Edgar Filing: INTERVOICE BRITE INC

VALUE
PREFERRED SHARE PURCHASE RIGHTS

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate Market Value of Common Stock held by Nonaffiliates as of May 24,
2002: $122,569,978

Number of Shares of Common Stock Outstanding as of May 24, 2002: 34,047,216
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THE ANNUAL REPORT ON FORM 10-K OF INTERVOICE-BRITE, INC. (THE "COMPANY")
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2002 IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY IN ORDER TO SUPPLEMENT ITS DISCLOSURES AS FOLLOWS: (i) AMEND ITEM
10, "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT," TO ADD THE INFORMATION
REQUIRED THEREIN; (ii) AMEND ITEM 11, "EXECUTIVE COMPENSATION," TO ADD THE
INFORMATION REQUIRED THEREIN; (iii) AMEND ITEM 12, "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT," TO ADD THE INFORMATION REQUIRED
THEREIN; AND (iv) AMEND ITEM 13, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS," TO ADD THE INFORMATION REQUIRED THEREIN. THE INFORMATION
CONTAINED ELSEWHERE IN THIS AMENDED AND RESTATED ANNUAL REPORT ON FORM 10-K IS
RESTATED IN ITS ENTIRETY AS IT APPEARED IN THE ORIGINAL ANNUAL REPORT ON FORM
10-K FILED ON MAY 30, 2002, AND THE COMPANY HAS NOT UNDERTAKEN AND DOES NOT
UNDERTAKE TO UPDATE SUCH INFORMATION BY MEANS OF THIS AMENDED AND RESTATED
ANNUAL REPORT ON FORM 10-K.

TABLE OF CONTENTS

PAGE
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PART I
Item 1. Business.................................................... 1
Overview.................................................... 1
Markets..................................................... 2
Products and Services....................................... 3
Competition................................................. 4
Sales and Marketing......................................... 5
Strategic Alliances......................................... 6
Backlog..................................................... 6
Research and Development.................................... 6
Proprietary Rights.......................................... 6
Manufacturing and Facilities................................ 7
Employees................................................... 8
Merger with Brite Voice Systems, Inc. and Recent
Financings.................................................. 8
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 15

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 38
Item 8. Financial Statements and Supplementary Data................. 39
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 75

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 75
Item 11. Executive Compensation...................................... 77
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 86
Item 13. Certain Relationships and Related Transactions.............. 86

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 87

PART I

ITEM 1. BUSINESS

OVERVIEW

InterVoice-Brite, Inc. is a technology leader in enhanced services for
network service providers and automated and interactive information systems for
enterprises. The Company operates in two global divisions, each focusing on a
separate market. The Company's Network Solutions Division, or NSD, provides
products and services that are designed to create opportunities for network
carriers and service providers to increase revenue through value-added services
and/or reduce costs through automation. The Enterprise Solutions Division, or
ESD, provides automated customer service and communications systems that reduce
costs and improve customer service levels through enabling accurate and
efficient communication and transactions between an enterprise, its customers
and its business partners. In addition, NSD and ESD each provides a suite of
professional services that supports its installed systems. Services provided
include maintenance, implementation, and business and technical consulting
services. To further leverage the strong return on investment offered by the
Company's systems offerings, both divisions also offer enhanced communications
solutions to network and enterprise customers on an outsourced basis as an
Application Service Provider, or ASP. For the fiscal year ended February 28,
2002, the Company reported revenues of approximately $211.6 million, with
systems and services sales representing approximately 60% and 40% of revenues,
respectively.

The Company is a leading supplier of enhanced services to
telecommunications service providers worldwide. NSD offers service providers
automated and outsourced value-added systems and services that allow service
providers to generate incremental revenue, improve network utilization, retain
subscribers and provide product differentiation. Such benefits enable service
providers to realize increased return on investment from their existing wireline
and wireless infrastructures. NSD solutions include prepaid network services,
voice mail, unified messaging, short message service, instant messaging,
personal alerts and multi-media information/entertainment portals. NSD markets
its products and services through a direct sales force and through certain
international distributors. International sales represented approximately 76% of
total NSD revenue in fiscal 2002. NSD products and services accounted for
approximately 49% of the Company's total revenue in fiscal 2002. Of NSD's total
revenue, approximately 47% was derived from systems sales and approximately 53%
was derived from the sale of services.

To date, NSD has deployed enhanced network systems and services in over 50
countries to over 200 service providers including Alltel, AT&T, AT&T Japan,
British Telecom (including BT Cellnet), Deutsche Telecom (Germany), E-Plus
(Germany), ETB (Colombia), Excel Management, Fiji Telecom (Australia),
MMO/Vodafone (Germany), Orange (India), Qwest, Rogers AT&T (Canada), Safaricom
(Kenya), SBC, Smartcom (Chile), STC (Saudi Arabia), Stet Hellas (Greece),
SwissCom (Switzerland), Turkcell (Turkey), Verizon, and Verizon International
(Mexico, Puerto Rico and Venezuela).

ESD systems enable enterprises to lower operating costs by automating
routine business interactions between an enterprise and its customers and
business partners. ESD's automated solutions allow enterprises to maximize call
center and web infrastructure, reduce operational costs, improve customer
satisfaction and enhance product and service differentiation. ESD offers a
portfolio of systems and services that enable enterprises to communicate through
voice, web, e-mail, facsimile and other forms of communications on a variety of
devices including telephones, computers, mobile phones and personal digital
assistants (PDAs). The Company has established itself as a leader in voice
recognition technology by offering a complete range of products that enable
individuals to interact and transact with an enterprise's communications and
information systems using only their voices. Also, the Company is the leading
provider of interactive voice response, or IVR, systems that permit individuals
to use the touch-tone pad on their telephones or their personal computers
connected to telephone networks to access information from or provide
information to computer databases utilized by businesses.

Since 1984, ESD has sold more than 21,000 enterprise systems in over 74
countries to blue-chip customers, including Ameritrade, Amtrak, Bank of America,
Bank One, Blue Cross/Blue Shield Association,

CIBC, Citigroup, Continental Airlines, E*Trade, FedEx, Fidelity,
Fleet/FirstBoston, Ford Motor Company, General Motors, J.P. Morgan Chase,
Microsoft, Merck-Medco, Navy Federal Credit Union, Nissan, Pitney Bowes,
PNCBank, Sears, United Airlines, Wachovia, and Washington Mutual. ESD markets
its products directly and through a network of more than 70 domestic and
international distributors. ESD revenues are primarily domestic, with
approximately 86% from North America. ESD products and services accounted for
approximately 51% of the Company's total revenue in fiscal 2002. Of ESD's total
revenue, approximately 72% was derived from systems sales and approximately 28%
was derived from the sale of services.

The Company believes that speech technologies such as natural language
recognition, speaker verification and text-to-speech can radically simplify how
information is requested and conveyed over telephony networks and the Internet.
The Company has placed speech-enabled functionality at the core of its product
strategy and is currently integrating a speech-enabled user interface into all
of its NSD and ESD product offerings. The Company currently has strategic
relationships with several leading speech-recognition technology leaders,
including Nuance, Philips, and SpeechWorks. The Company believes that its proven
ability to identify and develop new technologies, integrate new applications,
and execute strategic alliances with key technology providers has positioned it
as a leader in emerging voice-enabled enhanced telecommunications systems and
services and voice-enabled interactive information systems. To date, the Company
believes it has delivered more speech-enabled applications than any of its
competitors.

MARKETS

NETWORK SEGMENT

Since mid-2000, telecommunications service providers and network operators
have been faced with the challenges of flat or declining revenues, declining
profits, overinvestment with little return on investment (ROI), scarce capital,
subscriber retention issues and marginal product differentiation. As a result,
wireless and wireline carriers have shifted focus from building infrastructure
to generating return on existing infrastructure. In this environment, network
operators are looking to deploy network services that can reduce subscriber
churn, increase average revenue per user, lower costs and improve margins.
Value-added network applications such as prepaid services, voicemail, short
message service, instant messaging, personal alerts and information or
entertainment portals provide incremental revenue streams from existing
infrastructure and service differentiation and promote customer retention.

Furthermore, the Company believes that due to factors such as technology
uncertainties, scarce capital, lack of core competencies to manage complex
services and uncertain ROI, many service providers and carriers have introduced
new purchasing criteria. In addition to traditional decision criteria such as
product features, system capacity and reliability, many carriers now require
vendors' products to have the ability to integrate with multiple networks and to
provide an attractive ROI. Carriers also expect vendors to provide assistance in
deploying and managing the services made possible by their systems.

ENTERPRISE SEGMENT

Faced with the challenges of fast-paced technological innovations and
increasingly mobile and demanding consumers, corporations are struggling to
communicate information cost-effectively to their customers when, where, and how
their customers want to receive the information. Customer service operations are
critical to maintaining and prolonging customer relationships and they are
typically very labor intensive and quite costly. Despite the high cost of
customer service, enterprises are often limited in reducing expenditures in this
area because customer alienation caused by inadequate customer service is even
more costly. Automation and interactive communications tools allow enterprises
to leverage their existing customer service or call center infrastructures in
order to improve customer experience and communication and reduce operating
costs. In this environment, companies can gain significant competitive advantage
by applying innovative wireless, speech and web technologies to achieve cost
savings while enhancing customer satisfaction.

PRODUCTS AND SERVICES

NETWORK SOLUTIONS DIVISION

NSD's products and services are designed to enable network carriers and
service providers to increase revenue through value-added services and/or reduce
costs through automation and outsourcing. NSD markets a suite of payment,
messaging and portal products that quickly generate revenue, leverage a
carrier's existing infrastructure and deliver a measurable return on investment.

NETWORK SYSTEMS

Payment. NSD offers products and services that enable carriers to bill
users on a prepaid or postpaid basis. Prepaid payment gives carriers the ability
to offer advance payment for telephony services as well as for a wide range of
transaction-based events. Prepaid systems are a large growth product for NSD in
developing countries with customer credit-worthiness problems. Prepaid payment
services include prepaid wireless, prepaid calling cards, residential prepaid
and automated operator services. Postpaid systems enable network operators to
offer privately branded long-distance calling services to wholesale and retail
customers, and allow callers to charge calls to credit/debit cards or calling
cards and make collect calls.

Messaging

Messaging is a suite of products that allows subscribers to collaborate and
communicate more effectively with a variety of services, including voicemail,
unified messaging, call notification and short message services. Voicemail
features include conditional personal greeting, intelligent call return,
mailbox-to-mailbox messaging and multi-network mailboxes. Unified messaging
provides a universal mailbox for management of all voice, fax and e-mail
messages. Call notify offers a simple and cost-effective notification service
for wireless market segments not using voice-messaging services. Short message
services allow text messages to be transmitted via telephony networks.

Portals

Portal systems are speech-enabled and interface to live or stored
multimedia content such as consumer services (news, sports, weather), directory
assistance, subscriber self-service and secure commerce transactions. Portal
products also can be used to enable automation of self-help applications in the
carrier environment such as directory assistance and automated customer service.

NETWORK SERVICES

NSD offers a suite of professional services to assist the carrier in the
planning, deployment and ongoing maintenance of value-added network services.
Consulting and business services include business planning, marketing, technical
consulting and service planning. Technology services provide customization of
NSD products and integration with third party or partner products. NSD also
operates a portfolio of operations support services, including maintenance
programs, technical support, monitoring and surveillance and disaster recovery
services.

NSD also offers its products and services on a hosted basis as an ASP. The
ASP model is an outsourcing alternative to carriers that are faced with rapidly
changing technologies, scarce capital, uncertain returns on investment and a
..

ENTERPRISE SOLUTIONS DIVISION

ESD systems and services allow enterprises to automate critical aspects of
customer relationship management, enabling businesses to communicate and execute
transactions quickly and easily with customers and business partners. ESD
automated solutions allow enterprises to reduce operational costs, improve

customer satisfaction, and promote product and service differentiation. Payback
periods range from three to twelve months.

The Company has a large installed base of over 1,600 customers worldwide
across multiple industries. In particular, the Company has a significant
presence in the banking and financial services market, with greater than 75%
market share based on revenue and ports shipped, and includes 49 of the 50
largest U.S. bank holding companies as part of its current customer base. The
Company also has a significant share of the transportation and leisure markets.

ENTERPRISE SYSTEMS

ESD solutions consist of a portfolio of IVR and interactive alert systems
that enable enterprises to communicate with their customers through voice, web,
e-mail, facsimile and other forms of communication on a variety of devices,
including telephones, computers, mobile phones and PDAs.

Speech-enabled and Touch-tone IVR

The Company's IVR systems permit consumer self-service access to a
company's information and transactions. Originally providing touch-tone
interfaces, the systems have evolved to include sophisticated speech recognition
and text-to-speech capabilities that allow callers to make complex inquiries and
receive information via voice. Callers can use such systems to access personal
balances for bank, credit card or mutual fund accounts; receive stock quotes and
execute securities trades; order products; pay bills; enroll for college
courses; apply for credit cards; and many other inquiries and transactions.
Continued refinements in speech technology such as name and address recognition
open up new opportunities for cost savings for functions like address changes
and loan applications that have previously been too complex to automate.

Interactive Alerts

Interactive alert notification systems send time-critical information to a
company's customers, using voice or text transmissions as appropriate, to a
variety of devices including wireless phones, PDAs, pagers, PCs (via e-mail) and
fax machines. The interactive alerts system monitors corporate database or
web-based information and then notifies customers about their accounts and
personal information or with news stories, stock prices or weather information.
Examples are notification that a bank deposit has cleared, a pharmacy
prescription needs renewing or an airline flight has been cancelled. The systems
integrate speech recognition with message notification so that the consumer can
take action without having to make an additional call or connection.

ENTERPRISE SERVICES

ESD also offers its customers a single source for system implementation and
ongoing system support to design, initiate and maintain an automated
communications system. Services include identifying and designing appropriate
customer applications, project management of a customer application, adjustments
to user interfaces and vocabularies of speech-driven applications, customer
application specification and consulting, technical and maintenance support, and
customer training.

ESD has recently begun to offer its systems solutions on a hosted basis as
an ASP to enterprises that wish to outsource voice-enabled solutions for call
center applications and web infrastructure. By handling the creation, delivery,
management, and monitoring of advanced speech and interactive voice applications
and equipment, ESD offers an alternative business model for enterprises that
wish to shorten time to market, reduce the demand for skilled IT personnel, or
enhance their business continuity strategy with overflow or disaster recovery
services.

COMPETITION

Competition in the enhanced network services market ranges from large
telecommunication suppliers offering turnkey, multi-application solutions to
"niche" companies that specialize in a particular enhanced

service such as prepaid or voicemail. The Company's primary competition in this
market are those suppliers such as Comverse Technology and UNISYS and Lucent
Technologies that provide a suite of enhanced services. Smaller niche players
that compete with the Company in various geographies and/or products include
GlenAyre, Lucent/Octel, Tecnomen, Boston Communications Group and SixBell. The
Company believes that with its current suite of integrated and interoperable
payment, messaging and portal services, its flexible business models, and its
professional and technical service offerings, it compares favorably with its
competition. However, the Company anticipates that competition from existing and
new competitors will continue, and some of the competitors will have greater
financial, technological and marketing resources than the Company.

The enterprise market is fragmented and highly competitive. The Company's
major competitors in this market are Avaya, IBM, and Nortel. The principal
competitive factors in this market include breadth and depth of solution,
product features, product scalability and reliability, client services, the
ability to implement solutions, and the creation of a referenceable customer
base. The Company believes that its product line of speech-enabled solutions and
interactive alerts, combined with its professional and technical services and
its extensive customer base, allow it to compete favorably in this market.
However, the market is evolving rapidly, and the Company anticipates intensified
competition not only from traditional IVR vendors and from emerging vendors with
non-traditional technologies and solutions.

SALES AND MARKETING

NSD products are generally marketed through direct sales channels with a
global sales force, although the division does use certain distributors
including Ericsson and Siemens in international markets. As of February 28,
2002, NSD had 71 sales managers and representatives consisting of 16 sales
managers and representatives in North America and 55 managers and
representatives in sales offices around the world. To support its global sales
activities, NSD conducts marketing programs, such as advertising, direct
marketing, public relations and trade shows, that are defined by regional
business units for the Americas; Europe and Middle East; Africa and Asia
Pacific.

ESD markets its products directly and through more than 70 domestic and
international distributors. The ESD direct sales force consists of approximately
67 sales managers and representatives in North America and 20 managers and
representatives in sales offices around the world. During fiscal 2002,
approximately 55% and 45% of total ESD system revenue were attributable to
direct sales to end-users and to sales to distributors, respectively.

ESD enters into arrangements with distributors to broaden distribution
channels, to increase its sales penetration to specific markets and industries
and to provide certain customer services. Distributors are selected based on
their access to the markets, industries and customers that are candidates for
ESD products. Major domestic distributors include Aurum Technology, EDS, Fiserv,
Nextira One, Norstan, Siemens Business Communications, Sprint, Symitar Systems
and Verizon. Major international distributors include Adamnet (Japan), IBM
(Europe, Argentina), Information Technology & Data (Turkey), IVRS (Hong Kong,
China), Loxbit (Thailand), OLTP Voice (Venezuela), Norstan (Canada), Promotora
Kranon (Mexico), Siemens AG (Worldwide), Switch (Chile), Tatung (Taiwan), and
Telia Promotor (Sweden).

Subsidiaries of the Company maintain offices in the U.K., Germany,
Switzerland, the Netherlands, the United Arab Emirates, and South Africa to
support ESD and NSD sales throughout Europe, the Middle East and Africa. Company
offices in Singapore and Tokyo support sales in the Pacific Rim. Latin American
sales are supported from the Company's Dallas office and through a subsidiary in
Brazil. International revenues were 44%, 48% and 45% of total revenues in fiscal
2002, 2001 and 2000, respectively. See "Disclosures Regarding Forward-Looking
Statements" under Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of risks attendant to the
Company's international operations.

See "Note N -- Operating Segment Information and Major Customers" in the
notes to the Company's consolidated financial statements in Item 8 of this Form
10-K for additional information on operations by Company segment and geographic
area and concentration of revenue.

In an effort to improve its sales and marketing operations, the Company
hired 28 experienced sales personnel during fiscal 2002 and intends to add
additional sales personnel during fiscal 2003. As the Company has broadened its
product and service offerings and expanded its reach globally, management has
recognized the need to establish managerial processes appropriate for the size
and complexity of its global sales organization. The Company is currently
implementing an Oracle-based CRM customer management tool that will provide
management and its sales force with necessary data to allow the Company to
better build, track, manage and forecast its active global sales backlog and
pipeline. Management believes that the information conveyed by the Oracle system
will provide management and its sales force the information necessary to
effectively direct the Company's complex global sales organization and will
result in increased sales force productivity, enhanced strategy formulation
through greater insight into market demand and trends, and increased visibility
into the Company's sales pipeline and backlog.

STRATEGIC ALLIANCES

The Company actively seeks strategic relationships with companies that
enhance the Company's technological strength, improve its market position,
facilitate shorter time-to-market, enhance its ability to deliver end-to-end
solutions, and broaden its market coverage. The Company currently has
relationships with several technology leaders, including Nuance, Philips and
SpeechWorks for speech technologies, 724 Solutions for wireless Internet and
proactive alerts technologies and General Magic for VoiceXML and Java-based
(J2EE) development tools and deployment software. The Company also has strategic
relationships with major telecommunications equipment suppliers to distribute
its NSD systems worldwide and with over 70 distributors and value-added
resellers worldwide to distribute ESD systems.

BACKLOG

The Company's systems backlog at February 28, 2002 and 2001 and February
29, 2000 was approximately $26 million, $35 million, and $34 million,
respectively. The Company expects all existing backlog to be delivered within
fiscal 2003. Due to customer demand, many of the Company's sales are completed
in the same fiscal quarter as ordered. Thus, the Company's backlog at any
particular date may not be indicative of actual sales for any future period.

RESEARCH AND DEVELOPMENT

Research and development expenses were approximately $29 million and $34
million during fiscal 2002 and 2001, respectively. Such expenses were
approximately $61 million during fiscal 2000 and included a $30.1 million charge
for in-process research and development incurred in connection with the
Company's merger with Brite Voice Systems, Inc. (Brite). See "In-Process
Research and Development" below under "Item 7 -- Management Discussion and
Analysis of Financial Condition and Results of Operations". Net of this charge,
research and development expenses were approximately $30.9 million during fiscal
2000. Such recurring expenses during fiscal 2002, 2001 and 2000 included the
design of new products and the enhancement of existing products. The Company
expects to maintain its strong commitment to research and development to remain
at the forefront of technology development in its business segments, which is
essential to the continued improvement of the Company's position in the
industry.

PROPRIETARY RIGHTS

The Company believes that its existing patent, copyright, license and other
proprietary rights in its products and technologies are material to the conduct
of its business. To protect these proprietary rights, the Company relies on a
combination of patent, trademark, trade secret, copyright and other proprietary
rights laws, nondisclosure safeguards and license agreements. As of February 28,
2002, the Company owned 57 patents in the United States and in certain foreign
countries. In addition, the Company has registered "InterVoice" as a trademark
in the United States and in certain foreign countries and has a pending
registration for "InterVoice-Brite." Currently, the Company also has 134
registered marks and 97 pending applications for various product and service
names worldwide, of which, 32 marks are registered and 18 marks are pending in
the United States. The Company's software and other products are generally
licensed to

customers pursuant to a nontransferable license agreement that restricts the use
of the software and other products to the customer's internal purposes. Although
the Company's license agreements prohibit a customer from disclosing proprietary
information contained in the Company's products to any other person, it is
technologically possible for competitors of the Company to copy aspects of the
Company's products in violation of the Company's rights. Furthermore, even in
cases where patents are granted, the detection and policing of the unauthorized
use of the patented technology is difficult. Moreover, judicial enforcement of
copyrights may be uncertain, particularly in foreign countries. The occurrence
of the unauthorized use of the Company's proprietary information by the
Company's competitors could have a material adverse effect on the Company's
business, operating results and financial condition.

From time to time various owners of patents and copyrighted works send the
Company letters alleging that its products do or might infringe upon the owners'
intellectual property rights, and/or suggesting that the Company should
negotiate a license or cross-license agreement with the owner. The Company's
policy is to never knowingly infringe upon any third party's intellectual
property rights. Accordingly, the Company forwards any such allegation or
licensing request to its outside legal counsel for their review and opinion. The
Company generally attempts to resolve any such matter by informing the owner of
its position concerning non-infringement or invalidity, and/or, if appropriate,
negotiating a license or cross-license agreement. Even though the Company
attempts to resolve these matters without litigation, it is always possible that
the owner of the patent or copyrighted works will institute litigation. Owners
of patent(s) and/or copyrighted work(s) have previously instituted litigation
against the Company alleging infringement of their intellectual property rights,
although no such litigation is currently pending against the Company. As noted
above, the Company currently has a portfolio of 57 patents, and it has applied
for and will continue to apply for and receive a number of additional patents to
reflect its technological innovations. The Company believes that its patent
portfolio could allow it to assert counterclaims for infringement against
certain owners of intellectual property rights if those owners were to sue the
Company for infringement. In certain situations, it might be beneficial for the
Company to cross-license certain of its patents for other patents which are
relevant to the call automation industry. See "Item 3. Legal Proceedings" for a
discussion of certain patent matters.

The Company believes that software and technology companies, including the
Company and others in the Company's industry, increasingly may become subject to
infringement claims. Such claims may require the Company to enter into costly
license agreements, or result in even more costly litigation. To the extent the
Company requires a licensing arrangement, 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 that the Company will
prevail in any litigation instituted against the Company asserting infringement
of intellectual property rights. To the extent the Company suffers an adverse
judgment, it might have to pay substantial damages, discontinue the use and sale
of infringing products, repurchase infringing products from the Company's
customers pursuant to 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 the Company's business, financial
condition and results of operations.

MANUFACTURING AND FACILITIES

The Company's manufacturing operations consist primarily of the final
assembly, integration and extensive testing and quality control of
subassemblies, host computer platforms, operating software and the Company's run
time software. The Company currently uses third parties to perform printed
circuit board assembly, sheet metal fabrication and customer-site service and
repair. Although the Company generally uses standard parts and components for
its products, some of its components, including semi-conductors and, in
particular, digital signal processors manufactured by Texas Instruments and AT&T
Corp., are available only from a small number of vendors. Likewise, the Company
licenses speech recognition technology from a small number of vendors. To date,
the Company has been able to obtain adequate supplies of needed components and
licenses in a timely manner. If the Company's significant vendors are unable or
cease to supply

components or licenses at current levels, the Company may not be able to obtain
these items from another source. Consequently, the Company would be unable to
provide products and to service its customers, which would negatively impact its
business and operating results.

EMPLOYEES

As of May 24, 2002, the Company had 959 employees.

MERGER WITH BRITE VOICE SYSTEMS, INC. AND RECENT FINANCINGS

THE MERGER

On May 3, 1999, the Company, through a wholly-owned subsidiary, commenced
an all cash tender offer (the "Offer") for the purchase of 9,158,155 shares, or
approximately 75%, of the outstanding common stock of Brite Voice Systems, Inc.
("Brite"), at a price of $13.40 per share. The Offer was fully subscribed and
expired on June 1, 1999. On August 12, 1999 the remaining 3,113,773 shares of
Brite were exchanged for 2,985,792 of the Company's shares to complete the
merger.

CREDIT FACILITY

The Company entered into a $125 million term loan facility and into a $25
million revolving credit facility, of which only $10 million was drawn, to
finance the merger (as amended, the "Credit Facility"). At February 28, 2002,
the Company had $7.5 million outstanding under the revolving credit facility and
had paid $102.5 million of the principal balance of the term loan facility,
reducing such balance to $22.5 million.

The term loan under the Credit Facility is subject to quarterly principal
amortization. In addition, the Credit Facility is subject to certain mandatory
prepayments and commitment reductions tied to the sale of assets, the issuance
of debt, the issuance of equity and the generation of excess cash flow for a
fiscal year. Certain of these prepayment and commitment reduction requirements
are limited by the satisfaction of certain financial ratios.

The Credit Facility contains certain representations and warranties,
certain negative and affirmative covenants and certain conditions and events of
default which are customarily required for similar financings. Such covenants
include, among others, restrictions and limitations on liens and negative
pledges; limitations on mergers, consolidations and sales of assets; limitations
on incurrence of debt; limitations on dividends, stock redemptions and the
redemption and/or prepayment of other debt; limitations on investments and
acquisitions (other than the acquisition of the Company); and limitations on
capital expenditures. Key financial covenants based on the Company's
consolidated financial statements include minimum net worth, maximum leverage
ratio and minimum fixed charges coverage ratio. The Credit Facility also
requires a first priority perfected security interest in (i) all of the capital
stock of each of the domestic subsidiaries of the Company, and 65% of the
capital stock of each of the Company's first tier foreign subsidiaries, which
capital stock shall not be subject to any other lien or encumbrance and (ii)
subject to permitted liens, all other present and future material assets and
properties of the Company and its material domestic subsidiaries (including,
without limitation, accounts receivable and proceeds, inventory, real property,
machinery and equipment, contracts, trademarks, copyrights, patents, license
rights and general intangibles).

The lenders and the Company entered into forebearance agreements dated
March 7, 2002 and March 31, 2002, pursuant to which the lenders granted a
temporary waiver through May 31, 2002 of the Company's default under one of four
financial covenants, a fixed charge coverage ratio covenant.

The lenders issued commitment letters to enter into a Consent, Waiver, and
Third Amendment to Credit Agreement (the "Third Amendment") to be effective as
of May 29, 2002, pursuant to which the lenders will waive the Company's default
under the financial covenant. The effectiveness of the Third Amendment is
conditioned on funding under the Convertible Notes (described below), which is
scheduled for May 30, 2002.

structure and liquidity requirements. The Third Amendment also will add a
covenant by the Company to maintain a minimum level of EBITDA (as defined in the
Credit Facility).

Pursuant to the Third Amendment, proceeds from the mortgage of the
Company's office facilities in Dallas, Texas (see section below entitled
"Mortgage Loan") and proceeds from the Company's issuance of Convertible Notes
(each of which is discussed below) will be applied to repay all outstanding
indebtedness under the term loan, with the remainder applied to the revolving
loans. Under the amended Credit Facility, the lenders will agree to continue
making revolving loans to the Company up to a revised maximum amount of $12
million through June 1, 2003. The maximum amount of revolving loans that may be
outstanding will also be limited by a borrowing base computed on the Company's
eligible accounts receivable and eligible inventory securing the revolving
loans.

The Company is not permitted to make principal payments on the Convertible
Notes in cash if any amount is outstanding under the Credit Facility. The Credit
Facility is cross-defaulted with the Convertible Notes such that a default or
the occurrence of certain other events under the Convertible Notes will be a
default under the Credit Facility.

