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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2001

                           Commission File No. 0-26912


                             Vodavi Technology, Inc.
             (Exact name of registrant as specified in its charter)


                DELAWARE                                        86-0789350
     (State or other jurisdiction of                          (I.R.S. Employer
      incorporation or organization)                         Identification No.)


8300 E. RAINTREE DRIVE, SCOTTSDALE, ARIZONA                        85260
 (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 [X] No [ ].

The number of shares  outstanding of registrant's  Common Stock, $.001 par value
per share, as of November 12, 2001 was 4,234,788.

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<PAGE>
                             VODAVI TECHNOLOGY, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001

                                TABLE OF CONTENTS


                                                                           Page
                                                                           ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets - September 30, 2001
         and December 31, 2000.                                              3

         Consolidated Statements of Operations - Three and
         Nine Months Ended September 30, 2001 and 2000.                      4

         Consolidated Statements of Cash Flows - Nine Months
         Ended September 30, 2001 and 2000.                                  5

         Notes to Consolidated Financial Statements.                         6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                 7

Item 3.  Quantitative and Qualitative Disclosures about Market Risk         12

PART II. OTHER INFORMATION                                                  13

         SIGNATURES                                                         14

                                        2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             VODAVI TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                       IN THOUSANDS, EXCEPT SHARE AMOUNTS


<TABLE>
<CAPTION>
                                                          September 30,      December 31,
                                                             2001               2000
                                                           --------           --------
                                                          (Unaudited)
<S>                                                        <C>                <C>
CURRENT ASSETS:
  Cash                                                     $    477           $    564
  Accounts receivable, net of reserves for doubtful
   accounts and sales returns of $2,022 and $1,582,
   respectively                                               8,139             11,797
  Inventory                                                   5,686              6,707
  Estimated income tax receivable                               960                 --
  Prepaids and other current assets                             540                870
                                                           --------           --------
     Total current assets                                    15,802             19,938

PROPERTY AND EQUIPMENT, net                                   1,636              2,033

GOODWILL, net                                                 1,671              1,772

OTHER LONG-TERM ASSETS                                          967              1,152
                                                           --------           --------
                                                           $ 20,076           $ 24,895
                                                           ========           ========
CURRENT LIABILITIES:
  Accounts payable                                         $  3,465           $  3,756
  Accrued liabilities                                         1,788              2,161
  Revolving credit facility                                   3,843              6,259
                                                           --------           --------
     Total current liabilities                                9,096             12,176
                                                           --------           --------

OTHER LONG-TERM OBLIGATIONS                                      67                135
                                                           --------           --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value; 1,000,000 shares
   authorized, no shares issued                                  --                 --
  Common stock, $.001 par value; 10,000,000 shares
   authorized; 4,553,488 shares issued                            5                  5
  Additional paid-in capital                                 13,363             13,363
  Accumulated deficit                                        (1,696)               (25)
  Treasury stock, 318,700 shares at cost                       (759)              (759)
                                                           --------           --------
                                                             10,913             12,584
                                                           --------           --------
                                                           $ 20,076           $ 24,895
                                                           ========           ========
</TABLE>

              The accompanying notes are an integral part of these
                          consolidated balance sheets.

                                        3
<PAGE>
                             VODAVI TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      IN THOUSANDS EXCEPT PER SHARE AMOUNTS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended        Nine Months Ended
                                                       September 30,             September 30,
                                                   --------------------      --------------------
                                                     2001        2000          2001        2000
                                                   --------    --------      --------    --------
<S>                                                <C>         <C>           <C>         <C>
REVENUE, net                                       $  9,664    $ 13,190      $ 25,327    $ 35,951

COST OF GOODS SOLD                                    6,191       8,295        17,261      22,692
                                                   --------    --------      --------    --------

GROSS MARGIN                                          3,473       4,895         8,066      13,259
                                                   --------    --------      --------    --------
OPERATING EXPENSES:
  Engineering and product development                   514         447         1,505       1,266
  Selling, general and administrative                 2,453       3,473         8,819      10,564
                                                   --------    --------      --------    --------
                                                      2,967       3,920        10,324      11,830
                                                   --------    --------      --------    --------

