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, 2002

o 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 or organization)		(I.R.S. Employer Identification No.)

16610 N. Black Canyon Highway, Suite 100, 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 o

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

11,369,152 shares of common stock, $.01 par value per share, were outstanding on November 13, 2002.

TABLE OF CONTENTS


Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations and Comprehensive Loss
Condensed Consolidated Statements of Cash Flows
NOTES TO THE 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
	ITEM 4. CONTROLS AND PROCEDURES
	PART II -—OTHER INFORMATION
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
	SIGNATURES
EX-10.V
EX-10.VII.A
EX-10.VII.B
EX-10.VII.C
EX-10.VII.D
EX-10.VII.E
EX-10.VII.F
EX-10.VII.G
EX-10.VII.H
EX-10.VII.I
EX-10.X.B
EX-10.XII.A
EX-10.XII.B
EX-10.XII.C
EX-10.XII.D
EX-10.XII.E
EX-99.A
EX-99.B
EX-99.C
EX-99.D

SYNTELLECT INC. AND SUBSIDIARIES
INDEX


		Page

PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




	Condensed Consolidated Balance Sheets — As of September 30, 2002 and December 31, 2001		3




	Condensed Consolidated Statements of Operations and Comprehensive Loss — Three Months and Nine Months Ended September 30, 2002 and September 30, 2001		4




	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2002 and September 30, 2001		5




	Notes to Condensed Consolidated Financial Statements		6




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10




Item 3. Quantitative and Qualitative Disclosure about Market Risk			17




Item 4. Controls and Procedures			18




PART II. OTHER INFORMATION




Item 5. Other Information			18




Item 6. Exhibits and Reports on Form 8-K			19




SIGNATURES			20




PART I — FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

SYNTELLECT INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


					September 30,			December 31,
					2002			2001

					(unaudited)
				Assets




Current assets:




	Cash and cash equivalents				$	2,443		$	3,997




	Trade receivables, net of allowance for doubtful accounts of $199 and $416, respectively					5,290			7,617




	Note receivable					67			84




	Other receivables					19			5




	Inventories					533			634




	Prepaid expenses					1,031			1,072

		Total current assets				9,383			13,409

Property and equipment, net						3,017			3,772




Note receivable, non-current portion						146			202




Other assets						566			816

		Total assets			$	13,112		$	18,199

			Liabilities and Shareholders’ Equity (Deficit)




Current liabilities:




	Accounts payable				$	2,320		$	2,145




	Accrued liabilities					1,004			1,923




	Customer deposits					387			232




	Deferred revenue					7,252			8,129




	Note payable					1,715			1,449




	Capital lease obligations – current portion					243			249

		Total current liabilities				12,921			14,127

Deferred revenue – non-current portion						645			—




Capital lease obligations – non-current portion						351			537

		Total liabilities				13,917			14,664

Shareholders’ equity (deficit):




	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, 14,691,584 and 14,660,485, respectively					147			147




	Additional paid-in capital					62,676			62,628




	Accumulated deficit					(51,839	)		(47,621	)




	Accumulated other comprehensive loss					(375	)		(205	)

						10,609			14,949




	Treasury stock, at cost, 3,322,432 shares					(11,414	)		(11,414	)

		Total shareholders’ equity (deficit)				(805	)		3,535

		Total liabilities and shareholders’ equity (deficit)			$	13,112		$	18,199

See accompanying notes to the condensed consolidated financial statements.

SYNTELLECT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts) (unaudited)


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

Net revenue:




	Licenses	$	1,561		$	2,316		$	6,833		$	8,202




	Services		5,017			5,020			14,191			15,603




	Hosted Services		768			1,131			2,705			3,497

	Total net revenue		7,346			8,467			23,729			27,302

Cost of revenue:




	Licenses		355			748			1,717			2,265




	Services		2,115			2,578			7,046			8,634




	Hosted Services		848			1,131			2,679			3,282

	Total cost of revenue		3,318			4,457			11,442			14,181

Gross profit			4,028			4,010			12,287			13,121

Operating expenses:




	Selling, marketing and administrative		3,716			5,285			12,784			16,815




	Research and development		1,010			952			3,529			3,251

	Total operating expenses		4,726			6,237			16,313			20,066

	Operating loss		(698	)		(2,227	)		(4,026	)		(6,945	)

Other income (expense), net:




	Interest expense, net		(96	)		(68	)		(173	)		(40	)




	Gain (loss) on disposal of assets		1			—			(1	)		—




	Other expense		(7	)		—			(18	)		—

	Total other expense		(102	)		(68	)		(192	)		(40	)

	Loss before income taxes		(800	)		(2,295	)		(4,218	)		(6,985	)

	Income tax benefit		—			(16	)		—			(16	)

	Net loss	$	(800	)	$	(2,279	)	$	(4,218	)	$	(6,969	)

Loss per common share — basic		$	(0.07	)	$	(0.20	)	$	(0.37	)	$	(0.62	)

Loss per common share — diluted		$	(0.07	)	$	(0.20	)	$	(0.37	)	$	(0.62	)

Weighted average common share — basic			11,369			11,294			11,350			11,236

Weighted average common share — diluted			11,369			11,294			11,350			11,236

	Net loss	$	(800	)	$	(2,279	)	$	(4,218	)	$	(6,969	)

Other comprehensive loss, net of tax:




	Foreign currency translation adjustment		(141	)		(8	)		(170	)		(48	)

	Total other comprehensive loss		(141	)		(8	)		(170	)		(48	)

	Comprehensive loss	$	(941	)	$	(2,287	)	$	(4,388	)	$	(7,017	)

See accompanying notes to the condensed consolidated financial statements.

