##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED May 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 1-15045
 INTERVOICE, INC.
 (Exact name of registrant as specified in its charter)
 TEXAS
(State or other jurisdiction of
incorporation or organization)
    
    75-1927578
(I.R.S. Employer
Identification No.)
 17811 WATERVIEW PARKWAY, DALLAS, TX 75252
(Address of principal executive offices)
 972-454-8000
(Registrants telephone number, including area code)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o Accelerated filer þ Non-Accelerated Filer o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
      Noþ
 The Registrant had 38,542,645 shares of common stock, no par value per share, outstanding as of
June 28, 2006.




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. ExhibitsSIGNATURESIndex to ExhibitsEmployment Agreement - Craig E. HolmesEmployment Agreement - James A. Milton1st Amendment to Employment Agreement - Robert E. RitcheyCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 (In Thousands, Except Share and Per Share Data)May 31, 2006
    
    
    February 28, 2006(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    41,462
    
    
    $
    42,076Trade accounts receivable, net of allowance for
doubtful accounts of $2,363 in fiscal 2007 and
$1,701 in fiscal 2006
    
    
    25,623
    
    
    
    25,745Inventory
    
    
    10,237
    
    
    
    9,439Prepaid expenses and other current assets
    
    
    4,925
    
    
    
    4,406Deferred income taxes
    
    
    3,047
    
    
    
    3,04785,294
    
    
    
    84,713Property and Equipment, net of accumulated depreciation of
$61,245 in fiscal 2007 and $59,002 in fiscal 2006
    
    
    31,382
    
    
    
    28,893Other AssetsIntangible assets, net of accumulated amortization of $17,959
in fiscal 2007 and $17,343 in fiscal 2006
    
    
    9,668
    
    
    
    10,284Goodwill
    
    
    32,461
    
    
    
    32,461Long term deferred income taxes
    
    
    1,718
    
    
    
    1,330Other assets
    
    
    484
    
    
    
    454$
    161,007
    
    
    $
    158,135LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    10,813
    
    
    $
    10,154Accrued expenses
    
    
    14,494
    
    
    
    15,176Customer deposits
    
    
    5,437
    
    
    
    6,157Deferred income
    
    
    33,818
    
    
    
    32,172Income taxes payable
    
    
    
    
    
    
    484Deferred income taxes
    
    
    692
    
    
    
    27065,254
    
    
    
    64,413Stockholders EquityPreferred stock, $100 par value2,000,000
shares authorized: none issuedCommon stock, no par value, at nominal
assigned value62,000,000 shares
authorized: 38,519,536 issued and
outstanding in fiscal 2007 and 38,470,087 issued
and outstanding in fiscal 2006
    
    
    19
    
    
    
    19Additional capital
    
    
    93,580
    
    
    
    92,050Retained earnings
    
    
    3,153
    
    
    
    3,558Accumulated other comprehensive loss
    
    
    (999
    )
    
    
    (1,905
    )95,753
    
    
    
    93,722$
    161,007
    
    
    $
    158,135
  2




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(In Thousands, Except Per Share Data)Three Months EndedMay 31, 2006
    
    
    May 31, 2005SalesSolutions
    
    $
    19,469
    
    
    $
    21,370Recurring services
    
    
    26,199
    
    
    
    21,89345,668
    
    
    
    43,263Cost of goods soldSolutions
    
    
    12,304
    
    
    
    12,804Recurring services
    
    
    7,474
    
    
    
    6,11219,778
    
    
    
    18,916Gross marginSolutions
    
    
    7,165
    
    
    
    8,566Recurring services
    
    
    18,725
    
    
    
    15,78125,890
    
    
    
    24,347Research and development expenses
    
    
    5,782
    
    
    
    4,195Selling, general and administrative expenses
    
    
    20,800
    
    
    
    15,433Amortization of acquisition related intangible assets
    
    
    581
    
    
    
    252Income (loss) from operations
    
    
    (1,273
    )
    
    
    4,467Interest income
    
    
    499
    
    
    
