<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                            ______________________

                                   FORM 10-Q

               Quarterly Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934
                 for the quarterly period ended June 30, 2000


                        Commission File Number 0-25186

                                AVT CORPORATION
               ------------------------------------------------
               (Name of Registrant as Specified in Its Charter)


                     Washington                 91-1190085
              (State of incorporation)       (I.R.S. Employer
                                           Identification Number)


                              11410 NE 122nd Way
                              Kirkland, WA  98034
                   (Address of principal executive offices)


      Registrant's telephone number, including area code: (425) 820-6000



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 outstanding shares of the Registrant's Common Stock as of July 26,
2000 was 30,593,344.

================================================================================
<PAGE>

                                AVT CORPORATION

                                   FORM 10-Q
                      For the Quarter Ended June 30, 2000

                               Table of Contents


                                                                            Page
                                                                            ----
PART I.    Financial Information

           Item 1.  Financial Statements (unaudited).......................    3

           Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations....................    9

           Item 3.  Quantitative and Qualitative Disclosures about
                    Market Risk............................................   18

PART II.   Other Information

           Item 1.  Legal Proceedings......................................   19

           Item 4.  Submission of Matters to a Vote of Security Holders....   19

           Item 5.  Other Information......................................   19

           Item 6.  Exhibits and Reports on Form 8-K.......................   20

Signatures.................................................................   21

                                       2
<PAGE>

                        Part I.   FINANCIAL INFORMATION

Item 1.                       FINANCIAL STATEMENTS

                                AVT CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                      June 30,               December 31,
                                                                        2000                     1999
                                                                 -------------------      -------------------
                           ASSETS                                               (in thousands)
<S>                                                             <C>                      <C>
Current assets:
     Cash and cash equivalents                                              $ 29,044                 $ 23,923
     Short-term investments                                                   56,345                   51,095
     Accounts receivable, net                                                 14,056                   20,303
     Inventories                                                               5,419                    5,319
     Deferred and prepaid income taxes                                         4,624                    3,000
     Prepaid expenses and other                                                2,077                    2,089
                                                                 -------------------      -------------------
                         Total current assets                                111,565                  105,729

Notes receivable                                                                 296                        -
Equipment and leasehold improvements, net                                      6,390                    6,630
Intangibles, net                                                               5,006                    5,926
Deferred income taxes                                                          3,424                    3,424
                                                                 -------------------      -------------------
                                                                            $126,681                 $121,709
                                                                 ===================      ===================

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                       $  5,430                 $  5,432
     Accrued compensation and benefits                                         5,146                    5,169
     Other accrued liabilities                                                 7,400                    7,579
     Federal income taxes payable                                                863                    1,324
                                                                 -------------------      -------------------
                         Total current liabilities                            18,839                   19,504
                                                                 -------------------      -------------------

Commitments and contingencies

Shareholders' equity:
     Preferred stock, par value $.01 per share, 2,000,000
        authorized; none outstanding                                               -                        -
     Common stock, par value $.01 per share, 120,000,000
        authorized; 30,593,344 and 30,637,054 shares
        outstanding, respectively, and additional paid-in capital             56,267                   55,811
     Retained earnings                                                        51,575                   45,812
     Other comprehensive income                                                    -                      582
                                                                 -------------------      -------------------
                         Total shareholders' equity                          107,842                  102,205
                                                                 -------------------      -------------------

                                                                            $126,681                 $121,709
                                                                 ===================      ===================
</TABLE>

         See accompanying notes to consolidated financial statements.



                                       3
<PAGE>

                                AVT CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME

                                  (Unaudited)

<TABLE>
<CAPTION>
                                                          Quarter ended                         Six Months ended
                                                             June 30,                                June 30,
                                                   ---------------------------             ---------------------------
                                                     2000               1999                2000                1999
                                                   -------             -------             -------             -------
                                                                 (in thousands, except per share data)
<S>                                               <C>                 <C>                 <C>                 <C>
Net sales                                          $25,240             $31,864             $50,115             $60,707
Cost of sales                                        8,548              11,322              17,142              21,496
                                                   -------             -------             -------             -------
          Gross profit                              16,692              20,542              32,973              39,211
Operating expenses:
     Research and development                        2,494               2,357               4,957               4,978
     Sales, general and administrative              11,724              11,073              22,551              21,350
     Non-recurring charges (2)                           -               2,388                   -               2,388
                                                   -------             -------             -------             -------
          Total operating expenses                  14,218              15,818              27,508              28,716
                                                   -------             -------             -------             -------
Operating income                                     2,474               4,724               5,465              10,495
Other income, net (1)                                  930                 384               3,486                 811
                                                   -------             -------             -------             -------
Income before income taxes                           3,404               5,108               8,951              11,306
Income tax expense                                   1,192               2,710               3,188               4,966
                                                   -------             -------             -------             -------
Net income                                         $ 2,212             $ 2,398             $ 5,763             $ 6,340
                                                   =======             =======             =======             =======

Basic earnings per common share                    $  0.07             $  0.08             $  0.19             $  0.22

Weighted average common shares outstanding          31,008              29,640              31,131              29,222

Diluted earnings per common share                  $  0.07             $  0.08             $  0.17             $  0.20

Weighted average common and common equivalent
 shares outstanding                                 31,884              31,934              33,111              31,424
</TABLE>

(1)  Six months ended June 30, 2000 includes a non-recurring gain of $1,784,000
     realized from the sale of marketable securities held for investment.
(2)  Non-recurring charges consist of merger-related costs incurred in the
     merger with MediaTel in April 1999.

