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

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                   FORM 10-K

                     Transition Report Pursuant to Section
                         13 or 15(d) of the Securities
                         Exchange Act of 1934 for the
                         Period ended January 31, 1998

                        Commission File Number 0-15502

                           COMVERSE TECHNOLOGY, INC.
            (Exact name of registrant as specified in its charter)

           New York                                              13-3238402
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                           170 CROSSWAYS PARK DRIVE
                           WOODBURY, NEW YORK 11797

                   (Address of principal executive offices)

       Registrant's telephone number, including area code: 516-677-7200

          Securities registered pursuant to Section 12(b) of the Act:

                                             Name of each exchange
         Title of each class                  on which registered
         -------------------                  -------------------

           Not applicable                        Not applicable

          Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, $.10 PAR VALUE PER SHARE
                               (Title of Class)

           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: [ ]

================================================================================
<PAGE>
 
         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.


                                      [X]


         The aggregate market value of the voting stock held by non-affiliates
of the registrant on April 22 , 1998 was approximately $1,945,000,000. The
closing price of the registrant's common stock on the NASDAQ National Market
System on April 22, 1998 was $46.50 per share.

        There were 43,549,205 shares of the registrant's common stock
outstanding on April 22, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE

         The registrant hereby incorporates by reference in this report the
information required by Part III appearing in the registrant's proxy statement
or information statement distributed in connection with the 1998 Annual Meeting
of Shareholders of the registrant or in an amendment to this report on Form
10K/A.




                         ----------------------------



             TRILOGUE and Access NP are registered trademarks and 
             TRILOGUE INfinity, AUDIODISK, ULTRA, and SignalWare 
                        are trademarks of the Company.



                                    - ii -
<PAGE>
 
INTRODUCTION
------------

           On January 14, 1998, Comverse Technology, Inc., a New York
corporation ("Comverse" and, together with its subsidiaries, the "Company"),
consummated a merger (the "Merger") with Boston Technology, Inc., a Delaware
corporation ("Boston") in a transaction in which former shareholders of Boston
received an aggregate of 18,141,185 shares of Comverse's Common Stock, par value
$0.10 per share ("Common Stock"). The Merger has been accounted for as a pooling
of interests and, in connection with the Merger, the Company changed its fiscal
year from the calendar year to the year ending January 31, coinciding with the
fiscal year of Boston. This report presents the financial statements of the
Company, including Boston, at and for the one-month period ended January 31,
1998. The financial results reflect direct costs and related charges associated
with the Merger and the combination of the operations of the two companies, and
should not be relied upon as an indication of the future operations or financial
condition of the Company.

                                     PART I

ITEM 1.    BUSINESS.

THE COMPANY

           The Company designs, develops, manufactures, markets and supports
computer and telecommunications systems and software for multimedia
communications and information processing applications. The Company's products
are used in a broad range of applications by fixed and wireless telephone
network operators, government agencies, call centers, financial institutions and
other public and commercial organizations worldwide.

           The Company's line of enhanced services platform products enable
telecommunications network operators to offer a variety of revenue-generating
services that are accessible to large numbers of simultaneous users, including a
broad range of integrated messaging, information distribution and personal
assistant services, such as call answering, voice mail, fax mail, unified
messaging, pre-paid services, short text messaging and audiotext. The Company's
Comverse Network Systems ("CNS") Division's principal market consists of
organizations that use the systems to provide services to the public, usually on
a subscription or pay-per-usage basis, and includes both fixed and wireless
telephone network operators and other telecommunications services organizations.

           Boston, like the Company's CNS Division, manufactured multimedia
enhanced services platforms for service provider organizations, including both
fixed and wireless telephone 

                                      -1-
<PAGE>
 
network operators. Boston's enhanced services platforms are similar in features
to those of the Company, but have traditionally been sold to different market
segments, which include, among others, several of the Regional Bell Operating
Companies in the United States and NTT in Japan. Prior to the Merger, Comverse's
marketing efforts were focused primarily on international network operators, as
well as wireless personal communications network operators in the United States.
Following the Merger, the business and assets of Boston were combined with the
CNS Division.

           The Company markets its enhanced services platforms throughout the
world, with its own direct sales force and in cooperation with a number of
leading international vendors of telecommunications infrastructure equipment.
The Company is the market-share leader in providing large capacity enhanced
services platforms for wireless and wireline telecommunications network
operators. More than 250 fixed and wireless telephone network operators in more
than 65 countries, including 13 of the 20 largest telephone companies in the
world, have selected the Company's platforms to provide enhanced
telecommunications services to their public customers. CNS customers include,
among others, AT&T (USA), Bell Atlantic (USA), BellSouth (USA), Deutsche Telekom
(Germany), Hongkong Telecom (Hong Kong), NTT (Japan), SBC Communications (USA),
SFR (France), Sprint PCS (USA), Telebras (Brazil), Telecom Italia (Italy),
Telmex (Mexico) and Telstra (Australia).

