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, 1998

                           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)


                                 (602) 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 7, 1998 was 4,342,238.
<PAGE>
                             VODAVI TECHNOLOGY, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                TABLE OF CONTENTS


                                                                          Page
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Consolidated Balance Sheets - September 30, 1998
          and December 31, 1997.                                            3

          Consolidated Statements of Operations - Three and
          Nine Months Ended September 30, 1998 and 1997.                    4

          Consolidated Statements of Cash Flows - Nine Months
          Ended September 30, 1998 and 1997.                                5

          Notes to Consolidated Financial Statements.                       6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                               6

PART II.  OTHER INFORMATION                                                11

          SIGNATURES                                                       12
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                             VODAVI TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                  In thousands

                                                  September 30,     December 31,
                                                      1998              1997
                                                  -------------     ------------
                                                   (Unaudited)
CURRENT ASSETS:
     Cash                                           $    326         $    634
     Accounts Receivable, net                          9,708            9,682
     Inventory, net                                    7,674            8,286
     Prepaids                                            458              905
                                                    --------         --------
                                                      18,166           19,507

PROPERTY AND EQUIPMENT, net                            2,779            2,616

GOODWILL, net                                          2,281            2,395

OTHER LONG-TERM ASSETS, net                            1,098            1,146
                                                    --------         --------

                                                    $ 24,324         $ 25,664
                                                    ========         ========
CURRENT LIABILITIES:
     Current Portion of Long-Term Debt              $    361         $    379
     Accounts Payable                                  3,614            4,320
     Accrued Liabilities                               2,446            2,416
                                                    --------         --------
                                                       6,421            7,115
                                                    --------         --------

LONG-TERM DEBT                                         7,625            8,934
                                                    --------         --------
STOCKHOLDERS' EQUITY:
     Common Stock                                          4                4
     Additional Paid-In Capital                       12,308           12,308
     Accumulated Deficit                              (2,034)          (2,697)
                                                    --------         --------
                                                      10,278            9,615
                                                    --------         --------

                                                    $ 24,324         $ 25,664
                                                    ========         ========

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

                                       3
<PAGE>
                             VODAVI TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                In thousands, except share and per share amounts
                                   (Unaudited)


                                  Three Months Ended       Nine Months Ended
                                     September 30,           September 30,
                                  ------------------       -----------------
                                  1998         1997         1998         1997
                                  ----         ----         ----         ----

REVENUE, net                  $   13,073   $   12,731   $   37,402   $   36,176

COST OF GOODS SOLD                 8,599        8,462       24,853       24,033

                              ----------   ----------   ----------   ----------
  GROSS MARGIN                     4,474        4,269       12,549       12,143

OPERATING EXPENSES
 Engineering and product
   development                       337          553        1,304        1,535
 Selling, general and
   administrative                  3,219        3,029        9,599        8,572
                              ----------   ----------   ----------   ----------

  OPERATING INCOME                   918          687        1,646        2,036

INTEREST EXPENSE                     204          152          616          489
                              ----------   ----------   ----------   ----------

  INCOME BEFORE INCOME TAXES         714          535        1,030        1,547

PROVISION FOR INCOME TAXES           250          114          367          514
                              ----------   ----------   ----------   ----------

  NET INCOME                  $      464   $      421   $      663   $    1,033
                              ==========   ==========   ==========   ==========

DILUTED EARNINGS PER SHARE    $     0.11   $     0.10   $     0.15   $     0.24
                              ==========   ==========   ==========   ==========

WEIGHTED AVERAGE SHARES
     OUTSTANDING - DILUTED     4,342,238    4,406,821    4,342,238    4,342,238
                              ==========   ==========   ==========   ==========