SYNTELLECT INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands — unaudited)


			Nine Months Ended
			September 30,

			2002			2001

Cash flows from operating activities:




	Net loss		$	(4,218	)	$	(6,969	)




	Adjustments to reconcile net loss to net cash used in operating activities:




		Depreciation and amortization		1,157			1,302




		Loss on disposal of property, plant, and equipment		1			—




		Provision for doubtful accounts		325			232




		Stock option compensation expense		3			—




		Decrease in accounts receivable		2,002			4,644




		Decrease in inventories		101			706




		Increase (decrease) in accounts payable		175			(29	)




		Decrease in accrued liabilities		(919	)		(1,188	)




		Decrease in deferred revenue		(232	)		(141	)




		Increase (decrease) in customer deposits		155			(1,999	)




		Change in other assets and liabilities		304			(453	)

		Net cash used in operating activities		(1,146	)		(3,895	)

Cash flows from investing activities:




	Proceeds from short-term investment			—			75




	Proceeds from note receivable			73			—




	Proceeds from the sale of property and equipment			—			26




	Purchase of property and equipment			(403	)		(1,338	)

		Net cash used in investing activities		(330	)		(1,237	)

Cash flows from financing activities:




	Borrowings on line of credit			6,918			1,422




	Repayments on line of credit			(6,652	)		—




	Proceeds from issuance of common stock			18			246




	Payments on capital lease obligations			(192	)		(133	)

		Net cash provided by financing activities		92			1,535

Effect of exchange rates on cash				(170	)		(48	)

Net decrease in cash and cash equivalents				(1,554	)		(3,645	)
Cash and cash equivalents at beginning of year				3,997			7,334

Cash and cash equivalents at end of nine month period			$	2,443		$	3,689

Supplemental disclosure of cash flow information:




	Cash paid for interest		$	197		$	86

Significant non-cash transactions
	Property and equipment purchased under capital lease		$	—		$	446

	Warrants issued under credit facility		$	27		$	—

See accompanying notes to the condensed consolidated financial statements.

SYNTELLECT INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation

The accompanying unaudited, condensed, consolidated financial statements include the accounts of Syntellect Inc. (together with its subsidiaries, collectively, the “Company,” which may also be referred to as the “registrant,” “we,” “us,” or “our”). All significant inter-company balances and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, 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, 2001 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year.

(2) Revenue Recognition

Our revenue is derived from three business segments: Licenses, Services and Hosted Services. Revenue derived from Licenses and from Services is recognized pursuant to 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” (“SOP 98-9”); and Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”). Revenue derived from Hosted Services is recognized pursuant to the provisions of SAB No. 101. We strictly adhere to the revenue recognition criteria under the guidance mentioned above. See Item 8 — Financial Statements and Supplementary Data, “Notes to Consolidated Financial Statements” in our December 31, 2001 Annual Report on Form 10-K for a detailed description of our revenue recognition policy.

(3) Inventories

Inventories consist of the following:


	(in thousands)
	September 30,		December 31,
	2002		2001

Finished Goods	$	196	$	168




Purchased Components		122		236




Repair, warranty, and maintenance components		215		230

	$	533	$	634

SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(4) Earnings (Loss) Per Share Computation


	(in thousands, except per share amounts)
	Three Months Ended						Nine Months Ended

	Sept. 30, 2002			Sept. 30, 2001			Sept. 30, 2002			Sept. 30, 2001

Net loss	$	(800	)	$	(2,279	)	$	(4,218	)	$	(6,969	)

Weighted average share outstanding — basic		11,369			11,294			11,350			11,236

Loss per share — basic	$	(0.07	)	$	(0.20	)	$	(0.37	)	$	(0.62	)

Weighted average shares outstanding — diluted		11,369			11,294			11,350			11,236




Effect of dilutive securities — stock options		0			0			0			0

Weighted average shares outstanding — diluted		11,369			11,294			11,350			11,236

Loss per share — diluted	$	(0.07	)	$	(0.20	)	$	(0.37	)	$	(0.62	)

Dilutive securities excluded from diluted loss per share due to anti-dilutive effect		1,957			2,145			1,957			2,145

The computation of diluted loss per share for the three-month periods ended September 30, 2002 and 2001 and for the nine-month periods ended September 30, 2002 and 2001 excluded the effect of certain incremental common shares attributable to the assumed exercise of common stock options because their effect would be anti-dilutive.

(5) Credit Facilities

On April 30, 2002, we elected an early termination of our $2.5 million, asset-based, operating line of credit with a commercial lending institution. The credit instrument accrued interest at prime plus 8.5% per annum with a $7,500 minimum monthly finance charge. We could borrow according to a formula on 65% of eligible domestic accounts receivable less than 90 days old, excluding maintenance receivables. In place of that line of credit, on May 14, 2002, we executed an Accounts Receivable Financing Agreement (the “Agreement”) for a one-year, $3.0 million, asset-based, operating line of credit with a commercial banking institution. Any outstanding balance on this line of credit incurs interest at a rate of prime plus 3.25% per annum plus a collateral handling fee of 0.25% with a minimum monthly finance charge of $5,000. The maximum cash available under the terms of this Agreement is 80% of the $3.0 million loan value, or $2.4 million. At September 30, 2002, the prime rate was 4.75% making the then applicable interest rate under the Agreement 8% per annum. We may borrow according to a formula based on 80% of eligible accounts receivable less than 90 days old, including certain maintenance receivables, selected foreign receivables, and excluding customer deposits. The commercial banking institution has a perfected first priority security interest in all our assets. In addition, all current depository accounts have been relocated to the new commercial bank.

SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(5) Credit Facilities, continued

Furthermore, we issued fully vested warrants to purchase 30,000 shares of our common stock to this commercial banking institution. These warrants expire on May 14, 2007. The exercise price is $1.17 per share, which approximated the market price of the underlying common stock on the date of grant. The value of the warrants issued in connection with this Agreement was determined using the Black-Scholes calculation to be $27,000 and has been capitalized as a deferred asset, which is amortized as interest expense over the one-year life of the Agreement.

On July 22 2002, we entered into a Loan Modification and Forbearance Agreement (the “Modification”) to the Agreement in which the bank agrees to abstain from calling the Agreement into default due to violation of the covenants through October 30, 2002. The Modification also increased the loan amount to $3.75 million, extended the expiration date to July 14, 2003, and increased the collateral handling fee to 0.75% during a time of non-compliance with the covenants of the Agreement. The maximum cash available under the terms of the Modification is 80% of the $3.75 million loan value, or $3.0 million. We were required to pay $10,000 in bank fees in order to execute the Modification.

At September 30, 2002, we were in compliance with all of the covenants in the Agreement and subsequent Modification. At September 30, 2002, our outstanding balance on this credit facility was $1.7 million. Also at September 30, 2002, there was an additional $1.3 million available to borrow.

On November 7, 2002, we entered into an Accounts Receivable Financing Modification Agreement (the “Modification #2”) to the Agreement in which we amended an affirmative, financial covenant. Also, Modification #2 extended the increased collateral handling fee of 0.75% until the later of February 1, 2003 or one month following the quarter in which we are in compliance with affirmative covenants listed in the Agreement and no other event of default has occurred.

(6) Business Segments

An operating segment is defined as a component of an enterprise that engages in business activities which may earn revenue 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.

Licenses is our operating business segment that includes our contact center software platform, Vista IMR, speech-enabled licenses, and other third party licenses that we offer along with our Vista IMR software. Vista IMR consists of a broad suite of communications features. Some of the components of Vista IMR include Interactive Voice Response, Interactive Web Response, and Speed Enabled Directory. This business segment also includes all revenue and costs related to hardware sales.

Services is our operating business segment that includes customer support and integration in the areas of consulting, project management, application development, installation, functional specifications, training and maintenance services. We generally sell these services as part of the initial sale or, in some cases, as post implementation services.

Hosted Services is our operating business segment that provides Service Bureau IMR services offering campaign oriented initiatives such as Lead Capture, Site Locator, credit card processing, disaster recovery, and disaster mitigation or a combined on-site and hosted services with similar value-added options attached.

SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(6) Business Segments, continued


	(in thousands)
	Licenses			Services			Hosted Services			Total

Three-months ended September 30, 2002




Revenue from customers	$	1,561		$	5,017		$	768		$	7,346




Depreciation and amortization		114			56			180			350




Segment income (loss) before income taxes		(1,841	)		1,227			(186	)		(800	)




Expenditures for segment assets		39			50			69			158
















Three-months ended September 30, 2001




Revenue 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


	(in thousands)
	Licenses			Services			Hosted Services			Total

Nine-months ended September 30, 2002




Revenue from customers	$	6,833		$	14,191		$	2,705		$	23,729




Depreciation and amortization		413			204			540			1,157




Segment income (loss) before income taxes		(5,191	)		1,436			(463	)		(4,218	)




Expenditures for segment assets		145			124			134			403
















Nine-months ended September 30, 2001




Revenue 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


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

SUMMARY OF OPERATIONS

Many of our existing and potential customers delayed capital investments due to the weakened U.S. economy, particularly in the telecommunication technology sector. Additionally, recent corporate announcements of financial misstatements and misrepresentations have affected how companies evaluate potential new capital equipment and service providers, further elongating the sales cycle. Due to the decline in revenue and order bookings during the second and third quarters of 2002, we determined it necessary to further reduce our operating expenses to a level commensurate with our revenue. As a result, we took steps to decrease our estimated quarterly sales breakeven level to approximately $7.5 million for the fourth quarter of 2002.

We have a proven technology platform, strong operational competency, and a loyal and supportive customer base. However, our success as a software, services, and integration company is based on its ability to generate new customers as well as develop and grow our installed base of clients. Effective October 1, 2002, we have implemented a new sales approach that has two distinct revenue generating strategies, one for new customers and one for existing customers, our installed base. Our business is most successful when we have a healthy combination of revenue from new customers and strong, recurring revenue from our installed base of clients. We believe this blended approach will facilitate the growth of our revenue stream.

CRITICAL ACCOUNTING POLICIES

For a complete discussion of our critical accounting policies, see Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our December 31, 2001 Annual Report of Form 10-K.

RESULTS OF OPERATIONS

Net Revenue

The following table summarizes our net revenue performance (in thousands) for the three and nine-month periods ended September 30, 2002 and 2001.