         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                                AVT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                              Six months ended
                                                                                   June 30,
                                                               -----------------------------------------------
                                                                        2000                      1999
                                                               ---------------------     ---------------------
                                                                                (in thousands)
<S>                                                           <C>                       <C>
Cash flows from operating activities:
     Net income                                                              $ 5,763                   $ 6,340
                                                               ---------------------     ---------------------
Adjustments to reconcile net income to net cash
         provided by operating activities:
     Depreciation and amortization                                             2,575                     2,250
     Deferred income taxes                                                      (580)                     (638)
     Gain on sale of marketable securities                                    (1,784)                        -
     Changes in current assets and liabilities:
         Accounts receivable                                                   6,247                      (887)
         Inventories                                                            (100)                      317
         Prepaid expenses and other assets                                        12                       158
         Accounts payable                                                         (2)                    1,003
         Accrued compensation and benefits                                       (23)                     (991)
         Other accrued liabilities                                              (179)                    1,727
         Federal income taxes payable                                          3,053                     4,436
                                                               ---------------------     ---------------------
               Net cash provided by operating activities                      14,982                    13,715
                                                               ---------------------     ---------------------
Cash flows from investing activities:
     Purchase of equipment and leasehold improvements                         (1,416)                   (1,874)
     Purchase of short-term investments, net                                  (5,570)                   (7,830)
     Proceeds from sale of marketable securities                               2,101                         -
     Purchase of intangibles and other long-term assets                         (296)                      (18)
                                                               ---------------------     ---------------------
               Net cash used by investing activities                          (5,181)                   (9,722)
                                                               ---------------------     ---------------------
Cash flows from financing activities:
     Repurchase of common stock                                               (9,699)                        -
     Proceeds from exercise of stock options                                   5,019                     2,973
                                                               ---------------------     ---------------------
               Net cash (used) provided by financing
                activities                                                    (4,680)                    2,973
                                                               ---------------------     ---------------------
Net increase in cash and cash equivalents                                      5,121                     6,966

Cash and cash equivalents at beginning of period                              23,923                    14,466
                                                               ---------------------     ---------------------
Cash and cash equivalents at end of period                                   $29,044                   $21,432
                                                               =====================     =====================

Supplementary disclosures of cash flows:

     Cash paid for income taxes                                              $   205                   $ 1,338
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                                AVT CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


1.   Interim Financial Statements

     The accompanying consolidated financial statements of AVT Corporation and
subsidiaries (the Company) are unaudited.  In the opinion of the Company's
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to state fairly the financial
information set forth therein.  Results of operations for the three and six-
month periods ended June 30, 2000 are not necessarily indicative of future
financial results.

     Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this quarterly report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.

2.   Earnings Per Share
<TABLE>
<CAPTION>
                                                                                 Quarter ended June 30,
                                                             ------------------------------------------------------------
                                                                        2000                              1999
                                                             --------------------------        --------------------------
                                                                        (in thousands, except per share data)
                                                             ------------------------------------------------------------
                                                               Basic           Diluted           Basic           Diluted
                                                             ---------        ---------        ---------        ---------
<S>                                                         <C>              <C>              <C>              <C>
Net income                                                     $ 2,212          $ 2,212          $ 2,398          $ 2,398
                                                             =========        =========        =========        =========

Computation of common and common
     Equivalent shares outstanding:
               Common Stock                                     31,008           31,008           29,640           29,640
               Options                                               -              876                -            2,294
                                                             ---------        ---------        ---------        ---------

Common and common equivalent shares
     Used in computing per share amounts                        31,088           31,884           29,640           31,934
                                                             =========        =========        =========        =========
Net income per share                                           $  0.07          $  0.07          $  0.08          $  0.08
                                                             =========        =========        =========        =========
<CAPTION>
                                                                               Six months ended June 30,
                                                             ------------------------------------------------------------
                                                                        2000                              1999
                                                             --------------------------        --------------------------
                                                                        (in thousands, except per share data)
                                                             ------------------------------------------------------------
                                                               Basic           Diluted           Basic           Diluted
                                                             ---------        ---------        ---------        ---------
<S>                                                         <C>              <C>              <C>              <C>
Net income                                                     $ 5,763          $ 5,763          $ 6,340          $ 6,340
                                                             =========        =========        =========        =========

Computation of common and common
     Equivalent shares outstanding:
               Common Stock                                     31,131           31,131           29,222           29,222
               Options                                               -            1,980                -            2,202
                                                             ---------        ---------        ---------        ---------

Common and common equivalent shares
     Used in computing per share amounts                        31,131           33,111           29,222           31,424
                                                             =========        =========        =========        =========
Net income per share                                           $  0.19          $  0.17          $  0.22          $  0.20
                                                             =========        =========        =========        =========
</TABLE>

                                       6
<PAGE>

                                AVT CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


3.   Changes in Shareholders' Equity

<TABLE>
<S>                                                                                   <C>
Beginning balance at December 31, 1999                                                            $102,205
     Net income                                                                                      5,763
     Exercise of stock options                                                                       5,019
     Tax benefit from exercise of non-qualified stock options                                        5,136
      Stock buyback                                                                                 (9,699)
     Reclassification of unrealized gain on marketable securities upon sale                           (582)
                                                                                      --------------------
Ending balance at June 30, 2000                                                                   $107,842
                                                                                      ====================
</TABLE>


4.   Segment Reporting

     The Company has adopted Statement of Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131).  SFAS 131 requires companies to disclose certain information about
operating segments.  Based on the criteria within SFAS No. 131, the Company has
determined that it has one reportable segment, computer telephony products.