The amended Credit Facility will provide that interest will accrue at a
base rate equal to an applicable margin plus the higher of (i) the prime rate or
(ii) the federal funds rate. The applicable margin will be determined in
accordance with a schedule to the Credit Facility and by reference to a ratio of
the Company's funded debt to EBITDA. The applicable margin will increase 0.5% in
each of the Company's fiscal quarters. The Third Amendment will delete
provisions that permit the Company to elect an interest rate equal to the London
Interbank Offer Rate ("LIBOR") plus the applicable margin.

CONVERTIBLE NOTES, WARRANTS AND REGISTRATION REQUIREMENTS

On May 29, 2002, the Company entered into a Securities Purchase Agreement,
by and among the Company and the buyers named therein (the "Buyers"), pursuant
to which the Buyers agreed to purchase Convertible Notes (the "Convertible
Notes"), in an aggregate principal amount of $10.0 million, convertible into
shares of the Company's common stock (the "Conversion Shares"), and Warrants
(the "Warrants") initially exercisable for an aggregate of 621,303 shares of the
Company's common stock (the "Warrant Shares") at an exercise price of $4.0238
per share. Buyers' obligations to purchase the Convertible Notes and Warrants
under the Securities Purchase Agreement are subject to execution of the Third
Amendment. The following is a summary of the material terms of the Convertible
Notes, the Warrants and certain registration requirements:

Under the Securities Purchase Agreement, the Company has the option, for a
period of one month, to issue up to an additional $10 million in convertible
notes and accompanying warrants on substantially the same terms as the
Convertible Notes and the Warrants.

The Securities Purchase Agreement obligates the Company to seek shareholder
approval, at the Company's next annual meeting, of the issuance of the
Convertible Notes and Warrants, with the Company being subject to financial
penalties for failure to seek such approval. However, if such approval is sought
and not obtained, no penalties will be assessed.

AMORTIZATION OF CONVERTIBLE NOTES

Amounts in common stock, the Company must comply with several conditions,
including maintaining the effectiveness of a registration statement (as more
fully described below), complying with the listing requirements of the Nasdaq
National Market, timely delivery of common stock upon conversion of the
Convertible Notes, and compliance with other requirements under the Convertible
Notes, the Securities Purchase Agreement and the Registration Rights Agreement.

If any principal amount of the Convertible Notes remains outstanding on
June 30, 2003, the holders must surrender the Convertible Notes to the Company
and the principal amount will be redeemed by payment on such date to the holders
of a cash amount equal to the sum of 105% of the principal amount plus accrued
interest at 6% per annum with respect to the principal amount.

In addition, subject to certain conditions, the Company may redeem some or
all of the principal amount of the Convertible Notes in excess of current
monthly installments for a cash amount equal to the sum of 105% of the principal
amount being redeemed plus accrued interest at 6% per annum with respect to the
principal amount.

CONVERSION OF CONVERTIBLE NOTES AT THE OPTION OF THE HOLDER

Each of the Convertible Notes will be convertible at the option of the
holder into that number of shares of common stock equal to (i) the principal
amount being converted, plus accrued interest at 6% per annum, divided by (ii)
the Fixed Conversion Price in effect at such time. If the Company does not
timely effect a conversion of the Convertible Notes, the Company will be subject
to certain cash penalties, adjustments to the applicable Fixed Conversion Price
and certain other penalties as more fully described in the Form of Note.
Moreover, in such case, the holders of the Convertible Notes may require the
Company to redeem all of the outstanding principal amount of the Convertible
Notes.

Any holder of the Convertible Notes is prohibited from converting its
respective Convertible Notes if, after giving effect to such conversion, the
holder would hold in excess of 4.99% of the Company's outstanding common stock
following such conversion.

ACCELERATION AND DEFAULT PROVISIONS IN CONVERTIBLE NOTES

If certain events, referred to as "Triggering Events," occur, the holders
of the Convertible Notes may cause the Company to redeem the Convertible Notes
in cash at a price equal to the greater of (i) 125% of the principal amount,
plus accrued interest at 6% per annum and (ii) the number of shares of common
stock issuable upon conversion multiplied by the weighted average price of the
common stock on the trading day immediately preceding such event. Circumstances
under which the holders may redeem the Convertible Notes include, without
limitation, the failure to obtain and/or maintain the effectiveness of a
registration statement, suspension from trading or the failure to be listed for
a period of 5 consecutive trading days or for more than 10 trading days in any
365-day period, the failure to timely deliver shares of common stock and a
material breach by the Company under the transaction documents.

If the Company is unable to effect a redemption as a result of a Triggering
Event, the holders are entitled to void their redemption notices and receive a
reset of their applicable Fixed Conversion Price to the lesser of (i) the Fixed
Conversion Price as in effect on the date on which the holder delivers notice to
the Company of its intent to void the redemption notice and (ii) the lowest
weighted average price of the Company's common stock during the period beginning
on the date on which the notice of redemption is delivered to the Company and
ending on the date the holder delivers notice to the Company of its intent to
void the redemption notice.

If the Company is unable to redeem all of the Convertible Notes submitted
for redemption, the Company must (i) redeem a pro rata amount from each holder
of the Convertible Notes and (ii) pay to the holders interest at the rate of
2.0% per month with respect to the unredeemed principal amount until paid in
full.

Upon a Change of Control (as defined in the Convertible Notes) of the
Company, the holders of the Convertible Notes have the right to require the
Company to redeem all or a portion of the principal amount at a price equal to
the greater of (i) the sum of (A) 115% of such principal amount, plus (B)
accrued interest at 6% per annum, and (ii) the number of shares of common stock
issuable upon conversion multiplied by the

arithmetic average of the weighted average prices of the common stock during the
5 trading days immediately preceding such date.

If an Event of Default (as defined in the Convertible Notes) occurs, the
holders of the Convertible Notes may declare the Convertible Notes, including
all amounts due thereunder, to be due and payable immediately. Such amount shall
bear interest at the rate of 2.0% per month until paid in full. If the Company
does not timely pay the amounts due, the holders of the Convertible Notes may
void the acceleration and the Fixed Conversion Price shall be adjusted to the
lesser of (i) the Fixed Conversion Price as in effect on the date on which the
holders of the Convertible Notes notify the Company of their intent to void the
acceleration and (ii) the lowest weighted average price of the Company's common
stock during the period beginning on the date on which the Convertible Notes
became accelerated and ending on the date on which the holders of the
Convertible Notes notify the Company of their intent to void the acceleration.
The Events of Default include a default in payment of any principal amount of
the Convertible Notes, failure to comply with a material provision of the
Convertible Notes, payment defaults with respect to certain indebtedness and
initiation of bankruptcy proceedings.

WARRANTS

In connection with the sale of the Convertible Notes, the Company issued
Warrants to the Buyers. The Warrants give the holders the right to purchase from
the Company, for a period of three years, an aggregate of 621,303 shares of the
Company's common stock for $4.0238 per share as of the date of issuance. Both
the number of Warrants and the exercise price of the Warrants are subject to
anti-dilution adjustments as set forth in the Warrants. If the Company is
prohibited from issuing Warrant Shares under the rules of the Nasdaq National
Market, the Company must redeem for cash those Warrant Shares which cannot be
issued at a price per Warrant Share equal to the difference between the weighted
average market price of the Company's common stock on the date of attempted
exercise and the applicable exercise price.

REGISTRATION REQUIREMENTS

The Company and the Buyers also entered into a Registration Rights
Agreement, dated as of May 29, 2002 (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to prepare and file by June 14, 2002 a
registration statement covering the resale of the Conversion Shares and the
Warrant Shares. The Company is required to have the Registration Statement
declared effective within 120 days of the issuance date. The Company is required
to pay cash penalties (as set forth in the Registration Rights Agreement) to the
holders of the Notes if the registration statement is not filed or not declared
effective as of those dates. The failure to have the Registration Statement
declared effective within 150 days of the issuance date is also a "Triggering
Event" for purposes of the Convertible Notes.

MORTGAGE LOAN

Effective May 29, 2002, the Company executed and delivered a deed of trust
and promissory note in favor of Beal Bank, S.S.B., for a mortgage loan of $14
million secured by a first lien on the Company's office facilities in Dallas,
Texas. The mortgage loan is a three year balloon note, bearing interest, payable
monthly, at the greater of 10.5% or the prime rate plus 2.0%. Proceeds from the
mortgage loan will be applied to reduce loans under the Credit Facility. The
lenders under the Credit Facility entered into an agreement with Beal Bank,
S.S.B. subordinating their lien on the Dallas, Texas facilities for purposes of
the mortgage loan.

USE OF PROCEEDS

All $14 million of proceeds from the mortgage loan by Beal Bank, S.S.B.,
and all $10 million of proceeds from the sale of the Convertible Notes (less
certain expenses), will be applied to repay outstanding indebtedness under the
Credit Facility. The mandatory prepayments will repay all term loans and $6
million in revolving loans will remain outstanding under the Credit Facility. If
the sale of the Wichita facilities (described in Item 2 of this report) for $2.0
million does close, proceeds will be applied to reduce revolving loans
outstanding under the Credit Facility on the date of closing.

ITEM 2. PROPERTIES

The Company owns approximately 225,000 square feet of manufacturing and
office facilities in Dallas, Texas and approximately 40,000 square feet of
office space in Wichita, Kansas, which the Company has agreed to sell for $2.0
million. The Company leases approximately 267,000 square feet of office space as
follows:

SQUARE FEET
-----------

Allen, Texas................................................ 130,000
Manchester, United Kingdom.................................. 48,000
Orlando, Florida............................................ 47,000
Cambridge, United Kingdom................................... 12,000
Other domestic and international locations.................. 30,000

(See "Merger with Brite Voice Systems, Inc. and Related Financing" under Item 1.
Business for a discussion of encumbrances on the Company's assets to secure the
Company's senior loan facilities).

During the fourth quarter of fiscal 2002, the Company announced that it
would forego expansion into existing leased space in Allen, Texas. The Company
will attempt to sublease such space for the remaining lease term. The Company
also announced its intention to close its Wichita, Kansas facility. In April
2002, the Company entered into an agreement to sell the Wichita facility to a
third party for $2.0 million. Closing is expected as early as May 2002. In March
2002, the Company announced plans to close its leased office in Chicago.

ITEM 3. LEGAL PROCEEDINGS

CUSTOMER DISPUTE

In May 2002, the Company and a large domestic telecommunications company
signed a settlement agreement that resolved previously disclosed assertions by
the telecommunications company that the Company should pay monetary penalties
under a managed services contract for failing to achieve certain
representations, covenants and specified levels of service. The settlement had
no material financial impact to the Company.

INTELLECTUAL PROPERTY MATTERS

From time to time Ronald A. Katz Technology Licensing L.P. ("RAKTL") has
sent letters to certain customers of the Company suggesting that the customer
should negotiate a license agreement to cover the practice of certain patents
owned by RAKTL. In the letters, RAKTL has alleged that certain of its patents
pertain to certain enhanced services offered by network providers, including
prepaid card and wireless services and postpaid card services. RAKTL has further
alleged that certain of its patents pertain to certain call processing
applications, including applications for call centers that route calls using a
called party's DNIS identification number. Certain products offered by the
Company can be programmed and configured to provide enhanced services to network
providers and call processing applications for call centers. The Company's
contracts with customers usually include a qualified obligation to indemnify and
defend customers against claims that products as delivered by the Company
infringe a third party's patent.

defense because RAKTL does not appear to have made a claim that a Company
product infringes a patent. In the matter of Katz Technology Licensing, LP v.
Verizon Communications Inc., et al, No. 01-CV-5627, pending in U.S. District
Court, Eastern District of Pennsylvania, RAKTL has alleged that Verizon
Communications, Inc. ("Verizon") and certain of its affiliates infringe patents
held by RAKTL. From 1997 until November of 2001 the Company's wholly owned
subsidiary, Brite, provided prepaid services to an affiliate of Verizon under a
managed services contract. The affiliate, which is named as a defendant in the
lawsuit, recently notified Brite of the pendency of the lawsuit and referenced
provisions of the managed services contract which require Brite to indemnify the
affiliate against claims that its services infringe a patent. The claims in the
lawsuit make general references to prepaid services and a variety of other
services offered by Verizon and the affiliate but do not refer to Brite's
products or services. The Company has informed the affiliate that it can find no
basis for an indemnity obligation under the expired contract.

Even though RAKTL has not alleged that a product provided by the Company
infringes a RAKTL patent, it is always possible that RAKTL may do so. In the
event that a Company product becomes the subject of litigation, a customer could
attempt to invoke the Company's indemnity obligations under the applicable
agreement. As with most sales contracts with suppliers of computerized
equipment, the Company's contractual indemnity obligations are generally limited
to the products and services provided by the Company, and generally require the
customer to allow the Company to have sole control over any litigation and
settlement negotiations with the patent holder. The customers who have received
letters from RAKTL generally have multiple suppliers of the types of products
that might potentially be subject to claims by RAKTL.

Even though no claims have been made that a specific product offered by the
Company infringes any claim under the RAKTL patent portfolio, the Company has
received opinions from its outside patent counsel that certain products and
applications offered by the Company do not infringe certain claims of the RAKTL
patents. The Company has also received opinions from its outside counsel that
certain claims under the RAKTL patent portfolio are invalid. Furthermore, based
on the reviews by outside counsel, the Company is not aware of any claims under
the RAKTL portfolio that are infringed by the Company's products. If the Company
does become involved in litigation in connection with the RAKTL patent
portfolio, under a contractual indemnity or any other legal theory, the Company
intends to vigorously contest the claims and to assert appropriate defenses. A
number of companies, including some large, well known companies and some
customers of the Company, have already licensed certain rights under the RAKTL
patent portfolio. During November 2000, RAKTL announced license agreements with,
among others, AT&T Corp., Microsoft Corporation and International Business
Machines Corporation.

In the matter of Aerotel, Ltd. et al, vs. Sprint Corporation, et al, Cause
No. 99-CIV-11091 (SAS), pending in the United States District Court, Southern
District of New York, Aerotel, Ltd., has sued Sprint Corporation alleging that
certain prepaid services offered by Sprint are infringing Aerotel's U.S. Patent
No. 4,706,275 ("275 patent"). According to Sprint, the suit originally focused
on land-line prepaid services not provided by the Company. As part of an
unsuccessful mediation effort, Aerotel also sought compensation for certain
prepaid wireless services provided to Sprint PCS by the Company. As a result of
the mediation effort, Sprint has requested that the Company provide a defense
and indemnification to Aerotel's infringement claims, to the extent that they
pertain to any wireless prepaid services offered by the Company. In response to
this request, the Company has offered to assist Sprint's counsel in defending
against such claims, to the extent they deal with issues unique to the system
and services provided by the Company, and to reimburse Sprint for the reasonable
attorneys' fees associated therewith. The trial court has stayed the lawsuit
pending certain rulings from the United States Patent and Trademark Office. The
Company has received opinions from its outside patent counsel that the wireless
prepaid services offered by the Company do not infringe the "275 patent". If the
Company does become involved in litigation in connection with the "275 patent",
under a contractual indemnity or any other legal theory, the Company intends to
vigorously contest any claims that its prepaid wireless services infringe the
"275 patent" and to assert appropriate defenses.

PENDING LITIGATION AND ARBITRATION PROCEEDINGS

David Barrie, et al., on Behalf of Themselves and All Others Similarly
Situated v. InterVoice-Brite, Inc., et al.; No. 3-01CV1071-D, pending in the
United States District Court, Northern District of Texas, Dallas Division:

Several related class action lawsuits were filed in the United States
District Court for the Northern District of Texas on behalf of purchasers of
common stock of the Company during the period from October 12, 1999 through June
6, 2000, the "Class Period." Plaintiffs have filed claims under sec.sec. 10(b)
and 20(a) of the Securities Exchange Act of 1934 and the Securities and Exchange
Commission Rule 10b-5 against the Company as well as certain named current and
former officers and directors of the Company on behalf of the alleged class
members. In the complaint, Plaintiffs claim that the Company and the named
current and former officers and directors issued false and misleading statements
during the Class Period concerning the financial condition of the Company, the
results of the Company's merger with Brite and the alleged future business
projections of the Company. Plaintiffs have asserted that these alleged
statements resulted in artificially inflated stock prices.

The Company believes that it and its officers complied with their
obligations under the securities laws, and intends to defend the lawsuits
vigorously. The Company has responded to these complaints, which have now been
consolidated into one proceeding, by filing a motion to dismiss the complaint in
the consolidated proceeding. The Company has asserted that the complaint lacks
the degree of specificity and factual support to meet the pleading standards
applicable to federal securities litigation. On this basis, the Company has
requested that the United States District Court for the Northern District of
Texas dismiss the complaint in its entirety. Plaintiffs have responded to the
Company's request for dismissal, and the Company is preparing to file a
supplemental brief while awaiting a ruling by the Court. All discovery and other
pleadings not related to the dismissal have been stayed pending resolution of
the Company's request to dismiss the complaint.

On or about April 26, 2002, Telemac Corporation ("Telemac") commenced an
arbitration proceeding in the Los Angeles, California, office of JAMS against
the Company and InterVoice Brite Ltd. and Brite Voice Systems, Inc., JAMS Case
No. 1220026278, claiming fraud, negligent misrepresentation and breach of
contract in connection with formation of and performance under certain
agreements between the Company, and/or its alleged predecessors, and Telemac,
and seeking compensatory damages of approximately $58 million, punitive damages
and attorneys' fees and other costs and fees. Telemac's allegations arise out of
the negotiations and terms of the Amended and Restated Prepaid Phone Processing
Agreement between Telemac and Brite Voice Systems Group, Ltd., dated November 1,
1998, and certain amendments thereto under which Telemac licensed prepaid
wireless software for use in various markets and exploited in the United Kingdom
under agreement with Cellnet, a provider of wireless telephony in the United
Kingdom.

The Company and Telemac have selected as arbitrator Justice William A.
Masterson (Ret.) formerly of the California Court of Appeal and the Los Angeles
County Superior Court, although Justice Masterson has not yet agreed to serve.
No date has been set for commencement of the arbitration hearing. The Company's
response to Telemac's allegations is due June 4, 2002. The Company acknowledges
it may owe an immaterial amount for certain software development services
rendered by Telemac. With the exception of these immaterial amounts, the Company
believes that the claims asserted by Telemac are without merit. The Company
further believes it has meritorious defenses and intends to vigorously defend
the arbitration.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK

The Company's outstanding shares of common stock are quoted on the NASDAQ
National Market and the Chicago Stock Exchange under the symbol INTV. The
Company has not paid any cash dividends since its incorporation. The definitive
loan documentation evidencing the Company's debt facilities contains a
contractual limitation on the Company restricting its ability to pay a dividend
in cash or property, although the Company is permitted to pay stock dividends.
The Company does not anticipate paying cash dividends in the foreseeable future.

High and low share prices as reported on the NASDAQ National Market are
shown below for the Company's fiscal quarters during fiscal 2002 and 2001.

FISCAL 2002 QUARTER HIGH LOW
------------------- ------ ------

1st......................................................... $12.49 $ 7.25
2nd......................................................... $13.45 $10.36
3rd......................................................... $15.67 $ 9.85
4th......................................................... $17.99 $ 4.98

FISCAL 2001 QUARTER HIGH LOW
------------------- ------ ------

1st......................................................... $38.06 $13.13
2nd......................................................... $15.25 $ 5.94
3rd......................................................... $13.75 $ 7.69
4th......................................................... $11.63 $ 6.13

There were approximately 767 shareholders of record and approximately
11,300 beneficial shareholders of the Company at May 24, 2002. On May 24, 2002
the closing price of the Common Stock was $3.60.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein and in conjunction with

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth below.

FISCAL YEAR ENDED FEBRUARY 28 OR 29
---------------------------------------------
2002* 2001** 2000*** 1999 1998****
------ ------ ------- ------ --------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Sales........................................ $211.6 $274.7 $286.2 $136.9 $102.3
Income (Loss) from Operations................ (51.6) 0.4 0.3 29.1 (8.4)
Income (Loss) Before the Cumulative Effect of
a Change in Accounting Principle........... (44.7) 9.5 (14.8) 20.2 (5.1)
Net Income (Loss)............................ (44.7) (2.3) (14.8) 20.2 (5.1)
Total Assets................................. 175.4 256.8 303.0 111.5 84.9
Current Portion of Long Term Debt............ 6.0 18.5 25.0 -- --
Long Term Debt, Net of Current Portion....... 24.0 31.1 75.0 5.0 --
Per Diluted Common Share:
Income (Loss) Before the Cumulative Effect
of a Change in Accounting Principle..... (1.34) 0.28 (0.49) 0.68 (0.17)
Net Income (Loss).......................... (1.34) (0.07) (0.49) 0.68 (0.17)
Shares Used in Per Diluted Common Share
Calculation................................ 33.4 34.3 30.5 29.8 31.0

---------------

* Fiscal 2002 loss from operations was impacted by special charges of $33.4
million related to the streamlining of product lines, the write down of
excess inventories and non-productive assets, the closure of certain
facilities, and staffing reductions (see "Special Charges" under Item 7).
Without these special charges, the loss from operations would have been
$(18.2) million, and the net loss would have been $(13.2) million. The
classification of debt outstanding at February 28, 2002 is based on
refinancing transactions completed subsequent to February 28, 2002. See
"Liquidity and Capital Resources" under Item 7.

** Fiscal 2001 loss from operations was impacted by special charges of $8.2
million related to changes in the Company's organizational structure and
product offerings (see "Special Charges" under Item 7). Without these
special charges, income from operations would have been $8.6 million.
Income before the cumulative effect of a change in accounting principle was
impacted by these special charges of $8.2 million ($5.4 million net of
taxes) and by a $21.4 million ($13.8 million net of taxes) gain on the sale
of SpeechWorks International, Inc. common stock (see "Other Income" under
Item 7). Sales, income from operations, income before the cumulative effect
of a change in accounting principle and net loss also were affected by a
change in the Company's method of accounting for revenue recognition. (See
"Sales" and "Income (Loss) from Operations and Net Income (Loss)" under
Item 7).

*** Fiscal 2000 income from operations and net loss were impacted by special
charges of $15.0 million including: $9.1 million reported in cost of goods
sold relating to a comprehensive cross-license agreement with an affiliate
of Lucent Technologies, Inc. and provisions for inventories and certain
intangible assets made obsolete by the Company's merger with Brite; and
$5.9 million reported in selling, general and administrative expenses
relating to severance payments to employees of the Company made redundant
as a result of the merger with Brite, and charges to bad debts relating to
the impairment of certain foreign accounts receivables and the cancellation
of certain customer trade-in obligations. The Company also wrote off $30.1
million of the acquisition cost for Brite as in-process research and
development. Without these items, fiscal 2000 income from operations would
have been $45.4 million and net income would have been $25.1 million, or
$0.77 per diluted share.

**** Fiscal 1998 net sales, loss from operations and net loss were impacted by
adoption of the American Institute of Certified Public Accountants'
Statement of Position 97-2 (SOP 97-2), tightening of certain of the
Company's credit practices, and special charges of $7.4 million. Special
charges of $1.6 million reported in selling, general and administrative
expenses include severance expenses associated with

certain personnel matters, including the resignation of the Company's
former President and Chief Operating Officer, and accounts receivable
write-offs related to certain cancellations of service contracts. Special
charges reported in cost of goods sold totaled $4.0 million for asset
write-offs, including provisions for inventory obsolescence in light of a
migration of the Company's customers to its NSP-5000 platform and
provisions for the impairment of certain intangible assets. The Company
also expensed, as in-process research and development, $1.8 million of the
purchase price of the ESP product line purchased from Integrated Telephony
Products, Inc. Without these items, net sales in fiscal 1998 would have
been $107.8 million, income from operations would have been $2.6 million,
and net income would have been $2.4 million, or $0.08 per diluted share.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-K includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-K, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and under "Business"
and "Notes to Consolidated Financial Statements" located elsewhere herein
regarding the Company's financial position, business strategy, plans and
objectives of management of the Company for future operations and industry
conditions, are forward-looking statements. Although the Company believes the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. In addition
to important factors described elsewhere in this report, the following
significant factors, among others, sometimes have affected, and in the future
could affect, the Company's actual results and could cause such results during
fiscal 2003, and beyond, to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company:

- The Company's issuance of Convertible Notes and Warrants could
substantially dilute the interests of the existing shareholders. The $10
million in Convertible Notes issued by the Company in May 2002 are
convertible by the holders into common stock at any time prior to their
maturity in June 2003 at an initial conversion price of 200% of the
weighted average price of the Company's common stock on the date of
issuance. Moreover, the conversion price of the Convertible Notes could
be lowered, perhaps substantially, in a variety of circumstances,
including the Company's issuance of common stock below the holders'
conversion price (either directly or in connection with the issuance of
most securities convertible into, or exercisable for, common stock), the
Company's failure to comply with specific registration and listing
obligations applicable to the common stock into which the Convertible
Notes are convertible, and other breaches by the Company of its
obligations to the note holders. Correspondingly, the Company issued to
the note holders in May 2002 three-year Warrants entitling the warrant
holders to purchase an aggregate of 621,303 shares of the Company's
common stock at an exercise price of $4.0238 per share. Both the number
of Warrants and the exercise price are subject to adjustments that could
make them further dilutive to existing shareholders. Neither the notes
nor the Warrants establishes a "floor" limiting reductions in,
respectively, the conversion price of the Convertible Notes or the
exercise price of the Warrants that may occur under certain
circumstances. Correspondingly, there is no "ceiling" on the number of
Warrants that may be issuable under certain circumstances under the
antidilution adjustments in the Warrants.

- The Company is required to pay its outstanding loans under the Credit
Facility before any installment of principal on the Convertible Notes is
paid in cash and therefore the required payments in stock could be
dilutive to the Company's shareholders and such dilution could be made
worse by the note and warrantholders' hedging activities. The Company's
revolving credit facility prohibits the Company from paying any
installments on the Convertible Notes in cash at any time the Company has
indebtedness outstanding under the Credit Facility. Under such
circumstances the Company will effectively be required to "pay"
installments on the Convertible Notes through a partial conversion of the
Convertible Notes into common stock. The conversion price, subject to
certain anti-dilution

adjustments, would be the lower of (i) 200% of the weighted average
trading price for the Company's common stock as reported on the Nasdaq
National Market on the issuance date or (ii) 95% of the average of the
weighted average trading prices of the Company's common stock during the
time period to which the installment relates. Since the Company's
inability to pay installments in cash would most likely occur when it is
experiencing unsatisfactory operating results and lower trading prices
for its common stock, the number of shares required to "pay" an
installment in a partial conversion of the Convertible Notes could
increase significantly, with the resultant dilution further depressing
the Company's stock price. Moreover, the note and warrant holders may
hedge their positions in the Company's stock through shorting the
Company's stock, which could further adversely affect the stock price.
This hedging activity and its effect on the stock price could increase
the number of shares required to be issued on the next installment date.

- Any failure by the Company to satisfy its registration, listing and other
obligations with respect to the common stock underlying the Convertible
Notes and the Warrants could result in adverse consequences, including
acceleration of the Convertible Notes. The Company is required to file a
registration statement covering the common stock underlying the
Convertible Notes and the Warrants by June 14, 2002 and cause it to
become effective by September 27, 2002 and, subject to certain
exceptions, maintain its effectiveness until the underlying common stock
is no longer restricted for federal securities law purposes. The Company
is subject to various penalties for failure to meet its registration
obligations and the related stock exchange listing for the underlying
common stock, including cash penalties and forced redemption of the
Convertible Notes at the greater of (i) 125% of the principal amount plus
interest or (ii) the product of the "conversion rate" (the amount of
principal and interest being redeemed divided by the conversion price)
multiplied by the weighted average price of the Company's common stock on
the trading day immediately preceding its registration or listing
default. If the Company is unable to issue common stock under the
Convertible Notes because the amount issuable would exceed the number of
shares that the Company is permitted to issue without shareholder
approval under Nasdaq National Market requirements (aggregate shares in
excess of 20% of the issued and outstanding shares), then the Company may
be required to redeem the Convertible Notes at 100% of the principal plus
accrued interest at 6.0%.

- The Company is obligated to make significant periodic payments of
principal and interest under its financing instruments. The Company has
material indebtedness outstanding under the above-discussed: (i) Credit
Facility; (ii) mortgage loan secured by the Company's office facilities
in Dallas, Texas; and (iii) Convertible Notes. The Company is required to
make periodic payments of interest on each of the financial instruments
and, in the case of the Convertible Notes, periodic payments of
principal. The Company is not in default under any of the financing
instruments and believes it will have the resources to make all required
principal and interest payments. If, however, the Company at any time
does default on any of its payment obligations or other obligations under
any financing instrument, the creditors under the applicable instrument
will have all rights available under the instrument, including
acceleration, termination and, with respect to the secured financings,
enforcement of security interests. The financing instruments also have
certain qualified cross-default provisions, particularly for acceleration
of indebtedness under one of the other instruments. Under such
circumstances, the Company's cash position and liquidity would be
severally impacted, and it is possible the Company would not be able to
pay its debts as they come due.

