4  |       |  |  | (28.2 | )
|Other income (expense), net                                                                         |  |                           | .2    |   |      |  | (2.5  | )     |  |  | (4.6  | )
|                                                                                                    |  |                           |       |   |      |  |       |       | 
|Income (loss) before income taxes and the cumulative effect of a
    change in accounting principle |  |                           | 13.7  |   |      |  | 8.9   |       |  |  | (32.8 | )
|Income taxes (benefit)                                                                              |  |                           | 1.4   |   |      |  | 2.0   |       |  |  | (0.5  | )
|                                                                                                    |  |                           |       |   |      |  |       |       | 
|Income (loss) before the cumulative effect of a change in
    accounting principle                  |  |                           | 12.3  |   |      |  | 6.9   |       |  |  | (32.3 | )
|                                                                                                    |  |                           |       |   |      |  |       |       | 






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The fiscal 2003 loss from operations was impacted by special
    charges of $34.3 million (22.0% of sales) 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. (See Special Charges and
    Amortization and Impairment of Goodwill and Acquired
    Intangible Assets under Item 7.) 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 (1.9% of sales).

Critical Accounting Policies




18



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



Sale of Hardware and Software Solutions:










19



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##### Table of Contents





Sale of Maintenance and Other Customer Services:


Sale of Managed Services:




Loss Contracts:




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





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

Intangible Assets:




20



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Goodwill:




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



Sales




21



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##### Table of Contents





|                                          |  |      |       |  |      |   |       |      |  |   |       | 
|----------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                          |  | 2005 |       |  | 2004 |   |       | 2003 | 
|                                          |  |      |       |  |      |   |       |      | 
|Voice Automation/ IVR solution sales      |  | $    | 68.1  |  |      | $ | 52.5  |      |  | $ | 52.4  | 
|Network portal solution sales             |  |      | 5.9   |  |      |   | 1.7   |      |  |   |      | 
|Messaging solution sales                  |  |      | 10.4  |  |      |   | 10.8  |      |  |   |      | 
|Payment solution sales                    |  |      | 16.1  |  |      |   | 18.6  |      |  |   |      | 
|Network solution sales                    |  |      |      |  |      |   |      |      |  |   | 32.3  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total solution sales                      |  |      | 100.5 |  |      |   | 83.6  |      |  |   | 84.7  | 
|                                          |  |      |       |  |      |   |       |      | 
|Maintenance and related services revenues |  |      | 59.4  |  |      |   | 57.0  |      |  |   | 49.7  | 
|Managed services revenues                 |  |      | 23.4  |  |      |   | 24.7  |      |  |   | 21.8  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total recurring services revenues         |  |      | 82.8  |  |      |   | 81.7  |      |  |   | 71.5  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total sales                               |  | $    | 183.3 |  |      | $ | 165.3 |      |  | $ | 156.2 | 
|                                          |  |      |       |  |      |   |       |      | 



|                          |       |      |       |       |      |   |      |       |  |   |      |       | 
|------------------------- | ----- | ---- | ----- | ----- | ---- | - | ---- | ----- |  | - | ---- | ----- | 
|                          |       | 2005 |       |       | 2004 |   |      | 2003  | 
|                          |       |      |       |       |      |   |      |       | 
|North America             |       | $    | 107.8 |       |      | $ | 97.7 |       |  | $ | 91.5 |      
|Europe                    |       |      | 40.9  |       |      |   | 32.4 |       |  |   | 39.5 |      
|Middle East and Africa    |       |      | 21.3  |       |      |   | 25.2 |       |  |   | 16.2 |      
|Central and South America |       |      | 6.8   |       |      |   | 7.5  |       |  |   | 6.1  |      
|Pacific Rim               |       |      | 6.5   |       |      |   | 2.5  |       |  |   | 2.9  |      
|                          |       |      |       |       |      |   |      |       | 
|                          | Total |      | $     | 183.3 |      |   | $    | 165.3 |  |   | $    | 156.2 | 
|                          |       |      |       |       |      |   |      |       | 





22



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|                                                                                                 |  |                       |     |   |      |  |     |      |  |  |     |  
|------------------------------------------------------------------------------------------------ |  | --------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                                                                 |  | Year Ended            |    
|                                                                                                 |  | February 28/29        |    
|                                                                                                 |  |                       |    
|                                                                                                 |  | 2005                  |     |   | 2004 |  |     | 2003 | 
|                                                                                                 |  |                       |     |   |      |  |     |      | 
|                                                                                                 |  | (Based on Averages of |    
|                                                                                                 |  | Quarterly Activity)   |    
|Sales from recurring service and support contracts, including
    contracts for managed services |  |                       | 45  | % |      |  | 49  | %    |  |  | 46  | %
|Sales from solutions backlog                                                                     |  |                       | 41  | % |      |  | 36  | %    |  |  | 29  | %
|Sales from the pipeline                                                                          |  |                       | 14  | % |      |  | 15  | %    |  |  | 25  | %
|                                                                                                 |  |                       |     |   |      |  |     |      | 
|                                                                                                 |  |                       | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                                                                                                 |  |                       |     |   |      |  |     |      | 







23



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Special Charges




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





|                                        |  |            |     |  |              |          |     |                |  |   |       |  |  |   |     | 
|--------------------------------------- |  | ---------- | --- |  | ------------ | -------- | --- | -------------- |  | - | ----- |  |  | - | --- | 
|                                        |  |            |     |  |              | Selling, |     |                | 
|                                        |  | Cost of    |     |  | Research and |          |     | General and    |  |   |      
|                                        |  | Goods 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 | 
|                                        |  |            |     |  |              |          |     |                |  |   |       | 





| |            
| | -----------
| | Fiscal 2003



24



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|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |   |      |      |  |   |      |      | 
|--------------------------------------- | ----- | ---------- | --- | ---- | ----------- | - | --- | ---- |  | ----- | -------- | --- | ------------- | ----------- | --- | --- | ----- | - | ---- | ---- |  | - | ---- | ---- | 
|                                        |       | Cost of    |     |      | Research &  |   |     |      |  | Other |          |     | Impairment of |             |     |    
|                                        |       | Goods Sold |     |      | Development |   |     | SG&A |  |       | Expenses |     |               | Intangibles |     |     | Total |  
|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |  
|Write down of intangible assets         |       | $          |    |      |             | $ |    |      |  | $     |         |     |               | $           |    |     |       | $ | 16.7 |      |  | $ | 16.7 |     
|Severance payments and related benefits |       |            | 2.3 |      |             |   | 0.8 |      |  |       | 3.1      |     |               |             |    |     |       |   |     |      |  |   | 6.2  |     
|Facilities closures                     |       |            | 0.2 |      |             |   | 0.1 |      |  |       | 0.4      |     |               |             |    |     |       |   |     |      |  |   | 0.7  |     
|Write down of excess inventories        |       |            | 4.1 |      |             |   |    |      |  |       |         |     |               |             |    |     |       |   |     |      |  |   | 4.1  |     
|Costs associated with loss contracts    |       |            | 4.7 |      |             |   |    |      |  |       |         |     |               |             |    |     |       |   |     |      |  |   | 4.7  |     
|Loss on early extinguishment of debt    |       |            |    |      |             |   |    |      |  |       |         |     |               |             | 1.9 |     |       |   |     |      |  |   | 1.9  |     
|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |  
|                                        | Total |            | $   | 11.3 |             |   | $   | 0.9  |  |       | $        | 3.5 |               |             | $   | 1.9 |       |   | $    | 16.7 |  |   | $    | 34.3 | 
|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |  



Cost of Goods Sold




Research and Development




25



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##### Table of Contents







Selling, General and Administrative




Amortization and Impairment of Goodwill and Acquired
Intangible Assets




|                                                                                              |  |      |     |  |      |   |     |      |  |   |      | 
|--------------------------------------------------------------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- | 
|                                                                                              |  | 2005 |     |  | 2004 |   |     | 2003 | 
|                                                                                              |  |      |     |  |      |   |     |      | 
|Amortization of acquisition related intangible assets                                         |  | $    | 1.5 |  |      | $ | 2.8 |      |  | $ | 7.1  | 
|Impairment of acquisition related intangible assets as described
    below                    |  |      |    |  |      |   |    |      |  |   | 16.7 | 
|                                                                                              |  |      |     |  |      |   |     |      | 
|Total amortization and impairment charged to operating income                                 |  | $    | 1.5 |  |      | $ | 2.8 |      |  | $ | 23.8 | 
|                                                                                              |  |      |     |  |      |   |     |      | 
|Impairment of goodwill in connection with the adoption of
    SFAS No. 142 as described below |  | $    |    |  |      | $ |    |      |  | $ | 15.8 | 
|                                                                                              |  |      |     |  |      |   |     |      | 



26



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##### Table of Contents









|            |  |   |     | 
|----------- |  | - | --- | 
|Fiscal 2006 |  | $ | 1.2 | 
|Fiscal 2007 |  | $ | 1.1 | 
|Fiscal 2008 |  | $ | 1.1 | 
|Fiscal 2009 |  | $ | 1.0 | 
|Fiscal 2010 |  | $ | 0.3 | 