Sales of the Company's product by categories and amount are as follows:

<TABLE>
<CAPTION>
                                                                         Quarter ended             Six months ended
                                                                         -------------             ----------------
                                                                           June 30,                    June 30,
                                                                           --------                    --------
                                                                       2000         1999           2000         1999
                                                                     -------       -------       -------       -------
                                                                                     (in thousands)
<S>                                                                 <C>           <C>           <C>           <C>
Document solutions.......................................            $18,491       $21,591       $37,308       $40,815
Advanced messaging.......................................              6,019         8,679        11,263        16,661
Basic messaging products.................................                730         1,594         1,544         3,231
                                                                     -------       -------       -------       -------
                                                                     $25,240       $31,864       $50,115       $60,707
                                                                     =======       =======       =======       =======
</TABLE>


The Company's sales by country were as follows:

<TABLE>
<CAPTION>
                                                                         Quarter ended             Six months ended
                                                                         -------------             ----------------
                                                                           June 30,                    June 30,
                                                                           --------                    --------
                                                                       2000         1999           2000         1999
                                                                     -------       -------       -------       -------
                                                                                     (in thousands)
<S>                                                                 <C>           <C>           <C>           <C>
United States............................................            $20,239       $26,184       $40,684       $49,628
Canada...................................................                763         1,079         1,506         2,312
United Kingdom...........................................              1,588         1,039         2,951         2,115
Other....................................................              2,650         3,562         4,974         6,652
                                                                     -------       -------       -------       -------
                                                                     $25,240       $31,864       $50,115       $60,707
                                                                     =======       =======       =======       =======
</TABLE>


                                       7
<PAGE>

                                AVT CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)


5.   Stock Buy-back Program

     In March of 2000 the Board of Directors authorized the Company to
repurchase up to $10 million worth of its common stock. Through June 30, 2000
the Company had expended a total of $9,699,000 to repurchase 1,007,700 shares.
The purchase of an additional 50,000 shares was executed prior to June 30, 2000
but funded subsequent to quarter end, utilizing the remaining authorized funds.

     On August 10, 2000 the Board of Directors authorized the Company to
repurchase up to an additional $15 million worth of its common stock.  The
program will be ongoing and the timing and size of repurchases are subject to
market conditions, stock prices and AVT's cash position and requirements going
forward.  As of the date of this filing none of these funds had been utilized.


6.   Legal Proceedings

     As described in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, on March 21, 2000 a class-action lawsuit
was filed in the United States District Court for the Western District of
Washington alleging that during the period January 20, 2000 through March 17,
2000, the Company and several officers and directors made or participated in
misrepresentations about the Company's business and future prospects. Since the
March 21 lawsuit was filed, additional lawsuits have been filed that are
identical to the March 21 lawsuit, with the exception of the name of the
plaintiff. During the quarter ended June 30, 2000 the court approved appointment
of three plaintiffs to act as Lead Plaintiffs and consolidated all lawsuits into
a single action, which seeks unspecified damages on behalf of a proposed class
of purchasers of the Company's stock during the specified period. The Company
believes that the allegations of the lawsuits are without merit and intends to
vigorously defend the actions. The Company has filed a motion to dismiss the
lawsuit for failing to meet applicable legal standards. Plaintiffs have filed a
Consolidated Amended Complaint ("CAC"), and the Company intends to file a motion
to dismiss the CAC as legally inadequate in the near future.

                                       8
<PAGE>

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

     The Company is a leading provider of business to business communication
solutions for small, medium and enterprise-sized organizations. The Company
provides flexible, cost-effective products that address the unified messaging,
voice messaging, fax server, production fax and outsourced document delivery
markets, and distributes these products primarily through independent
distributors and value-added resellers. The Company's products run on off-the-
shelf hardware, support Windows NT and Windows 2000; and interface with a wide
variety of telephony and computer equipment. The Company also offers add-on
modules and software upgrades that provide increased capacity and functionality.

     The Company's product lines include both telephony-oriented and computer-
oriented products, and outsourced electronic document (e-document) delivery
services. The Company's telephony-oriented product lines serve the messaging
markets and focus on voice and call processing, unified messaging, and personal
and workgroup call management. The Company's computer-oriented product lines
target the fax server and production fax markets and focus on high-performance
fax processing and unified messaging, as well as Internet, corporate intranet
and phone-based information access. E-document delivery services target the
outsource mass fax and email markets for time-critical business-to-business
(B2B) communications.  These services include high-volume, instantaneous IP fax
and email broadcast and merge offerings, fax reply and fax-on-demand
applications as well as industry-specific services and custom workflow solutions
for unique customer requirements.

     The Company sells its products primarily through an indirect channel of
resellers and distributors, as well as through direct sales, OEM and private
label agreements.   The Company's telephony-oriented products include:
CallXpress, and CallXpress Enterprise, a multi-application, high capacity
unified messaging platform and PhoneXpress, a full-featured advanced messaging
system for small to medium-sized enterprises.  The company's data oriented
enhanced fax products include RightFAX and RightFAX Enterprise, the Company's
LAN-based fax server lines for Windows NT / Windows 2000, and the RightFAX
Production System, a high-volume production-oriented server that enables fax and
other forms of electronic transmission for electronic commerce applications. The
Company's e-document delivery services, branded under the name MediaLinq, offer
high-volume, simultaneous delivery of fax and email documents via the web, from
desktop software or a fax machine.