- The Company has experienced recent operating losses and may not operate
profitably in the future. The Company incurred net losses of
approximately $44.7 million in fiscal 2002, $2.3 million in fiscal 2001
and $14.8 million in fiscal 2000. The Company may continue to incur
operating losses, which could hinder the Company's ability to operate its
current business. The Company cannot provide assurances that it will be
able to generate sufficient revenues from its operations to achieve or
sustain profitability in the future.

- General business activity has declined. The Company's sales are largely
dependant on the strength of the domestic and international economies
and, in particular, on demand for telecommunications equipment,
computers, software and other technology products. The market for
telecommunications

equipment has declined sharply, and the markets for computers, software
and other technology products also have declined. In addition, there is
an increased concern that demand for the types of products offered by the
Company will further soften as a result of domestic and global economic
and political conditions following the attacks by terrorists on September
11, 2001.

- In recent quarters, the Company has fallen short of its sales and
earnings expectations. Many of the Company's transactions are completed
in the same fiscal quarter as ordered. The size and timing of some
transactions have historically caused sales fluctuations from quarter to
quarter. While in the past the impact of these fluctuations was mitigated
to some extent by the geographic and vertical market diversification of
the Company's existing and prospective customers, the Company has become
increasingly prone to quarterly sales fluctuations because of its sales
to the enhanced telecommunications services systems market. The quantity
and size of large sales (sales valued at approximately $2.0 million or
more) during any quarter can cause wide variations in the Company's
quarterly sales and earnings, as such sales are unevenly distributed
throughout the fiscal year. The Company's accuracy in estimating future
sales is largely dependant on its ability to successfully qualify,
estimate and close system sales during a quarter. See the discussion
entitled "Sales" in this Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the
Company's "pipeline" of system sales opportunities. The Company's systems
sales and, as a result, its total sales during recent quarters have
fallen short of guidance publicly provided by the Company. As a result,
the Company did not provide sales and earnings guidance for the first
quarter of fiscal 2003.

- The Company is subject to potential and pending lawsuits and other
claims. The Company is subject to certain potential and pending lawsuits
and other claims discussed in Item 3 "Legal Proceedings." The Company
believes that each of the potential and pending lawsuits and other claims
to which it is subject is without merit and intends to defend each matter
vigorously. There can be no assurances, however, that the Company will
prevail in any or all of the litigation or other matters. An adverse
judgment in any of these matters, as well as the Company's expenses
relating to its defense of a given matter, could have consequences
materially adverse to the Company.

- The Company faces intense competition based on product capabilities and
experiences ever increasing demands from its actual and prospective
customers for its products to be compatible with a variety of rapidly
proliferating computing, telephony and computer networking technologies
and standards. The ultimate success of the Company's products is
dependent, to a large degree, on the Company allocating its resources to
developing and improving products compatible with those technologies,
standards and functionalities that ultimately become widely accepted by
the Company's actual and prospective customers. The Company's success is
also dependent, to a large degree, on the Company's ability to implement
arrangements with other vendors with complementary product offerings to
provide actual and prospective customers greater functionality and to
ensure that the Company's products are compatible with the increased
variety of technologies and standards. The principal competitors for the
Company's ESD systems are AVAYA, IBM and Nortel Networks; the principal
competitors for the Company's NSD systems are Comverse Technology,
Ericsson, Lucent Technologies and UNISYS. Many of the Company's
competitors have greater financial, technological and marketing resources
than the Company has. Although the Company has committed substantial
resources to enhance its existing products and to develop and market new
products, there is no assurance it will be successful.

- The Company may not be able to retain its customer base and, in
particular, its more significant customers, such as British Telecom. The
Company's success depends substantially on retaining its significant
customers. The loss of one of the Company's significant customers could
negatively impact the Company's results of operations. The Company's
installed base of customers generally is not contractually obligated to
place further systems orders with the Company or to extend their services
contracts with the Company at the expiration of their current contracts.
Moreover, the Company has phased out a number of Brite products and has
attempted to migrate Brite customers over to the Company's own
functionally similar products, but there can be no assurance that the
Company will be able to maintain Brite's customer base.

Sales to British Telecom, which purchases both systems and managed
services from the Company, accounted for approximately 15%, 19% and 16%
of the Company's total sales during fiscal 2002, 2001 and 2000,
respectively. Under the terms of its managed services contract with BT
Cellnet and at current exchange rates, the Company will recognize
revenues of $0.9 million per month through July 2003, down from a fiscal
2002 high of approximately $2.6 million per month. The amounts received
under the agreement may vary based on future changes in the exchange rate
between the dollar and the British pound.

- The Company's reliance on significant vendor relationships could result
in significant expense or inability to serve its customers if it loses
these relationships. Although the Company generally uses standard parts
and components for its products, some of its components, including
semi-conductors and, in particular, digital signal processors
manufactured by Texas Instruments and AT&T Corp., are available only from
a small number of vendors. Likewise, the Company licenses speech
recognition technology from a small number of vendors. To date, the
Company has been able to obtain adequate supplies of needed components
and licenses in a timely manner. If the Company's significant vendors are
unable or cease to supply components or licenses at current levels, the
Company may not be able to obtain these items from another source.
Consequently, the Company would be unable to provide products and to
service its customers, which would negatively impact its business and
operating results.

- The Company's inability to protect its intellectual property against
infringement and infringement claims could negatively impact its
business. The Company's protection of its patent, copyright, trademarks
and other proprietary rights in its products and technologies is critical
to the continued success of its business. Although the Company's
proprietary rights are protected by a combination of intellectual
property laws, nondisclosure safeguards and license agreements, it is
technologically possible for the Company's competitors to copy aspects of
the Company's products in violation of these protected rights. Moreover,
it may be possible for competitors to provide products and technologies
competitive to those of the Company without violating the Company's
protected rights. Even in cases where patents protect aspects of the
Company's technology, the detection and policing of the unauthorized use
of the patented technology is difficult. Further, judicial enforcement of
patents, trademarks and copyrights may be uncertain, particularly in
foreign countries. Unauthorized use of the Company's proprietary
technology by its competitors could negatively impact its business,
operating results and financial condition.

If third parties assert claims that the Company's products or services
infringe on their technology and related intellectual property rights,
whether the claims are made directly against the Company or against the
Company's customers, the Company could incur substantial costs to defend
these claims. If any of these claims is ultimately successful, a third
party could require the Company to pay substantial damages, discontinue
the use and sale of infringing products, expend significant resources to
acquire non-infringing alternatives, and/or obtain licenses to use the
infringed intellectual property rights. Moreover, where the claims are
asserted with respect to the Company's customers, additional expenses may
be involved in indemnifying the customer and/or designing and providing
non-infringing products. See "Disclosures Regarding Forward-Looking
Statements -- The Company is subject to potential and pending lawsuits
and other claims" and Item 1 "Business -- Proprietary Rights".

- The Company is exposed to risks related to its international operations
that could increase its costs and hurt its business. The Company's
products are currently sold in 74 countries. The Company's international
sales, as a percentage of total Company sales, were 44% in fiscal 2002,
48% in fiscal 2001 and 45% in fiscal 2000. International sales are
subject to certain risks, including:

- 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 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 customers
speaking different languages and having different cultural approaches to
the conduct of business.

- The Company's inability to properly estimate costs under fixed price
contracts could negatively impact its profitability. Some of the
Company's contracts to develop application software and customize systems
provide for the customer to pay a fixed price for its products and
services regardless of whether the Company's costs to perform under the
contract exceed the amount of the fixed price. If the Company is unable
to estimate accurately the amount of future costs under these fixed price
contracts, or if unforeseen additional costs must be incurred to perform
under these contracts, the Company's ability to operate profitably under
these contracts will be adversely affected. Many of the Company's
contracts, particularly for managed services, foreign contracts and
contracts with telecommunication companies, include provisions for the
assessment of liquidated damages for delayed performance by the Company.
Since the Company's projects frequently require a significant degree of
customization, it is difficult for the Company to predict when it will
complete such projects. Accordingly, the Company has had to pay
liquidated damages in the past and may have to pay additional liquidated
damages in the future. Any such future liquidated damages could be
significant.

- Increasing consolidation in the telecommunications and financial
industries could affect the Company's revenues and
profitability. Several of the Company's significant customers are in the
telecommunications and financial industries, which are undergoing
increasing consolidation as a result of merger and acquisition activity.
This activity involving the Company's significant customers could
decrease the number of customers purchasing the Company's products and/or
delay purchases of the Company's products by customers that are in the
process of reviewing their strategic alternatives in light of a pending
merger or acquisition. If the Company has fewer customers or its
customers delay purchases of the Company's products as a result of merger
and acquisition activity, the Company's revenues and profitability could
decline.

- Government action and, in particular, action with respect to the
Telecommunications Act of 1996 regulating the telecommunications industry
could have a negative impact on the Company's business. Future growth in
the markets for the Company's products will depend in part on
privatization and deregulation of certain telecommunication markets
worldwide. Any reversal or slowdown in the pace of this privatization or
deregulation could negatively impact the markets for the Company's
products. Moreover, the consequences of deregulation are subject to many
uncertainties, including judicial and administrative proceedings that
affect the pace at which the changes contemplated by deregulation occur,
and other regulatory, economic and political factors. Any invalidation,
repeal or modification of the requirements imposed by the
Telecommunications Act of 1996 could negatively impact the Company's
business, financial condition and results of operations. Furthermore, the
uncertainties associated with deregulation could cause the Company's
customers to delay purchasing decisions pending the resolution of such
uncertainties.

- Significant market fluctuations could affect the price of the Company's
common stock. Extreme price and volume trading volatility in the U.S.
stock market has had a substantial effect on the market prices of
securities of many high technology companies, frequently for reasons
other than the operating performance of such companies. These broad
market fluctuations could adversely affect the market price of the
Company's common stock.

RESULTS OF OPERATIONS

The following table presents certain items as a percentage of sales for the
Company's last three fiscal years.

YEAR ENDED FEBRUARY 28
------------------------
2002* 2001** 2000***
----- ------ -------

Sales....................................................... 100.0% 100.0% 100.0%
Cost of Goods Sold.......................................... 59.3 50.9 47.3
----- ----- -----
Gross Margin................................................ 40.7 49.1 52.7
----- ----- -----
Research and Development Expenses........................... 13.8 12.6 21.3
Selling, General and Administrative Expenses................ 39.4 31.4 27.6
Amortization of Goodwill and Acquisition Related Intangible
Assets.................................................... 6.3 5.0 3.7
Impairment of Goodwill and Acquisition Related Intangible
Assets.................................................... 5.5 -- --
----- ----- -----
Operating Income (Loss)..................................... (24.3) 0.1 0.1
Other Income (Expense), Net................................. (1.7) 5.2 (2.3)
----- ----- -----
Income (Loss) Before Income Taxes and the Cumulative Effect
of a Change in Accounting Principle....................... (26.0) 5.3 (2.2)
Income Taxes (Benefit)...................................... (4.9) 1.9 3.0
----- ----- -----
Income (Loss) Before the Cumulative Effect of a Change in
Accounting Principle...................................... (21.1) 3.4 (5.2)
===== ===== =====

---------------

* See discussion of fiscal 2002 in Item 6, "Selected Financial Data". Without
special charges totaling $33.4 million ($31.5 million, net of tax benefit),
cost of goods sold, gross margin, research and development expenses,
selling, general and administrative expenses, operating loss and loss before
the cumulative effect of a change in accounting principle, as a percentage
of sales, would have been 53.0%, 47.0%, 13.1%, 36.2%, (8.6)% and (6.2)%,
respectively.

** See discussion of fiscal 2001 in Item 6, "Selected Financial Data". Without
special charges totaling $5.4 million, net of taxes, and the gain on sale of
investments of $13.8 million, net of taxes, cost of goods sold, gross
margin, selling, general and administrative expenses, operating income and
income before the cumulative effect of a change in accounting principle, as
a percentage of sales, would have been 49.2%, 50.8%, 30.1%, 3.1% and 0.4%,
respectively.

*** See discussion of fiscal 2000 in Item 6, "Selected Financial Data". Had they
not been impacted by merger related charges totaling $41.6 million, net of
tax, cost of goods sold, gross margin, research and development expenses,
selling, general and administrative expenses, operating income and income
before the cumulative effect of a change in accounting principle as a
percentage of sales would have been 44.1%, 55.9%, 10.8%, 25.6% 15.9% and
8.8%, respectively.

ACCOUNTING POLICIES

In preparing its consolidated financial statements in conformity with
accounting principles generally accepted in the United States, the company uses
statistical analyses, estimates and projections that affect the reported amounts
and related disclosures and may vary from actual results. The company considers
the following three accounting policies to be both those most important to the
portrayal of its financial condition and those that require the most subjective
judgment. If actual results differ significantly from management's estimates and
projections, there could be a material effect on the company's financial
statements.

REVENUE RECOGNITION

The Company recognizes revenue from the sale of hardware and software
systems, from the delivery of maintenance and other customer services associated
with installed systems and from the provision of its Network Solutions and
Enterprise Solutions applications on an ASP (managed service) basis.

Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements". For systems that do not require
customization to be performed by the Company, revenue is recognized when there
is persuasive evidence that an arrangement exists, when the related hardware and
software are delivered and any installation or other post-delivery obligation
has been fulfilled, when the fee is fixed or determinable and when collection is
probable. In prior years, although the Company's contracts often included
installation and customer acceptance provisions, revenue generally was
recognized at the time of shipment based on the Company's belief that no
significant uncertainties about customer acceptance existed.

For systems that require significant customization and where the completed
contract method of accounting is applicable, the Company recognizes revenue upon
customer acceptance. Prior to the implementation of SAB 101, the Company
recognized revenue on these systems upon completion of installation and testing
but prior to customer acceptance. For more complex, customized systems
(generally systems with a sales price greater than $500,000), the Company
recognizes revenue using the percentage of completion (POC) contract accounting
methodology based on labor inputs. Billings under percentage of completion
contracts are typically made upon the satisfaction of contractually defined
milestones.

The Company recognizes revenue from services when the services are
performed or ratably over the related contract period. All significant costs and
expenses associated with maintenance contracts are expensed as incurred. This
approximates a ratable recognition of expenses over the contract period.

If contracts include multiple elements, each element of the arrangement is
separately identified and accounted for based on the relative fair value of such
element. Revenue is not recognized on any element of the arrangement if
undelivered elements are essential to the functionality of the delivered
elements.

The Company's revenue recognition policies governing contract accounting,
and, particularly, the use of percentage of completion accounting, are
particularly sensitive to accounting estimates. Under POC accounting, the
Company recognizes revenue as it performs its contractual obligations based on
an estimate of its progress toward project completion and often before receiving
a customer's final acceptance of a project. If the Company overestimates its
progress in a particular period, encounters significant problems as it continues
toward project completion or is ultimately unable to complete a project, it may
be forced in a future period to reverse revenues taken in the current period
and/or to recognize disproportionately less profit than was recorded in previous
periods or envisioned at the inception of a project. For contracts accounted for
using the POC methodology as of February 28, 2002, a one percentage point change
in the calculated completion percentage would have given rise to a $0.5 million
change in revenue for the year.

INVENTORY VALUATION ALLOWANCES

Inventory is valued net of allowances for unsalable or obsolete raw
materials and work-in-process and net of allowances for items which the Company
will continue to use but which, given the slowdown in market demand, are held in
excess quantities at year end. Allowances are determined quarterly by comparing
inventory levels of individual materials and parts to historical usage rates and
estimated future sales in order to identify specific components of inventory
that are judged unlikely to be sold. Inventory is written off against allowances
in the period in which disposal occurs. Actual future write-offs of inventory
for salability and obsolescence reasons may differ from estimates and
calculations used to determine valuation allowances due to changes in customer
demand, customer negotiations, technology shifts and other factors.

IMPAIRMENT OF LONG LIVED ASSETS

The Company records impairment losses on long-lived tangible and intangible
assets, including goodwill, when events and circumstances indicate that the
assets might be impaired and the undiscounted projected

cash flows associated with those assets are less than the carrying amounts of
those assets. In those situations, impairment loss on a long-lived asset is
measured based on the excess of the carrying amount of the asset over the
asset's fair value, generally determined based upon discounted estimates of
future cash flows. Actual future cash flows may vary from the estimates used in
performing the impairment tests due to changes in customer demand and future
actions taken by the Company that increase or decrease its cost structure. Had
such changes, if any, been foreseen, the Company might have reached different
conclusions as to the current impairment of long lived assets.

In June 2001, the Financial Accounting Standards Board issued new rules on
accounting for goodwill and other intangible assets in its Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, which become effective for the Company's
fiscal year beginning March 1, 2002. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003. Subsequent to
February 28, 2002, the Company has begun the transitional impairment tests
required by Statement No. 142. Based on the preliminary results of those tests,
the Company expects to recognize a non-cash, goodwill impairment charge of
approximately $16.0 million to be recorded as a cumulative effect of a change in
accounting principle in the first quarter of fiscal 2003. This loss was not
indicated under the Company's impairment policy (described above) in effect at
February 28, 2002. The Company also expects annual amortization expense to
decrease by approximately $4.4 million in fiscal 2003 as a result of its
adoption of Statement No. 142.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes SFAS No. 121 Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
and the accounting and reporting positions of APB Opinion No. 30, Reporting the
Results of Operations for a Disposal of a Segment of a Business. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Company will
adopt SFAS No. 144 as of March 1, 2002, and does not expect that the adoption of
the Statement will have a material impact on the Company's financial position or
results of operations.

SALES

The Company is a technology leader in enhanced services for network service
providers and automated and interactive information systems for enterprises. The
Company operates in two global divisions, each focusing on a separate market.
The Company's Network Solutions Division, or NSD, provides products and services
that are designed to create opportunities for network carriers and service
providers to increase revenue through value-added services and/or reduce costs
through automation. The Enterprise Solutions Division, or ESD, provides
automated customer service and communications systems that reduce costs and
improve customer service levels through enabling accurate and efficient
communication and transactions between an enterprise, its customers and its
business partners. In addition, NSD and ESD each provides a suite of
professional services that supports its installed systems. Services provided
include maintenance, implementation, and business and technical consulting
services. To further leverage the strong return on investment offered by the
Company's systems offerings, both divisions also offer enhanced communications
solutions to network and enterprise customers on an outsourced basis as an
Application Service Provider, or ASP.

Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements". The cumulative effect of this
change in accounting has been reflected as a charge to fiscal 2001 operations
and is discussed below in "Income (Loss) from Operations and Net Income (Loss)".
As a result of the change, the Company recognized as part of fiscal 2001 sales
$22.4 million of revenue whose contribution to income is included in the
cumulative effect adjustment and did not recognize $2.8 million of 2001 sales
whose contribution to income would have been recognized had the change in
accounting policy not been adopted. See the table of pro forma sales activity
below.

As described under "In-Process Research and Development" below, the
Company's merger with Brite in fiscal 2000 was accounted for using the purchase
method of accounting. Accordingly, results of Brite's operations have been
consolidated with those of InterVoice effective with the Company's second fiscal
quarter of fiscal 2000 with no retroactive adjustments. See the table of pro
forma sales activity below.

Beginning in fiscal 2002, the Company has defined ESD and NSD as its two
reportable segments. In prior years, the Company's operations were managed as a
single segment.

To enhance comparability of the Company's sales for fiscal 2002, 2001 and
2000, the sales information below reflects the Company's current segment
structure and is presented on both an "as reported" and an "as adjusted" basis.
The "as adjusted" amounts reflect pro forma sales as though the merger with
Brite and the adoption of SAB 101 had occurred as of the end of fiscal 1999.

AS ADJUSTED AS REPORTED
------------------------ ------------------------
2002 2001 2000* 2002 2001 2000
------ ------ ------ ------ ------ ------
(IN MILLIONS)

ESD Systems Sales................. $ 77.6 $ 95.8 $117.5 $ 77.6 $ 95.8 $109.0
ESD Services Sales................ 30.8 25.6 34.7 30.8 25.6 30.8
------ ------ ------ ------ ------ ------
ESD Total Sales................... 108.4 121.4 152.2 108.4 121.4 139.8
====== ====== ====== ====== ====== ======
NSD Systems Sales................. 48.8 86.9 114.6 48.8 86.9 104.7
NSD Services Sales................ 54.4 66.4 51.4 54.4 66.4 41.7
------ ------ ------ ------ ------ ------
NSD Total Sales................... 103.2 153.3 166.0 103.2 153.3 146.4
====== ====== ====== ====== ====== ======
Total Company Systems Sales....... 126.4 182.7 232.1 126.4 182.7 213.7
Total Company Services Sales...... 85.2 92.0 86.1 85.2 92.0 72.5
------ ------ ------ ------ ------ ------
Total Company Sales............... $211.6 $274.7 $318.2 $211.6 $274.7 $286.2
====== ====== ====== ====== ====== ======

---------------

* InterVoice-Brite's fiscal year ends the last day of February. Brite's fiscal
year ended December 31. No adjustment has been made to account for the two
companies' different fiscal year ends.

Total Company sales on an "as adjusted" basis declined 23% in fiscal 2002
and 14% in fiscal 2001 after increasing 24% in fiscal 2000. The decrease in
sales in fiscal 2002 was comprised of decreases in ESD and NSD systems sales of
19% and 44%, respectively, a 20% increase in ESD services sales, and an 18%
decrease in NSD services sales. The decline in system sales reflects the sharp
decline in the Company's primary markets for systems and services, particularly
the decline in the market for telecommunications equipment and services during
the year. This decline was particularly pronounced in the fourth quarter of 2002
when the Company's sales declined by 52% from the third quarter of fiscal 2002.
The Company believes demand in its primary markets will remain sluggish through
at least the first half of fiscal 2003. The NSD services decline reflects a
reduction in the division's managed services revenues attributable to a decrease
in the volume of activity processed under certain of the division's ASP
contracts including, particularly, its contract with BT Cellnet as further
described below. The increase in ESD services was primarily attributable to
growth in the division's sale of extended warranty services. The impact of
foreign currency changes during the year on annual sales for fiscal 2002 was not
material.

The decrease in sales during fiscal 2001 was primarily the result of an 18%
and 24% decline in ESD and NSD systems sales, respectively, partially offset by
a 7% increase in combined services sales. The decline in systems sales during
fiscal 2001 resulted from (1) a sluggishness in demand from the former Brite
customer base, as those companies evaluated the Company's product roadmap
resulting from the merger with Brite, (2) a sluggish demand from the Company's
existing and prospective customers as they evaluated their post-Y2K capital
expenditures, (3) some softness in the market for telecommunications equipment,
computers, software and other technology products, and (4) a lengthening of the
overall sales cycle resulting from a transition in customer demand from
relatively simple, touch-tone based applications to complex applications

employing speech recognition. The fiscal 2001 results also included the impact
of approximately $13 million resulting from a stronger U.S. dollar, on average,
as compared to fiscal 2000.

The Company assigns revenues to geographic locations based on the location
of the customer. The Company's net sales by geographic area for fiscal years
2002, 2001 and 2000 were as follows (in millions):

2002 2001 2000
------ ------ ------

United States.............................................. $118.8 $141.6 $157.2
The Americas (excluding the U.S.).......................... 7.4 14.9 23.9
Pacific Rim................................................ 5.5 11.6 15.5
Europe, Middle East and Africa............................. 79.9 106.6 89.6
------ ------ ------
Total.................................................... $211.6 $274.7 $286.2
====== ====== ======

International ESD system sales constituted 18%, 20% and 18% of total ESD
system sales in fiscal 2002, 2001 and 2000, respectively. International NSD
system sales constituted 89%, 81% and 68%, of total NSD systems sales in fiscal
2002, 2001 and 2000, respectively. International services sales constituted 42%,
47% and 41% of the Company's total services sales in fiscal 2002, 2001 and 2000,
respectively.

Prices for the Company's products have remained stable, as measured by
price per line shipped, during fiscal 2002, 2001 and 2000, although the features
and functions per line shipped have become more robust.

One NSD customer, British Telecom, together with its affiliate BT Cellnet,
accounted for 15%, 19% and 16% of the Company's total revenues during fiscal
2002, 2001 and 2000, respectively, and for 31%, 34% and 31% of the NSD segment's
revenues in those same periods. Monthly minimum managed service revenues under
the BT Cellnet contract declined during fiscal 2002 from a fiscal 2002 high of
approximately $2.6 million per month in March 2001 to a fixed fee of
approximately $0.9 million per month as of January 2002 in accordance with the
terms of the customer contract. The lower fee will continue through the
remainder of the contract term. The contract expires in July 2003. No other
customer accounted for 10% or more of the Company's sales during fiscal 2002,
2001, or 2000.

The Company uses a system combining estimated sales from its service and
support contracts, "pipeline" of systems sales opportunities, and backlog of
committed systems orders to estimate sales and trends in its business. Sales for
the last four quarters from service and support contracts, including contracts
for ASP managed services, have comprised approximately 40% of the Company's
sales. On average, the pipeline of opportunities for systems sales and backlog
of systems sales during the same period have each contributed approximately 30%
of quarterly revenues.

The Company's service and support contracts range in duration from one
month to three years, with many longer duration contracts allowing customer
cancellation privileges. As described above, a significant portion of the
Company's services revenue is derived from its contract with BT Cellnet. It is
easier for the Company to estimate service and support sales than to measure
systems sales for the next quarter because service and support contracts
generally span multiple quarters, and revenues recognized under each contract
are generally similar from one quarter to the next.

The Company's backlog is made up of customer orders for systems for which
it has received complete purchase orders and which the Company expects to ship
within twelve months. At February 28, 2002 and 2001 and February 29, 2000, the
Company's backlog of systems sales was approximately $26 million, $35 million,
and $34.0 million, respectively. February 2002 backlog is up approximately $5
million from a fiscal 2002 low of $21 million at November 30, 2001, the end of
the Company's third fiscal quarter, and approximately even with the $25.4
million backlog reported at August 31, 2001, the end of the Company's second
fiscal quarter.

As a result of the general decline in backlog during fiscal 2002 and the
reduction of revenues under the managed services contract with BT Cellnet, the
Company will have to increase sales from its pipeline of opportunities for
systems sales and/or other service and support contracts to maintain or increase
revenues in future quarters. The Company's pipeline of opportunities for systems
sales is the aggregation of its sales opportunities, with each opportunity
evaluated for the date the potential customer will make a purchase

decision, competitive risks, and the potential amount of any resulting sale. No
matter how promising a pipeline opportunity may appear, there is no assurance it
will ever result in a sale. While this pipeline may provide the Company some
sales guidelines in its business planning and budgeting, pipeline estimates are
necessarily speculative and may not consistently correlate to revenues in a
particular quarter or over a longer period of time. While the Company knows the
amount of systems backlog available at the beginning of a quarter, it must
speculate on its pipeline of systems opportunities for the quarter. The
Company's accuracy in estimating total systems sales for future fiscal quarters
is, therefore, highly dependent upon its ability to successfully estimate which
pipeline opportunities will close during the quarter.

Because many of the Company's transactions are completed in the same fiscal
quarter as ordered, the size and timing of large transactions (sales valued at
$2 million or more) have historically resulted in sales fluctuations from
quarter to quarter. While, in the past, the impact of these fluctuations has
been mitigated to some extent by the geographic and vertical market
diversification of the Company's existing and prospective customers, the Company
has become increasingly prone to quarterly sales fluctuations because of its
sales to the enhanced telecommunications services systems market, which are
generally large in dollar amount and unevenly distributed throughout the fiscal
year.

The Company's markets are being transformed by the ongoing convergence of
voice, data and internet technologies. As a result, the Company continues to
investigate alternate methods of combining its products and services and is
focusing on new, strategic partnerships to profit from this transformation. The
result of such investigations may lead the Company to redirect its marketing
efforts and/or increase its investments in application engineering, customer
service, research and development, sales, sales support, marketing and
administrative personnel and resources to pursue new opportunities.

SPECIAL CHARGES

FISCAL 2002

During the fourth quarter of fiscal 2002, the Company performed a
comprehensive review of the current and future positioning of all product lines,
including lines brought forward from its merger with Brite, reevaluated its
physical plant needs, and reviewed its aggregate staffing levels. Based on these
reviews, the Company took a number of strategic actions designed to lower costs
and streamline product offerings. As a result of these actions, the Company
incurred special charges of approximately $33.4 million, including $16.4 million
for the write down of intangible assets and inventories associated with
discontinued product lines, $6.5 million for the write down of excess
inventories, $5.2 million for severance payments and related benefits, $4.2
million for facilities closures, and $1.1 million relating to the write down of
non-productive fixed assets. Of the total special charges incurred,
approximately $6.6 million and $15.1 million were charged to the ESD and NSD
divisions, respectively. The Company does not allocate amortization and
impairment of acquisition related intangible assets to the divisions. The
workforce reductions and other adjustments are expected to reduce the Company's
quarterly expenses by approximately $4.7 million from third quarter fiscal 2002
levels when fully realized. Such expense reductions could be offset, in part, by
spending increases to pursue new opportunities being created in the Company's
markets by the convergence of voice, wireless data and Internet technologies.

