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

               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, 1998


                        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 October
23, 1998 was 12,497,239.

================================================================================
<PAGE>
 
                                AVT CORPORATION
                                        
                                   FORM 10-Q
                   For the Quarter Ended September 30, 1998
                                        
                               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 1.  Legal proceedings..................................   13

          Item 6.  Exhibits and Reports on Form 8-K...................   13
 
Signatures............................................................   14

                                       2
<PAGE>
 
                        Part I.  FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS


                                AVT CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                  September 30,  December 31,
                                                                      1998           1997
                                                                  -------------  ------------
                           ASSETS                                        (in thousands)
<S>                                                               <C>            <C> 
Current assets:                                                                     
     Cash and cash equivalents                                       $13,136        $ 7,965
     Short-term investments                                           21,577         14,268
     Accounts receivable, net                                         10,540         10,098
     Inventories                                                       5,325          4,908
     Deferred and prepaid income taxes                                 2,756          1,119
     Prepaid expenses and other                                          930            968
                                                                     -------        -------
                         Total current assets                         54,264         39,326
Equipment and leasehold improvements, net                              2,973          2,364
Intangibles, net                                                       7,601          8,815
Deferred income taxes                                                  3,695          3,905
                                                                     -------        -------
                                                                     $68,533        $54,410
                                                                     =======        =======

                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                $ 2,985        $ 2,352
     Accrued compensation and benefits                                 3,336          1,485
     Other accrued liabilities                                         3,935          4,942
     Federal income taxes payable                                          -          2,621
                                                                     -------        -------
                         Total current liabilities                    10,256         11,400
                                                                     -------        -------
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, 60,000,000                             
        authorized; 12,497,239 and 11,522,558 shares outstanding         125            115
     Additional paid-in capital                                       39,202         31,604
     Retained earnings                                                18,950         11,291
                                                                     -------        -------
                         Total shareholders' equity                   58,277         43,010
                                                                     -------        ------- 
                                                                     $68,533        $54,410
                                                                     =======        =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                                AVT CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                 Quarter ended                        Nine months ended 
                                                                  September 30,                          September 30,
                                                             -----------------------               ------------------------
                                                             1998               1997               1998                1997
                                                             ----               ----               ----                ----
                                                                         (in thousands, except per share data)
<S>                                                         <C>                <C>                <C>                <C>
Net sales                                                   $20,834            $14,781            $57,439            $40,503
Cost of sales                                                 6,937              5,475             20,250             15,023
                                                            -------            -------            -------            -------
          Gross profit                                       13,897              9,306             37,189             25,480
Operating expenses:
     Research and development                                 2,073              1,678              6,001              4,747
     Sales, general and administrative                        7,329              4,599             19,730             13,422
     Non-recurring charges (1)                                    -                  -                287              3,898
                                                            -------            -------            -------            -------
          Total operating expenses                            9,402              6,277             26,018             22,067
                                                            -------            -------            -------            -------
Operating income                                              4,495              3,029             11,171              3,413
Other income, net                                               241                265                796                783
                                                            -------            -------            -------            -------
Income before income taxes                                    4,736              3,294             11,967              4,196
Income tax expense                                            1,705              1,185              4,308              1,510
                                                            -------            -------            -------            -------
Net income                                                  $ 3,031            $ 2,109            $ 7,659            $ 2,686
                                                            =======            =======            =======            ======= 
Basic earnings per common share                             $  0.25            $  0.19            $  0.64            $  0.24
 
Weighted average common shares outstanding                   12,325             11,426             11,984             11,340
 
Diluted earnings per common share                           $  0.22            $  0.17            $  0.58            $  0.22
 
Weighted average common and common equivalent
 shares outstanding                                          13,640             12,686             13,169             12,351
 
</TABLE>


(1)  Non-recurring charges consist of write-off of costs related to the
     withdrawal of the follow-on stock offering in February, 1998 (originally
     filed in October 1997) and write-off of the purchased in-process research
     and development associated with the acquisition of Telcom Technologies in
     January, 1997.

