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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended July 31, 2002

or

Commission File Number: 000-49790

Verint Systems Inc.
(Exact name of registrant as specified in its charter)

(516) 677-7300
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

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.

ý  Yes    o  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of Common Stock, par value $0.001 per share,
outstanding as of September 6, 2002 was 23,431,791

PART I

Financial Information

2

VERINT SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except share data)

*

The Condensed Consolidated Balance Sheet as of January 31, 2002 has been summarized from the Company's audited Consolidated Balance Sheet as of that date.

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

3

VERINT SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)

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

4

VERINT SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

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

5

VERINT SYSTEMS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

        Verint Systems Inc. ("Verint" and, together with its subsidiaries, the "Company") is engaged in providing analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence.

        The accompanying financial information should be read in conjunction with the audited financial statements, including the notes thereto, for the annual period ended January 31, 2002 (included in the Company's registration statement on Form S-1, as filed with the Securities and Exchange Commission (the "SEC"), dated May 15, 2002). See Note 2, "Initial Public Offering" below. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of the Company's management, necessary for a fair statement of the results for the interim periods presented herein. The Company's results of operations for the three month and six month periods ended July 31, 2002 are not necessarily indicative of the Company's results to be expected for the full year.

2. Initial Public Offering

        In May 2002, the Company completed an initial public offering of 4,500,000 shares of its common stock at a price of $16.00 per share. The net proceeds of the offering were approximately $65.4 million. The Company intends to use the net proceeds of this offering to finance the growth of its business, as working capital and for general corporate purposes and capital expenditures. The Company also may use a significant portion of such proceeds to repay outstanding bank debt. In addition, the Company may also use a portion of the proceeds for acquisitions or other investments.

3. Inventories

        The composition of inventories at January 31, 2002 and July 31, 2002 is as follows:

4. Research and Development Expenses

        The Company's research and development activities include projects partially funded by the Office of the Chief Scientist of the Ministry of Industry and Trade of the State of Israel (the "OCS") under which the OCS reimburses a portion of the Company's research and development expenditures under approved project budgets. The Company is currently involved in several ongoing research and development projects supported by the OCS. Such reimbursement amounted to $1,516,000 and $3,005,000 in the three and six month periods ended July 31, 2001, respectively, and $1,320,000 and $2,524,000 in the three and six month periods ended July 31, 2002, respectively.

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5. Earnings (Loss) Per Share

        The computation of basic earnings (loss) per share is based on the weighted average number of outstanding common shares. Diluted earnings (loss) per share further assumes the issuance of common shares for all potentially dilutive issuances of stock. The calculation for earnings (loss) per share for the three month and six month periods ended July 31, 2001 and 2002 was as follows:

        The diluted loss per share computation for the three month and six month periods ended July 31, 2001, excludes approximately 1,737,000 and 1,092,000 incremental shares related to employee stock options, respectively. These shares are excluded due to their antidilutive effect as a result of the Company's loss during these periods.

6. Comprehensive Income (Loss)

        Total comprehensive income (loss) was $(1,450,000) and $1,958,000 for the three month periods ended July 31, 2001 and July 31, 2002, respectively and $(2,471,000) and $3,406,000 for the six month periods ended July 31, 2001 and July 31, 2002, respectively. The elements of comprehensive income (loss) include net income (loss) and foreign currency translation adjustments.

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7. Workforce Reduction and Restructuring

        During the year ended January 31, 2002, the Company took steps to better align its cost structure with the business environment, to improve the efficiency of its operations and to increase its profitability. These steps included reductions in the Company's workforce and the consolidation of its facilities in the United Kingdom, which were announced in April and December 2001.

        As of July 31, 2002, the Company had accrued liabilities of approximately $375,000 related to the workforce reduction and facilities consolidation costs. A roll forward of the accrued liabilities for the workforce reduction and facilities consolidation costs from January 31, 2002 is as follows:

        Severance and related costs consist primarily of severance payments to terminated employees and fringe related costs associated with severance payments, other termination costs and legal and consulting costs. The balance of the severance and related costs is expected to be paid by January 31, 2003.

        Facilities costs consist primarily of contractually obligated lease liabilities and operating expenses related to facilities vacated in the United Kingdom as a result of the facilities consolidation. The balance of the facilities cost is expected to be paid by October 31, 2003.