Other Income (Expense)




Interest Expense




27



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##### Table of Contents



Income Taxes


















28



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##### Table of Contents











Income (Loss) From Operations and Net Income (Loss)






29



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Liquidity and Capital Resources


















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



30



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##### Table of Contents









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



|                                            |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |     |  |  |   |     | 
|------------------------------------------- |  | --------------------------------- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  |  | - | --- | 
|                                            |  | Payments Due by Period            |    
|                                            |  | Fiscal Year Ending February 28/29 |    
|                                            |  |                                   |    
|Nature of Commitment                        |  | 2006                              |     |  | 2007 |   |     | 2008 |  |   | 2009 |  |  | 2010 |    
|                                            |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |    
|Long-term debt (paid in full in March 2005) |  | $                                 | 0.4 |  |      | $ | 0.4 |      |  | $ | 0.4  |  |  | $    | 0.4 |  |  | $ | 0.1 | 
|Operating lease payments                    |  |                                   | 2.5 |  |      |   | 1.4 |      |  |   | 1.1  |  |  |      | 0.8 |  |  |   | 0.4 | 
|Firm purchase commitments                   |  |                                   | 2.0 |  |      |   | 1.2 |      |  |   | 0.7  |  |  |      |    |  |  |   |    | 
|                                            |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |    
|Total obligations and commitments           |  | $                                 | 4.9 |  |      | $ | 3.0 |      |  | $ | 2.2  |  |  | $    | 1.2 |  |  | $ | 0.5 | 
|                                            |  |                                   |     |  |      |   |     |      |  |   |      |  |  |      |    









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



Selected Quarterly Financial Data (Unaudited)


|                             |  |                                      |      |  |            |   |      |              |  |   |              |  |  |   |      | 
|---------------------------- |  | ------------------------------------ | ---- |  | ---------- | - | ---- | ------------ |  | - | ------------ |  |  | - | ---- | 
|                             |  | 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 | 

31



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|                             |  |                                      |      |  |            |   |      |              |  |   |              |  |  |   |      | 
|---------------------------- |  | ------------------------------------ | ---- |  | ---------- | - | ---- | ------------ |  | - | ------------ |  |  | - | ---- | 
|                             |  | Three Months Ended                   |     
|                             |  |                                      |     
|                             |  | May 31,                              |      |  | August 31, |   |      | November 30, |  |   | February 29, | 
|Fiscal 2004                  |  | 2003                                 |      |  | 2003       |   |      | 2003         |  |   | 2004         | 
|                             |  |                                      |      |  |            |   |      |              |  |   |              | 
|                             |  | (In millions, except per share data) |     
|Sales                        |  | $                                    | 38.4 |  |            | $ | 41.6 |              |  | $ | 41.8         |  |  | $ | 43.5 | 
|Gross profit                 |  |                                      | 20.5 |  |            |   | 22.9 |              |  |   | 22.8         |  |  |   | 23.9 | 
|Income from operations       |  |                                      | 2.4  |  |            |   | 5.4  |              |  |   | 4.9          |  |  |   | 6.2  | 
|Net income                   |  |                                      | 0.9  |  |            |   | 3.6  |              |  |   | 3.6          |  |  |   | 3.2  | 
|Net income per basic share   |  |                                      | 0.03 |  |            |   | 0.11 |              |  |   | 0.10         |  |  |   | 0.09 | 
|Net income per diluted share |  |                                      | 0.03 |  |            |   | 0.10 |              |  |   | 0.10         |  |  |   | 0.09 | 






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





| |                       
| | ----------------------
| | Foreign Currency Risks







32



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



33



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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 29, |  
|                                     |                                                                                                                                                                                        | 2005                        |         |         | 2004         |  
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        | (In thousands, except share |        
|                                     |                                                                                                                                                                                        | and per share data)         |        
|ASSETS                              
|Current Assets                       |                                                                                                                                                                                        |                             |         |         |              |   |         |        
|                                     | Cash and cash equivalents                                                                                                                                                              |                             | $       | 60,242  |              |   | $       | 40,859  |  
|                                     | Trade accounts receivable, net of allowance for doubtful
    accounts of $799 in 2005 and $947 in 2004                                                                                 |                             |         | 32,605  |              |   |         | 23,719  |  
|                                     | Inventory                                                                                                                                                                              |                             |         | 7,642   |              |   |         | 8,415   |  
|                                     | Prepaid expenses and other current assets                                                                                                                                              |                             |         | 4,339   |              |   |         | 5,087   |  
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        |                             | 104,828 |         |              |   | 78,080  |        
|Property and Equipment               |                                                                                                                                                                                        |                             |         |         |              |   |         |        
|                                     | Land and buildings                                                                                                                                                                     |                             |         | 16,932  |              |   |         | 16,857  |  
|                                     | Computer equipment and software                                                                                                                                                        |                             |         | 46,514  |              |   |         | 39,073  |  
|                                     | Furniture, fixtures and other                                                                                                                                                          |                             |         | 3,345   |              |   |         | 3,190   |  
|                                     | Service equipment                                                                                                                                                                      |                             |         | 9,267   |              |   |         | 9,421   |  
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        |                             | 76,058  |         |              |   | 68,541  |        
|                                     | Less allowance for depreciation                                                                                                                                                        |                             |         | 54,303  |              |   |         | 48,325  |  
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        |                             | 21,755  |         |              |   | 20,216  |        
|Other Assets                         |                                                                                                                                                                                        |                             |         |         |              |   |         |        
|                                     | Intangible assets, net of accumulated amortization of $15,840 in
    2005 and $34,443 in 2004                                                                                          |                             |         | 4,707   |              |   |         | 6,363   |  
|                                     | Goodwill                                                                                                                                                                               |                             |         | 3,401   |              |   |         | 3,401   |  
|                                     | Other assets                                                                                                                                                                           |                             |         | 168     |              |   |         | 3,491   |  
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        | $                           | 134,859 |         |              | $ | 111,551 |        
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current Liabilities                  |                                                                                                                                                                                        |                             |         |         |              |   |         |        
|                                     | Accounts payable                                                                                                                                                                       |                             | $       | 11,485  |              |   | $       | 10,746  |  
|                                     | Accrued expenses                                                                                                                                                                       |                             |         | 13,745  |              |   |         | 11,919  |  
|                                     | Customer deposits                                                                                                                                                                      |                             |         | 6,871   |              |   |         | 6,625   |  
|                                     | Deferred income                                                                                                                                                                        |                             |         | 24,448  |              |   |         | 22,257  |  
|                                     | Current portion of long term borrowings                                                                                                                                                |                             |         | 400     |              |   |         |        |  
|                                     | Income taxes payable                                                                                                                                                                   |                             |         | 4,129   |              |   |         | 7,379   |  
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        |                             | 61,078  |         |              |   | 58,926  |        
|Long Term Borrowings                 |                                                                                                                                                                                        |                             | 1,333   |         |              |   | 13,101  |        
|Other Long Term Liabilities          |                                                                                                                                                                                        |                             |        |         |              |   | 271     |        
|                                    
|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: 37,196,216
    issued and outstanding in 2005, 35,691,389 issued and
    outstanding in 2004 |                             |         | 19      |              |   |         | 18      |  
|                                     | Additional capital                                                                                                                                                                     |                             |         | 85,421  |              |   |         | 75,276  |  
|                                     | Accumulated deficit                                                                                                                                                                    |                             |         | (12,931 | )            |   |         | (35,441 | )
|                                     | Accumulated other comprehensive loss                                                                                                                                                   |                             |         | (61     | )            |   |         | (600    | )
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        |                             | 72,448  |         |              |   | 39,253  |        
|                                     |                                                                                                                                                                                        |                             |         |         |              |  
|                                     |                                                                                                                                                                                        | $                           | 134,859 |         |              | $ | 111,551 |        
|                                     |                                                                                                                                                                                        |                             |         |         |              |  