OPERATING INCOME (LOSS)                                 506         975        (2,258)      1,429

INTEREST EXPENSE                                         84         167           353         532
                                                   --------    --------      --------    --------

INCOME (LOSS) BEFORE INCOME TAXES                       422         808        (2,611)        897

PROVISION FOR (BENEFIT FROM) INCOME TAXES               169         311          (939)        355
                                                   --------    --------      --------    --------

NET INCOME (LOSS)                                  $    253    $    497      $ (1,672)   $    542
                                                   ========    ========      ========    ========

BASIC EARNINGS (LOSS) PER SHARE                    $   0.06    $   0.12      $  (0.39)   $   0.13
                                                   ========    ========      ========    ========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC           4,235       4,293         4,235       4,279
                                                   ========    ========      ========    ========

DILUTED EARNINGS (LOSS) PER SHARE                  $   0.06    $   0.12      $  (0.39)   $   0.13
                                                   ========    ========      ========    ========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED         4,235       4,293         4,235       4,338
                                                   ========    ========      ========    ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                        4
<PAGE>
                             VODAVI TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  IN THOUSANDS
                                   (Unaudited)


                                                            Nine months ended
                                                              September 30,
                                                          ---------------------
                                                           2001          2000
                                                          -------       -------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                       $(1,672)      $   542
  Adjustments to reconcile net income (loss) to net
   cash flows provided by operating activities:
    Depreciation and amortization                             681           712
    Provision for doubtful accounts and sales returns         441            --
    Rent levelization                                         (67)          (30)
  Changes in working capital:
    Accounts receivable                                     3,218          (681)
    Inventory                                               1,021          (223)
    Estimated income tax receivable                          (960)           --
    Prepaids and other current assets                         330           278
    Other long-term assets                                     95            69
    Accounts payable                                         (291)          642
    Accrued liabilities                                      (374)          388
                                                          -------       -------
     Net cash flows provided by operating activities        2,422         1,697
                                                          -------       -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                          (93)         (227)
                                                          -------       -------
     Net cash flows used in investing activities              (93)         (227)
                                                          -------       -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net payments on revolving credit facility                (2,416)       (2,757)
  Purchase of common stock                                     --          (643)
  Stock options exercised                                      --           837
                                                          -------       -------
     Net cash flows used in financing activities           (2,416)       (2,563)
                                                          -------       -------

DECREASE IN CASH                                              (87)       (1,093)

CASH, beginning of period                                     564         1,528
                                                          -------       -------

CASH, end of period                                       $   477       $   435
                                                          =======       =======
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for interest                                  $   353       $   532
                                                          =======       =======

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                        5
<PAGE>
                             VODAVI TECHNOLOGY, INC.
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001

(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  generally  accepted  accounting  principles  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,  allowances for  uncollectible  receivables,
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 nine months  ended  September  30, 2001 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  latest Annual Report on Form 10-K/A for
the year ended December 31, 2000.

(b) CALCULATION OF EARNINGS PER SHARE

Diluted  earnings per share for the  three-month  and  nine-month  periods ended
September  30,  2001 and 2000 were  determined  by  dividing  net  income by the
weighted average number of common shares and dilutive securities outstanding, as
outlined in Statement of Financial  Accounting Standard (SFAS) No. 128, EARNINGS
PER SHARE.  Except for 59,000  dilutive  securities  deemed  outstanding for the
nine-month period ended September 30, 2000, no dilutive securities were included
in the diluted EPS calculation for the other periods presented, as their effects
were antidilutive.

(c) SEGMENT REPORTING

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards  ("SFAS") No. 131,  "DISCLOSURES  ABOUT  SEGMENTS OF AN ENTERPRISE AND
RELATED  INFORMATION",  which established revised standards for the reporting of
financial and  descriptive  information  about  operating  segments in financial
statements. The Company operates in one operating segment.  Accordingly, we have
only presented financial information for our one reportable segment.