The following table summarizes the effect of these special charges on
fiscal 2002 operations by financial statement category (in millions).

IMPAIRMENT
COST OF RESEARCH AND OF
GOODS SOLD DEVELOPMENT SG&A INTANGIBLES TOTAL
---------- ------------ ---- ----------- -----

Write down of intangible assets and
inventories associated with
discontinued product lines............ $ 4.4 $ -- $0.3 $11.7 $16.4
Write down of excess inventories........ 6.5 -- -- -- 6.5
Severance payments and related
benefits.............................. 2.2 0.8 2.2 -- 5.2
Facilities closures..................... -- -- 4.2 -- 4.2
Write down of non-productive fixed
assets................................ 0.3 0.7 0.1 -- 1.1
----- ---- ---- ----- -----
Total................................. $13.4 $1.5 $6.8 $11.7 $33.4
===== ==== ==== ===== =====

The $11.7 million write down of intangible assets reflects the impairment
of the Brite tradename, certain IVR technology acquired as part of the Brite
acquisition and related goodwill (See "Amortization and Impairment of Goodwill
and Acquired Intangible Assets"). The $4.4 million write down of inventories and
the $0.3 million charge to SG&A relate to the Company's decision to discontinue
sales of certain earlier versions of its payment and messaging systems that run
on a different hardware platform than that used by the current versions of those
systems. The additional writedown of inventories totaling $6.5 million relates
to items which the Company will continue to use in current sales situations but
which, given the slowdown in market demand, it held in excess quantities at year
end.

As part of its fiscal 2002 initiatives, the Company announced plans to
forego expansion into existing leased space in Allen, Texas and to close its
Jacksonville, Florida and Wichita, Kansas locations. As a result of these
actions, the Company recorded charges of $4.2 million, including approximately
$3.8 million accrued for future lease commitments and approximately $0.4 million
for accelerated depreciation expense arising from a reassessment of the useful
lives of certain related property and equipment. As part of its overall
facilities assessment, the Company also identified and wrote off approximately
$1.1 million of fixed assets no longer being used by the Company. As of February
28, 2002, $3.6 million of the accrued lease costs remain unpaid. The Company
expects to continue operations in Wichita through May 2002. In April 2002, the
Company entered into an agreement to sell its Wichita facility to a third party
for $2.0 million. Closing is expected as early as May 2002. Proceeds from the
sale will be used to reduce amounts outstanding under the Company's credit
facilities. (See "Liquidity and Capital Resources.")

The severance and related costs recognized in the fourth quarter of fiscal
2002 were associated with two workforce reductions that affected 198 employees,
including 57 and 113 in the Company's ESD and NSD divisions, respectively, and
28 in the Company's corporate manufacturing and administrative areas. As of
February 28, 2002, $3.0 million of the total severance and related costs
remained unpaid. Unpaid amounts are expected to be paid in full during fiscal
2003.

FISCAL 2001

During the fourth quarter of fiscal 2001, the Company changed its
organizational structure and eliminated certain product offerings in order to
reduce cost and improve its focus on its core competencies and products. As a
result of these actions, the Company incurred special charges of $8.2 million,
including $3.6 million for severance and related costs, $3.1 million for the
write off of assets associated with discontinued product lines and $1.5 million
for estimated customer accommodations related to the discontinued product lines.

The severance and related costs were associated with a workforce adjustment
that affected approximately 130 employees and included the resignation of the
Company's President and Chief Operating Officer. Of the total costs incurred,
$1.3 million, $0.4 million and $1.9 million were charged to cost of goods sold,
research and development expenses and selling, general and administrative
expenses. As of February 28, 2001,

$1.8 million of the total severance and related costs remained unpaid. During
fiscal 2002, the Company charged payments of $1.4 million against this accrual.
During the third quarter of fiscal 2002, the Company determined that it had
settled its severance related obligations for less than originally anticipated,
and, accordingly, the Company reversed the remaining accrual of $0.4 million,
reducing selling, general and administrative expenses.

The $3.1 million charge to write off assets is primarily attributable to
the Company's decision to discontinue its AgentConnect product line and includes
a $2.9 million charge for the impairment of unamortized purchased software
associated with this product. The charge is reflected in cost of goods sold. The
$1.5 million charge for estimated customer accommodations is comprised primarily
of bad debts and customer settlements associated with the Company's decision to
discontinue the AgentConnect product line. This charge is reflected in selling,
general and administrative expenses. During fiscal 2002, the Company reached
settlements with its affected customers for amounts that were less than
originally anticipated. As a result, it charged settlements of $1.0 million
against this accrual and reversed $0.5 million of the accrual, reducing selling,
general and administrative expenses in the third fiscal quarter.

FISCAL 2000

Fiscal 2000 income from operations and net loss were impacted by second
quarter special charges of $15.0 million including: $9.1 million reported in
cost of goods sold relating to a comprehensive cross-license agreement with an
affiliate of Lucent Technologies, Inc. and provisions for inventories and
certain intangible assets made obsolete by the Company's merger with Brite; and
$5.9 million reported in selling, general and administrative expenses primarily
relating to severance charges for InterVoice employees made redundant as a
result of the merger with Brite and charges relating to bad debts arising from
the impairment of certain foreign accounts receivable and from the cancellation
of certain customer trade-in obligations. The Company also charged $30.1 million
to research and development relating to purchased in-process research and
development as part of the Brite acquisition (See "In-Process Research and
Development").

COST OF GOODS SOLD

Cost of goods sold was 59.3%, 50.9% and 47.3% of total sales in fiscal
2002, 2001 and 2000, respectively. During fiscal 2002, 2001 and 2000, the
Company incurred special charges in cost of goods sold totaling $13.4 million,
$4.5 million and $9.1 million, respectively, as described in the preceding
"Special Charges" section. Without these special charges, cost of goods sold, as
a percentage of total sales, would have been 53.0%, 49.2% and 44.1%,
respectively. The increase in cost of goods sold net of special charges, as a
percentage of sales, during fiscal 2002 is primarily attributable to the
softness in the Company's fiscal 2002 sales, including, particularly, its fiscal
fourth quarter sales. Cost of goods sold was 47.2% of total sales on a fiscal
2002 year to date basis as of the Company's third fiscal quarter. A significant
portion of the Company's cost of goods sold is comprised of labor costs that are
fixed over the near term as opposed to direct material and license/royalty costs
that vary directly with sales volume. The increase in the cost of goods sold
percentage in 2001 is attributable to the Company's continued investment in
application engineering and customer service resources to support opportunities
in all its markets. The Company has taken certain actions during fiscal 2002 to
reduce a portion of its cost of goods sold. These actions are discussed above in
"Special Charges".

RESEARCH AND DEVELOPMENT

Research and development expenses during fiscal 2002 and 2001 were
approximately $29.3 million, or 13.8% of the Company's sales, and $34.6 million,
or 12.6% of sales, respectively. Without special charges of $1.5 million and
$0.4 million in fiscal 2002 and 2001, respectively, research and development
expenses would have totaled $27.8 million (13.1% of sales) in fiscal 2002 and
$34.2 million (12.5% of sales) in fiscal 2001. Such expenses in fiscal 2000 were
approximately $61 million and included a $30.1 million charge for in-process
research and development (see "In-Process Research and Development" below),
incurred in connection with the Brite merger. Net of this charge, research and
development expenses were approximately $30.9 million, or 10.8% of the Company's
sales during fiscal 2000. Recurring research and development expenses during
fiscal 2002, 2001 and 2000 included the design of new products and the
enhancement of

existing products. The Company expects to maintain a strong commitment to
research and development to remain at the forefront of technology development in
its business segments, which is essential to the continued improvement of the
Company's position in the industry.

IN-PROCESS RESEARCH AND DEVELOPMENT

During fiscal 2000, the Company acquired all of the outstanding stock of
Brite in a two-step transaction involving aggregate consideration of
approximately $165.1 million including $122.7 million of cash and 2,985,792
shares of the Company's common stock valued at $42.4 million. Brite provided
voice processing and call processing systems and services which incorporate
prepaid/postpaid applications, voice response, voice recognition,
voice/facsimile messaging, audiotex and interactive computer applications into
both standard products and customized market solutions. The Company's
consolidated statements of operations reflect the results of operations of Brite
beginning June 1, 1999.

The merger has been accounted for as a purchase business combination. The
aggregate purchase price for Brite was approximately $173.1 million, which
included $3.2 million of direct costs and $4.8 million of assumed liabilities,
primarily accrued severance costs for Brite employees and lease
termination/cancellation costs associated with the elimination of excess
facilities. As of February 28, 2002, assumed liabilities of $0.4 million,
comprised entirely of lease termination accruals, remained outstanding. Such
costs will be paid out over the remaining lease terms which run through March
2003.

The purchase price has been allocated to identifiable tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values which were determined by an independent valuation and by the Company's
management based on information furnished by management of Brite. The allocation
of the purchase price was as follows (in millions):

Working capital............................................. $ 46.4
Property and equipment...................................... 17.8
Other assets................................................ 5.2
Other liabilities........................................... (1.4)
Identified intangible assets................................ 74.5
Purchased in-process R&D (expensed)......................... 30.1
Deferred tax liability on identified intangibles............ (28.8)
Goodwill.................................................... 29.3
------
$173.1
======

Identified intangibles include developed technology ($25.9 million),
customer relationships ($32.8 million), assembled workforce ($9.2 million), and
trade name ($6.6 million). Identified intangibles and the excess of cost over
net assets acquired (i.e. goodwill) are being amortized on a straight-line basis
over 5-10 years and 10 years, respectively. See "Amortization and Impairment of
Goodwill and Acquired Intangible Assets".

In-process R&D of $30.1 million was expensed at the time of acquisition as
the Company determined that the in-process R&D had not reached technological
feasibility based on the status of design and development activities that
required further refinement and testing. Brite's in-process R&D related to
technologies which support Brite's interactive voice response (IVR)/computer
telephony integration (CTI), intelligent network, messaging, voice dialing, and
prepaid/postpaid product families.

The valuation of existing product technology and in-process R&D was
performed using the income approach, which includes an analysis of the markets,
cash flows, and risks associated with achieving such cash flows. The income
approach focuses on the income producing capability of the existing products and
in-process R&D projects and best represents the present value of the future
economic benefits expected to be derived. Significant assumptions used in the
valuation of in-process R&D included the stages of completion of R&D projects,
projected operating cash flows, and the discount rate. At the time of the
merger, Brite

management estimated the remaining cost to complete the in-process R&D projects
to be approximately $1.6 million with a remaining time requirement of
approximately 8-12 months. Projected operating cash flows were expected to begin
in fiscal 2000. The discount rate selected for Brite's in-process technologies
was 27.5%. As of February 28, 2001, the projects had been completed.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative ("SG&A") expenses totaled $83.3 million
during fiscal 2002 and included special charges totaling $6.8 million (see
"Special Charges"). SG&A expenses were $86.2 million during fiscal 2001 and
included special charges totaling $3.4 million (see "Special Charges"). SG&A
expenses were $79.1 million during fiscal 2000 and included non-recurring
charges totaling $5.9 million. SG&A expenses, net of special and non-recurring
charges, were approximately $76.5 million, $82.8 million and $73.2 million in
fiscal 2002, 2001 and 2000, respectively, or 36.2%, 30.1% and 25.6% of the
Company's total sales, respectively. The increase in these expenses during
fiscal 2001 was the result of the Company's initiatives to continue to hire and
train new and existing sales and sales support personnel, and to expand its
marketing and advertising programs worldwide. The Company continued these
initiatives in fiscal 2002, but total SG&A expense was reduced as a result of
non-sales staffing and cost reductions put in place in the fourth quarter of
fiscal 2001.

AMORTIZATION AND IMPAIRMENT OF GOODWILL AND ACQUIRED INTANGIBLE ASSETS

In connection with its purchase of Brite in fiscal 2000, the Company
recorded intangible assets and goodwill totaling $103.8 million. These assets
were assigned useful lives ranging from 5 to 10 years. Amortization of goodwill
and acquired intangible assets was approximately $13.4 million, $13.8 million
and $10.4 million during fiscal 2002, 2001 and 2000. The Company incurred four
quarters of amortization expense in fiscal 2002 and 2001 compared to three
quarters in fiscal 2000.

During the fourth quarter of fiscal 2002, the Company performed a
comprehensive review of the current and future positioning of all product lines,
including lines brought forward from its merger with Brite. As a result of
decisions made during this review, the Company performed impairment tests in
accordance with its stated policies on the Brite tradename and on certain of the
developed technology associated with the Brite acquisition. Based on these
tests, the Company recorded impairment charges of $4.8 million and $3.2 million,
respectively, to reduce the carrying value of these intangible assets and an
additional impairment charge of $3.7 million to reduce the carrying value of
goodwill associated with the impaired assets.

OTHER INCOME

During the fourth quarter of fiscal 2001, the Company realized a gain of
$21.4 million from the sale of SpeechWorks International, Inc. common stock
acquired through the exercise of a warrant received in connection with a 1996
supply agreement between the Company and SpeechWorks. In prior periods, the

warrant had been assigned no value because the warrant and the shares underlying
the warrant were unregistered securities, and significant uncertainties existed
regarding the Company's ability to monetize the warrant and the timing of any
such monetization. Other income during fiscal 2002 and 2000 was primarily
interest income on cash and cash equivalents.

INTEREST EXPENSE

Interest expense of approximately $4.9 million, $8.2 million and $8.0
million was incurred during fiscal 2002, 2001 and 2000. Substantially all of
this expense relates to the Company's long term borrowings obtained in
connection with the Brite merger (See "Liquidity and Capital Resources" for a
description of the Company's long term borrowings). The reduction in interest
expense in fiscal 2002 is primarily attributable to the lower level of debt
outstanding during the year. Borrowings under the credit agreements totaled
$30.0 million, $49.6 million and $100.0 million at February 28/29, 2002, 2001
and 2000 respectively.

Of the $4.9 million total interest expense in fiscal 2002, approximately
$1.5 million was attributable to net settlements under the interest rate swap
arrangements. The Company benefited from net settlements of approximately $0.2
million and $0.1 million in fiscal 2001 and fiscal 2000, respectively.

INCOME TAXES

The Company's income tax benefit for fiscal 2002 differs significantly from
the federal statutory rate of 35% primarily as a result of operating losses and
credit carryforwards generated but not benefited, non-deductible amortization of
goodwill resulting from the merger with Brite, and various US tax credits. The
Company's income tax expense for fiscal 2000 differs significantly from the
federal statutory rate primarily due to non-deductible charges during the period
relating to in-process R&D and non-deductible amortization of goodwill resulting
from the merger with Brite.

At February 28, 2002, the Company had US net operating loss carryforwards
totaling $27.6 million, including $8.6 million which will expire in 2021 and
$19.0 million which will expire in 2022. The Company also had $3.3 million, $1.4
million and $0.4 million in research and development, foreign tax and
alternative minimum tax credit carryforwards, respectively, at that date. If
unused, the R&D credit carryforwards will begin to expire in 2019, and the
foreign tax credit carryforwards will begin to expire in 2005.

During fiscal 2002, the Company established a valuation allowance of $14.3
million against its net deferred tax assets, including the carryforwards
described above. The Company believes the existence of recent losses in its US
operations prevents it from concluding that it is more likely than not that US
deferred tax assets will be realized. If some or all of such reserved deferred
tax assets are ultimately realized, approximately $2.2 million of the valuation
allowance reversal related to stock option deductions will not provide future
benefit to income but will rather be credited to additional capital. The Company
has not provided a valuation allowance for deferred assets associated with its
foreign subsidiaries, because it believes it is more likely than not that such
deferred tax assets will be realized.

On March 7, 2002, the US federal tax law was changed to allow net operating
losses for taxable years ending in 2001 and 2002 (the Company's fiscal 2001 and
fiscal 2002) to be carried back five years rather than the two years allowed
under the previous law. Under Statement of Financial Accounting Standards No.
109, which governs the accounting for income taxes, the benefit, if any, from
this change will be recognized in the period in which the tax law changed (the
Company's first quarter of fiscal 2003). Based on a preliminary review, the
Company believes it will be able to carry back an additional $20 million in net
operating losses as a result of the new law.

INCOME (LOSS) FROM OPERATIONS AND NET INCOME (LOSS)

The Company generated a loss from operations of $(51.6) million and a net
loss of $(44.7) million during fiscal 2002. The loss from operations was
comprised of ESD segment income of $3.5 million, NSD segment loss of $(30.0)
million and $25.1 million of amortization and impairment expenses relating to
goodwill and acquisition related intangible assets that are not allocated to
individual segments. The Company generated operating income of $0.4 million,
income before the cumulative effect of a change in accounting principle of $9.5
million and a net loss of $(2.3) million during fiscal 2001. The loss from
operations in fiscal 2001 was comprised of ESD segment income of $0.4 million,
NSD segment income of $13.8 million and $13.8 million of amortization of
goodwill and acquisition related intangible assets that are not allocated to
individual segments. The Company generated operating income of $0.3 million and
a net loss of $(14.8) million during fiscal 2000.

During fiscal 2002, 2001 and 2000, the Company incurred significant special
charges as previously described in this Item 7 totaling $33.4 million, $8.2
million, and $45.1 million, respectively. In fiscal 2001, the Company also
recognized the previously described non-recurring gain of $21.4 million
associated with the Company's sale of SpeechWorks International, Inc., common
stock. Excluding these special charges and non-recurring gain, the Company would
have generated an operating income (loss) of approximately ($18.2) million, $8.6
million and $45.4 million and income (loss) before the cumulative effect of a
change in accounting principle of approximately $(13.2) million, $1.0 million
and $25.1 million in fiscal 2002, 2001 and 2000, respectively.

The loss from operations in fiscal 2002 is primarily attributable to the
significant decline in the Company's sales from 2001 to 2002 and, particularly,
the extreme weakness in the Company's systems sales in the fourth quarter of
fiscal 2002 and to the effect of the previously described special charges. While
the Company benefited throughout fiscal 2002 from cost reduction efforts started
at the end of fiscal 2001, its cost structures were too high to allow the
Company to operate profitably in the face of the sharp downturn in sales
activity following the terrorist events of September 11, 2001 and the prolonged
slowdown in the telecommunications markets. The Company's actions in the fourth
quarter of fiscal 2002, as described in Special Charges, above, are designed to
allow the Company to return to profitability at lower levels of sales activity
during fiscal 2003.

The decrease in fiscal 2001 operating income and income before the
cumulative effect of a change in accounting principle, versus the previous year,
is primarily attributable to the Company's decision to continue investment in
marketing, application engineering, and research and development resources
without a corresponding increase in the Company's sales. These investments were
made to continue to pursue opportunities in the ESD and NSD markets.

The cumulative effect of a change in accounting principle on prior years
associated with the Company's adoption of SAB 101 resulted in a charge to income
of $11.9 million (after reduction for income taxes of $6.4 million) in fiscal
2001. Assuming the accounting change had been applied retroactively by the
Company to prior periods, pro forma net loss for fiscal 2000 and pro forma net
income for 1999 would have been ($17.3) million and $12.6 million, respectively.
Net loss per common share would have been ($0.57) in 2000, and net income per
diluted share would have been $0.42 in 1999. Had the Company not adopted SAB
101, revenues for fiscal 2001 would have been $255.5 million and net loss per
common share would have been ($0.02).

LIQUIDITY AND CAPITAL RESOURCES

CASH AND CASH EQUIVALENTS

The Company had approximately $17.6 million in cash and cash equivalents at
February 28, 2002, while borrowings under the Company's Credit Facility were
$30.0 million. The Company's cash reserves increased approximately $1.7 million
during fiscal 2002, with operating activities providing approximately $20.4
million of cash while purchases of equipment and other investing activities and
net financing activities used $5.1 million and $13.6 million of cash,
respectively.

CREDIT FACILITY

In connection with the Brite merger in fiscal 2000, the Company entered
into a loan agreement with Bank of America and nine other banks for a $150
million senior secured credit facility (the "Credit Facility"). The Credit
Facility included a $125 million amortizing term loan and a $25 million
revolving credit agreement (subsequently reduced to $12.0 million as described
below). At February 28, 2002, approximately $22.5 million and approximately $7.5
million were outstanding under the term loan and revolving credit agreement,
respectively.

The lenders and the Company entered into forbearance agreements dated March
7, 2002 and March 31, 2002, pursuant to which the lenders granted a temporary
waiver through May 31, 2002 of the Company's default under one of four financial
covenants, a fixed charge coverage ratio covenant.

The lenders issued commitment letters to enter into the Consent, Waiver,
and Third Amendment to Credit Agreement (the "Third Amendment") to be effective
as of May 29, 2002, pursuant to which the lenders will waive the Company's
default under the financial covenant. The effectiveness of the Third Amendment
is conditioned on funding under the Convertible Notes, which is scheduled for
May 30, 2002.

The Third Amendment will amend the fixed charge coverage ratio covenant and
a covenant to maintain a minimum leverage ratio (as described in the Credit
Facility) to reflect the Company's current capital structure and liquidity
requirements. The Third Amendment also will add a covenant by the Company to
maintain a minimum level of EBITDA (as defined in the Credit Facility).

CONVERTIBLE NOTES

On May 29, 2002, the Company entered into a Securities Purchase Agreement,
by and among the Company and the buyers named therein (the "Buyers"), pursuant
to which the Buyers agreed to purchase Convertible Notes (the "Convertible
Notes"), in an aggregate principal amount of $10.0 million, convertible into
shares of the Company's common stock (the "Conversion Shares"), and Warrants
(the "Warrants") initially exercisable for an aggregate of 621,303 shares of the
Company's common stock (the "Warrant Shares") at an exercise price of $4.0238
per share. Buyers' obligations to purchase the Convertible Notes and Warrants
under the Securities Purchase Agreement are subject to and conditioned upon
execution of the Third Amendment. The following is a summary of the material
terms of the Convertible Notes, the Warrants and certain registration
requirements, which terms are qualified in their entirety by reference to the
full text of the underlying documents which are filed as exhibits to this report
and incorporated by reference.

AMORTIZATION OF CONVERTIBLE NOTES

The initial Convertible Notes will be repaid in monthly installments
("Installment Amounts") of principal in the amount of $1.0 million, plus accrued
interest on the applicable installments at 6% per annum, commencing September 1,
2002, and will be fully amortized by June 30, 2003. At the Company's option, the
Installment Amounts may be paid in cash or through a partial conversion of the
Convertible Notes through the Company's issuance of common stock at a conversion
rate equal to the lesser of (i) 200% of the weighted average trading price for
the Company's common stock as reported on the Nasdaq National Market on the
issuance date, subject to various adjustments, as set forth in the Form of Note
(the "Fixed Conversion Price"), or (ii) 95% of the average of the weighted
average trading prices of the Company's common stock during the time period to
which the installment relates. In order to preserve the ability to pay the
Installment Amounts in common stock, the Company must comply with several
conditions, including maintaining the effectiveness of a registration statement
(as more fully described below), complying with the listing requirements of the
Nasdaq National Market, timely delivery of common stock upon conversion of the
Convertible Notes, and compliance with other requirements under the Convertible
Notes, the Securities Purchase Agreement and the Registration Rights Agreement.

Conversion of Convertible Notes at the Option of the Holder

Acceleration and Default Provisions in Convertible Notes

Mortgage Loan

Use of Proceeds

At February 28, 2002, the Company's days sales outstanding (DSO) of
accounts receivable were 133 days as compared to 104 days at February 28, 2001.
The fiscal 2002 calculation is negatively affected by the Company's extremely
weak fiscal fourth quarter sales. Cash flow from operations in the first two
quarters of fiscal 2003 may be constrained by the abnormally low receivables
level as of February 28, 2002. With the merger with Brite in fiscal 2000, the
Company now generates a significant percentage of its sales, particularly its
NSD sales, outside the United States. Certain customers outside the United
States are accustomed to vendor financing in the form of extended payment terms.
To remain competitive in markets outside the United States, the Company may
offer its most credit worthy customers such payment terms. In fiscal 2002 and
2001, customer extended payment terms had no material adverse impact on the
Company's DSO's of accounts receivable. However, there is no assurance such
extended payment terms will not adversely impact DSO's in fiscal 2003 and
beyond.

The Company believes that the liquidity provided by its recent refinancing
transactions and cash generated from operations should be sufficient to sustain
its operations for the next twelve months, although no assurances can be given
to that effect.

IMPACT OF INFLATION

The Company does not expect any significant short-term impact of inflation
on its financial condition. Technological advances should continue to reduce
costs in the computer and communications industries. Further, the Company
presently is not bound by long term fixed price sales contracts. The absence of
such contracts should reduce the Company's exposure to inflationary effects.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

THREE MONTHS ENDED
--------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
FISCAL 2002 2001 2001 2001 2002*
----------- ------- ---------- ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Sales............................................. $61.5 $64.5 $58.1 $27.6
Gross Profit (Loss)............................... 33.7 33.1 30.5 (11.2)
Income (Loss) from Operations..................... 3.2 3.6 1.3 (59.7)
Net Income (Loss)................................. 1.4 1.7 -- (47.8)
Net Income (Loss) per Diluted Share............... 0.04 0.05 0.00 (1.42)

THREE MONTHS ENDED
--------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
FISCAL 2001** 2000 2000 2000 2001***
------------- ------- ---------- ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)

Sales............................................. $ 71.5 $72.4 $68.6 $62.2
Gross Profit...................................... 36.6 36.1 36.2 26.1
Income (Loss) from Operations..................... 2.2 2.5 3.5 (7.8)
Income Before the Cumulative Effect of a Change in
Accounting Principle............................ 0.2 0.5 1.1 7.7
Net Income (Loss)................................. (11.7) 0.5 1.1 7.7
Income Per Diluted Share Before Cumulative Effect
of a Change in Accounting Principle............. 0.01 0.02 0.03 0.23
Net Income (Loss) per Diluted Share............... (0.33) 0.02 0.03 0.23

---------------

* During the fourth quarter of fiscal 2002, the Company incurred special
charges of $33.4 million, including $16.4 million for the write down of
intangible assets and inventories associated with discontinued product
lines, $6.5 million for the write down of excess inventories, $5.2 million
for severance payments and related benefits, $4.2 million for facilities
closures, and $1.1 million relating to the write down of non-productive
fixed assets. (See "Special Charges".) Sales for the quarter were reduced as
a result of the Company's decisions to accept the return of two systems
sales in the aggregate amount of $7.7 million. Pretax income for the fourth
quarter was reduced by approximately $6.5 million as a result of these
returns.

** Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." (See "Sales"). The cumulative
effect of the change on prior years resulted in a charge to income of $11.9
million, after reduction for income taxes of $6.4 million. For the year
ended February 28, 2001, the Company recognized $22.4 million in revenue
whose contribution to income was included in the SAB 101 cumulative effect
adjustment as of March 1, 2000. The revenue was included in the following
quarters during fiscal 2001: first quarter, $15.8 million; second quarter,
$1.2 million; third quarter, $5.0 million; and fourth quarter, $0.4 million.

*** During the fourth quarter of fiscal 2001, the Company incurred special
charges of $8.2 million related to changes in organizational structure and
the elimination of certain product offerings and benefited from a
non-recurring gain of $21.4 million on the sale of SpeechWorks
International, Inc., common stock. (See "Special Charges" and "Other
Income").

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company invests cash balances in excess of operating requirements in
short-term securities that generally have maturities of 90 days or less. The
carrying value of these securities approximates market value, and there is no
long-term interest rate risk associated with this investment.

At February 28, 2002, the Company's Credit Facility provided for borrowings
of up to $34.5 million at variable interest rates based on the London Interbank
Offering Rate (LIBOR) or an alternate base rate, each plus an applicable margin.
Amounts outstanding under the Credit Facility totaled $30.0 million and the fair
value of the borrowings approximated their carrying value at that date.

Subsequent to year end, the Company entered into the Third Amendment to the
Credit Facility, reducing the amount of borrowings available under the Credit
Facility to $12.0 million. The Company simultaneously entered into an agreement
to obtain a $14.0 million variable rate mortgage loan, which will bear interest
at the higher of 10.5%, or the prime rate plus 2%, and an agreement to issue
Convertible Notes in aggregate principal amount of $10.0 million bearing a fixed
coupon of 6%. The Company will apply the proceeds from the mortgage and the
Convertible Notes to retire the term loan portion of the Credit Facility. The
remaining amounts outstanding under the Credit Facility will mature on June 1,
2003. The mortgage loan will mature

May 30, 2005. The Convertible Notes will be subject to monthly amortization
beginning in September 2002, and mature in June 2003.

Due to the magnitude of the Credit Facility, the Company believes that the
effect of any reasonably possible near-term changes in interest rates on the
Company's financial position, results of operations, and cash flows may be
material.

The following table provides information about the Company's credit
arrangements which are sensitive to changes in interest rates. The table
presents cash flows for scheduled principal payments and related weighted-
average interest rates relating to the Company's credit arrangements after the
abovementioned Third Amendment, mortgage loan, and Convertible Notes have been
executed. Weighted-average variable rates are based on rates in effect as of
February 28, 2002.

