Edgar Filing: INTERVOICE INC

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED November 30, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-15045

INTERVOICE, INC.

(Exact name of registrant as specified in its charter)


TEXAS (State or other jurisdiction of incorporation or organization)		75-1927578 (I.R.S. Employer Identification No.)

17811 WATERVIEW PARKWAY, DALLAS, TX (Address of principal executive offices)		75252 (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The Registrant had 38,644,203 shares of common stock, no par value per share, outstanding as of December 21, 2006.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4 Controls and Procedures
PART II. OTHER INFORMATION
	Item 1 Legal Proceedings
	Item 1A Risk Factors
	Item 6 Exhibits
SIGNATURES
Index to Exhibits
Rule 13a-14(a)/15d-14(a) Certification of CEO
Rule 13a-14(a)/15d-14(a) Certification of CFO
Section 1350 Certification of CEO
Section 1350 Certification of CFO

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTERVOICE, INC.
CONSOLIDATED BALANCE SHEETS


	(In Thousands, Except Share and Per Share Data)
	November 30, 2006			February 28, 2006
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	17,924		$	42,076
Trade accounts receivable, net of allowance for doubtful accounts of $1,649 in fiscal 2007 and $1,701 in fiscal 2006		40,368			25,745
Inventory		13,260			9,439
Prepaid expenses and other current assets		4,642			4,406
Deferred income taxes		3,047			3,047

		79,241			84,713

Property and Equipment, net of accumulated depreciation of $63,475 in fiscal 2007 and $59,002 in fiscal 2006		34,086			28,893

Other Assets
Intangible assets, net of accumulated amortization of $19,310 in fiscal 2007 and $17,343 in fiscal 2006		10,136			10,284
Goodwill		32,461			32,461
Long term deferred income taxes		2,972			1,330
Other assets		401			454

	$	159,297		$	158,135


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable	$	11,484		$	10,154
Accrued expenses		14,218			15,176
Customer deposits		4,317			6,157
Deferred income		27,223			32,172
Income taxes payable		785			484
Deferred income taxes		211			270

		58,238			64,413

Stockholders’ Equity
Preferred stock, $100 par value—2,000,000 shares authorized: none issued
Common stock, no par value, at nominal assigned value—62,000,000 shares authorized: 38,640,517 issued and outstanding in fiscal 2007 and 38,470,087 issued and outstanding in fiscal 2006		19			19
Additional capital		96,667			92,050
Retained earnings		4,661			3,558
Accumulated other comprehensive loss		(288	)		(1,905	)

Stockholders’ equity		101,059			93,722

	$	159,297		$	158,135

See notes to consolidated financial statements.

INTERVOICE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


	(In Thousands, Except Per Share Data)
	Three Months Ended					Nine Months Ended
	November 30,			November 30,		November 30,			November 30,
	2006			2005		2006			2005
Sales
Solutions	$	27,151		$	19,328	$	70,865		$	62,720
Recurring services		25,617			21,683		78,051			64,844

		52,768			41,011		148,916			127,564

Cost of goods sold
Solutions		16,604			11,474		44,194			37,328
Recurring services		7,405			6,409		22,071			18,794

		24,009			17,883		66,265			56,122

Gross margin
Solutions		10,547			7,854		26,671			25,392
Recurring services		18,212			15,274		55,980			46,050

		28,759			23,128		82,651			71,442

Research and development expenses		6,258			4,226		17,279			12,305
Selling, general and administrative expenses		21,959			15,801		62,967			46,601
Amortization of acquisition related intangible assets		673			252		1,836			756


Income (loss) from operations		(131	)		2,849		569			11,780

Interest income		290			685		1,237			1,781
Interest expense		(17	)		—		(17	)		(31	)
Other income (expense)		(292	)		212		(210	)		379

Income (loss) before taxes		(150	)		3,746		1,579			13,909
Income taxes		(62	)		121		476			1,764


Net income (loss)	$	(88	)	$	3,625	$	1,103		$	12,145


Net income per share — basic	$	0.00		$	0.09	$	0.03		$	0.32


Shares used in basic per share computation		38,616			38,251		38,557			37,970


Net income per share — diluted	$	0.00		$	0.09	$	0.03		$	0.31


Shares used in diluted per share computation		38,616			39,080		39,120			39,046

See notes to consolidated financial statements.

INTERVOICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	(In Thousands)
	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
	2006			2005			2006			2005
Operating activities
Net income (loss)	$	(88	)	$	3,625		$	1,103		$	12,145
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		3,023			2,324			8,274			5,916
Non-cash compensation expense		1,055			—			3,804			—
Change in accounts receivable		(7,412	)		884			(13,415	)		5,814
Other changes in operating activities		(6,224	)		(2,500	)		(10,666	)		(5,112	)

Net cash provided by (used in) operating activities		(9,646	)		4,333			(10,900	)		18,763


Investing activities
Purchases of property and equipment		(2,109	)		(3,055	)		(10,723	)		(10,099	)
Purchase of Nuasis assets, net of cash acquired		(2,439	)		—			(2,439	)		—
Purchase of Edify Corporation		—			—			(926	)		—
Other		—			—			—			(300	)

Net cash used in investing activities		(4,548	)		(3,055	)		(14,088	)		(10,399	)


Financing activities
Paydown of debt		—			—			—			(1,733	)
Exercise of stock options		118			314			376			2,392
Exercise of warrants		—			—			—			2,500

Net cash provided by financing activities		118			314			376			3,159


Effect of exchange rates on cash		37			(726	)		460			(1,507	)


Increase (decrease) in cash and cash equivalents		(14,039	)		866			(24,152	)		10,016
Cash and cash equivalents, beginning of period		31,963			69,392			42,076			60,242


Cash and cash equivalents, end of period	$	17,924		$	70,258		$	17,924		$	70,258

See notes to consolidated financial statements.

INTERVOICE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

(In Thousands, Except Share Data)


									Accumulated Other
	Common Stock				Additional		Retained		Comprehensive
	Shares		Amount		Capital		Earnings		Loss			Total

Balance at February 28, 2006		38,470,087	$	19	$	92,050	$	3,558	$	(1,905	)	$	93,722

Net income		—		—		—		1,103		—			1,103

Foreign currency translation adjustment		—		—		—		—		1,617			1,617


Comprehensive income													2,720

Tax benefit from exercise of stock options		—		—		437		—		—			437

Exercise of stock options		170,430		—		376		—		—			376

Non-cash compensation		—		—		3,804		—		—			3,804


Balance at November 30, 2006		38,640,517	$	19	$	96,667	$	4,661	$	(288	)	$	101,059

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006

Note A — Basis of Presentation

We have prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles for interim financial information. The consolidated balance sheet at February 28, 2006 has been derived from the audited financial statements at that date. We believe we have included all adjustments necessary for a fair presentation of the unaudited November 30, 2006 and 2005 consolidated financial statements. Such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with our audited financial statements and related notes for the three years ended February 28, 2006 included in our Annual Report on Form 10-K. Our Annual Report is available on our website at www.intervoice.com. Our operating results for the three and nine month periods ended November 30, 2006 are not necessarily indicative of the results that may be expected for our fiscal year ending February 28, 2007, as our results may be affected by a number of factors including the timing and ultimate receipt of orders from significant customers which continue to constitute a large portion of our sales, the sales mix of products and services sold, and changes in general economic conditions, any of which could have a material adverse effect on our operations.

Our consolidated financial statements include the accounts of Intervoice, Inc. and our subsidiaries, all of which are directly or indirectly 100% owned by Intervoice, Inc. All significant intercompany transactions and accounts have been eliminated in consolidation. Financial statements of our foreign subsidiaries have been translated into U.S. dollars at current and average exchange rates. Resulting translation adjustments are recorded in stockholders’ equity as a part of accumulated other comprehensive loss. Any foreign currency transaction gains and losses are included in the accompanying consolidated statements of operations. Our total comprehensive income for the third quarter of fiscal 2007 and 2006 was $0.4 million and $2.7 million, respectively. For the nine month periods ended November 30, 2006 and 2005, total comprehensive income was $2.7 million and $9.9 million, respectively. Total comprehensive income is comprised of net income and foreign currency translation adjustments.

Note B — Acquisition of Edify Corporation

As discussed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2006, we acquired Edify Corporation (Edify), a former competitor in the enterprise market, from S1 Corporation. Results of operations for Edify were consolidated with ours beginning December 31, 2005; therefore, our results of operations presented for the three and nine month periods ended November 30, 2005 do not include those of Edify.

