===============================================================================
                UNITED STATES 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 September 30, 1996





                         Commission File Number 0-25186

                         APPLIED VOICE TECHNOLOGY, INC.
--------------------------------------------------------------------------------
                (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: (206) 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 October
24, 1996 was 5,416,967.

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


                                        1
<PAGE>




                         APPLIED VOICE TECHNOLOGY, INC.

                                    FORM 10-Q
                    For the Quarter Ended September 30, 1996

                                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......8


PART II. Other Information

         Item 6.  Exhibits and Reports on Form 8-K.....................11

Signatures.............................................................12

Exhibit Index..........................................................13

                                        2


<PAGE>


                          Part I. FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS



                         APPLIED VOICE TECHNOLOGY, INC.

                           CONSOLIDATED BALANCE SHEETS

                                   (Unaudited)
<TABLE>
<CAPTION>

                                             September 30,         December 31,                     
                                                  1996                 1995                     
                                          -----------------    -----------------                        
                          ASSETS                     (in thousands)
<S>                                          <C>                  <C>

Current assets:
     Cash and cash equivalents                $    17,450         $     12,249      
     Short-term investments                         8,149               12,197
     Accounts receivable, net                       5,216                4,755
     Inventories                                    2,425                1,728                
     Deferred income taxes                            937                  891
     Prepaid expenses and other                       800                  994
                                                                           
                                             --------------    -----------------
                                          
     Total current assets                          34,977               32,814
                                                                        
                                          -----------------    -----------------

Equipment and leasehold                             
    improvements, net                               1,348                  954
Intangibles, net                                    5,063                3,164
                                                                        
                                          -----------------    -----------------

                                                                        
                                             $    41,388          $     36,932
                                          =================    =================

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                        $     1,723          $      1,103   
     Accrued compensation and benefits             1,467                   644
     Other accrued liabilities                     1,045                   849
     Note payable - current portion                  622                   537
     Federal income taxes payable                     33                    11
                                        -----------------     -----------------
      Total current liabilities                    4,890                 3,144
                                        -----------------     -----------------

Note payable                                         464                   899

Shareholders' equity:
     Preferred stock, par value 
     $.01 per share, 1,000,000   
     authorized; none outstanding                      -                     -
     Common stock, par value 
     $.01 per share, 30,000,000   
     authorized; 5,416,967 and 
     5,144,040 shares outstanding                      54                    51
     Additional paid-in capital                    27,367                24,222
     Retained earnings                              8,602                 8,628
     Less deferred compensation                         -                  (34)
     Unrealized gain on investments                    11                    22
                                        -----------------      -----------------
                                                                                           
     Total shareholders' equity                    36,034                32,889
                                        -----------------      -----------------
                                                                                                   
                                             $     41,388          $     36,932
                                         =================     =================


          See accompanying notes to consolidated financial statements.
</TABLE>

                                        3


<PAGE>

                         APPLIED VOICE TECHNOLOGY, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                                   (Unaudited)
<TABLE>
<CAPTION>


                                          Quarter ended ..   Nine months ended                                        
                                           September 30, ..    September 30,
                                        -----------------    -----------------
                                           1996     1995      1996      1995
                                         -------   ------   -------   --------
                                        (in thousands, except per share data)
<S>                                     <C>       <C>       <C>       <C>

Net sales ............................   $11,221   $7,959   $31,457   $ 22,883
Cost of sales ........................     4,202    3,199    12,084      9,475
                                         -------   ------   -------   --------
  Gross profit .......................     7,019    4,760    19,373     13,408

Operating expenses:
  Research and development ...........     1,093      692     3,029      1,952          
  Sales, general and administrative ..     3,719    2,154    10,565      6,345
  Write-off of in-process research and
  development ........................      --       --       4,140       --   
                                         -------   ------   -------   --------
  Total operating expenses ...........     4,812    2,846    17,734      8,297

Operating income .....................     2,207    1,914     1,639      5,111
                                                                         
Other income, net ....................       252      246       650        887
                                          -------   ------   -------   --------            
Income before income tax expense .....     2,459    2,160     2,289      5,998
                                                                         
Income tax expense ...................       886      658     2,315      1,959
                                          -------   ------   -------   --------            
Net income (loss) ....................   $ 1,573   $1,502      $(26)  $  4,039
                                         ========  ======== ========   ========       


Net income (loss) per common share ...   $  0.26   $ 0.26   $    (-)  $   0.70
                                                           

Weighted average common shares
     outstanding .....................     6,106    5,705     6,064      5,740
                                                                      

          See accompanying notes to consolidated financial statements.
</TABLE>
                                        4