FAIR VALUE FISCAL
FEBRUARY 28, ----------------------------
2002 2003 2004 2005 2006
------------ ---- ----- ----- -----
(DOLLARS IN MILLIONS)

Long-term debt:............................. $30.0
Fixed rate US $........................... $6.0 $ 4.0 -- --
Projected weighted average interest
rate................................... 6.0% 6.0%
Variable rate US $........................ $ -- $ 6.0 $ -- $14.0
Projected weighted average interest
rate................................... 8.9% 10.2% 10.5% 10.5%

FOREIGN CURRENCY RISKS

The Company transacts business in certain foreign currencies, including,
particularly, the British Pound. Accordingly, the Company is subject to exposure
from adverse movements in foreign currency exchange rates. The Company attempts
to mitigate this risk by transacting business in the functional currency of each
of its subsidiaries, thus creating a natural hedge by paying expenses incurred
in the local currency in which revenues will be received. The Company's major
foreign subsidiary, however, procures much of its raw materials inventory from
its US parent. Such transactions are denominated in dollars, limiting the
Company's ability to hedge against adverse movements in foreign currency
exchange rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Independent Auditors Report of Ernst & Young LLP and the Consolidated
Financial Statements of the Company as of February 28, 2002 and for each of the
three years in the period ended February 28, 2002 follow:

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
InterVoice-Brite, Inc.

We have audited the accompanying consolidated balance sheets of
InterVoice-Brite, Inc. and subsidiaries as of February 28, 2002 and 2001 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended February 28,
2002. Our audits also included the financial statement schedule listed in the
index at item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
InterVoice-Brite, Inc. and subsidiaries at February 28, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 28, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note D to the financial statements, in 2001 the Company
changed its method of accounting for certain revenues.

ERNST & YOUNG LLP

Dallas, Texas
April 17, 2002,
except for Notes H and Q, as to which
the date is May 29, 2002

INTERVOICE-BRITE, INC.

CONSOLIDATED BALANCE SHEETS

FEBRUARY 28, FEBRUARY 28,
2002 2001
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)

ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 17,646 $ 15,901
Trade accounts receivable, net of allowance for doubtful
accounts of $3,492 in 2002 and $3,642 in 2001.......... 40,783 72,148
Income tax receivable..................................... -- 3,323
Inventory................................................. 27,524 40,184
Prepaid expenses and other current assets................. 6,152 5,238
Deferred income taxes..................................... 819 3,968
-------- --------
92,924 140,762
PROPERTY AND EQUIPMENT
Land and buildings........................................ 19,530 20,228
Computer equipment and software........................... 30,379 46,316
Furniture, fixtures and other............................. 2,328 4,528
Service equipment......................................... 7,902 6,905
-------- --------
60,139 77,977
Less allowance for depreciation........................... 33,787 42,037
-------- --------
26,352 35,940
OTHER ASSETS
Intangible assets, net of accumulated amortization of
$39,424 in 2002 and $26,702 in 2001.................... 53,939 79,760
Other assets.............................................. 2,153 299
-------- --------
$175,368 $256,761
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable.......................................... $ 22,661 $ 22,952
Accrued expenses.......................................... 10,826 16,863
Customer deposits......................................... 5,963 7,730
Deferred income........................................... 24,426 19,705
Current portion of long term borrowings................... 6,000 18,537
Income taxes payable...................................... 4,162 5,117
-------- --------
74,038 90,904
Long Term Liabilities....................................... 1,916 --
Deferred Income Taxes....................................... -- 20,127
Long Term Borrowings........................................ 23,980 31,100
STOCKHOLDERS' EQUITY
Preferred Stock, $100 par value -- 2,000,000 shares
authorized: none issued
Common Stock, no par value, at nominal assigned
value -- 62,000,000 shares authorized: 34,029,180
issued and outstanding in 2002, 33,099,647 issued and
outstanding in 2001.................................... 17 17
Additional capital........................................ 61,725 55,671
Unearned compensation..................................... -- (1,311)
Retained earnings......................................... 19,618 64,308
Accumulated other comprehensive loss...................... (5,926) (4,055)
-------- --------
75,434 114,630
-------- --------
$175,368 $256,761
======== ========

See notes to consolidated financial statements.

INTERVOICE-BRITE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2002 2001 2000
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SALES
Systems................................................. $126,379 $182,784 $213,683
Services................................................ 85,257 91,963 72,543
-------- -------- --------
211,636 274,747 286,226
-------- -------- --------
COST OF GOODS SOLD
Systems................................................. 87,173 95,800 104,918
Services................................................ 38,389 43,924 30,493
-------- -------- --------
125,562 139,724 135,411
-------- -------- --------
GROSS MARGIN
Systems................................................. 39,206 86,984 108,765
Services................................................ 46,868 48,039 42,050
-------- -------- --------
86,074 135,023 150,815
-------- -------- --------
Research and development expenses......................... 29,308 34,594 61,004
Selling, general and administrative expenses.............. 83,316 86,193 79,118
Amortization of goodwill and acquisition related
intangible assets....................................... 13,378 13,844 10,422
Impairment of goodwill and acquisition related intangible
assets.................................................. 11,684 -- --
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS............................. (51,612) 392 271
Other income.............................................. 1,433 22,435 1,438
Interest expense.......................................... (4,939) (8,187) (8,023)
-------- -------- --------
Income (loss) before income taxes and the cumulative
effect of a change in accounting principle.............. (55,118) 14,640 (6,314)
Income tax (benefit)...................................... (10,428) 5,124 8,532
-------- -------- --------
INCOME (LOSS) BEFORE THE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE.................................... $(44,690) $ 9,516 $(14,846)
Cumulative effect on prior years of adopting SEC Staff
Accounting Bulletin No. 101............................. -- (11,850) --
-------- -------- --------
NET LOSS.................................................. $(44,690) $ (2,334) $(14,846)
======== ======== ========
Per Basic Share:
Income (loss) before the cumulative effect of a change in
accounting principle.................................... $ (1.34) $ 0.29 $ (0.49)
Cumulative effect on prior years of adopting SEC Staff
Accounting Bulletin No. 101............................. -- (0.36) --
-------- -------- --------
Net loss.................................................. $ (1.34) $ (0.07) $ (0.49)
======== ======== ========
Per Diluted Share:
Income (loss) before the cumulative effect of a change in
accounting principle.................................... $ (1.34) $ 0.28 $ (0.49)
Cumulative effect on prior years of adopting SEC Staff
Accounting Bulletin No. 101............................. -- (0.35) --
-------- -------- --------
Net loss.................................................. $ (1.34) $ (0.07) $ (0.49)
======== ======== ========

See notes to consolidated financial statements.

INTERVOICE-BRITE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

ACCUMULATED
COMMON STOCK OTHER
------------------- ADDITIONAL UNEARNED RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS LOSS TOTAL
---------- ------ ---------- ------------ -------- ------------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)

Balance at February 28, 1999....... 28,728,016 $14 $ 1,720 $ (650) $ 81,488 $ -- $ 82,572
Net loss......................... -- -- -- -- (14,846) -- (14,846)
Foreign currency translation
adjustment..................... -- -- -- -- -- (910) (910)
--------
Comprehensive loss............... (15,756)
--------
Issuance of stock in connection
with acquisitions.............. 2,985,792 2 42,361 -- -- -- 42,363
Exercise of stock options........ 766,552 -- 4,413 -- -- -- 4,413
Issuance of restricted stock..... 107,164 -- 3,402 (3,402) -- -- --
Amortization of unearned
compensation................... -- -- -- 351 -- -- 351
Other............................ -- -- (1,912) -- -- -- (1,912)
---------- --- ------- ------- -------- ------- --------
Balance at February 29, 2000....... 32,587,524 16 49,984 (3,701) 66,642 (910) 112,031
Net loss......................... -- -- -- -- (2,334) -- (2,334)
Foreign currency translation
adjustment..................... -- -- -- -- -- (3,145) (3,145)
--------
Comprehensive loss............... (5,479)
--------
Exercise of stock options........ 532,123 1 3,060 -- -- -- 3,061
Tax benefit from exercise of
stock options.................. -- -- 3,311 -- -- -- 3,311
Amortization of unearned
compensation, net of
forfeiture..................... (20,000) -- (684) 2,390 -- -- 1,706
---------- --- ------- ------- -------- ------- --------
Balance at February 28, 2001....... 33,099,647 17 55,671 (1,311) 64,308 (4,055) 114,630
Net income....................... -- -- -- -- (44,690) -- (44,690)
Foreign currency translation
adjustment..................... -- -- -- -- -- (1,679) (1,679)
Cumulative effect on prior years
of adopting Statement of
Financial Accounting Standards
No. 133, as amended, net of tax
effect of $261................. -- -- -- -- -- (425) (425)
Valuation adjustment of interest
rate swap hedge, net of tax
effect of ($143)............... -- -- -- -- -- 233 233
--------
Comprehensive loss............... (46,561)
--------
Exercise of stock options........ 929,533 -- 6,054 -- -- -- 6,054
Amortization of unearned
compensation................... -- -- -- 1,311 -- -- 1,311
---------- --- ------- ------- -------- ------- --------
Balance at February 28, 2002....... 34,029,180 $17 $61,725 $ -- $ 19,618 $(5,926) $ 75,434
========== === ======= ======= ======== ======= ========

See notes to consolidated financial statements.

INTERVOICE-BRITE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2002 2001 2000
------------ ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES
Net loss................................................ $(44,690) $ (2,334) $ (14,846)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 26,518 32,367 25,239
Gain on sale of investment........................... -- (21,391) --
In-process research and development charge........... -- -- 30,100
Deferred income taxes (benefit)...................... (16,860) (5,550) 627
Provision for doubtful accounts...................... 408 2,935 6,363
Provision for slow moving inventories................ 14,488 4,752 1,881
Disposal of equipment................................ 2,568 17 551
Write off of intangible assets....................... 11,866 2,863 2,798
Changes in operating assets and liabilities:
Accounts receivable.................................. 31,835 18,074 (8,261)
Inventories.......................................... (3,287) (20,156) 2,249
Prepaid expenses and other assets.................... 4,365 2,313 (2,161)
Accounts payable and accrued expenses................ (6,314) (2,021) (10,608)
Customer deposits.................................... (1,746) (280) (1,914)
Deferred income...................................... 4,756 5,255 5,210
Other................................................ (3,491) 5,794 1,277
-------- -------- ---------
Net cash provided by operating activities................. 20,416 22,638 38,505
INVESTING ACTIVITIES
Purchase of property and equipment...................... (4,869) (5,866) (9,215)
Proceeds from sale of investment........................ -- 21,391 --
Purchased software...................................... (184) (704) (885)
Purchase of Brite Voice Systems, net of cash acquired... -- -- (116,513)
Other................................................... -- 2,800 --
-------- -------- ---------
Net cash provided by (used in) investing activities....... (5,053) 17,621 (126,613)
-------- -------- ---------
FINANCING ACTIVITIES
Paydown of debt......................................... (19,657) (57,863) (40,000)
Exercise of stock options............................... 6,054 3,061 4,413
Borrowings.............................................. -- 7,500 135,000
-------- -------- ---------
Net cash provided by (used in) financing activities....... (13,603) (47,302) 99,413
Effect of exchange rate on cash........................... (15) (319) (238)
-------- -------- ---------
Increase (decrease) in cash and cash equivalents.......... 1,745 (7,362) 11,067
Cash and cash equivalents, beginning of period............ 15,901 23,263 12,196
-------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 17,646 $ 15,901 $ 23,263
======== ======== =========

See notes to consolidated financial statements.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- DESCRIPTION OF BUSINESS

InterVoice-Brite, Inc. (together with its subsidiaries, collectively
referred to as the "Company") is a technology leader in enhanced services for
network service providers and automated and interactive information systems for
enterprises. The Company operates in two global divisions, each focusing on a
separate market. The Company's Network Solutions Division, or NSD, provides
products and services that are designed to create opportunities for network
carriers and service providers to increase revenue through value-added services
and/or reduce costs through automation. The Enterprise Solutions Division, or
ESD, provides automated customer service and communications systems that reduce
costs and improve customer service levels through enabling accurate and
efficient communication and transactions between an enterprise, its customers
and its business partners. In addition, NSD and ESD each provides a suite of
professional services that supports its installed systems. Services provided
include maintenance, implementation, and business and technical consulting
services. To further leverage the strong return on investment offered by the
Company's systems offerings, both divisions also offer enhanced communications
solutions to network and enterprise customers on an outsourced basis as an
Application Service Provider, or ASP. For the fiscal year ended February 28,
2002, the Company reported revenues of $211.6 million, with systems and services
sales representing approximately 60% and 40% of revenues, respectively.

NOTE B -- SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include
the accounts of InterVoice-Brite Inc., and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Financial statements of the Company's foreign subsidiaries have been translated
into U.S. dollars at current and average exchange rates. Resulting translation
adjustments are recorded as a separate component of stockholders' equity. Any
foreign currency transaction gains or losses are included in the accompanying
consolidated statements of operations.

Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

Cash and Cash Equivalents: Cash equivalents include investments in highly
liquid securities with a maturity of three months or less at the time of
acquisition. The carrying amount of these securities approximates fair market
value. Interest income was $1.1 million, $0.5 million and $1.5 million in fiscal
2002, 2001 and 2000, respectively.

Inventories: Inventories, primarily system components, are valued at the
lower of cost or market with cost determined on a first-in, first-out basis.

Inventory Valuation Allowances: Inventory is valued net of allowances for
unsalable or obsolete raw materials and work-in-process and net of allowances
for items which the Company will continue to use but which, given the slowdown
in market demand, are held in excess quantities at year end. Allowances are
determined quarterly by comparing inventory levels of individual materials and
parts to historical usage rates and estimated future sales in order to identify
specific components of inventory that are judged unlikely to be sold. Inventory
is written off in the period in which disposal occurs. Actual future write-offs
of inventory for salability and obsolescence reasons may differ from estimates
and calculations used to determine valuation allowances due to changes in
customer demand, customer negotiations, technology shifts and other factors.

Property and Equipment: Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over each asset's
estimated useful life. The range of useful lives by major category are:
buildings: 5 to 40 years; computer equipment and software: 3 to 5 years;
furniture, fixtures and other: 5 years;

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and service equipment: 3 years. Depreciation expense totaled $12.7 million,
$14.0 million and $12.5 million in fiscal 2002, 2001 and 2000, respectively.

Intangible Assets: Intangible assets are comprised of goodwill and
separately identifiable intangible assets arising out of the Company's fiscal
2000 acquisition of Brite Voice Systems, Inc., and certain capitalized purchased
software. Intangible assets are being amortized using the straight-line method
over each asset's estimated useful life. Such lives range from five to twelve
years. Amortization expense for these items totaled $13.8 million, $15.2 million
and $12.7 million in fiscal 2002, 2001 and 2000, respectively. The Company also
recognized impairment losses related to these items totaling $11.7 million in
fiscal 2002. See "Note F -- Intangible Assets".

The cost of internally developed software products and substantial
enhancements to existing software products for sale are expensed until
technological feasibility is established, at which time any additional costs
would be capitalized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86. Technological feasibility of a computer software
product is established when the Company has completed all planning designing,
coding, and testing activities that are necessary to establish that the product
can be produced to meet its design specifications including functions, features,
and technical performance requirements. No costs have been capitalized to date
for internally developed software products and enhancements as the Company's
current process for developing software is essentially completed concurrently
with the establishment of technological feasibility. The Company capitalizes
purchased software upon acquisition when such software is technologically
feasible or if it has an alternative future use, such as use of the software in
different products or resale of the purchased software.

Impairment of Long Lived Assets: The Company records impairment losses on
long-lived tangible and intangible assets, including goodwill, when events and
circumstances indicate that the assets might be impaired and the undiscounted
projected cash flows associated with those assets are less than the carrying
amounts of those assets. In those situations, impairment loss on a long-lived
asset is measured based on the excess of the carrying amount of the asset over
the asset's fair value, generally determined based upon discounted estimates of
future cash flows.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
and the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a Disposal of a Segment of a Business. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Company will
adopt SFAS No. 144 as of March 1, 2002,

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and does not expect that the adoption of the Statement will have a material
impact on the Company's financial position or results of operations.

Other Assets: Other Assets are comprised of refundable deposits, deferred
costs associated with one of the Company's managed services contracts and $0.6
million of restricted certificates of deposit. The CDs are pledged in support of
certain letters of credit issued on behalf of the Company to guarantee its
performance under a long-term managed service contract. The letters of credit
expire in December 2003. The deferred costs associated with a managed service
contract will be amortized to expense through July 2003.

Derivatives: From July 1999 through October 2001, the Company used
interest rate swap arrangements to hedge the variability of interest payments on
its variable rate credit facilities. While in effect, the swap arrangements
essentially converted the Company's outstanding floating rate debt to a fixed
rate basis. The Company terminated its swap arrangements in October 2001 in
response to the continued downward movement in interest rates during fiscal 2002
and had no derivative contracts in place as of February 28, 2002.

Prior to March 1, 2001, the Company did not assign a value to the interest
rate swaps, and gains and losses from the swaps were included on the accrual
basis in interest expense. Effective March 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133 -- Accounting for Derivative
Instruments and Hedging Activities, as amended, ("Statement No. 133"), which
required that the Company record an asset or liability for the fair value of its
derivatives and that it mark such asset or liability to market on an ongoing
basis. Because the Company's interest rate swaps were defined as cash flow
hedges, changes to the derivative's market value were initially reported at the
adoption of the Statement as a component of other comprehensive loss to the
extent that the hedge was determined to be effective. Such changes were
subsequently reclassified into earnings when the related transaction (the
quarterly payment of variable rate interest) affected earnings. Changes in
market value attributable to the ineffective portion of a hedge were reported in
earnings immediately as incurred.

At March 1, 2001, the Company was a party to swap arrangements with a
notional amount of $50 million under which the Company paid interest at a fixed
rate of 6.2% and received interest at the LIBOR three-month rate (5.1% at March
1, 2001). Upon adoption of the Statement, the Company recorded an initial
derivative liability of approximately $0.7 million and incurred a charge to
other comprehensive loss ("OCL") totaling approximately $0.4 million (net of
tax). The charge to OCL represented the transition adjustment associated with
the cumulative effect on prior years of adopting Statement No. 133. As of
February 28, 2002, $0.2 million of the original net of tax charge has been
reclassified to interest expense, and the remaining $0.2 million will be
reclassified in fiscal 2003 resulting in a first quarter charge to interest
expense of $0.3 million. All other settlement costs under the swap arrangements
were ultimately charged to interest expense during the year.

The Company had no other derivative instruments during fiscal 2002, 2001
and 2000.

Revenue Recognition: The Company recognizes revenue from the sale of
hardware and software systems, from the delivery of maintenance and other
customer services associated with installed systems and from the provision of
its enhanced telecommunications services and IVR applications on an ASP (managed
service) basis.

Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements" (See Note D). Accordingly, for
systems that do not require customization to be performed by the Company,
revenue is recognized when there is persuasive evidence that an arrangement
exists, when the related hardware and software are delivered and any
installation or other post-delivery obligation has been fulfilled, when the fee
is fixed or determinable and when collection is probable.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For systems that require significant customization and where the completed
contract method of accounting is applicable, the Company now recognizes revenue
upon customer acceptance. For more complex, customized systems (generally
systems with a sales price greater than $500,000), the Company recognizes
revenue using the percentage of completion contract accounting methodology based
on labor inputs. Unbilled receivables accrued under this methodology totaled
$17.8 million and $24.1 million at February 28, 2002 and February 28, 2001,
respectively. Unbilled receivables at February 28, 2002 are anticipated to be
billed during the next twelve months. Billings under percentage of completion
contracts are typically made upon the satisfaction of contractually defined
milestones.

Research and Development. Research and development costs are expensed as
incurred.

Advertising Costs: Advertising costs are expensed as incurred. Advertising
expense was $1.4 million in fiscal 2002, $1.5 million in fiscal 2001 and $1.8
million in fiscal 2000.

Income Taxes: Deferred income taxes are recognized using the liability
method and reflect the tax impact of temporary differences between the amounts
of assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The Company provides a valuation allowance
for deferred tax assets in circumstances where it does not consider realization
of such assets to be more likely than not.

NOTE C -- MERGER WITH BRITE

During the second quarter of fiscal 2000, the Company acquired all of the
outstanding stock of Brite in a two-step transaction involving aggregate
consideration of approximately $165.1 million including $122.7 million of cash
and 2,985,792 shares of common stock valued at $42.4 million. Brite provided
voice processing and call processing systems and services which incorporate
prepaid/postpaid applications, voice response, voice recognition,
voice/facsimile messaging, audiotex and interactive computer applications into
both standard products and customized market solutions. The Company's
consolidated statements of operations reflect the results of operations of Brite
beginning June 1, 1999.

The merger has been accounted for as a purchase business combination. The
aggregate purchase price for Brite was $173.1 million, which included $3.2
million of direct costs and $4.8 million of assumed liabilities, primarily
accrued severance costs for Brite employees and lease termination/cancellation
costs, relating to the merger. As of February 28, 2002 and 2001, assumed
liabilities of $0.4 million and $1.0 million, respectively, remained
outstanding. Such costs, comprised primarily of lease termination accruals, are
anticipated to be paid out over the remaining lease terms. The components of the
aggregate purchase price were as follows (in millions):

Cash........................................................ $122.7
Issuance of common stock.................................... 42.4
Other direct costs of merger and assumed liabilities........ 8.0
------
$173.1
======

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The purchase price was allocated to identifiable tangible and intangible
assets acquired and liabilities assumed, based on their estimated fair values as
follows (in millions):

See "Note F -- Intangible Assets" for more information on intangible assets
and purchased in-process research and development.

In connection with this transaction, the Company obtained senior secured
credit facilities amounting to $150 million, comprised of a $125 million term
loan facility and a $25 million revolving credit agreement. See "Note
H -- Long-Term Borrowings and Existence of Forbearance Agreement" for a
description of the loan facilities.

The following unaudited pro forma information presents the Company's
results of operations for the fiscal year ended February 29, 2000 as if the
Brite merger had occurred at March 1, 1998. The pro forma information has been
prepared by combining the results of operations of the Company and Brite,
adjusted for additional amortization expense of identified intangibles and
goodwill, interest expense on the credit facilities, and the resulting impact on
the provision for income taxes. No adjustment has been made to account for the
two companies' different fiscal year ends. This pro forma information does not
purport to be indicative of what would have occurred had the Brite merger
occurred as of the date assumed or of results of operations which may occur in
the future. Fiscal 2002 and 2001 data, as reported, reflect the results of the
merged companies and, therefore, are not displayed below (in millions, except
per share data):

FISCAL YEAR ENDED
FEBRUARY 29,
2000
-----------------

Sales....................................................... $322.8
Income before income taxes.................................. $ 24.2
Net income.................................................. $ 16.6
Net income per share -- diluted............................. $ 0.49

Pro forma income before income taxes and net income for fiscal 2000 exclude
the effects of a $30.1 million charge for in-process research and development
acquired in the merger with Brite and approximately $15.0 million of special
charges related to the merger consisting primarily of employee severance
expenses and the write-off of certain inventory and intangible assets made
redundant in the merger.

NOTE D -- CHANGE IN ACCOUNTING PRINCIPLE FOR REVENUE RECOGNITION

Effective March 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." For systems that do not require
customization to be performed by the Company, revenue is now recognized when
there is persuasive evidence that an arrangement exists, when the related
hardware and software are delivered and any installation or other post-delivery
obligation has been fulfilled, when the fee is fixed or determinable

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and when collection is probable. In prior years, although the Company's
contracts often included installation and customer acceptance provisions,
revenue generally was recognized at the time of shipment based on the Company's
belief that no significant uncertainties about customer acceptance existed.

For systems that require significant customization and where the completed
contract method of accounting is applicable, the Company now recognizes revenue
upon customer acceptance. Prior to the implementation of SAB 101, the Company
recognized revenue on these systems upon completion of installation and testing
but prior to customer acceptance. For more complex, customized systems
(generally systems with a sales price greater than $500,000), the Company
continues to use a percentage of completion methodology based on labor inputs.
The Company also continues to recognize revenues from services when the services
are performed or ratably over the related contract period.

The cumulative effect of the change on prior years (which principally
relates to changes relating to customer acceptance provisions) resulted in a
charge to operations of $11.9 million (after reduction for income taxes of $6.4
million) which is included in results of operations for fiscal 2001. During
fiscal 2001, the Company recognized $22.4 million in revenue whose contribution
to income is included in the cumulative effect adjustment as of March 1, 2000.
Assuming the accounting change had been applied retroactively by the Company to
prior periods, unaudited pro forma net loss for fiscal 2000 would have been
($17.3) million. Unaudited net loss per common share would have been ($0.57) in
2000. Had the Company not adopted SAB 101, revenues for fiscal 2001 would have
been $255.5 million, and net loss per common share would have been ($0.02).

NOTE E -- INVENTORY

Inventory at February 28 consists of the following (in millions):

2002 2001
----- -----

Purchased parts............................................. $18.0 $33.1
Work in progress............................................ 6.9 6.0
Finished goods.............................................. 2.6 1.1
----- -----
$27.5 $40.2
===== =====

Amounts presented are net of inventory reserves totaling $13.5 million and
$2.6 million at February 28, 2002 and 2001, respectively. The Company recorded
approximately $10.9 million in special charges to reduce the carrying value of
inventories during fiscal 2002. See Note L.

NOTE F -- INTANGIBLE ASSETS

Intangible assets at February 28 include the following (in millions):

AMORTIZATION
LIVES 2002 2001
------------ ----- -----

Goodwill.................................................. 10 years $16.5 $23.4
Customer relations........................................ 10 years 23.8 27.1
Developed technology...................................... 5 years 8.6 16.8
Assembled workforce....................................... 5 years 4.1 6.0
Tradename................................................. 10 years -- 5.4
Other intangibles......................................... 5-12 years .9 1.1
----- -----
$53.9 $79.8
===== =====

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other intangibles include items such as patents, purchased software, and
licenses for technologies such as text to speech and speech recognition.

In connection with the Brite merger during the second quarter of 2000, the
Company acquired $74.5 million of identified intangible assets, $30.1 million of
in-process research and development, and $29.3 million of goodwill. The
estimates of fair value used in the Brite purchase price allocation were
determined by the Company's management based on information furnished by
management of Brite and an independent valuation of the purchased in-process R&D
and other identified intangibles, which included customer relationships,
developed technology, assembled workforce, and tradename.

Amounts allocated to in-process R&D were expensed at the time of
acquisition as the Company determined that the in-process R&D had not reached
technological feasibility based on the status of design and development
activities that require further refinement and testing. Brite's in-process R&D
related to technologies which support Brite's interactive voice response
(IVR)/computer telephony integration (CTI), intelligent network, messaging,
voice dialing, and prepaid/postpaid product families. The valuation of existing
product technology and in-process R&D was performed using the income approach,
which includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows. The income approach focuses on the income producing
capability of the existing products and in-process R&D projects and best
represents the present value of the future economic benefits expected to be
derived. Significant assumptions used in the valuation of in-process R&D
included the stages of completion of R&D projects, projected operating cash
flows, and the discount rate. At the time of the merger, Brite management
estimated the remaining cost to complete the in-process R&D projects to be
approximately $1.6 million with a remaining time requirement of approximately
8-12 months. Projected operating cash flows were expected to begin in fiscal
2000. The discount rate selected for Brite's in-process technologies was 27.5%.
The projects were completed in fiscal 2001.

During the fourth quarter of fiscal 2002, the Company performed a
comprehensive review of the current and future positioning of all product lines,
including lines brought forward from its merger with Brite. As a result of
decisions made during this review, the Company performed impairment tests in
accordance with its stated policies on the Brite tradename and on certain of the
developed technology associated with the Brite acquisition. Based on these
tests, the Company recorded impairment charges of $4.8 million and $3.2 million,
respectively, to reduce the carrying value of these intangible assets and an
additional charge of $3.7 million to reduce the carrying value of goodwill
associated with the impaired assets.

On September 15, 1998, the Company purchased a computer telephony software
suite from Dronen Consulting, Incorporated for $3.5 million in cash and 75,000
shares of the Company's stock valued at $1.5 million. The transaction was
accounted for as an asset purchase. The full purchase price of $5.0 million was
being amortized over the software suite's estimated useful life of five years.
In fiscal 2001, the remaining book value of approximately $2.9 million was
written off to cost of goods sold as a result of the Company's decision to
discontinue its AgentConnect product.