      When used in this discussion, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Factors which could
affect the Company's financial results are described below under the heading
"Risk Factors." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrences of
unanticipated events.

                                       9
<PAGE>

Results of Operations

     Net sales.  Net sales decreased 20.8% to $25,240,000 in the quarter ended
June 30, 2000, from $31,864,000 in the comparable 1999 quarter. Sales of
telephony and computer oriented products decreased 19%. Sales of low margin
basic messaging CTG product lines approximated $730,000, a decrease of 54% when
compared to the same quarter in 1999. This was in line with the Company's
expectation that sales of the lower-margin basic messaging products would
continue to be affected by price pressures from competitive offerings and
decline as a percentage of total sales. International sales for the quarter
decreased 12.0% compared to the first quarter of 1999, and represented 19.8% of
total net sales.

     For the six months ended June 30, 2000, net sales decreased 17.4% to
$50,115,000 from $60,707,000 in the comparable prior-year period. Sales of
telephony and computer oriented products decreased 15.5%. International sales
decreased 14.8% from the prior year six-month total and represented 18.9% of
total net sales.

     Gross profit.  Gross profit as a percentage of net sales improved to 66.1%
in the quarter ended June 30, 2000, as compared to 64.5% in the comparable
prior-year quarter. The increase in gross profit as a percentage of sales
reflects the greater contribution from software and kit sales verses full system
sales primarily from the CTG product lines.

     For the six months ended June 30, 2000, gross profit as a percentage of
sales increased to 65.8% from 64.6% in the comparable prior year period.

     Research and development.  As a percentage of sales, research and
development expenses for the current quarter increased to 9.9% compared with
7.4% of net sales in the comparable prior-year quarter. Research and development
expenses increased to $2,494,000 in the quarter ended June 30, 2000 from
$2,357,000 in the comparable prior-year period.

     For the six months ended June 30, 2000, research and development expenses
decreased from $4,978,000 in the six months ended June 30, 1999 to $4,957,000 in
the current period. As a percentage of net sales, research and development
represented 9.9% for the six months ended June 30, 2000, as compared to 8.2% in
the comparable prior-year period.

     Sales, general and administrative.  Sales, general and administrative
expenses increased to $11,724,000 in the quarter ended June 30, 2000 from
$11,073,000 in the comparable prior-year quarter, due primarily to increased
personnel-related costs as the company continues to invest in an enterprise
level sales force and support structure. Sales, general and administrative costs
for the current quarter represented 46.5% of net sales, an increase from 34.8%
in the comparable prior-year quarter.

     For the six months ended June 30, 2000, sales, general and administrative
expenses increased to $22,551,000 from $21,350,000 in the comparable prior-year
period. As a percentage of sales, general and administrative expenses were 45.0%
and 35.2% of net sales for the six-month periods ending June 30, 2000 and 1999,
respectively.

     Operating income.  Operating income for the quarter ended June 30, 2000
decreased to $2,474,000, or 9.8% of net sales, from $4,724,000, or 14.8% of net
sales, in the comparable prior-year quarter primarily due to the lower sales
volume. In the second quarter of 1999, the Company wrote off costs of $2,388,000
related to the merger with MediaTel in April 1999. Excluding this non-recurring
charge, operating income for the second quarter of 1999 was $7,112,000 or 22.3%
of net sales.

     For the six months ended June 30, 2000, operating income decreased to
$5,465,000 or 10.9% of net sales from $10,495,000 or 17.3% of net sales in the
comparable prior-year period. Excluding the non-recurring charge in the second
quarter of 1999 discussed above, the operating income for the six-month period
ending June 30, 1999 would have been $12,883,000 or 21.2% of net sales.

     Other income, net.  Net other income was $930,000 in the quarter ended June
30, 2000, as compared to $384,000 in the comparable prior-year quarter.

                                       10
<PAGE>

     For the six months ended June 30, 2000, other income was $3,486,000
compared to $811,000 in the comparable prior-year period due to a first quarter
one-time realized gain of $1,784,000 on the sale of a marketable security held
for investment.

     Income tax expense.  The effective tax rate for the quarter ended June 30,
2000 and 1999 was 35.0% and 53.1% respectively, with income tax expense of
$1,192,000 for the quarter ended June 30, 2000 and $2,710,000 in the comparable
prior-year quarter. The tax expense for the second quarter of 1999 reflects the
expected non-deductibility of the $2,388,000 in merger-related costs associated
with the merger with MediaTel in April 1999.

     Income tax expense for the six-month periods ended June 30, 2000 and 1999
was $3,188,000 and $4,966,000, respectively.

     Net income.  The Company recognized net income of $2,212,000 or $0.07 per
diluted common share for the quarter ended June 30, 2000, as compared to
$2,398,000 or $0.08 per diluted common share for the comparable prior-year
quarter. Excluding the non-recurring charge in the second quarter of 1999, net
income would have been $4,786,000 or $0.15 per diluted common share for the
period.

     As a result of the 2000 first quarter and the 1999 second quarter non-
recurring items discussed above, the Company recognized net income for the six
months ended June 30, 2000 of $5,763,000 compared to $6,340,000 in the
comparable 1999 period. Excluding these non-recurring items, net income for the
first six months of 2000 would have been $4,621,000 or $0.14 per diluted common
share as compared to $8,728,000 or $0.28 per diluted common share in the
comparable prior-year period.