The following unaudited pro forma information represents our results of operations for the three and nine month periods ended November 30, 2005 as if the Edify acquisition had occurred at March 1, 2005. The pro forma information has been prepared by combining the results of operations of Intervoice and Edify, adjusted for additional amortization expense of identified intangibles, a reduction in interest income as a result of our use of cash to acquire Edify and pay transaction costs, and the resulting impact on the provision for income taxes. The pro forma information has not been adjusted to reflect any stock compensation expense as required by SFAS No. 123R which was adopted by Intervoice effective March 1, 2006. The unaudited pro forma information does not purport to be indicative of what would have occurred had the Edify acquisition occurred as of the date assumed or of results of operations which may occur in the future (in thousands, except per share data):


	Three Months Ended		Nine Months Ended
	November 30, 2005		November 30, 2005
	(unaudited)		(unaudited)
Sales	$	50,899	$	152,986
Income before income taxes		4,624		14,553
Net income		4,518		12,940
Net income per share		0.12		0.33

Note C — Inventory

Our inventory consisted of the following (in thousands):


	November 30, 2006		February 28, 2006
Purchased parts	$	3,931	$	3,908
Work in progress		9,329		5,531

	$	13,260	$	9,439

Note D — Property and Equipment

Our property and equipment consisted of the following (in thousands):


	November 30, 2006		February 28, 2006
Land and buildings	$	17,400	$	16,932
Computer equipment and software		51,328		42,817
Furniture and fixtures		3,416		3,165
Hosted solutions equipment		17,931		16,331
Maintenance services equipment		7,486		8,650

		97,561		87,895
Less allowance for accumulated depreciation		63,475		59,002

Property and equipment, net	$	34,086	$	28,893

At November 30, 2006 the balance in our computer equipment and software account included approximately $14.9 million in capitalized costs associated with our SAP implementation. At February 28, 2006, approximately $8.0 million of such costs were included in our computer equipment and software account. Depreciation on approximately $2.6 million of the total began during the third quarter of fiscal 2006 as certain elements of the SAP project were placed into service. Depreciation on approximately $0.5 million additional of the total began during the second quarter of fiscal 2007. Depreciation on the remaining balance began in the third quarter of fiscal 2007 as the remainder of the system was placed in service, and is being amortized over 7 years.

Note E — Stock-based Compensation

Our stock-based employee compensation plans are fully described in Note J in our 2006 Annual Report on Form 10-K. Prior to March 1, 2006, we accounted for awards granted under our stock-based employee compensation plans following the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No compensation cost was reflected in net income for stock options, as all options granted under the plans have an exercise price equal to the market value of the underlying common stock on the date of grant. Compensation cost has previously been recognized for restricted stock units (RSUs).

Effective March 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payments,” using the modified prospective application method. Under this transition method, compensation cost recognized for the three and nine month periods ended November 30, 2006 includes compensation expense for stock-based awards vesting during the period related to: (a) stock-based payments granted prior to, but not yet vested as of March 1, 2006 (based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 and previously presented in pro forma footnote disclosures), and (b) stock-based payments granted subsequent to February 28, 2006 (based on the grant-date fair value estimated in accordance with the new provisions of SFAS No. 123R).

The following is the effect of adopting SFAS 123R as of March 1, 2006 (in thousands, except per share amounts):


	Three Months Ended		Nine Months Ended
	November 30, 2006		November 30, 2006
Cost of Goods Sold	$	175	$	699
R&D		111		392
SG&A		704		2,561

Decrease in operating income	$	990	$	3,652
Related deferred income tax benefit		294		1,072

Decrease in net income	$	696	$	2,580

Decrease in earnings per share – basic	$	0.02	$	0.07
Decrease in earnings per share – diluted	$	0.02	$	0.07

Under the modified prospective application method, results for periods prior to March 1, 2006 have not been restated to reflect the effects of implementing SFAS No. 123R. The following pro forma information, as required by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123,” is presented for comparative purposes and illustrates the pro forma effect on income from continuing operations and related earnings per common share for the three and nine month periods ended November 30, 2005, as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation for those periods (in thousands, except per share amounts):


	Three Months Ended			Nine Months Ended
	November 30, 2005			November 30, 2005
Net income, as reported	$	3,625		$	12,145
Less: Total stock-based compensation expense determined under fair value based methods for all awards		(2,615	)		(5,854	)

Pro forma net income		1,010			6,291


Net income per share:
Basic – as reported	$	0.09		$	0.32
Basic – pro forma	$	0.03		$	0.17
Diluted – as reported	$	0.09		$	0.31
Diluted – pro forma	$	0.03		$	0.16

Note F — Special Charges

Fiscal 2007

During the third quarter of fiscal 2007, we incurred approximately $1.3 million in connection with organizational changes affecting approximately 35 positions. In addition, we incurred $1.1 million in connection with the elimination of redundant office leases. The following table summarizes the effect on reported operating results by financial statement category of this special charge activity for fiscal 2007 (in thousands):


	Cost of Goods		Research and		Selling, General
	Sold		Development		and Administrative		Total

Severance payments and related benefits	$	573	$	195	$	519	$	1,287
Facility Costs		—		—	$	1,075	$	1,075

Total	$	573	$	195	$	1,594	$	2,362

Of this amount, $0.8 million remained accrued at November 30, 2006.

Fiscal 2006

Accrued expenses at February 28, 2006 included amounts associated with severance and organizational changes affecting approximately 50 persons made at the time of the acquisition of Edify. Activity during the first nine months of fiscal 2007 related to such accruals was as follows (in thousands):


	Accrued Balance							Accrued Balance
	February 28, 2006		Payments		Adjustments			November 30, 2006
Severance payments and related benefits	$	1,748	$	1,536	$	(29	)	$	183

We expect to pay the balance of accrued severance and related benefits during fiscal 2007.

Note G — Income Taxes

For the quarter and nine months ended November 30, 2006, our effective tax rate of 41% and 30%, respectively, differs from the U.S. federal statutory rate primarily as a result of an increase in valuation allowance associated with certain foreign deferred tax assets due to our uncertainty related to the utilization of those tax assets, a reduction in tax expense resulting from the completion and filing of our fiscal 2006 federal income tax return, and the effect of non-U.S. taxes.

Given our three year history of profitability and the belief that we will continue to generate sufficient taxable income in the future to realize the benefits of certain of our remaining U.S. federal deferred tax assets, in February 2006 we reversed the valuation allowance associated with our U.S. federal deferred tax assets. However, due to uncertainties regarding our ability to generate sufficient future taxable income in certain foreign jurisdictions to realize the benefit of deferred tax assets in such foreign jurisdictions, we continue to maintain a valuation allowance against those deferred tax assets.

For the quarter and nine months ended November 30, 2005, our effective tax rate of 3% and 13%, respectively, differs from the U.S. federal statutory rate primarily as a result of the favorable settlement of certain foreign tax liabilities and other foreign tax contingencies, a reduction in tax expense resulting from the completion and filing of fiscal 2005 federal and state income tax returns, the expected tax benefits associated with the utilization of previously reserved net operating losses, and the effect of non-U.S. taxes.

On June 13, 2006, the Financial Accounting Standards Board issued FASB Interpretation Number 48 (FIN 48), “Accounting for Income Tax Uncertainties,” which will be effective as of the beginning of our fiscal year ending February 29, 2008. FIN 48 defines the threshold for recognizing the financial statement benefit of tax return positions as “more-likely-than-not” to be sustained by the taxing authority. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its merits, no tax benefit can be recognized from the position.

We have begun our evaluation of the effect of FIN 48 on our reported income tax liabilities. We may be required to adjust our income tax liabilities as a result of our adoption of FIN 48 in the first quarter of fiscal 2008. We have not yet completed our assessment of applying the provisions of FIN 48.

Note H — Earnings Per Share


	Three Months Ended					Nine Months Ended
	November 30,			November 30,		November 30,		November 30,
(in thousands, except per share data)	2006			2005		2006		2005
Numerator:
Net income (loss)	$	(88	)	$	3,625	$	1,103	$	12,145


Denominator:

Denominator for basic earnings per share		38,616			38,251		38,557		37,970
Dilutive potential common shares
Employee stock options		—			829		563		1,005
Outstanding warrants		—			—		—		71


Denominator for diluted earnings per share		38,616			39,080		39,120		39,046


Net income per share:
Basic	$	0.00		$	0.09	$	0.03	$	0.32
Diluted	$	0.00		$	0.09	$	0.03	$	0.31

Options to purchase 7,018,018 and 4,718,494 shares of common stock at average exercise prices of $8.82 and $10.51 per share were outstanding during the three month periods ended November 30, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because of our loss for the third quarter in fiscal 2007 and because the options’ exercise prices were greater than the average market price of our common shares during the applicable period in fiscal 2006 and, therefore, the effect would have been anti-dilutive. Options to purchase 6,843,518 and 1,479,644 shares at average exercise prices of $8.88 and $13.09 were outstanding during the nine month periods ended November 30, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average prices of our shares for the nine month periods.