           The Company's Comverse Information Systems ("CIS") Division
manufactures multiple channel, multimedia digital monitoring systems, which
support the monitoring, recording, surveillance, and information gathering and
analysis activities of law enforcement and intelligence agencies, and digital
recording systems which support the voice, fax and data recording and analysis
activities of a variety of governmental and commercial organizations. The
Company's monitoring systems enable many simultaneous users to monitor, record
and process voice, image (facsimile) and data communications from multiple
channels in a variety of analog and digital formats, provide facilities for
archiving large volumes of recorded information and allow the use of computer
database processing techniques for analysis, management and retrieval
operations. The systems have been sold to law enforcement, military and
intelligence agencies that monitor and record communication channels for a
variety of purposes, such as surveillance in support of police actions and the
collection and processing of information for intelligence analysis. Customers
such as inbound and outbound call centers, commercial organizations, emergency
service (e.g., "911") providers, correctional facilities, public health and
safety organizations and financial institutions, use the Company's call
recording systems to record and process large volumes of audio, image and data
communications. Traditionally, analog tape recorders, alone or coupled with a
variety of special purpose devices, have been used for these applications. The
worldwide growth in telecommunications traffic in general and digital
communications in particular, and the increasing use of a variety of digital
transmission formats in telecommunications networks, have created a need for
user organizations to modernize their monitoring, recording and processing
capabilities. The Company's systems provide a number of advantages over analog,
tape recorder-based equipment, including improvements in capacity, reliability,
accuracy, processing efficiency and archiving and retrieval capabilities. Most
importantly, the systems enable users to adapt efficiently to the emergence of
new telecommunications technologies, such as digital transmission, Integrated
Services Digital 

                                      -2-
<PAGE>
 
Network ("ISDN") and enhanced signaling systems, for which analog, tape 
recorder-based equipment was not designed. CIS Division products have 
been sold to end-users in more than 30 countries.

           The Company's DGM&S Telecom ("DGM&S") Division provides Signaling
System Number Seven ("SS7") telecommunications software and hardware. DGM&S's
products provide Intelligent Network ("IN") and Advanced Intelligent Network
("AIN") applications for voice, data and mobility communications services such
as 800 number translation, voice mail, Internet routing, short text messaging,
local number portability, cellular roaming and emergency "911" services. DGM&S's
products are marketed to wireline and wireless equipment providers and network
operators to enable global connectivity, inter-platform portability,
client/server flexibility and clustering reliability. The products provide the
global standards and national variants needed to communicate between the
disparate signaling protocols worldwide, and enable operators to use either a
UNIX or Windows NT platform. The products, which offer mediated access to the
telecommunications signaling network, operate in a client/server configuration.

           DGM&S's customers include, among others, Amdahl, Compaq, DSC
Communications, Ericsson, MCI, Nokia, PTT Telecom (Netherlands), Qualcomm,
Siemens, Sprint and Sun Microsystems.

           Through subsidiaries and affiliates, the Company is also involved in
the development of technologies and products incorporating video compression and
networking, the design and development of systems for telephone answering
service bureaus, the operation of telemessaging service bureaus and capital
market activities for its own account.

           Throughout this document, references are made to technologies,
features, capabilities, capacities and specifications in conjunction with the
Company's products and technological resources. Such references do not
necessarily apply to all product lines, models, system configurations and
Company operating Divisions.

           The Company was incorporated in the State of New York in October
1984. Its principal executive offices are located at 170 Crossways Park Drive,
Woodbury, New York 11797, where its telephone number is (516) 677-7200.

THE COMPANY'S PRODUCTS

COMVERSE NETWORK SYSTEMS DIVISION: ENHANCED SERVICES PLATFORM PRODUCT FAMILY

           The market for network-based enhanced services platforms has grown
rapidly over the past several years. The Company believes that a number of
factors have contributed to this growth, including the heightened emphasis among
wireless and wireline telecommunications network operators on offering new
services for revenue-generation and competitive differentiation, the increasing
public awareness and acceptance of multimedia messaging services 

                                      -3-
<PAGE>
 
resulting from the growing installed base of messaging systems in the business
community, the expanding availability from the major telephone companies of call
answering services, and the growing use of wireless telephone services, which
almost universally offer a mailbox-based call answering service.