(d) SPECIAL CHARGES

During the first quarter of 2001, Vodavi  implemented a restructuring plan aimed
at reducing its operating  expenses to coincide with its current sales  outlook.
In line with the  restructuring  plan,  the  Company  reduced its  workforce  by
approximately  20 percent,  discontinued  certain  operations of its Interactive
Voice Response  product group, and implemented  broad-based  price reductions on
certain product groups. These actions created  severance-related  obligations of
$168,000,  estimated shut-down costs of $265,000, and estimated price protection
obligations of $432,000 to the Company's distribution partners.

Additionally,  in light of current economic and industry  conditions and planned
introductions  of new products,  the Company  re-evaluated the carrying value of
certain  receivables  and  inventory  items  resulting  in  additional  accounts
receivable  reserve  requirements  of  $328,000  and  inventory  impairments  of
$568,000.  The pre-tax  financial impact of these  initiatives  during the first
quarter totaled  approximately $1.8 million.  As discussed in Item 2, Management
Discussion and Analysis of Financial Condition and Results of Operations, of the
special charges of $1.8 million,  approximately  $1.1 million did not require an
outflow  of  cash  and   approximately   $700,000  required  the  use  of  cash,
approximately $293,000 of which had been expended at September 30, 2001.

                                        6
<PAGE>
(e) RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133 (as amended by SFAS No. 137),  ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND
HEDGING  ACTIVITIES,  which requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial  position and measure
those  instruments at fair value.  The issuance of SFAS No. 137,  ACCOUNTING FOR
DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133,  delayed the required  effective date of SFAS No. 133
to all fiscal years  beginning  after June 15, 2000. The Company was required to
adopt SFAS No.  133, as amended,  on January 1, 2001.  The  adoption of SFAS No.
133, as amended,  did not have an impact on the Company's  results of operations
or financial position.

In July 2001,  the FASB  issued  Statement  No.  141,  ACCOUNTING  FOR  BUSINESS
COMBINATIONS, and Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These
Statements modify accounting for business  combinations  after June 30, 2001 and
will affect the Company's  treatment of goodwill and other intangible  assets at
the start of fiscal year 2002. The Statements  require that goodwill existing at
the date of adoption be reviewed for  possible  impairment  and that  impairment
tests be periodically repeated, with impaired assets written-down to fair value.
Additionally,  existing  goodwill  and  intangible  assets must be assessed  and
classified  consistent with the  Statements'  criteria.  Intangible  assets with
estimated  useful  lives will  continue  to be  amortized  over  those  periods.
Amortization  of goodwill and intangible  assets with  indeterminate  lives will
cease. At this time, the Company has not determined the complete impact of these
Statements.  However,  for the nine months ended September 30, 2001, the Company
has recognized approximately $100,000 of goodwill amortization.

(f) COMMITMENTS AND CONTINGENCIES

The  Company   currently   leases,   for  a  term  expiring  in  December  2001,
approximately  60,000 square feet of space in Scottsdale,  Arizona  constituting
its principal  place of business.  On August 8, 2001, the Company entered into a
ten-year  operating  lease for  approximately  54,000  square feet of office and
warehouse  space in  Phoenix,  Arizona.  Upon  expiration  of the  lease for the
Scottsdale,  Arizona  facility  in  December  2001,  the  Company  will move its
operations into the Phoenix,  Arizona facility. Under the terms of the operating
lease  agreement,  the  Company  has minimum  lease  payments  of  approximately
$785,000 per year, which includes property taxes, insurance,  and utilities. The
lease expires on December 31, 2011.

The Company is a defendant in various lawsuits.  See Item 3, "Legal Proceedings"
included in the  Company's  Form 10-K/A for the year ended  December  31,  2000.
There have been no significant  developments  in these lawsuits since the filing
of the Company's Form 10-K/A.  The Company has not made any material  provisions
in its financial  statements for these lawsuits.  The Company is also 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 in these matters.