	Three-months ended										Nine-months ended

	Sept 30,		% of total			Sept 30,		% of total			Sept 30,		% of total			Sept 30,		% of total
Current results	2002		revenue			2001		revenue			2002		revenue			2001		revenue

Licenses	$	1,561		21	%	$	2,316		27	%	$	6,833		29	%	$	8,202		30	%




Services




Application development		1,380		19	%		1,649		19	%		4,003		17	%		4,885		18	%




Project management		245		3	%		295		3	%		718		3	%		1,025		4	%




Maintenance		2,498		34	%		2,336		28	%		7,238		31	%		7,136		26	%




Installation		249		3	%		269		3	%		584		2	%		827		3	%




Other services		645		9	%		471		6	%		1,648		7	%		1,730		6	%

Total services		5,017		68	%		5,020		59	%		14,191		60	%		15,603		57	%




Hosted Services		768		11	%		1,131		14	%		2,705		11	%		3,497		13	%

Total net revenue	$	7,346		100	%	$	8,467		100	%	$	23,729		100	%	$	27,302		100	%


Domestic	$	5,460		74	%	$	6,372		75	%	$	18,929		80	%	$	20,429		75	%




International		1,886		26	%		2,095		25	%		4,800		20	%		6,873		25	%

Total net revenue	$	7,346		100	%	$	8,467		100	%	$	23,729		100	%	$	27,302		100	%


Direct Licenses revenue	$	1,560		100	%	$	1,868		81	%	$	6,329		93	%	$	6,665		81	%




Indirect Licenses revenue		1		0	%		448		19	%		504		7	%		1,537		19	%

Total Licenses revenue	$	1,561		100	%	$	2,316		100	%	$	6,833		100	%	$	8,202		100	%


Speech Licenses	$	208		13	%	$	316		14	%	$	1,578		23	%	$	716		9	%

Net revenue for the quarter ended September 30, 2002 was $7.3 million, a decrease of $1.2 million, or 13%, from the $8.5 million reported for the third quarter of 2001. Net revenue for the nine-month periods ended September 30, 2002 and 2001 was $23.7 million and $27.3 million, respectively, a decrease of $3.6 million, or 13%. Net revenue consists of Licenses, Services, and Hosted Services, which represented 21%, 68%, and 11% of net revenue, respectively, for the quarter ended September 30, 2002, and 27%, 59% and 14% of net revenue, respectively, for the comparable prior year period. Domestic and international revenue for the quarter ended September 30, 2002 was $5.4 million, or 74%, and $1.9 million, or 26%, of total revenue, respectively, compared to $6.4 million, or 75%, and $2.1 million, or 25%, of total revenue, respectively, for the same period in 2001. Domestic and international revenue for the nine months ended September 30, 2002 was $18.9 million, or 80%, and $4.8 million, or 20%, of total revenue, respectively, compared to $20.4 million, or 75%, and $6.9 million, or 25%, of total revenue, respectively, for the same period in 2001.

Licenses revenue for the quarter ended September 30, 2002 was $1.6 million, a decrease of $0.7 million, or 33%, from the $2.3 million reported for the quarter ended September 30, 2001. Licenses revenue for the nine months ended September 30, 2002 was $6.8 million, a decrease of $1.4 million, or 17%, when compared to the nine months ended September 30, 2001. These decreases were due to our inability to book sufficient orders caused by our existing and potential customers’ capital purchase delays intensified by economic conditions. During this quarter, we reorganized our sales force to assist in the success of our sales team to identify new opportunities, book orders, and manage our existing customer base.

Speech-enabled licenses represented $0.2 million, or 13%, of the Licenses revenue for the quarter ended September 30, 2002 compared to $0.3 million, or 14%, in the third quarter of the prior year. The amount of speech-enabled licenses sold is an important operating measure to us because we believe natural speech technology to be the biggest driver of growth in the IVR industry.

Services revenue for the quarter ended September 30, 2002 remained steady at $5.0 million when compared to the same period in 2001. Services revenue for the nine months ended September 30, 2002 was $14.2 million, a decrease of $1.4 million, or 9%, when compared to the same prior year period. The change in Services revenue for the first nine months of 2002 compared to the first nine months of 2001 consisted of application services, $0.9 million decrease;

project management, $0.3 million decrease; maintenance, $0.1 million increase; installation, $0.2 million decrease; and other services, $0.1 million decrease. Services revenue from application services, installations, and project management is generally recognized within six months following the quarter in which our customer placed the order. During that time, the Services revenue is reported as backlog. We have experienced a decline in our trend of orders booked for the first, second, and third quarters of 2002. Although the revenue and orders booked in the Services segment have decreased, we have managed to improve the gross profit of the Services business segment by 5% as shown by the nine month periods ended September 30, 2002 and 2001.

Hosted Services revenue for the quarter ended September 30, 2002 was $0.8 million compared to $1.1 million for the same period in 2001, a decrease of $0.3 million, or 32%. Hosted Services revenue was $2.7 million for the nine months ended September 30, 2002, a decrease of $0.8 million, or 23%, when compared to the same prior year period. Hosted Services consists of Home Ticket, voice services, Vista IMR hosted services, and other hosted services. Voice services provide media voice files for all of our application services, hosted and on-site systems. Vista IMR hosted services may include Lead Capture, Speech Enabled Directory, Site Locator, disaster mitigation, disaster recovery, electronic payment processing, broadcast faxing, and call center processing. The primary reason for the decrease in Hosted Services revenue is the declining demand for analog, pay-per-view services that our Home Ticket product offers.

Gross Margin

The following table summarizes our gross margin performance (in thousands) for the three and nine-month periods ended September 30, 2002 and 2001.