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INTERVOICE, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                    |                    |                                 |         |         |              |   |         |              |  |   |         |        | 
|--------------------------------------------------------------------------------------------------- | ------------------ | ------------------------------- | ------- | ------- | ------------ | - | ------- | ------------ |  | - | ------- | ------ | 
|                                                                                                    |                    | Fiscal Year Ended               |        
|                                                                                                    |                    |                                 |        
|                                                                                                    |                    | February 28,                    |         |         | February 29, |   |         | February 28, | 
|                                                                                                    |                    | 2005                            |         |         | 2004         |   |         | 2003         | 
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|                                                                                                    |                    | (In thousands, except share and |        
|                                                                                                    |                    | per share data)                 |        
|Sales                                                                                               |                    |                                 |         |         |              |   |         |              |  |   |         |       
|                                                                                                    | Solutions          |                                 | $       | 100,504 |              |   | $       | 83,612       |  |   | $       | 84,755 | 
|                                                                                                    | Recurring services |                                 |         | 82,754  |              |   |         | 81,666       |  |   |         | 71,457 | 
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|                                                                                                    |                    |                                 | 183,258 |         |              |   | 165,278 |              |  |   | 156,212 |       
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Cost of goods sold                                                                                  |                    |                                 |         |         |              |   |         |              |  |   |         |       
|                                                                                                    | Solutions          |                                 |         | 52,116  |              |   |         | 47,675       |  |   |         | 60,723 | 
|                                                                                                    | Recurring services |                                 |         | 28,928  |              |   |         | 27,603       |  |   |         | 27,292 | 
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|                                                                                                    |                    |                                 | 81,044  |         |              |   | 75,278  |              |  |   | 88,015  |       
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Gross margin                                                                                        |                    |                                 |         |         |              |   |         |              |  |   |         |       
|                                                                                                    | Solutions          |                                 |         | 48,388  |              |   |         | 35,937       |  |   |         | 24,032 | 
|                                                                                                    | Recurring services |                                 |         | 53,826  |              |   |         | 54,063       |  |   |         | 44,165 | 
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|                                                                                                    |                    |                                 | 102,214 |         |              |   | 90,000  |              |  |   | 68,197  |       
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Research and development expenses                                                                   |                    |                                 | 15,812  |         |              |   | 15,193  |              |  |   | 22,592  |       
|Selling, general and administrative expenses                                                        |                    |                                 | 60,265  |         |              |   | 53,188  |              |  |   | 65,941  |       
|Amortization of goodwill and acquisition related intangible
    assets                              |                    |                                 | 1,461   |         |              |   | 2,820   |              |  |   | 7,101   |       
|Impairment of goodwill and acquisition related intangible assets                                    |                    |                                 |        |         |              |   |        |              |  |   | 16,710  |       
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Income (loss) from operations                                                                       |                    |                                 | 24,676  |         |              |   | 18,799  |              |  |   | (44,147 | )     
|Other income (expense)                                                                              |                    |                                 | 974     |         |              |   | (1,650  | )            |  |   | (658    | )     
|Interest expense                                                                                    |                    |                                 | (585    | )       |              |   | (1,966  | )            |  |   | (4,674  | )     
|Loss on early extinguishment of debt                                                                |                    |                                 |        |         |              |   | (488    | )            |  |   | (1,868  | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Income (loss) before income taxes and the cumulative effect of a
    change in accounting principle |                    |                                 | 25,065  |         |              |   | 14,695  |              |  |   | (51,347 | )     
|Income tax (benefit)                                                                                |                    |                                 | 2,555   |         |              |   | 3,368   |              |  |   | (752    | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Income (loss) before the cumulative effect of a change in
    accounting principle                  |                    |                                 | 22,510  |         |              |   | 11,327  |              |  |   | (50,595 | )     
|Cumulative effect of change in accounting principle                                                 |                    |                                 |        |         |              |   |        |              |  |   | (15,791 | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Net income (loss)                                                                                   |                    | $                               | 22,510  |         |              | $ | 11,327  |              |  | $ | (66,386 | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Per Basic Share:                                                                                    |                    |                                 |         |         |              |   |         |              |  |   |         |       
|Income (loss) before the cumulative effect of a change in
    accounting principle                  |                    | $                               | 0.62    |         |              | $ | 0.33    |              |  | $ | (1.49   | )     
|Cumulative effect of change in accounting principle                                                 |                    |                                 |        |         |              |   |        |              |  |   | (0.46   | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Net income (loss)                                                                                   |                    | $                               | 0.62    |         |              | $ | 0.33    |              |  | $ | (1.95   | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Per Diluted Share:                                                                                  |                    |                                 |         |         |              |   |         |              |  |   |         |       
|Income (loss) before the cumulative effect of a change in
    accounting principle                  |                    | $                               | 0.59    |         |              | $ | 0.32    |              |  | $ | (1.49   | )     
|Cumulative effect of a change in accounting principle                                               |                    |                                 |        |         |              |   |        |              |  |   | (0.46   | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 
|Net income (loss)                                                                                   |                    | $                               | 0.59    |         |              | $ | 0.32    |              |  | $ | (1.95   | )     
|                                                                                                    |                    |                                 |         |         |              |   |         |              | 



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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, 2002 |                                                                                   |                                   | 34,029,180 |           |            | $        | 17       |              |             | $     | 61,725        |       |  | $    | 19,618  |         |       | $ | (5,926 | )     |  | $ | 75,434 |        
|                             | Net loss                                                                          |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         | (66,386 | )     |   |        |      |  |   |        | (66,386 | )
|                             | Foreign currency translation adjustment                                           |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         |        |       |   |        | 2,324 |  |   |        | 2,324   |  
|                             | Valuation adjustment of interest rate swap hedge, net of tax
    effect of ($118) |                                   |            |          |            |          |          |             |             |       |               |      |  |      |         |        |       |   |        | 192   |  |   |        | 192     |  
|                             |                                                                                   |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |         |       |  
|                             | Comprehensive loss                                                                |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |         |       |   |        |       |  |   |        | (63,870 | )
|                             |                                                                                   |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |         |       |  
|                             | Exercise of stock options                                                         |                                   |            | 81,921    |            |          |          |             |             |       |               | 192   |  |      |         |        |       |   |        |      |  |   |        | 192     |  
|                             | Tax benefit from exercise of stock options                                        |                                   |            |          |            |          |          |             |             |       |               | 2,171 |  |      |         |        |       |   |        |      |  |   |        | 2,171   |  
|                             | Issuance of warrants                                                              |                                   |            |          |            |          |          |             |             |       |               | 1,056 |  |      |         |        |       |   |        |      |  |   |        | 1,056   |  
|                             |                                                                                   |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |         |       |  
|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 |        
|                             |                                                                                   |                                   |            |           |            |          |          |              |             |       |               |       |  |      |         |         |       |  



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INTERVOICE, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |        |   |         |         |         |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------ | ------- | ------------ | - | ------ | ------------ | ------ | - | ------- | ------- | ------- | -
|                                                    |                                                                                             | Fiscal Year Ended                                      |       
|                                                    |                                                                                             |                                                        |       
|                                                    |                                                                                             | February 28,                                           |        |         | February 29, |   |        | February 28, |       
|                                                    |                                                                                             | 2005                                                   |        |         | 2004         |   |        | 2003         |       
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|                                                    |                                                                                             | (In thousands)                                         |       
|Operating activities                                |                                                                                             |                                                        |        |         |              |   |        |              |        |   |         |        
|                                                    | Net income (loss)                                                                           |                                                        | $      | 22,510  |              |   | $      | 11,327       |        |   | $       | (66,386 | )      
|                                                    | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities |                                                        |        |         |              |   |        |              |        |   |         |         |        
|                                                    |                                                                                             | Depreciation and amortization                          |        |         | 7,733        |   |        |              | 9,750  |   |         |         | 16,065  |  
|                                                    |                                                                                             | Deferred income taxes                                  |        |         |             |   |        |              |       |   |         |         | 2,200   |  
|                                                    |                                                                                             | Provision for doubtful accounts                        |        |         | 312          |   |        |              | 342    |   |         |         | (774    | )
|                                                    |                                                                                             | Write down of inventories                              |        |         | 57           |   |        |              | 34     |   |         |         | 5,667   |  
|                                                    |                                                                                             | Disposal of equipment                                  |        |         | (4           | ) |        |              | 7      |   |         |         | 736     |  
|                                                    |                                                                                             | Foreign exchange loss (gain)                           |        |         | (271         | ) |        |              | 1,981  |   |         |         | 246     |  
|                                                    |                                                                                             | Write off of goodwill and intangible assets            |        |         |             |   |        |              |       |   |         |         | 32,501  |  
|                                                    |                                                                                             | Loss on early extinguishment of debt acquisition costs |        |         |             |   |        |              | 488    |   |         |         | 1,868   |  
|                                                    |                                                                                             | Tax benefit for exercise of stock options              |        |         | 939          |   |        |              | 594    |   |         |         |        |  
|                                                    | Changes in operating assets and liabilities:                                                |                                                        |        |         |              |   |        |              |        |   |         |         |        
|                                                    |                                                                                             | Accounts receivable                                    |        |         | (8,701       | ) |        |              | 3,290  |   |         |         | 17,788  |  
|                                                    |                                                                                             | Inventories                                            |        |         | 807          |   |        |              | 127    |   |         |         | 12,353  |  
|                                                    |                                                                                             | Prepaid expenses and other assets                      |        |         | 895          |   |        |              | 711    |   |         |         | 2,494   |  
|                                                    |                                                                                             | Accounts payable and accrued expenses                  |        |         | 1,822        |   |        |              | (4,191 | ) |         |         | (10,389 | )
|                                                    |                                                                                             | Income taxes payable                                   |        |         | (3,280       | ) |        |              | 501    |   |         |         | 1,804   |  
|                                                    |                                                                                             | Customer deposits                                      |        |         | 385          |   |        |              | (2,641 | ) |         |         | 2,943   |  
|                                                    |                                                                                             | Deferred income                                        |        |         | 1,732        |   |        |              | (4,163 | ) |         |         | 988     |  
|                                                    |                                                                                             | Other                                                  |        |         | 560          |   |        |              | 952    |   |         |         | 3,761   |  
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Net cash provided by operating activities           |                                                                                             |                                                        | 25,496 |         |              |   | 19,109 |              |        |   | 23,865  |        
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Investing activities                                |                                                                                             |                                                        |        |         |              |   |        |              |        |   |         |        
|                                                    | Purchase of property and equipment                                                          |                                                        |        | (7,253  | )            |   |        | (5,495       | )      |   |         | (4,169  | )      
|                                                    | Proceeds from sale of fixed assets                                                          |                                                        |        |        |              |   |        | 22           |        |   |         | 1,890   |        
|                                                    | Purchased software                                                                          |                                                        |        |        |              |   |        | (50          | )      |   |         | (323    | )      
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Net cash used in investing activities               |                                                                                             |                                                        | (7,253 | )       |              |   | (5,523 | )            |        |   | (2,602  | )      
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Financing activities                                |                                                                                             |                                                        |        |         |              |   |        |              |        |   |         |        
|                                                    | Paydown of debt                                                                             |                                                        |        | (19,368 | )            |   |        | (10,611      | )      |   |         | (44,869 | )      
|                                                    | Premium on early extinguishment of debt                                                     |                                                        |        | (5      | )            |   |        | (20          | )      |   |         | (470    | )      
|                                                    | Borrowings                                                                                  |                                                        |        | 8,000   |              |   |        | 4,601        |        |   |         | 34,000  |        
|                                                    | Debt issuance costs                                                                         |                                                        |        |        |              |   |        |             |        |   |         | (2,515  | )      
|                                                    | Restricted cash                                                                             |                                                        |        | 2,750   |              |   |        | (2,750       | )      |   |         |        |        
|                                                    | Exercise of stock options                                                                   |                                                        |        | 9,207   |              |   |        | 9,260        |        |   |         | 192     |        
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Net cash provided by (used in) financing activities |                                                                                             |                                                        | 584    |         |              |   | 480    |              |        |   | (13,662 | )      
|Effect of exchange rate on cash                     |                                                                                             |                                                        | 556    |         |              |   | 582    |              |        |   | 964     |        
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Increase in cash and cash equivalents               |                                                                                             |                                                        | 19,383 |         |              |   | 14,648 |              |        |   | 8,565   |        
|Cash and cash equivalents, beginning of period      |                                                                                             |                                                        | 40,859 |         |              |   | 26,211 |              |        |   | 17,646  |        
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       
|Cash and cash equivalents, end of period            |                                                                                             | $                                                      | 60,242 |         |              | $ | 40,859 |              |        | $ | 26,211  |        
|                                                    |                                                                                             |                                                        |        |         |              |   |        |              |       