Liquidity and Capital Resources

     Cash provided by operating activities in the six months ended June 30, 2000
was $15.0 million due primarily to continuing profitable operations and
collections on accounts receivable as compared to $13.7 million in the
comparable prior-year period. The accounts receivable collection period was
approximately 45 days at June 30, 2000. Accounts receivable decreased from $20.3
million at December 31, 1999 to $14.1 million at June 30, 2000.

     In March of 2000 the Board of Directors authorized the use of up to $10
million to repurchase shares of the Company's common stock. As of June 30, 2000,
the program was substantially complete with a total of $9,699,000 having been
utilized to repurchase 1,007,700 shares. The purchase of an additional 50,000
shares was executed prior to June 30, 2000 but funded subsequent to quarter end,
utilizing the remaining authorized funds.

     On August 10, 2000 the Board of Directors authorized the Company to
repurchase up to an additional $15 million worth of its common stock. The
program will be ongoing and the timing and size of repurchases are subject to
market conditions, stock prices and AVT's cash position and requirements going
forward. As of the date of this filing none of these funds had been utilized.

     In January of 2000 the Company announced the formation of AVT Capital LLC,
a venture capital subsidiary of AVT Corporation. AVT Capital has been chartered
to invest up to $25 million in emerging technologies that are strategic to
accelerating the growth of AVT's core business. To date, AVT Capital has made no
investment and expenditures have been insignificant. Subsequent to quarter end,
the formal launch of AVT Capital as a stand-alone effort has been delayed.

     The Company expects that its current cash, cash flow from operations, and
available bank line of credit will provide sufficient working capital for
operations for the foreseeable future.

Impact of Year 2000 Issues

                                       11
<PAGE>

     Since January 1, 2000, the Company has not experienced any material
disruptions as a result of the failure of computer systems or software products
to be Year 2000 complaint. The Company believes it has taken the necessary steps
regarding Year 2000 compliance with respect to matters within its control to
ensure that the Year 2000 issue will not materially impact the Company in the
future.

     All of the Company's products currently available for sale to customers are
Year 2000 compliant. The Company has offered free or reduced cost upgrades to
certain purchasers of the Company's products that were not Year 2000 compliant
when sold. To date, the Company has incurred costs of developing and providing
such upgrades of approximately $100,000. The Company does not intend to offer
upgrades for certain of its older products. The financial impact to the Company
of the development and administration of its upgrade programs has not been and
is not anticipated to be material to its financial position or results of
operations in any given year. However, the Company is dependent on its customers
to take necessary steps, and if any customers have not or do not make necessary
modifications, conversions, migrations, or upgrades, it could have a material
adverse effect on the Company in the form of legal costs or the loss of
customers.

     Notwithstanding the steps we have taken with respect to matters within our
control to ensure that our business would not be directly impacted in a material
way by the failure of computer systems and software products to be Year 2000
compliant, we believe that our sales for the first six months of 2000 have been
indirectly affected by the Year 2000 issue. For the six months ended June 30,
2000 the Company's business has been adversely affected by an industry wide
slowdown in the business telephone equipment marketplace relating to Y2K. The
indirect impact of the Year 2000 in reducing sales in the business telephone
equipment marketplace may continue into future quarters.

     The discussion of our efforts and ongoing expectations relating to year
2000 compliance include some forward-looking statements. Because the extent of
existing but undetected Year 2000 problems is unknown to us, we cannot be
certain that we will not incur additional, unanticipated costs, losses or
liabilities related to internal or third-party year 2000 problems. Such costs,
losses and liabilities could have a material adverse effect on our business,
financial condition and operating results.

Risk Factors

The following factors may materially adversely affect our business, financial
condition or results of operations. In that event the trading price of our
shares could decline and you may lose part or all of your investment, therefore,
you should carefully consider the risks described below before making an
investment decision.

Our operating results fluctuate from quarter to quarter, which could cause our
operating results to fall below expectations of securities analysts and
investors.

We expect our operating results to fluctuate significantly from quarter to
quarter in the future. Because of these fluctuations, our operating results for
a particular quarter may fall below the expectations of securities analysts and
investors. If this occurs, the trading price of our stock may decline. Such
fluctuations could cause period-to-period comparisons to be less than
meaningful. Numerous factors contribute to the unpredictability of our operating
results, including

     .  the timing of customer orders;

     .  changes in our mix of products and distribution channels;

     .  the announcement or introduction of new products by us or our
        competitors;

     .  pricing pressures; and

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<PAGE>

     .  general economic conditions.

Most of our software product revenue comes from current quarter orders and
sales, of which a substantial portion, and sometimes a majority, occurs in the
last month of each quarter. We do not maintain a large backlog of orders, and
most of our distributors maintain little or no inventory. Order fulfillment
cycles are typically short, and often as short as one to two days. Accordingly,
the timing of customer orders can cause significant variations in quarterly
results of operations. Because we sell our products to end-customers through
various third parties such as telephone system manufacturers, value-added
resellers, telephone interconnect dealers, and others, we are unable to project
with certainty the actual orders, sales, and revenues these third parties will
generate in a given quarter. The combination of these factors impairs and delays
our ability to know when revenues and earnings will be higher or lower than
expected. We base product development and other operating expenses on our
expected revenues. Because our expenses are relatively fixed in the short term,
we may be unable to adjust our spending in time to compensate for any unexpected
shortfall in quarterly revenues.

Our operating results may vary by season, which could cause our operating
results to fall below expectations of securities analysts and investors.