The Company purchased the Enhanced Services Platform (ESP) product line and
certain other assets from Integrated Telephony Products, Inc. on February 26,
1998 in a transaction accounted for as a purchase. The purchase price of $5.2
million was comprised of $4.6 million in cash, Company common stock valued at
$0.5 million and other direct acquisition costs totaling $0.1 million. Based on
appraised value, a portion of the purchase price was allocated to two purchased
research and development projects. The amount allocated to the purchased
research and development projects was expensed at the time of acquisition as the
Company determined that the purchased research and development projects had not
reached technological feasibility. This allocation resulted in a $1.2 million
charge, net of taxes, to the Company's operations in fiscal year 1998. The
remaining purchase price was allocated, based on appraisals, to software ($3.1
million), net tangible assets ($0.3 million), and deferred tax assets ($0.6
million). During the second quarter of fiscal 2000, the

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

remaining balances of approximately $2.2 million were written off to recognize
the redundancy of the ESP product line as a result of the Company's merger with
Brite.

NOTE G -- ACCRUED EXPENSES

Accrued expenses consisted of the following at February 28 (in millions):

2002 2001
----- -----

Accrued compensation........................................ $ 4.6 $ 6.2
Other....................................................... 6.2 10.7
Other long-term............................................. 1.9 --
----- -----
$12.7 $16.9
===== =====

NOTE H -- FINANCIAL CONDITION AND LONG-TERM BORROWINGS

During fiscal 2000, the Company entered into a $125 million amortizing term
loan facility and a $25 million revolving credit facility to finance the merger
with Brite. Initial borrowings under the facilities were $135 million. At
February 28, 2002 and 2001, the outstanding borrowings under the term loans and
revolving credit facilities were as follows (in millions). The balance sheet
classification reflects the terms of the refinancing transactions described
below.

2002 2001
----- ------

Revolving credit............................................ $ 7.5 $ 7.5
Term loans.................................................. 22.5 42.1
Less: current portion....................................... (6.0) (18.5)
----- ------
$24.0 $ 31.1
===== ======

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REFINANCING TRANSACTIONS

The lenders issued commitment letters to enter into a Consent, Waiver, and
Third Amendment to Credit Agreement (the "Third Amendment") to be effective as
of May 29, 2002, pursuant to which the lenders will waive the Company's default
under the financial covenant. The effectiveness of the Third Amendment is
conditioned on funding under the Convertible Notes, which is scheduled for May
30, 2002. See discussion below.

CONVERTIBLE NOTES, WARRANTS AND REGISTRATION REQUIREMENTS

On May 29, 2002, the Company entered into a Securities Purchase Agreement,
by and among the Company and the buyers named therein (the "Buyers"), pursuant
to which the Buyers agreed to purchase Convertible Notes (the "Convertible
Notes"), in an aggregate principal amount of $10.0 million, convertible into
shares of the Company's common stock (the "Conversion Shares"), and Warrants
(the "Warrants") initially exercisable for an aggregate of 621,303 shares of the
Company's common stock (the "Warrant Shares") at an exercise price of $4.0238
per share. Buyers' obligations to purchase the Convertible Notes and Warrants
under the Securities Purchase Agreement are subject to and conditioned upon
execution of the Third Amendment. The following is a summary of the material
terms of the Convertible Notes, the Warrants and certain registration
requirements:

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AMORTIZATION OF CONVERTIBLE NOTES

CONVERSION OF CONVERTIBLE NOTES AT THE OPTION OF THE HOLDER

ACCELERATION AND DEFAULT PROVISIONS IN CONVERTIBLE NOTES

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

immediately preceding such event. Circumstances under which the holders may
redeem the Convertible Notes include, without limitation, the failure to obtain
and/or maintain the effectiveness of a registration statement, suspension from
trading or the failure to be listed for a period of 5 consecutive trading days
or for more than 10 trading days in any 365-day period, the failure to timely
deliver shares of common stock and a material breach by the Company under the
transaction documents.

WARRANTS

REGISTRATION REQUIREMENTS

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

by June 14, 2002 a registration statement covering the resale of the Conversion
Shares and the Warrant Shares. The Company is required to have the Registration
Statement declared effective within 120 days of the issuance date. The Company
is required to pay cash penalties (as set forth in the Registration Rights
Agreement) to the holders of the Notes if the registration statement is not
filed or not declared effective as of those dates. The failure to have the
Registration Statement declared effective within 150 days of the issuance date
is also a "Triggering Event" for purposes of the Convertible Notes.

MORTGAGE LOAN

USE OF PROCEEDS

From July 1999 through October 2001, the Company used interest rate swap
arrangements to hedge the variability of interest payments on its variable rate
credit facilities. While in effect, the swap arrangements essentially converted
the Company's outstanding floating rate debt to a fixed rate basis. The Company
terminated its swap arrangements in October 2001 in response to the continued
downward movement in interest rates during fiscal 2002 and had no derivative
contracts in place as of February 28, 2002. Of the $4.9 million total interest
expense in fiscal 2002, approximately $1.5 million was attributable to net
settlements under the interest rate swap arrangements. The Company benefited
from net settlements of approximately $0.2 million and $0.1 million in fiscal
2001 and fiscal 2000, respectively.

NOTE I -- INCOME TAXES

Income (loss) before income taxes and the cumulative effect of a change in
accounting principle attributable to domestic and foreign operations was
approximately $(56.9) million and $1.8 million, respectively, in fiscal 2002,
approximately $(12.7) million and $27.3 million, respectively, in fiscal 2001
and approximately $(21.1) million and $14.8 million, respectively, in fiscal
2000.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Details of the income tax provision (benefit) attributable to income (loss)
before income taxes and the cumulative effect of a change in accounting
principle are as follows (in millions):

2002 2001 2000
------ ----- -----

INCOME TAX PROVISION (BENEFIT):
Current:
Federal................................................ $ 4.4 $(5.0) $ 3.9
State.................................................. 0.3 0.6 (0.7)
Foreign................................................ 1.8 8.6 4.7
------ ----- -----
Total current........................................ 6.5 4.2 7.9
------ ----- -----
Deferred:
Federal................................................ (12.8) 0.9 0.5
State.................................................. (3.4) -- 0.1
Foreign................................................ (0.7) -- --
------ ----- -----
Total deferred....................................... (16.9) 0.9 0.6
------ ----- -----
$(10.4) $ 5.1 $ 8.5
====== ===== =====

A reconciliation of the Company's income taxes (benefit) with the United
States Federal statutory rate is as follows (in millions):

2002 2001 2000
------ ----- -----

Federal income taxes (benefit) at statutory rates........... $(19.3) $ 5.1 $(2.2)
Operating losses and credit carryforwards not benefited..... 7.7 -- --
Goodwill amortization and impairment........................ 2.2 1.0 0.7
Effect of non-US rates...................................... 0.5 (1.0) (0.4)
Research and development tax credit......................... -- (1.0) (0.8)
State taxes, net of federal effect.......................... -- 0.7 (0.4)
Purchased in-process R&D charge............................. -- -- 10.5
Other....................................................... (1.5) 0.3 1.1
------ ----- -----
$(10.4) $ 5.1 $ 8.5
====== ===== =====

Income taxes (refunds), net, of $4.1 million, $(6.9) million and $4.2
million were paid (received) in fiscal 2002, 2001 and 2000, respectively.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred taxes result from the effect of transactions which are recognized
in different periods for financial and tax reporting purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
at February 28 (in millions):

2002 2001
------ ------

DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................... $ 9.7 $ --
Tax credit carryforwards.................................. 5.0 --
Inventory................................................. 4.5 1.9
Accrued expenses.......................................... 4.3 1.1
Allowance for doubtful accounts........................... 1.0 1.1
Depreciation and amortization............................. 1.0 2.7
Other items............................................... 2.6 1.5
------ ------
Total deferred tax assets.............................. 28.1 8.3
Valuation allowance....................................... (14.3) --
------ ------
Net deferred tax assets................................ 13.8 8.3
------ ------
DEFERRED TAX LIABILITIES:
Acquisition-related identified intangibles................ (12.8) (22.6)
Capitalized software...................................... -- (1.2)
Other items............................................... (0.2) (0.7)
------ ------
Total deferred tax liabilities......................... (13.0) (24.5)
------ ------
Net deferred tax assets (liabilities).................. $ 0.8 $(16.2)
====== ======

At February 28, 2002, the Company had US net operating loss carryforwards
totaling $27.6 million, including $8.6 million which will expire in 2021 and
$19.0 million which will expire in 2022. The Company also had $3.3 million, $1.4
million and $0.4 million in research and development, foreign tax and
alternative minimum tax credit carryforwards, respectively, at February 28,
2002. If unused, the R&D tax credit carryforwards will begin to expire in 2019,
and the foreign tax credit carryforwards will begin to expire in 2005.

The Company has established a valuation allowance of $14.3 million against
its net deferred tax assets, including the carryforwards described above. The
Company believes the existence of recent losses in its US operations prevents it
from concluding that it is more likely than not that US deferred tax assets will
be realized. If some or all of such reserved deferred tax assets are ultimately
realized, approximately $2.2 million of the valuation allowance reversal related
to stock option deductions will not provide future benefit to income but rather
will be credited to additional capital. The Company has not provided a valuation
allowance for deferred assets associated with its foreign subsidiaries, because
it believes it is more likely than not that such deferred tax assets will be
realized.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE J -- STOCKHOLDERS' EQUITY

1990 EMPLOYEE STOCK OPTION PLAN

A stock option plan is in effect under which shares of common stock were
authorized for issuance by the Compensation Committee of the Board of Directors
as stock options to key employees. Option prices per share are the fair market
value per share of stock, based on the closing per share price on the date of
grant. The Company has granted options at various dates with terms under which
the options generally become exercisable at the rate of 20%, 25% or 33% per
year. Options becoming exercisable at 33% per year expire six or ten years after
the date of grant. Options becoming exercisable at 20% or 25% per year expire
ten years after the date of grant.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
--------- ----------------

Balance at February 28, 1999.............................. 2,836,818 $6.03
Granted................................................. -- --
Exercised............................................... (541,202) 5.08
Forfeited............................................... (87,851) 4.84
--------- -----
Balance at February 29, 2000.............................. 2,207,765 $6.31
Granted................................................. 253,000 7.41
Exercised............................................... (391,492) 4.97
Forfeited............................................... (145,971) 5.17
--------- -----
Balance at February 28, 2001.............................. 1,923,302 $6.82
Granted................................................. -- --
Exercised............................................... (229,184) 5.05
Forfeited............................................... (22,234) 6.65
--------- -----
Balance at February 28, 2002.............................. 1,671,884 $7.06
========= =====

A total of 1,541,634 employee options were exercisable at an average price
of $7.21 at February 28, 2002.

1998 EMPLOYEE NON-QUALIFIED PLAN

During fiscal 1999, the Company adopted a stock option plan under which
shares of common stock may be authorized for issuance by the Compensation
Committee of the Board of Directors as non-qualified stock options to key
employees. Option prices per share are the fair market value per share of stock,
based on the closing price per share on the date of grant. The Company has
granted options at various dates with terms

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

under which the options become exercisable at a rate of 25% or 33% per year and
are exercisable for a period of ten years after the date of grant.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
-------- ----------------

Balance at February 28, 1999............................... 979,500 $ 6.28
Granted.................................................. 40,000 10.80
Exercised................................................ (113,742) 6.18
Forfeited................................................ (60,834) 9.02
-------- ------
Balance at February 29, 2000............................... 844,924 $ 6.24
Granted.................................................. -- --
Exercised................................................ (60,418) 4.98
Forfeited................................................ (67,501) 6.53
-------- ------
Balance at February 28, 2001............................... 717,005 $ 6.47
Granted.................................................. -- --
Exercised................................................ (328,671) 7.03
Forfeited................................................ (12,916) 9.27
-------- ------
Balance at February 28, 2002............................... 375,418 $ 5.83
======== ======

A total of 322,168 employee options were exercisable at an average price of
$5.61 at February 28, 2002.

1999 NON-QUALIFIED PLAN

During fiscal 2000, the Company adopted a stock option plan under which
shares of common stock may be authorized for issuance by the Compensation
Committee of the Board of Directors as non-qualified stock options to key
employees and non-employee members of the Company's Board of Directors. Option
prices per share are the fair market value per share of stock, based on the
average of the high and low price per share on the date of grant. The Company
has granted options to employees at various dates with terms under which the
options become exercisable at a rate of 25% or 33% per year and are exercisable
for a period of ten years after the date of grant. In addition, the Company has
granted options to non-employee directors at various dates with terms under
which the options become exercisable within the period specified in the
optionee's agreement and are exercisable for a period of ten years from the date
of grant.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
--------- ----------------

Balance at February 29, 2000.............................. 1,503,000 $14.88
Granted................................................. 2,458,000 7.92
Exercised............................................... (10,000) 6.88
Forfeited............................................... (541,063) 10.99
--------- ------
Balance at February 28, 2001.............................. 3,409,937 $10.50
Granted................................................. 259,000 11.47
Exercised............................................... (168,223) 8.27
Forfeited............................................... (317,398) 11.37
--------- ------
Balance at February 28, 2002.............................. 3,183,316 $10.62
========= ======

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A total of 1,442,297 employee options and 66,000 non-employee options were
exercisable at an average price of $11.57 at February 28, 2002.

1990 NON-EMPLOYEE OPTION PLAN

Under the 1990 non-employee stock option plan, nonqualified stock options
were issued to non-employee members of the Company's Board of Directors in
accordance with a formula prescribed by the plan. Option prices per share are
the fair market value per share, based on the closing per share price on the
date of grant. Each option became exercisable within the period specified in the
optionee's agreement and is exercisable for 10 years from the date of grant.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
------- ----------------

Balance at February 28, 1999................................ 127,000 $7.51
Exercised................................................. (35,000) 8.63
------- -----
Balance at February 29, 2000................................ 92,000 $7.08
Exercised................................................. (8,000) 4.25
------- -----
Balance at February 28, 2001................................ 84,000 $7.35
Granted................................................... -- --
Exercised................................................. (8,000) 6.97
------- -----
Balance at February 28, 2002................................ 76,000 $7.39
======= =====

A total of 76,000 non-employee options were exercisable at an average price
of $7.39 at February 28, 2002.

EMPLOYEE STOCK PURCHASE PLAN

The Company has adopted an Employee Stock Purchase Plan under which an
aggregate of 1,000,000 shares of common stock may be issued. Options are granted
to eligible employees in accordance with a formula prescribed by the plan and
are exercised automatically at the end of a one-year payroll deduction period.
As adopted, the payroll deduction periods began either December 1 or June 1 and
ended on the following November 30 and May 31, respectively. During fiscal 2000,
the payroll deduction periods were amended to coincide with a calendar year
cycle, with deductions beginning either January 1 or July 1 and

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ending on the following December 31 and June 30, respectively. Option prices are
85% of the lower of the closing price per share of the Company's common stock on
the option grant date or the option exercise date.

WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
-------- ----------------

Balance at February 28, 1999............................... 88,468 $ 8.61
Granted.................................................. 90,244 15.50
Exercised................................................ (76,608) 8.49
Forfeited................................................ (11,860) 9.37
-------- ------
Balance at February 29, 2000............................... 90,244 $15.50
Granted.................................................. 236,505 5.80
Exercised................................................ (62,213) 7.93
Forfeited................................................ (28,031) 7.12
-------- ------
Balance at February 28, 2001............................... 236,505 $ 5.80
Granted.................................................. 130,518 10.29
Exercised................................................ (194,455) 5.84
Forfeited................................................ (42,050) 5.62
-------- ------
Balance at February 28, 2002............................... 130,518 $10.29
======== ======

The grant price per option outstanding is either $9.35 or $10.88.

As of February 28, 2002, no options were exercisable under this plan.

As of February 28, 2002, 6,257,440 shares of common stock were reserved for
future issuance under all option plans as follows:

SHARES AVAILABLE FOR
------------------------------
OUTSTANDING FUTURE STOCK
PLAN NAME STOCK OPTIONS OPTION GRANTS
--------- ------------- -------------

1990 Employee Stock Option Plan........................... 1,671,884 --
1998 Employee Non-Qualified Plan.......................... 375,418 121,751
1999 Non-Qualified Plan................................... 3,183,316 638,461
1990 Non-Employee Option Plan............................. 76,000 --
Employee Stock Purchase Plan.............................. 130,518 60,092
--------- -------
Total........................................... 5,437,136 820,304
========= =======

RESTRICTED STOCK PLAN

During fiscal 1996, the Company adopted a Restricted Stock Plan under which
an aggregate of 1,000,000 shares may be issued. Shares issued to senior
executives are earned based on the achievement of certain targeted share prices
and the continued service of each executive for a two-year period after each
target is met. Shares are available for annual grants to other key executives as
a component of their annual bonuses on the achievement of targeted annual
earnings per share objectives and the completion of an additional two years of
service after the grant.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity related to restricted stock during fiscal 2002, 2001 and 2000 is
as follows:

SENIOR
EXECUTIVE
PLAN
---------

Balance at February 28, 1999................................ 46,914
Granted................................................... 107,164
-------
Balance at February 29, 2000................................ 154,078
Forfeited................................................. (20,000)
Vested.................................................... (46,914)
-------
Balance at February 28, 2001................................ 87,164
Vested.................................................... (87,164)
-------
Balance at February 28, 2002................................ --
=======

The weighted average share price for grants in fiscal year 2000 was $31.75
for the Senior Executive Plan. Shares forfeited in fiscal 2001 had been granted
at a weighted average share price of $34.22. At February 28, 2002, 770,570
shares were reserved for future restricted stock grants.

OTHER STOCK AWARD PLAN DISCLOSURES

Because the Company has elected to continue to apply the provisions of APB
25 for expense recognition purposes, Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", ("FAS 123") requires
disclosure of pro forma information which provides the effects on net income and
net income per share as if the Company had accounted for its employee stock
awards under fair value methods prescribed by FAS 123. Because options vest over
several years and additional option grants may occur in the future, the pro
forma effects of employee stock options accounted for under FAS 123 are not
likely to be representative of similar future calculations. The fair value of
the Company's employee stock awards was estimated using a Black-Scholes option
pricing model with the following weighted-average assumptions for fiscal 2002,
2001 and 2000, respectively: risk-free interest rates of 3.71%, 6.37% and 5.50%;
stock price volatility factors of 0.96, 1.06 and 0.72; and expected option lives
of 3.75 years. The Company does not have a history of paying dividends, and none
have been assumed in estimating the fair value of the options. The
weighted-average fair value per share of options granted in fiscal 2002, 2001
and 2000 was $7.44, $5.02 and $8.22, respectively.

Required Pro Forma Disclosures (in millions, except per share data):

2002 2001 2000
------ ------ ------

Net loss................................................... $(50.6) $ (9.3) $(22.0)
Loss per diluted common share.............................. $(1.51) $(0.27) $(0.72)

Options Outstanding at February 28, 2002:

WEIGHTED AVERAGE
REMAINING
WEIGHTED AVERAGE CONTRACTUAL LIFE
EXERCISE PRICES SHARES EXERCISE PRICE IN YEARS
--------------- --------- ---------------- ----------------

$ 4.50 - 6.73............................. 2,179,612 $ 5.47 6.81
$ 6.81 - 10.38............................. 1,553,939 $ 9.09 7.10
$10.56 - 34.41............................. 1,703,585 $13.89 7.08
---------
5,437,136
=========

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options Exercisable at February 28, 2002:

WEIGHTED AVERAGE
REMAINING
WEIGHTED AVERAGE CONTRACTUAL LIFE
EXERCISE PRICES SHARES EXERCISE PRICE IN YEARS
--------------- --------- ---------------- ----------------

$ 4.50 - 6.13............................. 1,488,734 $ 5.22 6.31
$ 6.19 - 14.44............................. 1,126,035 $ 9.51 6.17
$14.88 - 34.41............................. 833,330 $14.94 7.48
---------
3,448,099
=========

PREFERRED SHARE PURCHASE RIGHTS

One Preferred Share Purchase Right is attached to each outstanding share of
the Company's common stock. The rights will become exercisable upon the earlier
to occur of ten days after the first public announcement that a person or group
has acquired beneficial ownership of 20 percent or more, or ten days after a
person or group announces a tender offer that would result in beneficial
ownership of 20 percent or more of the Company's outstanding common stock. At
such time as the rights become exercisable, each right will entitle its holder
to purchase one eight-hundredth of a share of Series A Preferred Stock for
$37.50, subject to adjustment. If the Company is acquired in a business
combination transaction while the rights are outstanding, each right will
entitle its holder to purchase for $37.50 common shares of the acquiring company
having a market value of $75. In addition, if a person or group acquires
beneficial ownership of 20 percent or more of the Company's outstanding common
stock, each right will entitle its holder (other than such person or members of
such group) to purchase, for $37.50, a number of shares of the Company's common
stock having a market value of $75. Furthermore, at any time after a person or
group acquires beneficial ownership of 20 percent or more (but less than 50
percent) of the Company's outstanding common stock, the Board of Directors may,
at its option, exchange part or all of the rights (other than rights held by the
acquiring person or group) for shares of the Company's common stock on a
one-for-one basis. At any time prior to the acquisition of such a 20 percent
position, the Company can redeem each right for $0.00125. The Board of Directors
is also authorized to reduce the 20 percent thresholds referred to above to not
less than 10 percent. The rights expire in May, 2011.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCUMULATED COMPREHENSIVE LOSS

Changes in accumulated comprehensive loss are as follows (in millions):

FOREIGN FAS 133
CURRENCY DERIVATIVE
TRANSLATION LIABILITY
ADJUSTMENTS ADJUSTMENTS TOTAL
----------- ----------- -----

Balance at February 28, 1999.......................... $ -- $ -- $ --
Foreign Currency Translation Adjustments............ (0.9) -- (0.9)
----- ----- -----
Balance at February 29, 2000.......................... (0.9) -- (0.9)
Foreign Currency Translation Adjustments............ (3.1) -- (3.1)
----- ----- -----
Balance at February 28, 2001.......................... (4.0) -- (4.0)
Foreign Currency Translation Adjustments............ (1.7) -- (1.7)
Cumulative Effect of Adopting FAS 133, net of tax
effect of $261................................... -- (0.4) (0.4)
Reclassification of derivative losses into earnings,
net of tax effect of $(143)...................... -- 0.2 0.2
----- ----- -----
Balance at February 28, 2002.......................... $(5.7) $(0.2) $(5.9)
===== ===== =====

NOTE K -- LEASES

Rental expense, before the effect of special charges discussed in Note L,
was $3.9 million, $3.6 million and $2.7 million in fiscal 2002, 2001 and 2000,
respectively. Rental costs in all years generally related to office and
manufacturing facility leases. The lease agreements include purchase and renewal
provisions and require the company to pay taxes, insurance and maintenance
costs. At February 28, 2002, the Company was committed under noncancelable
operating leases with minimum rentals of $4.5 million, $3.1 million, $2.5
million, $1.9 million, and $0.7 million for fiscal years 2003, 2004, 2005, 2006,
2007. Of the total commitments under noncancelable operating leases, $3.5
million has already been charged to expense as of February 28, 2002 in
connection with the fiscal 2002 and fiscal 2000 special charges described in
Note L.

NOTE L -- SPECIAL CHARGES AND NON-RECURRING GAIN

FISCAL 2002

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the effect of these special charges on
fiscal 2002 operations by financial statement category (in millions).

COST OF RESEARCH & IMPAIRMENT
GOODS SOLD DEVELOPMENT SG&A OF INTANGIBLES TOTAL
---------- ----------- ---- -------------- -----

Write down of intangible assets and
inventories associated with discontinued
product lines............................ $ 4.4 $ -- $0.3 $11.7 $16.4
Write down of excess inventories........... 6.5 -- -- -- 6.5
Severance payments and related benefits.... 2.2 0.8 2.2 -- 5.2
Facilities closures........................ -- -- 4.2 -- 4.2
Write down of non-productive fixed
assets................................... 0.3 0.7 0.1 -- 1.1
----- ---- ---- ----- -----
Total................................. $13.4 $1.5 $6.8 $11.7 $33.4
===== ==== ==== ===== =====

The $11.7 million write down of intangible assets reflects the impairment
of the Brite tradename, the impairment of certain IVR technology acquired as
part of the Brite acquisition and the impairment of related goodwill (See Note
F). The $4.4 million write down of inventories and $0.3 million charge to SG&A
relate to the Company's decision to discontinue sales of certain earlier
versions of its payment and messaging systems that run on a different hardware
platform than that used by the current versions of those systems. The additional
writedown of inventories totaling approximately $6.5 million relates to items
which the Company will continue to use in current sales situations but which,
given the slowdown in market demand, it held in excess quantities at year end.

As part of its fiscal 2002 initiatives, the Company announced plans to
forego expansion into existing leased space in Allen, Texas and to close its
Jacksonville, Florida and Wichita, Kansas locations. As a result of these
actions, the Company recorded charges of approximately $4.2 million, including
approximately $3.8 million accrued for future lease commitments and
approximately $0.4 million for accelerated depreciation expense arising from a
reassessment of the useful lives of certain related property and equipment. As
part of its overall facilities assessment, the Company also identified and wrote
off approximately $1.1 million of fixed assets no longer being used by the
Company. As of February 28, 2002, approximately $3.6 million of the accrued
lease costs remain unpaid. The Company expects to continue operations in Wichita
through May 2002. In April 2002, the Company entered into an agreement to sell
its Wichita facility to a third party for $2.0 million. Closing is expected as
early as May 2002. Proceeds from the sale will be used to reduce amounts
outstanding under the Company's credit facilities. (See Note H.)

The severance and related costs recognized in the fourth quarter of fiscal
2002 were associated with two workforce reductions that affected 198 employees,
including 57 and 113 in the Company's ESD and NSD divisions, respectively, and
28 in the Company's corporate manufacturing and administrative areas. As of
February 28, 2002, approximately $3.0 million of the total severance and related
costs remained unpaid. Unpaid amounts are expected to be paid in full during
fiscal 2003.

FISCAL 2001

During the fourth quarter of fiscal 2001, the Company changed its
organizational structure and eliminated certain product offerings in order to
reduce costs and improve the Company's focus in its core competencies and
products. As a result of these actions, the Company incurred special charges of
approximately $8.2 million, including $3.6 million for severance and related
costs, $3.1 million for the write off of assets associated with discontinued
product lines and $1.5 million for the estimated customer accommodations related
to the discontinued product lines.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

total costs incurred, $1.3 million, $0.4 million and $1.9 million were charged
to cost of goods sold, research and development expenses and selling, general
and administrative expenses, respectively. As of February 28, 2001, $1.8 million
of the total severance and related costs remained unpaid. During fiscal 2002,
the Company charged payments of $1.4 million against this accrual. During the
third quarter of fiscal 2002, the Company determined that it had settled its
severance related obligations for less than originally anticipated, and,
accordingly, the Company reversed the remaining accrual of $0.4 million,
reducing selling, general and administrative expenses.

The $3.1 million charge to write off assets is primarily attributable to
the Company's decision to discontinue its AgentConnect product line and includes
a $2.9 million charge for the impairment of unamortized purchased software
(included in other intangibles) associated with this product. The charge is
reflected in cost of goods sold. The $1.5 million charge for estimated customer
accommodations is comprised primarily of bad debts and customer settlements
associated with the Company's decision to discontinue the AgentConnect product
line. This charge is reflected in selling, general and administrative expenses.
During fiscal 2002, the Company reached settlements with its affected customers
for amounts that were less than originally anticipated. As a result, it charged
settlements of $1.0 million against this accrual and reversed $0.5 million of
the accrual, reducing selling, general and administrative expenses in the third
fiscal quarter.

During the fourth quarter of fiscal 2001, the Company realized a gain of
$21.4 million upon the sale of shares of stock of SpeechWorks International,
Inc. acquired through the exercise of a warrant received in connection with a
1996 supply agreement between the Company and SpeechWorks. This gain is
reflected as other income in the accompanying Consolidated Statements of
Operations. In prior periods, the warrant had been assigned no value in the
Company's balance sheets because the warrant and the underlying shares were
unregistered securities, and significant uncertainties existed regarding the
Company's ability to monetize the warrant and the timing of any such
monetization.

FISCAL 2000

Fiscal 2000 income from operations and net loss were impacted by second
quarter special charges of $15.0 million including: $9.1 million reported in
cost of goods sold relating to a comprehensive cross-license agreement with an
affiliate of Lucent Technologies, Inc. and provisions for inventories and
certain intangible assets made obsolete by the Company's merger with Brite; and
$5.9 million reported in selling, general and administrative expenses primarily
relating to severance charges for InterVoice employees made redundant as a
result of the merger with Brite and charges relating to bad debts arising from
the impairment of certain foreign accounts receivable and from the cancellation
of certain customer trade-in obligations. Substantially all of the severance
amounts were paid by February 29, 2000. The Company also charged $30.1 million
to research and development relating to purchased in-process research and
development as part of the Brite acquisition (See Note C).