    497Interest expense
    
    
    
    
    
    
    (25
    )Other income
    
    
    207
    
    
    
    126Income (loss) before taxes
    
    
    (567
    )
    
    
    5,065Income taxes (benefit)
    
    
    (162
    )
    
    
    1,146Net income (loss)
    
    $
    (405
    )
    
    $
    3,919Net income (loss) per share  basic
    
    $
    (0.01
    )
    
    $
    0.10Shares used in basic per share computation
    
    
    38,504
    
    
    
    37,530Net income (loss) per share  diluted
    
    $
    (0.01
    )
    
    $
    0.10Shares used in diluted per share computation
    
    
    38,504
    
    
    
    39,103
  3




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(In Thousands)Three Months EndedMay 31, 2006
    
    
    May 31, 2005Operating activitiesNet income (loss)
    
    $
    (405
    )
    
    $
    3,919Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,678
    
    
    
    1,722Non-cash compensation expense
    
    
    1,381
    
    
    
    Other changes in operating activities
    
    
    373
    
    
    
    (2,669
    )Net cash provided by operating activities
    
    
    4,027
    
    
    
    2,972Investing activitiesPurchases of property and equipment
    
    
    (4,407
    )
    
    
    (3,132
    )Purchase of Edify Corporation
    
    
    (836
    )
    
    
    Other
    
    
    
    
    
    
    (300
    )Net cash used in investing activities
    
    
    (5,243
    )
    
    
    (3,432
    )Financing activitiesPaydown of debt
    
    
    
    
    
    
    (1,733
    )Exercise of stock options
    
    
    149
    
    
    
    1,493Exercise of warrants
    
    
    
    
    
    
    2,500Net cash provided by financing activities
    
    
    149
    
    
    
    2,260Effect of exchange rates on cash
    
    
    453
    
    
    
    (626
    )Increase (decrease) in cash and cash equivalents
    
    
    (614
    )
    
    
    1,174Cash and cash equivalents, beginning of period
    
    
    42,076
    
    
    
    60,242Cash and cash equivalents, end of period
    
    $
    41,462
    
    
    $
    61,416
  4




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Accumulated OtherCommon Stock
    
    Additional
    
    Retained
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    Earnings
    
    Loss
    
    TotalBalance at February 28, 2006
    
    
    38,470,087
    
    
    $
    19
    
    
    $
    92,050
    
    
    $
    3,558
    
    
    $
    (1,905
    )
    
    $
    93,722Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (405
    )
    
    
    
    
    
    
    (405
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    906
    
    
    
    906Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    501Exercise of stock options
    
    
    49,449
    
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    149Non-cash compensation
    
    
    
    
    
    
    
    
    
    
    1,381
    
    
    
    
    
    
    
    
    
    
    
    1,381Balance at May 31, 2006
    
    
    38,519,536
    
    
    $
    19
    
    
    $
    93,580
    
    
    $
    3,153
    
    
    $
    (999
    )
    
    $
    95,753
  5




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2006
 Note A  Basis of Presentation
   Note B  Acquisition of Edify Corporation
   Quarter EndedMay 31, 2005(unaudited)Sales
    
    $
    50,779Income before income taxes
    
    
    4,688Net income
    
    
    3,435Net income per share  diluted
    
    
    0.09
 Note C  Inventory
  May 31, 2006
    
    
    February 28, 2006Purchased parts
    
    $
    3,799
    
    
    $
    3,908Work in progress
    
    
    6,438
    
    
    
    5,531$
    10,237
    
    
    $
    9,439
 6




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Note D  Property & Equipment
  May 31, 2006
    
    
    February 28, 2006Land and buildings
    
    $
    17,287
    
    
    $
    16,932Computer equipment and software
    
    
    46,731
    
    
    
    42,817Furniture and fixtures
    
    
    3,299
    
    
    
    3,165Managed services equipment
    
    
    16,517
    
    
    
    16,331Maintenance services equipment
    
    
    8,793
    
    
    
    8,65092,627
    
    
    