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

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


                                                           Nine months ended
                                                             September 30,
                                                           -----------------
                                                          1998          1997
                                                          ----          ----
OPERATING ACTIVITIES:
     Net Income                                         $    663      $  1,033
     Adjustments:
       Depreciation and amortization                         558           500
       Rent levelization                                      14            36
       Changes in working capital:
           Accounts receivable                               (26)       (1,188)
           Inventory                                         612           287
           Prepaids                                          448          (320)
           Other long-term assets                             24          (287)
           Accounts payable                                 (706)       (1,351)
           Accrued liabilities                              (317)           47
           Income taxes payable                              346
                                                        --------      --------
NET CASH FLOWS - OPERATING ACTIVITIES                      1,616        (1,243)
                                                        --------      --------
INVESTING ACTIVITIES:
     Purchase of property and equipment                     (583)         (387)
                                                        --------      --------
NET CASH FLOWS - INVESTING ACTIVITIES                       (583)         (387)
                                                        --------      --------
FINANCING ACTIVITIES:
     Payments on capital leases                             (284)         (158)
     Debt financing costs paid                                             (68)
     Borrowings from GE Capital                           36,595        36,214
     Payments to GE Capital                              (37,652)      (34,307)
                                                        --------      --------
NET CASH FLOWS - FINANCING ACTIVITIES                     (1,341)        1,681
                                                        --------      --------

INCREASE (DECREASE) IN CASH                                 (308)           51

CASH, beginning of period                                    634         1,152
                                                        --------      --------

CASH, end of period                                     $    326      $  1,203
                                                        --------      --------

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

                                       5
<PAGE>
                             VODAVI TECHNOLOGY, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
                               SEPTEMBER 30, 1998

a) Vodavi  Technology,  Inc. (the  Company),  a Delaware  corporation,  designs,
develops,  markets,  and  supports  a broad  range  of  communication  products,
computer-telephony products, and voice processing products for a wide variety of
commercial applications.

(b) The  accompanying  unaudited  consolidated  financial  statements  have been
prepared by the Company without audit,  pursuant to the rules and regulations of
the Securities and Exchange  Commission.  These financial statements reflect all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management,  necessary to fairly state the financial  position
as of  September  30,  1998 and the  operating  results  and cash  flows for the
periods  presented.  Operating results for the interim periods presented are not
necessarily  indicative  of the  operating  results that may be expected for the
entire year. These financial  statements  should be read in conjunction with the
Company's December 31, 1997 financial statements and accompanying notes thereto.

(c) Diluted earnings per share for the periods ended September 30, 1998 and 1997
were determined by dividing net income by the weighted  average number of common
and common equivalent shares  outstanding,  as outlined in Financial  Accounting
Standard (SFAS) No. 128, Earnings Per Share.

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997:

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

                                                   Three Months Ended
                                                      September 30,
                                                   ------------------
                                                     1998      1997
                                                     ----      ----
Revenue                                              100.0%    100.0%
Cost of goods sold                                    65.8      66.5
                                                     -----     -----

Gross margin                                          34.2      33.5
Operating expenses:
     Engineering and product development               2.6       4.3
     Selling, general and administrative              24.6      23.8
                                                     -----     -----

Operating income                                       7.0       5.4
Interest expense                                       1.6       1.2
                                                     -----     -----

Pre-tax income                                         5.4       4.2
Income taxes                                           1.9       0.9
                                                     -----     -----

Net income                                             3.5%      3.3%
                                                     =====     =====
                                       6
<PAGE>
         REVENUE

Revenue  was  approximately  $13.1  million  in the third  quarter  of 1998,  an
increase of approximately $340,000, or 2.7%, over the third quarter of 1997. The
Company  attributes  the increase to the  successful  launch of its new Starplus
Triad  series  product  line,  the  continued   success  of  the  Company's  new
entry-level voice processing products,  as well as record sales of the Company's
interactive voice response products. The increase in product sales was offset by
an  increase  in  promotional  rebates and  discounts  related to new  marketing
programs.

         GROSS MARGIN

Gross margins  increased to approximately  34.2% of revenue in the third quarter
of 1998 as  compared  with  33.5% in the  third  quarter  of 1997.  The  Company
negotiated  discounts with its largest  suppliers in 1997 and is recognizing the
benefits of these discounts during 1998.