         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                                AVT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Nine months ended
                                                                                     September 30,
                                                                                ----------------------
                                                                                 1998           1997
                                                                                -------        -------
                                                                                    (in thousands)
<S>                                                                             <C>             <C>
Cash flows from operating activities:                                                          
     Net income                                                                 $ 7,659         $ 2,686
                                                                                -------         -------
Adjustments to reconcile net income to net cash                                                
         provided by operating activities:                                                     
     Depreciation and amortization                                                2,157           1,489
     Write-off of purchased in-process research and                                            
      development                                                                     -           3,898
     Deferred income tax asset                                                     (223)         (1,549)
     Changes in current assets and liabilities, net of                                         
          effects of acquisition:                                                              
         Accounts receivable                                                       (442)           (557)
         Inventories                                                               (417)         (1,349)
         Prepaid expenses and other assets                                           38            (355)
         Accounts payable                                                           633            (100)
         Accrued compensation and benefits                                        1,851             (44)
         Other accrued liabilities                                               (1,007)            185
         Federal income taxes payable                                               517           1,548
                                                                                -------         -------
         Total adjustments                                                        3,107           3,166
                                                                                -------         -------
              Net cash provided by operating activities                          10,766           5,852
                                                                                -------         -------
Cash flows from investing activities:                                                          
     Purchase of equipment and leasehold improvements                            (1,520)           (954)
     Cash paid in acquisition, net of cash acquired                                   -          (5,052)
     Proceeds from sale of investments                                                -               -
     Purchase of short-term investments                                          (7,309)         (3,130)
     Purchase of intangibles and other long-term assets                             (42)            (29)
                                                                                -------         -------
               Net cash used by investing activities                             (8,871)         (9,165)
                                                                                -------         -------
Cash flows from financing activities:                                                          
     Repayment of long-term debt                                                      -            (435)
     Proceeds from exercise of stock options                                      3,276           1,455
                                                                                -------         -------
               Net cash  provided by financing activities                         3,276           1,020
                                                                                -------         -------
           Net increase (decrease) in cash and cash                                            
            equivalents                                                           5,171          (2,293)
                                                                                               
Cash and cash equivalents at beginning of period                                  7,965          12,195
                                                                                -------         ------- 
Cash and cash equivalents at end of period                                      $13,136         $ 9,902
                                                                                =======         =======
Noncash transactions:                                                                          
     Stock and warrants issued in acquisition                                   $     -         $   700
Supplementary disclosures of cash flows:                                                       
     Cash paid for income taxes                                                 $ 3,801         $     -
</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 nine
month periods ended September 30, 1998 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, 1997.

2.  Earnings Per Share

<TABLE>
<CAPTION>
                                                                                 Quarter ended September 30,
                                                                -------------------------------------------------------------
                                                                          1998                                1997
                                                                -------------------------           -------------------------
                                                                           (in thousands, except per share data)
                                                                -------------------------------------------------------------
                                                                 Basic            Diluted            Basic            Diluted
                                                                -------           -------           -------           -------
<S>                                                             <C>               <C>               <C>               <C>
Net income                                                      $ 3,031           $ 3,031           $ 2,109           $ 2,109
                                                                =======           =======           =======           =======
Computation of common and common
     equivalent shares outstanding:
               Common Stock                                      12,325            12,325            11,426            11,426
               Options                                                              1,315                               1,260
                                                                -------           -------           -------           -------
Common and common equivalent shares                                                                                           
     used in computing per share amounts                         12,325            13,640            11,426            12,686 
                                                                =======           =======           =======           =======
Net income per share                                            $  0.25           $  0.22           $  0.19           $  0.17
                                                                =======           =======           =======           =======
<CAPTION> 
                                                                               Nine months ended September 30,
                                                                -------------------------------------------------------------
                                                                          1998                                1997
                                                                -------------------------           -------------------------
                                                                            (in thousands, except per share data)
                                                                -------------------------------------------------------------
                                                                 Basic            Diluted            Basic            Diluted
                                                                -------           -------           -------           -------
<S>                                                             <C>               <C>               <C>               <C>
Net income                                                      $ 7,659           $ 7,659           $ 2,686           $ 2,686
                                                                =======           =======           =======           =======
Computation of common and common
     equivalent shares outstanding:
               Common Stock                                      11,984            11,984            11,340            11,340
               Options                                                              1,185                               1,011
                                                                -------           -------           -------           -------
Common and common equivalent shares                                                                                           
     used in computing per share amounts                         11,984            13,169            11,340            12,351 
                                                                =======           =======           =======           =======
Net income per share                                            $  0.64           $  0.58           $  0.24           $  0.22
                                                                =======           =======           =======           =======
</TABLE>