    87,895Less allowance for accumulated depreciation
    
    
    61,245
    
    
    
    59,002Property and equipment, net
    
    $
    31,382
    
    
    $
    28,893
  Note E  Stock-based Compensation
 Accounting for Stock Issued to Employees
 Share-Based Payments
  Three Months EndedMay 31, 2006Cost of Goods Sold
    
    $
    263R&D
    
    
    150SG&A
    
    
    926Total
    
    $
    1,339Related deferred income tax benefit
    
    
    389Decrease in net income
    
    $
    950Decrease in earning per share  basic
    
    $
    0.02
 Accounting for Stock-Based Compensation-Transition
and Disclosure, an amendment of FASB Statement No. 123
 7




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Three Months EndedMay 31, 2005Net income, as reported
    
    $
    3,919Less: Total stock-based compensation expense determined
under fair value based methods for all awards
    
    
    (1,233
    )Pro forma net income
    
    $
    2,686Net income per share:Basic  as reported
    
    $
    0.10Basic  pro forma
    
    $
    0.07Diluted  as reported
    
    $
    0.10Diluted  pro forma
    
    $
    0.07
 Note F  Special Charges
  Accrued Balance
    
    
    
    
    
    Accrued BalanceFebruary 28, 2006
    
    Payments
    
    May 31, 2006Severance payments and related benefits
    
    $
    1,748
    
    
    $
    (319
    )
    
    $
    1,429
  Note G  Income Taxes
    8




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Note H  Earnings Per Share
 Three Months Ended May 31(in thousands, except per share data)
    
    2006
    
    
    2005Numerator:Net income (loss)
    
    $
    (405
    )
    
    $
    3,919Denominator:Denominator for basic earnings per share
    
    
    38,504
    
    
    
    37,530Dilutive potential common shares:Employee stock options
    
    
    
    
    
    
    1,344Warrants
    
    
    
    
    
    
    229Denominator for diluted earnings per share
    
    
    38,504
    
    
    
    39,103Net income per share:Basic
    
    $
    (0.01
    )
    
    $
    0.10Diluted
    
    $
    (0.01
    )
    
    $
    0.10
  Note I  Operating Segment Information and Major Customers
  Three Months Ended May 312006
    
    
    2005Voice automation/IVR solution sales
    
    $
    12,723
    
    
    $
    10,708Network portal solution sales
    
    
    1,021
    
    
    
    3,484Messaging solution sales
    
    
    3,718
    
    
    
    4,848Payment solution sales
    
    
    2,007
    
    
    
    2,330Total solution sales
    
    
    19,469
    
    
    
    21,370Maintenance and support services revenues
    
    
    20,185
    
    
    
    15,435Managed service revenues
    
    
    6,014
    
    
    
    6,458Total recurring services revenues
    
    
    26,199
    
    
    
    21,893Total sales
    
    $
    45,668
    
    
    $
    43,263
 Geographic Operations
  9




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Three Months Ended May 312006
    
    
    2005North America
    
    $
    27,041
    
    
    $
    23,080Europe
    
    
    8,736
    
    
    
    10,880Middle East and Africa
    
    
    3,077
    
    
    
    7,055Central and South America
    
    
    4,726
    
    
    
    1,351Pacific Rim
    
    
    2,088
    
    
    
    897Total
    
    $
    45,668
    
    
    $
    43,263
 Concentration of Revenue
  Note J  Contingencies
 Intellectual Property Matters
    10




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Ronald A. Katz Technology Licensing, L.P. v. Citibank, et al.;
   Pending Litigation
 David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v.
InterVoice-Brite, Inc., et al.
    11




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Daniel Wardiman,
 derivatively on behalf of Nominal Defendant, Intervoice-Brite, Inc. v. Daniel
D. Hammond et.al.;
 Barrie
  Audit Committee Investigation
   12




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Other Matters
        13




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Barrie Barrie
 14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Critical Accounting Policies.
 Stock-Based Compensation
   Sales.
 Three Months Ended May 31% ChangeFrom2006
    