         ENGINEERING AND PRODUCT DEVELOPMENT

Expenditures   related  to  engineering   and  product   development   decreased
significantly in the third quarter of 1998 as compared with the third quarter of
1997, due to the  elimination  of several  engineering  and product  development
positions  within the Company.  The Company  believes the  elimination  of these
positions will have no effect on new product development.

         SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses remained relatively constant during
the third quarter of 1998 as compared with the third quarter of 1997. During the
third quarter of 1998, the Company eliminated a number of selling,  general, and
administrative  positions,  several of which were added  subsequent to the third
quarter of 1997. The Company  believes the  elimination of these  positions will
have no effect on sales and marketing efforts or customer  service.  These staff
reductions, together with the engineering and product development positions that
were eliminated during the third quarter of 1998 (as described above), were part
of a program  intended  to reduce  operating  expenses in the second half of the
year.

         INTEREST EXPENSE

Interest  expense was  approximately  $205,000 in the third  quarter of 1998, an
increase of $50,000,  or 34.2%,  over the third quarter of 1997. The increase is
attributable  to  increased  borrowings  as a  result  of  increased  levels  of
inventory and receivables.

         INCOME TAXES

The Company has provided for income taxes using an effective  rate of 35% in the
third quarter of 1998, as compared with 21.3% in the third quarter of 1997.  The
effective  tax rate was reduced in the third  quarter of 1997 to account for the
impact of certain credits claimed for federal and state tax purposes.

                                       7
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997:

The  following  table  summarizes  the  operating  results  of the  Company as a
percentage of sales for the periods indicated.
                                                   Nine Months Ended
                                                     September 30,
                                                     -------------
                                                     1998     1997
                                                    -----    -----
Revenue                                             100.0%   100.0%
Cost of goods sold                                   66.4     66.4
                                                    -----    -----
     Gross margin                                    33.6     33.6
Operating Expenses:
     Engineering and product development              3.5      4.2
     Selling, general and administrative             25.7     23.7
                                                    -----    -----
Operating income                                      4.4      5.7
Interest expense                                      1.6      1.4
                                                    -----    -----
Pre-tax income                                        2.8      4.3
Income taxes                                          1.0      1.4
                                                    -----    -----
Net income                                            1.8%     2.9%
                                                    =====    =====

         REVENUE

Revenue was  approximately  $37.4  million for the first nine months of 1998, an
increase of approximately  $1.2 million,  or 3.4%, over the first nine months of
1997. The Company  attributes  the increase to the successful  launch of its new
Starplus Triad series  product line, the continued  success of the Company's new
entry-level voice processing products,  as well as record sales of the Company's
interactive voice response products. The increase in product sales was offset by
an  increase  in  promotional  rebates and  discounts  related to new  marketing
programs.

         GROSS MARGIN

Gross margin remained  constant at 33.6% of revenue for the first nine months of
1998 as compared with the first nine months of 1997.

         ENGINEERING AND PRODUCT DEVELOPMENT

Expenditures  related to engineering and product development  decreased slightly
in the first nine months of 1998 as compared  with the first nine months of 1997
due to the elimination of several engineering and product development  positions
within the Company. The Company believes the elimination of these positions will
have no effect on new product development.

         SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses increased $1.0 million in the first
nine  months of 1998 as  compared  with the  first  nine  months  of 1997.  As a
percentage of revenue, selling, general and administrative expenses increased to
25.7% of revenue in the first nine months of 1998 as compared  with 23.7% in the
first nine months of 1997 due to increases  in personnel in sales and  marketing
functions.  During the third quarter of 1998, the Company eliminated a number of
selling,  general,  and  administrative  positions,  several of which were added
subsequent to the third quarter of 1997. The Company believes the elimination of
these positions will have no effect on sales and marketing or customer  service.
These staff  reductions,  together with the engineering and product  development
positions  that were  eliminated  during the third quarter of 1998 (as described
above),  were part of a program  intended  to reduce  operating  expenses in the
second half of the year.
                                       8
<PAGE>
         INTEREST EXPENSE

Interest expense was approximately  $615,000 in the first nine months of 1998, a
$125,000,  or 26%,  increase over the first nine months of 1997. The increase is
attributable  to an increase in  borrowings  as a result of increased  levels of
inventory and receivables (See Liquidity and Capital Resources).