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE M -- EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

YEAR ENDED FEBRUARY 28/29
---------------------------
2002 2001 2000
------- ------- -------
(IN MILLIONS, EXCEPT
PER SHARE DATA)

NUMERATOR:
Income (loss) before the cumulative effect of a change in
accounting principle..................................... $(44.7) $ 9.6 $(14.8)
Cumulative effect on prior years of adopting SAB No. 101... -- (11.9) --
------ ------ ------
Net Loss................................................... $(44.7) $ (2.3) $(14.8)
------ ------ ------
DENOMINATOR:
Denominator for basic earnings per share................... 33.4 32.7 30.5
Effect of dilutive securities:
Employee stock options................................... -- 1.6 --
------ ------ ------
Denominator for diluted earnings per share................. 33.4 34.3 30.5
BASIC:
Income (loss) before the cumulative effect of a change in
accounting principle..................................... $(1.34) $ 0.29 $(0.49)
Cumulative effect on prior years of adopting SAB No. 101... -- (0.36) --
------ ------ ------
Net Loss................................................... $(1.34) $(0.07) $(0.49)
====== ====== ======
DILUTED:
Income (loss) before the cumulative effect of a change in
accounting principle..................................... $(1.34) $ 0.28 $(0.49)
Cumulative effect on prior years of adopting SAB No. 101... -- (0.35) --
------ ------ ------
Net Loss................................................... $(1.34) $(0.07) $(0.49)
====== ====== ======

Options to purchase 5,437,136, 6,370,749 and 4,737,933 shares of common
stock at average exercise prices of $9.14, $8.72 and $9.23, respectively, were
outstanding at February 28, 2002, February 28, 2001 and February 29, 2000,
respectively, but were not included in the computations of diluted earnings
(loss) per share because the effect would have been anti-dilutive to the
calculations. For fiscal 2002 and 2000, the anti-dilution is due to the loss for
the year. For fiscal 2001, the anti-dilution is due to options' exercise prices
which were greater than the average market prices of the common shares.

NOTE N -- OPERATING SEGMENT INFORMATION AND MAJOR CUSTOMERS

Beginning in fiscal 2002, the Company has defined two reportable segments:
the Enterprise Solutions Division ("ESD") and the Network Solutions Division
("NSD"). The ESD focuses on the interactive voice response (IVR) market in which
the Company provides automated customer service and self-help solutions to
enterprises and institutions. The NSD focuses on the enhanced telecommunications
market in which the Company provides value-added, revenue generating solutions
to network service providers. Each division sells integrated systems and related
services including system maintenance and software licenses. As a complement to
the Company's systems sales, the NSD also provides and manages enhanced network
services and IVR applications for customers on an application service provider
(ASP) basis.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's reportable segments are strategic business units that focus
on separate customer groups. They are managed separately to enable the Company
to target its product development and marketing efforts to meet the unique needs
of the Company's target markets.

The accounting policies of the segments are the same as those of the
Company. The Company evaluates performance based on profit or loss from
operations before income taxes, excluding the amortization of goodwill and
acquisition related intangible assets. Corporate operating expenses are
allocated to the segments based on budgeted and historical percentages of
revenue. The Company does not have material intersegment sales and does not
allocate Company assets to individual segments.

The operating results of the Company's segments for the fiscal years ended
February 28, 2002 and 2001 are as follows (in millions):

2002 2001
------------------------------- -------------------------------
ENTERPRISE NETWORK ENTERPRISE NETWORK
SOLUTIONS SOLUTIONS TOTAL SOLUTIONS SOLUTIONS TOTAL
---------- --------- ------ ---------- --------- ------

Systems.............................. $ 77.6 $ 48.8 $126.4 $ 95.8 $ 86.9 $182.7
Services............................. 30.8 54.4 85.2 25.6 66.4 92.0
------ ------ ------ ------ ------ ------
Total sales to external
customers....................... 108.4 103.2 211.6 121.4 153.3 274.7
------ ------ ------ ------ ------ ------
Systems.............................. 33.6 5.6 39.2 47.2 39.7 86.9
Services............................. 22.3 24.6 46.9 14.8 33.3 48.1
------ ------ ------ ------ ------ ------
Total gross margin................. 55.9 30.2 86.1 62.0 73.0 135.0
------ ------ ------ ------ ------ ------
Segment operating expenses........... 52.4 60.2 112.6 61.6 59.2 120.8
------ ------ ------ ------ ------ ------
Segment operating income (loss)*..... $ 3.5 $(30.0) $(26.5) $ 0.4 $ 13.8 $ 14.2
====== ====== ====== ====== ====== ======

---------------

* Consolidated income (loss) from operations includes amortization and
impairment of goodwill and acquisition related intangible assets of $25.1
million and $13.8 million for fiscal 2002 and 2001, respectively, that is not
allocated by the Company to individual segments.

Operating expenses by segment for fiscal 2000 are not available, but ESD
system and services sales for the year were $109.0 million and $30.8 million,
respectively, and NSD system and services sales were $104.7 million and $41.7
million, respectively.

GEOGRAPHIC OPERATIONS

Revenues are attributed to geographic locations based on locations of
customers. The Company's net sales by geographic area for fiscal years 2002,
2001 and 2000 were as follows (in millions):

REVENUES: 2002 2001 2000
--------- ------ ------ ------
(IN MILLIONS)

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's fixed assets by geographic location are as follows:

PROPERTY AND EQUIPMENT: 2002 2001
----------------------- ----- -----
(IN MILLIONS)

United States............................................... $21.9 $28.0
United Kingdom.............................................. 4.5 7.9
----- -----
$26.4 $35.9
===== =====

CONCENTRATION OF REVENUE

One NSD customer, British Telecom (together with its affiliate BT Cellnet),
has purchased both systems and ASP managed services from the Company. Such
combined purchases accounted for 15%, 19% and 16% of the Company's total sales
during fiscal 2002, 2001 and 2000, respectively. Under the terms of its managed
services contract with BT Cellnet and at current exchange rates the Company will
recognize revenues of $0.9 million per month through July 2003. The amount
received under the agreement may vary based on future changes in the exchange
rate between the dollar and the British pound. There were no other customers
accounting for 10% or more of the Company's sales during the three years ended
February 28, 2002.

NOTE O -- CONCENTRATIONS OF CREDIT RISK

The Company sells systems directly to end-users and distributors primarily
in the banking and financial, telecommunications, human resource, and healthcare
markets. Customers are dispersed across different geographic areas, primarily
North America and Europe. Credit is extended based on an evaluation of a
customer's financial condition, and a deposit is generally required. The Company
has made a provision for credit losses in these financial statements.

NOTE P -- EMPLOYEE BENEFIT PLAN

The Company sponsors an employee savings plan in the United States which
qualifies under section 401(k) of the Internal Revenue Code. All full time
employees who have completed three months of service are eligible to participate
in the plan. The Company matches 50% of employee contributions up to 6% of the
employee's eligible compensation. Company contributions totaled $1.3 million,
$1.4 million and $1.2 million in fiscal 2002, 2001 and 2000, respectively.

NOTE Q -- CONTINGENCIES

CUSTOMER DISPUTE

INTELLECTUAL PROPERTY MATTERS

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

identification number. Certain products offered by the Company can be programmed
and configured to provide enhanced services to network providers and call
processing applications for call centers. The Company's contracts with customers
usually include a qualified obligation to indemnify and defend customers against
claims that products as delivered by the Company infringe a third party's
patent.

None of the Company's customers have notified the Company that RAKTL has
claimed that any product provided by the Company infringes any claims of any
RAKTL patent. Accordingly, the Company has not been required to defend any
customers against a claim of infringement under a RAKTL patent. The Company has,
however, received letters from customers notifying the Company of the efforts by
RAKTL to license its patent portfolio and reminding the Company of its potential
obligations under the indemnification provisions of the applicable agreements in
the event that a claim is asserted. In response to correspondence from RAKTL, a
few customers have attempted to tender to the Company the defense of its
products under contractual indemnity provisions. The Company has informed these
customers that while it fully intends to honor any contractual indemnity
provisions, it does not believe it currently has any obligation to provide such
a defense because RAKTL does not appear to have made a claim that a Company
product infringes a patent. In the matter of Katz Technology Licensing, LP v.
Verizon Communications Inc., et al, No. 01-CV-5627, pending in U.S. District
Court, Eastern District of Pennsylvania, RAKTL has alleged that Verizon
Communications, Inc. ("Verizon") and certain of its affiliates infringe patents
held by RAKTL. From 1997 until November of 2001 the Company's wholly owned
subsidiary, Brite, provided prepaid services to an affiliate of Verizon under a
managed services contract. The affiliate, which is named as a defendant in the
lawsuit, recently notified Brite of the pendency of the lawsuit and referenced
provisions of the managed services contract which require Brite to indemnify the
affiliate against claims that its services infringe a patent. The claims in the
lawsuit make general references to prepaid services and a variety of other
services offered by Verizon and the affiliate but do not refer to Brite's
products or services. The Company has informed the affiliate that it can find no
basis for an indemnity obligation under the expired contract.

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Corporation alleging that certain prepaid services offered by Sprint are
infringing Aerotel's U.S. Patent No. 4,706,275 ("275 patent"). According to
Sprint, the suit originally focused on land-line prepaid services not provided
by the Company. As part of an unsuccessful mediation effort, Aerotel also sought
compensation for certain prepaid wireless services provided to Sprint PCS by the
Company. As a result of the mediation effort, Sprint has requested that the
Company provide a defense and indemnification to Aerotel's infringement claims,
to the extent that they pertain to any wireless prepaid services offered by the
Company. In response to this request, the Company has offered to assist Sprint's
counsel in defending against such claims, to the extent they deal with issues
unique to the system and services provided by the Company, and to reimburse
Sprint for the reasonable attorneys' fees associated therewith. The trial court
has stayed the lawsuit pending certain rulings from the United States Patent and
Trademark Office. The Company has received opinions from its outside patent
counsel that the wireless prepaid services offered by the Company do not
infringe the "275 patent". If the Company does become involved in litigation in
connection with the "275 patent", under a contractual indemnity or any other
legal theory, the Company intends to vigorously contest any claims that its
prepaid wireless services infringe the "275 patent" and to assert appropriate
defenses.

PENDING LITIGATION

On or about April 26, 2002, Telemac Corporation ("Telemac") commenced an
arbitration proceeding in the Los Angeles, California, office of JAMS against
the Company and InterVoice Brite Ltd. and Brite Voice Systems, Inc., JAMS Case
No. 1220026278, claiming fraud, negligent misrepresentation and breach of
contract in connection with formation of and the performance under certain
agreements between the Company, and/or its alleged predecessors, and Telemac,
and seeking compensatory damages of approximately $58 million, punitive damages
and attorneys' fees and other costs and fees. Telemac's allegations arise out of
the negotiations and terms of the Amended and Restated Prepaid Phone Processing
Agreement between Telemac and Brite Voice Systems Group, Ltd., dated November 1,
1998, and certain amendments thereto

INTERVOICE-BRITE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

under which Telemac licensed prepaid wireless software for use in various
markets and exploited in the United Kingdom under agreement with Cellnet, a
provider of wireless telephony in the United Kingdom.

The Company is a defendant from time to time in lawsuits incidental to its
business. Based on currently available information, the Company believes that
resolutions of all known contingencies, including the matters described above,
is uncertain, and there can be no assurance that future costs related to such
matters would not be material to the Company's financial position or results of
operations.

SCHEDULE II

INTERVOICE-BRITE, INC.

VALUATION AND QUALIFYING ACCOUNTS

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

Year Ended February 28, 2002
Deducted from Asset Accounts:
Allowance for doubtful accounts.... $3,642 $ 408 $ -- $ (558)(A) $ 3,492
Allowance for slow moving
inventories..................... 2,650 14,488 -- $ (3,617)(B) $13,521
------ ------- ------ -------- -------
Total........................... $6,292 $14,896 $ -- $ (4,175) $17,013
====== ======= ====== ======== =======
Year Ended February 28, 2001
Deducted from Asset Accounts:
Allowance for doubtful accounts.... $4,161 $ 2,935 $ -- $ (3,454)(A) $ 3,642
Allowance for slow moving
inventories..................... 1,383 4,752 -- $ (3,485)(B) $ 2,650
------ ------- ------ -------- -------
Total........................... $5,544 $ 7,687 $ -- $ (6,939) $ 6,292
====== ======= ====== ======== =======
Year Ended February 29, 2000
Deducted from Asset Accounts:
Allowance for doubtful accounts.... $1,306 $ 6,364 $3,019(C) $ (6,528)(A) $ 4,161
Allowance for slow moving
inventories..................... 1,204 1,881 2,420(C) $ (4,122)(B) $ 1,383
------ ------- ------ -------- -------
Total........................... $2,510 $ 8,245 $5,439 $(10,650) $ 5,544
====== ======= ====== ======== =======

---------------

(A) Accounts written off.

(B) Scrapped material.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

The business and affairs of the Company are managed by and under the
direction of the Board of Directors, which exercises all corporate powers of the
Company and establishes broad corporate policies. The Articles of Incorporation
of the Company provide that the number of directors constituting the Board of
Directors shall not be less than three nor more than nine as from time to time
shall be fixed and determined by a vote of a majority of the Company's directors
serving at the time of such vote. The number of director positions presently
constituting the Board is five.

The five directors, constituting the entire Board of Directors, are to be
elected at the next annual meeting of shareholders on August 28, 2002 to serve
until the following annual meeting of shareholders and until their successors
have been elected and qualified. Four of the nominees are current directors of
the Company: David W. Brandenburg, Joseph J. Pietropaolo, George C. Platt and
Grant A. Dove. Stanley G. Brannan will continue to serve as a director through
the annual meeting of the shareholders on August 28, 2002, but has decided not
to stand for reelection. A new nominee, Jack P. Reily, is a nominee for election
as a director at the annual meeting of the shareholders on August 28, 2002. Set
forth below is certain information with respect to the directors and the nominee
for director.

David W. Brandenburg, age 57, is Chairman of the Board, President and Chief
Executive Officer of the Company. He is also the currently acting President and
General Manager Network Solutions Division. Mr. Brandenburg has held the
position of Chief Executive Officer since June 2000, the position of Chairman of
the Board since December 2000 and the position of President since February 2001.
Mr. Brandenburg is also President of the Brandenburg Life Foundation, a position
he has held since October 1996. From November 1997 to May 1998 Mr. Brandenburg
served as President and Chief Executive Officer of AnswerSoft, Inc. Prior
thereto, Mr. Brandenburg served as President of the Company from July 1990 to
December 1994. Mr. Brandenburg has served as a director since 1997 and from 1990
to 1995 during which he served as Vice Chairman of the Company from December
1994 to May 1995.

Stanley G. Brannan, age 52, is the Vice-Chairman of the Company, a position
he has held since August 2000, and is the founder of Brite. Since June 2000, Mr.
Brannan has also served as President of Brannan Ventures, LLC, a consulting
company. He served as Chairman, Chief Executive Officer and President of Brite
from its inception until resigning as President and Chief Executive Officer in
December 1996. Mr. Brannan subsequently resigned as Chairman of the Board of
Brite in January 1998. In November 1998, Mr. Brannan resumed his role as
Chairman, Chief Executive Officer and President of Brite on an interim basis.
The Company acquired all the outstanding stock of Brite during fiscal 2000. Mr.
Brannan has served as a director since August 1999. Stanley G. Brannan will
continue to serve as a director through the annual meeting of the shareholders
on August 28, 2002, but has decided not to stand for reelection.

Joseph J. Pietropaolo, age 46, is currently Vice President and co-owner of
I.A.Q. Enterprises L.L.C., a company specializing in mold remediation and
restoration services, a position he has held since October 2001. From March 1998
to June 2001, Mr. Pietropaolo served as an independent consultant providing
financial consulting services. He is the former Chief Financial Officer of
Transactive Corporation, a company that specializes in electronic benefits
transfers, a position he held from August 1994 to March 1997. Mr. Pietropaolo is
also the former Vice President and Treasurer of GTECH Corporation, a company
specializing in on-line lottery systems, positions he held from 1990 to August
1994. Mr. Pietropaolo has served as a director since 1989.

George C. Platt, age 61, is currently the President and Chief Executive
Officer of Viewcast.com, d.b.a. Viewcast Corporation, a company engaged in video
networking and internet video streaming, a position he has held since October
1999. From January 1991 to September 1999 Mr. Platt served as the President and
Chief Executive Officer of InteCom Inc., a wholly owned subsidiary of
Matra-Hachette, a company engaged in the manufacture and sale of telephone
switching systems. Mr. Platt is a member of the Board of Directors of
Viewcast.com and UniView Corp. Mr. Platt has served as a director since 1991.

Grant A. Dove, age 74, is currently a Managing Partner of Technology
Strategies and Alliances, a firm which provides investment banking and
consulting services, a position he has held since January 1993. Mr. Dove
currently serves as a director of INET Technologies, Intrusion.com and Tipping
Point Technologies, Inc. Mr. Dove has served as a director since 1997.

Jack P. Reily, age 51, is President of Reily Communications, a firm which
provides consulting services to high technology clients in the communications
equipment and software market, a position he has held since 1998. From December
2000 to March 2002, he also held the position of Senior Vice President and
General Manager for Efficient Networks (affiliated with Siemens Corporation), a
leading provider of DSL modems for consumer and business applications. From 1997
to 1998 Mr. Reily was Executive Director of the Hardware Practice Group for
Broadview International, an investment banking firm with special focus on merger
and acquisition activity for telecommunications equipment manufacturers. Mr.
Reily has not previously served as a director of the Company.

OFFICERS

Following is certain information regarding certain executive officers of
the Company. Information regarding the only other executive officer of the
Company, David W. Brandenburg, Chairman of the Board, President and Chief
Executive Officer, is included under the heading "Directors" above.

Rob-Roy J. Graham, age 49, is currently Chief Financial Officer and
Secretary, positions he has held since August 1994, and Controller of the
Company, a position he has held since August 1992. From April 1994 to May 2001,
he held the position of Chief Accounting Officer.

Ray S. Naeini, age 51, was President and General Manager Network Solutions
Division from December 2000 until May 2002, when he resigned from the Company.
From July 1999 to December 2000, Mr. Naeini served as Executive Vice President -
Global Network Business. From November 1998 to July 1999, he served as Executive
Vice President of Global Products for Brite Voice Systems, Inc. ("Brite"). The
Company acquired Brite during fiscal 2000. Mr. Naeini joined Brite in November
1995 as Vice President of Advanced Technologies and later served as Senior Vice
President, General Manager of Network Products.

Robert Ritchey, age 55, is President and General Manager Enterprise
Solutions Division, a position he has held since joining the Company in December
2000. Prior to joining the Company, from May 1999 to November 2000, Mr. Ritchey
served as Vice President and General Manager of Notifier Integrated Systems, a
subsidiary of Honeywell International, a provider of network based integration
products to the electronic security and building controls industry. Before
joining Notifier Integrated Systems, from July 1994 to May 1999 he served as
Vice President General Manager for the Integrated Systems Division of
Sensormatic Electronics, a company engaged in, among other things, access
control, video products, CCTV systems, and integrated systems.

H. Don Brown, age 46, is Vice President -- Human Resources, a position he
has held since September 1995. From November 1994 to August 1995, Mr. Brown
served as Director of Human Resources. From August 1992 to September 1994, he
served as Manager of Human Resources for the Permian Basin business unit of
Unocal Corporation, a company that produces and sells energy resources and
specialty minerals.

Dean C. Howell, age 44, is Vice President and General Counsel, a position
he has held since July 2000. From March 1996 to June 2000, he served as Vice
President and Corporate Counsel, and from October 1992 to February 1996, as
Legal Counsel.

Phillip C. Walden, age 57, is Vice President -- Manufacturing, a position
he has held since July 1987.

Carol D. Wingard, age 50, is Vice President of Marketing Communications, a
position she has held since joining the Company in August 1998. Prior to joining
the Company, Ms. Wingard served from July 1996 to August 1998 as Director of
Marketing for DSC Communications, a company engaged in the manufacture and sale
of telephone switches and other telephone equipment.

On June 24, 2002 the Company announced that it has begun a process to
effect an internal reorganization and consolidation to reduce expenses and to
more efficiently and effectively manage the Company. The Company will eliminate
the NSD/ESD divisional structure and reduce its workforce by approximately 80 to
130 positions. Robert Ritchey, the President and General Manager of ESD, will
transition to President of the Company. David W. Brandenburg will continue in
his capacities as Chairman of the Board and Chief Executive Officer. Other
managerial positions at the Company will be affected by the reorganization, and
one or more divisional officers could become executive officers of the Company.

ITEM 11. EXECUTIVE COMPENSATION

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

To the Shareholders of InterVoice-Brite, Inc.:

Compensation Policy. The goal of the Company's executive compensation
policy is to ensure that an appropriate relationship exists between executive
pay and the creation of shareholder value, while at the same time motivating and
retaining key employees. To achieve this goal, executive officers are offered
compensation opportunities that are linked to the Company's business objectives
and performance, individual performance and contributions to the Company's
success and enhanced shareholder value. The Company's compensation programs are
designed and revised from time to time to be competitive within the software and
data industry and the telecommunications industry.

The Company's executive compensation program consists primarily of (i) base
salary, (ii) incentive cash bonus opportunities based upon individual and
corporate performance, and (iii) long-term equity based incentives. All
executive officers were eligible for and did participate in the Company's
incentive cash bonus program during fiscal 2002. Only two of the Company's
executive officers received stock options under the Company's equity-based
incentive programs during fiscal 2002. The Company generally targets the
aggregate of annual base salary, bonus opportunities and long-term equity based
incentives made available to officers, who successfully perform their
responsibilities, above the mid-point level for officers with similar positions
in companies of comparable size in the software and data/telecommunications
industries. The Compensation Committee believes that compensation opportunities
above the mid-point for its comparison group are appropriate provided incentive
cash bonus opportunities are a significant part of each executive officer's
compensation package and such bonus opportunities are dependant upon the Company
achieving important elements of its business and financial plans. As discussed
below, the compensation opportunities are largely dependent upon the Company's
ability to achieve its earnings and/or revenue targets.

Generally, both cash bonus and equity-based incentive compensation
opportunities for officers increased at a greater rate than their base salaries
from fiscal 1996 through fiscal 2002. The Compensation Committee determined to
put a greater emphasis on incentive compensation commencing with fiscal 1995 to
encourage further the achievement of corporate and individual objectives. To
ensure compliance with the compensation policy, the Company hired an independent
consultant for fiscal 2002. In this capacity the consultant analyzed
compensation paid to the five highest paid executive officers of the Company
based on a survey of compensation information in proxy statements issued by a
variety of software and telecommunications companies. The consultant also
analyzed compensation paid to the Company's other officers based on market
surveys of executive compensation, including surveys for software and
data/telecommunications companies. These surveys included a separate study of
companies within the SIC code for Telephone and Telegraph Apparatus used in the
"Performance Graph" contained under this Item 11.

Stock Ownership Guidelines. In April 1995, the Compensation Committee
established stock ownership guidelines for key executives of the Company. These
guidelines provide that executives should hold shares in

varying amounts as a multiple of salary, currently ranging from a minimum of
four times annual salary for the Chairman of the Board and Chief Executive
Officer to one times annual salary for vice presidents who are not executive
officers of the Company. The value of each executive's share holdings for
purposes of the guidelines, is based on the greater of the current market price
of the Company's Common Stock or the aggregate amount the executive paid for the
shares.

Although some executives are already at or above the prescribed levels, the
Compensation Committee recognizes that newer employees or those recently
promoted may require some period of time to achieve these levels. Therefore, the
guidelines provide for a transition period of approximately five years for the
suggested levels to be met. The Compensation Committee monitors each executive's
progress toward achieving these guidelines when deciding on future stock option
awards and other equity incentive opportunities.

FISCAL 2002 COMPENSATION.

Base Salary. The Compensation Committee annually reviews and sets base
salaries for each of the Company's executive officers at levels within the range
of those persons holding comparable positions at other companies in the
Company's comparison group. In establishing base salaries for executive
officers, the Compensation Committee reviewed the compensation surveys provided
by the compensation consultant. Annual salaries, including increases to
salaries, for fiscal 2002 were reviewed and approved on the basis of the
individual performance of the executive, as determined through an evaluation by
the officer's immediate supervisor in consultation with the Company's executive
management and by the executive's tenure and level of responsibility, the
Company's expected financial performance and changes in competitive pay levels.
Raises to annual base salaries for officers of the Company, including executive
officers, for fiscal 2002, ranged from 2% to 16.7%. Most of the officers
received a raise of between 6% and 8%.

The Company amended and restated its employment agreement with the Chairman
of the Board, President and Chief Executive Officer of the Company, David W.
Brandenburg, during fiscal 2002, which provided for a base salary of $350,000
for fiscal 2002. The base salary payable to Mr. Brandenburg under his new
agreement increased by $50,000. Mr. Brandenburg's salary for fiscal 2002 was
approximately equal to the base salary payable to the Company's former Chief
Executive Officer, Daniel D. Hammond, during fiscal 2000. The Compensation
Committee supports this salary level, which was less than the median base salary
for chief executive officers in the Company's comparison group. See "Agreements
with Executive Officers" for a discussion of the employment agreements with Mr.
Brandenburg and the Company's Chief Financial Officer and Secretary, Rob-Roy J.
Graham.

Annual Incentives. The Company has a bonus program that provides for the
payment of periodic cash bonuses to executive officers contingent upon the
achievement of certain earnings targets, revenue targets and/or other individual
and corporate performance targets. The program is intended to reward the
accomplishment of corporate objectives, reflect the Company's priority on
maintaining growth and stability of earnings, and to provide a fully competitive
compensation package which will attract, reward and retain quality individuals.
Targets and objectives vary for the specific officers involved. For example,
bonus opportunities for the Chairman of the Board, President and Chief Executive
Officer, and the Chief Financial Officer and Secretary, were based on formulas
designed to compensate such officers for any increases to revenues and earnings
per share achieved for fiscal 2002. These officers are responsible for making
and implementing strategic decisions concerning how the Company plans to achieve
its long-term goals for growth and stability of earnings and revenues. The
Compensation Committee believes that the amount of growth in the Company's
annual earnings per share and revenues should continue to serve as a basis for a
significant component of the total compensation for these officers.

The other officers were eligible to receive annual incentive bonuses and in
some cases quarterly incentive bonuses for fiscal 2002 established in connection
with their annual performance reviews, based upon the attainment of one or more
associated individual and/or corporate performance goals. The performance goals
for these other officers were based on factors such as sales volume, receipt of
purchase orders and expense containment. A significant amount of the annual
bonuses for several of the executive officers was contingent upon the Company
attaining a targeted annual sales objective determined by the Compensation
Committee.

The Company did not achieve its annual sales objective for fiscal 2002. Because
of the Company's disappointing results from operations for fiscal 2002, the
Company's officers generally received smaller cash bonuses than in prior years,
and certain officers did not earn any bonus. The aggregate of quarterly and
annual bonuses paid to executive officers for fiscal 2002 ranged from
approximately 0% to 20% of base salary.

Pursuant to his employment agreement, the bonus opportunity for fiscal 2002
for the Chairman of the Board, President and Chief Executive Officer would
reward Mr. Brandenburg for increases to the Company's revenues and earnings per
share. The Compensation Committee amended the bonus provisions for fiscal 2002
in the employment agreement to reflect the Company's business and financial
plans for the fiscal year. Mr. Brandenburg did not receive a bonus for fiscal
2002 because the Company did not achieve the minimum revenues or earnings per
share required for bonus payments under his employment agreement. The employment
agreement with Mr. Brandenburg also permitted payment of an additional
discretionary bonus if the Compensation Committee determined that such a bonus
was appropriate. No such discretionary bonus was paid to Mr. Brandenburg for
fiscal 2002.

Mr. Graham, the Company's Chief Financial Officer and Secretary, has an
employment agreement similar to Mr. Brandenburg's agreement, with similar
provisions governing his bonus. Mr. Graham also did not receive a bonus for
fiscal 2002.

Long-Term Equity-Based Incentives. Long-term equity based incentive awards
strengthen the ability of the Company to attract, motivate and retain executives
of superior capability and more closely align the interests of management with
those of shareholders. The Compensation Committee believes that such equity
based compensation provides executives with a continuing stake in the long term
success of the Company, and will assist them to achieve the share ownership
targeted under the stock ownership guidelines discussed above. Long-term awards
granted in fiscal 2002 consisted of nonqualified stock options granted under the
Company's 1999 Stock Option Plan. Unlike cash, the value of a stock option will
not be immediately realized and does not result in a current expense to the
Company.

The stock options are granted at the market price on the date of grant and
will only have value if the Company's stock price increases, resulting in a
commensurate benefit to the Company's shareholders. Generally, grants vest in
equal amounts over a three-year to four-year period. Executives generally must
be employed by the Company at the time of vesting in order to exercise the
options.

The Compensation Committee, in consultation with the Company's executive
management, determines from time to time the executive officers who shall
receive options or shares of restricted stock under the Company's employee stock
option plans and restricted stock plan, the timing of such awards, the number of
shares of Common Stock to be subject to each award and the other terms of each
award. Annual stock option awards are made in light of a compensation review and
recommendations prepared by a compensation consultant comparing stock option
awards to officers by the Company to awards made by companies in the Telephone
and Telegraph Apparatus industry whose description of business and revenues most
closely approximated those of the Company. These companies are included in the
Company's peer group index set forth in the section entitled "Stock Performance
Graph". Grants to individual executive officers by the Compensation Committee
are based on their annual performance evaluations, relative salary levels, the
number of shares under options previously granted, and their potential
contribution to the long-term performance of the Company. The emphasis placed on
equity-based incentive opportunities was also considered by the Compensation
Committee in determining stock option awards.