    
    Prior Year
    
    
    2005Voice Automation/IVR solution sales
    
    $
    12,723
    
    
    
    18.8
    %
    
    $
    10,708Network portal solution sales
    
    
    1,021
    
    
    
    (70.7
    )%
    
    
    3,484Messaging solution sales
    
    
    3,718
    
    
    
    (23.3
    )%
    
    
    4,848Payment solution sales
    
    
    2,007
    
    
    
    (13.9
    )%
    
    
    2,330Total solution sales
    
    
    19,469
    
    
    
    (8.9
    )%
    
    
    21,370Maintenance and related services revenues
    
    
    20,185
    
    
    
    30.8
    %
    
    
    15,435Managed services revenues
    
    
    6,014
    
    
    
    (6.9
    )%
    
    
    6,458Total recurring services revenues
    
    
    26,199
    
    
    
    19.7
    %
    
    
    21,893Total Sales
    
    $
    45,668
    
    
    
    5.6
    %
    
    $
    43,263
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Three Months Ended May 31% ChangeFrom2006
    
    
    Prior Year
    
    
    2005North America
    
    $
    27,041
    
    
    
    17.2
    %
    
    $
    23,080Europe
    
    
    8,736
    
    
    
    (19.7
    )%
    
    
    10,880Middle East and Africa
    
    
    3,077
    
    
    
    (56.4
    )%
    
    
    7,055Central and South America
    
    
    4,726
    
    
    
    249.8
    %
    
    
    1,351Pacific Rim
    
    
    2,088
    
    
    
    132.8
    %
    
    
    897Total
    
    $
    45,668
    
    
    
    5.6
    %
    
    $
    43,263
       16




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Three Months Ended May 312006
    
    2005Sales from recurring services and
support contracts, including
contracts for managed services
    
    
    58
    %
    
    
    51
    %Sales from beginning solutions backlog
    
    
    29
    %
    
    
    31
    %Sales from the quarters pipeline
    
    
    13
    %
    
    
    18
    %100
    %
    
    
    100
    %
   Quarter Ended
    
    BacklogMay 31, 2006
    
    $
    41,221February 28, 2006
    
    $
    33,867November 30, 2005
    
    $
    29,915August 31, 2005
    
    $
    30,265May 31, 2005
    
    $
    28,473
   Cost of Goods Sold.
 Three Months Ended May 312006
    
    2005Solutions COGS
    
    $
    12,304
    
    
    $
    12,804As percentage of solutions sales
    
    
    63.2
    %
    
    
    59.9
    %Services COGS
    
    $
    7,474
    
    
    $
    6,112As percentage of services revenues
    
    
    28.5
    %
    
    
    27.9
    %Total COGS
    
    $
    19,778
    
    
    $
    18,916As percentage of total sales
    
    
    43.3
    %
    
    
    43.7
    %
 17




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Research and Development Expenses.
 Three Months Ended May 312006
    
    2005Research and development expenses
    
    $
    5,782
    
    
    $
    4,195As percentage of total sales
    
    
    12.7
    %
    
    
    9.7
    %
  â
  Selling, General and Administrative Expenses.
 Three Months Ended May 312006
    
    2005Selling, general and administrative expenses
    
    $
    20,800
    
    
    $
    15,433As percentage of total sales
    
    
    45.5
    %
    
    
    35.7
    %
  18




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Amortization of Acquired Intangible Assets.
 Other Income.
 Income Taxes.
   Loss from Operations and Net Loss.
 Liquidity and Capital Resources.
    19




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Adequacy of Cash Reserves
  Impact of Inflation
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control.
 20