Note I — Operating Segment Information and Major Customers

We operate as a single, integrated business unit. Our chief operating decision maker assesses performance and allocates resources on an enterprise wide basis. Our product line includes voice automation/IVR solutions, messaging solutions, payment solutions, maintenance and support services, and hosted solutions. We believe that product line distinction provides the most meaningful breakdown of quarterly and annual sales activity. Our net sales by product line for the three and nine month periods ended November 30, 2006 and 2005 were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	November 30,		November 30,		November 30,		November 30,
	2006		2005		2006		2005
Voice automation/IVR solution sales	$	19,062	$	10,438	$	52,060	$	38,371
Messaging solution sales		4,347		5,877		11,634		16,743
Payment solution sales		3,742		3,013		7,171		7,606

Total solution sales		27,151		19,328		70,865		62,720


Maintenance and related service revenues		21,329		15,589		62,180		45,964
Hosted solutions revenues		4,288		6,094		15,871		18,880

Total recurring services revenues		25,617		21,683		78,051		64,844


Total sales	$	52,768	$	41,011	$	148,916	$	127,564

Geographic Operations

We assign revenues to geographic areas based on the locations of our customers. Our net sales by geographic area for the three and nine month periods ended November 30, 2006 and 2005 were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	November 30,		November 30,		November 30,		November 30,
	2006		2005		2006		2005
North America	$	34,880	$	22,105	$	94,127	$	67,508
Europe		7,168		7,233		22,551		28,938
Middle East and Africa		4,660		5,201		12,219		17,146
Central and South America		2,898		4,831		12,342		10,207
Pacific Rim		3,162		1,641		7,677		3,765


Total	$	52,768	$	41,011	$	148,916	$	127,564

Concentration of Revenue

No customer accounted for 10% of our revenues during the quarters and nine months ended November 30, 2006 and November 30, 2005.

Note J — Contingencies

Intellectual Property Matters

We provide our customers a qualified indemnity against the infringement of third party intellectual property rights. From time to time, various owners of patents and copyrighted works send us or our customers letters alleging that our products do or might infringe upon the owner’s intellectual property rights, and/or suggesting that we or our customers should negotiate a license or cross-license agreement with the owner. Our policy is to never knowingly infringe upon any third party’s intellectual property rights. Accordingly, we forward any such allegation or licensing request to our outside legal counsel for their review and opinion. We generally attempt to resolve any such matter by informing the owner of our position concerning non-infringement or invalidity, and/or, if appropriate, negotiating a license or cross-license agreement. Even though we attempt to resolve these matters without litigation, it is always possible that the owner of a patent or copyrighted work will sue us. Although no such litigation is currently pending against us, owners of patents and/or copyrighted works have previously sued us alleging infringement of their intellectual property rights. We currently have a portfolio of 85 patents, and we have applied for and will continue to apply for and receive a number of additional patents to protect our technological innovations. We believe our patent portfolio could allow us to assert counterclaims for infringement against certain owners of intellectual property rights if those owners were to sue us for infringement.

From time to time Ronald A. Katz Technology Licensing L.P. (“RAKTL”) has sent letters to certain of our customers 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. As a result of the correspondence, many of Intervoice’s customers have had discussions, or are in discussions, with RAKTL.

We offer certain products that can be programmed and configured to provide enhanced services to network providers and call processing applications for call centers. Our contracts with customers usually include a qualified obligation to indemnify and defend customers against claims that products as delivered by Intervoice infringe a third party’s patent. None of our customers has notified us that RAKTL has claimed that any specific product provided by us infringes any claims of any RAKTL patent. Accordingly, we have not been required to defend any customers against a claim of infringement under a RAKTL patent. We have, however, received letters from customers notifying us of the efforts by RAKTL to license its patent portfolio and reminding us of our potential obligations under the indemnification provisions of our agreements in the event that a claim is asserted.

Some of our customers have licensed certain rights under the RAKTL patent portfolio. Two such customers who had previously attempted to tender the defense of their products to us informed us that they had entered into agreements to license certain rights under the RAKTL patents and demanded we indemnify them for unspecified amounts, including attorney’s fees, paid in connection with the license agreements. We notified these customers that we believe we do not

have any indemnity obligation in connection with the license agreements. We have received no further response from either customer.

A number of companies, including customers of ours and Edify’s have been sued as defendants in several lawsuits recently brought by RAKTL in the United States District Court for the Eastern District of Texas and the United States District Court for the District of Delaware. Several of these defendants who are also customers have notified us or Edify of the lawsuits pursuant to the indemnity paragraphs of their respective sales agreements and have indicated to us that the lawsuits could potentially impact the defense and indemnity paragraphs of their respective sales agreements. Neither we nor Edify believe that we have a current obligation to defend or indemnify these customers in connection with the current allegations made in the RAKTL lawsuits and when contacted we have requested that the customers provide additional information concerning the assertions made by RAKTL.

In response to the correspondence from, and litigation initiated by, RAKTL a few of our customers and customers of Edify have attempted to tender to us the defense of our products under contractual indemnity provisions. We have informed these customers that, while we fully intend to honor any contractual indemnity provisions, we do not believe we currently have any obligation to provide such a defense because RAKTL does not appear to have made a claim, either in the correspondence or litigation, that any Intervoice product infringes a RAKTL patent. Some of these customers have disagreed with us and stated that they believe that the statements and allegations contained within correspondence and/or litigation pleadings filed by RAKTL can be construed as a claim against Intervoice products.

Even though no claims or allegations have been made by RAKTL that a specific product offered by Intervoice infringes any claim under the RAKTL patent portfolio, we have received opinions from our outside patent counsel that certain products and applications we offer do not infringe certain claims of the RAKTL patents. We have also received opinions from our outside counsel that certain claims under the RAKTL patent portfolio are invalid or unenforceable. Furthermore, based on the reviews by outside counsel, we are not aware of any valid and enforceable claims under the RAKTL portfolio that are infringed by our products. If we do become involved in litigation in connection with the RAKTL patent portfolio, under a contractual indemnity or any other legal theory, we intend to vigorously contest the claims and to assert all appropriate defenses.

We have received letters from Webley Systems (“Webley”), a division of Parus Holdings, Inc. (“Parus”), and its counsel alleging that certain Webley patents cover one or more of our products and services. In the letters, Parus offers a license to the Webley patents. As a result of the correspondence, we conducted discussions with Parus. Based on reviews by our outside counsel, we are not aware of any valid and enforceable claims under the Webley patents that are infringed by our products or services.

Pending Litigation

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 Intervoice during the period from October 12, 1999 through June 6, 2000 (the “Class Period”). Plaintiffs have filed claims, which were consolidated into one proceeding, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 against us as well as certain named current and former officers and directors of Intervoice on behalf of the alleged class members. In the complaint, Plaintiffs claim that we and the named current and former officers and directors issued false and misleading statements during the Class Period concerning the financial condition of Intervoice, the results of the merger with Brite Voice Systems, Inc. and the alleged future business projections of Intervoice. Plaintiffs have asserted that these alleged statements resulted in artificially inflated stock prices.

The District Court dismissed the Plaintiffs’ complaint because it lacked the degree of specificity and factual support to meet the pleading standards applicable to federal securities litigation. The Plaintiffs’ appealed the dismissal to the United States Court of Appeals for the Fifth Circuit, which affirmed the dismissal in part and reversed in part. The Fifth Circuit remanded a limited number of issues for further proceedings in the District Court.

On September 26, 2006, the District Court granted the Plaintiffs’ motion to certify a class of people who purchased Intervoice stock during the Class Period between October 12, 1999 and June 6, 2000. On November 14, 2006, the Fifth Circuit granted our petition to appeal the District Court’s decision to grant Plaintiffs’ motion to certify a class. Based on the Fifth Circuit’s decision to accept our appeal, we filed a motion to stay further discovery pending the Fifth Circuit’s decision on the merits of our appeal. Plaintiffs filed a brief opposing our motion to stay further discovery, and we filed a reply brief in support of our motion. We are in the process of continuing to produce documents in response to the Plaintiffs’ request for production while we await the District Court’s decision on our motion for a stay. We believe

that we and our officers and directors complied with the applicable securities laws and will continue to vigorously defend the case.

A customer of Edify, Sony Electronics, Inc., was sued on December 13, 2006 in the case of Phoenix Solutions, Inc. v. Sony Electronics, Inc.; No. CV-06-7916-PA, pending in the United States District Court for the Central District of California. In the suit, Phoenix Solutions alleges that Sony Electronics infringes certain of its patents. Edify has a qualified contractual obligation to indemnify Sony Electronics against certain claims that products it provides infringe patents. Sony Electronics notified us that they believe we have an obligation to defend and indemnify them in the lawsuit. We are currently reviewing the claims in the lawsuit against our contractual obligations to determine our response. We have asked Sony Electronics to provide us certain additional information so we can complete our review.

