10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the quarterly period ended September 30, 2001

OR

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

For the transition period from to

Commission File Number: 0-18323

SYNTELLECT INC.

(Exact name of registrant as specified in its charter)

Delaware	86-0486871
(State or other jurisdiction of incorporation	(I.R.S. Employer
or organization)	Identification No.)

16610 N. Black Canyon Highway, Phoenix, Arizona 85053

(Address of principal executive offices)
(Zip Code)

(602) 789-2800

(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 X NO

         Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

         11,292,070 shares of common stock, $.01 par value per share, were outstanding on October 31, 2001

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EX-10
EX-11

SYNTELLECT INC. AND SUBSIDIARIES
INDEX

				Page
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
			Condensed Consolidated Balance Sheets –– September 30, 2001 (unaudited) and December 31, 2000		3
			Condensed Consolidated Statements of Operations –– Three Months and Nine Months Ended September 30, 2001 and September 30, 2000 (unaudited)		4
			Condensed Consolidated Statements of Cash Flows –– Nine Months Ended September 30, 2001 and September 30, 2000 (unaudited)		5
			Notes to Condensed Consolidated Financial Statements		6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				9
	Item 3. Quantitative and Qualitative Disclosure about Market Risk				12
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K				14
SIGNATURES					14
EXHIBITS
	Exhibit Index				14
		Exhibit (10) –– By-Laws of Syntellect Inc. as Amended and Restated Through August 9, 2001			15
		Exhibit (11) –– Syntellect Inc. Computation of Net Income (Loss) Per Share			24

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SYNTELLECT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

				September 30,			December 31,
				2001			2000
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	3,689		$	7,334
	Trade receivables, net of allowance for doubtful accounts of $234 and $225, respectively				7,547			12,423
	Other receivables				8			9
	Note receivable				67			57
	Inventories, net				709			1,415
	Prepaid expenses				1,197			711
		Total current assets			13,217			21,949
Property and equipment, net					4,270			3,814
Note receivable, non-current portion					219			270
Restricted cash					—			75
Other assets					1,002			993
		Total assets		$	18,708		$	27,101
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	2,905		$	2,934
	Accrued liabilities				1,998			3,186
	Customer deposits				917			2,916
	Deferred revenue				6,280			6,421
	Line of credit				1,422			—
	Capital lease obligations				247			151
			Total current liabilities		13,769			15,608
Capital lease obligations – less current portion					534			316
		Total liabilities			14,303			15,924
Shareholders’ equity:
	Preferred stock, $.01 par value per share. Authorized 2,500,000 shares; no shares issued or outstanding				—			—
	Common stock, $.01 par value per share. Authorized 25,000,000 shares; issued, 14,616,072 and 14,505,298, respectively				146			145
	Additional paid-in capital				62,556			62,311
	Accumulated deficit				(46,666	)		(39,696	)
	Accumulated other comprehensive loss				(217	)		(169	)
					15,819			22,591
	Treasury stock, at cost, 3,332,432 shares				(11,414	)		(11,414	)
		Total shareholders’ equity			4,405			11,177
		Total liabilities and shareholders’ equity		$	18,708		$	27,101

See accompanying notes to condensed consolidated financial statements.

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SYNTELLECT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

				Three Months Ended						Nine Months Ended
				September 30,						September 30,
				2001			2000			2001			2000
Net revenues:							(notes 3 and 5)						(notes 3 and 5)
		Licenses		$	2,316		$	5,396		$	8,202		$	16,727
		Services			5,020			4,945			15,603			15,502
		Hosted services			1,131			1,354			3,497			4,245
			Total net revenues		8,467			11,695			27,302			36,474
Cost of revenues:
		Licenses			748			1,269			2,265			4,271
		Services			2,578			2,373			8,634			7,745
		Hosted services			1,131			1,067			3,282			3,269
			Total cost of revenues		4,457			4,709			14,181			15,285
Gross margin					4,010			6,986			13,121			21,189
Operating expenses:
		Selling, general and administrative			5,285			5,854			16,815			16,420
		Research and development			952			738			3,251			2,332
			Total operating expenses		6,237			6,592			20,066			18,752
Operating income (loss)					(2,227	)		394			(6,945	)		2,437
Other income (expense), net:
		Interest income			7			70			63			245
		Interest expense and other			(75	)		12			(103	)		(8	)
			Total other income (expense), net		(68	)		82			(40	)		237
Income (loss) before income taxes					(2,295	)		476			(6,985	)		2,674
		Income tax benefit			(16	)		—			(16	)		—
		Net income (loss)		$	(2,279	)	$	476		$	(6,969	)	$	2,674
Net income (loss) per common share – basic				$	(0.20	)	$	0.04		$	(0.62	)	$	0.23
Net income (loss) per common share – diluted				$	(0.20	)	$	0.04		$	(0.62	)	$	0.21
Weighted average shares – basic					11,294			11,894			11,236			11,845
Weighted average shares – diluted					11,294			13,047			11,236			12,856
Other comprehensive loss:
	Foreign currency translation adjustment				(8	)		(141	)		(48	)		(251	)
Other comprehensive loss					(8	)		(141	)		(48	)		(251	)
Comprehensive income (loss)				$	(2,287	)	$	335		$	(7,017	)	$	2,423

See accompanying notes to condensed consolidated financial statements.

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SYNTELLECT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

				Nine Months Ended
				September 30,
				2001			2000
Cash flows from operating activities:
	Net income (loss)			$	(6,969	)	$	2,674
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization			1,302			1,352
		Provision for doubtful accounts			232			316
		(Increase) decrease in receivables			4,644			(1,304	)
		Decrease in inventories			706			782
		Increase (decrease) in accounts payable			(29	)		804
		Decrease in accrued liabilities			(1,188	)		(546	)
		Decrease in customer deposits			(1,999	)		(2,253	)
		Increase (decrease) in deferred revenues			(141	)		1,576
		Increase (decrease) in other assets and liabilities			(453	)		367
			Net cash provided by (used in) operating activities		(3,895	)		3,768
Cash flows from investing activities:
	Proceeds from short term investments				75			––
	Sale of property and equipment				26			534
	Purchase of property and equipment				(1,338	)		(839	)
			Net cash used in investing activities		(1,237	)		(305	)
Cash flows from financing activities:
	Borrowings on line of credit				1,422			––
	Proceeds from issuance of common stock				246			904
	Purchase of treasury stock				––			(2,761	)
	Principal payments on capital lease obligations				(133	)		(401	)
			Net cash provided by (used in) financing activities		1,535			(2,258	)
Effect of exchange rates on cash					(48	)		(251	)
Net increase (decrease) in cash and cash equivalents					(3,645	)		954
Cash and cash equivalents at beginning of period					7,334			6,185
Cash and cash equivalents at end of period				$	3,689		$	7,139
Supplemental disclosure of cash flow information:
	Cash paid for interest			$	86		$	26
Non-cash Investing and Financing Activities Property and equipment acquired under capital lease				$	446		$	362

See accompanying notes to condensed consolidated financial statements.

5

SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share amounts)
(unaudited)

(1) Basis of Presentation

         The accompanying unaudited, condensed, consolidated financial statements include the accounts of Syntellect Inc. (together with its subsidiaries, collectively, the “registrant,” “we,” “us,” or “our”) and its wholly-owned subsidiaries, Syntellect Canada Inc., Syntellect Europe Limited, Syntellect Deutschland GmbH and Syntellect Interactive Services, Inc. (“SIS”). All significant inter-company balances and transactions have been eliminated in consolidation.