		Three-months ended											Nine-months ended

					% of					% of					% of					% of
		Sept 30,			revenue			Sept 30,		revenue			Sept 30,		revenue			Sept 30,		revenue
Current results		2002			category			2001		category			2002		category			2001		category

	Licenses	$	1,206			77	%	$	1,568		68	%	$	5,116		75	%	$	5,937		72	%




	Services		2,902			58	%		2,442		49	%		7,145		50	%		6,969		45	%




	Hosted Services		(80	)		-10	%		—		0	%		26		1	%		215		6	%

Total gross profit		$	4,028			55	%	$	4,010		47	%	$	12,287		52	%	$	13,121		48	%

The gross margin percentage for the quarter ended September 30, 2002 was 55% of net revenue, an increase of 7% when compared to the 47% achieved in the third quarter of the prior year. The gross margin for the nine-month periods ended September 30, 2002 and 2001 were 52% and 48% of net revenue, respectively. In dollar terms, the gross profit for the quarter and nine months ended September 30, 2002 increased $18,000 and decreased $0.8 million, or 6%, respectively, which can be accounted for by evaluating product mix, volume, and change in gross margin percentage. The decrease in net revenue for the quarter and nine-month period ended September 30, 2002 accounts for decreases of $0.5 million and $1.7 million, respectively, in the gross profit. Those decreases are offset by the improved gross margin percentages of 7% and 4%, respectively, which is a positive effect of $0.5 million and $0.8 million, respectively.

Gross margin for Licenses increased to 77% of Licenses revenue in the third quarter of 2002 from 68% in the third quarter of 2001 due to the outsourcing of the hardware components associated with our IMR systems. Natural speech content declined to $0.2 million, or 13%, of Licenses revenue in the third quarter of 2002 compared to $0.3 million, or 14%, in the third quarter of 2001. The domestic gross margin realized for the nine-months ended September 30, 2002 was approximately 57% for speech-enabled licenses, 67% for other third-party licenses, and 80% for Vista licenses. Consequently, the product mix directly affects the gross margin realized for Licenses.

Gross margin for Services increased to 58% for the quarter ended September 30, 2002 from 49% for the quarter ended September 30, 2001, an improvement of nine percentage points. Gross margin for Services was 50% for the nine-month period ended September 30, 2002, an increase of five percentage points over the 45% reported for the same period in 2001. During the third quarter of 2002, we implemented a 10% salary reduction. That salary reduction during the third quarter of 2002 was the contributing factor to the increase in the quarterly gross margin. The improvement in the year to date gross margin percentage resulted from continued cost controls, including the reduced

use of third party professional services. In addition, our natural speech and consulting services allow for an increased utilization of our current resources at higher billing rates.

Hosted Services produced a gross margin of -10% for the quarter ended September 30, 2002, which is a 10-percentage point decrease from the 0% gross margin percentage for the quarter ended September 30, 2001. Gross margin for Hosted Services was 1% for the nine-month period ended September 30, 2002, a decrease from the 6% gross margin percentage recorded in the same period in 2001. Because our current Hosted Services center operates at significantly less than full capacity and Hosted Services overhead is fixed by nature, any decrease in Hosted Services revenue will significantly decrease the gross margin percentage as was evidenced during the quarter ended September 30, 2002.

The mix of direct versus indirect Licenses revenue and domestic versus international net revenue affects the gross margin. Direct and indirect Licenses revenue for the quarter ended September 30, 2002 was $1.6 million and $1,000. Direct and indirect Licenses revenue for the quarter ended September 30, 2001 was $1.9 million and $0.4 million, or 81% and 19%, respectively. The change in direct and indirect Licenses revenue were decreases of $0.3 million and $0.4 million, respectively, or 22% and 100%, respectively, for the third quarter of 2002 compared to the third quarter of 2001. The change in direct and indirect Licenses revenue for the nine-months ended September 30, 2002 and 2001 were decreases of $0.4 million and $1.0 million, respectively, or 5% and 67%, respectively. Indirect Licenses revenue was low due to a poor sales performance in the reseller channel and a $0.1 million credit given to a certain reseller during the third quarter of 2002. We experience an approximate 86% gross margin on domestic indirect sales and an approximate 70% on domestic direct sales. The gross margin on direct sales is lower because these orders tend to be much larger and therefore carry larger discounts. Domestic and international gross margins on net revenue were 54% and 57%, respectively, for the quarter ended September 30, 2002 and 47% and 49%, respectively, for the quarter ended September 30, 2001. Licenses and Services gross margins were 75% and 55%, respectively for the nine months ended September 30, 2002. Accordingly, changes in the product mix among Licenses versus Services, domestic versus international, and direct versus indirect can and do have a dramatic impact on our reported gross margin.

Our gross margin will fluctuate on a period-to-period basis as a result of changes in competitive pressures, sales volume, product mix, period cost policy, variations in the ratio of domestic versus international sales, or changes in the mix of direct and indirect sales activity. Accordingly, the gross margins we report for 2002 and 2001 are not necessarily indicative of the results you should expect for future periods.

Operating Expenses

The following table summarizes our operating expense experience (in thousands) for the three and nine-month periods ended September 30, 2002 and 2001.


		Three-months ended										Nine-months ended

		Sept 30,		% of total			Sept 30,		% of total			Sept 30,		% of total			Sept 30,		% of total
		2002		revenue			2001		revenue			2002		revenue			2001		revenue
Current Results
Selling, marketing, and administrative		$	3,716		51	%	$	5,285		62	%	$	12,784		54	%	$	16,815		62	%




Research and development			1,010		14	%		952		11	%		3,529		15	%		3,251		12	%

	Total operating expenses	$	4,726		64	%	$	6,237		74	%	$	16,313		69	%	$	20,066		73	%

Operating expenses for the third quarter of 2002 were $4.7 million, a decrease of $1.5 million, or 24%, from the third quarter of 2001 operating expenses of $6.2 million. Operating expenses for the nine months ended September 30, 2002 were $16.3 million, a decrease of $3.8 million, or 19%, when compared to the $20.1 million recorded in the same period in 2001. Furthermore, operating expenses decreased $1.2 million, or 20%, from the second quarter of 2002. In an overall cost cutting strategy, all areas of costs were evaluated and excess spending was eliminated.