Audit Committee Investigation

During fiscal 2005, our Audit Committee conducted an investigation of certain transactions that occurred during our fiscal years 2000 through 2002. The Audit Committee was assisted in its investigation by separate independent legal counsel and a national accounting firm. The Audit Committee reported the results of its investigation to the SEC, and we are cooperating with the SEC in its own investigation regarding the transactions. We are currently providing documents to the SEC in response to a subpoena and informal requests for information about the transactions, and several of our current and former officers and non-officer employees have provided testimony to the SEC. Our Audit Committee and its counsel are continuing to monitor our response to the SEC, and they also have conducted a review of certain documents provided to the SEC which we located after the Committee’s original investigation. Intervoice is also honoring our obligation to indemnify certain current and former officers and other employees of Intervoice, including our Chief Executive Officer, who received subpoenas to produce documents and provide testimony to the SEC in connection with the investigation. Furthermore, we are honoring our obligation to reimburse legal fees incurred by certain recipients of the subpoenas.

The Audit Committee investigation found that we accounted for certain transactions incorrectly during our fiscal years 2000 through 2002. The Audit Committee investigation concluded that a $0.9 million payment made by Intervoice to a publicly held supplier purportedly for certain prepaid licenses was linked to an agreement to amend a 1997 warrant issued to us by the supplier to permit our cashless exercise of the warrant. As a result, we believe the $0.9 million payment should have been recorded as a reduction in the $21.4 million gain we recognized on the sale of the shares underlying the warrant during the fourth quarter of fiscal 2001 and should not have been recorded as prepaid license inventory. Our payment to the supplier may have rendered unavailable a nonexclusive registration exemption for the sale of the shares underlying the warrant. The Audit Committee investigation also found that we intentionally provided the same supplier false or misleading documents for such supplier to use to support such supplier’s improper recognition of revenue in calendar 2001.

The Audit Committee investigation and review further found that six of the seven customer sales transactions the Committee investigated were accounted for incorrectly and that there was intentional misconduct in at least one of those sales transactions. These six transactions occurred at the end of quarters in which we just met analysts’ expectations with respect to earnings per share. The Audit Committee found that we improperly recognized revenue in a quarter-end barter transaction involving approximately 0.4% of annual revenues for fiscal 2000, and that we improperly accelerated the recognition of revenue in five quarter-end transactions totaling approximately 0.4% and 0.3% of annual revenues in fiscal 2000 and fiscal 2002, respectively. We, and certain of our current and former officers and the SEC have agreed that Intervoice and the officers will not assert any defenses based on a statute of limitations with respect to any action or proceeding against Intervoice or such officers brought by or on behalf of the SEC arising out of the SEC investigation for the time periods set forth in the agreements. As a result of work performed in responding to the SEC subpoena, the Committee has concluded that Intervoice also improperly recognized approximately $5.4 million of revenue in two sales transactions during the second and third quarters of fiscal 2002 because the transactions were subject to oral side agreements that gave our customer expanded rights of return. We subsequently reversed the $5.4 million of revenue during the fourth quarter of fiscal 2002 in connection with a return of the related systems. We are providing documents to the SEC concerning these two additional sales transactions pursuant to a separate subpoena. Separately, the Audit Committee determined that in September 2001 one of our current executive officers improperly communicated Intervoice information to a shareholder.

Intervoice’s management has concluded, with the concurrence of the Audit Committee and our external auditors, that restatement of our prior period financial statements to adjust for the findings of the Audit Committee investigation and review is not necessary. In reaching this conclusion, we considered the impact of the incorrect

accounting on each of the periods affected, the ages of the affected financial statements and the lack of any material changes in prior period trends as a result of the incorrect accounting. In addition, we noted that since the date of the most recent transaction reviewed in the investigation, we have restructured our business, made significant management changes, consolidated our physical operations, significantly reduced our fixed operating costs and refinanced and repaid all of our major debt obligations. We cannot predict whether we may have future losses relating to the matters investigated by the Audit Committee as a result of future claims, if any, including any claims by the government.

Other Matters

We are a defendant from time to time in lawsuits incidental to our business. Based on currently available information, we believe that resolution of the lawsuits and other matters described above is uncertain, and there can be no assurance that future costs related to such matters would not be material to our financial position or results of operations.

We are a party to many routine contracts in which we provide general indemnities and warranties in the normal course of business to third parties for various risks. These indemnities and warranties are discussed in the following paragraphs. Except in specific circumstances where we have determined that the likelihood of loss is probable and the amount of the loss quantifiable, we have not recorded a liability for any of these indemnities or warranties. In general, we are not able to estimate the potential amount of any liability relating to these indemnities and warranties.

Many of our contracts, particularly for hosted solutions, foreign contracts and contracts with telecommunication companies, include provisions for the assessment of damages for delayed project completion and/or for our failure to achieve certain minimum service levels. We have had to pay damages in the past and may have to pay additional damages in the future. Any such future damages could be significant.

Our contracts with our customers generally contain qualified indemnifications against third party claims relating to the infringement of intellectual property as described in “Intellectual Property Matters” above.

Our contracts with our customers also generally contain warranties and, in some cases, general indemnifications against other unspecified third party and general liability claims. We have liability insurance protecting us against certain obligations, primarily certain claims related to property damage, that result from these indemnities.

We are obligated under letters of credit totaling approximately $0.4 million issued by a bank to guarantee our performance under a long-term international hosted solution contract and related proposals. These letters of credit expire during fiscal 2007 and fiscal 2008.

We have employment agreements with four executive officers and three other officers. One agreement with an executive officer requires us to make termination payments to the officer of one and one-half times the officer’s annual base compensation in the event the officer’s services are terminated without cause or payments of up to 2.99 times the officer’s annual compensation including bonuses in connection with a termination of the officer’s services within a two year period following a change in ownership of Intervoice, as defined in the agreement. If the officer with whom we have such an agreement were terminated for one of the preceding reasons during fiscal 2007, we would incur costs ranging from $0.6 million to $1.2 million. The agreements with two other executive officers require us to make termination payments of one and one-half times the officer’s annual base compensation in the event the officer’s services are terminated without cause or payments of up to two times the officer’s annual base compensation including bonuses in connection with a termination of the officer’s services within an 18 month period following a change in ownership of Intervoice, as defined in the agreements. If both of these officers were terminated for one of the preceding reasons during fiscal 2007, we would incur costs ranging from $0.9 million to $1.2 million. The agreement with the fourth executive officer, which was amended and restated on October 9, 2006, requires us to make payment of the greater of the compensation for the unexpired term of the contract which expires in December 2007 or one-half of the annual compensation under the contract. If this officer were terminated during fiscal 2007, we would incur costs ranging from $0.1 million to $0.2 million. The remaining agreements with officers provide for their employment through December 2007 for one of the officers and through August 2008 with respect to the remaining two officers. If we terminated these officers prior to the expiration of their contracts, we would owe them the greater of their compensation for the unexpired terms of the contracts or one-half of their annual compensation under the contracts. If these officers were terminated during fiscal 2007, we would incur costs ranging from $0.6 million to $0.8 million.

Under the terms of our Articles of Incorporation, we indemnify our directors, officers, employees or agents or any other person serving at our request as a director, officer, employee or agent of another corporation in connection with a derivative suit if he or she (1) is successful on the merits or otherwise or (2) acted in good faith, and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation. We will not provide indemnification, however, for any claim as to which the person was adjudged liable for negligence or misconduct unless the court determines that under the circumstances the person is fairly and reasonably entitled to indemnification. We provide the same category of persons with indemnification in a non-derivative suit only if such person (1) is successful on the merits or otherwise or (2) acted in good faith, and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reason to believe his or her conduct was unlawful. Under the terms of our Bylaws, we also indemnify our current and former officers and directors to the fullest extent permitted or required under Article 2.02-1 of the Texas Business Corporation Act.

In connection with certain lawsuits filed against us and certain of our present and former officers and directors (see “Pending Litigation” above), we have agreed to pay in advance any expenses, including attorneys’ fees, incurred by such present and former officers and directors in defending such litigation, in accordance with Article 2.02-1 of the Texas Business Corporation Act and the Company’s Articles of Incorporation and Bylaws. Each of these parties has provided us with a written undertaking to repay us the expenses advanced if the person is ultimately not entitled to indemnification.

We have a qualified obligation to defend and indemnify certain current and former officers and other employees of Intervoice in connection with activities resulting from the Audit Committee investigation and related SEC investigation described in “Audit Committee Investigation” above.

