##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 Commission File No. 0-26912 Vodavi Technology, Inc.  Delaware
    
    86-0789350(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)4717 East Hilton Avenue, Ste. 400, Phoenix, Arizona
    
    85034(Address of principal executive offices)
    
    (Zip Code)
 (480) 443-6000
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ   No o. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o   No þ. The number of shares outstanding of registrants Common Stock, $.001 par value per share, as of
April 25, 2005 was 3,732,812.




---



##### Table of Contents



VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2005 TABLE OF CONTENTS PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsUnaudited Consolidated Balance Sheets  March 31, 2005 and December 31, 2004
    
    
    3Unaudited Consolidated Statements of Operations  Three  Months Ended March 31, 2005 and 2004
    
    
    4Unaudited Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    13PART II.
    
    OTHER INFORMATION
    
    
    14SIGNATURES
    
    
    15EX-31.1EX-31.2EX-32.1EX-32.2
 2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS VODAVI TECHNOLOGY, INC. 
 CONSOLIDATED BALANCE SHEETS  In thousands, except share and per share amounts
 March 31,
    
    
    December 31,2005
    
    
    2004CURRENT ASSETS:Cash
    
    $
    4,061
    
    
    $
    4,000Accounts receivable, net of reserves for doubtful accounts
and sales returns of $383 and $387, respectively
    
    
    6,450
    
    
    
    7,145Inventory
    
    
    3,781
    
    
    
    4,569Deferred income taxes
    
    
    454
    
    
    
    454Prepaid and other current assets
    
    
    601
    
    
    
    519Total current assets
    
    
    15,347
    
    
    
    16,687PROPERTY AND EQUIPMENT, net
    
    
    1,346
    
    
    
    1,363GOODWILL
    
    
    725
    
    
    
    725OTHER LONG-TERM ASSETS
    
    
    45
    
    
    
    50$
    17,463
    
    
    $
    18,825CURRENT LIABILITIES:Trade accounts payable
    
    $
    791
    
    
    $
    497Accrued liabilities
    
    
    893
    
    
    
    1,352Accrued rebates
    
    
    342
    
    
    
    641Trade accounts payable to stockholder
    
    
    2,864
    
    
    
    3,990Total current liabilities
    
    
    4,890
    
    
    
    6,480Deferred Income Taxes
    
    
    24
    
    
    
    24COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, $.001 par value; 1,000,000 shares
authorized, no shares issued
    
    
    
    
    
    
    Common stock, $.001 par value; 10,000,000 shares authorized;
3,773,714 and 3,747,464 shares issued respectively
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    11,579
    
    
    
    11,495Retained earnings
    
    
    1,169
    
    
    
    974Treasury stock, 40,902 and 32,402 shares at cost, respectively
    
    
    (203
    )
    
    
    (152
    )12,549
    
    
    
    12,321$
    17,438
    
    
    $
    18,825
 The accompanying notes are an integral part of these consolidated balance sheets. 3




---



##### Table of Contents



VODAVI TECHNOLOGY, INC. 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS  In thousands except per share amounts
 Three Months EndedMarch 31,2005
    
    
    2004REVENUE, net
    
    $
    9,866
    
    
    $
    9,787COST OF GOODS SOLD
    
    
    6,392
    
    
    
    6,407GROSS MARGIN
    
    
    3,474
    
    
    
    3,380OPERATING EXPENSES:Engineering and product development
    
    
    518
    
    
    
    521Selling, general and administrative
    
    
    2,654
    
    
    
    2,4993,172
    
    
    
    3,020OPERATING INCOME
    
    
    302
    
    
    
    360INTEREST (INCOME) EXPENSE
    
    
    (12
    )
    
    
    10INCOME BEFORE INCOME TAXES
    
    
    314
    
    
    
    350INCOME TAX PROVISION
    
    
    119
    
    
    
    134NET INCOME
    
    $
    195
    
    
    $
    216EARNINGS PER COMMON SHARE:Basic
    
    $
    0.05
    
    
    $
    0.06Diluted
    
    $
    0.05
    
    
    $
    0.05WEIGHTED AVERAGE SHARES OUTSTANDING:Basic
    
    
    3,721
    
    
    
    3,616Diluted
    
    
    4,144
    
    
    