Selling, marketing and administrative expenses for the quarter and nine months ended September 30, 2002 decreased $1.6 million, or 30%, and $4.0 million, or 24%, when compared to the prior year periods. The reduced employee costs, including travel, relocation, and recruiting, accounted for approximately $1.3 million and $2.5 million of the decrease for the quarter and nine-month period ended September 30, 2002, respectively, when compared to the prior

year period. During the same periods, we experienced additional decreases of $0.5 million and $1.2 million in other general administrative expenses such as marketing, telephone, depreciation, shareholder costs, occupancy costs, bad debt reserves, and insurance expense. The effects of the costs savings experienced in employee related and general administrative expenses were offset by increases of $0.2 million and $0.3 million in professional fees for the three and nine months ended September 30, 2002, respectively, when compared to the same prior year periods. In the first quarter of 2001, we incurred a $0.6 million charge for a corporate restructuring and a $0.2 million marketing charge to enhance our corporate image.

Research and development expenses for the quarter and nine-month period ended September 30, 2002 experienced an increase of $58,000 and $0.3 million, or 6% and 9%, respectively. These increases were primarily due to fees associated with certain partner alliances and a non-recurring, employee-related expense.

During the quarter ended September 30, 2002, we eliminated 22 positions in sales, marketing, and administration and 13 positions in research and development. Those 35 positions approximated 31% of total sales, marketing, administration, and research and development positions. Additionally, on July 15, 2002, we announced a 10% salary cut for all employees. That 10% salary cut was reinstated as of November 1, 2002. These measures to reduce our overhead will help us to breakeven at approximately $7.5 million in revenue during the fourth quarter of 2002.

Backlog

Our backlog represents the amounts of non-cancelable, unfilled orders received. We expect to recognize as revenue approximately half of the September 30, 2002 backlog during the fourth quarter of 2002. The following table summarizes our revenue backlog by business segment at September 30, 2002 and September 30, 2001.


	September 30,			% of total			September 30,			% of total
Current backlog	2002			backlog			2001			backlog

Licenses backlog		$	113		3	%		$	1,361		22	%




Services backlog			3,205		92	%			4,724		78	%




Hosted Services backlog			161		5	%			—		0	%

		$	3,479					$	6,085

Our backlog was $3.5 million at September 30, 2002 and $6.1 million at September 30, 2001, a decline of $2.6 million, or 43%. This decline in our backlog was caused by the decline in orders booked during the third quarter of 2002 when compared with the third quarter of 2001. Our orders booked during the third quarter of 2002 totaled $2.8 million compared to $5.1 million for the third quarter of 2001, a $2.3 million, or 45%, decline year over year. Our orders booked for the first and second quarters of 2002 were $4.5 million and $3.7 million, a decline of $1.7 million and $0.9 million, or 38% and 24%, respectively, when compared to the current quarter.

Our backlog of Licenses during the quarters ended September 30, 2002 and June 30, 2002 remained steady at $0.1 million. The Licenses backlog at the quarters ended September 30, 2002 and 2001 was $0.1 million and $1.4 million, respectively, a decrease of $1.3 million, or 92%. Licenses usually are delivered within a few days after receipt of an order. As a result, the Licenses backlog should be a relatively small amount. At September 30, 2001, we were unable to recognize revenue on several Licenses orders due to contractual obligations; therefore the revenue associated with those orders remained as Licenses backlog for future recognition.

Our Services backlog was $3.2 million and $4.7 million at September 30, 2002 and 2001, respectively, a decrease of $1.5 million, or 32%. Services revenue from application services, installations, and project management generally is recognized within six months following the quarter in which an order has been booked. During that time period, the Services revenue is reported as backlog. The backlog decreases as we complete orders and recognize revenue on those orders. Currently, our Services backlog equates to an amount approximating two quarters of Services revenue at current capacity and is sufficient for us to attain our projected Services revenue for the remainder of 2002.

Revenue generated from Hosted Services is generally transaction based. Although most of our contracts provide for guaranteed monthly transaction amounts, we do not include those guaranteed amounts in the backlog figure for Hosted Services. The $0.2 million noted above is related to the application development and set-up fees for our Service Bureau IMR services, which are included in other hosted services, as well as the backlog of voice services associated with the application development of our Vista IMR systems.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at September 30, 2002 were $2.4 million and at December 31, 2001 were $4.0 million, a decrease of $1.6 million. Our working capital deficit increased from $0.7 million at December 31, 2001 to a deficit of $3.5 million at September 30, 2002, a change of $2.8 million. Our year to date net loss of $4.2 million was the dominant factor affecting our negative change in working capital. However, because our deferred revenue is comprised mainly of prepaid, deferred maintenance revenue, our adjusted quick ratio (as used as a measurement of liquidity in the software industry), calculated by dividing the sum of cash and accounts receivable by current liabilities less deferred revenue, was 1.36 on September 30, 2002. That same measurement was 1.34 on June 30, 2002. At December 31, 2001, our adjusted quick ratio was 1.94. We believe our liquidity position is sufficient to meet our short-term cash obligations of accounts payable, accrued liabilities, note payable, and capital lease obligations for the fourth quarter of 2002 and through 2003.