         INCOME TAXES

The Company has provided  for income  taxes using an effective  rate of 35.6% in
the first nine months of 1998 as compared with 33.2% in the first nine months of
1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company  had cash of  approximately  $326,000 at  September  30,  1998.  The
Company's  cash accounts are swept  regularly and applied  against the Company's
line of credit,  as  described  below.  The  Company's  borrowings  against  its
available  operating  line of credit at September 30, 1998,  were  approximately
$7.5 million, which represents a decrease of $1.1 million from its borrowings of
$8.6 million at December 31, 1997. At September 30, 1998,  availability was $3.0
million,  with $200,000  reserved for standby  letters of credit and  $1,250,000
reserved  for  maintaining  the  minimum  availability  covenant,   with  a  net
availability of $1.6 million.

The Company  maintains a $12.0  million  line of credit  with  General  Electric
Capital Corporation (GE Capital) which expires in April 2000. The line of credit
bears  interest at 2.5% over the 30-day  commercial  paper  rate,  or a total of
8.02% at September  30, 1998.  Advances  under the line of credit are based upon
the accounts receivable and inventories of Vodavi  Communications  Systems, Inc.
(VCS),  a  wholly  owned   subsidiary  of  the  Company,   and  are  secured  by
substantially  all of the assets of the Company.  The  revolving  line of credit
contains  covenants  that are customary for similar  credit  facilities and also
prohibits  the Company's  operating  subsidiaries  from paying  dividends to the
Company  without the consent of GE Capital.  At September 30, 1998,  the Company
was in violation of a financial covenant related to intercompany loans. A waiver
has been obtained for this violation.

The Company has financed  approximately  $800,000 in capital  expenditures  with
third-party leasing companies.  The terms of these financings  generally provide
for interest rates at approximately 13% with 24-month repayment  periods.  As of
September  30,  1998,   the  net   remaining   balance  under  these  leases  is
approximately $284,000.

The  Company  believes  that its  working  capital  and  credit  facilities  are
sufficient to finance its internal growth in the near term. Although the Company
currently  has no  acquisition  targets,  it  intends  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

The  Company   currently   obtains   certain  of  its  products   under  various
manufacturing  arrangements  with  third-party  manufacturers in Asia. As of the
date of this  report,  the Company  does not believe  that the current  economic
situation in Asia will have any adverse impact on the Company's operations.

YEAR 2000 COMPLIANCE

Many currently  installed  computer  systems and software  products are coded to
accept  only  two-digit  entries  to  represent  years in the date  code  field.
Computer  systems and products that do not accept  four-digit  year entries will
need to be  upgraded or replaced  to accept  four-digit  entries to  distinguish
years  beginning  with 2000 from prior years.  The Company has initiated but has
not yet  completed  an  internal  system  assessment  to  determine  whether its
existing computer hardware and software systems are "Year 2000" compliant.

The Company  currently is evaluating its entire internal computer system and has
engaged a third-party  consultant  in connection  with the upgrade of certain of
its existing  financial and  accounting  software  systems,  including  software

                                       9
<PAGE>
related to order entry,  inventory management,  materials planning, and accounts
payable and  receivable.  These  upgrades  are  intended to improve the content,
quality,  and flow of information within the Company,  as well as to address any
Year 2000 issues that may exist.  As of the filing  date of this  Report,  these
projects are approximately  25% completed.  The estimated cost of these upgrades
will be approximately $20,000.

The Company has been advised that certain of the computer  processing  platforms
and networks and software systems used in connection with its operations,  other
than the financial and accounting  systems described above, may not be Year 2000
compliant.  The Company currently is assessing the extent of such non-compliance
and  intends  to  develop  a  program  to bring  those  systems  into  Year 2000
compliance  during calendar 1999. A failure of its computer  systems as a result
of Year 2000  issues  could  have a  material  adverse  effect on the  Company's
operations.

A significant portion of the Company's business  communications systems products
is  manufactured by third parties in Asia. The Company has initiated but has not
yet completed an assessment of the Year 2000 risks associated with the inability
of  those   manufacturers  to  bring  their   production   processes  and  other
computer-based systems into Year 2000 compliance. The Company and certain of its
third-party  manufacturers have identified a number of Year 2000 issues. Because
the manufacturing processes utilized do not rely upon date-related  information,
the  Company  currently  believes  that a  failure  on the part of its  overseas
manufacturers  to bring their  processes and equipment into Year 2000 compliance
does not  represent  a  material  risk to the  Company's  ability  to obtain its
products on a timely basis.

Certain of the  Company's  products  contain  software and hardware that perform
functions based upon date-related information.  The Company has identified those
of its existing  products  that are not Year 2000  compliant and has completed a
schedule  to ensure that  upgrades or  modifications  for its  products  will be
available by January  1999.  The Company  believes  that it will be able to pass
along to its customers costs related to upgrading installed products that are no
longer covered by the Company's  product  warranties.  The Company also believes
that the costs  related to upgrading  installed  products  that remain under the
Company's  product  warranties would be relatively  insignificant.  To date, the
Company  has  incurred   approximately  $50,000  in  costs associated  with  the
development of Year 2000  compliance  upgrades.  The inability of the Company to
develop and provide  product  modifications  on a timely basis could result in a
material  adverse effect on the Company,  including  increased  warranty  costs,
customer satisfaction issues, and potential litigation.

The  Company  is unable to fully  assess the impact of the Year 2000 issue as of
the filing date of this Report.  The Company  currently is  developing a plan to
evaluate the Year 2000 issue as it relates to computer  systems  operated by all
of  the  third-parties,  including  manufacturers,   suppliers,  customers,  and
financial institutions,  with which the Company's systems interface. Any failure
of the  Company's  computer  system or the  systems  of third  parties to timely
achieve  Year  2000  compliance  could  have a  material  adverse  effect on the
Company's business, financial condition, and operating results. As of the filing
date of this  Report,  the Company has not  formulated a  contingency  plan with
respect to the Year 2000 compliance issues described above.

--------------------------------------------------------------------------------
This report contains forward-looking statements,  including statements regarding
the Company's business strategies,  the Company's business,  and the industry in
which the Company operates. These forward-looking statements are based primarily
on the  Company's  expectations  and  are  subject  to a  number  of  risks  and
uncertainties,  some of which are beyond the Company's  control.  Actual results
could  differ  materially  from the  forward-looking  statements  as a result of
numerous  factors,  including those set forth in the Company's Form 10-K for the
year  ended  December  31,  1997,  as filed  with the  Securities  and  Exchange
Commission.

                                       10
<PAGE>
                           PART II - OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

          Reference is made to the  disclosure  included under this Item
          in the Company's Quarterly Report on Form 10-Q for the quarter
          ended March 31, 1998, as filed on May 14, 1998.

Item 2.   CHANGES IN SECURITIES
          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 27.  Financial Data Schedule

          b) Reports on Form 8-K
             Not applicable

                                       11
<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 11, 1998       /s/ Glenn R. Fitchet
                               ------------------------------------------------

                               Glenn R. Fitchet
                               President and Chief Executive Officer
                               (Principal Executive Officer)

Dated: November 11, 1998       /s/ Gregory K. Roeper
                               ------------------------------------------------

                               Gregory K. Roeper
                               Chief Operating Officer, Chief Financial Officer,
                               Secretary, and Treasurer
                               (Principal Financial and Accounting Officer)

                                       12