    4,154
 The accompanying notes are an integral part of these consolidated financial statements. 4




---



##### Table of Contents



VODAVI TECHNOLOGY, INC. 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS  In thousands
 Three Months EndedMarch 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    195
    
    
    $
    216Adjustments to reconcile net income to net cash
flows provided by (used in) operating activities:Depreciation and amortization
    
    
    116
    
    
    
    125Tax benefit on stock option exercises
    
    
    46
    
    
    
    26Changes in working capital:Accounts receivable, net
    
    
    695
    
    
    
    478Inventory
    
    
    788
    
    
    
    1,198Prepaid and other current assets
    
    
    (82
    )
    
    
    323Other long-term assets and deferred taxes
    
    
    
    
    
    
    (2
    )Trade accounts payable
    
    
    (832
    )
    
    
    (1,803
    )Accrued liabilities
    
    
    (758
    )
    
    
    (937
    )Net cash flows provided by (used in) operating activities
    
    
    168
    
    
    
    (376
    )CASH FLOWS FROM INVESTING ACTIVITIES:Cash paid to acquire property and equipment
    
    
    (94
    )
    
    
    (137
    )Net cash flows used in investing activities
    
    
    (94
    )
    
    
    (137
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments on term loan
    
    
    
    
    
    
    (50
    )Purchase of treasury stock
    
    
    (51
    )
    
    
    Stock options exercised
    
    
    38
    
    
    
    30Net cash flows used in financing activities
    
    
    (13
    )
    
    
    (20
    )CHANGE IN CASH
    
    
    61
    
    
    
    (533
    )CASH, beginning of period
    
    
    4,000
    
    
    
    2,924CASH, end of period
    
    $
    4,061
    
    
    $
    2,391SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    10
 The accompanying notes are an integral part of these consolidated financial statements. 5




---



##### Table of Contents



VODAVI TECHNOLOGY, INC. 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
  (a)
    INTERIM FINANCIAL REPORTING The accompanying Unaudited Consolidated Financial Statements have been prepared by Vodavi
Technology, Inc. and subsidiaries (Vodavi or the Company) pursuant to the rules and regulations
of the Securities and Exchange Commission (SEC) and, in the opinion of the Company, include all
adjustments (consisting of normal recurring accruals and adjustments) necessary for a fair
presentation of results of operations, financial position, and cash flows as of and for the periods
presented. The preparation of financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and revenue and expenses
during the period reported. Actual results could differ from those estimates. Estimates are used
in accounting for, among other things, customer incentive programs, allowances for bad debts and
sales returns, inventory obsolescence, product warranty, depreciation, taxes and other
contingencies. Estimates and assumptions are reviewed periodically and the effects of revisions
are reflected in the Consolidated Financial Statements in the period they are determined to be
necessary. The results for the three months ended March 31, 2005 are not necessarily indicative of financial
results for the full year. These financial statements should be read in conjunction with the
audited Consolidated Financial Statements and notes thereto included in Vodavis Annual Report on
Form 10-K for the year ended December 31, 2004. [SPACE INTENTIONALLY LEFT BLANK] 6




---



##### Table of Contents



(b)
    CALCULATION OF EARNINGS PER SHAREThe Company presents basic and diluted earnings per share (EPS). Basic EPS is determined by
dividing net income by the weighted average number of common shares outstanding. The basic
weighted average number of common shares outstanding excludes all dilutive securities.
Diluted EPS is determined by dividing net income by the weighted average number of common shares and dilutive securities outstanding.A reconciliation of the numerator and denominator (weighted average number of shares
outstanding) of the basic and diluted EPS computation is as follows: Three Months EndedMarch 31,2005
    
    
    2004(in thousands)Net income
    
    $
    195
    
    
    $
    216Weighted average common shares:Basic
    
    
    3,721
    
    
    
    3,616Effect of dilutive stock options (1)
    
    
    423
    
    
    
    538Diluted
    
    
    4,144
    
    
    
    4,154Anti-dilutive stock options (2)
    
    
    34
    
    
    
    44
  (1)
    Dilutive securities are calculated using the treasury stock method and the average market
price during the period.  (2)
    Options having an exercise price greater than the average market price during the reporting
period are anti-dilutive, and therefore do not enter into the diluted earnings per share
calculation.(c)
    STOCK OPTION PLANS Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based
Compensation, encourages entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and provide pro forma earnings per share disclosures for employee stock option grants as if the
fair-value-based method as defined in SFAS No. 123 had been applied. The Company applies the
intrinsic value method under APB No. 25 and provides the pro forma disclosure provisions of SFAS
No. 123. No stock-based employee compensation cost is reflected in net income as all options granted under
the Plan had an exercise price equal to or greater than the market price of the underlying common
stock on the date of grant. If the Company had accounted for its stock-based compensation plan
using a fair-value-based method of accounting as prescribed in SFAS No. 123, the Companys net
income and earnings per share would have been reported as follows: 7




---



##### Table of Contents



For the Quarter Ended March 31,2005
    
    
    2004(In Thousands, Except Per Share Amounts)Net income:As reported
    
    $
    195
    
    
    $
    216Fair value of options granted,
net of taxes
    
    
    (65
    )
    
    
    (38
    )Pro forma net income
    
    $
    130
    
    
    $
    178Earnings per share:As reported  Basic
    
    $
    0.05
    
    
    $
    0.06As reported  Diluted
    
    $
    0.05
    
    
    $
    0.05Pro forma  Basic
    
    $
    0.03
    
    
    $
    0.05Pro forma  Diluted
    
    $
    0.03
    
    
    $
    0.04
 During the quarterly period ended March 31, 2005, 42,500 options were granted at an exercise price
of $6.56. Also during the quarterly period ended March 31, 2005, 26,250 options were exercised
with total proceeds of approximately $38,000 that resulted in a tax benefit of $46,000.  (d)
    SEGMENT REPORTING The Company operates in one reportable segment, the distribution of business telecommunications
equipment. Accordingly, the Company has only presented financial information for its one
reportable segment.  (e)
    COMMITMENTS AND CONTINGENCIES The Company is subject to certain asserted and unasserted claims encountered in the normal course
of business. The Company believes that the resolution of these matters will not have a material
adverse effect on its financial position or results of operations. The Company cannot provide
assurance, however, that damages that result in a material adverse effect on its financial position
or results of operations will not be imposed by these matters.  (f)
    RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. This
Statement replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123R requires
companies to recognize the grant date fair value of stock options and other equity-based
compensation issued to employees in the income statement. The statement, as amended by the
Securities and Exchange Commission, becomes effective for annual periods beginning after June 15,
2005. The Company has not determined the financial impact that the adoption of SFAS No. 123R may
have on its financial statements. 8




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS Business Overview We design, develop, market, and support a broad range of business telecommunications
solutions, including traditional, converged, and IP-based telephone systems and telephony
applications, as well as traditional and IP-based commercial grade telephones that address a wide
variety of business applications. Our telephone systems incorporate sophisticated features such as
automatic call distribution, scalable networking, Internet Protocol, or IP, as well as wireless
solutions. Our telephony applications include Internet messaging, automated attendant, voice and
fax mail and computer-telephony products that enable users to integrate the functionality of their
telephone systems with their computer systems. We market our products primarily in the United
States as well as in foreign countries through a distribution model consisting primarily of
wholesale distributors and direct dealers. Critical Accounting Policies and Estimates Managements Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
On an on-going basis, we evaluate our estimates and judgments, including those related to customer
incentives, bad debts, sales returns, excess and obsolete inventory, and contingencies and
litigation. We base our estimates and judgments on historical experience and on various other
factors that are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements: Customer Incentives We record reductions to revenue for customer incentive programs, including special pricing
agreements, price protection for our distributors, promotions, and other volume-related rebate
programs. Such reductions to revenue are estimates, which are based on a number of factors,
including our assumptions related to historical and projected customer redemption rates, sales
volumes, and inventory levels at our distributors. If actual results differ from our original
assumptions, revisions are made to our estimates that could result in additional reductions to our
reported revenue in the period the revisions are made. Additionally, if market conditions were to
decline, we may take actions to increase the level of customer incentive offerings that could
result in an incremental reduction of revenue in the period in which we offer the incentive. Bad Debts We maintain allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances
may be required. Additionally, we have a significant concentration of accounts receivable with our
two largest distributors, Graybar Electric Company, Inc. and Target. As of March 31, 2005, Graybar
accounted for 34% and Target accounted for 21% of our total accounts receivable. If either Graybar
or Targets financial condition were to deteriorate, resulting in their inability to make payments
to us, it could have a material adverse impact on our financial condition and results of
operations. Sales Returns We maintain allowances for estimated sales returns. While we have distribution agreements
with our largest distributors that limit the amount of sales returns on active products, we
generally allow unlimited returns of 9