For the first nine months of 2002, we used cash in operating activities of $1.1 million compared to $3.9 million for the prior year, a positive change of $2.8 million. The primary factors affecting the difference between net loss and cash used in operating activities for the nine months ended September 30, 2002 was the positive effect of the decrease in accounts receivable of $2.0 million; the non-cash expenses, such as depreciation and provision for doubtful accounts, in the amount of $1.5 million; and the positive change to other balance sheet accounts, such as inventories, accounts payable, customer deposits, and other assets and liabilities, in the amount of $0.7 million. These positive effects were offset by a decrease in accrued liabilities of $0.9 million and a decrease in deferred revenue of $0.2 million. The decrease in accounts receivable resulted from increased collection efforts and decreased revenue. The decrease in accrued liabilities is evidence of our decreased spending. The decrease in deferred revenue was caused by the decrease in revenue and order bookings.

Cash used in investing activities, namely the purchase of property and equipment, was $0.3 million during the nine-month period ended September 30, 2002 as compared to $1.2 million during the nine-month period ended September 30, 2001. During the first nine months of 2002, we purchased capital assets in the amount of $403,000 and collected $73,000 due on the note receivable. For the first nine months of 2001, we purchased capital assets in the amount of $1.3 million offset by cash received from the sale of a certain asset in the amount of $26,000 and received proceeds from the sale of a short-term investment in the amount of $75,000.

Cash provided by financing activities was $0.1 million during the nine-month period ended September 30, 2002 compared to $1.5 million provided by financing activities during the nine-month period ended September 30, 2001. During the first nine months of 2002, the activity on our line of credit facility resulted in a net borrowing of $0.3 million. Also during 2002, we made payments on our capital lease obligations in the amount of $0.2 million and issued common stock in the amount of $18,000. For the first nine months of 2001, we issued common stock in the amount of $0.2 million and borrowed from our line of credit in the amount of $1.4 million. During that same time period, we made payments on our capital lease obligations in the amount of $0.1 million.

The Board of Directors approved stock buy-back plans under which we are authorized to repurchase our shares of common stock. As of November 13, 2002, we had repurchased a total of 3,322,432 shares under these plans since November 13, 1998 at an average share price of $3.43 and are authorized to repurchase 365,000 additional shares. We have made no stock repurchases since the fourth quarter of 2000.

Internal Sources of Liquidity

Due to the recent decline in revenue and order bookings, it was necessary to reduce our operating expenses to a level that can be supported by our company’s revenue. In the third quarter of 2002, we began several initiatives to address our sales efforts, our cost structures, and our cash management in light of the changing economic environment. We began to see the favorable results from these efforts as demonstrated by our lower selling, marketing, and administrative expenses, cost of revenue, and decreased accounts receivable balance. We have decreased the estimated

quarterly sales breakeven level to approximately $7.5 million for the fourth quarter of 2002 through staff reductions made during the third quarter of 2002 and further cost reduction strategies, including decreased travel and marketing programs.

Additionally, we expect to reduce inventory and inventory purchases during the remainder of 2002 by outsourcing the inventory supply for our Vista product line and using current inventory to support our maintenance contracts. In doing so, we will moderately, but positively, affect gross margin and operating cash.

We believe the continued benefits of these measures will allow us to generate sufficient operating funds from internal sources to successfully run our business in the year ahead. We expect our current cash and cash equivalents, combined with future cash flows from operating activities, to be sufficient to support our operations for the remainder of 2002 and through 2003. We will utilize our credit facility to supplement operational cash needs.

External Sources of Liquidity

On April 30, 2002, we elected an early termination to our $2.5 million asset-based operating line of credit with a commercial lending institution. In place of that line of credit, on May 14, 2002, we executed an Accounts Receivable Financing Agreement (the “Agreement”) for a one-year, $3.0 million, asset-based, operating line of credit with a commercial banking institution. The maximum cash available under the terms of this Agreement is 80% of the $3.0 million loan value, or $2.4 million. The new line of credit has lower interest rates, lower minimum monthly interest payments, lower facility fee, less stringent covenants, and an increased borrowing base. On July 22, 2002, we entered into a Loan Modification and Forbearance Agreement in which the bank agreed to increase the loan amount to $3.75 million, extend the expiration date to July 14, 2003, and increase the collateral handling fee to 0.75% during a time of non-compliance with the covenants of the Agreement. The maximum cash available under the terms of this Modification is 80% of the $3.75 million loan value, or $3.0 million.

At September 30, 2002, we were in compliance with all covenants under this Agreement and Modification. At September 30, 2002, our outstanding balance on this credit facility was $1.7 million with an additional $1.3 million available to borrow.

On November 7, 2002, we entered into an Accounts Receivable Financing Modification Agreement (the “Modification #2”) to the Agreement in which the amended an affirmative, financial covenant. Also, Modification #2 extended the increase in the collateral handling fee until the later of February 1, 2003 or one month following the quarter in which we are in compliance with affirmative covenants listed in the Agreement and no other event of default has occurred.

In the event that we are unable to continue to reduce costs and generate cash flow from operations and alternative financing arrangements are not available, our operations could be adversely affected.

In an effort to explore strategic opportunities to support our current business strategies, we have retained the investment banking services of Alliant Partners, a Silicon Valley Bancshares company. See Part II – Item 5 Other Information in this Form 10-Q for additional information.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE RISK

Our exposure to market risk in connection with interest rate changes 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 highly rated issuers. We classify all liquid investments with a maturity date of three months or less as cash equivalents. As of September 30, 2002, our earned interest rate on our cash equivalents was 0.24% compared to 1.61% at December 31, 2001. We do not expect any material loss with respect to our cash investment portfolio.