           The CNS Division's primary focus has been on supplying large-capacity
enhanced services platforms, which are marketed under the names Access NP and
TRILOGUE INfinity, to fixed and wireless telecommunications network operators.
These organizations benefit from the ability to offer their customers a variety
of revenue-generating services provided by the Company's systems, such as
automated call answering, voice and fax messaging, unified messaging, pre-paid
services, short text messaging, audiotext, voice activated dialing, call
screening, one-touch call return, automated personal assistant services and
"virtual telephone" service, usually on a subscription or pay-per-call basis.
With call answering and voice and fax messaging, telephone operating companies
benefit not only from service subscription fees, but also from traffic revenue
generated by the increase in billable completed calls. In addition, these
services improve overall network efficiency by reducing congestion from repeated
unbillable busy/no-answer calls. Wireless telephone service operators are almost
universally adding voice mailboxes to their service offerings, and often as part
of their basic service package, not only because of these benefits, but also
because wireless messaging services directly increase billable airtime by
stimulating outbound calls.

           The Company's enhanced services platforms have been designed and
packaged to meet the capacity, reliability, scalability, maintainability and
physical requirements of large telephone network operators. The systems are
offered in a variety of sizes and configurations, extending to a capacity of up
to 6,000 ports, 45,000 voice storage hours and 1,000,000 mailboxes. The systems
also offer redundancy of critical components, so that no single failure will
interrupt the service. The Company's platforms are available in both centralized
and widely distributed configurations, and maintain their integrity as a single
system in distributed configurations.

           The Company's systems also incorporate components that are compatible
with the IN and AIN protocols for Intelligent Peripherals ("IP"), permitting the
Company's network operator customers to develop and deploy services based on the
overall IN/AIN architecture. In addition, when the system is configured as a
Service Node ("SN"), it enables customers to offer next-generation IN/AIN-based
services such as personal number, call screening/caller introduction, one-touch
call return and pre-paid. The incorporation of IN and AIN-related software also
allows a customer, which has not yet implemented intelligent network
infrastructure, to purchase an enhanced services platform from the Company with
the confidence that it contains a built-in migration path to IN/AIN standards,
should the network operator decide to implement IN/AIN infrastructure in the
future.

               The Company's platforms incorporate proprietary and third-party
software, and industry standard and proprietary hardware, in an open system
architecture. Most hardware is based on Industry Standard Architecture ("ISA"),
which facilitates the integration of commercially available ISA technologies
with the Company's core technologies. The systems support a wide variety of
analog and digital telephony interfaces and signaling systems, enabling 

                                      -4-
<PAGE>
 
them to adapt to a variety of different telephony environments and IN/AIN
applications, and provide a "universal port" -- a single port that supports any
combination of voice and fax services at any time during a single call. The
Company has also introduced Internet messaging capabilities, enabling end-users
to access their voice, fax and e-mail text messages from anywhere in the world
via the World Wide Web.

COMVERSE INFORMATION SYSTEMS DIVISION: MONITORING AND RECORDING SYSTEMS

           Comverse's Information Systems Division develops, manufactures and
markets monitoring and recording systems primarily for law enforcement,
intelligence agencies, call centers and financial institutions.

           The Company's AUDIODISK systems are multiple channel, multimedia
digital monitoring systems, sold primarily to law enforcement and intelligence
agencies, which enable multiple users simultaneously to monitor, record and
process audio, image (facsimile) and data communications over multiple channels
in a variety of analog and digital formats, and provide facilities for archiving
large volumes of recorded information. The systems automatically decode and
record a variety of signals without operator intervention and store the recorded
information on magnetic and optical disks to permit quick and easy random access
and the use of computer database techniques for analysis, archival and retrieval
operations. AUDIODISK also enables multiple users to access the same recorded
information simultaneously for processing and analysis.

           The Company's ULTRA line of multiple channel, multimedia digital
recording systems are marketed primarily to call centers, financial
institutions, emergency "911" service providers, correctional institutions, and
other organizations that record large volumes of communications, and require
fast and easy retrieval of recorded information.

           Traditionally, analog tape recorders, alone or coupled with a variety
of other special purpose devices, have been utilized for communications
monitoring, recording and related applications. The limited capacity and
processing capability inherent in these systems have imposed constraints on
organizations that process large amounts of multimedia information from multiple
channels and that need to store the processed information for long periods while
keeping it available for rapid retrieval. The Company's systems interface with a
variety of analog and digital communications protocols and automatically
recognize and adapt to voice, fax or modem content on each recorded channel.
Most importantly, they also enable users to adapt efficiently to the emergence
of new telecommunications technologies, such as digital transmission and
enhanced signaling systems, for which analog, tape recorder-based equipment was
not designed. The systems provide a number of advantages over analog, tape
recorder-based systems, including improvements in capacity, reliability,
accuracy, processing efficiency and archiving and retrieval capabilities.

