Financial: Vodavi Technology Reports Year-End and Fourth Quarter Results - Company Financial Information

EDGE, On & About AT&T, March 8, 1999

Vodavi Technology Inc. (NASDAQ:VTEK) Monday announced operating results for the fourth quarter and year ended Dec. 31, 1998.

For the year ended Dec. 31, 1998, revenue was $48.0 million, a slight increase over revenue of $47.7 million reported for the previous year ended Dec. 31, 1997. Net earnings for the year were $984,000, or $.23 per share, including a $.10 per share tax credit. Net earnings for 1997 were $215,000, or $.05 per share. Excluding a one-time pre-tax restructuring charge of $819,000, the earnings for the year ended Dec. 31, 1997 would have been $748,000, or $.17 per share.

Revenue for the quarter ended Dec. 31, 1998 was $10.6 million, a decrease of 7.8% from revenue of $11.5 million for the fourth quarter in 1997. Net earnings for the quarter ended Dec. 31, 1998 totaled $319,000, or $.07 per share, including a $.10 per share tax credit. The company reported a net loss for the quarter ended Dec. 31, 1997 of $821,000, or $.19 per share. Excluding the pre-tax restructuring charge, the loss in the fourth quarter of 1997 would have been $288,000, or $.07 per share.

According to Greg Roeper, president and chief operating officer, "We are pleased with our year-end performance and with the fact that we are on target to achieve the corporate objectives we instituted in mid-1998 when the new management team assumed the helm of the company. Strategic initiatives, involving making critical changes in three key areas -- people, processes and products -- have been embraced by the entire Vodavi team - from those on the Board down to those in our shipping department. Consequently, our collective efforts are achieving desirable results."

Continuing, Roeper added, "After carefully evaluating the strengths and weaknesses in personnel, we have eliminated several unnecessary layers of management, reassigned and reprioritized areas of responsibility and identified key roles that will be filled shortly. Further, Vodavi has been working diligently to redefine our relationships with our major distribution customers - shifting the emphasis from strictly pushing inventory into their distribution channels via steep discounting programs in favor of assisting them to more effectively manage the `pull' of our diversified product line through to the ultimate customers. This strategy has subsequently created enhanced profit margins and efficient management of cash flow and inventory control. Moreover, the spirit of partnership that we are fostering among our suppliers has initiated a noteworthy platform from which to introduce new and aggressive sales and marketing programs for both existing products and planned product launches."

Roeper concluded, "During 1998, Vodavi experienced numerous changes in management, corporate growth philosophies and product innovations. However, the company suffered few setbacks -- financial or otherwise -- and is now firmly positioned to aggressively pursue increased revenue and earnings opportunities in 1999. By perpetuating the considerable success we have enjoyed with increasing demand for our voice processing system -- sales up in excess of 50% during the past year -- to introducing new and cutting edge internet telephony, web-based interactive voice response, and call center products this summer, management's primary goal is to enhance stockholder value. We will focus our primary efforts on building an aggressive and experienced sales and marketing team committed to gaining increased marketshare for our quality products and technologies. At the end of the day, this should ultimately translate into enhanced value for our stockholders, while aiding the company to evolve into a world class organization. Given our healthy balance sheet and the growing excitement surrounding our new product launches, we are excited about the 1999 prospects for Vodavi."

Vodavi Technology Inc. is headquartered in Scottsdale, Ariz. The company designs, develops, markets and supports a broad range of business telecommunications solutions. Vodavi products include digital telecommunications systems, computer telephony products, and voice-processing systems including voice mail, fax mail, Internet messaging, and IVR (interactive voice response) for a wide variety of commercial applications. FMI: www.vodavi.com.

Vodavi Technology Inc.
Consolidated Balance Sheet
(In Thousands of Dollars)
(Unaudited)

          Dec. 31,
Dec. 31,
            1998        1997
ASSETS:
Current assets:
Cash                                        $    796    $    634
Accounts receivable, net                       8,888       9,682
Inventory, net                                 6,385       8,286
Prepaids                                         697         905
TOTAL CURRENT ASSETS                         16,766      19,507

Property and equipment, net                     2,663       2,616
Goodwill, net                                   2,244       2,395
Other long term assets, net                     1,169       1,146
         $ 22,842    $ 25,664

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current portion of long-term debt           $    124    $    379
Accounts payable                               2,355       4,320
Accrued liabilities                            1,854       2,416
TOTAL CURRENT LIABILITIES                     4,333       7,115
Long-term debt                                  7,910       8,934

STOCKHOLDERS' EQUITY
Common stock                                        4           4
Additional paid-in capital                     12,308      12,308
Accumulated deficit                            (1,713)     (2,697)
           10,599       9,615
         $ 22,842    $ 25,664

Vodavi Technology Inc.
Consolidated Statement of Operations
in Thousands of Dollars, Except Per Share Amounts
(Unaudited)

Three Months Ended    Twelve Months Ended
Dec. 31,
Dec. 31,
1998       1997       1998         1997

Revenues, net       $   10,581  $   11,499  $   47,983  $   47,675
Cost of goods sold       7,271       7,974      32,125      32,008
Gross margin             3,310       3,525      15,858      15,667
Operating expenses:
Engineering & product
development              312         573       1,616       2,101
Selling, general &
administrative         3,199       3,149      12,798      11,727
Asset impairment &
restructuring              0         819           0         819
Operating income (Loss)   (201)     (1,016)      1,444      (1,020)
Interest expense           177         176         791         663
Income (loss) before
income taxes             (378)     (1,192)        653         357
Provision for income
taxes                    (697)       (371)       (331)        142
Net (loss) per share$      319  $     (821) $      984  $      215
Net income (loss)
per share          $     0.07  $    (0.19) $     0.23  $     0.05
Weighted average shares
outstanding         4,342,238   4,342,238   4,342,238   4,342,238