##### 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, 2007
 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
(Address of principal executive offices)
    
    75252
(Zip Code)
 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 No þ
 The Registrant had 38,907,646 shares of common stock, no par value per share, outstanding as of
June 25, 2007.




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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 ExhibitsCertification 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)    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 (In Thousands, Except Share and Per Share Data)May 31, 2007
    
    
    February 28, 2007(Unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    40,754
    
    
    $
    28,215Trade accounts receivable, net of allowance for
doubtful accounts of $1,345 in fiscal 2008 and
$1,476 in fiscal 2007
    
    
    28,508
    
    
    
    36,837Inventory
    
    
    16,892
    
    
    
    13,751Prepaid expenses and other current assets
    
    
    3,662
    
    
    
    3,909Income taxes receivable
    
    
    624
    
    
    
    1,098Deferred income taxes
    
    
    4,480
    
    
    
    3,88094,920
    
    
    
    87,690Property and Equipment, net of accumulated depreciation of
$64,753 in fiscal 2008 and $62,419 in fiscal 2007
    
    
    34,162
    
    
    
    34,429Other AssetsIntangible assets, net of accumulated amortization of $20,789
in fiscal 2008 and $20,040 in fiscal 2007
    
    
    8,924
    
    
    
    9,505Goodwill
    
    
    32,193
    
    
    
    32,193Long term deferred income taxes
    
    
    2,688
    
    
    
    4,613Other assets
    
    
    142
    
    
    
    135$
    173,029
    
    
    $
    168,565LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    15,762
    
    
    $
    12,881Accrued expenses
    
    
    13,176
    
    
    
    15,571Customer deposits
    
    
    4,306
    
    
    
    4,365Deferred income
    
    
    37,951
    
    
    
    32,368Deferred income taxes
    
    
    322
    
    
    
    19671,517
    
    
    
    65,381Stockholders 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: 38,866,893 issued and
outstanding in fiscal 2008 and 38,727,628 issued
and outstanding in fiscal 2007
    
    
    19
    
    
    
    19Additional capital
    
    
    103,217
    
    
    
    101,608Retained earnings (deficit)
    
    
    (1,559
    )
    
    
    1,861Accumulated other comprehensive loss
    
    
    (165
    )
    
    
    (304
    )101,512
    
    
    
    103,184$
    173,029
    
    
    $
    168,565
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(In Thousands, Except Per Share Data)Three Months EndedMay 31, 2007
    
    
    May 31, 2006SalesSolutions
    
    $
    21,702
    
    
    $
    19,469Recurring services
    
    
    26,029
    
    
    
    26,19947,731
    
    
    
    45,668Cost of goods soldSolutions
    
    
    15,182
    
    
    
    12,304Recurring services
    
    
    7,291
    
    
    
    7,47422,473
    
    
    
    19,778Gross marginSolutions
    
    
    6,520
    
    
    
    7,165Recurring services
    
    
    18,738
    
    
    
    18,72525,258
    
    
    
    25,890Research and development expenses
    
    
    5,317
    
    
    
    5,782Selling, general and administrative expenses
    
    
    20,693
    
    
    
    20,800Amortization of acquisition related intangible assets
    
    
    695
    
    
    
    581Income (loss) from operations
    
    
    (1,447
    )
    
    
    (1,273
    )Interest income
    
    
    590
    
    
    
    499Other income (expense)
    
    
    (144
    )
    
    
    207Income (loss) before taxes
    
    
    (1,001
    )
    
    
    (567
    )Income taxes (benefit)
    
    
    (128
    )
    
    
    (162
    )Net income (loss)
    
    $
    (873
    )
    
    $
    (405
    )Net income (loss) per share  basic
    
    $
    (0.02
    )
    
    $
    (0.01
    )Shares used in basic per share computation
    
    
    38,807
    
    
    
    38,504Net income (loss) per share  diluted
    
    $
    (0.02
    )
    
    $
    (0.01
    )Shares used in diluted per share computation
    
    
    38,807
    
    
    
    38,504
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(In Thousands)Three Months EndedMay 31, 2007
    
    
    May 31, 2006Operating activitiesNet income (loss)
    
    $
    (873
    )
    
    $
    (405
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,035
    
    
    