           The AUDIODISK product design is based on open system architecture and
client/server concepts, and supports a broad range of multimedia monitoring
capabilities, such as the 

                                      -5-
<PAGE>
 
recording, processing and retrieval of analog audio signals, such as telephone
and radio channels; analog facsimile and modem communications; digital audio and
data signals, including ISDN, T1, E1 and X.25; and telephony signaling,
including Pulse Dialing, DTMF, Calling Line Identification and Call Progress
Tones (such as busy, no-answer and ringback). AUDIODISK systems simultaneously
process incoming signals over multiple channels, apply digital signal processing
technologies and use magnetic and optical disks for temporary and long-term
digital storage. Digital signal processing technologies that are employed by
AUDIODISK to enhance monitoring applications include, among others, signal
compression, automatic signal identification, automatic signal interpretation
and noise cancellation. Magnetic and optical disks permit virtually
instantaneous retrieval and sharing of stored information among many users. The
systems also enable users to transmit multimedia information among multiple
sites over communication links. AUDIODISK is designed to support various
communications links, including T1, E1, ISDN, Dial-up telephone lines (over
secure modems), satellite links, TCP/IP over Ethernet (with routers) and X.25.
AUDIODISK systems also provide a facility for archiving large volumes of
recorded information on rewritable optical disks. This archive function allows a
single recording session, groups of sessions, a single recording channel,
selected channels or all channels to be stored on the same disk. The archive
disk records all the signals on a particular channel and automatically
associates the signal-related information ("SRI") as well as the date and time
with the recorded information. For larger AUDIODISK systems, automatic disk
library systems, referred to as "jukeboxes", provide very large amounts of on-
line storage. The product employs a database management system to provide a
central facility for access to all stored information. This feature allows any
operator to use computer database query techniques to retrieve the audio and SRI
data quickly and efficiently.

           The Company offers AUDIODISK systems in a range of configurations,
which share substantially the same hardware, software and user interface. The
AUDIODISK systems' multimedia server can be configured in a variety of models to
support a range of applications, including large, fixed-site audio monitoring
platforms with up to 350 channels. Moreover, several AUDIODISK multimedia
servers may be networked for increased capacity or to satisfy redundancy
requirements. Storage configurations include magnetic disks, optical drives and
optical jukebox devices. Up to 50 four-gigabyte magnetic disks can be configured
in a disk array to provide a recording buffer. Removable optical cartridges are
used for archiving, with each cartridge capable of storing up to 180 compressed
audio hours. Multiple jukebox configurations provide automated management of
optical media, storing up to 30,000 hours of audio or 4,500,000 pages of fax for
rapid automated retrieval.

           ULTRA systems provide Computer-Telephony Integration ("CTI") enabled
recording, including integration with major PBX/ACDs, Predictive Dialers and
middleware products. The CTI connection allows the customer to easily search
calls through database queries. In addition, selective recording is possible
through time-driven schedules or event triggers. ULTRA systems support high
volume of simultaneous playbacks over the telephone or through LANs, WANs, and
the Internet. Immediate access to recordings is possible through advanced
optical disk technology and jukeboxes. The ULTRA Series comprises six products,
tailored to customer-specific requirements for capacity, storage and special
features.

                                      -6-
<PAGE>
 
DGM&S Telecom Division: Telecommunications Signaling Products

           The DGM&S Telecom Division provides SS7 telecommunications software
and hardware, marketed under the name SignalWare. DGM&S's SignalWare products
provide IN/AIN applications for voice, data and mobility communications services
such as 800 number translation, voice mail, Internet routing, short text
messaging, local number portability, cellular roaming and emergency "911"
services. DGM&S's products are marketed to wireline and wireless equipment
providers and network operators to enable global connectivity, inter-platform
portability, client/server flexibility and clustering reliability. The products
provide the global standards and national variants needed to communicate between
the disparate signaling protocols worldwide, and enable operators to use either
a UNIX or Windows NT platform. SignalWare products, which offer mediated access
to the telecommunications signaling network, operate in a client/server
configuration.

           DGM&S's customers include, among others, Amdahl, Compaq, DSC
Communications, Ericsson, MCI, Nokia, PTT Telecom (Netherlands), Qualcomm,
Siemens, Sprint and Sun Microsystems.

MARKETS, SALES AND MARKETING

           The Company's CNS Division markets enhanced services platforms
throughout the world, with its own direct sales force and in cooperation with a
number of leading international vendors of telecommunications infrastructure
equipment. The Company is a market share leader in providing large capacity
messaging systems for telephone network operators around the world.