         The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, the financial statements include all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although we believe that the disclosures are adequate to make the information presented not misleading, we suggest that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our December 31, 2000 Annual Report on Form 10-K. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year.

         Revenue Recognition

         We recognize revenue from sales of Licenses and of Services, two of our three operating segments, in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), Statement of Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,” and Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements.” Revenues from our third operating segment, Hosted Services, are recognized in accordance with SAB No. 101.

(2) Business Segments

         Effective for financial statements for fiscal periods beginning after December 15, 1997, Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires that an enterprise disclose certain information about operating segments. An operating segment is defined as a component of an enterprise that engages in business activities which may earn revenues and incur expenses, whose results are regularly reviewed by a chief operating decision maker, and for which discrete financial information is available. We have three operating segments, which are organized around differences in products and services: Licenses, Services, and Hosted Services:

							HOSTED
Three months ended September 30, 2001	LICENSES			SERVICES			SERVICES			TOTAL
Revenues from customers	$	2,316		$	5,020		$	1,131		$	8,467
Depreciation and amortization		182			89			165			436
Segment loss before income taxes		(1,890	)		(184	)		(221	)		(2,295	)
Expenditures for segment assets		39			––			367			406
Three months ended September 30, 2000
Revenues from customers	$	5,396		$	4,945		$	1,354		$	11,695
Depreciation and amortization		166			82			150			398
Segment income (loss) before income taxes		784			(272	)		(36	)		476
Expenditures for segment assets		233			115			––			348

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							HOSTED
Nine months ended September 30, 2001	LICENSES			SERVICES			SERVICES			TOTAL
Revenues from customers	$	8,202		$	15,603		$	3,497		$	27,302
Depreciation and amortization		542			265			495			1,302
Segment loss before income taxes		(5,060	)		(1,354	)		(571	)		(6,985	)
Expenditures for segment assets		560			257			521			1,338
Nine months ended September 30, 2000
Revenues from customers	$	16,727		$	15,502		$	4,245		$	36,474
Depreciation and amortization		604			298			450			1,352
Segment income (loss) before income taxes		3,168			(131	)		(363	)		2,674
Expenditures for segment assets		444			219			176			839

(3) Depreciation and Amortization Expense

         Depreciation and amortization expense related to cost of revenues has been reclassified from selling, general and administrative expenses to cost of revenues for all periods presented. The impact of this reclassification on our Statement of Operations for the three-month and nine-month periods ended September 30, 2000 is an increase in our cost of revenues and a decrease in our selling, general and administrative expenses, as previously reported by $79 and $234, respectively. Depreciation and amortization included in cost of revenues for the three-month and nine-month periods ended September 30, 2001 was $92 and $258, respectively.

(4) Reorganization Costs

         As part of an overall strategic plan to reduce costs and increase operating efficiencies, we began the process of reorganization during the first quarter of 2001 and completed the process by the end of the second quarter of 2001. As a result of these plans, we recorded pre-tax charges of $600 during the quarter ended March 31, 2001 as follows:

		Total Expense
Separation costs		$	292
Retention bonuses			79
Recruitment costs			229
	Total Reorganization Costs	$	600

         In accordance with our reorganization plan, we terminated twelve employees from the five departments indicated and incurred $292 in separation costs: Administration (3), Sales (4), Research and Development (2), Application Development (2), and System Development (1). All of the reorganization costs expensed in the first quarter of 2001 were paid prior to June 30, 2001.

(5) Restatement of Earnings for the Third Quarter 2000

         Earnings for the third quarter of 2000 were restated. This restatement effected the correction of an error. In connection with our December 31, 2000 audit, we determined that approximately $729 of revenues previously recognized during the three-month and nine-month periods ended September 30, 2000 did not satisfy the existence of persuasive evidence of an arrangement in selected instances because we had not executed the relevant contracts prior to period-end, although the respective customers had done so. This correction was made in our December 31, 2000 Form 10-K where the impact of this restatement on previously reported net revenues was disclosed.

7

         The effect of this restatement on our previously issued unaudited consolidated financial statements is summarized as follows:

	September 30, 2000
	Three months ended				Nine months ended
	As				As
	previously		As		previously		As
	reported		restated		reported		restated
Net revenues	$	12,424	$	11,695	$	37,203	$	36,474
Gross profit		7,620		6,986		21,978		21,189
Operating income		949		394		2,992		2,437
Net income		1,031		476		3,229		2,674
Basic:
Net income per common share:	$	0.09	$	0.04	$	0.27	$	0.23
Diluted:
Net income per common share:		0.08	$	0.04	$	0.25	$	0.21

         Since the September 30, 2000 10-Q is a Securities Exchange Act filing which was updated by the subsequent December 31, 2000 10-K 1934 Act filing, we did not refile the September 30, 2000 10-Q to reflect these changes.

(6) Inventories

         Inventories consist of the following:

	September 30,		December 31,
	2001		2000
Finished goods	$	187	$	507
Purchased components		250		460
Repair, warranty and maintenance inventory		272		448
	$	709	$	1,415

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         We develop, market and implement voice, Internet and call processing software and services to large and mid-sized commercial, industrial and government entities through a worldwide direct and indirect distribution network. Through our flagship product, Vista, a client-server, open standards-based, application development environment, software platform, we offer customizable software applications including Interactive Voice Response (“IVR”), Automatic Speech Recognition (“ASR”), Vocalpoint Interactive Web Response® (“IWR”), and Computer Telephony Integration (“CTI”). With the foundation of these products and capabilities, collectively known as Vista Interactive Media Response (“IMR”), we create enterprise-wide voice portals. These voice portals harness the power of the Internet as well as of wired and wireless telephones, using natural language speech recognition, for unassisted, self-service access to applications, information, and transactions between an enterprise and its customers, employees, suppliers, partners, investors and other constituents.

         We also own and operate an interactive transaction-based Hosted Services Center for our customers who prefer to outsource their voice processing or web transaction-based applications completely or in conjunction with their premises-based installation. These services can be deployed from the customer’s premises, our Hosted Services Center, or a combination of the two. Our Hosted Services include, for example, cable and satellite pay-per-view orders, employee benefits enrollment, and utility outage applications.

OPERATING BUSINESS SEGMENTS

         An operating business segment is defined as a component of an enterprise that engages in business activities which may earn revenues and incur expenses, whose results are regularly reviewed by a chief operating decision maker, and for which discrete financial information is available. We have three operating business segments, which are organized around differences in products and services: Licenses, Services, and Hosted Services.

         Licenses is our operating business segment that includes our contact center software platform Vista. Vista is an all-in-one software platform for enterprise customer call centers, which includes Interactive Voice Response, Interactive Web Response, Computer Telephony Integration, fax on demand, Automatic Speech Recognition, and other applications.

         Services is our operating business segment that includes customer support in the areas of consulting services, project management, application development, installation, education services, and maintenance. We generally sell these services as part of the initial sale or in some cases as post implementation add-ons. This segment also includes patent infringement litigation against third parties.

         Hosted Services is our operating business segment which provides products and services including Home Ticket Pay-Per-View, DialExpress, Lead Capture, Speech Enabled Directory, Site Locator, and a variety of out-sourced electronic capabilities such as benefits enrollment and broadcast faxing which we offer through our subsidiary, SIS.

NET REVENUES

         Net revenues for the quarter ended September 30, 2001 were $8.5 million, a decrease of 27% from the $11.7 million reported for the third quarter of 2000. For the nine-month period ended September 30, 2001, net revenues were $27.3 million, a decrease of 25% from $36.5 million in the corresponding period in 2000. Net revenues consist of Licenses, Services, and Hosted Services, which represented 28%, 59% and 13% of net revenues, respectively, for the quarter ended September 30, 2001, and 30%, 57%, and 13% of net revenues, respectively, for the nine-month period ended September 30, 2001.