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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:


Property and Equipment:


Intangible Assets and Impairment of Long-Lived Assets:


39



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Goodwill: Business Combinations Goodwill and Other Intangible
Assets


Other Assets:


Customer Deposits:


Deferred Income:


Product Warranties:


Revenue Recognition:


40



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Sale of Hardware and Software Solutions:










41



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Sale of Maintenance and Other Customer Services:


Sale of Managed Services:




Loss Contracts:


Research and Development:


Advertising Costs:


Income Taxes:


Stock Compensation:


42



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##### Table of Contents



INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                                                                          |                       |      |      |      |      |   |      |      |  |   |       |       |  
|------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ---- | ---- | ---- | - | ---- | ---- |  | - | ----- | ----- | -
|                                                                                                                          |                       | 2005 |      |      | 2004 |   |      | 2003 | 
|                                                                                                                          |                       |      |      |      |      |   |      |      | 
|Net income (loss) as reported                                                                                             |                       | $    | 22.5 |      |      | $ | 11.3 |      |  | $ | (66.4 | )    
|Add: stock-based employee compensation expense included in
    reported net income net of related tax effect              |                       |      |     |      |      |   | .3   |      |  |   |      |      
|Deduct: total stock-based employee compensation expense
    determined under fair value method, net of related tax effect |                       |      | (7.5 | )    |      |   | (4.1 | )    |  |   | (2.5  | )    
|                                                                                                                          |                       |      |      |      |      |   |      |      | 
|Pro forma net income (loss)                                                                                               |                       | $    | 15.0 |      |      | $ | 7.5  |      |  | $ | (68.9 | )    
|                                                                                                                          |                       |      |      |      |      |   |      |      | 
|Net income (loss) per share:                                                                                              |                       |      |      |      |      |   |      |      |  |   |       |      
|                                                                                                                          | Basic  as reported   |      | $    | 0.62 |      |   | $    | 0.33 |  |   | $     | (1.95 | )
|                                                                                                                          | Basic  pro forma     |      | $    | 0.42 |      |   | $    | 0.22 |  |   | $     | (2.02 | )
|                                                                                                                          | Diluted  as reported |      | $    | 0.59 |      |   | $    | 0.32 |  |   | $     | (1.95 | )
|                                                                                                                          | Diluted  pro forma   |      | $    | 0.40 |      |   | $    | 0.21 |  |   | $     | (2.02 | )

Note C  Change in Accounting Principle for
Goodwill and Other Intangible Assets






43



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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 relations          |       |              | 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 | 
|                            |       |              |            |                   |          |   |      |              |  |   |             |     

|                            |       |              |            |                   |          |   |      |              |  |   |             |      |  |   |     |     | 
|--------------------------- | ----- | ------------ | ---------- | ----------------- | -------- | - | ---- | ------------ |  | - | ----------- | ---- |  | - | --- | --- | 
|                            |       |              |            | February 29, 2004 |         
|                            |       |              |            |                   |         
|                            |       |              |            | Gross             |          |   |     
|                            |       | Amortization |            |                   | Carrying |   |      | Accumulated  |  |   | Unamortized |     
|Amortized Intangible Assets |       | Period       |            |                   | Amount   |   |      | Amortization |  |   | Balance     |     
|                            |       |              |            |                   |          |   |      |              |  |   |             |     
|Customer relations          |       |              | 10 years   |                   |          | $ | 18.6 |              |  | $ | 13.3        |      |  | $ | 5.3 |    
|Developed technology        |       |              | 5 years    |                   |          |   | 20.2 |              |  |   | 19.7        |      |  |   | 0.5 |    
|Other intangibles           |       |              | 5-12 years |                   |          |   | 2.0  |              |  |   | 1.4         |      |  |   | 0.6 |    
|                            |       |              |            |                   |          |   |      |              |  |   |             |     
|                            | Total |              |            |                   |          |   | $    | 40.8         |  |   | $           | 34.4 |  |   | $   | 6.4 | 
|                            |       |              |            |                   |          |   |      |              |  |   |             |     



|            |  |   |     | 
|----------- |  | - | --- | 
|Fiscal 2006 |  | $ | 1.2 | 
|Fiscal 2007 |  | $ | 1.1 | 
|Fiscal 2008 |  | $ | 1.1 | 
|Fiscal 2009 |  | $ | 1.0 | 
|Fiscal 2010 |  | $ | 0.3 | 

44



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note D  Inventory




|                 |  |      |     |  |      |   |     | 
|---------------- |  | ---- | --- |  | ---- | - | --- | 
|                 |  | 2005 |     |  | 2004 |  
|                 |  |      |     |  |      |  
|Purchased parts  |  | $    | 3.8 |  |      | $ | 4.1 | 
|Work in progress |  |      | 3.8 |  |      |   | 4.3 | 
|                 |  |      |     |  |      |  
|                 |  | $    | 7.6 |  |      | $ | 8.4 | 
|                 |  |      |     |  |      |  

Note E  Accrued Expenses




|                                                                                      |  |      |      |  |      |   |      | 
|------------------------------------------------------------------------------------- |  | ---- | ---- |  | ---- | - | ---- | 
|                                                                                      |  | 2005 |      |  | 2004 |  
|                                                                                      |  |      |      |  |      |  
|Accrued compensation and other employee related costs, including
    accrued vacation |  | $    | 7.7  |  |      | $ | 5.7  | 
|Other                                                                                 |  |      | 6.0  |  |      |   | 6.2  | 
|                                                                                      |  |      |      |  |      |  
|                                                                                      |  | $    | 13.7 |  |      | $ | 11.9 | 
|                                                                                      |  |      |      |  |      |  

Note F  Long-Term Borrowings




|                                                                                                                                                                                                                                            |  |                |     |  |      |   |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --- |  | ---- | - | ---- | 
|                                                                                                                                                                                                                                            |  | February 28/29 |    
|                                                                                                                                                                                                                                            |  |                |    
|                                                                                                                                                                                                                                            |  | 2005           |     |  | 2004 |  
|                                                                                                                                                                                                                                            |  |                |     |  |      |  
|Line of credit, bearing interest, payable monthly, accruing at a
    rate equal to the prime rate plus 0.25% or the London Inter-Bank
    Offering Rate plus 1.75%                                                                          |  | $              |    |  |      | $ | 4.6  | 
|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 |  |      |   |     | 
|Mortgage loan, bearing interest payable monthly at the greater
    of 10.5% or the prime rate plus 2.0%; refinanced during June 2004                                                                                                        |  |                |    |  |      |   | 8.5  | 
|                                                                                                                                                                                                                                            |  |                |     |  |      |  
|Total debt outstanding                                                                                                                                                                                                                      |  |                | 1.7 |  |      |   | 13.1 | 
|Less: current portion                                                                                                                                                                                                                       |  |                | 0.4 |  |      |   |     | 
|                                                                                                                                                                                                                                            |  |                |     |  |      |  
|Long-term debt, net of current portion                                                                                                                                                                                                      |  | $              | 1.3 |  |      | $ | 13.1 | 
|                                                                                                                                                                                                                                            |  |                |     |  |      |  