           More than 250 fixed and wireless telephone network operators in more
than 65 countries, including 13 of the 20 largest telephone companies in the
world, have selected the Company's platforms for messaging and other enhanced
services. The Company's network operator customers include, among others, AT&T
(USA), Bell Atlantic (USA), BellSouth (USA), Deutsche Telekom (Germany),
Hongkong Telecom (Hong Kong), NTT (Japan), SBC Commmunications (USA), SFR
(France), Sprint PCS (USA), Telebras (Brazil), Telecom Italia (Italy), Telmex
(Mexico) and Telstra (Australia).

           The Company provides its customers with programs of marketing
consultation, seminars and materials designed to assist them in marketing
enhanced telecommunications services, and also undertakes to play an ongoing
supporting role in their business and market planning processes.

           The Company's CIS Division markets AUDIODISK and ULTRA systems
worldwide through its direct sales force and, where appropriate, through agents,
distributors and system integrators. The Company sells AUDIODISK directly to the
law enforcement, military and intelligence markets. Primary target markets for
the ULTRA Series include call centers, public safety and emergency services
organizations and financial institutions.

                                      -7-
<PAGE>
 
TECHNOLOGIES

           The Company's research and development efforts focus particularly on
the design of very large, high throughput systems and digital signal processing
technologies for voice, image and data communications. The Company's products
use advanced technologies in the areas of digital signal processing, facsimile
protocols, telephony interfaces, mass storage, digital networking,
multi-processor computer architecture and real-time software design. The Company
also possesses considerable technology and expertise in the development of
software products, solutions and applications within the IN and AIN environment.

           The Company's products are based upon flexible system architectures
specifically designed to handle multiple channel, multimedia communication and
processing applications. Multimedia processing computers require a much higher
throughput than conventional data processing systems, especially when a large
number of channels have to be processed simultaneously. The Company's products
employ open system, modular architectures, which use distributed processors,
rather than one large central processor, as well as multiple storage devices and
digital networking. The product design is intended to be readily adaptable to
the usage and capacity requirements of the individual end-user. The product
architectures also allow the Company to add enhancements and new technologies to
its systems without rendering existing products obsolete.

           A primary focus of the Company's research and development efforts has
been digital signal processing technologies required for voice, image and data
communications. Computer systems designed for signal processing applications,
such as processing of voice and image communications, handle information
differently from conventional data processing systems and require greater
processing and storage resources. For example, a digitized voice message, even
when subjected to data compression techniques, may require as much as 150 times
the storage capacity as the same message processed in textual form. The computer
must be designed to function at a fast and efficient rate to produce a form of
speech acceptable to the human ear. The Company has developed a number of speech
compression algorithms, which provide the Company's products with optimal
compression taking into account the level of speech quality required for each
application. The Company also has developed a special signal detector, which
identifies signals as voice, fax or modem. Voice processing algorithms currently
available with the Company's products include speech enhancement (noise
reduction) and variable playback speed with pitch compensation. Fax and modem
processing algorithms offered by the Company enable communication and
interception of a large number of standard and non-standard communications
protocols.

           The Company has developed interfaces for its products to most
telephony environments used around the world, including digital interfaces, such
as T1, E1 and ISDN, and SS7 interfaces designed to encompass both basic network
connectivity and the IN/AIN capabilities of Intelligent Peripherals and Service
Nodes. The Company has implemented facsimile communication and intercept
protocols for Group 3 facsimile. Certain of the Company's products incorporate
local area network and wide area network technologies used for the transfer of
digitized voice, fax and modem information, as well as for the transfer of data
among various network elements.

                                      -8-
<PAGE>
 
           The Company utilizes state-of-the-art mass storage technologies in
many of its products. Proprietary algorithms developed by the Company are
utilized for storage of multimedia information to facilitate real-time
processing of large amounts of information and optimal use of media. A variable
number of disks may be configured in a disk array to serve large numbers of
users and to provide full or partial disk redundancy for critical applications.
Special algorithms utilized by the Company to handle optical disks within a
number of jukebox devices include automatic channel-to-disk allocation,
automatic retrieval of multimedia information from any disk located in the
jukeboxes and redundant archiving on two or more cartridges simultaneously.

RESEARCH AND DEVELOPMENT

           Because of the continuing technological changes that characterize the
telecommunications and computer industries, the Company's success will depend,
to a considerable extent, upon its ability to continue to develop competitive
products through its research and development efforts.