         Revenues from Licenses for the three-month period ended September 30, 2001 were $2.3 million, a decrease of $3.1 million, or 57%, compared to $5.4 million for the same period last year. For the nine months ended September 30, 2001, revenues from Licenses were $8.2 million, a decrease of 51% from the $16.7 million reported for the corresponding period in 2000. The decrease for the quarter was the result of customer orders for the period being delayed into future quarters, primarily due to a continued weakening of the economy creating uncertainty and

9

elongated sales cycles. Other factors that contributed to the decrease for the nine-month period were a slow down in the software-based economic sector, a general down turn in the U.S. economy, and a decline of hardware revenues from $3.0 million to $1.1 million, or 63%, compared to the same nine-month period last year. Hardware revenues continue to decline due to our ongoing transition to a software-based business.

         Services revenues increased $0.1 million from $4.9 million to $5.0 million, or 2%, for the three-month period ended September 30, 2001. For the nine-month period ended September 30, 2001, Services revenues increased $0.1 million from $15.5 million to $15.6 million, or 1%. The consistency of our Services revenues in a down year was the direct result of our increased maintenance and consulting revenues generated by the “Other Services” component of Services, which are normally associated with a software-based business.

         For the quarter ended September 30, 2001, the “Application Services” component of Services revenues was $2.2 million: $1.6 million from Applications, $0.3 million from Installations, and $0.3 million from Project Management revenues. Application Services remained constant at $2.2 million for the comparable prior year period: $1.6 million from Applications, $0.3 million from Installations, and $0.3 million from Project Management. For, the nine-month period ended September 30, 2001, the Application Services component of Services revenues increased from $6.6 million to $6.7 million, or $0.1 million, as compared to the prior year period, due to applications.

         For the quarter ended September 30, 2001, the “Maintenance” component of Services revenues was $2.3 million, a decrease of $0.1 million, or 4%, under the comparable prior year quarter revenue of $2.4 million. For the nine-month period ending September 30, 2001, the Maintenance component of Services revenues was $7.1 million, an increase of $0.6 million, or 9%, over the comparable prior year nine-month revenue of $6.5 million. The decline in the quarter ended September 30, 2001 resulted from a reduced number of maintenance contracts renewed by our legacy customers. The increase in our revenue stream in the nine-month period resulted from a greater number of Vista software installations in 2000 and early 2001 which, in turn, caused an increase in first time maintenance contracts in 2001.

         For the quarter ended September 30, 2001, the “Other Services” component of Services revenues was $0.5 million, an increase of $0.1 million, or 25%, over the comparable prior year quarter. For the nine-month period ending September 30, 2001, the Other Services revenue component of Services was $1.7 million, a decrease of $0.7 million, or 29%, under the comparable prior year period revenue of $2.4 million. In the current nine-month period ended September 30, 2001, there were no revenues from patent infringement lawsuits recognized compared to $0.8 million in the corresponding period last year. We do not anticipate future revenues from patent lawsuits. The revenue generated in 2001 is from consulting, training, and change orders.

         Hosted Services revenues were $1.1 million, a decrease of $0.3 million, or 21%, for the quarter ended September 30, 2001, compared to the prior year period revenues of $1.4 million. For the nine months ended September 30, 2001, Hosted Services revenue was $3.5 million, a $0.7 million decrease, or 17%, from the nine-month comparable period for 2000. The reason for the decline rests with our Home Ticket, a pay-per-view service for cable television providers. The cable television industry has been deploying new order entry technologies for consumer purchases of pay-per-view events that do not utilize toll free 800 numbers. These new technologies have resulted in a downward trend in transaction processing fees for us, a trend that is expected to continue. To offset the decline in pay-per-view services, Hosted Services has offered other out-sourced electronic capabilities including DialExpress (message delivery), Lead Capture, Speech Enabled Directory, Site Locators, outage ticket, broadcast faxing, call center processing, and audiotext. However, there can be no assurances as to whether, or when, such efforts will completely supplant declining pay-per-view revenues.

         Domestic and international revenues for the three-month period ended September 30, 2001 were $6.4 million, or 75%, and $2.1 million, or 25%, of total revenues, respectively, as compared to $8.7 million, or 74%, and $3.0 million, or 26%, of total revenues, respectively, for the same period in 2000. For the nine-month period ended September 30, 2001, domestic and international revenues were $20.4 million, or 75%, and $6.9 million, or 25%, of total revenues, respectively, compared to $23.9 million, or 65%, and $12.6 million, or 35%, of total revenues, respectively, for the comparable prior year period. Domestically, the decrease in revenues from the comparable nine-month period of the prior year was due to lower than anticipated customer orders received and, internationally, to smaller than anticipated orders in the third quarter of 2001 compared to the same period in 2000. International revenues typically consist of a small number of large orders and are subject to quarter-to-quarter fluctuations.

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GROSS MARGIN

         The gross margin percentage for the quarter ended September 30, 2001 was 47% of net revenues compared to 60% in the comparable prior year quarter. The gross margin percentage for the nine months ended September 30, 2001 was 48% of net revenues compared to 58% in the comparable period in 2000.

         Licenses gross margins for the quarter ending September 30, 2001 decreased from 76% to 68% in the same quarter of 2000. For the nine-month period ending September 30, 2001, gross margins on Licenses decreased to 72% from 74% in the same period of the prior year. This decrease in the gross margin is primarily due to an increase in the volume of licenses sold which resulted in an associated third party licenses cost in the three-month period ended September 30, 2001. Also, increased reseller activity in the quarter and associated costs lowered the gross margin percentage in the nine-month period ended September 30, 2001.

         Gross margins on Services for the quarter ending September 30, 2001 decreased to 49% from 52% in the prior year comparable period, and for the nine-month period ending September 30, 2001, decreased to 45% from 50% in the prior year. The decrease in margins for the three-month and nine-month period was primarily due to an increase in outside contractor expense in 2001. Also, for the nine-month period, the decrease in margins was affected by relatively high margin revenues from the settlement of a patent lawsuit in the first quarter of 2000.

         Gross margins on Hosted Services for the quarter ending September 30, 2001 decreased to 0% from 21% in the comparable prior year quarter, and decreased to 6% from 23% in the comparable prior year nine-month period. Margins decreased primarily due to declining pay-per-view revenues and the relatively fixed cost structure of this business segment. We have commenced steps to offset this decline in margins by offering other outsourcing capabilities. We expect these other capabilities, however, to require initial application development outlays which may delay their offsetting effects in the short term. Depreciation expense of $0.3 million compared to $0.2 million was included in the calculation of gross margin for the nine-month period ending September 30, 2001 and September 30, 2000, respectively.

         We include those costs directly associated with the generation of revenue in the computation of gross margin including direct labor, depreciation and amortization, application development, travel, maintenance, customer support, supplies and hardware. Gross margins will fluctuate on a quarterly basis due to changes in competitive pressures, sales volume, product mix, variations in the ratio of domestic versus international sales, or changes in the mix of direct and indirect sales activity. Accordingly, the gross margins reported for the third quarter and the nine months ending September 30, 2001 are not necessarily indicative of the results to be expected for the full year.