                                       6
<PAGE>
 
                                AVT CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)



3.   Shareholders' Equity

     On April 23, 1998, the Company announced that its Board of Directors
approved a two-for-one stock split of the Common Stock effected in the form of a
stock dividend.  Shareholders received an additional share of common stock for
every share held on the record date of May 4, 1998.  The additional shares were
payable on May 11, 1998.  Accordingly, the accompanying financial statements
have been restated to reflect this stock split.

     On April 20, 1998, the Company's Board of Directors approved an increase of
the authorized shares of Common Stock, from 30 million to 60 million and an
increase of the authorized shares of Preferred Stock from one million to two
million, in order to reflect the stock split.  Shareholder approval of these
increases was not required.


4.   Changes in Shareholders' Equity

<TABLE>
<S>                                                              <C>
     Beginning balance at December 31, 1997                      $43,010
     Net Income                                                    7,659
     Exercise of stock options                                     3,276
     Tax benefit from exercise of non-qualified stock options      4,332
                                                                 -------
     Ending balance at September 30, 1998                        $58,277
                                                                 =======
</TABLE>

                                       7
<PAGE>
 
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS


     The Company is a leading provider of software-based computer-telephony
solutions for medium-sized enterprises.  These solutions are designed to enhance
individual and work group productivity, improve customer service, reduce
business operating costs and simplify access to data and dissemination of
information.  The Company's products provide enhanced voice and data integration
through applications such as unified voice and data messaging, call center
management, interactive voice response (IVR) and document distribution.  The
Company's key products are multi-application computer-telephony platforms that
run on off-the-shelf hardware, support Windows NT and OS/2 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 serve the needs of two distinct segments of the
computer telephony market  the telephony oriented buyer and the data oriented
buyer of enterprise software and systems.  The Company's telephony-oriented
products include:  CallXpress for Windows NT and CallXpress3, the Company's
premier multi-application, high capacity computer-telephony product lines;
PhoneXpress, a full-featured voice messaging system for small to medium-sized
enterprises; AgentXpress for Windows NT, a high-performance Windows NT-based
automated call center (ACD) system for medium-sized call centers; the recently
released Automated Agent for Windows NT, an IVR capability for CallXpress for
Windows NT; and Enhanced Agent, a set of interfaces and applications designed to
extend the capabilities of AgentXpress.  The Company's data-oriented products
include RightFAX and RightFAX Enterprise, the Company's LAN-based fax server
lines for Windows NT, and CommercePath's line of production document delivery
systems for Windows NT and Unix.  At this time the Company's data-oriented
products are focused on the enterprise fax market.  The Company significantly
expanded its product offering in the past 24 months by releasing Windows NT-
based products in each of its main product areas.

     The Company deploys separate distribution efforts to market these products
to the two distinct segments of the computer telephony market, utilizing both
indirect and direct resources in each.  The Company manages and reports its
operations consistent with this dual-pronged product line/distribution effort
strategy and refers to these two current market focuses as:  the Computer
Telephony Products Group (those targeted at the telephony-oriented buyer, and
hereafter, referred to as CTG) and Enterprise Fax (those targeted at the data-
oriented buyer). Since January 1996, the Company has made three strategic
acquisitions, each of which was accounted for as a purchase.  The Company
acquired RightFAX, a developer of LAN-based fax server software, in January
1996.  In January 1997, the Company acquired selected assets and liabilities of
Telcom Technologies, a developer of NT-based open architecture ACD systems. In
October 1997, the Company acquired CommercePath, a developer of high-volume
production-oriented fax servers. In connection with the RightFAX, Telcom
Technologies and CommercePath acquisitions, the Company recorded nonrecurring
charges of $4.1 million, $3.9 million and $7.1 million, respectively, in January
1996, January 1997 and October 1997, for the write-off of purchased, in-process
research and development, and recorded additional amounts of goodwill that are
being amortized over future years.  See "-Liquidity and Capital Resources."

     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 1997 Annual Report on Form 10-K.  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.

                                       8
<PAGE>
 
Results of Operations

   Net sales.  Net sales increased 41% to $20,834,000 in the quarter ended
September 30, 1998, from $14,781,000 in the comparable 1997 quarter.  This
growth was fueled by Enterprise Fax sales which increased 101% from the
comparable prior-year quarter and represented 60% of net sales. Sales of low
margin PhoneXpress product lines in the CTG area continued to decline consistent
with  the Company's historical trend, resulting in basic messaging sales
declining 36% in the current quarter as compared to the comparable prior-year
quarter.  The Company expects sales of the lower-margin basic messaging products
to continue to be affected by price pressures from competitive offerings and
decline as a percentage of total sales in the future. International sales for
the third quarter of 1998 increased 28% compared to the third quarter of 1997,
and represented 20% of total net sales.

   For the nine months ended September 30, 1998, net sales increased 42% to
$57,439,000 from $40,503,000 in the comparable prior-year period due to the
higher sales of Enterprise Fax products which increased 112% due in part to the
inclusion of CommercePath in 1998, and represented 57.6% of total net sales.
International sales increased 41% from the comparable prior-year period and
represented 20% of  total net sales.

   Gross profit.  Gross profit as a percentage of net sales improved to 66.7% in
the quarter ended September 30, 1998, as compared to 63.0% in the comparable
prior-year quarter, due to the continued sales mix shift toward the higher
margin Enterprise Fax and NT-based CTG product lines.

   For the nine months ended September 30, 1998, gross profit as a percentage of
net sales improved to 64.7% from 62.9% in the comparable prior-year period, due
to the favorable sales mix.

   Research and development.  Research and development expenses increased to
$2,073,000 in the quarter ended September 30, 1998 from $1,678,000 in the
comparable prior-year period, due primarily to increased personnel costs
relating to acceleration of certain development projects, and the inclusion of
the  research and development expenses associated with CommercePath. As a
percentage of sales, research and development expenses for the current quarter
declined to 10.0%  compared with 11.4% of net sales in the comparable prior-year
quarter.  For the nine months ended September 30, 1998, research and development
expenses increased to $6,001,000 from $4,747,000 in the comparable prior-year
period.  As a percentage of net sales, research and development expenses
represented 10.4% for the nine months ended September 30, 1998, as compared to
11.7% in the comparable prior-year period.

   Sales, general and administrative.  Sales, general and administrative
expenses increased to $7,329,000 in the quarter ended September 30, 1998 from
$4,599,000 in the comparable prior-year quarter, due primarily to increased
marketing and personnel-related costs of developing domestic and international
distribution for both the CTG and Enterprise Fax channels as well as the
inclusion of CommercePath expenses. Sales, general and administrative costs for
the current quarter represented 35.2% of net sales, an increase from 31.1% in
the comparable prior-year quarter.  For the nine months ended September 30,
1998, sales, general and administrative expenses increased to $19,730,000 from
$13,422,000 in the comparable prior-year period.  As a percentage, sales,
general and administrative expenses were 34.3% and 33.1% of net sales for the
nine-month periods ending September 30, 1998 and 1997, respectively.

   Operating  income.  Operating income for the quarter ended September 30, 1998
increased to $4,495,000, or 21.6% of net sales, from $3,029,000, or 20.5% of net
sales, in the comparable prior-year quarter.  For the nine months ended
September 30, 1998, operating income was $11,171,000 or 19.4% of net sales
compared to $3,413,000, or 8.4% of net sales, in the comparable prior-year
period. In the first quarter of 1998, the Company wrote off costs of $287,000
related to the withdrawal in February of the follow-on stock offering originally
filed in October 1997. In the first quarter of 1997, the Company recognized a
nonrecurring charge of $3,898,000 for the write-off of purchased, in-process
research and development resulting from the acquisition of Telcom Technologies
in January 1997. Excluding these nonrecurring charges, the Company's operating
income for the nine months ended September 30, 1998 was $11,458,000 or 19.9% of
net sales, an 

                                       9
<PAGE>
 
increase of 56.7% as compared to operating income of $7,311,000 in the
comparable prior-year period.