           The Company is engaged in ongoing research and development efforts
intended to expand and enhance the technical capabilities, features and range of
uses of its products, and to design and develop new generations of its product
offerings as well as new products. The Company currently employs more than 1,200
scientists, engineers and technicians with broad experience in the areas of
digital signal processing, computer architecture, facsimile protocols,
telephony, digital networking, multi-processing, mass storage, and real-time
software design.

           A substantial portion of the Company's research and development
operations benefit from financial incentives provided by government
instrumentalities to promote research and development activities, including its
research and development activities situated in Israel. The cost of such efforts
is affected by the continued availability of funding under such programs. During
January 1998, the Company's research and development activities included
projects submitted for partial funding under a program administered by the
Office of the Chief Scientist of the Ministry of Industry and Trade of the State
of Israel, under which reimbursement of a portion of the Company's research and
development expenditures will be made subject to final approval of project
budgets. The percentage of the Company's total research and development
expenditures reimbursed under these programs has declined in recent years, and
will continue to decline with the growth in the Company's overall operations and
the increasing amount of research and development conducted by the Company at
locations other than those in which reimbursement programs are available to it.
The Company pays royalties on its sales of certain products developed in part
with funding supplied under such programs. Permission from the government of
Israel is required for the Company to manufacture outside of Israel products
resulting from research and development activities funded under such programs,
or to transfer outside of Israel related technology rights, and in order to
obtain such permission the Company may be required to increase the royalties to
the applicable funding agencies and/or repay certain amounts received as
reimbursement of research and development costs. The Company expects to incur
additional royalty expenses and/or repayment obligations as a result of the
Merger and 

                                      -9-
<PAGE>
 
the location of certain manufacturing and research and development operations
pertaining to its TRILOGUE product line at its Boston facilities. See 
"Business--Licenses and Royalties" and "Management's Discussion and Analysis 
of Financial Condition and Results of Operations."

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

           The Company currently holds a total of 17 United States patents and a
number of foreign patents. While the Company files patent applications
periodically, no assurance can be given that patents will be issued on the basis
of such applications or that, if patents are issued, the claims allowed will be
sufficiently broad to protect the Company's technology. In addition, no
assurance can be given that any patents issued to the Company will not be
challenged, invalidated or circumvented or that the rights granted under the
patents will provide significant benefits to the Company.

           In order to safeguard its unpatented proprietary know-how, trade
secrets and technology, the Company relies primarily upon trade secret
protection and non-disclosure provisions in agreements with employees and others
having access to confidential information. There can be no assurance that these
measures will adequately protect the Company from disclosure or misappropriation
of its proprietary information.

           The Company and its customers from time to time receive
communications from third parties, including some of the Company's competitors,
alleging infringement by the Company of such parties' patent rights. While such
communications are common in the computer and telecommunications industries and
the Company has in the past been able to obtain any necessary licenses on
commercially reasonable terms, there can be no assurance that the Company would
prevail in any litigation to enjoin the Company from selling certain of its
products on the basis of such alleged infringement, or that the Company would be
able to license any valid patents on reasonable terms.

LICENSES AND ROYALTIES

           The Company licenses certain technology, know-how and related rights
for use in the manufacture and marketing of its products, and pays royalties to
third parties under such licenses and under other agreements entered into in
connection with research and development financing. The Company believes that
its rights under such licenses and other agreements are sufficient for the
manufacturing and marketing of its products and, in the case of licenses, extend
for periods at least equal to the estimated useful lives of the related
technology and know-how. The Company currently pays royalties on substantially
all sales of enhanced services platforms and on certain sales of AUDIODISK,
ULTRA and derivative products. The royalties vary in amount based upon the
revenues attributable to the various components of such products.

                                      -10-
<PAGE>
 
INTERNATIONAL SALES

           The Company sells a significant amount of its products outside of
North America. International sales and marketing efforts may be adversely
affected by a number of factors, including the need for system customization and
special integrations, government approvals and export licenses, instability in
international trading relations, currency fluctuations and additional costs of
marketing, service and support due to lack of proximity with the end-users. In
certain cases, the Company's contracts are denominated in local currencies, and
as such, the Company may be adversely affected by fluctuations in those
currencies. International sales of certain systems manufactured by the Company
also are subject to a variety of legal restrictions governing the export of such
products.

           While the Company believes that prevailing economic conditions in the
Far East and Southeast Asia have reduced the demand for its systems in certain
countries, overall sales in the region have increased over the past 12 months.
The Company cannot currently predict the effect on its business should regional
economic conditions fail to improve.

           For additional information regarding foreign operations, see Notes 16
and 18 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Trends and Uncertainties" appearing elsewhere in this report.