The Compensation Committee did not make its normal annual grant of stock
options to key employees during fiscal 2002. The Compensation Committee decided
not to make an annual grant because it had granted stock options for more shares
than usual during the previous fiscal year, fiscal 2001, in an effort to retain
its most talented employees. The only executive officers who received stock
options during fiscal 2002 were the Presidents of the Enterprise Solutions and
Network Solutions Divisions. The Compensation Committee decided the Division
Presidents should have a larger equity stake in the Company because their future
performance is critical to the long-term success of the Company. Stock options
were not granted to the Company's Chief Executive Officer during fiscal 2002.

The Compensation Committee believes that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and shareholder interest. As performance goals are met or
exceeded, resulting in an increased value to shareholders, executives are
rewarded commensurately. The Compensation Committee believes that compensation
levels during fiscal 2002 adequately reflect the Company's compensation goals
and policies.

June 20, 2002
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS

George C. Platt, Chairman
Joseph J. Pietropaolo
Stanley G. Brannan
Grant A. Dove

SUMMARY COMPENSATION TABLE

The following table sets forth certain summary information concerning the
compensation paid or awarded to the Chief Executive Officer and the other four
most highly compensated executive officers of the Company in fiscal 2002 (the
"Named Officers") for services rendered in all capacities to the Company and its
subsidiaries for the fiscal years ended February 28, 2002, February 28, 2001,
and February 29, 2000.

ANNUAL LONG TERM ALL OTHER
COMPENSATION COMPENSATION AWARDS COMPENSATION
-------------------- ----------------------- ---------------
RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING ALL OTHER CASH
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS ISSUANCES OPTIONS COMPENSATION(2)
--------------------------- ------ --------- -------- ---------- ---------- ---------------

David W. Brandenburg....................... 2002 $350,486 -- -- -- $5,948
Chairman of the Board, 2001 205,979 -- -- 500,000 4,086
President and 2000 -- -- -- -- --
Chief Executive Officer(3)
Rob-Roy J. Graham.......................... 2002 $255,861 -- -- -- $6,467
Chief Financial Officer 2001 215,926 $100,000 -- 100,000 5,867
Secretary 2000 196,708 245,333 $631,542 40,000 5,668
Controller(4)
Ray S. Naeini.............................. 2002 $264,486 -- -- 50,000 $6,689
President and General Manager 2001 225,504 $154,955 -- 100,000 6,337
Network Solutions Division(5) 2000 147,949 180,000 -- 100,000 2,956
Robert Ritchey............................. 2002 $241,236 $ 24,075 -- 50,000 $8,680
President and General Manager 2001 56,250 28,125 -- 100,000 390
Enterprise Solutions Division(6) 2000 -- -- -- -- --
Dean C. Howell............................. 2002 $195,246 $ 38,952 -- -- $5,047
Vice President and General 2001 173,837 67,400 -- 50,000 5,012
Counsel(7) 2000 160,441 48,000 -- 15,000 4,981

---------------

(1) Includes amounts deferred at the Named Officer's election pursuant to the
Company's 401(k) Employee Savings Plan.

(2) Represents Company contributions on behalf of the Named Officers under the
Company's 401(k) Employee Savings Plan and amounts includable in
compensation for Company-paid group term life insurance.

(3) Mr. Brandenburg became employed by the Company during June 2000. All other
cash compensation for Mr. Brandenburg includes $2,594 for contributions
under the Company's 401(k) Employee Savings Plan and $3,354 for Company-paid
group term life insurance in fiscal year 2002; and $2,312 for contributions
under the Company's 401(k) Employee Savings Plan and $1,774 for Company-paid
group term life insurance in fiscal year 2001.

(4) Mr. Graham was issued 9,228 restricted shares of Common Stock on each of
February 10 and February 28, 2000. All restrictions on the restricted shares
issued to Mr. Graham on February 10 and February 28, 2000 lapsed during
February 2002. The value of restricted shares is based on the closing price
of the Company's Common Stock on the Nasdaq National Market on February 28,
2000. At February 28, 2002, the aggregate restricted share holdings in
shares (and dollars) issued in fiscal 2000 was 18,456 ($93,018) for Mr.
Graham, based on the closing price of the Company's Common Stock on that
date. The restricted shares disclosed in this table will earn dividends
when, as, and if dividends are declared on the Common Stock by the Board of
Directors. All other cash compensation for Mr. Graham includes $5,564 for
contributions under the Company's 401(k) Employee Savings Plan and $903 for
Company-paid group term life insurance in fiscal year 2002; $5,190 for
contributions under the Company's 401(k) Employee Savings Plan and $677 for
Company-paid group term life insurance in fiscal year 2001; and $4,836 for
contributions under the Company's 401(k) Employee Savings Plan and $832 for
Company-paid group term life insurance in fiscal year 2000.

(5) All other cash compensation for Mr. Naeini includes $5,370 for contributions
under the Company's 401(k) Employee Savings Plan and $1,319 for Company-paid
group term life insurance in fiscal year 2002; $5,561 for contributions
under the Company's 401(k) Employee Savings Plan and $776 for Company-paid
group term life insurance in fiscal year 2001; and $1,925 for contributions
under the Company's 401(k) Employee Savings Plan and $1,031 for Company-paid
group term life insurance in fiscal year 2000.

(6) Mr. Ritchey became employed by the Company during December 2000. All other
cash compensation for Mr. Ritchey includes $6,454 for contributions under
the Company's 401(k) Employee Savings Plan and $2,226 for Company-paid group
term life insurance in fiscal year 2002; and $390 for Company-paid group
term life insurance in fiscal year 2001.

(7) All other cash compensation for Mr. Howell includes $4,606 for contributions
under the Company's 401(k) Employee Savings Plan and $441 for Company-paid
group term life insurance in fiscal year 2002; $4,656 for contributions
under the Company's 401(k) Employee Savings Plan and $356 for Company-paid
group term life insurance in fiscal year 2001; and $4,594 for contributions
under the Company's 401(k) Employee Savings Plan and $387 for Company-paid
group term life insurance in fiscal year 2000.

OPTION GRANTS IN FISCAL YEAR 2002

The following table sets forth certain information with respect to grants
of stock options to the Named Officers during fiscal 2002 pursuant to the
Company's 1999 Stock Option Plan.

POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(2)
---------------------------------- -------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(1) 2002 (/SH) DATE 5% 10%
---- ---------- ---------- -------- ----------- --------- -----------

David W. Brandenburg..........
Rob-Roy J. Graham.............
Ray S. Naeini(3).............. 50,000 19.3% $12.77 8/10/11 $401,500 $1,017,500
Robert Ritchey................ 50,000 19.3% $11.99 5/11/11 $377,000 $ 955,500
Dean C. Howell................

---------------

(1) All options were granted at fair market value (the average of the high and
low trading prices of the Common Stock on the Nasdaq National Market) on the
date of grant and expire ten years from the date of grant. The options
become exercisable in three equal amounts on the first three annual
anniversaries of the date of grant.

(2) The assumed 5% and 10% rates of stock price appreciation are specified by
SEC rules and do not reflect expected appreciation. The amounts shown
represent the assumed value of the stock options (less exercise price) at
the end of the ten-year period beginning on the date of grant and ending on
the option expiration date. For a ten-year period beginning February 28,
2002, based on the closing price on the Nasdaq National Market of the Common
Stock of $5.04 on such date, a share of the Common Stock would have a value
on February 28, 2012 of approximately $8.21 at an assumed appreciation rate
of 5% and approximately $13.07 at an assumed appreciation rate of 10%.

(3) While the scheduled expiration date of this option was August 10, 2011, the
option expired in connection with Mr. Naeini's resignation from the
Company's employment to pursue other opportunities on May 6, 2002.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002
AND FISCAL YEAR-END OPTION VALUES

The following table provides information concerning option exercises in
fiscal 2002 and the value of unexercised options held by each of the Named
Officers at the end of fiscal 2002.

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END(#) YEAR END($)(1)
SHARES ----------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------------- -----------------

David W. Brandenburg................ 0 $0 381,000/125,000 $0/$0
Rob-Roy J. Graham................... 0 $0 264,798/80,002 $18,000/$0
Ray S. Naeini....................... 0 $0 99,998/150,002 $0/$0
Robert Ritchey...................... 0 $0 33,333/116,667 $0/$0
Dean C. Howell...................... 0 $0 87,400/38,334 $6,179/$0

---------------

(1) Values stated are based on the closing price ($5.04) of the Company's Common
Stock as reported on the Nasdaq National Market on February 28, 2002 and the
exercise price of the options.

AGREEMENTS WITH EXECUTIVE OFFICERS

Employment Agreement with David W. Brandenburg, the Company's Chairman of
the Board, President and Chief Executive Officer. On June 26, 2000 the Company
entered into an employment agreement with David W. Brandenburg for the period
from June 26, 2000 through February 28, 2003. Effective March 1, 2002, the
employment agreement was extended one year through February 28, 2004. Under the
agreement, Mr. Brandenburg received an annual salary of $300,000 during fiscal
2001. His salary was increased to $350,000 for fiscal 2002. The provisions in
the employment agreement governing Mr. Brandenburg's bonus opportunities for
fiscal 2002 were amended as of February 28, 2001, and the provisions governing
his bonus opportunities for fiscal 2003 and fiscal 2004 were amended as of March
1, 2002. Mr. Brandenburg's annual bonus opportunity under his employment
agreement for fiscal 2002 was based on increases to earnings per share, and on
any increase in revenues, in each case as compared to the immediately preceding
fiscal year. For fiscal 2002, Mr. Brandenburg's bonus opportunity for earnings
per share ranged from 22.5% of his base salary if earnings per share were
between $.30 and $.36, to 75% of his base salary if earnings per share were $.58
or more. The bonus opportunity for revenues for fiscal 2002 ranged from 25% of
base salary if revenues were between $230 million and $258 million to 125% for
revenues of $316 million or greater. Mr. Brandenburg's annual bonus opportunity
for fiscal 2003 and fiscal 2004 is based 50% on increases to earnings per share
and 50% on increases to revenues, in each case as compared to the immediately
preceding fiscal year. For each of earnings per share and revenues, Mr.
Brandenburg's bonus opportunity ranges from 25% of his base salary for an
increase of up to 9%, to 125% of his base salary for an increase of 40% or more.
If earnings per share for

fiscal 2002 or 2003 are less than $.15, however, then the change in earnings per
share for the immediately following year will be compared to $.15.

Based on the Company's earnings and revenue performance, Mr. Brandenburg
did not earn a bonus for fiscal 2001 or 2002. See the "Summary Compensation
Table" for a discussion of the bonuses and salary paid to Mr. Brandenburg for
the three-year period ended February 28, 2002. In connection with the execution
of Mr. Brandenburg's initial employment agreement, he was awarded stock options
during fiscal 2001 covering 500,000 shares of Common Stock under the Company's
1999 Stock Option Plan and 1990 Incentive Stock Option Plan. In connection with
the extension of his employment agreement through fiscal 2004, Mr. Brandenburg
was granted a stock option on March 1, 2002 covering 160,000 shares of Common
Stock under the Company's 1999 Stock Option Plan.

Except as discussed below, Mr. Brandenburg's employment agreement requires
that he not compete with the Company while he renders services under the
agreement and for a period of 18 months thereafter. The agreement further
provides that the Company can only terminate Mr. Brandenburg for cause or
because he becomes disabled (as such terms are defined in the agreement). If Mr.
Brandenburg is terminated for cause, the Company will have no liability for
further payments to him. If Mr. Brandenburg becomes completely disabled, the
Company is obligated to pay him an amount equal to his base salary in effect at
the time of disability through the expiration date of the agreement. If,
however, following a change of control of the Company (defined as a triggering
event in the agreement), Mr. Brandenburg's employment is terminated without
cause, if Mr. Brandenburg terminates his employment for good reason (as defined
in the agreement), or if he terminates his employment without good reason by
giving 12 months' prior notice, the Company will have to pay him a lump sum
amount (the "Change in Control Amount") equal to 2.99 multiplied by an amount of
salary and bonus which he would have received for the year in which he was
terminated (as determined in accordance with the agreement). The agreement also
provides that, if the Change in Control Amount is subject to certain federal
excise taxes, the Company will "gross-up" the Change in Control Amount such that
Mr. Brandenburg will receive a net amount after such taxes, equal to the Change
in Control Amount that he would have received had such taxes not been imposed.
In addition, following a change in control of the Company, Mr. Brandenburg can
terminate his employment for any reason by giving 12 months' prior written
notice. Mr. Brandenburg is released from his covenant not to compete if he is
terminated by the Company without cause and without being disabled, or if he
elects to terminate his employment after a default by the Company prior to a
triggering event or after a triggering event for good reason. If Mr.
Brandenburg's employment is terminated without cause, the Company is obligated
to pay him an amount equal to the remaining compensation he would have received
under the agreement (as determined in accordance with the agreement), and the
options to purchase an aggregate of 660,000 shares of Common Stock that Mr.
Brandenburg was granted in connection with his agreement and the extension to
his agreement will become completely exercisable, to the extent that the options
are not already exercisable as of such date.

Employment Agreement with Rob-Roy J. Graham. Rob-Roy J. Graham, the
Company's Chief Financial Officer and Secretary, entered into an employment
agreement with the Company for the two-and-one-half-year term commencing on
September 1, 1998. The agreement has been extended through fiscal 2003. Under
the agreement, Mr. Graham received an annual salary of $255,375 during fiscal
2002. The provisions in the employment agreement governing Mr. Graham's bonus
opportunities for fiscal 2002 were amended as of February 28, 2001, and the
provisions governing his bonus opportunities for fiscal 2003 were amended as of
March 1, 2002. Mr. Graham's annual bonus for fiscal 2002 was based on increases
to revenues and earnings per share, in each case as compared to the immediately
preceding fiscal year. For fiscal 2002, Mr. Graham's bonus opportunity for
earnings per share ranged from 15% of his base salary if earnings per share were
between $.30 and $.36, to 50% of his base salary if earnings per share were $.58
or more. The bonus opportunity for revenues for fiscal 2002 ranged from 20% of
base salary if revenues were between $230 million and $258 million, to 100% of
his base salary if revenues were $316 million or more. Based on the Company's
earnings and revenue performance, Mr. Graham did not earn a bonus for fiscal
2002 under the above referenced bonus provisions of his agreement. The
employment agreement also provides that the Company may award Mr. Graham a
discretionary bonus. Mr. Graham was not awarded a discretionary bonus for fiscal
2002. Mr. Graham's annual bonus opportunity for fiscal 2003 is based 50% on
increases to earnings per share

and 50% on increases to revenue, in each case as compared to the immediately
preceding fiscal year. For each of earnings per share and revenues, Mr. Graham's
bonus opportunity for fiscal 2003 ranges from 20% of his base salary for an
increase of up to 9%, to 100% of his base salary for an increase of 40% or more.
Because earnings per share for fiscal 2002 were less than $.15, however, the
change in earnings per share for fiscal 2003 will be compared to $.15. The
agreement did not provide for Mr. Graham to receive any stock options or
restricted stock in connection with the execution of his agreement. Other than
the matters discussed in this paragraph, Mr. Graham's employment agreement
(including the terms governing any termination of his employment with the
Company before or after a change of control of the Company) are substantially
the same as Mr. Brandenburg's employment agreement, which is discussed above.

Agreement with Ray S. Naeini. Ray S. Naeini offered his resignation from
the Company's employment to pursue other opportunities on May 6, 2002. In
connection with the resignation, Mr. Naeini and the Company entered into a
separation agreement pursuant to which each party released the other party from
any and all claims and demands it might have had. Under the separation
agreement, Mr. Naeini agreed, among other things, to refrain from making any
disparaging remarks about the Company or its business, not to induce the
Company's employees or customers to terminate their relationship with the
Company, not to disclose the Company's confidential and proprietary information,
and to cooperate with the Company in any pending or future litigation,
arbitration or similar proceedings. In accordance with the separation agreement,
the Company paid Mr. Naeini $264,000, and extended the exercise period for his
vested stock options (covering approximately 100,000 shares) through June 5,
2003. The exercise prices for these previously vested stock options are
substantially above the closing price for the Company's stock on June 26,
2002. Mr. Naeini's separation agreement further provides that he will not
compete with the Company for a period of 12 months after the date of his
resignation. The covenant not to compete in the separation agreement is very
similar to the covenant not to compete in Mr. Brandenburg's employment
agreement. In consideration for Mr. Naeini's covenant not to compete, the
Company will pay him an additional amount of $264,000 in three equal
installments on the first day of September, October, and November 2002.

STOCK PERFORMANCE GRAPH

The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) to the Company's shareholders during the
five-year period ended February 28, 2002, as well as an overall broad stock
market index, the Nasdaq Market Index, and a peer group index for the Company,
the index for SIC Code 3661 Telephone and Telegraph Apparatus. The stock
performance graph assumes $100 was invested on March 1, 1997 in the Company's
Common Stock and each such index.

COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET(1)

(PERFORMANCE GRAPH)

--------------------------------------------------------------------------------------------------
COMPANY/INDEX/MARKET 02/28/1997 02/27/1998 02/26/1999 02/29/2000 02/28/2001 02/28/2002
--------------------------------------------------------------------------------------------------

InterVoice-Brite,
Inc. 100.00 81.82 197.73 656.82 154.55 91.64
Telephone,
Telegraph
Apparatus 100.00 130.80 139.63 389.95 144.34 57.69
Nasdaq Market Index 100.00 136.00 175.74 341.39 159.78 130.47

(1) Assumes $100 invested on March 1, 1997 and all dividends reinvested through
February 28, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The tabulation below sets forth certain information with respect to the
beneficial ownership of shares of Common Stock, as of June 26, 2002, of each
director and nominee for director of the Company, each executive officer listed
in the Summary Compensation Table included under Item 11, and all directors,
nominees for director and executive officers of the Company as a group. The
Company is not aware of any shareholder who is the beneficial owner of more than
5% of the outstanding shares of Common Stock as of June 26, 2002.

COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------
NUMBER OF PERCENT OF
NAME SHARES CLASS
---- ---------- ----------

Directors and Nominees for Director
David W. Brandenburg...................................... 1,385,991(2) 3.6%
Joseph J. Pietropaolo..................................... 18,000(3) *
George C. Platt........................................... 47,700(3) *
Grant A. Dove............................................. 104,000(3) *
Stanley G. Brannan........................................ 240,498(4) *
Jack P. Reily............................................. 0 *
Named Executive Officers (who are not a director or nominee
named above)
Rob-Roy J. Graham......................................... 380,798(5) 1.0%
Ray S. Naeini............................................. 99,998(5) *
Robert Ritchey............................................ 50,582(5) *
Dean C. Howell............................................ 117,359(5) *
All Directors, Nominees for Director and Executive Officers
as a Group (13 persons)................................... 2,826,655(6) 7.4%

---------------

* Less than 1%

(1) Unless otherwise indicated, all shares listed are directly held with sole
voting and investment power.

(2) Includes 213,846 shares held in Mr. Brandenburg's wife's IRA, and 506,000
shares not outstanding but subject to currently exercisable stock options.

(3) Shares are not outstanding but are subject to currently exercisable stock
options, other than 34,000 shares held by Mr. Dove and 5,700 shares held by
Mr. Platt.

(4) Includes 5,434 shares held by members of Mr. Brannan's family, and 30,000
shares not outstanding but subject to currently exercisable stock options.

(5) Shares are not outstanding but are subject to currently exercisable stock
options, other than 68,237 shares held directly by Mr. Graham and 318 shares
held by him in the Company's 401(k) Employee Savings Plan, 584 shares held
by Mr. Ritchey and 8,294 shares held by Mr. Howell.

(6) Consists of shares beneficially owned by the Company's principal executive
officers and directors. The shares beneficially owned by all directors and
executive officers as a group include 1,476,650 shares issuable upon
exercise of currently exercisable options and options which are exercisable
within 60 days of June 26, 2002. The total also includes 241,349 shares held
by spouses and other family members of directors and executive officers. The
inclusion of shares in this table as beneficially owned is not an admission
of beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information concerning agreements between the Company and each of David
W. Brandenburg, Rob-Roy J. Graham and Ray S. Naeini, see "Agreements with
Executive Officers" under Item 11.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following consolidated financial statements and financial statement
schedule of InterVoice-Brite, Inc. and subsidiaries are included in Items 8 and
14(a), respectively.

PAGE
----

(1) Financial Statements
Report of Independent Auditors.............................. 40
Consolidated Balance Sheets at February 28, 2002 and 2001... 41
Consolidated Statements of Operations for each of the three
years in the period ended February 28, 2002................. 42
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended February 28,
2002........................................................ 43
Consolidated Statements of Cash Flows for each of the three
years in the period ended February 28, 2002................. 44
Notes to Consolidated Financial Statements.................. 45
(2) Financial Statement Schedules II Valuation and Qualifying
Accounts.................................................... 74

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

(3) Exhibits:

The exhibits required to be filed by this Item 14 are set forth in the
Index to Exhibits accompanying this report.

(b) No reports on Form 8-K were filed by the Company during the quarter
ended February 28, 2002.

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

INTERVOICE-BRITE, INC.

By: /s/ DAVID W. BRANDENBURG
------------------------------------
David W. Brandenburg
Chairman of the Board of Directors,
President and Chief Executive
Officer

Dated: June 28, 2002

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.1 Articles of Incorporation, as amended, of Registrant(2)
3.2 Amendment to Articles of Incorporation of Registrant(9)
3.3 Second Restated Bylaws of Registrant, as amended(1)
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 Securities Purchase Agreement, dated as of May 29, 2002,
between the Registrant and the Buyers named therein (the
"Securities Purchase Agreement").(17)
4.3 Form of Convertible Note, dated as of May 29, 2002, between
the Registrant and each of the Buyers under the Securities
Purchase Agreement.(17)
4.4 Form of Warrant, dated as of May 29, 2002, between the
Registrant and each of the Buyers under the Securities
Purchase Agreement.(17)
4.5 Registration Rights Agreement, dated as of May 29, 2002,
between the Registrant and each of the Buyers under the
Securities Purchase Agreement.(17)
4.6 First Amendment to Third Amended and Restated Rights
Agreement dated as of May 29, 2002, between the Registrant
and Computershare Investor Services, LLC.(17)
10.1 The InterVoice, Inc. 1990 Incentive Stock Option Plan, as
amended(8)
10.2 The InterVoice, Inc. 1990 Nonqualified Stock Option Plan for
Non-Employees, as amended(3)
10.3 The InterVoice, Inc. Employee Stock Purchase Plan(6)
10.4 InterVoice, Inc. Employee Savings Plan(5)
10.5 InterVoice, Inc. Restricted Stock Plan(7)
10.6 Employment Agreement dated as of September 16, 1998 between
the Company and Rob-Roy J. Graham(8)
10.7 InterVoice, Inc. 1998 Stock Option Plan(8)
10.8 Acquisition Agreement and Plan of Merger dated as of April
27, 1999,. by and among the Company, InterVoice Acquisition
Subsidiary III, Inc. ("Acquisition Subsidiary") and Brite
Voice Systems, Inc.(11)
10.9 Patent License Agreement between Lucent Technologies GRL
Corp. and InterVoice Limited Partnership, effective as of
October 1, 1999. Portions of this exhibit have been excluded
pursuant to a request for confidential treatment.(9)
10.10 InterVoice-Brite, Inc. 1999 Stock Option Plan.(12)
10.11 Credit Agreement dated June 1, 1999 among InterVoice, Inc.,
InterVoice Acquisition Subsidiary III, Inc. and Bank of
America National Trust and Savings Association, as "Agent",
Banc of America Securities LLC and certain other financial
institutions indicated as being to the Credit Agreement
(collectively, "Lenders") incorporated by reference to
Exhibit 99.(b)(1) of the Schedule 14-D1 (Amendment No. 4)
filed by InterVoice, Inc. and InterVoice Acquisition
Subsidiary III, Inc. on June 14, 1999.(11)
10.12 Forebearance Agreement dated as of March 7, 2002, by and
among the Company, Brite Voice Systems, Inc., Bank of
America, National Association, as agent, and the Lenders
party thereto.(15)
10.13 Consent and Amendment to Forebearance Agreement, dated as of
March 31, 2002, by and among the Company, Brite Voice
Systems, Inc., Bank of America, National Association, as
agent, and the Lenders party thereto.(16)
10.14 Form of Commitment Letter dated May 29, 2002.(17)
10.15 Consent, Waiver and Third Amendment to Credit Agreement,
effective as of May 29, 2002 among the Registrant, Brite
Voice Systems, Inc. (successor by merger to InterVoice
Acquisition Subsidiary III, Inc.), Bank of America, National
Association (successor by merger to Bank of America National
Trust and Savings Association), as Agent, and the other
Lenders named therein.(17)
10.16 Subordination and Intercreditor Agreement effective as of
May 29, 2002 by and among the Registrant, the Buyers under
the Securities Purchase Agreement, and Bank of America,
National Association, as Agent for the Senior Creditors
(defined therein).(17)
10.17 Promissory Note, dated May 29, 2002, executed by the
Registrant in favor of Beal Bank, S.S.B.(17)

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.18 Deed of Trust, Security Agreement, and Assignment of Leases
and Rents dated May 29, 2002, executed by the Registrant for
its benefit of Beal Bank, S.S.B.(17)
10.19 First Amendment to Employment Agreement effective as of July
1, 2000, between the Company and Rob-Roy J. Graham.(10)
10.20 First Amendment to Credit Agreement effective as of January
15, 2001, between the Company, Agent and the Lenders.(13)
10.21 Consent and Second Amendment to Credit Agreement effective
as of February 28, 2001, between the Company, Agent and the
Lenders.(13)
10.22 Second Amendment to Employment Agreement dated as of October
31, 2001, between the Company and Rob-Roy J. Graham.(14)
10.23 Second Amended Employment Agreement dated as of February 18,
2002, between the Company and David W. Brandenburg.(18)
21 Subsidiaries(18)
23 Consent of Independent Auditors(19)
99.1 Pages 12, 13, 18, 38-40, 43 and 45 of the Registration
Statement on Form S-4, as amended (incorporated by reference
to page 12, 13, 18, 38-40, 43 and 45 of the Registration
Statement on Form S-4/A (Amendment No. One) filed by the
Company on July 13, 1999)(9)
99.2 Letter Agreement dated April 2, 2002 between the Company and
a prospective purchaser of the Company's facilities in
Wichita, Kansas. Portions of this exhibit have been excluded
pursuant to a request for confidentiality treatment.(16)

---------------

(1) Incorporated by reference to exhibits to the Company's 1991 Annual Report
on Form 10-K for the fiscal year ended February 28, 1991, filed with the
Securities and Exchange Commission (SEC) on May 29, 1991, as amended by
Amendment No. 1 on Form 8 to Annual Report on Form 10-K, filed with the SEC
on August 1, 1991.

(2) 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.

(3) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 6, 1994, with respect to the Company's
1990 Nonqualified Stock Option Plan for Non-Employees, Registration Number
33-77590.

(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 1994 Annual Report
on Form 10-K for the fiscal year ended February 28, 1994, filed with the
SEC on May 31, 1994.

(6) Incorporated by reference to exhibits to Registration Statement on Form S-8
filed with the SEC on November 30, 1998, Registration Number 333-68103.

(7) Incorporated by reference to exhibits to the Company's 1996 Annual Report
on Form 10-K for the fiscal year ended February 29, 1996, filed with the
SEC on May 29, 1996.

(8) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1998, filed with the SEC on
October 14, 1998.

(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 1999, filed October 14, 1999.

(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended August 31, 2000, filed October 14, 2000.

(11) Incorporated by reference to Registration Statement on Form S-4 filed with
the SEC on July 13, 1999, Registration Number 333-79839.

(12) Incorporated by reference to Registration Statement on Form S-8 filed with
the SEC on October 15, 1999, Registration Number 333-89127.

(13) Incorporated by reference to exhibits to the Company's 2001 Annual Report
on form 10-K for the fiscal year ended February 28, 2001, filed with the
SEC on May 18, 2001.

(14) Incorporated by reference to exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 30, 2001, filed January 11, 2002.

(15) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K, filed with the SEC on March 13, 2002.

(16) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K, filed with the SEC on April 18, 2002.

(17) Incorporated by reference to exhibits to the Company's Current Report on
Form 8-K, filed with the SEC on May 30, 2002.

(18) Incorporated by reference to exhibits to the Company's 2002 Annual Report
on Form 10-K for the fiscal year ended February 28, 2002, filed with the
SEC on May 30, 2002.

(19) Filed herewith.