OPERATING EXPENSES

         Operating expenses for the third quarter of 2001 were $6.2 million, a decrease of $0.4 million, or 6%, as compared to the same quarter of the prior year. Selling, general and administrative expenses including depreciation and amortization, decreased $0.6 million, or 10%, from the comparable prior year quarter and increased $0.4 million, or 2%, over the comparable prior year nine-month period. The primary reasons for the increase in expenses in the current nine-month period consist of the $0.6 million we expended in reorganization costs and the $0.5 million we expended to reposition our market presence during the first quarter of 2001. We repositioned our marked presence to increase demand for our voice processing products and to create market differentiation and awareness for our Interactive Media Response solution for Enterprise Voice Portals. As anticipated with our on-going transition to a software-based company, research and development expenses for the third quarter of 2001 increased $0.3 million, or 43%, over the comparable prior year quarter and increased by $1.0 million, or 43%, over the comparable nine-month period.

NET INCOME (LOSS)

         We reported net loss of $2.3 million, or $(0.20) per diluted share, for the third quarter of 2001, compared to net income of $0.5 million, or $0.04 per diluted share, for the prior year quarter. For the nine-month period ended September 30, 2001, we reported net loss of $7.0 million, or $(0.62) per diluted share, compared to net income of $2.7 million, or $0.21 per diluted share, for the comparable prior year period.

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LIQUIDITY AND CAPITAL RESOURCES

         We had a working capital deficit of $(0.6) million at September 30, 2001, as compared to working capital of $6.3 million at December 31, 2000. The current ratio was 0.96:1 and 1.4:1 on such dates, respectively. Cash and cash equivalents at the end of the third quarter 2001 totaled $3.7 million compared with $7.3 million at the previous year-end. A reduction of receivables and cash resulted in the change in working capital.

         For the nine months ending September 30, 2001, we had a net loss of $7.0 million. After adjustments for non-cash activities and changes in certain balance sheet items, our operations incurred a negative cash flow of $3.9 million compared to a positive cash flow of $3.8 million in the same period of 2000. The primary factors affecting the difference between net income and cash flow were a decrease in accruals and customer deposits coupled with a decrease in accounts receivable caused by the decline in customer orders.

         Cash flows from investing activities, primarily for the purchase of property and equipment, used $1.2 million during the nine months ended September 30, 2001, compared to $0.3 million, net of a sale of property and equipment of $0.5 million, for the same period last year.

         Cash flows from financing activities totaled $1.5 million for the period generated primarily from the proceeds of common stock issuances and borrowings on a line of credit. For the same period last year, cash flows used in financing activities were $2.3 million primarily due to the purchase of treasury stock totaling $2.8 million and proceeds of $0.9 million from the issuance of common stock.

         In order to support our operations as we restructure our organization, the $4.0 million line of credit that was executed on October 11, 2000 was terminated on June 26, 2001. In place of that line of credit, we executed a one-year, $3.0 million asset-based operating line of credit on June 14, 2001 with another financial institution. On October 1, 2001, we executed an amendment to this line of credit agreement, reducing the available limit from $3.0 million to $2.0 million, and increasing the interest rate from the prime rate plus 4.5% to the prime rate plus 8.5%, not to be less than 15% per annum. The minimum interest due each month is $7,500. We may borrow according to a formula based on 65% of eligible domestic accounts receivable less than 90 days old, excluding maintenance receivables and customer deposits. Domestic accounts receivable and inventory collateralize the line of credit. As of September 30, 2001, we had an outstanding balance of $1.4 million on the line of credit. Based on the formula, we had an additional $0.6 million in available funds under the line of credit at September 30, 2001. The line of credit requires compliance with certain debt covenants. Although we were in violation of certain debt covenants pertaining to the line of credit as of September 30, 2001, the financial institution waived these violations.

         We expect our current cash and cash equivalents combined with future cash flows from operating activities and the borrowings on our operating line of credit to be sufficient to support our operations for the next twelve months.

         On November 13, 1998, the Board of Directors approved a stock buyback plan to purchase up to 1.5 million shares of our common stock over the following two years. We completed the buyback plan during the third quarter of 1999. On November 5, 1999, we announced a new buyback plan in accordance with which we were authorized to acquire up to 1 million shares over a one-year period. On August 8, 2000, the Board of Directors revised this plan by approving the buyback of an additional 500,000 shares and extending the buyback period to August 8, 2001. On November 10, 2000, the Board of Directors authorized an additional 500,000-share buyback with no time limitation. As of November 1, 2001, we had repurchased a total of 3,135,000 shares under these plans since November 13, 1998. Although we continue to be authorized to repurchase 365,000 additional shares, we repurchased no additional shares during the first nine months of 2001.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE RISK

         Our exposure to market risk for changes in interest rates relates to our cash investment portfolio. Our general policy is to limit the risk of principal loss and to ensure the safety of invested funds by limiting market and interest rate risk. We place our investments in instruments with high credit quality issuers. We classify all liquid

12

investments with a maturity date of three months or less as cash equivalents. We classify investments with a maturity date between three and twelve months as either short-term investments or marketable securities. The average interest rate on short-term investments is 2.35%. We do not expect any material loss with respect to our cash investment portfolio since marketable securities have generally been held until maturity and unrealized gains and losses are negligible.

         Our asset-based operating line of credit bears interest at the prime rate plus 8.5%. For the first nine months of 2001, the prime rate ranged between 9.5% at January 1, 2001 and 6.0% at September 30, 2001. At September 30, 2001, we had approximately $1.4 million outstanding under this line of credit, all of which is classified as current and is to be paid from receipts of customer receivables. Due to the current nature of this debt, the requirement to make payments on the outstanding balance as receivables are paid by customers, and the currently low prime rates, we do not believe that market risk related to this line of credit is significant. Our only long-term liabilities are capital lease obligations at a fixed rate. An increase in the interest rate on our line of credit of 10 basis points would result in an increase in interest expense of $10,352 on an annualized basis. Therefore, we do not believe there is any material exposure to market risk changes in interest rates as it relates to our current or long-term liabilities at this point in time.

FOREIGN CURRENCY EXCHANGE RATE RISK

         We invoice all international customers in U.S. dollars except for the customers of our United Kingdom (“U.K.”) subsidiary, which are invoiced in pounds sterling. Our U.K. subsidiary’s financials including balance sheet, revenue, and operating expenses are recorded in pounds sterling. Therefore, our exposure to foreign currency exchange rate risk occurs when we translate the financial results of that subsidiary to U.S. dollars in consolidation. At this time, we do not use instruments to hedge our foreign exchange exposure in the U.K. because the effects of foreign exchange rate fluctuations are not material for us.

ADDITIONAL CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

         Our disclosure and analysis in this Form 10-Q contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify such statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “expect,” “believe,” and other words and phrases of similar meaning in connection with any discussion of future operating or financial performance. In particular, these forward-looking statements include, for example, statements relating to future actions, future performance, results of current and anticipated products, sales efforts, and operating expenses. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public.

         We reasonably believe that any or all of our forward-looking statements in this Form 10-Q and in any other public statements we make are true at the time they are made. However, such statements may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed, and actual future results may vary materially. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. We advise you, however, to review the Section entitled “Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for a discussion of important cautionary factors that may affect future results. We also advise you to review any and all further disclosures we make on related subjects in our 10-Q and 8-K filings with the SEC and in other materials we publicly release.

(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

     Exhibit (10) –– By-Laws of Syntellect Inc. as Amended and Restated Through August 9, 2001

     Exhibit (11) –– Syntellect Inc. Computation of Net Income (Loss) Per Share

b) Reports on Form 8-K

     No current reports on Form 8-K were filed during the three months ended September 30, 2001.

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.