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
    
    We are prone to quarterly sales fluctuations.The sales value of an individual order
for our solutions and services can range from a few thousand dollars to several million
dollars depending on the complexity of our customers business need and the size of its
operations. The quantity and size of large sales (sales valued at approximately $2.0
million or more) during any quarter can cause wide variations in our quarterly sales and
earnings, as such sales are often unevenly distributed throughout the fiscal year. In
addition, some of our sales transactions are completed in the same fiscal quarter as
ordered. Our accuracy in estimating future sales is largely dependent on our ability to
successfully qualify, estimate and close solution sales from our pipeline of sales
opportunities during a quarter. No matter how promising a pipeline opportunity may appear,
there is no assurance it will ever result in a sale. The accuracy of our estimate of future
sales is also dependent on our ability to accurately estimate the amount of revenue to be
contributed from beginning backlog and revenue from cash basis customers during any fiscal
quarter. This estimate can be affected by factors outside our control, including changes
in project timing requested by our customers. Accordingly, our actual sales for any
fiscal reporting period may be significantly different than any estimate of sales we make
for such period. See the discussion entitled Sales in Item 2 of Part I for a discussion
of our system for estimating sales and tracking sales trends in our business.
    
    We are subject to potential and pending lawsuits and other claims.We are subject to
certain potential and pending lawsuits and other claims discussed in Note J in Item 1 of
Part I of this quarterly report on Form 10-Q. Furthermore, we may become subject to claims,
including claims by the government, or other adverse consequences arising from the findings
of the Audit Committee investigation and related SEC inquiries discussed in Note J. We, and
certain of our current and former officers and non-officer employees are currently
responding to or have responded to SEC subpoenas to produce documents and provide testimony
about the transactions that were the subject of the investigation. Any adverse judgment,
penalty or settlement related to any lawsuit or other such claim could have consequences
that would be material to our financial position or results of operations. We may be
required to indemnify certain of our current and former directors and officers under
existing arrangements in connection with the shareholders derivative suit in addition to
the indemnification we are currently providing to certain individuals in connection with
the class action lawsuit and the SEC investigation. Our insurance policies provide
coverage for losses and expenses incurred by us and our current and former directors and
officers in connection with claims made under the federal securities laws. These policies,
however, exclude losses and expenses related to the Barrie class action lawsuit
discussed in Note J or to other litigation based on claims that are substantially the same
as the claims in the Barrie class action and contain other customary provisions to
limit or exclude coverage for certain losses and expenses.
    
    We may not be successful in integrating the operations and products and retaining the
customers of Edify, and this could negatively impact our business.We believe we will be
able to achieve certain cost savings and other synergies as a result of combining
Intervoice and Edify, but there can be no
 21




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assurance that such synergies will be realized. Our future success will depend in part upon
our ability to integrate and operate Edify successfully with our business. Any inability to
integrate the products of Intervoice and Edify while maintaining or increasing the market
share that such products had prior to the merger could decrease the revenues historically
generated from these products. Customers of Intervoice and Edify may delay their purchase
of products or services from one or both companies to consider any potential implications
the acquisition may have for products and services offered by either company. In addition,
the integration process will require the dedication of management resources, which may
temporarily distract attention from our day-to-day business. Our future success will also
depend in part on our ability to retain and assimilate certain key employees of Edify.
There can be no assurance that we will be able to efficiently integrate and operate Edify
and its products with our business, maintain business relationships with Edifys customers
and retain and assimilate key employees of Edify. Failure to do so could have a material
adverse effect on our results of operations or our financial condition. Further, Edify
provides products and services which are similar to our products and services and,
accordingly, our Edify operations are generally subject to most of the other risk factors
discussed in this Item 1A.
    
    We face intense competition based on product capabilities, and we experience ever
increasing demands from our actual and prospective customers for our products to be
compatible with a variety of rapidly proliferating computing, telephony and computer
networking technologies and standards.Our success is dependent, to a large degree, on our
effectiveness in allocating resources to developing and improving products compatible with
those technologies, standards and functionalities that ultimately become widely accepted by
our current and prospective customers. Our success is also dependent, to a large degree, on
our ability to implement arrangements with vendors of complementary product offerings so
that we can provide our current and prospective customers greater functionality. Our
principal competitors include Genesys, Avaya, Nortel, Nuance Communications, Comverse
Technology, Unisys and Lucent Technologies. Many of our competitors have greater financial,
technological and marketing resources than we have, as well as greater name recognition.
Although we have committed substantial resources to enhance our existing products and to
develop and market new products, there is no assurance we will be successful. In addition,
it is possible that new entrants to the market and strategic acquisitions and partnerships
between existing companies could increase the competition in the markets in which we
participate. An increase in such competition could materially adversely affect our ability
to sell our products thereby adversely affecting our business, operating results and
financial condition.
    