BACKLOG

           At January 31, 1998, the backlog of the Company amounted to
approximately $130,215,000. Substantially all of the current backlog is expected
to be delivered within the next 12 months.

SERVICE AND SUPPORT

           The Company has a strong commitment to provide product service and
support to its customers and emphasizes such commitment in its marketing.
Because of the intensity of use of systems by telephone network operators and
other customers of the Company's products, and their low tolerance for
down-time, the Company is required to make a greater commitment to service and
support of systems used by these customers, and such commitment increases
operating costs.

           The Company's general warranty policy is to replace or repair any
component that fails during a specified warranty period. Broader warranty and
service coverage is provided in certain instances, and is usually made available
to customers on a contractual basis for an additional charge.

                                      -11-
<PAGE>
 
           The Company provides centralized technical assistance from several
locations around the world. Technical support is available for the Company's
customers 24 hours-a-day, seven days-a-week.

COMPETITION

           The enhanced services platform industry is highly competitive, and
includes numerous products offering a broad range of features and capacities.
The primary direct competitors of the CNS Division are manufacturers of
stand-alone voice mail systems, including, among others, Brite Voice Systems,
Inc., Centigram Communications Corporation, Glenayre Electronics, Inc., Octel
Communications Corporation (acquired in 1997 by Lucent Technologies, Inc.),
Tecnomen Oy, Unisys Corporation, and manufacturers of central office
telecommunications equipment, including Northern Telecom Limited and
Telefonaktiebolaget LM Ericsson. Competitors of the Company that manufacture
other telecommunications equipment may derive a competitive advantage in selling
voice processing and message management systems to customers that are purchasing
or have previously purchased other compatible equipment from such manufacturers.

           Indirect competition is provided by voice and fax messaging products
employed at end-user sites as an alternative to the use of services available
through telephone network operators. This "customer premises equipment" includes
a broad range of products, such as stand-alone voice mail systems, products
offering "call processing" services that are supplied with voice mail features
or integrated with other voice mail systems, as well as personal computer modems
and add-on cards and software designed to furnish voice processing and message
management features.

           The Company believes that competition in the sale of enhanced
services platforms is based on a number of factors, the most important of which
are product features and functionality, system performance and reliability,
marketing and distribution capability and price. Other important competitive
factors include service and support and the capability to integrate systems with
a variety of central office and cellular switches and other communications
systems. The Company believes that the range of features provided by, and the
ease of use of, its enhanced services platforms are competitive with other
platforms currently being marketed, and that its products are among the leading
systems designed specifically for telephone network operators.

           Neither the Company nor any of the Company's competitors is a
dominant vendor of enhanced services platforms in any market segment or product
line. The Company anticipates that a number of its direct and indirect
competitors will be introducing new or improved enhanced services platforms
during the next several years.

           The Company is aware of a relatively small number of manufacturers of
products that compete with the AUDIODISK product line at the present time.
Manufacturers of products that have been offered in competition with the
AUDIODISK system include Applied Signal Technology, Inc., the E-Systems division
of Raytheon Corporation, GTE Government Systems Division, Harris Corporation,
JSI Corporation and Nice Systems, Ltd. Competition also has been 

                                      -12-
<PAGE>
 
provided by manufacturers and integrators of custom designed computer and
telecommunications systems in response to particular government procurements in
specific markets where they have entrenched customer relationships. The Company
believes that it derives a competitive advantage over many potential competitors
of its AUDIODISK product line by reason of its ability to offer prospective
customers a family of products that can provide a solution to most customer
requirements without extensive special development effort. The government market
in general is highly competitive and difficult to penetrate, and the Company may
be at a competitive disadvantage in respect of certain customers and market
segments as a result of its small size in relation to other potential vendors
and the existence of entrenched customer relationships with other vendors. The
market in which ULTRA products are sold is also highly competitive. Primary
competitors include Atis Assmann GmbH, Dictaphone Corporation, Kreutler GmbH,
Nice Systems, Ltd., Racal Recorders Ltd., Seltronics Corp., TEAC America, Inc.,
Teknekron Infoswitch Corporation and Witness Systems, Inc.

           Many of the Company's present and potential competitors are
considerably larger than the Company, are more established, have a larger
installed base of customers and have greater financial, technical, marketing and
other resources.

MANUFACTURING AND SOURCES OF SUPPLIES

           The Company's manufacturing operations consist primarily of final
assembly and testing, involving the application of extensive testing and quality
control procedures to materials, components, subassemblies and systems. The
Company uses third parties to perform printed circuit board assembly and sheet
metal fabrication. Although the Company generally uses standard parts and
components in its products, certain components are presently available only from
a limited number of sources. To date, the Company has been able to obtain
adequate supplies of all components in a timely manner from existing sources or,
when necessary, from alternative sources. However, the inability to obtain
sufficient quantities of components or to locate alternative sources of supply
if and as required in the future, would adversely affect the Company's
operations.