   Other income, net.  Net other income was $241,000 in the quarter ended
September 30, 1998, as compared to $265,000 in the comparable prior-year
quarter.  For the nine months ended September 30, 1998, net other income
increased slightly to $796,000 from $783,000 in the comparable prior-year
period.

   Income tax expense.  The effective tax rate for the quarters and nine months
ended September 30, 1998 and 1997 was 36.0%, with income tax expense of
$1,705,000 for the quarter ended September 30, 1998 and  $1,185,000 in the
comparable prior-year quarter. The income tax expense for the nine-month periods
ended September 30, 1998 and 1997 was $4,308,000 and $1,510,000 repectively.
The acquisition of Telcom Technologies in the first quarter of 1997 was a
taxable purchase of assets, and, therefore, the resulting excess of purchase
price over net tangible assets acquired is deductible for income tax purposes
resulting in an income tax benefit for that quarter.

   Net income.  The Company recognized net income of $3,031,000 or $0.22 per
diluted common share for the quarter ended September 30, 1998, as compared to
$2,109,000 or $0.17 per diluted common share for the comparable prior-year
quarter. Due to the first quarter non-recurring charges discussed above, the
Company recognized net income for the nine months ended September 30, 1998 of
$7,659,000 compared to $2,686,000 in the comparable 1997 period. Excluding these
non-recurring charges, net income for the first nine months of 1998 would have
been $7,843,000 or $0.60 per diluted common share as compared with $5,181,000,
or $0.42 per diluted common share, in the comparable prior-year period.

 

Liquidity and Capital Resources

   Cash provided by operating activities in the nine months ended September 30,
1998 was $10.8 million due primarily to continuing profitable operations.  The
average accounts receivable collection period remained favorable at less than 50
days.  Inventories increased to $5.3 million at September 30, 1998 from $4.9
million at December 31, 1997,  primarily due to the need to support increased
sales levels.

   In January 1997, the Company acquired selected assets and liabilities of
Telcom Technologies.  The purchase price for the acquisition was $3.5 million in
cash, plus warrants to purchase 200,000 shares of the Company's common stock
exercisable at $6.68 per share, which may be exercised any time prior to January
3, 2002.  The Company accounted for the business combination as a purchase and
recognized a nonrecurring charge of $3.9 million in the first quarter of 1997,
representing the value of the purchased, in-process research and development.

   In January 1996, the Company acquired RightFAX through a merger of RightFAX
into a wholly owned subsidiary of the Company.  The purchase price for the
acquisition paid at the closing was $4.2 million in cash plus 326,000 shares of
the Company's common stock.  Approximately $4.1 million of the purchase price
was recognized as a nonrecurring charge in the first quarter of 1996,
representing the value of purchased, in-process research and development.  The
remaining intangible assets are being amortized over seven years from the date
of acquisition.  In addition, the Company paid $668,000 in cash and 52,000
shares of the Company's common stock in the first quarter of 1998, and $1.4
million in cash and 190,000 shares in 1997, pursuant to an earn out and
guaranteed value of the Company's common stock.  As a result of the earn out,
the Company recorded  additional goodwill of $1.3 million and $2.0 million at
December 31, 1997 and 1996, respectively.  The former shareholders of RightFAX
are entitled to receive additional consideration of up to $500,000 in a
combination of cash and the Company's common stock, if certain revenue and
profit margin goals are achieved by RightFAX during 1998.

                                       10
<PAGE>
 
   In October 1997, the Company acquired all the outstanding capital stock of
CommercePath from Forest City Trading Group, Inc. for $10.4 million in cash.  In
connection with the acquisition, the Company also granted options to purchase
240,000 shares of Common Stock, at an exercise price of $14.04 per share, to two
of CommercePath's executive officers.  The Company has accounted for the
acquisition as a purchase and recorded a nonrecurring charge of $7.1 million for
the write-off of purchased, in-process research and development.  In addition,
the Company recorded additional amounts of goodwill that will be amortized over
seven years.