Our results of operations may fluctuate as a result of seasonal factors, and
this may cause our operating results to fall below expectations of securities
analysts and investors for a particular quarter. Specifically, due to typical
year-end dealer sales patterns and end-user buying patterns, net sales in our
first quarter, without taking into account the effect of acquisitions, have in
the past declined from the fourth quarter of the previous year.

We rely heavily on telephone system manufacturers, independent equipment dealers
and value-added resellers.

A substantial majority of our net sales depends on a network of independent
telephone equipment dealers and computer-oriented value-added resellers. There
is intense competition for the attention of these independent dealers and
resellers from our competitors and from providers of other products distributed
through these channels. Many of these dealers and resellers do not have the
financial resources to withstand a downturn in their businesses. We may not be
able to maintain or expand our network of dealers and resellers in the future.
Moreover, our dealers and resellers may not maintain or expand their present
level of efforts to sell our products. If we lose a major dealer or reseller, or
if our dealers and resellers lose interest in selling our products, our
business, results of operations and financial condition may suffer.

A failure to establish and maintain strategic relationships could limit our
ability to increase our sales.

We also depend on relationships to introduce, market and distribute our products
to potential customers to whom we might otherwise not have access. We currently
have strategic relationships with Ericsson, NEC Corporation, Fujitsu Limited,
Lotus Development Corporation, Xerox Corporation and others.

The integration of recent and any future acquisitions may be difficult and
disruptive.

We frequently evaluate potential acquisitions of products, technologies and
businesses. Since January 1997, we have made three strategic acquisitions. Our
recent and any future acquisitions may direct management's attention away from
the day-to-day operations of our business and may pose numerous other risks. For
instance, we may not be able to successfully integrate any technologies,
products, personnel or operations of companies that we may acquire.

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<PAGE>

In making acquisitions, we may need to make dilutive issuances of our equity
securities, incur debt, write off purchased, in-process research and development
and amortize expenses related to goodwill and other intangible assets.

Technology and customer needs change rapidly in our industry.

In our industry, technology and customer demands change rapidly, and we and our
competitors frequently introduce new products and features. To succeed, we must
identify, develop and market new products, features and services that achieve
broad market acceptance by satisfying those changing customer needs and keeping
pace with those technological developments. To do this, we must spend
substantial funds on product development. We regularly devote significant
resources to technologies that we anticipate will be widely adopted. In
addition, in the future, we intend to pursue new revenue streams by leveraging
our expertise in voice and data communication to integrate these capabilities in
unified messaging, among other possible areas. The market for unified messaging
software is relatively new and as yet unproven. To be successful, we must, among
other things, develop and market products and services that achieve broad market
acceptance. We may not be able to develop new products or product enhancements
on a timely basis. Even if we do, the market may not accept the new products or
product enhancements that we develop.

Our market is highly competitive.

The computer-telephony market is highly competitive. Moreover, we believe the
competitive pressures we face are likely to intensify, particularly as our
competitors make new offerings based on the Windows operating system. We may not
have the financial resources, marketing, distribution and service capability,
depth of key personnel or technological knowledge to continue to compete
successfully in each of our markets.

We believe the main competitive factors affecting our business are breadth and
quality of application software, product integration, ability to respond to
technological change, quality of a company's sales force, price, size of the
installed base, level of customer support and professional services.

In the telephony-oriented market for messaging systems, our principal
competitors are independent suppliers such as the Octel Messaging Division of
Lucent Technologies, Inc. (now Avaya), Mitel Corporation, Active Voice
Corporation, and Callware Technologies, Inc.

In addition to independent suppliers of computer-telephony solutions, we also
compete with private branch exchange and key telephone systems manufacturers.
Those manufacturers offer integrated voice messaging systems, unified messaging
systems and automatic call distribution systems of their own design or under
various OEM agreements. Competitors in this category include Lucent
Technologies, Inc. (now Avaya), Nortel Networks Corporation, Siemens Business
Communication Systems, Inc., Mitel Corporation and NEC America, Inc.

In the market for LAN-based facsimile systems, our principal competitors are
Omtool, Ltd., Optus Software, Inc., Esker, S.A. and Computer Associates
International, Inc. Our fax server products also compete with vendors offering a
range of alternative facsimile solutions, including operating systems containing
facsimile and document transmission features, low-end fax modem products,
desktop fax software, single-platform facsimile software products and customized
proprietary software solutions. In the market for production facsimile systems,
our principal competitors are Biscom, Inc., Esker, S.A. and Topcall
International AG. In the market for document distribution products, our
principal competitors include the Xpedite division of PTEK Holdings, Inc. and
other telecommunications providers such as AT&T Corp., MCI WorldCom, Inc. and
Cable & Wireless, Inc.

                                       14
<PAGE>

Further acceptance of open systems architectures and the development of industry
standards in the call processing market may eliminate some of the technical
barriers to entry, allowing additional competitors to enter the market. Many of
our existing competitors have larger customer and installed bases and
substantially greater technical, financial and marketing resources than we do.
In addition, some of our competitors have a marketing advantage because they can
sell their call processing equipment or facsimile solutions as part of their
broader product offerings. Recently we believe our business has been, and may
continue to be, adversely affected by the introduction of next generation IP PBX
switches as potential customers delay purchasing decisions as they evaluate
these new product offerings. We expect our competitors will continue to offer
improved product technologies and capabilities. The availability of these
products could cause sales of our existing products to decline. For these
reasons, we may be unable to compete successfully against our current and future
competitors.

Our average sales prices have declined for some of our products.