    2,678Non-cash compensation expense
    
    
    1,008
    
    
    
    1,381Change in accounts receivable
    
    
    8,337
    
    
    
    59Other changes in operating activities
    
    
    2,573
    
    
    
    314Net cash provided by operating activities
    
    
    14,080
    
    
    
    4,027Investing activitiesPurchases of property and equipment
    
    
    (2,142
    )
    
    
    (4,407
    )Purchase of Edify Corporation
    
    
    
    
    
    
    (836
    )Net cash used in investing activities
    
    
    (2,142
    )
    
    
    (5,243
    )Financing activitiesExercise of stock options
    
    
    601
    
    
    
    149Net cash provided by financing activities
    
    
    601
    
    
    
    149Effect of exchange rates on cash
    
    
    
    
    
    
    453Increase (decrease) in cash and cash equivalents
    
    
    12,539
    
    
    
    (614
    )Cash and cash equivalents, beginning of period
    
    
    28,215
    
    
    
    42,076Cash and cash equivalents, end of period
    
    $
    40,754
    
    
    $
    41,462
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Accumulated OtherCommon Stock
    
    
    Additional
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings (Deficit)
    
    
    Loss
    
    
    TotalBalance at February 28, 2007
    
    
    38,727,628
    
    
    $
    19
    
    
    $
    101,608
    
    
    $
    1,861
    
    
    $
    (304
    )
    
    $
    103,184Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (873
    )
    
    
    
    
    
    
    (873
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    139Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (734
    )Cumulative effect of adopting
FIN48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,547
    )
    
    
    
    
    
    
    (2,547
    )Exercise of stock options
    
    
    139,265
    
    
    
    
    
    
    
    601
    
    
    
    
    
    
    
    
    
    
    
    601Non-cash compensation
    
    
    
    
    
    
    
    
    
    
    1,008
    
    
    
    
    
    
    
    
    
    
    
    1,008Balance at May 31, 2007
    
    
    38,866,893
    
    
    $
    19
    
    
    $
    103,217
    
    
    $
    (1,559
    )
    
    $
    (165
    )
    
    $
    101,512
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2007
 Note A  Basis of Presentation
   Note B  Inventory
  May 31, 2007
    
    
    February 28, 2007Purchased parts
    
    $
    4,424
    
    
    $
    4,475Work in progress
    
    
    12,468
    
    
    
    9,276$
    16,892
    
    
    $
    13,751
 Note C  Property & Equipment
  May 31, 2007
    
    
    February 28, 2007Land and buildings
    
    $
    17,411
    
    
    $
    17,385Computer equipment and software
    
    
    53,925
    
    
    
    52,364Furniture and fixtures
    
    
    3,438
    
    
    
    3,344Managed services equipment
    
    
    16,998
    
    
    
    16,481Maintenance services equipment
    
    
    7,143
    
    
    
    7,27498,915
    
    
    
    96,848Less allowance for accumulated depreciation
    
    
    64,753
    
    
    
    62,419Property and equipment, net
    
    $
    34,162
    
    
    $
    34,429
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Note D  Stock-based Compensation
  Three Months Ended
    
    
    Three Months EndedMay 31, 2007
    
    
    May 31, 2006Cost of Goods Sold
    
    $
    201
    
    
    $
    263R&D
    
    
    130
    
    
    
    150SG&A
    
    
    677
    
    
    
    926Total
    
    $
    1,008
    
    
    $
    1,339Related deferred income tax benefit
    
    
    342
    
    
    
    389Decrease in net income
    
    $
    666
    
    
    $
    950Decrease in earning per share  basic
    
    $
    0.02
    
    
    $
    0.02
 Note E  Special Charges
 Fiscal 2008
  Cost of Goods
    
    
    Research and
    
    
    Selling, GeneralSold
    
    
    Development
    
    
    and Administrative
    
    
    TotalSeverance payments and related benefits
    
    $
    396
    
    
    $
    451
    
    
    $
    957
    
    
    $
    1,804
  Fiscal 2007
  Accrued Balance
    
    
    
    
    
    
    Accrued BalanceFebruary 28, 2007
    
    
    Payments
    
    
    May 31, 2007Severance payments and related benefits
    
    $
    886
    
    
    $
    (469
    )
    