8. Related Party Transactions and Balances

        Corporate Services Agreement—The Company recorded expenses of $125,000 and approximately $131,000 for the three month periods ended July 31, 2001 and July 31, 2002, respectively, and $250,000 and approximately $262,000 for the six month periods ended July 31, 2001 and July 31, 2002, respectively, for the services provided by the Company's parent, Comverse Technology, Inc. ("CTI"), under the Corporate Services Agreement between the Company and CTI.

        Enterprise Resource Planning Software Sharing Agreement—The Company recorded $25,000 for each of the three month periods ended July 31, 2001 and 2002 and $50,000 for each of the six month periods ended July 31, 2001 and 2002, for support services rendered by Comverse Ltd., a subsidiary of CTI, under the Enterprise Resource Planning Software Sharing Agreement between the Company and Comverse Ltd.

        Satellite Services Agreement—In connection with services rendered by Comverse, Inc., a subsidiary of CTI, and its subsidiaries under the Satellite Services Agreement between the Company and Comverse, Inc., the Company recorded expenses of $477,000 and $621,000, for the three month periods ended July 31, 2001 and July 31, 2002, respectively, and $999,000 and $1,097,000, for the six month periods ended July 31, 2001 and July 31, 2002, respectively.

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        Transactions with an Affiliate—The Company sold products and services to Verint Systems (Singapore) PTE LTD (formerly Comverse Infosys (Singapore) PTE LTD), an affiliated systems integrator in which the Company holds a 50% equity interest, amounting to approximately $1,250,000 and $431,000, during the three month periods ended July 31, 2001 and July 31, 2002, respectively, and $1,723,000 and $500,000, during the six month periods ended July 31, 2001 and July 31, 2002, respectively. In addition, the Company was charged with marketing and office service fees by that affiliate amounting to approximately $108,000 and $96,000 for the three month periods ended July 31, 2001 and July 31, 2002, respectively, and $197,000 and $211,000, for the six month periods ended July 31, 2001 and July 31, 2002, respectively.

        Transactions with Other Subsidiaries of CTI—The Company charges subsidiaries of CTI for services relating to the use of the Company's facilities and employees. Charges to these subsidiaries were approximately $534,000 and $45,000 for the three month periods ended July 31, 2001 and July 31, 2002, respectively, and $1,121,000 and $88,000 for the six month periods ended July 31, 2001 and July 31, 2002, respectively.

        Intercompany Loan—The Company was charged interest on balances owed to CTI amounting to $409,000 and $897,000, for the three month and six month periods ended July 31, 2001, respectively. The principal amount of the indebtedness to CTI and related accrued and unpaid interest were repaid on January 31, 2002.

        Related Party Balances—Related party balances included in the condensed consolidated balance sheets are as follows (in thousands):

9. Acquisitions

        On February 1, 2002, the Company acquired the digital video recording business of Lanex LLC. The Lanex business provides digital video recording solutions for security and surveillance applications. The purchase price consisted of $9,510,000 in cash and a $2,200,000 convertible note issued by the Company. The note is non-interest bearing and matures on February 1, 2004. The holders of the note may elect to convert the note, in whole or in part, into shares of the Company's common stock at a conversion price of $16.06 per share. The note is guaranteed by CTI. In connection with this acquisition, the Company incurred transaction costs, consisting primarily of professional fees amounting to approximately $196,000.

        The acquisition was accounted for using the purchase method. The purchase price was allocated to those assets acquired and liabilities assumed based on the estimated fair value of those assets and liabilities as of February 1, 2002. Identifiable intangible assets consist of sales backlog, acquired technology, trade name and non-competition agreements and have an estimated useful life of up to six years. The results of operations of Lanex's acquired business have been included in the Company's results of operations since February 1, 2002.

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        The following is a summary of the allocation of the purchase price for this acquisition:

        The summary unaudited pro forma condensed consolidated results of operations, assuming the acquisition had occurred at the beginning of the periods, would have reflected consolidated revenues of approximately $34,873,000 and $70,886,000, net losses of approximately $1,174,000 and $2,044,000 and losses per share of $0.06 and $0.11 for the three month and six month periods ended July 31, 2001, respectively. These pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the period presented. In addition, the pro forma results are not necessarily indicative of the results that will occur in the future and do not reflect any potential synergies that might arise from the combined operations.

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10. Business Segment Information

        The Company is engaged in providing analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence. The Company operates in one business segment and manages its business on a geographic basis. Summarized financial information for the Company's reportable geographic segments is presented in the following table. Sales in each geographic segment represents sales originating from that segment.

        Long-lived assets by country of domicile consist of: