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 June 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 August 7, 2001 was 4,234,788.
<PAGE>
                             VODAVI TECHNOLOGY, INC.
                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2001

                                TABLE OF CONTENTS

                                                                            Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

     Consolidated Statements of Operations - Three and                         4
       Six Months Ended June 30, 2001 and 2000.

     Consolidated Statements of Cash Flows - Six Months
       Ended June 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


                                                     June 30, 2001  December 31,
                                                      (Unaudited)      2000
                                                      -----------    --------
CURRENT ASSETS:
  Cash                                                  $     58     $    564
  Accounts receivable, net of reserves for doubtful
    accounts and sales returns of $1,772
    and $1,582, respectively                               7,140       11,797
  Inventory                                                6,190        6,707
  Estimated income tax receivable                          1,116           --
  Prepaids and other current assets                          567          870
                                                        --------     --------
       Total current assets                               15,071       19,938

PROPERTY AND EQUIPMENT, net                                1,739        2,033

GOODWILL, net                                              1,705        1,772

OTHER LONG-TERM ASSETS                                     1,022        1,152
                                                        --------     --------
                                                        $ 19,537     $ 24,895
                                                        ========     ========
CURRENT LIABILITIES:
  Accounts payable                                      $  2,288     $  3,756
  Accrued liabilities                                      1,835        2,161
  Revolving credit facility                                4,664        6,259
                                                        --------     --------
       Total current liabilities                           8,787       12,176
                                                        --------     --------

OTHER LONG-TERM OBLIGATIONS                                   91          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                                     (1,950)         (25)
  Treasury stock, 318,700 shares at cost                    (759)        (759)
                                                        --------     --------
                                                          10,659       12,584
                                                        --------     --------
                                                        $ 19,537     $ 24,895
                                                        ========     ========

              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                Six Months Ended
                                                         June 30,                         June 30,
                                                 ------------------------        -------------------------
                                                   2001            2000            2001             2000
                                                 --------        --------        --------         --------
<S>                                              <C>             <C>             <C>              <C>
REVENUE, net                                     $  9,603        $ 13,158        $ 15,663         $ 22,761

COST OF GOODS SOLD                                  6,161           8,387          11,069           14,397
                                                 --------        --------        --------         --------

GROSS MARGIN                                        3,442           4,771           4,594            8,364
                                                 --------        --------        --------         --------
OPERATING EXPENSES:
  Engineering and product development                 495             427             991              818
  Selling, general and administrative               2,580           3,475           6,366            7,091
                                                 --------        --------        --------         --------
                                                    3,075           3,902           7,357            7,909
                                                 --------        --------        --------         --------

OPERATING INCOME (LOSS)                               367             869          (2,763)             455

INTEREST EXPENSE                                      109             177             270              365
                                                 --------        --------        --------         --------

INCOME (LOSS) BEFORE INCOME TAXES                     258             692          (3,033)              90

PROVISION FOR (BENEFIT FROM) INCOME TAXES              99             266          (1,108)              44
                                                 --------        --------        --------         --------

NET INCOME (LOSS)                                $    159        $    426        $ (1,925)        $     46
                                                 ========        ========        ========         ========

BASIC EARNINGS (LOSS) PER SHARE                  $   0.04        $   0.10        $  (0.45)        $   0.01
                                                 ========        ========        ========         ========
WEIGHTED AVERAGE SHARES
  OUTSTANDING - BASIC                               4,235           4,324           4,235            4,273
                                                 ========        ========        ========         ========

DILUTED EARNINGS (LOSS) PER SHARE                $   0.04        $   0.10        $  (0.45)        $   0.01
                                                 ========        ========        ========         ========
WEIGHTED AVERAGE SHARES
  OUTSTANDING - DILUTED                             4,235           4,324           4,235            4,344
                                                 ========        ========        ========         ========
</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)

                                                              Six months ended
                                                                  June 30,
                                                             ------------------
                                                               2001       2000
                                                             -------    -------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                          $(1,925)   $    46
  Adjustments to reconcile net income (loss) to net cash
   flows provided by operating activities:
    Depreciation and amortization                                510        382
    Provision for doubtful accounts and sales returns            190         44
    Rent levelization                                            (44)       (19)
  Changes in working capital:
    Accounts receivable                                        4,467        610
    Inventory                                                    517       (610)
    Estimated income tax receivable                           (1,116)        --
    Prepaids and other current assets                            303        277
    Other long-term assets                                        40        143
    Accounts payable                                          (1,468)       807
    Accrued liabilities                                         (326)       103
                                                             -------    -------
       Net cash flows provided by operating activities         1,148      1,783
                                                             -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                             (59)      (167)
                                                             -------    -------
       Net cash flows used in investing activities               (59)      (167)
                                                             -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net payments on revolving credit facility                   (1,595)    (2,110)
  Purchase of common stock                                        --       (543)
  Stock options exercised                                         --        837
                                                             -------    -------
       Net cash flows used in financing activities            (1,595)    (1,816)
                                                             -------    -------

DECREASE IN CASH                                                (506)      (200)

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

CASH, end of period                                          $    58    $ 1,328
                                                             =======    =======

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for interest                                     $   270    $   365
                                                             =======    =======

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

                                       5
<PAGE>
                             VODAVI TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 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  Company  believes  that  the  disclosures  made  are  adequate  to keep the
information  presented  from being  misleading.  The  results for the six months
ended June 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 six-month  periods ended June
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 71,000  dilutive  securities  deemed  outstanding  for the  six-month
period ended June 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

The Company has  determined  that it operates  in one  reportable  segment,  the
distribution  of  telecommunications  equipment.  The Company has three  product
categories - telephony, voice processing, and computer-telephony,  however, each
of these does not meet the segment criteria for SFAS No. 131,  DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.  Accordingly, the Company has
not presented separate financial information for each product category.

(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 $115,000 of which had been expended at June 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 Financial Accounting Standards Board 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 June 30, 2001, the Company has recognized  approximately $67,000 of
goodwill amortization.

(f) COMMITMENTS AND CONTINGENCIES

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

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

                                                            Three Months Ended
                                                                  June 30,
                                                           --------------------
                                                            2001           2000
                                                           -----          -----
Revenue, net                                               100.0%         100.0%
Cost of goods sold                                          64.2           63.7
                                                           -----          -----
       Gross margin                                         35.8           36.3

Operating expenses:
  Engineering and product development                        5.1            3.3
  Selling, general and administrative                       26.9           26.4
                                                           -----          -----
                                                            32.0           29.7
                                                           -----          -----
Operating income                                             3.8            6.6
Interest expense                                             1.1            1.4
                                                           -----          -----
Income before income taxes                                   2.7            5.2
Provision for income taxes                                   1.0            2.0
                                                           -----          -----
Net income                                                   1.7%           3.2%
                                                           =====          =====

Revenue  decreased by 27.0% to $9.6  million in the second  quarter of 2001 from
revenue of $13.2  million in the second  quarter of 2000. We believe 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,  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 $2.7 million,  or
32.0%,  from the second quarter of 2000.  Revenue from the INFINITE product line
decreased by  approximately  $331,000,  or 8.0%, from sales of those products in
the second  quarter of 2000.  The decrease was primarily  due to continued  soft
market conditions.

Our gross margin  decreased to $3.4  million  during the second  quarter of 2001
from $4.8  million for the  comparable  period of 2000,  representing  35.8% and
36.3% 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 second quarter of 2001 compared to the second 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 $900,000
to $2.6 million in the second  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.

Interest  expense  decreased to $109,000  during the second quarter of 2001 from
$177,000  in the same  quarter of 2000.  The  reduction  is  primarily  due to a
decrease in the average loan balance from $7.6 million during the second quarter
of 2000 to $5.6 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 $99,000  for the second  quarter of
2001, an effective  rate of 38.4%,  compared  with a tax provision  utilizing an
effective rate of 38.4%, or $266,000, for the second quarter of 2000.