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 telephony  products,  voice processing
products,  and  computer-telephony  products  for a  wide  variety  of  business
applications.   Our  telecommunications   solutions  incorporate   sophisticated
features,  such as automatic call  distribution  and Internet  protocol,  or IP,
gateways.  Our voice  processing  products  include  interactive  voice response
systems,  automated  attendant,  and voice and fax mail. Our  computer-telephony
products 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.

                                        7
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2000

The following table summarizes our operating  results as a percentage of revenue
for the periods indicated.

                                                          Three Months Ended
                                                             September 30,
                                                         ---------------------
                                                          2001          2000
                                                         -------       -------
Revenue, net                                               100.0%        100.0%
Cost of goods sold                                          64.1          62.9
                                                         -------       -------
     Gross margin                                           35.9          37.1

Operating expenses:
  Engineering and product development                        5.3           3.4
  Selling, general and administrative                       25.4          26.3
                                                         -------       -------
                                                            30.7          29.7
                                                         -------       -------
Operating income                                             5.2           7.4
Interest expense                                              .8           1.3
                                                         -------       -------
Income before income taxes                                   4.4           6.1
Provision for income taxes                                   1.7           2.4
                                                         -------       -------
Net income                                                   2.6%          3.8%
                                                         =======       =======

Revenue  decreased  by 26.5% to $9.7  million in the third  quarter of 2001 from
revenue of $13.2 million in the third quarter of 2000.  The overall  decrease in
revenue was  primarily  attributable  to soft market  conditions  affecting  our
industry and the decision to reduce  inventory  levels by some of our  wholesale
distributors  resulting  in fewer  purchases  from  us.  The  decrease  was also
attributable to the continued impact of the migration from our older digital key
telephone systems to our newer Triad and Starplus DHS systems, and the migration
of our commercial  grade  telephones to the new 2700 series of commercial  grade
telephones.

Revenue from our wholesale  distribution  channel decreased by $2.8 million,  or
32.9%,  from the third quarter of 2000.  Revenue from the INFINITE  product line
decreased by  approximately  $141,000,  or 3.7%, from sales of those products in
the third  quarter of 2000.  The decrease was  primarily  due to continued  soft
market conditions.

Our gross margin decreased to $3.4 million during the third quarter of 2001 from
$4.9 million for the comparable period of 2000,  representing 35.9% and 37.1% of
revenue, respectively. The decline in gross margin as a percentage of revenue in
2001 was  attributable  to fewer sales to cover the fixed  component  of cost of
goods sold and fewer sales of our higher-margin voice processing products in the
third quarter of 2001 compared with the third quarter of 2000.

Expenditures related to engineering and product development increased by $68,000
to $495,000 in the second  quarter of 2001 from  $427,000 in 2000.  The increase
was primarily due to salaries and other  personnel  costs related to our efforts
to develop next  generation  IP telephony  products.  We expect these  increased
efforts  to  continue  until  such  time  that  our IP  telephony  products  are
introduced to the market in late 2001 or early 2002.

Selling,  general and  administrative  expenses  decreased by  approximately  $1
million to $2.5 million in the third  quarter of 2001 from $3.5 million in 2000.
This  decrease  is  primarily  attributable  to:  1)  headcount  reductions;  2)
decreased marketing and promotional  expenses;  and 3) strict cost controls over
discretionary spending.

                                        8
<PAGE>
Interest  expense  decreased  to $84,000  during the third  quarter of 2001 from
$167,000  in the same  quarter of 2000.  The  reduction  is  primarily  due to a
decrease in the average loan balance from $7.0 million  during the third quarter
of 2000 to $4.4 million  during the second  quarter of 2001 and lower  borrowing
costs.  The line of credit  bears  interest  at 2.5% over the 30-day  commercial
paper rate.

We recorded a  provision  for income tax of  $169,000  for the third  quarter of
2001,  an effective  rate of 40%,  compared  with a tax  provision  utilizing an
effective rate of 38.5%, or $311,000, for the third quarter of 2000.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2000

The following table summarizes our operating  results as a percentage of revenue
for the periods indicated.