    $
    417Facility costs
    
    
    134
    
    
    
    
    
    
    
    134Total
    
    $
    1,020
    
    
    $
    (469
    )
    
    $
    551
 Note F  Income Taxes
   7




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Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
    Note G  Earnings Per Share
 Three Months Ended May 31,(in thousands, except per share data)
    
    2007
    
    
    2006Numerator:Net income (loss)
    
    $
    (873
    )
    
    $
    (405
    )Denominator:Denominator for basic earnings per share
    
    
    38,807
    
    
    
    38,504Dilutive potential common shares:Employee stock options
    
    
    
    
    
    
    Denominator for diluted earnings per share
    
    
    38,807
    
    
    
    38,504Net income per share:Basic
    
    $
    (0.02
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.01
    )
  8




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Note H  Operating Segment Information and Major Customers
  Three Months Ended May 31,2007
    
    
    2006Voice portal solution sales
    
    $
    13,249
    
    
    $
    13,744Messaging solution sales
    
    
    6,526
    
    
    
    3,718Payment solution sales
    
    
    1,927
    
    
    
    2,007Total solution sales
    
    
    21,702
    
    
    
    19,469Maintenance and related services revenues
    
    
    21,275
    
    
    
    20,185Hosted solutions revenues
    
    
    4,754
    
    
    
    6,014Total recurring services revenues
    
    
    26,029
    
    
    
    26,199Total sales
    
    $
    47,731
    
    
    $
    45,668
 Geographic Operations
  Three Months Ended May 31,2007
    
    
    2006North America
    
    $
    31,164
    
    
    $
    27,041Europe
    
    
    8,251
    
    
    
    8,736Middle East and Africa
    
    
    4,931
    
    
    
    3,077Central and South America
    
    
    1,036
    
    
    
    4,726Pacific Rim
    
    
    2,349
    
    
    
    2,088Total
    
    $
    47,731
    
    
    $
    45,668
 Concentration of Revenue
  Note I  Contingencies
 Intellectual Property Matters
  9




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Pending Litigation
 David Barrie, et al., on Behalf of Themselves and All Others Similarly Situated v.
InterVoice-Brite, Inc., et al.,
    Phoenix Solutions, Inc. vs. Sony Electronics, Inc., Phoenix Solutions, Inc. vs. Sony Electronics, Inc.,
 Audit Committee Investigation
  11




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Other Matters
  12




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13




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Note J  Subsequent Event (Unaudited)
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Critical Accounting Policies.
 Sales.
 Three Months Ended May 31,% Change From2007
    
    
    Prior Year
    
    
    2006Voice portal solution sales
    
    $
    13,249
    
    
    
    (3.6
    )%
    
    $
    13,744Messaging solution sales
    
    
    6,526
    
    
    
    75.5
    %
    
    
    3,718Payment solution sales
    
    
    1,927
    
    
    
    (4.0
    )%
    
    
    2,007Total solution sales
    
    
    21,702
    
    
    
    11.5
    %
    
    
    19,469Maintenance and related services revenues
    
    
    21,275
    
    
    
    5.4
    %
    
    
    20,185Hosted solutions revenues
    
    
    4,754
    
    
    
    (21.0
    )%
    
    
    6,014Total recurring services revenues
    
    
    26,029
    
    
    
    (0.6
    )%
    
    
    26,199Total Sales
    
    $
    47,731
    
    
    
    4.5
    %
    
    $
    45,668
  Three Months Ended May 31,% Change From2007
    
    
    Prior Year
    
    
    2006North America
    
    $
    31,164
    
    
    
    15.2
    %
    
    $
    27,041Europe
    
    
    8,251
    
    
    
    (5.6
    )%
    
    
    8,736Middle East and Africa
    
    
    4,931
    
    
    
    60.3
    %
    
    
    3,077Central and South America
    
    
    1,036
    
    
    
    (78.1
    )%
    
    
    4,726Pacific Rim
    
    
    2,349
    
    
    
    12.5
    %
    
    
    2,088Total
    
    $
    47,731
    
    
    
    4.5
    %
    
    $
    45,668
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Three Months Ended May 31,2007
    
    2006Sales from recurring services and
support contracts, including
contracts for hosted solutions
    