Texas corporations are authorized to obtain insurance to protect officers and directors from certain liabilities, including liabilities against which the corporation cannot indemnify its officers and directors. We have obtained liability insurance for our officers and directors as permitted by Article 2.02-1 of the Texas Business Corporation Act. Our insurance policies provide coverage for losses and expenses incurred by us and our current and former directors and officers in connection with claims made under the federal securities laws. These policies, however, exclude losses and expenses related to the Barrie class action lawsuit, or to other litigation based on claims that are substantially the same as those in the Barrie class action, and contain other customary provisions to limit or exclude coverage for certain losses and expenses.

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies. In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we use estimates and projections that affect the reported amounts and related disclosures and that may vary from actual results. Effective March 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, “Share-Based Payments.” We consider our accounting policies related to SFAS 123R as important to the portrayal of our financial condition, and requiring subjective judgment. Other critical accounting policies are discussed fully in the Annual Report on Form 10-K for the year ended February 28, 2006.

Stock-Based Compensation

We adopted SFAS 123R effective March 1, 2006 using the modified prospective transition method, which resulted in recording $1.0 million of stock-based compensation expense during the third quarter of fiscal 2007 and $3.6 million during the first nine months of fiscal 2007 as further detailed in Note E to the financial statements. Determining the amount and classification of expense for stock-based compensation, as well as the associated impact to the balance sheets and statements of cash flows, requires us to develop estimates of the fair value of stock-based compensation expenses using fair value models. The most significant assumptions used in calculating the fair value include the expected volatility, expected lives and estimated forfeiture rates for employee stock option grants.

We use a weighted average of the implied volatility, the most recent one-year volatility and the median volatility for the period of the expected life of the option to determine the expected volatility to be used in our fair value calculation. We believe that this is the best available estimate of expected volatility. The expected lives of options are determined based on our historical stock option exercise experience. We believe the historical experience method is the best estimate of future exercise patterns currently available. Estimated forfeiture rates are derived from historical forfeiture patterns. We believe the historical experience method is the best estimate of forfeitures currently available. Changes to these assumptions or changes to our stock-based compensation plans, including the number of awards granted, could impact our stock-based compensation expense in future periods.

Sales. We operate as a single, integrated business unit. Our chief operating decision maker assesses performance and allocates resources on an enterprise wide basis. Our product line includes voice automation/IVR solutions, messaging solutions, payment solutions, maintenance and support services, and hosted solutions. We believe that product line distinction provides the most meaningful breakdown of quarterly and annual sales activity. Our net sales by product line for the three and nine month periods ended November 30, 2006 and 2005 were as follows (in thousands):


	Three Months Ended							Nine Months Ended
	November 30,					November 30,		November 30,					November 30,
	2006		% Change			2005		2006		% Change			2005
Voice automation/IVR solution sales	$	19,062		82.6	%	$	10,438	$	52,060		35.7	%	$	38,371
Messaging solution sales		4,347		(26.0	)%		5,877		11,634		(30.5	)%		16,743
Payment solution sales		3,742		24.2	%		3,013		7,171		(5.7	)%		7,606

Total solution sales		27,151		40.5	%		19,328		70,865		13.0	%		62,720


Maintenance and related services revenues		21,329		36.8	%		15,589		62,180		35.3	%		45,964
Hosted solutions revenues		4,288		(29.6	)%		6,094		15,871		(15.9	)%		18,880

Total recurring services revenues		25,617		18.1	%		21,683		78,051		20.4	%		64,844


Total sales	$	52,768		28.7	%	$	41,011	$	148,916		16.7	%	$	127,564


	Three Months Ended							Nine Months Ended
	November 30,					November 30,		November 30,					November 30,
	2006		% Change			2005		2006		% Change			2005
North America	$	34,880		57.8	%	$	22,105	$	94,127		39.4	%	$	67,508
Europe		7,168		(0.9	)%		7,233		22,551		(22.1	)%		28,938
Middle East and Africa		4,660		(10.4	)%		5,201		12,219		(28.7	)%		17,146
Central and South America		2,898		(40.0	)%		4,831		12,342		20.9	%		10,207
Pacific Rim		3,162		92.7	%		1,641		7,677		103.9	%		3,765

Total	$	52,768		28.7	%	$	41,011	$	148,916		16.7	%	$	127,564

International sales comprised 34% of our total sales during the third quarter of fiscal 2007, down from 46% during the third quarter of fiscal 2006.

Total sales for the third quarter and first nine months of fiscal 2007 included the impact of a full quarter and nine months of activity related to the acquisition of Edify. These Edify sales were primarily to North American customers and were included in the voice automation/IVR product line. Sales of voice automation/IVR solutions for the first nine months of fiscal 2007 also included approximately $2.5 million of revenue from a cash basis customer in the Central and South American market. Such sales also included $3.5 million from a follow on order for incremental capacity from the same customer which was recognized on an accrual basis. Based on our successful cash collections activities associated with this customer over several years, the application of our accounting policy was updated during the first quarter of fiscal 2007 to utilize the accrual method of accounting for any future activity with this customer. Sales of messaging solutions included approximately $2.5 million and $6.1 million for the third quarter and first nine months of fiscal 2006, respectively, under the first two contracts of our new advanced messaging product – media exchange for networks. One of these contracts was completed during the first quarter of fiscal 2007. The second contract is not complete as the solution is still being tested and evaluated by the customer. Our sales of payment solutions continue to primarily reflect sales of capacity upgrades to existing customers.

The increase in our maintenance and related services revenue in the third quarter of fiscal 2007 as compared to the third quarter of fiscal 2006 is comprised of an increase of $5.7 million (42.2%) in maintenance revenues on voice automation/IVR solutions. The increase in our maintenance and related services revenue in the first nine months of fiscal 2007 as compared to the first nine months of fiscal 2006 is comprised of an increase of $17.3 million (45.1%) in maintenance revenues on voice automation/IVR solutions offset by decreases of $1.1 million (14.5%) in maintenance revenues on messaging and payment solutions. These increases in maintenance revenues on voice automation/IVR solutions resulted primarily from the acquisition of Edify.

The 29.6% decrease in hosted solutions revenue in the third quarter of fiscal 2007 compared to the third quarter of fiscal 2006 reflects the expiration of one long term hosted solution contract during the second quarter of fiscal 2007. Sales under this contract totaled $1.8 million for the quarter ended November 30, 2005. Sales under this contract totaled $3.0 million and $6.5 million for the nine month periods ended November 30, 2006 and 2005. The reduction in hosted solutions revenues from our international network customers also included a $0.8 million reduction in revenue for the nine month period ended November 30, 2006 as compared to the nine month period ended November 30, 2005 from an international hosted solution customer for which we recognize revenue on a cash basis.

No customer accounted for 10% of our revenues during the quarters and nine month periods ended November 30, 2006 and 2005.

We are prone to quarterly fluctuations. Some of our transactions are completed in the same fiscal quarter as ordered. The quantity and size of large sales (sales valued at approximately $2.0 million or more) during any quarter can cause wide variations in our quarterly sales and earnings, as such sales are unevenly distributed throughout the year. We use a system combining estimated sales from our recurring services contracts, our backlog of committed solutions orders and our “pipeline” of solutions sales opportunities to estimate sales and trends in our business. For the quarters ended November 30, 2006 and 2005, sales were sourced as follows:


	Three Months Ended November 30
	2006			2005
Sales from recurring services and support contracts, including contracts for hosted solutions		48	%		53	%
Sales from beginning solutions backlog		30	%		29	%
Sales from the quarter’s pipeline		22	%		18	%

		100	%		100	%

Our service and support contracts range in original duration from one month to five years, with most hosted solutions having initial terms of two to three years and most maintenance and related contracts having initial terms of one year. Because many of the longer duration contracts give customers early cancellation privileges, we do not consider our book of services contracts to be reportable backlog, as a portion of the potential revenue reflected in the contract values may never be realized. Nevertheless, it is easier for us to estimate service and support revenues than to estimate solutions sales for the next quarter because the service and support contracts generally span multiple quarters and revenues recognized under each contract are generally similar from one quarter to the next.

Our backlog is made up of customer orders for solutions for which we have received complete signed orders and which we generally expect to deliver within twelve months. Backlog as of the end of our last five fiscal quarters was as follows (in thousands):


Quarter Ended	Backlog
November 30, 2006	$	46,345
August 31, 2006	$	41,639
May 31, 2006	$	41,221
February 28, 2006	$	33,867
November 30, 2005	$	29,915

The accuracy of any estimate of future sales is dependent, in part, on our ability to project the amount of revenue to be contributed from beginning solutions backlog during any fiscal quarter. Our ability to estimate the amount of backlog that will be converted to revenue in any fiscal quarter can be affected by factors outside our control, including changes in project timing requested by our customers.