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



45



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                   
| | ----------------------------------
| | Costs Associated with Refinancings





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



Note G  Income Taxes




|            |  |            |       |   |            |   |     |       |  |   |       |  
|----------- |  | ---------- | ----- | - | ---------- | - | --- | ----- |  | - | ----- | -
|            |  | Domestic   |       |   | Foreign    |   |     |      
|Fiscal Year |  | Operations |       |   | Operations |   |     | Total | 
|            |  |            |       |   |            |   |     |       | 
|2005        |  | $          | 15.4  |   |            | $ | 9.7 |       |  | $ | 25.1  |  
|2004        |  |            | 7.2   |   |            |   | 7.5 |       |  |   | 14.7  |  
|2003        |  |            | (51.7 | ) |            |   | 0.4 |       |  |   | (51.3 | )



|                                |           |         |                |   |      |     |     |      |     |     |      |   |      |      |  
|------------------------------- | --------- | ------- | -------------- | - | ---- | --- | --- | ---- | --- | --- | ---- | - | ---- | ---- | -
|                                |           | 2005    |                |   | 2004 |     |     | 2003 |    
|                                |           |         |                |   |      |     |     |      |    
|Income tax provision (benefit): |           |         |                |   |      |     |     |      |     |     |      |  
|                                | Current:  |         |                |   |      |     |     |      |     |     |      |   |     
|                                |           | Federal |                | $ | 0.6  |     |     | $    | 2.0 |     |      | $ | (3.1 | )   
|                                |           | State   |                |   | (0.1 | )   |     |      | 0.3 |     |      |   |     |     
|                                |           | Foreign |                |   | 2.1  |     |     |      | 1.1 |     |      |   | 0.1  |     
|                                |           |         |                |   |      |     |     |      |    
|                                |           |         | Total current  |   |      | 2.6 |     |      |     | 3.4 |      |   |      | (3.0 | )
|                                |           |         |                |   |      |     |     |      |    
|                                | Deferred: |         |                |   |      |     |     |      |     |     |      |   |     
|                                |           | Federal |                |   |     |     |     |      |    |     |      |   | 1.4  |     
|                                |           | State   |                |   |     |     |     |      |    |     |      |   |     |     
|                                |           | Foreign |                |   |     |     |     |      |    |     |      |   | 0.8  |     
|                                |           |         |                |   |      |     |     |      |    
|                                |           |         | Total deferred |   |      |    |     |      |     |    |      |   |      | 2.2  |  
|                                |           |         |                |   |      |     |     |      |    
|                                |           | $       | 2.6            |   |      | $   | 3.4 |      |     | $   | (0.8 | )
|                                |           |         |                |   |      |     |     |      |    

46



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                         |  |      |      |   |      |  |     |      |  |   |       |   |  |  |     |   |  |   |       |   |  |  |     |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- |  | --- | ---- |  | - | ----- | - |  |  | --- | - |  | - | ----- | - |  |  | --- | -
|                                                                                                                                                         |  | 2005 |      |   | 2004 |  |     | 2003 | 
|                                                                                                                                                         |  |      |      |   |      |  |     |      | 
|Federal income taxes (benefit) at statutory rates                                                                                                        |  | $    | 8.8  |   |      |  | 35  | %    |  | $ | 5.1   |   |  |  | 35  | % |  | $ | (18.0 | ) |  |  | 35  | %
|Deemed dividends and other taxable income from wholly owned
    foreign subsidiaries                                                                     |  |      | 1.3  |   |      |  | 5   |      |  |   | 13.6  |   |  |  | 92  |   |  |   |      |   |  |  |    |  
|Operating losses and credit carryforwards not benefited                                                                                                  |  |      |     |   |      |  |    |      |  |   |      |   |  |  |    |   |  |   | 18.1  |   |  |  | (35 | )
|Change in US federal tax law, net of related IRS audit issues                                                                                            |  |      |     |   |      |  |    |      |  |   |      |   |  |  |    |   |  |   | (3.0  | ) |  |  | 6   |  
|Change in valuation allowance, in fiscal 2005 and 2004 primarily
    as a result of the use of net operating losses carried forward
    from prior years |  |      | (6.2 | ) |      |  | (25 | )    |  |   | (13.8 | ) |  |  | (94 | ) |  |   | 2.2   |   |  |  | (5  | )
|State taxes, net of federal effect                                                                                                                       |  |      | (0.1 | ) |      |  |    |      |  |   | 0.3   |   |  |  | 2   |   |  |   |      |   |  |  |    |  
|Other                                                                                                                                                    |  |      | (1.2 | ) |      |  | (5  | )    |  |   | (1.8  | ) |  |  | (12 | ) |  |   | (0.1  | ) |  |  |    |  
|                                                                                                                                                         |  |      |      |   |      |  |     |      |  |   |       |   |  |  |     |   |  |  
|                                                                                                                                                         |  | $    | 2.6  |   |      |  | 10  | %    |  | $ | 3.4   |   |  |  | 23  | % |  | $ | (0.8  | ) |  |  | 1   | %
|                                                                                                                                                         |  |      |      |   |      |  |     |      |  |   |       |   |  |  |     |   |  |  













47



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                          |                                            |                                |   |       |      |   |   |       |      |  
|------------------------- | ------------------------------------------ | ------------------------------ | - | ----- | ---- | - | - | ----- | ---- | -
|                          |                                            | 2005                           |   |       | 2004 |  
|                          |                                            |                                |   |       |      |  
|Deferred Tax Assets:      |                                            |                                |   |       |      |   |   |      
|                          | Net operating loss carryforwards           |                                | $ | 5.0   |      |   | $ | 0.1   |     
|                          | Tax credit carryforwards                   |                                |   | 4.2   |      |   |   | 7.4   |     
|                          | Accrued expenses                           |                                |   | 1.8   |      |   |   | 2.1   |     
|                          | Inventory                                  |                                |   | 1.5   |      |   |   | 2.3   |     
|                          | Depreciation and amortization              |                                |   | 1.1   |      |   |   | 1.7   |     
|                          | Deferred revenue                           |                                |   | 0.4   |      |   |   | 0.8   |     
|                          | Allowance for doubtful accounts            |                                |   | 0.2   |      |   |   | 0.3   |     
|                          | Intercompany interest                      |                                |   |      |      |   |   | 1.2   |     
|                          | Other items                                |                                |   | 1.2   |      |   |   | 1.8   |     
|                          |                                            |                                |   |       |      |  
|                          |                                            | Total deferred tax assets      |   |       | 15.4 |   |   |       | 17.7 |  
|                          | Valuation allowance                        |                                |   | (13.3 | )    |   |   | (15.5 | )   
|                          |                                            |                                |   |       |      |  
|                          |                                            | Net deferred tax assets        |   |       | 2.1  |   |   |       | 2.2  |  
|                          |                                            |                                |   |       |      |  
|Deferred tax liabilities: |                                            |                                |   |       |      |   |   |      
|                          | Acquisition-related identified intangibles |                                |   | (1.5  | )    |   |   | (2.0  | )   
|                          | Other items                                |                                |   | (0.6  | )    |   |   | (0.2  | )   
|                          |                                            |                                |   |       |      |  
|                          |                                            | Total deferred tax liabilities |   |       | (2.1 | ) |   |       | (2.2 | )
|                          |                                            |                                |   |       |      |  
|                          |                                            | Net deferred tax assets        |   | $     |     |   |   | $     |     |  
|                          |                                            |                                |   |       |      |  





48



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Note H  Stockholders Equity






|                |  |        |           |                  |                |                  |                  |          |  |  |      | 
|--------------- |  | ------ | --------- | ---------------- | -------------- | ---------------- | ---------------- | -------- |  |  | ---- | 
|                |  |        |           |                  |                | Weighted Average |                 
|                |  |        |           |                  |                | Remaining        |                 
|                |  |        |           | Weighted Average |                |                  | Contractual Life |         
|Exercise Prices |  | Shares |           |                  | Exercise Price |                  |                  | in Years | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $ 6.97  |  |        | 1,867,949 |                  |                | $                | 3.54             |          |  |  | 5.63 | 
|$7.00 - $ 8.40  |  |        | 1,293,357 |                  |                | $                | 7.15             |          |  |  | 8.27 | 
|$8.55 - $ 9.11  |  |        | 1,652,455 |                  |                | $                | 9.10             |          |  |  | 9.34 | 
|$9.22 - $28.88  |  |        | 1,549,124 |                  |                | $                | 13.04            |          |  |  | 5.43 | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $28.88  |  |        | 6,362,885 |                  |                | $                | 8.03             |          |  |  | 7.08 | 
|                |  |        |           |                  |                |                  |                  |          | 