	SYNTELLECT INC.
Date: November 1, 2001	By:	/s/ Timothy P. Vatuone
		Timothy P. Vatuone
		Vice President, Chief Financial Officer,
		Secretary and Treasurer
		(Principal financial officer and duly
		authorized officer of the registrant)

EXHIBIT INDEX

         Exhibit (10) –– By-Laws of Syntellect Inc. as Amended and Restated Through August 9, 2001, page 15

         Exhibit (11) –– Syntellect Inc. Computation of Net Income (Loss) Per Share, page 24

14 EX-10 3 p65764ex10.txt EX-10 EXHIBIT (10) BY-LAWS OF SYNTELLECT INC. AS AMENDED AND RESTATED THROUGH AUGUST 9, 2001 15 AMENDED AND RESTATED BY-LAWS OF SYNTELLECT INC. ARTICLE 1. OFFICES Section 1.01 REGISTERED OFFICE. The corporation shall maintain an office within the State of Delaware, which shall be the office of its registered agent. Section 1.02 OTHER OFFICES. The corporation may have other offices either within or without the State of Delaware at such place or places as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE 11. MEETINGS OF STOCKHOLDERS Section 2.01 ANNUAL MEETINGS. Annual meetings of stockholders for the election of directors and for such other business as may properly come before the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and may transact such other corporate business as may properly come before the meeting. Section 2.02 OTHER MEETINGS. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. Section 2.03 VOTING. Except as otherwise provided in the Certificate of Incorporation, each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-laws shall be entitled to one vote, in person or by proxy, for each share of common capital stock held by such stockholder. No proxy shall be voted after three years from its date unless such proxy provides for a longer period. Upon demand of any stockholder or director, the vote for directors and the vote upon any question before the meeting shall be by ballot. In the absence of such demand, voting may be by voice vote. All elections for directors shall be decided by plurality vote of the shares present at the meeting in person or by proxy and entitled to vote on the election of directors, meaning that those nominees with the highest number of votes shall be elected. All other matters shall be decided by majority vote of the shares present at the meeting in person or by proxy and entitled to vote on such matters, unless otherwise required by the Certificate of Incorporation or the laws of the State of Delaware. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.04 QUORUM. Except as otherwise required by law, by the Certificate of Incorporation or by these By-laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders 16 entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. Section 2.05 SPECIAL MEETINGS. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed herein or by statute, may be called by the Chairman of the Board and shall be called by the Secretary at the written request, or by resolution adopted by the affirmative vote, of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Stockholders of the Corporation shall not be entitled to request a special meeting of the stockholders. Section 2.06 NOTICE OF MEETINGS. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten or more than sixty days before the date of the meeting. Section 2.07 CIRCUMSTANCES UNDER WHICH NOMINATION OF DIRECTORS BY STOCKHOLDERS IS PERMITTED. Any stockholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of such meeting and (ii) with respect to any election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting (including the number of shares of stock of the corporation owned beneficially or of record by such stockholder and the nominee or nominees) and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder including whether either the stockholder or the person or persons to be nominated is an "affiliate" or "associate" of an "interested stockholder" as such terms are defined in the Securities Exchange Act of 1934, and the identity of such interested stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the written consent of each nominee to serve as a director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Section 2.08 STOCKHOLDER PROPOSALS. At any annual or special meeting of stockholders, proposals by stockholders shall be considered only if advance notice thereof has been timely given as provided herein and such proposals are otherwise proper for consideration under applicable law and the Certificate of Incorporation and By-laws of the Corporation. Notice of any proposal to be presented by any stockholder at any meeting of stockholders shall be delivered, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation at its principal executive office (i) with respect to an annual meeting of stockholders, not less than 90 days nor more than 120 days prior to the date of such meeting, and (ii) with respect to a special meeting of stockholders, not later than the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). As used herein, shares "beneficially owned" shall mean all shares as to which such person, together with such person's affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person's affiliates and associates, has the right to become the beneficial owner of pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, 17 shall determine whether such notice has been duly given and shall direct that proposals not be considered if such notice has not been given. ARTICLE III. DIRECTORS Section 3.01 NUMBER. The number of directors of this Corporation shall be a minimum of three (3) and a maximum of twelve (12) persons. The Board of Directors shall have sole authority to determine the number of directors, within the limits set forth herein, and may increase or decrease the exact number of directors from time to time by resolution duly adopted by such Board. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Section 3.02 CLASSIFICATION OF BOARD. The Board of Directors shall be divided into three classes, in respect to term of office, each class to contain as nearly as possible one third (1/3) of the whole number of the Board. The term of office of the first class shall expire at the next succeeding annual meeting, of the second class one year thereafter, and the third class two years thereafter, and at each annual election, directors shall be chosen for a full term to succeed those whose terms expire. Section 3.03 RESIGNATIONS. Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. Section 3.04 VACANCIES. Vacancies on the Board and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If at any time, the corporation has no directors in office, then any officer or stockholder, or an executor, administrator, trustee or guardian of a stockholder, may call a special meeting of stockholders for the purpose of filling vacancies in the Board of Directors. Section 3.05 POWERS. The Board of Directors shall exercise all of the powers of the corporation except such as are by law, or by the Certificate of Incorporation of the corporation or by these By-laws conferred upon or reserved to the stockholders. Section 3.06 MEETINGS. Regular meetings of the directors may be held without notice at such place and times as shall be determined from time to time by resolution of the directors. Special meetings of the board may be called by the Chairman of the Board or the President or by the Secretary upon receipt of a written request from two directors. Notice of such special meeting shall be given at least two days in advance of the meeting to each director, and shall be held at such place or places as shall be stated in the notice of the meeting. Members of the Board of Directors or any committee designated by such Board may participate in a meeting of the Board or Committee by means of telephone conference or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation pursuant to this section shall constitute presence at such meeting. Section 3.07 QUORUM. A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no other notice thereof need be given other than by announcement at the meeting which shall be so adjourned. Section 3.08 COMPENSATION. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the board a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. Section 3.09 ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the board, or of such committee, as the case may be. 18 Section 3.10 EXECUTIVE COMMITTEE. The Board may establish an Executive Committee consisting of no less than three (3) members. The Chairman of the Board or the President shall be a member of the Executive Committee. In addition, the Board of Directors shall elect from its members the remaining members of the Executive Committee. The Executive Committee shall have and may exercise in the intervals between the meetings of the Board of Directors, all the powers of the whole Board of Directors in its management of the affairs and business of the Corporation, except the power or authority to: (a) amend the Certificate of Incorporation; (b) adopt any agreement of merger or consolidation; (c) recommend to stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets; (d) recommend to stockholders a dissolution of the Corporation or a revocation of a dissolution; (e) amend the By-laws; (f) appoint or remove a member of any committee established by the Board of Directors, fill vacancies on the Board of Directors, remove an officer elected by the Board of Directors, or raise or lower any officer's salary; or (g) declare dividends or authorize the issuance of stock. Meetings of the Executive Committee may be called at any time by the Chairman of the Board or President, as appropriate, and shall be held at the general office of the Corporation or at such other place, within or without the State of Delaware, as the Chairman of the Board or President, as appropriate, may designate, on not less than one (1) day's notice to each member of the Executive Committee, given either personally by telephone, by mail, by telegram or by telex. Section 3.11 OTHER COMMITTEES. The Board of Directors may, by resolution or resolutions adopted by the affirmative vote of a majority of the whole Board of Directors, designate one or more other committees, each committee to consist of two or more directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolutions adopted by the Board of Directors. Section 3.12 COMMITTEES IN GENERAL. Except as otherwise provided in these By-laws, each committee shall adopt its own rules governing the time, place and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules or by resolution of the Board of Directors. Unless otherwise provided by these By-laws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 3.06 of these By-laws with respect to notices of special meetings of the Board of Directors. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Any member of any committee, other than a member thereof serving ex-officio, may be removed from such committee either with or without cause, at any time, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors at any meeting thereof. Any vacancy in any committee shall be filled by the Board of Directors in the manner prescribed by these By-laws for the original appointment of the members of such committee. ARTICLE IV. OFFICERS Section 4.01 OFFICERS. The officers of the corporation shall be a Chairman of the Board of Directors, a Chief Executive Officer, a President, a Treasurer, and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect one or more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as they 19 may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. Two or more offices may be held by the same person. Section 4.02 OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4.03 CHAIRMAN OF THE BOARD. The Chairman of the Board shall report to the Board of Directors and shall have such powers and duties as are delegated to him by the Board. In addition, he shall preside at meetings of the stockholders and of the Board of Directors. Section 4.04 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall report to the Board of Directors, shall have the general powers and duties of supervision, direction and management of the affairs and business of the Corporation usually vested in the chief executive officer of a corporation and shall have other powers and perform such other duties as are delegated to him by the Board of Directors. He shall have supervision, control and direction of all other officers of the Corporation subordinate to him. Section 4.05 PRESIDENT. The President shall report to the Board of Directors, shall be the chief operating officer of the Corporation, shall have the general powers and duties of supervision and management usually vested in the office of the President and chief operating officer of a corporation and shall have such other powers and duties as are delegated to him by the Board of Directors. Section 4.06 VICE PRESIDENT. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him by the directors. Section 4.07 TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President or Chairman, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe. Section 4.08 SECRETARY. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same. Section 4.09 ASSISTANT TREASURERS & ASSISTANT SECRETARIES. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors. ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 5.01 GENERAL. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or 20 other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he 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 reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contenders or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he 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 reasonable cause to believe that his conduct was unlawful. Section 5.02 DERIVATIVE ACTIONS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 5.03 INDEMNIFICATION IN CERTAIN CASES. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 5.01 and 5.02, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 5.04 PROCEDURE. Any indemnification under Sections 5.01 and 5.02 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections 5.01 and 5.02. Such determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (d) by the stockholders. Section 5.05 ADVANCES FOR EXPENSES. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to the indemnified by the corporation as authorized in this Article V. Section 5.06 RIGHTS NOT EXCLUSIVE. The indemnification and advancement of expenses provided by or granted pursuant to, the other Sections of this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 5.07 INSURANCE. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article V. 21 Section 5.08 DEFINITION OF CORPORATION. For the purposes of this Article V, references to "the corporation" include all constituent corporations absorbed in consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. Section 5.09 OTHER DEFINITIONS. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article V. Section 5.10 CONTINUATION OF RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to this Article V shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE VI. MISCELLANEOUS Section 6.01 CERTIFICATES OF STOCK. A certificate of stock, signed by the Chairman or Vice-Chairman of the Board of Directors, if they be elected, President or Vice- president, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. When such certificates are countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, the signatures of such officers may be facsimiles. Section 6.02 LOST CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate. Section 6.03 TRANSFER OF SHARES. The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be canceled and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. Section 6.04 STOCKHOLDERS RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjournment meeting. Section 6.05 DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the 22 capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation. Section 6.06 SEAL. A corporate seal shall not be requisite to the validity of any instrument executed by or on behalf of the corporation. If a corporate seal is nevertheless used, it shall bear the name of the corporation and the words "Delaware - 1984". A corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. Section 6.07 FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. Section 6.08 CHECKS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 6.09 NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these By-laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage paid, addressed to the person entitled thereto at his address as it appears on the records of the corporation and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by Statute. Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII. AMENDMENTS These By-laws may be altered or repealed and By-laws may be made at any annual meeting of the stockholders or at any special meeting thereof if notice of the proposed alteration or repeal or Bylaw or By-laws to be made be contained in the notice of such special meeting, by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors, if notice of the proposed alteration or repeal, or Bylaw or By-laws to be made, be contained in the notice of such special meeting. The foregoing is a true and correct copy of the Amended and Restated By-laws of Syntellect Inc. as duly adopted by the Board of Directors at a meeting duly convened on August 9, 2001. /s/ Timothy P. Vatuone ------------------------------------ Timothy P. Vatuone, Secretary 23 EX-11 4 p65764ex11.txt EX-11 EXHIBIT (11) SYNTELLECT INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (in thousands, except per share amounts)