                                                           Nine Months Ended
                                                             September 30,
                                                         ---------------------
                                                          2001          2000
                                                         -------       -------
Revenue, net                                               100.0%        100.0%
Cost of goods sold                                          68.2          63.1
                                                         -------       -------
     Gross margin                                           31.8          36.9

Operating Expenses:
  Engineering and product development                        5.9           3.5
  Selling, general and administrative                       34.8          29.4
                                                         -------       -------
                                                            40.7          32.9
                                                         -------       -------
Operating (loss) income                                     (8.9)          4.0
Interest expense                                             1.4           1.5
                                                         -------       -------
(Loss) Income before income taxes                          (10.3)          2.5
(Benefit from) Provision for income taxes                   (3.7)          1.0
                                                         -------       -------
Net (Loss) income                                           (6.6)%         1.5%
                                                         =======       =======

During the first quarter of 2001, we implemented a  restructuring  plan aimed at
reducing our operating  expenses to coincide with our current sales outlook.  In
line with the  restructuring  plan, we reduced our workforce by approximately 20
percent,  discontinued  certain  operations of our  Interactive  Voice  Response
product group, and implemented  broad-based  price reductions on certain product
groups.  These  actions  created  severance-related   obligations  of  $168,000,
estimated   shut-down  costs  of  $265,000,   and  estimated  price   protection
obligations of $432,000 to our distribution partners.

Additionally,  in light of current economic and industry  conditions and planned
introductions  of new products,  we  re-evaluated  the carrying value of certain
receivables  and inventory  items  resulting in additional  accounts  receivable
reserve requirements of $328,000 and inventory impairments of $568,000.

The  pre-tax  financial  impact of these  initiatives  during the first  quarter
totaled  approximately  $1.8  million  consisting,  of both  cash  and  non-cash
charges.  The following table sets forth the components of these special charges
included in the accompanying  consolidated  statement of operations for the nine
months ended September 30, 2001:

                                        9
<PAGE>
<TABLE>
<CAPTION>
                                      Amount                Inclusion in
                                      ($000)            Statement of Operations
                                      -------           -----------------------
<S>                                   <C>        <C>
Non-cash Charges:
  Inventory impairments              $  568      Cost of goods sold
  Allowance for bad debts               328      Selling, general & administrative expenses
  Distributor price protection          151      Revenue
  Property and equipment                 15      Selling, general & administrative expenses
                                     ------
                                      1,062
                                     ------
Cash Charges:
  Distributor price protection          281      Revenue
  Severance-related costs               168      Selling, general & administrative expenses
  Other shut-down costs                 250      Selling, general & administrative expenses
                                     ------
                                        699
                                     ------
                                     $1,761
                                     ======
</TABLE>

Of the cash charges discussed above, approximately $293,000 had been expended at
September 30, 2001.

Revenue  decreased  by 29.6% to $25.3  million in the first nine  months of 2001
from  revenue of $35.9  million in the first nine  months of 2000.  The  overall
decrease  in  revenue  was  primarily  attributable  to soft  market  conditions
affecting  our industry and the decision to reduce  inventory  levels by some of
our wholesale  distributors  resulting in fewer  purchases from us. The decrease
was also  attributable  to special  charges  related to our  decision  to reduce
prices on certain product groups, the continued impact of the migration from our
older digital key telephone systems to our newer Triad and Starplus DHS systems,
the  migration  of our  commercial  grade  telephones  to the new 2700 series of
commercial grade  telephones,  and the planned  introduction of our new low-cost
voice mail  product,  which had the  effect of  reducing  sales of our  existing
low-end voice mail systems.

Revenue from our wholesale  distribution  channel decreased by $8.6 million,  or
38.2%,  from the first nine months of 2000.  Revenue from the  INFINITE  product
line decreased by approximately  $228,000, or 2.0%, from sales of those products
in the first nine months of 2000.