49



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                |  |        |           |                  |                |                  |                  |          |  |  |      | 
|--------------- |  | ------ | --------- | ---------------- | -------------- | ---------------- | ---------------- | -------- |  |  | ---- | 
|                |  |        |           |                  |                | Weighted Average |                 
|                |  |        |           |                  |                | Remaining        |                 
|                |  |        |           | Weighted Average |                |                  | Contractual Life |         
|Exercise Prices |  | Shares |           |                  | Exercise Price |                  |                  | in Years | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $ 5.00  |  |        | 1,026,796 |                  |                | $                | 3.54             |          |  |  | 4.63 | 
|$5.15 - $ 9.11  |  |        | 1,559,209 |                  |                | $                | 8.01             |          |  |  | 8.02 | 
|$9.22 - $28.88  |  |        | 1,153,121 |                  |                | $                | 13.02            |          |  |  | 4.00 | 
|                |  |        |           |                  |                |                  |                  |          | 
|$1.02 - $28.88  |  |        | 3,739,126 |                  |                | $                | 8.33             |          |  |  | 5.85 | 
|                |  |        |           |                  |                |                  |                  |          | 



|                             |           |        |           |                  |           |   |      |      | 
|---------------------------- | --------- | ------ | --------- | ---------------- | --------- | - | ---- | ---- | 
|                             |           |        |           | Weighted Average |          
|                             |           |        |           | Exercise Price   |          
|                             |           | Shares |           |                  | per Share |  
|                             |           |        |           |                  |           |  
|Balance at February 28, 2002 |           |        | 5,306,618 |                  |           | $ | 9.11 |     
|                             | Granted   |        |           | 994,750          |           |   |      | 1.91 | 
|                             | Exercised |        |           | (18,036          | )         |   |      | 4.91 | 
|                             | Forfeited |        |           | (772,326         | )         |   |      | 9.93 | 
|                             |           |        |           |                  |           |  
|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 |     
|                             |           |        |           |                  |           |  

50



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                             |           |        |         |                  |           |   |       |       | 
|---------------------------- | --------- | ------ | ------- | ---------------- | --------- | - | ----- | ----- | 
|                             |           |        |         | Weighted Average |          
|                             |           |        |         | Exercise Price   |          
|                             |           | Shares |         |                  | per Share |  
|                             |           |        |         |                  |           |  
|Balance at February 28, 2002 |           |        | 130,518 |                  |           | $ | 10.29 |      
|                             | Granted   |        |         | 498,369          |           |   |       | 1.84  | 
|                             | Exercised |        |         | (63,885          | )         |   |       | 1.62  | 
|                             | Forfeited |        |         | (66,633          | )         |   |       | 1.69  | 
|                             |           |        |         |                  |           |  
|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



51



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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



|                             |                                                                                      |             |      |     |             |   |      |       |  |   |      |     | 
|---------------------------- | ------------------------------------------------------------------------------------ | ----------- | ---- | --- | ----------- | - | ---- | ----- |  | - | ---- | --- | 
|                             |                                                                                      | Foreign     |      |     | FAS 133     |   |      |      
|                             |                                                                                      | Currency    |      |     | Derivative  |   |      |      
|                             |                                                                                      | Translation |      |     | Liability   |   |      |      
|                             |                                                                                      | Adjustments |      |     | Adjustments |   |      | Total | 
|                             |                                                                                      |             |      |     |             |   |      |       | 
|Balance at February 28, 2002 |                                                                                      | $           | (5.7 | )   |             | $ | (0.2 | )     |  | $ | (5.9 | )  
|                             | Foreign currency translation adjustments                                             |             |      | 2.3 |             |   |      |      |  |   |      | 2.3 | 
|                             | Reclassification of derivative losses into earnings, net of tax
    effect of $(0.1) |             |      |    |             |   |      | 0.2   |  |   |      | 0.2 | 
|                             |                                                                                      |             |      |     |             |   |      |       | 
|Balance at February 28, 2003 |                                                                                      | $           | (3.4 | )   |             | $ |     |       |  | $ | (3.4 | )  
|                             | Foreign currency translation adjustments                                             |             |      | 2.8 |             |   |      |      |  |   |      | 2.8 | 
|                             |                                                                                      |             |      |     |             |   |      |       | 
|Balance at February 29, 2004 |                                                                                      | $           | (0.6 | )   |             | $ |     |       |  | $ | (0.6 | )  
|                             | Foreign currency translation adjustments                                             |             |      | 0.5 |             |   |      |      |  |   |      | 0.5 | 
|                             |                                                                                      |             |      |     |             |   |      |       | 
|Balance at February 28, 2005 |                                                                                      | $           | (0.1 | )   |             | $ |     |       |  | $ | (0.1 | )  
|                             |                                                                                      |             |      |     |             |   |      |       | 

Note I  Leases




|            |      |        |     |     | 
|----------- | ---- | ------ | --- | --- | 
|Fiscal Year |      | Amount |    
|            |      |        |    
|            | 2006 |        | $   | 2.5 | 
|            | 2007 |        | $   | 1.4 | 
|            | 2008 |        | $   | 1.1 | 
|            | 2009 |        | $   | 0.8 | 
|            | 2010 |        | $   | 0.4 | 
|Thereafter  |      | $      | 0.6 |    

Note J  Special Charges




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



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |  |            |     |  |              |          |     |                |  |   |       |  |  |   |     | 
|--------------------------------------- |  | ---------- | --- |  | ------------ | -------- | --- | -------------- |  | - | ----- |  |  | - | --- | 
|                                        |  |            |     |  |              | Selling, |     |                | 
|                                        |  | Cost of    |     |  | Research and |          |     | General and    |  |   |      
|                                        |  | Goods 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 | 
|                                        |  |            |     |  |              |          |     |                |  |   |       | 





| |            
| | -----------
| | Fiscal 2003





|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |   |      |      |  |   |      |      | 
|--------------------------------------- | ----- | ---------- | --- | ---- | ----------- | - | --- | ---- |  | ----- | -------- | --- | ------------- | ----------- | --- | --- | ----- | - | ---- | ---- |  | - | ---- | ---- | 
|                                        |       | Cost of    |     |      | Research &  |   |     |      |  | Other |          |     | Impairment of |             |     |    
|                                        |       | Goods Sold |     |      | Development |   |     | SG&A |  |       | Expenses |     |               | Intangibles |     |     | Total |  
|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |  
|Write down of intangible assets         |       | $          |    |      |             | $ |    |      |  | $     |         |     |               | $           |    |     |       | $ | 16.7 |      |  | $ | 16.7 |     
|Severance payments and related benefits |       |            | 2.3 |      |             |   | 0.8 |      |  |       | 3.1      |     |               |             |    |     |       |   |     |      |  |   | 6.2  |     
|Facilities closures                     |       |            | 0.2 |      |             |   | 0.1 |      |  |       | 0.4      |     |               |             |    |     |       |   |     |      |  |   | 0.7  |     
|Write down of excess inventories        |       |            | 4.1 |      |             |   |    |      |  |       |         |     |               |             |    |     |       |   |     |      |  |   | 4.1  |     
|Costs associated with loss contracts    |       |            | 4.7 |      |             |   |    |      |  |       |         |     |               |             |    |     |       |   |     |      |  |   | 4.7  |     
|Loss on early extinguishment of debt    |       |            |    |      |             |   |    |      |  |       |         |     |               |             | 1.9 |     |       |   |     |      |  |   | 1.9  |     
|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |  
|                                        | Total |            | $   | 11.3 |             |   | $   | 0.9  |  |       | $        | 3.5 |               |             | $   | 1.9 |       |   | $    | 16.7 |  |   | $    | 34.3 | 
|                                        |       |            |     |      |             |   |     |      |  |       |          |     |               |             |     |     |       |  