<PAGE>



                         APPLIED VOICE TECHNOLOGY, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                            Nine months ended
                                                              September 30
                                                        ------------------------
                                                            1996        1995
                                                        ----------   -----------
                                                             (in thousands)
<S>                                                      <C>           <C>

Cash flows from operating activities:
     Net (loss) income
                                                          $   (26)      $4,039
                                                          --------    --------
Adjustments  to  reconcile net  income
     to  net  cash  provided  by  operating
     activities:
     Depreciation and amortization ....................      1,035         577
     Write-off of in-process research and development .      4,140          --
     Stock compensation expense .......................         34          65
     Changes in current assets and liabilities,
      net of effects of acquisition:
         Accounts receivable ..........................        895        (820)
         Inventories ..................................       (518)       (272)
         Deferred income tax asset ....................          4          --
         Prepaid expenses and other assets ............        (12)       (341)
         Accounts payable .............................        (69)        198
         Accrued compensation and benefits ............        729          70
         Other accrued liabilities ....................        (13)       (624)
         Federal income taxes payable .................       (576)       (750)
                                                          --------    --------
         Total adjustments ............................      5,649      (1,897)
                                                          --------    --------

              Net cash provided by operating activities      5,623       2,142
                                                          --------    --------
Cash flows from investing activities:
     Purchase of equipment and leasehold improvements .       (647)       (531)
     Cash paid in acquisition, net of cash acquired ...     (3,318)         --
     Purchase of short-term investments ...............         --     (20,359)
     Net proceeds from the sale of investments ........      4,037          --
     Purchase of intangibles and other long-term assets       (397)     (1,970)
                                                          --------    --------

       Net cash used by investing activities ..........       (325)    (22,860)
                                                          --------    --------

Cash flows from financing activities:
     Repayment of long-term debt ......................       (399)         --
     Net proceeds from exercise of overallotment ......         --       2,040
     Proceeds from exercise of stock options ..........        302         151                 
                                                          --------    --------
       Net cash (used) provided by financing ..........    
       activities                                              (97)      2,191
                                                          --------    --------

               Net change in cash .....................      5,201     (18,527)
                                                                       

Cash and cash equivalents at beginning of period ......     12,249      22,685
                                                          ========    ========

Cash and cash equivalents at end of period ............   $ 17,450   $   4,158
                                                          ========    ========
Noncash transactions:
     Unrealized loss on investments ...................   $  (11)   $    (12)
                                                             
     Stock issued in acquisition                             2,846        --
                                                            


          See accompanying notes to consolidated financial statements.
</TABLE>
                                        5
<PAGE>




                         APPLIED VOICE TECHNOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


1.       Interim Financial Statements

         The  accompanying  consolidated  financial  statements of Applied Voice
Technology, Inc. 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 nine
month period ended September 30, 1996 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, 1995.


2.       Short-Term Investments

         In accordance  with FAS 115, the Company has classified its investments
as  "available-for-sale"  and recorded these investments at estimated fair value
with  unrealized   gains  and  losses  reported  as  a  separate   component  of
Shareholders' Equity.

         Interest income is recorded using an effective  interest rate, with the
associated premium or discount amortized to interest income over the term of the
investment.   The  cost  of   securities   sold  is  based  upon  the   specific
identification  method.  Available-for-sale  securities as of September 30, 1996
consisted of:
                                         Amortized ... Unrealized    Estimated
                                           Cost ........  Gain       Fair Value
                                         ---------     ----------    --------- 
                                                       (in thousands)
                                                                               

Municipal notes/bonds ................   $   8,138         $ 11        $ 8,149 


3.       Inventories

         Inventories consisted of the following:

                                            September 30,         December 31,
                                                1996                  1995
                                            ------------          ------------
                                                    (in thousands)

         Raw materials and service parts     $   2,171          $     1,477
                                         
         Finished goods                            254                  251
                                         
                                             ===========         ============
                                             $   2,425          $     1,728
                                             ===========         ============


                                           6
<PAGE>




                         APPLIED VOICE TECHNOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


4.       Business Acquired

              On January 2, 1996,  the Company  acquired  Cracchiolo  and Feder,
Inc. (d/b/a  RightFAX),  a  privately-held  developer of fax server software for
local area networks.  As previously  reported on Form 8-K dated January 2, 1996,
the  purchase  price for the  acquisition  was $4.3 million in cash plus 163,291
shares of the Company's common stock. In addition,  the Company may pay up to an
additional  $3.8 million in a combination of cash and common stock over the next
three years,  contingent  upon  certain  future  results.  The  shareholders  of
RightFAX  will further be entitled to receive  additional  consideration  to the
extent the value of the  Company's  common stock issued to the  shareholders  of
RightFAX is less than $2.8 million at the end of 1996.