Our pipeline of opportunities for solutions sales is the aggregation of our sales opportunities for which we have not received a purchase order, 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 us some sales guidance in our business planning and budgeting, pipeline estimates are necessarily speculative and may not consistently correlate to solutions sales in a particular quarter or over a longer period of time. While we know the amount of solutions backlog available at the beginning of a quarter, we must speculate on our pipeline of solutions opportunities for the quarter. Our accuracy in estimating total solutions sales for the next fiscal quarter is, therefore, highly dependent upon our ability to successfully estimate which pipeline opportunities will close during the quarter.

Cost of Goods Sold. Cost of goods sold was comprised of the following for the quarters and six month periods ended November 30, 2006 and 2005 (in thousands):


	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
	2006			2005			2006			2005
Solutions COGS	$	16,604		$	11,474		$	44,194		$	37,328
As percentage of solutions sales		61.2	%		59.4	%		62.4	%		59.5	%

Services COGS	$	7,405		$	6,409		$	22,071		$	18,794
As percentage of services sales		28.9	%		29.6	%		28.3	%		29.0	%

Total COGS	$	24,009		$	17,883		$	66,265		$	56,122
As percentage of total sales		45.5	%		43.6	%		44.5	%		44.0	%

A significant portion of our solutions 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 volumes. Cost of goods sold for the third quarter and first nine months of fiscal 2007 included approximately $0.2 million and $0.7 million, respectively, of stock compensation expense resulting from our adoption of SFAS 123R, which requires us to include a compensation expense in our financials related to share-based awards.

Research and Development Expenses.


	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
	2006			2005			2006			2005
Research and development expenses (in thousands)	$	6,258		$	4,226		$	17,279		$	12,305
As percentage of total sales		11.9	%		10.3	%		11.6	%		9.6	%

Expenses in the third quarter and first nine months of fiscal 2007 included the impact of the acquisition of Edify and, during the third quarter, the addition of resources to support the technology acquired from Nuasis. Expenses were also up for the same timeframe due to stock compensation expense of approximately $0.1 million and $0.4 million in the third quarter and first nine months of fiscal 2007, respectively, due to our adoption of SFAS 123R which requires us to include a compensation expense in our financials related to share-based awards. Expenses for the third quarter and first nine months of fiscal 2007 as compared to the third quarter and first nine months of fiscal 2006 also included increases in depreciation and contract labor. Research and development expenses include the design of new products and the enhancement of existing products.

Our research and development spending is focused in six key areas. First, we are developing software tools to aid in the development and deployment of customer applications incorporating speech recognition, text-to-speech, and other rich media technologies for enterprises and wireless and wireline providers. Next, we are developing server-based application software platforms for operations and management of contact center, speech and call completion applications. These software platforms are branded under the name Media Exchange. We will use these software platforms for deployment and management of enterprise, wireless and wireline network operator applications which are designed to operate in both J2EE and Microsoft’s ^®.NET enterprise computing environments. Third, we are developing media servers, “voice browsers,” and call processing infrastructure based on open standards such as VoiceXML, CCXML and SALT. These media servers are VoIP enabled, allowing operation in soft-switch and hybrid PSTN and VoIP networks. Fourth, we are developing packaged, speech enabled applications for the network operator and enterprise markets. These include a range of vertical and horizontal applications that are designed to greatly enhance customer return-on-investment by providing many commonly used configurable functions that can be deployed more quickly than custom applications. Fifth, we are developing software and tools designed to provide integration of live agent positions in a customer contact center setting. This software covers a broad range of functions including agent call-screen transfer, workflow management, full call recording, agent and supervisor management systems and reporting and various integration functions. Finally, we are developing modular productivity and communications applications for wireless and wireline applications including speech driven voice mail, voice activated dialing, and enhanced personal information management. The network products are also branded under the product name Media Exchange.

We expect to maintain a strong commitment to research and development so that we can remain at the forefront of technology development in our markets.

Selling, General and Administrative Expenses.


	Three Months Ended						Nine Months Ended
	November 30,			November 30,			November 30,			November 30,
	2006			2005			2006			2005
Selling, general and administrative expenses (in thousands)	$	21,959		$	15,801		$	62,967		$	46,601
As percentage of total sales		41.6	%		38.5	%		42.3	%		36.5	%

Selling, general and administrative expenses for the third quarter and the first nine months of fiscal 2007 reflect significant increases. These increases primarily relate to incremental sales and marketing expenses

following the acquisition of Edify. In addition, stock compensation expense of $0.7 million and $2.6 million is included in the third quarter and first nine months of fiscal 2007, respectively, due to our adoption of SFAS 123R which requires us to include a compensation expense in our financials related to share-based awards. During the third quarter of fiscal 2007, we incurred incremental expenses of $1.6 million associated with organizational changes and the elimination of redundant office space as discussed in Note F.

Amortization of Acquired Intangible Assets. We incurred expenses of approximately $0.7 million and $1.8 million related to the amortization of acquisition related intangibles in the third quarter and first nine months of fiscal 2007, respectively. Intangible assets acquired in the acquisition of Edify totaled approximately $6.8 million with useful lives ranging from eighteen months to eight years. Intangible assets acquired in the acquisition of Nuasis totaled approximately $1.8 million with a useful life of 5 years. In addition, some of the intangible assets acquired in the merger with Brite Voice Systems in fiscal 2000 continue to be amortized.

Income Taxes. For the quarter and nine months ended November 30, 2006, our effective tax rate of 41% and 30%, respectively, differs from the U.S. federal statutory rate primarily as a result of an increase in valuation allowance associated with certain foreign deferred tax assets due to our uncertainty related to the utilization of those tax assets, a reduction in tax expense resulting from the completion and filing of our fiscal 2006 federal income tax return, and the effect of non-U.S. taxes.

Income (Loss) from Operations and Net Income (Loss). We generated an operating loss of $0.1 million and operating income of $0.6 million during the third quarter and first nine months of fiscal 2007 compared to operating income of $2.8 million and $11.8 million for the same periods of fiscal 2006. We generated a net loss of $0.1 million and net income of $1.1 million during the third quarter and first nine months of fiscal 2007 compared to net income of $3.6 million and $12.1 million for the third quarter and first nine months of fiscal 2006.

Liquidity and Capital Resources. We had approximately $17.9 million in cash and cash equivalents at November 30, 2006. Our cash balances decreased $14.0 million during the three months ended November 30, 2006, with operating activities using $9.6 million of cash, net investing activities using $4.5 million of cash and net financing activities providing $0.1 million in cash.

Operating cash flow for the quarter ended November 30, 2006 was impacted by increases in our accounts receivable, and decreases in deferred income. Our accounts receivable balance at November 30, 2006 included $3.5 million from a Venezuelan customer which we currently expect to collect during the fourth quarter of fiscal 2007. Our days sales outstanding of accounts receivable was 69 days, up from 57 days at August 31, 2006.

While we continue to focus on the level of our investment in accounts receivable, we generate a significant percentage of our sales, particularly sales of enhanced telecommunications services systems, outside the United States. Customers in certain countries are subject to significant economic and political challenges that affect their cash flow, and many customers outside the United States are generally accustomed to vendor financing in the form of extended payment terms. To remain competitive in markets outside the United States, we may offer selected customers such payment terms. In all cases, however, we only recognize revenue at such time as our system or service fee is fixed or determinable, collectibility is probable and all other criteria for revenue recognition have been met. In some limited cases, this policy may result in our recognizing revenue on a “cash basis,” limiting revenue recognition on certain sales of systems and/or services to the actual cash received to date from the customer, provided that all other revenue recognition criteria have been satisfied.

For sales of certain of our more complex, customized systems (generally ones with a sales price of $500,000 or more), we recognize revenue based on a percentage of completion methodology. Unbilled receivables accrued under this methodology totaled $9.2 million (22.8% of total net receivables) at November 30, 2006, up from $8.4 million at August 31, 2006. We expect to bill and collect unbilled receivables as of November 30, 2006 within the next twelve months.

We used $4.5 million of cash on investing activities during the third quarter of fiscal 2007. Approximately $2.4 million of this amount related to the acquisition of certain assets and liabilities of Nuasis. Approximately $0.3 million of this amount related to equipment to support our hosted solutions business, $1.4 million for costs in connection with our SAP implementation and $0.4 million primarily related to our overall computing environment. At November 30, 2006, the balance in our computer equipment and software account included approximately $14.9 million in capitalized costs associated with our SAP implementation.

During the quarter ended November 30, 2006, our financing activities provided $0.1 million in net cash flow. Our option holders exercised options for 0.1 million shares of common stock and, in so doing, provided us with $0.1 million in cash.

Adequacy of Cash Reserves. We believe our cash reserves and internally generated cash flow will be sufficient to meet our cash requirements for at least the next twelve months.