---



##### Table of Contents



products that we discontinue. Accordingly, the timing and amount of revisions to our
estimates for sales returns is largely influenced by our decisions to discontinue product lines and
our ability to predict the inventory levels of such products at our largest distributors. Revisions
to these estimates have the effect of increasing or decreasing the reported amount of revenue in
the period in which the revisions are made. We generally do not accept product returns from our
direct dealers unless the product is damaged. Excess and Obsolete Inventory We record our inventory at the lower of cost or market value. Our assessment of market value
is determined by, among other things, historical and forecasted sales activity, the condition of
specific inventory items, and competitive pricing considerations. When the assessed market value
is less than the historical cost, provision is made in the financial statements to write-down the
carrying amount of the respective inventory items to market value. If actual results are less
favorable than our original assumptions for determining market value, additional inventory
write-downs may be required. The above listing is not intended to be a comprehensive list of our accounting policies. See
our audited consolidated financial statements and notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2004, which contains accounting policies and other
disclosures required by generally accepted accounting principles in the United States of America. Results of Operations The following table sets forth, for the periods indicated the percentage of total revenue
represented by certain revenue and expense items. The table and the discussion below should be
read in conjunction with the consolidated financial statements and notes thereto that appear
elsewhere in this report. Three Months EndedMarch 31,2005
    
    
    2004Revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    64.8
    
    
    
    65.5Gross margin
    
    
    35.2
    
    
    
    34.5Operating expenses:Engineering and product development
    
    
    5.2
    
    
    
    5.3Selling, general, and administrative
    
    
    26.9
    
    
    
    25.632.1
    
    
    
    30.9Operating income
    
    
    3.1
    
    
    
    3.7Interest (income) expense, net
    
    
    
    
    
    
    0.1Income before income taxes
    
    
    3.1
    
    
    
    3.6Income tax provision
    
    
    1.2
    
    
    
    1.4Net income
    
    
    1.9
    %
    
    
    2.2
    %
 Quarter Ended March 31, 2005 Compared With Quarter Ended March 31, 2004 Revenue Revenue for the quarter ended March 31, 2005 totaled $9.9 million, an increase of 1.0% from
revenue of $9.8 million for the same period of 2004. Sales of our telephone systems increased 6.5%
to $8.6 million during the first quarter of 2005 compared to $8.1 million in the first quarter of
2004. The increase in telephone system sales is attributed to an increase in unit sales of our STS
product line and the sale of larger systems within the XTS product 10