Three Months Ended Sep. 30 Nine Months Ended Sep. 30 2001 2000 2001 2000 --------- ------- --------- ------- Numerator: Numerator for basic and diluted income (loss) per share - net income (loss) $ (2,279) $ 476 $ (6,969) $ 2,674 ========= ======= ========= ======= Denominator: Denominator for basic income (loss) per share - - weighted average number of common shares outstanding during the period 11,294 11,894 11,236 11,845 Incremental common shares attributable to assumed exercise of outstanding common stock options -- 1,153 -- 1,011 --------- ------- --------- ------- Denominator for diluted income (loss) per share 11,294 13,047 11,236 12,856 ========= ======= ========= ======= Basic net income (loss) per share $ (0.20) $ 0.04 $ (0.62) $ 0.23 ========= ======= ========= ======= Diluted net income (loss) per share $ (0.20) $ 0.04 $ (0.62) $ 0.21 ========= ======= ========= =======

The computation of diluted loss per share for the three months ended September 30, 2001 and for the nine months ended September 30, 2001 excluded the effects of shares of common stock issued on the exercise of certain common stock options in consideration for $141 and $352, respectively, because such shares would have been anti-dilutive. 24

EX-10

                                                                    EXHIBIT (10)





                                     BY-LAWS

                                       OF

                                 SYNTELLECT INC.

                 AS AMENDED AND RESTATED THROUGH AUGUST 9, 2001


                                       15

                              AMENDED AND RESTATED

                                     BY-LAWS

                                       OF

                                 SYNTELLECT INC.

                               ARTICLE 1. OFFICES

      Section 1.01    REGISTERED OFFICE. The corporation shall maintain an
office within the State of Delaware, which shall be the office of its registered
agent.

      Section 1.02    OTHER OFFICES. The corporation may have other offices
either within or without the State of Delaware at such place or places as the
Board of Directors may from time to time determine or the business of the
corporation may require.

                      ARTICLE 11. MEETINGS OF STOCKHOLDERS

      Section 2.01    ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may properly come before
the meeting, shall be held at such place, either within or without the State of
Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
may transact such other corporate business as may properly come before the
meeting.

      Section 2.02    OTHER MEETINGS. Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.

      Section 2.03    VOTING. Except as otherwise provided in the Certificate of
Incorporation, each stockholder entitled to vote in accordance with the terms of
the Certificate of Incorporation and in accordance with the provisions of these
By-laws shall be entitled to one vote, in person or by proxy, for each share of
common capital stock held by such stockholder. No proxy shall be voted after
three years from its date unless such proxy provides for a longer period. Upon
demand of any stockholder or director, the vote for directors and the vote upon
any question before the meeting shall be by ballot. In the absence of such
demand, voting may be by voice vote. All elections for directors shall be
decided by plurality vote of the shares present at the meeting in person or by
proxy and entitled to vote on the election of directors, meaning that those
nominees with the highest number of votes shall be elected. All other matters
shall be decided by majority vote of the shares present at the meeting in person
or by proxy and entitled to vote on such matters, unless otherwise required by
the Certificate of Incorporation or the laws of the State of Delaware.