Our gross margin  decreased to $8.1 million during the first nine months of 2001
from $13.3 million for the  comparable  period of 2000,  representing  31.8% and
36.9% of revenue,  respectively.  The decline in gross margin as a percentage of
revenue in 2001 was  attributable to fewer sales to cover the fixed component of
cost of goods sold, fewer sales of our higher-margin  voice processing  products
in the first nine months of 2001 compared to the first nine months of 2000,  and
inventory impairment losses recorded in the first quarter of 2001.

Expenditures  related  to  engineering  and  product  development  increased  by
$239,000 to $1.5  million in the first nine months of 2001 from $1.3  million in
2000.  The increase was  primarily  due to salaries  and other  personnel  costs
related to our efforts to develop  next  generation  IP telephony  products.  We
expect these increased efforts to continue until such time that our IP telephony
products are introduced to the market in late 2001 or early 2002.

Excluding the special  charges  recorded in the first quarter of 2001,  selling,
general and  administrative  expenses decreased by approximately $1.8 million to
$8.8  million in the first nine months of 2001 from $10.6  million in 2000.  The
decrease  resulted  from: 1) headcount  reductions;  2) decreased  marketing and
promotional expenses; and 3) strict cost controls over discretionary spending.

Interest  expense  decreased  to  $353,000 in the first nine months of 2001 from
$532,000 in 2000.  The  reduction is primarily  due to a decrease in the average
loan  balance  from $7.7  million  during the first nine  months of 2000 to $5.6
million during the first nine months of 2001 and lower borrowing costs. The line
of credit bears interest at 2.5% over the 30-day commercial paper rate.

We  recorded a tax benefit of  $939,000  for the first nine  months of 2001,  an
effective rate of 36%, compared with a tax provision utilizing an effective rate
of 39.6%, or $355,000, for the first nine months of 2000.

                                       10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

We had a cash balance of $477,000 at September  30, 2001.  Our cash accounts are
swept  regularly and applied  against our line of credit.  We had  borrowings of
approximately  $3.8 million  against our available  operating  line of credit at
September 30, 2001, which  represents a decrease of  approximately  $2.4 million
from borrowings of $6.3 million at December 31, 2000. This decrease is primarily
due to payments  made  against  the loan  balance  using cash flows  provided by
operating activities during the first nine months of 2001.

Cash flows provided by operating  activities consist principally of $3.2 million
from the collection of accounts  receivable,  $1.0 million from the reduction of
inventory, and $681,000 in depreciation and amortization, which were offset by a
net loss of $1.7 million and other changes in working  capital of  approximately
$780,000 during the nine-month period ended September 30, 2001.

Working  capital  decreased  to $6.7  million at  September  30,  2001 from $7.8
million at December  31,  2000.  This  decrease is due to (a)  operating  losses
recorded in the first quarter of 2001,  (b) a  substantial  decrease in accounts
receivable  from December 31, 2000; and (c) accrued cash charges  related to our
restructuring efforts implemented in the first quarter of 2001.

On August 8, 2001,  we entered into a ten-year  lease for  approximately  54,000
square feet of office and warehouse space in Phoenix, Arizona. At the expiration
of our existing lease in December 2001 on our Scottsdale,  Arizona facility,  we
will be moving our headquarters and substantially all of our operations into the
Phoenix  facility.  In  connection  therewith,  we  will  be  required  to  make
additional  investments of approximately  $350,000 in leasehold improvements and
other  property  and  equipment.  During the first nine months of 2001,  we used
approximately $93,000 for the purchase of property and equipment.  We anticipate
that we will fund these and future  purchases  of property  and  equipment  with
available  borrowings under our revolving line of credit or through other means,
including capital or operating leases.

We maintain a $15.0  million  credit  facility  with  General  Electric  Capital
Corporation  that expires in April 2003.  The line of credit  bears  interest at
2.5% over the 30-day  commercial  paper rate,  or 5.97% at  September  30, 2001.
Advances  under the line of credit 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 revolving line of
credit contains  covenants that are customary for similar credit  facilities and
also prohibit our operating  subsidiaries,  from paying dividends to our company
without the consent of GE Capital.  At September 30, 2001, we were in compliance
with  all of the  covenants.  At  September  30,  2001,  amounts  available  for
additional borrowing totaled approximately $6.5 million.