---



##### Table of Contents



line. Sales of commercial grade single line telephones declined 18.2% to $451,000 during the first quarter of
2005 compared to $551,000 in 2004. During the third quarter of 2004, we discontinued our 2700
Series of single line telephones and introduced the 2800 Series. While unit shipments of our
commercial grade single line telephones have not declined significantly, the average selling price
of our 2800 series phones is significantly less than the average selling price of the 2700 series
phones. We expect sales of single line telephones to accelerate in 2005, as the 2800 series
becomes more accepted in the marketplace. Sales of telephony applications, including voice
processing, computer technology integration, and unified messaging decreased to $728,000 from $1.3
million between the first quarters of 2005 and 2004. The decline in telephony applications is a
direct result of selling more embedded voice mail applications, which are reported in telephone
system sales. Sales through our direct sales office in the Phoenix Metropolitan area totaled $422,000 during
the first three months of 2005 compared with $409,000 during the same period of 2004. The
increase in sales through our direct sales office is attributable to the expansion of our sales
force and the positive impact of a focused sales and marketing program. Our reported revenue includes shipping and handling charges and is recorded net of reserves
for sales returns, discounts and customer incentive programs. These items resulted in a net
reduction to revenue of $303,000 in 2005 compared with a net reduction of $563,000 in 2004. Gross Margin Our gross margin was approximately $3.5 million in the first quarter of 2005 compared with
$3.4 million in 2004. Our gross margin as a percentage of total revenue increased to 35.2% during
2005 from 34.5% during 2004. The increase in our gross margin percentage during the first quarter
of 2005 is a direct result of the mix of product sales. Engineering and Product Development Engineering and product development expenditures were relatively consistent at $518,000 during
the first quarter of 2005 compared with $521,000 in the same period of 2004. As a percentage of
revenue, engineering and product development expenditures decreased slightly to 5.2% of total
revenue during the first quarter of 2005 from 5.3% during the first quarter of 2004. Selling, General, and Administrative Expenses Selling, general and administrative expenses increased to $2.7 million compared with $2.5
million for the first quarters of 2005 and 2004, respectively. Factors that increased our expenses
include increased compensation, training, and marketing and promotional activity. As a percentage
of revenue, selling, general and administrative expenses increased to 26.9% compared with 25.6% in
2004. Interest (Income) Expense Interest (income) expense, net was ($12,000) during the first quarter of 2005 compared with
$10,000 during the same period of 2004. The reduction in interest expense is a direct result of
the elimination of interest-bearing debt in the first half of 2004. Income Taxes We provided for federal and state income taxes using an effective rate of 38.0% in 2005
compared with 38.5% for the same period in 2004. Liquidity and Capital Resources Our net working capital position was approximately $10.5 million at March 31, 2005 compared to
$10.2 million at December 31, 2004. We had a cash balance of $4.1 million at March 31, 2005
compared with a cash 11




---



##### Table of Contents



balance of $4.0 million at December 31, 2004. Sources of cash included
positive income from operations, and a reduction in accounts receivable of $695,000 and inventory of $788,000. Uses of cash during
the first quarter of 2005 included an increase in other current assets of $82,000 and the pay down
of trade accounts payable and accrued liabilities of $832,000 and $758,000, respectively. We also
used approximately of $94,000 in the first quarter of 2005 for the purchase of property and
equipment, and $51,000 to repurchase 8,500 shares of our common stock. Our accounts receivable days sales outstanding, calculated on a quarterly basis, were
approximately 59 days at March 31, 2005 and December 31, 2004. The timing of payments received
from our largest distributors greatly influences our days sales outstanding. Our two largest
distributors comprised 55% of our total accounts receivable as of March 31, 2005 and 57% as of
December 31, 2004. Our inventory turnover, measured in terms of days outstanding on a quarterly basis, was 53
days as of March 31, 2005 compared with 59 days as of December 31, 2004. The decrease in inventory
days outstanding is a direct result of our efforts to rationalize our product lines. Trade payables and accrued liabilities, including payables to third-party and related-party
manufacturers, were approximately $4.9 million as of March 31, 2005 compared with $6.5 million as
of December 31, 2004. The level of our trade payables and accrued liabilities between periods is
largely influenced by the timing of payments we make to our largest suppliers for inventory items
and payments to cover payroll, income taxes, and customer rebates. We generally pay trade payables
within 45 days from the invoice date, except for payments to our largest supplier, which are 60
days from the invoice date. In April 2003, we entered into a credit agreement with Comerica Bank (Comerica). The credit
agreement established a $5.0 million revolving line of credit and a $1.0 million term loan.
Advances under the credit facility are based upon eligible accounts receivable and inventory of our
wholly owned subsidiary, Vodavi Communications Systems, Inc., and are secured by substantially all
of our assets. The credit facility contains covenants that are customary for similar credit
facilities and also prohibits our operating subsidiaries from paying dividends to us without the
consent of Comerica. As of March 31, 2005, we had no outstanding borrowings on our line of credit
and $5.0 million available for future advances. The $5.0 million revolving line of credit bears interest at Comericas prime rate, or 5.50% at
March 31, 2005, and requires monthly payments of interest only with all unpaid principal and
accrued interest due at its expiration in April 2006. The $1.0 million term loan was available to us only for the purpose of acquiring our common
stock. Borrowings on the term loan bore interest at Comericas prime rate plus 0.5%. In April
2004, we repaid the amount outstanding on our term loan. We have no special purpose entities or off balance sheet financing arrangements, commitments,
or guarantees other than certain long-term operating lease agreements for our office and warehouse
facilities and short-term purchase commitments to our third-party suppliers. The following table
sets forth all known commitments as of March 31, 2005 and the year in which those commitments
become due or are expected to be settled (in thousands): Payment due by periodContractual
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More thanObligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating Lease
Obligations
    