    
    55
    %
    
    
    58
    %Sales from beginning solutions backlog
    
    
    33
    %
    
    
    29
    %Sales from the quarters pipeline
    
    
    12
    %
    
    
    13
    %100
    %
    
    
    100
    %
   Quarter Ended
    
    BacklogMay 31, 2007
    
    $
    60,411February 28, 2007
    
    $
    54,115November 30, 2006
    
    $
    46,345August 31, 2006
    
    $
    41,639May 31, 2006
    
    $
    41,221
   16




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Cost of Goods Sold.
 Three Months Ended May 31,2007
    
    2006Solutions COGS
    
    $
    15,182
    
    
    $
    12,304As percentage of solutions sales
    
    
    70.0
    %
    
    
    63.2
    %Services COGS
    
    $
    7,291
    
    
    $
    7,474As percentage of services revenues
    
    
    28.0
    %
    
    
    28.5
    %Total COGS
    
    $
    22,473
    
    
    $
    19,778As percentage of total sales
    
    
    47.1
    %
    
    
    43.3
    %
  Research and Development Expenses.
 Three Months Ended May 31,2007
    
    2006Research and development expenses
    
    $
    5,317
    
    
    $
    5,782As percentage of total sales
    
    
    11.1
    %
    
    
    12.7
    %
  ®
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Selling, General and Administrative Expenses.
 Three Months Ended May 31,2007
    
    2006Selling, general and administrative expenses
    
    $
    20,693
    
    
    $
    20,800As percentage of total sales
    
    
    43.4
    %
    
    
    45.5
    %
  Amortization of Acquired Intangible Assets.
 Other Income/Expense.
 Income Taxes.
     18




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Loss from Operations and Net Loss.
 Liquidity and Capital Resources.
      Adequacy of Cash Reserves
  Impact of Inflation
  19




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Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  Changes in internal control.
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
    
    Our operating results may fluctuate significantly from period to period, and this may
cause our stock price to decline.Our revenue and operating results have fluctuated in the
past and we expect further fluctuations in the future. Given these fluctuations, we believe
that quarter to quarter comparisons of our revenue and operating results are not
necessarily meaningful or an accurate indicator of our future performance. As a result, our
results of operations may not meet the expectations of securities analysts or investors in
the future, which could cause our stock price to decline. Factors that contribute to
fluctuations in our operating results and can preclude our ability to accurately forecast
our results include the following:
 §
    
    variability in the time periods necessary to complete projects and achieve
project milestones in order to recognize revenue, which may be influenced by
volume, size, timing, contractual terms of new licenses and renewals of existing
licenses and cash basis revenues;§
    
    the components of our revenue that are deferred, including our
subscription-based hosted solutions and that portion of our software licenses
attributable to support and maintenance;§
    
    volume, timing and fulfillment of customer orders, particularly with respect to
large orders (sales of approximately $2.0 million or more), some of which are
completed in the same quarter in which they are ordered and some of which are
completed over several quarters, and fluctuations in demand for our products and
services;§
    
    our ability to complete orders from our solutions backlog, subject to timing
changes requested by our customers, and projects accounted for on a percentage of
completion basis, including estimates based on a variety of factors and subject to
revision;§
    
    the use of low pricing to win important customers, and the possible recognition
of loss contingencies for certain projects that we estimate will be delivered at a
negative gross margin;§
    
    the lengthy sales cycle for our products, which typically involve comprehensive
solutions that may require detailed customer evaluations;§
    
    the performance of our international business, which accounts for a significant
portion of our consolidated revenues, and fluctuations in foreign currency exchange
rates;§
    
    the mix of products we sell and services we offer and whether our products are
sold through our direct sales force or through an intermediary;§
    
    introduction of new products, product upgrades or updates by us or our
competitors, and any resulting customer delays in purchasing products;§
    
    any increased price sensitivity by our customers, particularly due to increased
competition including open source or free software;§
    
    periodic difficult economic conditions, particularly affecting the technology
industry, as well as economic uncertainties;§
    
    higher than anticipated costs related to fixed-price contracts with our customers;§
    
    our ability to effectively manage our operating expense levels;
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§
    
    timing of significant marketing and sales promotions, and expenses incurred
pursuing new product or market opportunities;§
    