      A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.

      Section 2.04    QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation or by these By-laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders


                                       16

entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof.

      Section 2.05    SPECIAL MEETINGS. Special meetings of the stockholders of
the Corporation, for any purpose or purposes, unless otherwise prescribed herein
or by statute, may be called by the Chairman of the Board and shall be called by
the Secretary at the written request, or by resolution adopted by the
affirmative vote, of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting. Stockholders of the
Corporation shall not be entitled to request a special meeting of the
stockholders.

      Section 2.06    NOTICE OF MEETINGS. Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten or
more than sixty days before the date of the meeting.

      Section 2.07    CIRCUMSTANCES UNDER WHICH NOMINATION OF DIRECTORS BY
STOCKHOLDERS IS PERMITTED. Any stockholder entitled to vote for the election of
directors at a meeting may nominate persons for election as directors only if
written notice of such stockholder's intent to make such nomination is given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, 90 days in advance of such meeting
and (ii) with respect to any election to be held at a special meeting of
stockholders for the election of directors, the close of business on the seventh
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting (including the number
of shares of stock of the corporation owned beneficially or of record by such
stockholder and the nominee or nominees) and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder including whether either the stockholder or the person or persons to
be nominated is an "affiliate" or "associate" of an "interested stockholder" as
such terms are defined in the Securities Exchange Act of 1934, and the identity
of such interested stockholder; (d) such other information regarding each
nominee proposed by such stockholder as would have been required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated, or intended to be
nominated, by the Board of Directors; and (e) the written consent of each
nominee to serve as a director of the corporation if so elected. The chairman of
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.

      Section 2.08    STOCKHOLDER PROPOSALS. At any annual or special meeting of
stockholders, proposals by stockholders shall be considered only if advance
notice thereof has been timely given as provided herein and such proposals are
otherwise proper for consideration under applicable law and the Certificate of
Incorporation and By-laws of the Corporation. Notice of any proposal to be
presented by any stockholder at any meeting of stockholders shall be delivered,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Corporation at its principal executive office (i) with respect
to an annual meeting of stockholders, not less than 90 days nor more than 120
days prior to the date of such meeting, and (ii) with respect to a special
meeting of stockholders, not later than the close of business on the seventh day
following the date on which notice of such meeting is first given to
stockholders. Any stockholder who gives notice of any such proposal shall
deliver therewith the text of the proposal to be presented and a brief written
statement of the reasons why such stockholder favors the proposal and setting
forth such stockholder's name and address, the number and class of all shares of
each class of stock of the Corporation beneficially owned by such stockholder
and any material interest of such stockholder in the proposal (other than as a
stockholder). As used herein, shares "beneficially owned" shall mean all shares
as to which such person, together with such person's affiliates and associates
(as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be
deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficial owner of pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting,


                                       17

shall determine whether such notice has been duly given and shall direct that
proposals not be considered if such notice has not been given.

                             ARTICLE III. DIRECTORS

      Section 3.01    NUMBER. The number of directors of this Corporation shall
be a minimum of three (3) and a maximum of twelve (12) persons. The Board of
Directors shall have sole authority to determine the number of directors, within
the limits set forth herein, and may increase or decrease the exact number of
directors from time to time by resolution duly adopted by such Board. No
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director.

      Section 3.02    CLASSIFICATION OF BOARD. The Board of Directors shall be
divided into three classes, in respect to term of office, each class to contain
as nearly as possible one third (1/3) of the whole number of the Board. The term
of office of the first class shall expire at the next succeeding annual meeting,
of the second class one year thereafter, and the third class two years
thereafter, and at each annual election, directors shall be chosen for a full
term to succeed those whose terms expire.

      Section 3.03    RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.

      Section 3.04    VACANCIES. Vacancies on the Board and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. If at any time, the corporation has
no directors in office, then any officer or stockholder, or an executor,
administrator, trustee or guardian of a stockholder, may call a special meeting
of stockholders for the purpose of filling vacancies in the Board of Directors.

      Section 3.05    POWERS. The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-laws conferred upon or reserved
to the stockholders.

      Section 3.06    MEETINGS. Regular meetings of the directors may be held
without notice at such place and times as shall be determined from time to time
by resolution of the directors. Special meetings of the board may be called by
the Chairman of the Board or the President or by the Secretary upon receipt of a
written request from two directors. Notice of such special meeting shall be
given at least two days in advance of the meeting to each director, and shall be
held at such place or places as shall be stated in the notice of the meeting.
Members of the Board of Directors or any committee designated by such Board may
participate in a meeting of the Board or Committee by means of telephone
conference or similar communication equipment by means of which all persons
participating in the meeting can hear each other, and participation pursuant to
this section shall constitute presence at such meeting.

      Section 3.07    QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no other notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.

      Section 3.08    COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.

      Section 3.09    ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the board, or of such committee, as the case may be.


                                       18

      Section 3.10    EXECUTIVE COMMITTEE. The Board may establish an Executive
Committee consisting of no less than three (3) members. The Chairman of the
Board or the President shall be a member of the Executive Committee. In
addition, the Board of Directors shall elect from its members the remaining
members of the Executive Committee.

      The Executive Committee shall have and may exercise in the intervals
between the meetings of the Board of Directors, all the powers of the whole
Board of Directors in its management of the affairs and business of the
Corporation, except the power or authority to:

            (a)   amend the Certificate of Incorporation;

            (b)   adopt any agreement of merger or consolidation;

            (c)   recommend to stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets;

            (d)   recommend to stockholders a dissolution of the Corporation or
a revocation of a dissolution;

            (e)   amend the By-laws;

            (f)   appoint or remove a member of any committee established by the
Board of Directors, fill vacancies on the Board of Directors, remove an officer
elected by the Board of Directors, or raise or lower any officer's salary; or

            (g)   declare dividends or authorize the issuance of stock.

      Meetings of the Executive Committee may be called at any time by the
Chairman of the Board or President, as appropriate, and shall be held at the
general office of the Corporation or at such other place, within or without the
State of Delaware, as the Chairman of the Board or President, as appropriate,
may designate, on not less than one (1) day's notice to each member of the
Executive Committee, given either personally by telephone, by mail, by telegram
or by telex.

      Section 3.11    OTHER COMMITTEES. The Board of Directors may, by
resolution or resolutions adopted by the affirmative vote of a majority of the
whole Board of Directors, designate one or more other committees, each committee
to consist of two or more directors, which to the extent provided in said
resolution or resolutions shall have and may exercise the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation. Such committee or committees shall have such name or names as may
be determined from time to time by resolutions adopted by the Board of
Directors.

      Section 3.12    COMMITTEES IN GENERAL. Except as otherwise provided in
these By-laws, each committee shall adopt its own rules governing the time,
place and method of holding its meetings and the conduct of its proceedings and
shall meet as provided by such rules or by resolution of the Board of Directors.
Unless otherwise provided by these By-laws or any such rules or resolutions,
notice of the time and place of each meeting of a committee shall be given to
each member of such committee as provided in Section 3.06 of these By-laws with
respect to notices of special meetings of the Board of Directors. Each committee
shall keep regular minutes of its proceedings and report the same to the Board
of Directors when required. Any member of any committee, other than a member
thereof serving ex-officio, may be removed from such committee either with or
without cause, at any time, by resolution adopted by the affirmative vote of a
majority of the whole Board of Directors at any meeting thereof. Any vacancy in
any committee shall be filled by the Board of Directors in the manner prescribed
by these By-laws for the original appointment of the members of such committee.