    $
    5,375
    
    
    $
    844
    
    
    $
    1,586
    
    
    $
    1,570
    
    
    $
    1,375Purchase Obligations
    
    
    6,097
    
    
    
    6,097
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    11,472
    
    
    $
    6,941
    
    
    $
    1,586
    
    
    $
    1,570
    
    
    $
    1,375
 From time to time we are subject to certain asserted and unasserted claims encountered in the
normal course of business. We believe that the resolution of these matters will not have a
material adverse effect on our financial position or results of operations. We cannot provide
assurance, however, that damages that result in a material adverse effect on our financial position
or results of operations will not be imposed in these matters. 12




---



##### Table of Contents



We believe that our cash flows from operations, working capital, and credit facilities are
sufficient to fund our capital needs during the next 12 months. Although we currently have no
acquisition targets, we intend to continue to explore acquisition opportunities as they arise and
may be required to seek additional financing in the future to meet such opportunities. International Manufacturing Sources We currently obtain a substantial majority of our products under various manufacturing
arrangements with third-party manufacturers in South Korea and Thailand, including LGE, which owns
approximately 23% of our outstanding common stock. We face risks associated with international
manufacturing sources. For a more detailed discussion of these risks, please see Item 1, Business
-  Risk Factors  We face risks associated with international manufacturing sources included in
our annual report on Form 10-K for the year ended December 31, 2004. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS This report contains forward-looking statements, including statements regarding our business
strategies, our business, and the industry in which we operate. These forward-looking statements
are based primarily on our expectations and are subject to a number of risks and uncertainties,
some of which are beyond our control. Actual results could differ materially from the
forward-looking statements as a result of numerous factors, including those set forth in our Form
10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not participate in any activities involving derivative financial instruments or other
financial and commodity instruments. We do not hold investment securities that would require
disclosure of market risk. Our market risk exposure is limited to interest rate risk associated
with our credit facility. We incur interest at a variable rate of prime on advances made under our
revolving line of credit and prime plus 0.5% on our term loan. At March 31, 2005, we had no
outstanding borrowings on the line of credit or term loan. 
 ITEM 4. CONTROLS AND PROCEDURES We have evaluated, with the participation of our Chief Executive Officer and Chief Financial
Officer, the effectiveness of our disclosure controls and procedures as of March 31, 2005. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded
that our disclosure controls and procedures are effective to ensure that we record, process,
summarize, and report information required to be disclosed by us in our quarterly reports filed
under the Securities Exchange Act within the time periods specified by the Securities and Exchange
Commissions rules and forms. During the quarterly period covered by this report, there have not
been any changes in our internal controls over financial reporting that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting. Subsequent to the date of their evaluation, there have not been any significant changes in our
internal controls or in other factors that could significantly affect these controls, including any
corrective action with regard to significant deficiencies and material weaknesses. 13




---



##### Table of Contents



PART II  OTHER INFORMATION Item 1.
    
    Legal ProceedingsNot applicable.Item 2.
    
    Changes In Securities and Use of ProceedsNot applicable.Item 3.
    
    Defaults Upon Senior SecuritiesNot applicable.Item 4.
    
    Submission of Matters to a Vote of Security HoldersNot applicable.Item 5.
    
    Other InformationNot applicable.Item 6.
    
    Exhibits and Reports on Form 8-K(a) Exhibits:
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of
1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of
1934, as amended.32.1
    
    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
2002.32.2
    
    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.(b)
    
    Reports on Form 8-K:Not applicable
 14




---



##### Table of Contents



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. VODAVI TECHNOLOGY, INC.Dated:
    
    April 27, 2005
    
    /s/ Gregory K. RoeperGregory K. RoeperPresident and Chief Executive Officer(Principal Executive Officer)Dated:
    
    April 27, 2005
    
    /s/ David A. HusbandDavid A. HusbandChief Financial Officer and Vice President  Finance(Principal Financial and Accounting Officer)
 15