Impact of Inflation. We do not expect any significant short-term impact of inflation on our financial condition. We presently are not bound by long-term fixed price sales contracts. The absence of such contracts reduces our exposure to inflationary effects.

Item 4 Controls and Procedures

Evaluation of disclosure controls and procedures. Our disclosure controls and procedures are designed to provide reasonable, but not absolute, assurance that the objectives of our disclosure control system are met. A control system, no matter how well conceived and operated, is subject to inherent limitations. These limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Based on the evaluation by our management (with the participation of our chief executive officer and chief financial officer), as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to provide reasonable assurance that material information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Such officers also have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

Changes in internal control. As of September 1, 2006, we began using a new ERP system for our domestic locations. As a result, certain changes have been made to our internal control structure. We followed a process that required significant pre-implementation planning, design and testing. We have also conducted extensive post-implementation monitoring and process modifications to ensure the effectiveness of internal control over financial reporting. There have been no other changes in our internal control that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1 Legal Proceedings

See “Intellectual Property Matters,” “Pending Litigation” and “Audit Committee Investigation” in Note J of Part I of this quarterly report on Form 10-Q.

Item 1A Risk Factors

This report on Form 10-Q 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-Q, including, without limitation, statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” located elsewhere in this report regarding our financial position, business strategy, plans and objectives of management for future operations, future sales and industry conditions, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to important factors described elsewhere in this report, we caution current and potential investors that the following important risk factors, among others, sometimes have affected, and in the future could affect, our actual results and could cause such results during fiscal 2007, and beyond, to differ materially from those expressed in any forward-looking statements made by or on behalf of Intervoice:

	•		We are prone to quarterly sales fluctuations. The sales value of an individual order for our solutions and services can range from a few thousand dollars to several million dollars depending on the complexity of our customer’s business need and the size of its operations. The quantity and size of large sales (sales valued at approximately $2.0 million or more) during any quarter can cause wide variations in our quarterly sales and earnings, as such sales are often unevenly distributed throughout the fiscal year. In addition, some of our sales transactions are completed in the same fiscal quarter as ordered. Our accuracy in estimating future sales is largely dependent on our ability to successfully qualify, estimate and close solution sales from our pipeline of sales opportunities during a quarter. No matter how promising a pipeline opportunity may appear, there is no assurance it will ever result in a sale. The accuracy of our estimate of future sales is also dependent on our ability to accurately estimate the amount of revenue to be contributed from beginning backlog and revenue from cash basis customers during any fiscal quarter. This estimate can be affected by factors outside our control, including changes in project timing requested by our customers. In addition, estimating the amount of revenue which may be recognized on a percentage of completion project is complex and such estimates are subject to revision based upon a variety of factors. Accordingly, our actual sales for any fiscal reporting period may be significantly different than any estimate of sales we make for such period. See the discussion entitled “Sales” in Item 2 of Part I for a discussion of our system for estimating sales and tracking sales trends in our business.

	•		We are subject to potential and pending lawsuits and other claims. We are subject to certain potential and pending lawsuits and other claims discussed in Note J in Item 1 of Part I of this quarterly report on Form 10-Q. Furthermore, we may become subject to claims, including claims by the government, or other adverse consequences arising from the findings of the Audit Committee investigation and related SEC investigation discussed in Note J. We, and certain of our current and former officers and non-officer employees are currently responding to or have responded to SEC subpoenas to produce documents and provide testimony about the transactions that were the subject of the investigation. Any adverse judgment, penalty or settlement related to any lawsuit or other such claim could have consequences that would be material to our financial position or results of operations. We may be required to indemnify certain of our current and former directors and officers under existing arrangements in connection with the indemnification we are currently providing to certain individuals in connection with the class action lawsuit and the SEC investigation. Our insurance policies provide coverage for losses and expenses incurred by us and our current and former directors and officers in connection with claims made under the federal securities laws. These policies, however, exclude losses and expenses related to the Barrie class action lawsuit discussed in Note J or to other litigation based on claims that are substantially the same as the claims in the Barrie class action and contain other customary provisions to limit or exclude coverage for certain losses and expenses.

	•		We may not be successful in integrating the operations and products and retaining the customers of Edify, and this could negatively impact our business. We believe we will be able to achieve certain cost savings and other synergies as a result of combining Intervoice and Edify, but there can be no assurance that

such synergies will be realized. Our future success will depend in part upon our ability to integrate and operate Edify successfully with our business. Any inability to integrate the products of Intervoice and Edify while maintaining or increasing the market share that such products had prior to the merger could decrease the revenues historically generated from these products. Customers of Intervoice and Edify may delay their purchase of products or services from one or both companies to consider any potential implications the acquisition may have for products and services offered by either company. In addition, the integration process will require the dedication of management resources, which may temporarily distract attention from our day-to-day business. Our future success will also depend in part on our ability to retain and assimilate certain key employees of Edify. There can be no assurance that we will be able to efficiently integrate and operate Edify and its products with our business, maintain business relationships with Edify’s customers and retain and assimilate key employees of Edify. Failure to do so could have a material adverse effect on our results of operations or our financial condition. Further, Edify provides products and services which are similar to our products and services and, accordingly, our Edify operations are generally subject to most of the other risk factors discussed in this Item 1A.

	•		We face intense competition based on product capabilities, and we experience ever increasing demands from our actual and prospective customers for our products to be compatible with a variety of rapidly proliferating computing, telephony and computer networking technologies and standards. Our success is dependent, to a large degree, on our effectiveness in allocating resources to developing and improving products compatible with those technologies, standards and functionalities that ultimately become widely accepted by our current and prospective customers. Our success is also dependent, to a large degree, on our ability to implement arrangements with vendors of complementary product offerings so that we can provide our current and prospective customers greater functionality. Our principal competitors include Genesys, Avaya, Nortel, Nuance Communications, Comverse Technology, Unisys and Lucent Technologies. Many of our competitors have greater financial, technological and marketing resources than we have, as well as greater name recognition. Although we have committed substantial resources to enhance our existing products and to develop and market new products, there is no assurance we will be successful. In addition, it is possible that new entrants to the market and strategic acquisitions and partnerships between existing companies could increase the competition in the markets in which we participate. An increase in such competition could materially adversely affect our ability to sell our products, thereby adversely affecting our business, operating results and financial condition.

	•		We may not be successful in transitioning our products and services to an open, standards-based business model. Intervoice has historically provided complete, bundled hardware and software solutions using internally developed components to address our customers’ total business needs. Increasingly, the markets for our products are requiring a shift to the development of products and services based on an open, standards-based architecture such as the J2EE and Microsoft’sâ.NET environments utilizing VoiceXML and/or SALT standards. Such an open, standards-based approach allows customers to independently purchase and combine hardware components, standardized software modules, and customization, installation and integration services from individual vendors deemed to offer the best value in the particular class of product or service. In such an environment, we believe we may sell less hardware and fewer bundled systems and may become increasingly dependent on our development and sale of software application packages, customized software and consulting and integration services. This shift will place new challenges on us to transition our products and to hire and retain the mix of personnel necessary to respond to this business environment, to adapt to the changing expense structure that the new environment may tend to foster, and to increase sales of services, customized software and application packages to offset reduced sales of hardware and bundled solutions. Failure to develop, enhance, acquire and introduce new products and services to respond to changing market conditions or customer requirements, or lack of customer acceptance of our products or services will materially adversely affect our business, results of operations and financial condition.

	•		We may not be able to retain our customer base, and, in particular, our more significant customers. Our success is heavily dependent on our ability to retain our significant customers. The loss of one of our significant customers could negatively impact our operating results. Our installed base of customers generally is not contractually obligated to place further solutions orders with us or to extend their services contracts with us at the expiration of their current contracts.

	•		We will be harmed if we lose key business and technical personnel. We rely upon the services of a relatively small number of key technical, project management and senior management personnel, most of whom do not have employment contracts. If we were to lose any of our key personnel, replacing them

			could be difficult and costly. If we were unable to successfully and promptly replace such personnel, our business could be materially harmed.

	•		Our reliance on significant vendor relationships could result in significant expense or an inability to serve our customers if we lose these relationships. Although we generally use standard parts and components in our products, some of our components, including semi-conductors and, in particular, digital signal processors manufactured by Texas Instruments, are available only from a small number of vendors. Likewise, we license speech recognition technology from a small number of vendors. Two of these vendors, ScanSoft, Inc. and Nuance Communications, Inc., completed a merger of their organizations and now the combined company has a dominant market position. As we continue to migrate to open, standards-based systems, we will become increasingly dependent on our component suppliers and software vendors. To date, we have been able to obtain adequate supplies of needed components and licenses in a timely manner, and we expect to continue to be able to do so. Nevertheless, if our significant vendors are unable to supply components or licenses at current levels, we may not be able to obtain these items from another source or at historical prices. In such instances, we would be unable to provide products and services to our customers or generate historical operating margins, and our business and operating results would suffer.