    stock-based compensation expense, which we began recognizing for our stock-based
compensation plans in the first quarter of fiscal 2007;§
    
    costs and charges related to certain events, including Sarbanes-Oxley compliance
efforts, matters relating to our Audit Committee investigation and litigation;§
    
    the structure, timing and integration of acquisitions of businesses, products
and technologies and related disruption of our current business;§
    
    factors that lead to substantial declines in estimated values of long-lived
assets below their carrying value; and§
    
    changes in generally accepted accounting principles.
 Due to these and other factors, our revenue and operating results are difficult to forecast
and are prone to fluctuate, which may cause a decline in our stock price. Our expense levels
are based in significant part on our expectations of future revenue, and we may not be able
to reduce our expenses quickly to respond to a shortfall in projected revenue. Therefore,
our failure to meet revenue expectations could seriously harm our business, operating
results and financial condition. 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 I 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 investigation discussed in Note I. We
and certain of our current and former officers and non-officer employees 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 defense, or advancement of defense-related expenses, we are currently providing to
certain individuals in connection with the class action lawsuit and the SEC investigation.
Our insurance policies provide coverage for certain 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 I 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 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 Avaya, Nortel, Nuance Communications, Comverse Technology,
Unisys and Alcatel/Lucent. 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 selling and implementing our products and services in the
face of the new, standards-based market.Intervoice has historically provided complete,
bundled hardware and
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software solutions using internally developed components to address our customers total
business needs. The markets for our products have required a shift to the development of
products and services based on an open, standards-based architecture such as the J2EE and
Microsofts â. 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 places new challenges on us 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, to respond to potentially different competitors, 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 continually changing market conditions or customer
requirements, or lack of customer acceptance of our products or services will materially
adversely affect the value of our intellectual property, barriers to entry to our business,
customer retention, gross margins, and the 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. 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 hardware components are
available only from a small number of vendors. Likewise, we license speech recognition
technology primarily from Nuance Communications, Inc., the dominant vendor for this
technology. 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.We believe software
and technology companies, including us 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.
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
    
    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 35% and 40% of total sales for the quarters ended May 31, 2007
and 2006, respectively. International sales, personnel and property are subject to certain
risks, including:
 §
    
    terrorism;§
    
    fluctuations in currency exchange rates;§
    
    ability to collect on accounts receivable;§
    
    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, including
nationalization of customers or channel partners;§
    
    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 hosted solutions, foreign contracts and
contracts with telecommunication companies, include provisions for the assessment of
damages for delayed project completion and/or for our failure to achieve certain minimum
service levels. We have had to pay damages in the past and may have to pay additional
damages in the future. Any such future damages could be significant.
    
    Increasing consolidation in the telecommunications and financial industries could
adversely affect our revenues and profitability.The majority of our largest customers are
in the telecommunications and financial industries. These industries are undergoing
significant consolidation as a result of merger and acquisition activity. This activity
could result in a decrease in the number of customers purchasing our products and/or in
delayed purchases of our products by customers that are reviewing their strategic
alternatives in light of a pending merger or acquisition. If these results occur, our
revenues and profitability could decline or our loss could increase.
    
    Our products are complex, and software defects could reduce our revenues and expose us
to litigation.The software products we offer are complex and may contain errors or
defects, even after extensive testing and quality control, particularly in early versions.
Furthermore, because our products increasingly are designed around an open standards based
architecture incorporating elements developed by third parties, such errors or defects may
be outside of our direct ability to control or correct. Any defects or errors could
potentially result in loss of revenues, product returns or order cancellations, and could
potentially hinder market acceptance of our products and harm our reputation. Accordingly,
any defects or errors could have a material adverse effect on our business, results of
operations and financial condition. Our customer license agreements typically contain
provisions to limit our product warranty obligations and exposure to potential liability
claims.
    