    We may not be successful in transitioning our products and services to an open,
standards-based business model.Intervoice has historically provided complete, bundled
hardware and software solutions using internally developed components to address our
customers total business needs. Increasingly, the markets for our products are requiring a
shift to the development of products and services based on an open, standards-based
architecture such as the J2EE and Microsoftsâ.NET environments utilizing VoiceXML
and/or SALT standards. Such an open, standards-based approach allows customers to
independently purchase and combine hardware components, standardized software modules, and
customization, installation and integration services from individual vendors deemed to
offer the best value in the particular class of product or service. In such an environment,
we believe we may sell less hardware and fewer bundled systems and may become increasingly
dependent on our development and sale of software application packages, customized software
and consulting and integration services. This shift will place new challenges on us to
transition our products and to hire and retain the mix of personnel necessary to respond to
this business environment, to adapt to the changing expense structure that the new
environment may tend to foster, and to increase sales of services, customized software and
application packages to offset reduced sales of hardware and bundled solutions. Failure to
develop, enhance, acquire and introduce new products and services to respond to changing
market conditions or customer requirements, or lack of customer acceptance of our products
will materially adversely affect our business, results of operations and financial
condition.
    
    We may not be able to retain our customer base, and, in particular, our more significant
customers.Our success is heavily dependent on our ability to retain our significant
customers, including those of Edify. The loss of one of our significant customers could
negatively impact our operating results. Our installed base of customers generally is not
contractually obligated to place further solutions orders with us or to extend their
services contracts with us at the expiration of their current contracts.
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
    
    We will be harmed if we lose key business and technical personnel.We rely upon the
services of a relatively small number of key technical, project management and senior
management personnel, most of whom do not have employment contracts. If we were to lose any of our key personnel,
replacing them could be difficult and costly. If we were unable to successfully and
promptly replace such personnel, our business could be materially harmed.
    
    Our reliance on significant vendor relationships could result in significant expense or
an inability to serve our customers if we lose these relationships.Although we generally
use standard parts and components in our products, some of our components, including
semi-conductors and, in particular, digital signal processors manufactured by Texas
Instruments, are available only from a small number of vendors. Likewise, we license speech
recognition technology from a small number of vendors. Two of these vendors, ScanSoft, Inc.
and Nuance Communications, Inc., recently completed a merger of their organizations and now
the combined company has a dominant market position. As we continue to migrate to open,
standards-based systems, we will become increasingly dependent on our component suppliers
and software vendors. To date, we have been able to obtain adequate supplies of needed
components and licenses in a timely manner, and we expect to continue to be able to do so.
Nevertheless, if our significant vendors are unable to supply components or licenses at
current levels, we may not be able to obtain these items from another source or at
historical prices. In such instances, we would be unable to provide products and services
to our customers or generate historical operating margins, and our business and operating
results would suffer.
    
    If third parties assert claims that our products or services infringe on their
technology and related intellectual property rights, whether the claims are made directly
against us or against our customers, we could incur substantial costs in connection with
these claims.We believe software and technology companies, including Intervoice and others
in our industry, increasingly may become subject to infringement claims. Such claims may
require us to enter into costly license agreements or result in even more costly
litigation. To the extent a licensing arrangement is required, the arrangement may not be
available at all, or, if available, may be very expensive or even prohibitively expensive.
As with any legal proceeding, there is no guarantee we will prevail in any litigation
instituted against us asserting infringement of intellectual property rights. To the extent
we suffer an adverse judgment, we might have to pay substantial damages, discontinue the
use and sale of infringing products, repurchase infringing products from our customers in
accordance with indemnity obligations, expend significant resources to acquire
non-infringing alternatives, and/or obtain licenses to the intellectual property that has
been infringed upon. As with licensing arrangements, non-infringing substitute technologies
may not be available and, if available, may be very expensive, or even prohibitively
expensive, to implement. Accordingly, for all of the foregoing reasons, a claim of
infringement could ultimately have a material adverse effect on our business, financial
condition and results of operations.
    