Our asset-based operating line of credit bears interest at prime plus 3.25%. During the first three quarters of 2002, the prime rate has held steady at 4.75%. At November 13, 2002, we had an outstanding balance of $1.5 million under this line of credit. The full amount was classified as current and will be paid from receipts of customer receivables. Due to the current nature of the debt, the requirement to make payments on the outstanding balance as receivables are collected, and the currently low prime rate, we do not believe that market risk related to this line of credit is significant. We anticipate no material exposure to market risk in connection with interest rate changes, as they relate to our current liabilities.

Our only long-term liabilities are capital lease obligations, which bear interest at a fixed rate. 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.

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 position and operating results of that subsidiary into U.S. dollars in the course of consolidating our financial statements. 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 do not materially affect 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, 2001 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 Form 10-Q and Form 8-K filings with the SEC and in other materials we publicly release.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions’ rules and forms. The controls and procedures also ensure that the required information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in gathering, analyzing, and disclosing information needed to satisfy our disclosure obligations under the Exchange Act.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in our internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.

PART II—OTHER INFORMATION

ITEM 5. OTHER INFORMATION

We entered into an Agreement and Plan of Merger (the “Merger Agreement”) dated as of November 5, 2002, with Enghouse Systems Limited (“Enghouse”) and Arizona Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Enghouse (the “Purchaser”), pursuant to which the Purchaser has commenced a tender offer to purchase all of our outstanding shares of common stock, par value $0.01 per share (the “Shares”), at a price of $0.72 per Share, net to the seller in cash. This tender offer is upon the terms and subject to the conditions set forth in the Purchaser’s Offer to Purchase, dated November 13, 2002 (as amended or supplemented from time to time, the “Offer to Purchase”), and in the related Letter of Transmittal (the “Letter of Transmittal,” which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the “Offer”). Copies of the Offer to Purchase and the Letter of Transmittal have been mailed to Syntellect stockholders and are filed as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule TO (as amended or supplemented from time to time, the “Schedule TO”) filed by the Purchaser with the Securities and Exchange Commission on November 13, 2002.

Our board has unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, and has recommended that our stockholders accept the Offer and tender their Shares pursuant to the Offer. MCM Associates, Ltd., Wynnefield Capital Management, LLC and certain of their respective controlling persons and affiliated entities (the “Holders”), have agreed to tender all of their Shares to the Purchaser in the Offer, pursuant to a Tender and Voting Agreement, dated as of November 5, 2002, among Syntellect, Enghouse and the Holders. The Holders beneficially own an aggregate of approximately 15% of the outstanding Shares. The Company filed its Solicitation/Recommendation Statement on Schedule 14D-9 with the Securities and Exchange Commission on November 13, 2002, a copy of which is being mailed to stockholders with the Schedule TO.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


(a)	Exhibits




	(10)(v)	Syntellect Inc. Nonemployee Director Stock Plan (as amended through August 6, 2002)




	(10)(vii)(a)	Indemnification Agreement Between Syntellect Inc. and Michael R. Bruce as of August 6, 2002




	(10)(vii)(b)	Indemnification Agreement Between Syntellect Inc. and Anthony V. Carollo as of August 6, 2002




	(10)(vii)(c)	Indemnification Agreement Between Syntellect Inc. and Steven W. Dodenhoff as of August 6, 2002




	(10)(vii)(d)	Indemnification Agreement Between Syntellect Inc. and Dr. Roy A. Herberger as of August 6, 2002




	(10)(vii)(e)	Indemnification Agreement Between Syntellect Inc. and Camille Jayne as of August 6, 2002




	(10)(vii)(f)	Indemnification Agreement Between Syntellect Inc. and Michael D. Kaufman as of August 6, 2002




	(10)(vii)(g)	Indemnification Agreement Between Syntellect Inc. and Kent C. Mueller as of August 6, 2002




	(10)(vii)(h)	Indemnification Agreement Between Syntellect Inc. and Charles F. Sonneborn, III as of August 6, 2002




	(10)(vii)(i)	Indemnification Agreement Between Syntellect Inc. and Timothy P. Vatuone as of August 6, 2002




	(10)(x)(b)	Accounts Receivable Loan Modification Agreement between Syntellect Inc. and Silicon Valley Bank as of November 7, 2002




	(10)(xii)(a)	Change of Control between Syntellect Inc. and Anthony V. Carollo as of August 16, 2002




	(10)(xii)(b)	Change of Control between Syntellect Inc. and Steven W. Dodenhoff as of August 16, 2002




	(10)(xii)(c)	Change of Control between Syntellect Inc. and Charles F. Sonneborn, III as of August 16, 2002




	(10)(xii)(d)	Change of Control between Syntellect Inc. and Peter K. Trompetter as of August 16, 2002




	(10)(xii)(e)	Change of Control between Syntellect Inc. and Timothy P. Vatuone as of August 16, 2002




	(99)(a)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




	(99)(b)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002






	(99)(c)	Certification of Chief Executive Officer




	(99)(d)	Certification of Chief Financial Officer




(b)	Reports on Form 8-K




	No reports on Form 8-K have been filed during the quarter ended September 30, 2002.

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.


Date: November 13, 2002		SYNTELLECT INC.









		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)

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SYNTELLECT INC 10-Q