   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 the Year 2000 Issue

   The "Year 2000 Issue" is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two-digit year
value to 00.  Systems that do not properly recognize date sensitive information
when the year changes to 2000, or interact with systems or components that fail
to do so, could generate erroneous data or otherwise fail to function properly,
or at all.  There is speculation that a significant amount of litigation will
arise out of Year 2000 compliance issues, and the Company is aware of a growing
number of lawsuits against other software vendors.  Because of the unprecedented
nature of such litigation, it is uncertain whether or to what extent the Company
may be affected by it.

   The Company has developed a plan to ensure its internal systems and products
are Year 2000 compliant, and to mitigate its risks in the event that its vendors
or other third-parties with whom it has material relationships are not Year 2000
compliant on a timely basis.  The Company has potential exposure relating to the
Year 2000 issue in four areas:  (1) the Company's internal software and hardware
systems, including non-information technology systems; (2) suppliers of hardware
and software the Company resells as part of its products; (3) internally
developed software the Company sells; and (4) other third-parties with whom the
Company has material relationships.  The following information explains how the
Company is addressing each of these potential risk areas:

         1.    With respect to internal software and hardware systems, the
               Company reviewed all its material systems to determine which
               systems were not Year 2000 compliant. The Company is currently in
               the process of completing all necessary upgrades, modifications
               and conversions to its programs and equipment to ensure they will
               continue to be effective in the year 2000, and expects to
               complete this process not later than June 30, 1999. All of such
               upgrades have been or are being done as part of a normal upgrade
               cycle and accordingly no additional costs are being incurred as a
               result of Year 2000 issues. The Company expects that the only
               expense it will incur to make its internal software and hardware
               systems Year 2000 compliant is approximately $5,000 to update an
               alarm system.

         2.    The Company has tested and will continue to test computer
               components, including fax and voice cards and software it
               purchases from third parties, for Year 2000 compliance. The
               Company has verified that all such components and software
               currently in use are Year 2000 complaint. The Company, however,
               has identified alternate sources for critical components in the
               event that a supplier's business is disrupted by the advent of
               the year 2000.

         3.    Since June 1998, all of the Company's products available for sale
               to customers have been 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. The cost of developing and providing such upgrades was
               approximately $100,000. The Company does not intend to offer
               upgrades for certain of its older products.

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<PAGE>
 
         4.    The Company has begun a process to contact third parties with
               which it has material relationships, including its vendors,
               distributors, banks, and transfer agent, to attempt to determine
               their preparedness with respect to Year 2000 issues and to
               analyze the risks to the Company in the event any such third
               parties experience significant business interruptions as a result
               of Year 2000 noncompliance. The Company expects to complete this
               review process by March 31, 1999.


   The Company believes that it is taking 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.  However, the Company
may be materially adversely affected if important distributors or customers of
the Company experience significant disruptions in their systems or business due
to the advent of the Year 2000.  In addition, the costs of the Year 2000 project
and the date on which the Company plans to complete Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors.  There can be no
guarantee that these assumptions will prove to be correct and actual results
could differ materially from those expected.  The Company intends to develop a
contingency plan to address unexpected Year 2000 issues by June 30, 1999.

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<PAGE>
 
                          Part II.  OTHER INFORMATION

                                        

Item 1.      Legal Proceedings

             In May 1998, CallWare brought suit against AVT in federal court in
             Salt Lake City, Utah, alleging various claims relating to purported
             false advertising by AVT. (CallWare Technologies, Inc. v. Applied
             Voice Technology, Inc., Case No. 2:98CV 0329K.) CallWare has
             claimed $20 million in monetary damages, and an additional $60
             million in punitive damages. The suit is in the discovery phase,
             and an initial pretrial conference is scheduled for January 14,
             1999. AVT believes that CallWare's claims are without merit and is
             vigorously defending the lawsuit.


Item 6.      Exhibits and Reports on Form 8-K

               (a)  Exhibits
                    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, 1998.

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<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:  November 12, 1998    By: /s/ ROGER A. FUKAI
                                 ---------------------------
                                 Roger A. Fukai
                                 Executive Vice President
                                 Finance and Administration,
                                 Chief Financial Officer

                                 Signing on behalf of registrant and
                                    as principal financial officer

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