    We are exposed to risks related to our international operations that could increase our
costs and hurt our business.Our products are currently sold in more than 75 countries.
Our international sales were 40% and 47% of total sales for the fiscal quarter ended May
31, 2006 and 2005, respectively. International sales, personnel and property are subject
to certain risks, including:
 
    
    terrorism;
    
    fluctuations in currency exchange rates;
    
    the difficulty and expense of maintaining foreign offices and distribution channels;
    
    tariffs and other barriers to trade;
    
    greater difficulty in protecting and enforcing intellectual property rights;
    
    general economic and political conditions in each country;
    
    loss of revenue, property and equipment from expropriation;
    
    import and export licensing requirements; and
    
    additional expenses and risks inherent in conducting operations in
geographically distant locations, including risks arising from differences in
language and cultural approaches to the conduct of business.
 
    
    Our inability to meet contracted performance targets could subject us to significant
penalties.Many of our contracts, particularly for managed services, foreign contracts and
contracts with telecommunication companies, include provisions for the assessment of
damages for delayed project completion and/or for our failure to achieve certain minimum
service levels. We have had to pay damages in the past and may have to pay additional
damages in the future. Any such future damages could be significant.
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
    
    Increasing consolidation in the telecommunications and financial industries could
adversely affect our revenues and profitability.The majority of our largest customers are
in the telecommunications and financial industries. These industries are undergoing
significant consolidation as a result of merger and acquisition activity. This activity
could result in a decrease in the number of customers purchasing our products and/or in
delayed purchases of our products by customers that are reviewing their strategic
alternatives in light of a pending merger or acquisition. If these results occur, our
revenues and profitability could decline.
    
    Our products are complex, and software defects could reduce our revenues and expose us
to litigation.The software products we offer are complex and may contain errors or
defects, even after extensive testing and quality control, particularly in early versions.
Furthermore, because our products increasingly are designed around an open standards based
architecture incorporating elements developed by third parties, such errors or defects may
be outside of our direct ability to control or correct. Our recently introduced Media
Exchange offering is an example of a complex product which includes third party elements
that has and may continue to experience certain software errors in its initial customer
deployments. Any defects or errors could potentially result in loss of revenues, product
returns or order cancellations, and could potentially hinder market acceptance of our
products and harm our reputation. Accordingly, any defects or errors could have a material
adverse effect on our business, results of operations and financial condition. Our
customer license agreements typically contain provisions to limit our product warranty
obligations and exposure to potential liability claims.
    
    We are implementing a new company-wide ERP system during fiscal 2007.During fiscal
2007, we expect to complete the implementation of a new, company-wide ERP system. Our new
system will affect all facets of our business including our ability to quote, receive and
process orders, track inventory and work in process, ship and bill completed orders,
process and apply cash receipts from our customers and summarize and report the results of
our operations. If we encounter problems in the implementation of our new system, our
ability to conduct our daily operations in an efficient, effective and properly controlled
manner could be compromised, and our operating results could suffer. In addition, any such
implementation problems could cause us to expend significant time and other resources in an
effort to resolve such problems, and this diversion of management and staff time could
further adversely affect our ability to serve our customers and sustain our normal
operations.
 