                                       8
<PAGE>
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2000

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

                                                              Six Months Ended
                                                                  June 30,
                                                            -------------------
                                                             2001          2000
                                                            -----         -----
Revenue, net                                                100.0%        100.0%
Cost of goods sold                                           70.7          63.3
                                                            -----         -----
  Gross margin                                               29.3          36.7

Operating Expenses:
  Engineering and product development                         6.3           3.6
  Selling, general and administrative                        40.6          31.1
                                                            -----         -----
                                                             46.9          34.7
                                                            -----         -----
Operating (loss) income                                     (17.6)          2.0
Interest expense                                              1.7           1.6
                                                            -----         -----
(Loss) Income before income taxes                           (19.3)           .4
(Benefit from) Provision for income taxes                    (7.0)           .2
                                                            -----         -----
Net (Loss) income                                           (12.3)%          .2%
                                                            =====         =====

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 six
months ended June 30, 2001:

<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>

                                       9
<PAGE>
Of the cash charges discussed above, approximately $115,000 had been expended at
June 30, 2001.

Revenue decreased by 31.1% to $15.7 million in the first six months of 2001 from
revenue of $22.8 million in the first six months of 2000. We believe 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 $5.8 million,  or
40.8%, from the first six months of 2000. Revenue from the INFINITE product line
decreased by approximately $71,000, or 1.0%, from sales of those products in the
first six months of 2000.

Our gross margin  decreased to $4.6 million  during the first six months of 2001
from $8.4  million for the  comparable  period of 2000,  representing  29.3% and
36.7% 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 six months of 2001  compared  to the first six months of 2000,  and
inventory impairment losses recorded in the first quarter of 2001.

Expenditures  related  to  engineering  and  product  development  increased  by
$173,000 to $991,000 in the first six months of 2001 from $818,000 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.

Excluding the special  charges  recorded in the first quarter of 2001,  selling,
general and  administrative  expenses decreased by approximately $1.5 million to
$5.6  million  in the first six months of 2001 from $7.1  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  $270,000  in the first six months of 2001 from
$365,000 in the first half of 2000. The reduction is primarily due to a decrease
in the average loan  balance  from $8.0  million  during the first six months of
2000 to $6.2  million  during the first six  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 $1.1  million for the first six months of 2001,  an
effective  rate of 36.5%,  compared with a tax provision  utilizing an effective
rate of 48.9%, or $44,000, for the first six months of 2000.

LIQUIDITY AND CAPITAL RESOURCES

We had a cash balance of $58,000 at June 30, 2001.  Our cash  accounts are swept
regularly  and  applied  against  our  line  of  credit.  We had  borrowings  of
approximately  $4.7 million  against our available  operating  line of credit at
June 30, 2001,  which  represents a decrease of $1.6 million from  borrowings of
$6.3 million at December 31, 2000.  This  decrease is primarily  due to payments
made against the loan balance  using  proceeds  from the  collection of accounts
receivable  during the six-month  period ending June 30, 2001. At June 30, 2001,
amounts available for additional borrowing totaled approximately $4.0 million.

                                       10
<PAGE>
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 6.44% at June 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 June 30, 2001, we were in compliance with
all of the covenants.

Working capital  decreased to $6.3 million at June 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.

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.  During  October  2000,  the Company
negotiated, with GE Capital, an extension of the stock repurchase period to June
30, 2001.  Financing for the buy-back is 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 six 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.

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 Financial Accounting Standards Board 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 June 30, 2001, the Company has recognized  approximately $67,000 of
goodwill amortization.

                                       11
<PAGE>
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 June 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 6.44% at June 30, 2001.  The principal of loans under this line
of credit is due in April 2003. At June 30, 2001 we had  outstanding  borrowings
on the line of credit of approximately $4.7 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

     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

     Not applicable

                                       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: August 13, 2000                  /s/ Gregory K. Roeper
                                        ----------------------------------------
                                        Gregory K. Roeper
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)


Dated: August 13, 2000                  /s/ David A. Husband
                                        ----------------------------------------
                                        David A. Husband
                                        Chief Financial Officer and Vice
                                        President - Finance (Principal Financial
                                        and Accounting Officer)

                                       14