                                        7
<PAGE>




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


         Founded  in 1982,  the  Company  develops,  manufactures,  markets  and
supports  a  broad  line  of  open  systems-based  advanced  computer  telephony
integration (CTI) software products and basic call answering and voice messaging
systems.  CTI  encompasses  a wide range of products  that unite two of the most
essential business instruments - PCs and telephones. The Company's product lines
include   CallXpress3,   the  Company's   premier  CTI  product;   RightFAX,   a
high-performance  local area  network-based  enhanced  fax  server CTI  product;
PhoneXpress,  a  high-performance  call  answering  and  routing  and voice mail
system;  and px100, a basic voice mail and call  answering  system for the small
business market.

         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  and in Item 1
(Business)  of the  Company's  Annual  Report  on Form  l0-K for the year  ended
December 31, 1995.  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 result 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.



Results of Operations

      Net  sales.  Sales of the  Company's  products  fall  into  the  following
categories:  advanced CTI  applications,  "CTI-ready"  systems,  basic messaging
systems, and installed base add-ons and service.  Advanced CTI application sales
include  CallXpress3  systems and kits which  include at least one  advanced CTI
module  (unified  messaging  applications  such as Desktop for  Windows,  E-mail
Access,  and Faxmail;  interactive  voice response such as Automated  Agent; and
enhanced fax products such as Faxtext) installed upon initial shipment, advanced
CTI application modules sold as add-ons to existing CallXpress3 systems, and the
RightFAX line of  high-performance,  LAN-based fax servers.  "CTI-ready" systems
represent  CallXpress3  systems and kits sold initially with only call answering
and routing and voice messaging  capabilities,  but whose architecture  provides
for easy upgrade to an advanced CTI application. Basic messaging systems perform
only call answering and routing and voice  messaging  capabilities,  and include
the Company's  PhoneXpress  and px100 products.  The final category  consists of
capacity upgrades, feature add-ons, spare parts, and services to its customers.
      Net sales  increased 41% to $11,221,000 in the quarter ended September 30,
1996,  from  $7,959,000 in the comparable  1995 quarter.  The increase  resulted
primarily from sales of advanced CTI applications, which increased 146% from the
comparable  prior-year quarter,  and represented 49% of total sales, as compared
with 28% in the comparable prior-year quarter.  Sales of basic messaging systems
increased 12% in the current  quarter as compared to the  comparable  prior-year
quarter and represented 26% of total sales. The basic messaging market continues
to be affected by price  pressures  from  competitive  offerings.  International
sales for the third quarter of 1996  increased 90% compared to the third quarter
of 1995, and represented 17.6% of total net sales.
      For the nine months ended  September  30, 1996 net sales  increased 37% to
$31,457,000 from $22,883,000 in the comparable  prior-year period, due primarily
to increased sales of advanced CTI applications which increased 147% during that
period.  International  sales for the first nine  months of 1996  increased  71%
compared to the comparable  prior-year  period,  and represented  17.1% of total
sales.

                                       8
<PAGE>

      Gross profit.  Gross profit as a percentage of sales  improved to 62.6% in
the quarter ended  September  30, 1996 as compared with 59.8% in the  comparable
prior-year quarter,  due to the favorable sales mix of advanced CTI applications
as compared  with basic  messaging  systems.  Because  advanced CTI  application
products contain a higher software  content,  gross margins are typically higher
than  other  sales.  Also,  the  basic  messaging  market  continues  to be very
competitive, putting pressure on prices and resulting margins.
      For the nine months ended  September 30, 1996 gross profit as a percentage
of sales improved to 61.6% from 58.6% in the comparable  prior-year  period, due
to the favorable mix of advanced CTI application sales.
      Research and development.  Research and development  expenses increased to
$1,093,000  in the  quarter  ended  September  30,  1996  from  $692,000  in the
comparable  prior-year  period,  due  primarily  to  increased  personnel  costs
relating to acceleration of certain development  projects begun in late 1995 and
the inclusion of RightFAX operations.  Research and development expenses for the
current quarter represented 9.7% of net sales as compared with 8.7% of net sales
in the comparable  prior-year  quarter.  For the nine months ended September 30,
1996 research and development  expenses  increased to $3,029,000 from $1,952,000
in the comparable prior-year period and represented 9.6% of sales.

      Sales,  general and  administrative.  Sales,  general  and  administrative
expenses  increased to $3,719,000  in the quarter ended  September 30, 1996 from
$2,154,000  in the  comparable  prior-year  period,  due  primarily to increased
personnel-related costs of domestic and international  distribution  development
programs and inclusion of RightFAX operations. Sales, general and administrative
costs for the current  quarter  represented  33.1% of net sales as compared with
27.1% in the comparable  prior-year  period. For the nine months ended September
30, 1996 sales,  general and  administrative  expenses  increased to $10,565,000
from $6,345,000 in the comparable  prior-year  period and  represented  33.6% of
sales.