 Item 6. Exhibits
  2.1
    
    Agreement and Plan of Merger dated November 18, 2005 by and among S1
Corporation, Edify Corporation, Edify Holding Company, Inc.,
Intervoice, Inc. and Arrowhead I, Inc. (7)3.1
    
    Articles of Incorporation, as amended, of Registrant. (1)3.2
    
    Amendment to Articles of Incorporation of Registrant. (2)3.3
    
    Amendment to Articles of Incorporation of Registrant. (3)3.4
    
    Third Restated Bylaws of Registrant. (6)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. (4)4.2
    
    Registration Rights Agreement, dated as of May 29, 2002, between the
Registrant and each of the Buyers under a Securities Purchase
Agreement. (5)4.3
    
    First Amendment to Third Amended and Restated Rights Agreement dated
as of May 29, 2002, between Registrant and Computershare Investor
Services, LLC, as Rights Agent. (5)10.1
    
    Summary of the Fiscal Year 2007 Annual Incentive Compensation Plan (8)10.2
    
    Employment Agreement effective May 8, 2006 between Registrant and
Craig E. Holmes (9)10.3
    
    Employment Agreement effective May 8, 2006 between Registrant and
James A. Milton (9)10.4
    
    First Amendment to Employment Agreement dated December 1, 2004
between the Registrant and Robert E. Ritchey (9)31.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant
to Rule 13a-14(a) or Rule 15d-14(a). (9)31.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant
to Rule 13a-14(a) or Rule 15d-14(a). (9)32.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant
to Rule 13a-14(b) and 18 U.S.C. Section 1350. (9)*32.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant
to Rule 13a-14(b) and 18 U.S.C. Section 1350. (9)*
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(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 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.(3)
    
    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.(4)
    
    Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May
9, 2001.(5)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on May 30, 2002.(6)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004, filed with the SEC on October 12, 2004.(7)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on January 3, 2006.(8)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on March 10, 2006.(9)
    
    Filed herewith. *
    
    The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q
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.
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SIGNATURES
  INTERVOICE, INC.Date: July 10, 2006
    
    By:
    
    /s/ CRAIG E. HOLMESCraig E. HolmesExecutive Vice President andChief Financial Officer
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Index to Exhibits
 ExhibitNo.
    
    Description2.1
    
    Agreement and Plan of Merger dated November 18, 2005 by and among S1
Corporation, Edify Corporation, Edify Holding Company, Inc.,
Intervoice, Inc. and Arrowhead I, Inc. (7)3.1
    
    Articles of Incorporation, as amended, of Registrant. (1)3.2
    
    Amendment to Articles of Incorporation of Registrant. (2)3.3
    
    Amendment to Articles of Incorporation of Registrant. (3)3.4
    
    Third Restated Bylaws of Registrant. (6)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. (4)4.2
    
    Registration Rights Agreement, dated as of May 29, 2002, between the
Registrant and each of the Buyers under a Securities Purchase
Agreement. (5)4.3
    
    First Amendment to Third Amended and Restated Rights Agreement dated
as of May 29, 2002, between Registrant and Computershare Investor
Services, LLC, as Rights Agent. (5)10.1
    
    Summary of the Fiscal Year 2007 Annual Incentive Compensation Plan (8)10.2
    
    Employment Agreement effective May 8, 2006 between Registrant and
Craig E. Holmes (9)10.3
    
    Employment Agreement effective May 8, 2006 between Registrant and
James A. Milton (9)10.4
    
    First Amendment to Employment Agreement dated December 1, 2004
between the Registrant and Robert E. Ritchey (9)31.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant
to Rule 13a-14(a) or Rule 15d-14(a). (9)31.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant
to Rule 13a-14(a) or Rule 15d-14(a). (9)32.1
    
    Certification of Chief Executive Officer of Periodic Report Pursuant
to Rule 13a-14(b) and 18 U.S.C. Section 1350. (9)*32.2
    
    Certification of Chief Financial Officer of Periodic Report Pursuant
to Rule 13a-14(b) and 18 U.S.C. Section 1350. (9)*
 
 (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 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.(3)
    
    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.(4)
    
    Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May
9, 2001.(5)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on May 30, 2002.(6)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004, filed with the SEC on October 12, 2004.(7)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on January 3, 2006.(8)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on March 10, 2006.(9)
    
    Filed herewith.*
    
    The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q
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.