                              ARTICLE IV. OFFICERS

      Section 4.01    OFFICERS. The officers of the corporation shall be a
Chairman of the Board of Directors, a Chief Executive Officer, a President, a
Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualified. In addition, the Board of Directors may elect one or more Vice
Presidents and such Assistant Secretaries and Assistant Treasurers as they


                                       19

may deem proper. None of the officers of the corporation need be directors. The
officers shall be elected at the first meeting of the Board of Directors after
each annual meeting. Two or more offices may be held by the same person.

      Section 4.02    OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.

      Section 4.03    CHAIRMAN OF THE BOARD. The Chairman of the Board shall
report to the Board of Directors and shall have such powers and duties as are
delegated to him by the Board. In addition, he shall preside at meetings of the
stockholders and of the Board of Directors.

      Section 4.04    CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
report to the Board of Directors, shall have the general powers and duties of
supervision, direction and management of the affairs and business of the
Corporation usually vested in the chief executive officer of a corporation and
shall have other powers and perform such other duties as are delegated to him by
the Board of Directors. He shall have supervision, control and direction of all
other officers of the Corporation subordinate to him.

      Section 4.05    PRESIDENT. The President shall report to the Board of
Directors, shall be the chief operating officer of the Corporation, shall have
the general powers and duties of supervision and management usually vested in
the office of the President and chief operating officer of a corporation and
shall have such other powers and duties as are delegated to him by the Board of
Directors.

      Section 4.06    VICE PRESIDENT. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the directors.

      Section 4.07    TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of Directors.

      The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President or Chairman, taking proper
vouchers for such disbursements. He shall render to the President and Board of
Directors at the regular meetings of the Board of Directors, or whenever they
may request it, an account of all his transactions as Treasurer and of the
financial condition of the corporation. If required by the Board of Directors,
he shall give the corporation a bond for the faithful discharge of his duties in
such amount and with such surety as the board shall prescribe.

      Section 4.08    SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have the custody of the seal
of the corporation and shall affix the same to all instruments requiring it,
when authorized by the directors or the President, and attest the same.

      Section 4.09    ASSISTANT TREASURERS & ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.

              ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS

      Section 5.01    GENERAL. The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal
administrative, or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or


                                       20

other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he 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
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
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
reasonable cause to believe that his conduct was unlawful.

      Section 5.02    DERIVATIVE ACTIONS. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

      Section 5.03    INDEMNIFICATION IN CERTAIN CASES. To the extent that a
director, officer, employee or agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 5.01 and 5.02, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.

      Section 5.04    PROCEDURE. Any indemnification under Sections 5.01 and
5.02 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 5.01 and
5.02. Such determination shall be made (a) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (b) by a committee of such directors designated by majority vote of
such directors, even though less than a quorum, or (c) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (d) by the stockholders.

      Section 5.05    ADVANCES FOR EXPENSES. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall be ultimately determined that he is not entitled
to the indemnified by the corporation as authorized in this Article V.

      Section 5.06    RIGHTS NOT EXCLUSIVE. The indemnification and advancement
of expenses provided by or granted pursuant to, the other Sections of this
Article V shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.

      Section 5.07    INSURANCE. The corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of this
Article V.


                                       21

      Section 5.08    DEFINITION OF CORPORATION. For the purposes of this
Article V, references to "the corporation" include all constituent corporations
absorbed in consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this Article V with respect to the
resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.

      Section 5.09    OTHER DEFINITIONS. For purposes of this Article V,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article V.

      Section 5.10    CONTINUATION OF RIGHTS. The indemnification and
advancement of expenses provided by, or granted pursuant to this Article V shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person.

                            ARTICLE VI. MISCELLANEOUS

      Section 6.01    CERTIFICATES OF STOCK. A certificate of stock, signed by
the Chairman or Vice-Chairman of the Board of Directors, if they be elected,
President or Vice- president, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. When such
certificates are countersigned (1) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation or
its employee, the signatures of such officers may be facsimiles.

      Section 6.02    LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.

      Section 6.03    TRANSFER OF SHARES. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
canceled and new certificates shall thereupon be issued. A record shall be made
of each transfer and whenever a transfer shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer.

      Section 6.04    STOCKHOLDERS RECORD DATE. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjournment meeting.

      Section 6.05    DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the


                                       22

capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the directors from time
to time in their discretion deem proper for working capital or as a reserve fund
to meet contingencies or for equalizing dividends or for such other purposes as
the directors shall deem conducive to the interests of the corporation.

      Section 6.06    SEAL. A corporate seal shall not be requisite to the
validity of any instrument executed by or on behalf of the corporation. If a
corporate seal is nevertheless used, it shall bear the name of the corporation
and the words "Delaware - 1984". A corporate seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced.

      Section 6.07    FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.

      Section 6.08    CHECKS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.

      Section 6.09    NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by these By-laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage paid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation and such notice shall be deemed to have been given on
the day of such mailing. Stockholders not entitled to vote shall not be entitled
to receive notice of any meetings except as otherwise provided by Statute.

      Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation or these By-laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.

                             ARTICLE VII. AMENDMENTS

      These By-laws may be altered or repealed and By-laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or Bylaw or By-laws to be made be contained
in the notice of such special meeting, by the affirmative vote of a majority of
the stock issued and outstanding and entitled to vote thereat, or by the
affirmative vote of a majority of the Board of Directors, at any regular meeting
of the Board of Directors, or at any special meeting of the Board of Directors,
if notice of the proposed alteration or repeal, or Bylaw or By-laws to be made,
be contained in the notice of such special meeting.

      The foregoing is a true and correct copy of the Amended and Restated
By-laws of Syntellect Inc. as duly adopted by the Board of Directors at a
meeting duly convened on August 9, 2001.



                                            /s/ Timothy P. Vatuone
                                            ------------------------------------
                                            Timothy P. Vatuone, Secretary



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EX-11

                                                                    EXHIBIT (11)

                                 SYNTELLECT INC.
                   COMPUTATION OF NET INCOME (LOSS) PER SHARE
                    (in thousands, except per share amounts)



                                                          Three Months Ended Sep. 30        Nine Months Ended Sep. 30
                                                             2001              2000            2001            2000
                                                          ---------          -------        ---------         -------
                                                                                                  
Numerator:
     Numerator for basic and diluted income (loss)
         per share - net income (loss)                    $  (2,279)         $   476        $  (6,969)        $ 2,674
                                                          =========          =======        =========         =======

Denominator:
     Denominator for basic income (loss) per
         share - - weighted average number of
         common shares outstanding during the
         period                                              11,294           11,894           11,236          11,845
     Incremental common shares attributable to
         assumed exercise of outstanding
         common stock options                                    --            1,153               --           1,011
                                                          ---------          -------        ---------         -------
Denominator for diluted income (loss) per share              11,294           13,047           11,236          12,856
                                                          =========          =======        =========         =======
Basic net income (loss) per share                         $   (0.20)         $  0.04        $   (0.62)        $  0.23
                                                          =========          =======        =========         =======
Diluted net income (loss) per share                       $   (0.20)         $  0.04        $   (0.62)        $  0.21
                                                          =========          =======        =========         =======


      The computation of diluted loss per share for the three months ended
September 30, 2001 and for the nine months ended September 30, 2001 excluded the
effects of shares of common stock issued on the exercise of certain common stock
options in consideration for $141 and $352, respectively, because such shares
would have been anti-dilutive.


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