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note K  Earnings Per Share




|                                                                                   |  |                           |      |  |      |   |      |      |  |   |       |  
|---------------------------------------------------------------------------------- |  | ------------------------- | ---- |  | ---- | - | ---- | ---- |  | - | ----- | -
|                                                                                   |  | Year Ended February 28/29 |     
|                                                                                   |  |                           |     
|                                                                                   |  | 2005                      |      |  | 2004 |   |      | 2003 | 
|                                                                                   |  |                           |      |  |      |   |      |      | 
|                                                                                   |  | (In millions, except      |     
|                                                                                   |  | per share data)           |     
|Numerator:                                                                         |  |                           |      |  |      |   |      |      |  |   |       |  
|Income (loss) before the cumulative effect of a change in
    accounting principle |  | $                         | 22.5 |  |      | $ | 11.3 |      |  | $ | (50.6 | )
|Cumulative effect on prior years of a change in accounting
    principle           |  |                           |     |  |      |   |     |      |  |   | (15.8 | )
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Net income (loss)                                                                  |  | $                         | 22.5 |  |      | $ | 11.3 |      |  | $ | (66.4 | )
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Denominator:                                                                       |  |                           |      |  |      |   |      |      |  |   |       |  
|Denominator for basic earnings per share                                           |  |                           | 36.2 |  |      |   | 34.4 |      |  |   | 34.0  |  
|Effect of dilutive securities-employee stock options                               |  |                           | 1.9  |  |      |   | 1.0  |      |  |   |      |  
|-outstanding
    warrants                                                          |  |                           | 0.4  |  |      |   | 0.3  |      |  |   |      |  
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Denominator for diluted earnings per share                                         |  |                           | 38.5 |  |      |   | 35.7 |      |  |   | 34.0  |  
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Basic earnings per share:                                                          |  |                           |      |  |      |   |      |      |  |   |       |  
|Income (loss) before the cumulative effect of a change in
    accounting principle |  | $                         | 0.62 |  |      | $ | 0.33 |      |  | $ | (1.49 | )
|Cumulative effect on prior years of a change in accounting
    principle           |  |                           |     |  |      |   |     |      |  |   | (0.46 | )
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Net income (loss)                                                                  |  | $                         | 0.62 |  |      | $ | 0.33 |      |  | $ | (1.95 | )
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Diluted earnings per share:                                                        |  |                           |      |  |      |   |      |      |  |   |       |  
|Income (loss) before the cumulative effect of a change in
    accounting principle |  | $                         | 0.59 |  |      | $ | 0.32 |      |  | $ | (1.49 | )
|Cumulative effect on prior years of a change in accounting
    principle           |  |                           |     |  |      |   |     |      |  |   | (0.46 | )
|                                                                                   |  |                           |      |  |      |   |      |      | 
|Net income (loss)                                                                  |  | $                         | 0.59 |  |      | $ | 0.32 |      |  | $ | (1.95 | )
|                                                                                   |  |                           |      |  |      |   |      |      | 



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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note L  Operating Segment Information and
Major Customers




|                                          |  |      |       |  |      |   |       |      |  |   |       | 
|----------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                          |  | 2005 |       |  | 2004 |   |       | 2003 | 
|                                          |  |      |       |  |      |   |       |      | 
|Voice Automation/ IVR solution sales      |  | $    | 68.1  |  |      | $ | 52.5  |      |  | $ | 52.4  | 
|Network portal solution sales             |  |      | 5.9   |  |      |   | 1.7   |      |  |   |      | 
|Messaging solution sales                  |  |      | 10.4  |  |      |   | 10.8  |      |  |   |      | 
|Payment solution sales                    |  |      | 16.1  |  |      |   | 18.6  |      |  |   |      | 
|Network solution sales                    |  |      |      |  |      |   |      |      |  |   | 32.3  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total solution sales                      |  |      | 100.5 |  |      |   | 83.6  |      |  |   | 84.7  | 
|                                          |  |      |       |  |      |   |       |      | 
|Maintenance and related services revenues |  |      | 59.4  |  |      |   | 57.0  |      |  |   | 49.7  | 
|Managed services revenues                 |  |      | 23.4  |  |      |   | 24.7  |      |  |   | 21.8  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total recurring services revenues         |  |      | 82.8  |  |      |   | 81.7  |      |  |   | 71.5  | 
|                                          |  |      |       |  |      |   |       |      | 
|Total sales                               |  | $    | 183.3 |  |      | $ | 165.3 |      |  | $ | 156.2 | 
|                                          |  |      |       |  |      |   |       |      | 



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



|                          |       |      |       |       |      |   |      |       |  |   |      |       | 
|------------------------- | ----- | ---- | ----- | ----- | ---- | - | ---- | ----- |  | - | ---- | ----- | 
|                          |       | 2005 |       |       | 2004 |   |      | 2003  | 
|                          |       |      |       |       |      |   |      |       | 
|North America             |       | $    | 107.8 |       |      | $ | 97.7 |       |  | $ | 91.5 |      
|Europe                    |       |      | 40.9  |       |      |   | 32.4 |       |  |   | 39.5 |      
|Middle East and Africa    |       |      | 21.3  |       |      |   | 25.2 |       |  |   | 16.2 |      
|Central and South America |       |      | 6.8   |       |      |   | 7.5  |       |  |   | 6.1  |      
|Pacific Rim               |       |      | 6.5   |       |      |   | 2.5  |       |  |   | 2.9  |      
|                          |       |      |       |       |      |   |      |       | 
|                          | Total |      | $     | 183.3 |      |   | $    | 165.3 |  |   | $    | 156.2 | 
|                          |       |      |       |       |      |   |      |       | 



|               |  |      |      |  |      |   |      | 
|-------------- |  | ---- | ---- |  | ---- | - | ---- | 
|               |  | 2005 |      |  | 2004 |  
|               |  |      |      |  |      |  
|United States  |  | $    | 20.4 |  |      | $ | 18.8 | 
|United Kingdom |  |      | 1.4  |  |      |   | 1.4  | 
|               |  |      |      |  |      |  
|               |  | $    | 21.8 |  |      | $ | 20.2 | 
|               |  |      |      |  |      |  

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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



Note M  Concentrations of Credit Risk




Note N  Employee Benefit Plan




Note O  Contingencies




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





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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












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

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




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INTERVOICE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                              
| | -----------------------------
| | 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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SCHEDULE II


INTERVOICE, INC.


VALUATION AND QUALIFYING ACCOUNTS


|                              |                                 |               |   |              |            |  |   |            |      |            |          |      |      |  |   |     | 
|----------------------------- | ------------------------------- | ------------- | - | ------------ | ---------- |  | - | ---------- | ---- | ---------- | -------- | ---- | ---- |  | - | --- | 
|Column A                      |                                 | Column B      |   |              | Column C   |  |   | Column D   |      |            | Column E |     
|                              |                                 |               |   |              |            |  |   |            |      |            |          |     
|                              |                                 |               |   | Additions    |            |  |   |            |     
|                              |                                 |               |   | (Recoveries) |            |  |   |            |     
|                              |                                 | Balance at    |   |              | Charged to |  |   |            |      | Balance at |         
|                              |                                 | Beginning     |   |              | Cost and   |  |   |            |      | End of     |         
|Description                   |                                 | of Period     |   |              | Expenses   |  |   | Deductions |      |            | Period   |     
|                              |                                 |               |   |              |            |  |   |            |      |            |          |     
|                              |                                 | (In millions) |  
|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 | 
|Year Ended February 28, 2003: |                                 |               |   |              |            |  |   |            |      |            |          |      |      |  |   |    
|                              | Allowance for doubtful accounts |               | $ | 3.5          |            |  | $ | (0.7       | )(B) |            | $        | (0.3 | )(A) |  | $ | 2.5 | 






|    |                      
|--- | ---------------------
|(A) | Accounts written off.



|    |  |                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------
|(B) |  | Recovery of accounts written off in a preceding year, net of
    current period account charges.

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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.


Managements Report on Internal Control over Financial
Reporting.




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






















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PART III







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








|         |                       
|-------- | ----------------------
|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



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PART IV







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



|                                                                                                                                     |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                                     |  | Page |   
|                                                                                                                                     |  |      |   
|(1) Financial Statements                                                                                                             |  |      |    | 
|                                                                                                                                    
|Report of Independent Registered Public
    Accounting Firm                                                                          |  |      | 34 | 
|Consolidated Balance Sheets at
    February 28, 2005 and February 29, 2004                                                           |  |      | 35 | 
|Consolidated Statements of Operations for
    each of the three years in the period ended February 28,
    2005                      |  |      | 36 | 
|Consolidated Statements of Changes in
    Stockholders Equity for each of the three years in the
    period ended February 28, 2005 |  |      | 37 | 
|Consolidated Statements of Cash Flows for
    each of the three years in the period ended February 28,
    2005                      |  |      | 38 | 
|Notes to Consolidated Financial
    Statements                                                                                       |  |      | 39 | 
|(2) Financial Statement
    Schedule II Valuation and Qualifying Accounts                                                            |  |      | 61 | 



Exhibits:




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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 and Director   |  | May 16, 2005
|                                                      
|/s/ CRAIG E. HOLMESCraig
    E. Holmes                 |  | Executive Vice President and Chief Financial Officer |  | May 16, 2005
|                                                      
|/s/ MARK C. FALKENBERGMark
    C. Falkenberg           |  | Chief Accounting Officer                             |  | May 16, 2005
|                                                      
|/s/ GERALD F. MONTRYGerald
    F. Montry               |  | Chairman of the Board                                |  | May 16, 2005
|                                                      
|/s/ SAJ-NICOLE A. JONISaj-nicole
    A. Joni           |  | Director                                             |  | May 16, 2005
|                                                      
|/s/ JOSEPH J.
    PIETROPAOLOJoseph
    J. Pietropaolo |  | Director                                             |  | May 16, 2005
|                                                      
|/s/ GEORGE C. PLATTGeorge
    C. Platt                 |  | Director                                             |  | May 16, 2005
|                                                      
|/s/ DONALD B. REEDDonald
    B. Reed                   |  | Director                                             |  | May 16, 2005
|                                                      
|/s/ JACK P. REILYJack
    P. Reily                     |  | Director                                             |  | May 16, 2005