    We have grown, and may continue to grow, through acquisitions, which could dilute our
existing shareholders and could involve substantial acquisition risks.As part of our
business strategy, we have in the past acquired, and expect to continue to acquire or make
investments in, other businesses and technologies. We may issue equity securities for
future acquisitions, which would dilute our existing shareholders, and we may incur debt in
connection with future acquisitions, which may include covenants or other restrictions that
hinder our ability to operate our business. Furthermore, our prior acquisitions required
substantial integration and management efforts. Acquisitions can involve a number of risks,
including:
 §
    
    difficulty in transitioning and integrating the operations, facilities and
personnel of the acquired businesses, including different and complex order
processing, support and accounting and financial reporting systems;§
    
    loss of key management, sales, research and development and other key employees
of the acquired company;§
    
    difficulty in integrating acquired products into our product portfolio,
including engineering, sales and marketing integration;§
    
    impairment of relationships with partners, suppliers and customers;
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§
    
    difficulty in implementing and standardizing company-wide financial, accounting,
billing, information and other systems and the internal controls surrounding those
systems and processes;§
    
    disruption of our ongoing operations and distraction of management and other employees;§
    
    difficulty in incorporating acquired technology and rights into our products and technology;§
    
    unanticipated expenses and delays in completing acquired development projects
and technology integration;§
    
    difficulty in management of geographically remote operations in the United
States and internationally;§
    
    delay of sales to customers pending resolution of product integration between
our existing and our newly acquired products; and§
    
    difficulty entering new markets or businesses in which we have limited
experience.
 As a result of these and other risks, we may not realize anticipated benefits from our
acquisitions. Any failure to achieve these benefits or failure to successfully integrate
acquired businesses and technologies could result in a material adverse affect on our
business, results of operations and financial condition.
    
    Our stock price has been and may continue to be subject to wide fluctuations.Our stock
price historically has been volatile and may continue to be volatile in the future. Various
factors contribute to the volatility of our stock price, including business developments
(such as new product introductions and acquisitions or dispositions), litigation
developments, quarterly variations in our financial results, our ability to meet investors
expectations, and general economic and market conditions. In addition, third-party
announcements by our partners and competitors may contribute to our stock price volatility.
Certain types of investors may choose not to invest in stocks with this level of stock
price volatility. Fluctuations in our stock price could cause increased risk of shareholder
litigation, which could result in substantial costs and divert managements attention and
resources.
    
    We are exposed to risks related to our channel program that could decrease our revenues
and hurt our business.Although we principally sell our products and services through our
direct sales force, a significant amount of our sales are made through intermediaries such
as distributors, system integrators and other strategic channel partners. We endeavor to
increase the percentage of sales through intermediaries as we continue to focus our sales
efforts through the channel and other partners. We anticipate future revenue growth to
depend in large part on our success in expanding relationships, and establishing new
relationships, with intermediaries. These intermediaries may sell their own products or
other vendors products that compete with our products, and may compete with our own direct
sales force in certain sales opportunities. While we have instituted programs designed to
increase sales of our products through intermediaries, certain intermediaries may give
greater priority to products of other suppliers, including competitors. Our ability to grow
sales through intermediaries depends on our investment in appropriate financial incentives,
support and sales tools for intermediaries, while effectively alleviating conflict with our
own sales force. Failure to effect this strategy appropriately may result in certain
intermediaries choosing to cease or reduce the sales of our products, resulting in a
material adverse change in our business, results of operations and financial condition.
    
    Unanticipated changes in our effective tax rates or exposure to additional income tax
liabilities could affect our profitability or increase our loss. We are a U.S.-based
multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. We are
generally required to account for taxes in each jurisdiction in which we operate, including
making assumptions, interpretations and judgments with respect to the applicable tax
requirements. Our provision for income taxes is calculated based on a mix of earnings,
statutory rates, and enacted tax rules by jurisdiction, including transfer pricing.
Significant judgment is required in determining our provision for income taxes and in
evaluating our tax positions on a worldwide basis. It is possible that these positions may
be challenged which may have a significant impact on our effective tax rate, which could
affect our results of operations and financial condition.
    
    Failure to maintain effective internal controls could have a material adverse effect on
our business, results of operations, financial condition, and our stock price.A failure
to maintain adequate internal control procedures as required by Section 404 of the
Sarbanes-Oxley Act of 2002 may preclude our managements ability to conclude that we have
effective internal controls over our financial reporting. These internal controls are also
required for us to produce management financial information, make
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determinations on revenue recognition and other material accounting issues, and prevent
financial fraud. If we are unable to produce reliable financial reports, make appropriate
determinations on revenue recognition and material accounting policies or prevent fraud, our
business, operating results and financial condition could be adversely affected.
    