The average sales prices in our basic voice messaging products have declined due
to competitive pressures. In the future, prices may decline in some of our other
product lines. If the average sales prices of our more significant product lines
fall, our overall gross margins will likely fall. To offset and forestall
declining average sales prices, we must continue to develop product enhancements
and new products with advanced features that are likely to generate higher-
margin incremental revenue. If we are unable to do so in a timely manner or if
our products do not achieve significant customer acceptance, our business,
results of operations and financial condition may suffer.

We may be unable to adequately protect our proprietary rights.

To succeed, we must adequately protect our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret laws, nondisclosure
and other agreements and technical measures to protect our proprietary
technology, but those measures may be insufficient. We have one patent in the
area of unified messaging, but our competitors may challenge or circumvent the
claims in that patent. Our current patent, or any future patents, may never
provide us with any competitive advantages. Other measures that we take to
protect our proprietary technology may not prevent or deter misappropriation of
our technology or the development of technologies with similar characteristics.
Moreover, our use of open systems architecture in the design of our products may
make it easier for competitors to misappropriate or replicate our designs and
developments.

We may face liability for infringement of third-party proprietary rights.

Historically, competitors in the computer-telephony software industry have filed
numerous allegations of patent infringement, resulting in considerable
litigation. We have received claims of patent infringement from several parties
and will probably receive additional claims in the future. While none of those
claims has led to litigation, they may yet result in litigation. Any litigation,
regardless of our success, would probably be costly and require significant time
and attention of our key management and technical personnel. Litigation could
also force us to

     .  stop or delay selling, or using, products that use the challenged
        intellectual property;

     .  pay damages for infringement;

     .  obtain licenses, which may be unavailable on acceptable terms; or

     .  redesign products or services that use the infringing technology.

We face risks from expansion of our international operations.

                                       15
<PAGE>

Our growth depends in part on continued expansion of our international sales.
International sales generated approximately 16%, 15% and 18% of our net sales in
the years ended December 31, 1997, 1998 and 1999, respectively. We have spent
significant management attention and financial resources on our international
operations. A significant portion of our revenues are subject to the risks
associated with international sales, which include

     .  difficulty adapting products to local languages and telephone system
        technology;

     .  inability to respond to changes in regulatory requirements;

     .  inability to meet special standards requirements;

     .  exposure to exchange rate fluctuations;

     .  tariffs and other trade barriers;

     .  difficulties in staffing and managing international operations;

     .  potentially adverse tax consequences; and

     .  uncertainties arising from local business practices and cultural
        considerations.

In addition, the laws of some foreign countries are uncertain or do not protect
intellectual property rights to the same extent as the United States. Moreover,
we could be sued for patent infringement or other intellectual property
violations in a foreign country where it could be very costly to defend such a
lawsuit.

Currently, substantially all of our international sales are denominated in U.S.
dollars. Increases in the value of the dollar against local currency could cause
our products to become relatively more expensive to customers in a particular
country, leading to reduced sales or profitability in that country. As we
continue to expand our international operations, we expect our non-dollar-
denominated sales and our exposure to gains and losses on international currency
transactions to increase. We do not currently engage in transactions to hedge
against the risk of currency fluctuations, but we may do so in the future.

We depend on certain key employees.

To succeed, we must attract and retain key personnel in engineering, research
and development, marketing, sales, finance and administration. In particular, we
depend to a significant degree on the efforts of our senior management team.
Competition for skilled personnel is intense. When our stock price is lower than
our employees' stock option price, it is particularly difficult to retain
skilled personnel. The failure to recruit such personnel or the loss of the
services of existing key persons in any functional area could adversely affect
our current operations and new product development efforts. We do not maintain
material key person life insurance.

We may experience difficulties in managing our growth.

Growth in our business has placed, and will continue to place, significant
demands on our management and operations. To succeed, our officers and key
employees must manage growth successfully. We must continue to implement and
improve our operational, financial and management information systems. In
addition, we must expand, train and manage our employee base. We may be unable
to timely and successfully accomplish these tasks.

We depend on third parties for certain key components of our products.

                                       16
<PAGE>

We use standard computer hardware for our products. Most of the components we
use are readily available. However, only three domestic suppliers can provide
voice processing circuit boards in the quantities we need. In addition, only two
domestic suppliers can provide our facsimile processing circuit boards in the
quantity we require. Historically, we have relied almost exclusively on Dialogic
Corporation (now a part of Intel Corporation) for our voice cards, and on
Dialogic and Brooktrout, Inc. for our fax cards. We rely on those suppliers
primarily because of volume price discounts and the cost and effort required to
develop software for an alternate voice or fax card. Significant delays,
interruptions or reductions in our supply of voice or fax cards, or unfavorable
changes to price and delivery terms could adversely affect our business.

Our stock price may be highly volatile.

The market price of our common stock has been, and may continue to be, highly
volatile. The future price of the common stock will fluctuate in response to
factors such as

     .  new product announcements or changes in product pricing policies by us
        or our competitors;

     .  quarterly fluctuations in our operating results;

     .  announcements of technical innovations;

     .  announcements relating to strategic relationships or acquisitions;

     .  changes in earnings estimates by securities analysts; and

     .  general conditions in the computer-telephony market.

In addition, the market prices of securities issued by many companies,
particularly in high-technology industries, are volatile for reasons unrelated
to the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common stock.

                                       17
<PAGE>

Item 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates, each of which could adversely affect the
value of the Company's investments. The Company does not currently use
derivative financial instruments.