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INDEX TO EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 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.(15)                                                                                                                                                                                       
|       
|        | 3  | .4          |  | Third Restated Bylaws of Registrant.(21)                                                                                                                                                                                                        
|       
|        | 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          |  | Securities Purchase Agreement, dated as of May 29, 2002,
    between the Registrant and the Buyers named therein (the
    Securities Purchase Agreement).(13)                                                                                 
|       
|        | 4  | .3          |  | Form of Convertible Note, dated as of May 29, 2002, between
    the Registrant and each of the Buyers under the Securities
    Purchase Agreement.(13)                                                                                          
|       
|        | 4  | .4          |  | Form of Warrant, dated as of May 29, 2002, between the
    Registrant and each of the Buyers under the Securities Purchase
    Agreement.(13)                                                                                                   
|       
|        | 4  | .5          |  | Registration Rights Agreement, dated as of May 29, 2002,
    between the Registrant and each of the Buyers under the
    Securities Purchase Agreement.(13)                                                                                     
|       
|        | 4  | .6          |  | 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.(13)                                                          
|       
|        | 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          |  | Employment Agreement dated as of September 16, 1998 between
    the Company and Rob-Roy J. Graham.(6)                                                                                                                                           
|       
|        | 10 | .5          |  | InterVoice, Inc. 1998 Stock Option Plan.(6)                                                                                                                                                                                                     
|       
|        | 10 | .6          |  | 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.(9)                              
|       
|        | 10 | .7          |  | 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 | .8          |  | Intervoice, Inc. 1999 Stock Option Plan.(10)                                                                                                                                                                                                    
|       
|        | 10 | .9          |  | Promissory Note, dated May 29, 2002, executed by the
    Registrant in favor of Beal Bank, S.S.B.(13)                                                                                                                                           
|       
|        | 10 | .10         |  | Deed of Trust, Security Agreement, and Assignment of Leases and
    Rents dated May 29, 2002, executed by the Registrant for
    its benefit of Beal Bank, S.S.B.(13)                                                                           
|       
|        | 10 | .11         |  | First Amendment to Employment Agreement effective as of
    July 1, 2000, between the Company and Rob-Roy J. Graham.(8)                                                                                                                         
|       
|        | 10 | .12         |  | First Amendment to Credit Agreement effective as of
    January 15, 2001, between the Company, Agent and the
    Lenders.(11)                                                                                                                   
|       
|        | 10 | .13         |  | Consent and Second Amendment to Credit Agreement effective as of
    February 28, 2001, between the Company, Agent and the
    Lenders.(11)                                                                                                     
|       
|        | 10 | .14         |  | Second Amendment to Employment Agreement dated as of
    October 31, 2001, between the Company and Rob-Roy J.
    Graham.(12)                                                                                                                   
|       
|        | 10 | .15         |  | Second Amended Employment Agreement dated as of
    February 18, 2002, between the Company and David W.
    Brandenburg.(14)                                                                                                                    
|       
|        | 10 | .16         |  | Modification Agreement dated as of September 30, 2002, by
    and between the Company and Beal Bank S.S.B., modifying a deed
    of trust.(15)                                                                                                  
|       
|        | 10 | .17         |  | Second Modification Agreement dated as of February 27, 2003
    by and between the Company and Beal Bank S.S.B., modifying a
    deed of trust.(16)                                                                                             

67



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .18         |  | Employment Agreement dated as of October 23, 2002, between
    the Company and Robert E. Ritchey.(16)                                                                                                                                                                               
|       
|        | 10 | .19         |  | Separation Agreement with Rob-Roy J. Graham dated June 25,
    2003.(17)                                                                                                                                                                                                            
|       
|        | 10 | .20         |  | Intervoice, Inc. Employee Stock Purchase Plan, as amended and
    restated effective June 24, 2003.(18)                                                                                                                                                                             
|       
|        | 10 | .21         |  | Intervoice, Inc. 2003 Stock Option Plan.(18)                                                                                                                                                                                                                                        
|       
|        | 10 | .22         |  | Employment Agreement with Craig E. Holmes effective
    August 27, 2003.(18)                                                                                                                                                                                                        
|       
|        | 10 | .23         |  | Credit and Security Agreement dated as of January 26, 2004,
    between the Company and Wells Fargo Bank, N.A.(19)                                                                                                                                                                  
|       
|        | 10 | .24         |  | Amended and Restated Credit Agreement dated as of June 3,
    2004, between the Registrant and Wells Fargo Bank, National
    Association (Wells Fargo).(21)                                                                                                                      
|       
|        | 10 | .25         |  | First Amendment to Credit Agreement dated as of August 17,
    2004, between Registrant and Wells Fargo.(22)                                                                                                                                                                        
|       
|        | 10 | .26         |  | Fiscal Year 2005 Transition Year Incentive Plan Summary.(22)                                                                                                                                                                                                                        
|       
|        | 10 | .27         |  | Intervoice, Inc. 2003 Stock Option Plan.(22)                                                                                                                                                                                                                                        
|       
|        | 10 | .28         |  | Letter Agreement dated November 18, 2004 between Registrant
    and David W. Brandenburg.(24)                                                                                                                                                                                       
|       
|        | 10 | .29         |  | Summary of Fiscal Year 2005 Second Half Incentive Plan.(23)                                                                                                                                                                                                                         
|       
|        | 10 | .30         |  | Summary of Fiscal Year 2006 Annual Incentive Compensation
    Plan.(25)                                                                                                                                                                                                             
|       
|        | 10 | .31         |  | Summary of Fiscal Year 2006 Non-Employee Director Cash
    Compensation.(26)                                                                                                                                                                                                        
|       
|        | 10 | .32         |  | Employment Agreement effective December 1, 2004 between
    Registrant and Robert E. Ritchey.(27)                                                                                                                                                                                   
|       
|        | 14 |             |  | Code of Ethics.(20)                                                                                                                                                                                                                                                                 
|       
|        | 21 |             |  | Subsidiaries.(27)                                                                                                                                                                                                                                                                   
|       
|        | 23 |             |  | Consent of Independent Auditors.(27)                                                                                                                                                                                                                                                
|       
|        | 31 | .1          |  | Certification of Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-14(a) or Rule 15d-14(a).(27)                                                                                                                                                                   
|       
|        | 31 | .2          |  | Certification of Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-14(a) or Rule 15d-14(a).(27)                                                                                                                                                                   
|       
|        | 32 | .1          |  | Certification by Chief Executive Officer of Periodic Report
    Pursuant to Rule 13a-14(b) and 18 U.S.C.
    Section 1350.(27)*                                                                                                                                                     
|       
|        | 32 | .2          |  | Certification by Chief Financial Officer of Periodic Report
    Pursuant to Rule 13a-14(b) and 18 U.S.C.
    Section 1350.(27)*                                                                                                                                                     
|       
|        | 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 page 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.                                                                                              

68



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##### Table of Contents





| |     |                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on Form 10-Q for the 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 the Companys Quarterly Report
    on Form 10-Q for the fiscal quarter ended August 31,
    2000, filed with the SEC on October 16, 2000.         
|
| | (9) | 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. 



|     |                                                                                                                                                                                  
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Registration Statement on
    Form S-8 filed with the SEC on October 15, 1999,
    Registration Number 333-89127.                                   
|    
|(11) | Incorporated by reference to exhibits to the Companys 2001
    Annual Report on form 10-K for the fiscal year ended
    February 28, 2001, filed with the SEC on May 18, 2001.  
|    
|(12) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    November 30, 2001, filed with the SEC on January 11,
    2002.
|    
|(13) | Incorporated by reference to exhibits to the Companys
    Current Report on Form 8-K, filed with the SEC on
    May 30, 2002.                                                   
|    
|(14) | 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.  
|    
|(15) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    August 31, 2002, filed with the SEC on October 15,
    2002.  
|    
|(16) | 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.       
|    
|(17) | Incorporated by reference to exhibits to Companys
    Quarterly Report on Form 10-Q for the quarter ended
    May 31, 2003, filed with the SEC on July 15, 2003.                
|    
|(18) | Incorporated by reference to exhibits to Companys
    Quarterly Report on Form 10-Q for the quarter ended
    August 31, 2003, filed with the SEC on October 14,
    2003.      
|    
|(19) | Incorporated by reference to exhibits to the Companys
    Current Report on Form 8-K, filed with the SEC on
    January 26, 2004.                                               
|    
|(20) | 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.       
|    
|(21) | Incorporated by reference to exhibits to the Companys
    Current Report on Form 8-K, filed with the SEC on
    June 4, 2004.                                                   
|    
|(22) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    August 31, 2004, filed with the SEC on October 12,
    2004.  
|    
|(23) | Incorporated by reference to exhibits to the Companys
    Current Report on Form 8-K, filed with the SEC on
    November 19, 2004.                                              
|    
|(24) | Incorporated by reference to exhibits to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    November 30, 2004, filed with the SEC on January 10,
    2005.
|    
|(25) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed with the SEC on April 28, 2005.                                                                 
|    
|(26) | Incorporated by reference to the Companys Current Report
    on Form 8-K, filed with the SEC on January 21, 2005.                                                               
|    
|(27) | 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, as
    amended.

69