	•		If third parties assert claims that our products or services infringe on their technology and related intellectual property rights, whether the claims are made directly against us or against our customers, we could incur substantial costs in connection with these claims. We believe software and technology companies, including Intervoice and others in our industry, increasingly may become subject to infringement claims. Such claims may require us to enter into costly license agreements or result in even more costly litigation. To the extent a licensing arrangement is required, the arrangement may not be available at all, or, if available, may be very expensive or even prohibitively expensive. As with any legal proceeding, there is no guarantee we will prevail in any litigation instituted against us asserting infringement of intellectual property rights. To the extent we suffer an adverse judgment, we might have to pay substantial damages, discontinue the use and sale of infringing products, repurchase infringing products from our customers in accordance with indemnity obligations, expend significant resources to acquire non-infringing alternatives, and/or obtain licenses to the intellectual property that has been infringed upon. As with licensing arrangements, non-infringing substitute technologies may not be available and, if available, may be very expensive, or even prohibitively expensive, to implement. Accordingly, for all of the foregoing reasons, a claim of infringement could ultimately have a material adverse effect on our business, financial condition and results of operations.

	•		We are exposed to risks related to our international operations that could increase our costs and hurt our business. Our products are currently sold in more than 75 countries. Our international sales were 34% and 46% of total sales for the fiscal quarters ended November 30, 2006 and 2005, respectively. International sales, personnel and property are subject to certain risks, including:

	§		terrorism;

	§		fluctuations in currency exchange rates;

	§		the difficulty and expense of maintaining foreign offices and distribution channels;

	§		tariffs and other barriers to trade;

	§		greater difficulty in protecting and enforcing intellectual property rights;

	§		general economic and political conditions in each country;

	§		loss of revenue, property and equipment from expropriation;

	§		import and export licensing requirements; and

	§		additional expenses and risks inherent in conducting operations in geographically distant locations, including risks arising from differences in language and cultural approaches to the conduct of business.

	•		Our inability to meet contracted performance targets could subject us to significant penalties. Many of our contracts, particularly for hosted solutions, foreign contracts and contracts with telecommunication companies, include provisions for the assessment of damages for delayed project completion and/or for our failure to achieve certain minimum service levels. We have had to pay damages in the past and may have to pay additional damages in the future. Any such future damages could be significant.

	•		Increasing consolidation in the telecommunications and financial industries could adversely affect our revenues and profitability. The majority of our largest customers are in the telecommunications and financial industries. These industries are undergoing significant consolidation as a result of merger and

			acquisition activity. This activity could result in a decrease in the number of customers purchasing our products and/or in delayed purchases of our products by customers that are reviewing their strategic alternatives in light of a pending merger or acquisition. If these results occur, our revenues and profitability could decline.

	•		Our products are complex, and software defects could reduce our revenues and expose us to litigation. The software products we offer are complex and may contain errors or defects, even after extensive testing and quality control, particularly in early versions. Furthermore, because our products increasingly are designed around an open standards based architecture incorporating elements developed by third parties, such errors or defects may be outside of our direct ability to control or correct. Our recently introduced Media Exchange offering is an example of a complex product which includes third party elements that has and may continue to experience certain software errors in its initial customer deployments. Any defects or errors could potentially result in loss of revenues, product returns or order cancellations, and could potentially hinder market acceptance of our products and harm our reputation. Accordingly, any defects or errors could have a material adverse effect on our business, results of operations and financial condition. Our customer license agreements typically contain provisions to limit our product warranty obligations and exposure to potential liability claims.

	•		We implemented a new company-wide ERP system during the third quarter of fiscal 2007. During the third quarter of fiscal 2007, we completed the implementation of a new, company-wide ERP system. Our new system affects all facets of our business including our ability to quote, receive and process orders, track inventory and work in process, ship and bill completed orders, process and apply cash receipts from our customers and summarize and report the results of our operations. If we encounter problems in the operation of our new system, our ability to conduct our daily operations in an efficient, effective and properly controlled manner could be compromised, and our operating results could suffer. In addition, any such operational problems could cause us to expend significant time and other resources in an effort to resolve such problems, and this diversion of management and staff time could further adversely affect our ability to serve our customers and sustain our normal operations.

Item 6 Exhibits

(a) Exhibits

	3.1		Articles of Incorporation, as amended, of Registrant. (1)

	3.2		Amendment to Articles of Incorporation of Registrant. (2)

	3.3		Amendment to Articles of Incorporation of Registrant. (3)

	3.4		Third Restated Bylaws of Registrant. (4)

	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. (5)

	4.2		Securities Purchase Agreement, dated as of May 20, 2002, between the Registrant and the Buyers named therein (the “Securities Purchase Agreement”). (6)

	4.3		Form of Warrant, dated as of May 20, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (6)

	4.4		Registration Rights Agreement, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (6)

	4.5		First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002, between Registrant and Computershare Investor Services, LLC, as Rights Agent. (6)

	10.1		Asset Purchase Agreement dated September 1, 2006 between Registrant and Nuasis Corporation. (7)

	10.2		Separation Agreement dated September 19, 2006 between the Company and Ronald Nieman. (8)

	31.1		Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (10)

	31.2		Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (10)

	32.1		Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*

	32.2		Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*

	99.1		Lease Termination Agreement dated as of September 14, 2006 between Registrant and San Tomas Towers LLC. (9)

	99.2		Assignment, Assumption and Amendment of Sublease dated as of August 30, 2006, among Registrant, Nuasis Corporation, and PayPal Inc. (9)

	99.3		Exercise of Option Letter dated September 18, 2006 from Registrant to PayPal Inc. (9)


(1)		Incorporated by reference to exhibits to the Company’s 1995 Annual Report on Form 10-K for the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995.

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

(3)		Incorporated by reference to exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002, filed with the SEC on October 15, 2002.

(4)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2004, filed with the SEC on October 12, 2004.

(5)		Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May 9, 2001.

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

(7)		Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on September 6, 2006.

(8)		Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on October 5, 2006.

(9)		Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on September 20, 2006.

(10)		Filed herewith.

*		The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	INTERVOICE, INC.
Date: January 8, 2007	By:	/s/ CRAIG E. HOLMES
		Craig E. Holmes
		Executive Vice President and Chief Financial Officer

Index to Exhibits


Exhibit
No.		Description
3.1		Articles of Incorporation, as amended, of Registrant. (1)

3.2		Amendment to Articles of Incorporation of Registrant. (2)

3.3		Amendment to Articles of Incorporation of Registrant. (3)

3.4		Third Restated Bylaws of Registrant. (4)

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. (5)

4.2		Securities Purchase Agreement, dated as of May 20, 2002, between the Registrant and the Buyers named therein (the “Securities Purchase Agreement”). (6)

4.3		Form of Warrant, dated as of May 20, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (6)

4.4		Registration Rights Agreement, dated as of May 29, 2002, between the Registrant and each of the Buyers under the Securities Purchase Agreement. (6)

4.5		First Amendment to Third Amended and Restated Rights Agreement dated as of May 29, 2002, between Registrant and Computershare Investor Services, LLC, as Rights Agent. (6)

10.1		Asset Purchase Agreement dated September 1, 2006 between Registrant and Nuasis Corporation. (7)

10.2		Separation Agreement dated September 19, 2006 between the Company and Ronald Nieman. (8)

31.1		Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (10)

31.2		Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (10)

32.1		Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*

32.2		Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (10)*

99.1		Lease Termination Agreement dated as of September 14, 2006 between Registrant and San Tomas Towers LLC. (9)

99.2		Assignment, Assumption and Amendment of Sublease dated as of August 30, 2006, among Registrant, Nuasis Corporation, and PayPal Inc. (9)

99.3		Exercise of Option Letter dated September 18, 2006 from Registrant to PayPal Inc. (9)


(1)		Incorporated by reference to exhibits to the Company’s 1995 Annual Report on Form 10-K for the fiscal year ended February 28, 1995, filed with the SEC on May 30, 1995.

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

(3)		Incorporated by reference to exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002, filed with the SEC on October 15, 2002.

(4)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2004, filed with the SEC on October 12, 2004.

(5)		Incorporated by reference to exhibits to Form 8-A/A (Amendment 3) filed with the SEC on May 9, 2001.

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

(7)		Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on September 6, 2006.

(8)		Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on October 5, 2006.

(9)		Incorporated by reference to exhibits to the Company’s Current Report on Form 8-K, filed with the SEC on September 20, 2006.

(10)		Filed herewith.

*		The certifications attached as Exhibit 32.1 and 32.2 accompany the Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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