     The Company maintains a short-term investment portfolio consisting of
interest bearing securities with an average maturity of less than one year.
These securities are classified as "available for sale" securities. The interest
bearing securities are subject to interest rate risk and will fall in value if
market interest rates increase. If market interest rates were to increase
immediately and uniformly by 10% from levels at June 30, 2000, the fair value of
the portfolio would decline by an immaterial amount. Because the Company has the
current ability to hold its fixed income investments until maturity, it does not
expect its operating results or cash flows to be affected to any significant
degree by a sudden change in market interest rates on its securities portfolio.

     The Company has assets and liabilities denominated in certain foreign
currencies related to the Company's international sales operations. The Company
has not hedged its translation risk on these currencies as the Company has the
current ability to hold its foreign-currency denominated assets indefinitely and
does not expect that a sudden or significant change in foreign exchange rates
would have a material impact on future net income or cash flows.

                                       18
<PAGE>

                         Part II.   OTHER INFORMATION


Item 1.  Legal Proceedings

     As described in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, on March 21, 2000 a class-action lawsuit
was filed in the United States District Court for the Western District of
Washington alleging that during the period January 20, 2000 through March 17,
2000, the Company and several officers and directors made or participated in
misrepresentations about the Company's business and future prospects. Since the
March 21 lawsuit was filed, additional lawsuits have been filed that are
identical to the March 21 lawsuit, with the exception of the name of the
plaintiff. During the quarter ended June 30, 2000 the court approved appointment
of three plaintiffs to act as Lead Plaintiffs and consolidated all lawsuits into
a single action, which seeks unspecified damages on behalf of a proposed class
of purchasers of the Company's stock during the specified period. The Company
believes that the allegations of the lawsuits are without merit and intends to
vigorously defend the actions. The Company has filed a motion to dismiss the
lawsuit for failing to meet applicable legal standards. Plaintiffs have filed a
Consolidated Amended Complaint ("CAC"), and the Company intends to file a motion
to dismiss the CAC as legally inadequate in the near future.


Item 4.  Submission of Matters to a Vote of Security Holders

     The Annual Meeting of Shareholders of AVT Corporation was held on May 9,
2000. A total of 28,395,084 shares of the Company's common stock were
represented in person or by proxy at the meeting, which comprised 89.93% of the
total number of shares of the Company's common stock outstanding on March 20,
2000, the record date for the meeting.

     At the meeting James S. Campbell was re-elected to serve as a director of
the Company for a term of three years until the Company's Annual Meeting of
Shareholders in 2003. The vote was as follows:

                                      For           Withheld
          James S. Campbell        27,779,723        615,361

     Approved at the meeting was a proposed amendment to the 1989 Restated Stock
Option Plan to increase the number of shares available for grant by 1,500,000 to
a total of 12,900,000 shares. The proposal received the following votes:

              For                     Against              Abstain
           14,653,843                13,681,541             59,900


Item 5.  Other Information

     On July 20, 2000, the company announced the retirement of Richard J.
LaPorte as President and Chief Executive Officer. Mr. LaPorte will continue as
Chairman of the AVT Board of Directors and will be actively involved in various
company initiatives, including the ongoing search for a permanent chief
executive officer. Roger A. Fukai, formerly AVT's Chief Financial Officer, was
named the Company's President and CEO on an interim basis, until a permanent
chief

                                       19
<PAGE>

executive is hired. On July 20, 2000, the Company also announced the promotion
of Jeffrey B. deCillia to Executive Vice President and Chief Financial Officer,
replacing Mr. Fukai in that role. Mr. deCillia, who joined the Company in 1999,
was previously the Company's Senior Vice President of Finance and
Administration.

     Under the SEC's proxy rules, shareholder proposals that meet certain
conditions may be included in the Company's proxy statement and form of proxy
for a particular annual meeting. Shareholders that intend to present a proposal
at the Company's 2001 annual meeting must give notice of the proposal to the
Company no later than December 11, 2000 to be considered for inclusion in the
proxy statement and form of proxy relating to that meeting. Shareholders that
intend to present a proposal that will not be included in the proxy statement
and form of proxy must give notice of the proposal to the Company no fewer than
60 days and no more than 90 days prior to the date of the 2001 annual meeting.
Receipt by the Company of any such proposal from a qualified shareholder in a
timely manner will not guarantee its inclusion in the Company's proxy materials
or its presentation at the 2001 annual meeting because there are other
requirements in the proxy rules.

     Pursuant to Rule 14a-4 under the Securities Exchange Act of 1934, as
amended, the Company intends to retain discretionary authority to vote proxies
with respect to shareholder proposals for which the proponent does not seek
inclusion of the proposed matter in the Company's proxy statement for our 2001
annual meeting, except in circumstances where (a) the Company receives notice of
the proposed matter no earlier than February 8, 2001 and no later than March 12,
2001 and (b) the proponent complies with the other requirements set forth in
Rule 14a-4.


Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits
              27.1  Financial Data Schedule for the six months ended June 30,
                    2000

         (b)  Reports on Form 8-K
              The Company did not file any reports on Form 8-K during the
              quarter ended June 30, 2000.

                                       20
<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.

                              AVT Corporation
                              (Registrant)

  Date:   August 11, 2000     By:   /s/ Jeffrey B. deCillia
                                    -----------------------------
                                    Jeffrey B. deCillia
                                    Executive Vice President,
                                    Chief Financial Officer

                                    Signing on behalf of registrant and
                                      as principal financial officer

                                       21