    We have sustained operating losses in the past, and may incur additional losses in the
future which may require us to raise additional capital on unfavorable terms.We cannot be
certain that our revenue will grow or that we will achieve or maintain profitable
operations in the future. If we are unable to return to and maintain profitability, the
market price for our stock may decline, perhaps substantially. If we continue to have
operating losses, we may be required to raise additional capital to maintain or grow our
operations. Such additional capital may only be available at unfavorable terms that could
be dilutive to existing shareholders, have a high interest rate, contain restrictive
covenants, or contain other unfavorable terms.
 
 Item 6. Exhibits
  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
    
    
    Employment Agreements effective March 1, 2007 between Registrant
and Senior Vice Presidents. (7)10.2
    
    
    Separation Agreement dated as of April 23, 2007 between
Registrant and Marie Jackson. (8)10.3
    
    
    Termination of Employment Agreement between Registrant and George
T. Platt effective July 25, 2007. (8)10.4
    
    
    Intervoice, Inc. 2007 Stock Incentive Plan. (9)10.5
    
    
    Resignation Agreement between the Company and Saj-nicole A. Joni
dated June 22, 2007. (10)10.6
    
    
    Resignation Agreement between the Company and Joseph J.
Pietropaolo dated June 22, 2007. (10)10.7
    
    
    Resignation Agreement between the Company and Jack P. Reily dated
June 22, 2007. (10)10.8
    
    
    Board Representation and Governance Agreement between the Company
and David W. Brandenburg dated June 22, 2007. (10)10.9
    
    
    Amendment No. 1 dated July 1, 2007 to the Board Representation
and Governance Agreement. (11)31.1
    
    
    Certification of Chief Executive Officer of Periodic Report
Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (12)31.2
    
    
    Certification of Chief Financial Officer of Periodic Report
Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (12)32.1
    
    
    Certification of Chief Executive Officer of Periodic Report
Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (12)*32.2
    
    
    Certification of Chief Financial Officer of Periodic Report
Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (12)*
 
 (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. 26




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(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 March 7, 2007.(8)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on April 26, 2007.(9)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on June 1, 2007.(10)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on June 25, 2007.(11)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on July 3, 2007.(12)
    
    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. 27




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SIGNATURES
  INTERVOICE, INC.Date:  July 6, 2007
    By:
    /s/ CRAIG E. HOLMESCraig E. HolmesExecutive Vice President and
Chief Financial Officer 28




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Index to Exhibits
 ExhibitNo.
    
    Description3.1
    
    
    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
    
    
    Employment Agreements effective March 1, 2007 between
Registrant and Senior Vice Presidents. (7)10.2
    
    
    Separation Agreement dated as of April 23, 2007 between
Registrant and Marie Jackson. (8)10.3
    
    
    Termination of Employment Agreement between Registrant and
George T. Platt effective July 25, 2007. (8)10.4
    
    
    Intervoice, Inc. 2007 Stock Incentive Plan. (9)10.5
    
    
    Resignation Agreement between the Company and Saj-nicole
A. Joni dated June 22, 2007. (10)10.6
    
    
    Resignation Agreement between the Company and Joseph J.
Pietropaolo dated June 22, 2007. (10)10.7
    
    
    Resignation Agreement between the Company and Jack P.
Reily dated June 22, 2007. (10)10.8
    
    
    Board Representation and Governance Agreement between the
Company and David W. Brandenburg dated June 22, 2007. (10)10.9
    
    
    Amendment No. 1 dated July 1, 2007 to the Board
Representation and Governance Agreement. (11)31.1
    
    
    Certification of Chief Executive Officer of Periodic
Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (12)31.2
    
    
    Certification of Chief Financial Officer of Periodic
Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (12)32.1
    
    
    Certification of Chief Executive Officer of Periodic
Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section
1350. (12*32.2
    
    
    Certification of Chief Financial Officer of Periodic
Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section
1350. (12)*
 
 (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 March 7, 2007.(8)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on April 26, 2007.(9)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on June 1, 2007.(10)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on June 25, 2007. 29




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(11)
    
    Incorporated by reference to exhibits to the Companys Current Report on Form 8-K, filed with
the SEC on July 3, 2007.(12)
    
    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. 30