      Operating (loss) income.  Operating income for the quarter ended September
30,  1996  increased  to  $2,207,000  (19.7% of sales)  from  $1,914,000  in the
comparable  prior-year quarter.  The Company recognized a nonrecurring charge of
$4,140,000  in the  first  quarter  of 1996  representing  purchased  in-process
research  and  development  associated  with the  January  1996  acquisition  of
RightFAX,  Inc.  Therefore,  for the nine months  ended  September  30, 1996 the
Company's  operating income was $1,639,000.  Excluding the nonrecurring  charge,
the Company's operating income for the first nine months of 1996 would have been
$5,779,000  (18.4% of net sales),  as compared with $5,111,000 in the comparable
prior-year period.

      Other  income,  net. Net other  income was  $252,000 in the quarter  ended
September  30,  1996,  unchanged  from  $246,000  in the  comparable  prior-year
quarter.  For the nine months  ended  September  30,  1996 net other  income was
$650,000  as  compared  to  $887,000  in the  comparable  prior-year  period due
primarily to the shift of  short-term  investments  from  taxable to  tax-exempt
instruments in 1996 as compared to 1995.

      Income tax expense. Income tax expense for the quarter ended September 30,
1996 was $886,000, an effective rate of 36.0% Because the nonrecurring charge of
in-process  research and development and the amortization of goodwill associated
with the  acquisition  of  RightFAX  are not tax  deductible,  the  Company  has
recognized  income tax expense of $2,315,000 in the nine months ended  September
30, 1996.  For the  remainder  of 1996,  the  effective  tax rate is expected to
continue to be approximately 36.0%.

                                       9
<PAGE>

      Net (loss)  income.  The Company  recognized  net income of  $1,573,000 or
$0.26 per  share  for the  quarter  ended  September  30,  1996 as  compared  to
$1,502,000 or $0.26 per share for the comparable  prior-year quarter. Due to the
nonrecurring charge for purchased in-process research and development recognized
in the first quarter 1996, the Company  recognized a net loss of $26,000 for the
first nine months of 1996. Excluding this nonrecurring charge net income for the
first  nine  months of 1996  would  have been  $4,114,000  or $0.68 per share as
compared with $4,039,000 or $0.70 per share in the comparable prior-year period.



Liquidity and Capital Resources

      Cash provided by operating  activities in the nine months ended  September
30,  1996 was  $5.6  million  due  primarily  to  continuing  profitability  and
improvement  in average  collections  of  accounts  receivable.  While  accounts
receivable  increased to $5.2 million at September 30, 1996 from $4.8 million at
December  31, 1995 due to higher sales  volume,  the average  collection  period
decreased by  approximately  10 days.  Inventories  increased to $2.4 million at
September  30, 1996 from $1.7 million at December 31, 1995 due  primarily to the
acquisition of RightFAX.

      In January 1996, the Company  acquired  Cracchiolo and Feder,  Inc. (d/b/a
RightFAX),  a developer  of fax server  software  for local area  networks.  The
purchase price for the  acquisition was $4.3 million in cash plus 163,291 shares
of the  Company's  common  stock.  In  addition,  the  Company  may pay up to an
additional  $3.8 million in a combination of cash and common stock over the next
three years,  contingent  upon  certain  future  results.  The  shareholders  of
RightFAX  will further be entitled to receive  additional  consideration  to the
extent the value of the  Company's  common stock issued to the  shareholders  of
RightFAX is less than $2.8 million at the end of 1996.

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

                                        10

<PAGE>




                           Part II. OTHER INFORMATION





Item 6.  Exhibits and Reports on Form 8-K

               (a)  Exhibits
                    11.1     Computation of Earnings Per Share
                    27.1     Financial Data Schedule

               (b)  Reports on Form 8-K
                    The  Company did not file any reports on Form 8-K during the
                    quarter ended September 30, 1996.



                                        11

<PAGE>




                                   SIGNATURES

    Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, the
    registrant  has duly  caused  this  report to be signed on its behalf by the
    undersigned thereunto duly authorized.

                                  Applied Voice Technology, Inc.
                                  (Registrant)


    Date:   November 12, 1996      By:       Roger A. Fukai
                                       ------------------------- 
                                       Roger A. Fukai
                                       Senior Vice President
                                       Finance and Administration,
                                       Chief Financial Officer

                                       Signing on behalf of registrant and
                                       as principal financial officer
      

                                        12
<PAGE>

                                 EXHIBIT INDEX


     EXHIBIT                  DESCRIPTION
     -------             ---------------------

     11.1                Computation of Earnings Per Share

     27.1                Financial Data Schedule


                                        13