In October  1999,  our Board of  Directors  approved a buy-back of up to 400,000
shares of our  outstanding  common  stock  over a  six-month  period,  which was
subsequently extended through June 2001. Financing for the buy-back was provided
through our line of credit and proceeds  from option  exercises.  As of June 30,
2001, we had repurchased 318,700 shares with a cumulative cost of $759,000 under
this program.  There were no options  exercised  during the first nine months of
2001.

We are a defendant in various lawsuits. We have not made any material provisions
in our financial statements for these lawsuits. The imposition of damages in any
of these  matters  could  have a  material  adverse  effect  on our  results  of
operations and financial position.

From time to time we also 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.

We believe that our 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.

                                       11
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133 (as amended by SFAS No. 137),  ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND
HEDGING  ACTIVITIES,  which requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial  position and measure
those  instruments at fair value.  The issuance of SFAS No. 137,  ACCOUNTING FOR
DERIVATIVE INSTUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF
FASB STATEMENT NO. 133,  delayed the required  effective date of SFAS No. 133 to

all fiscal  years  beginning  after June 15,  2000.  The Company was required to
adopt SFAS No.  133, as amended,  on January 1, 2001.  The  adoption of SFAS No.
133, as amended,  did not have an impact on the Company's  results of operations
or financial position.

In July 2001,  the FASB  issued  Statement  No.  141,  ACCOUNTING  FOR  BUSINESS
COMBINATIONS, and Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These
Statements modify accounting for business  combinations  after June 30, 2001 and
will affect the Company's  treatment of goodwill and other intangible  assets at
the start of fiscal year 2002. The Statements  require that goodwill existing at
the date of adoption be reviewed for  possible  impairment  and that  impairment
tests be periodically repeated, with impaired assets written-down to fair value.
Additionally,  existing  goodwill  and  intangible  assets must be assessed  and
classified  consistent with the  Statements'  criteria.  Intangible  assets with
estimated  useful  lives will  continue  to be  amortized  over  those  periods.
Amortization  of goodwill and intangible  assets with  indeterminate  lives will
cease. At this time, the Company has not determined the complete impact of these
Statements.  However,  for the six months ended  September 30, 2001, the Company
has recognized approximately $100,000 of goodwill amortization.

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 and Form 10-K/A for the year ended  December 31,  2000,  as filed with
the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September  30,  2001,  we did not  participate  in any  activities  involving
derivative  financial  instruments or other financial and commodity  instruments
for which fair value  disclosure  would be required under Statement of Financial
Accounting Standards No. 107.

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  instruments.  We incur interest on loans made under a revolving line
of credit at variable  interest rates of 2.5% over the 30-day  commercial  paper
rate, a total of 5.97% at September 30, 2001.  The principal of loans under this
line of credit is due in April 2003.  At September  30, 2001 we had  outstanding
borrowings on the line of credit of approximately $3.8 million.

--------------------------------------------------------------------------------
This report contains forward-looking statements,  including statements regarding
our  business,   strategies,  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/A for the year ended  December 31, 2000, as filed with the  Securities
and Exchange Commission.

                                       12
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          Not applicable

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          Not applicable

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not applicable

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

          Not applicable

ITEM 5.   OTHER INFORMATION

          Not applicable

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               Exhibit 10.45 - Sublease  Agreement dated August 8, 2001, between
               Vodavi Communications Systems, Inc. and SpeedFam-IPEC, Inc.

          (b)  Reports on Form 8-K

               On September 25, 2001, the Company filed a Current Report on Form
               8-K  regarding  the change in the  Company's  independent  public
               accountants.

                                       13
<PAGE>
                                   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: November 9, 2001             /s/ Gregory K. Roeper
                                    --------------------------------------------
                                    Gregory K. Roeper
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


Dated: November 9, 2001             /s/ David A. Husband
                                    --------------------------------------------
                                    David A. Husband
                                    Chief Financial Officer and
                                    Vice President - Finance
                                    (Principal Financial and Accounting Officer)

                                       14