           The Company maintains organization-wide quality assurance procedures,
coordinating the quality control activities of the Company's research and
development, manufacturing and service departments. The Company's primary
manufacturing and research and development facilities have received
certification to Quality Standard ISO 9001.

CAPITAL MARKET ACTIVITIES

           The Company has organized a wholly-owned subsidiary, CTI Capital
Corp. ("CTI Capital"), in support of its exploration of strategic acquisition
and investment opportunities. CTI Capital, directly and through a wholly-owned
subsidiary in Israel, Comverse Investments Ltd., seeks to identify and implement
suitable strategic investments for the Company, and engages in portfolio
investment and capital market activities, primarily in Israel. Such activities
include, in 

                                      -13-
<PAGE>
 
addition to direct investment in public and private companies, investment and
merchant banking activities and short-term trading of debt and equity
securities. Through ComSor Investment Fund N.V., formed by CTI Capital in
partnership with Quantum Industrial Holdings Ltd. ("Quantum"), an investment
company managed by Soros Fund Management LLC., the Company seeks to invest
venture capital in high technology firms, primarily those located in Israel, and
engages in other investment activities. The ComSor fund has a $25 million dollar
capital commitment each from CTI Capital and Quantum. Comverse also engages in
direct strategic and capital management investment activities for its own
account.

OPERATIONS IN ISRAEL

           A substantial portion of the Company's research and development and
manufacturing operations are conducted at its wholly-owned subsidiary, Efrat
Future Technology Ltd. ("Efrat"), which is located in Israel and, accordingly,
may be affected by economic, political and military conditions in that country.
The Company's business is also dependent to some extent on trading relationships
between Israel and other countries. Certain of the Company's products
incorporate components imported into Israel from the United States and other
countries and most of the Company's products are sold outside of Israel.
Accordingly, the Company's operations would be adversely affected if major
hostilities involving Israel should occur or if trade between Israel and its
current trading partners were interrupted or curtailed. The Company benefits
from various policies of the Government of Israel, including reduced taxation
and special subsidy programs, designed to stimulate economic activity,
particularly high technology industry, in that country. As a condition of its
receipt of funds for various research and development projects conducted under
programs sponsored by the Government of Israel, the Company has agreed that
products resulting from these projects may not be manufactured, nor may the
technology developed in the projects be transferred, outside of Israel without
government consent.

           Since the establishment of Israel in 1948, a state of hostility has
existed, varying in degree and intensity, between Israel and the Arab countries,
and Israel and countries doing business with Israel have been the subject of an
economic boycott by the Arab countries. Following the Six-Day War in 1967,
Israel commenced administering the territories of the West Bank and the Gaza
Strip and, since December 1987, increased civil unrest has existed in these
territories and resulted in acts of violence in other parts of Israel. Although
Israel has entered into various agreements with Arab countries and the Palestine
Liberation Organization ("PLO"), and various declarations have been signed in
connection with efforts to resolve some of the regional problems, no prediction
can be made as to whether a full resolution of these problems can be achieved or
as to the nature of any such resolution. To date, these problems have not had a
material adverse impact on the financial condition or operations of the Company,
although there can be no assurance that continuation of these problems will not
have such an impact in the future.

           Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development, and the
International Finance Corporation, and is a signatory to the General Agreement
on Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted 

                                      -14-
<PAGE>
 
preferences under the Generalized System of Preferences from the United States,
Australia, Canada, and Japan. These preferences allow Israel to export the
products covered by such programs either duty-free or at reduced tariffs.

           Israel and the European Union are parties to a Free Trade Agreement
pursuant to which, subject to rules of origin, Israel's industrial exports to
the European Union are exempt from customs duties and other non-tariff barriers
and import restrictions. Israel also has an agreement with the United States to
establish a Free Trade Area ("FTA") which is intended ultimately to eliminate
all tariff and certain non-tariff barriers on most trade between the two
countries. Under the FTA agreement, most products received immediate duty-free
status in 1985, and all tariffs have since been eliminated. In 1993, Israel
entered into an agreement with the European Free Trade Association ("EFTA"),
which includes Austria, Norway, Finland, Switzerland, Iceland and Liechtenstein,
that established a free-trade zone between Israel and EFTA nations exempting
manufactured goods and some agricultural goods and processed foods from customs
duties, while reducing duties on other goods. Israel is the only country which
has free-trade area agreements with the United States as well as with the
European Union and EFTA states. The end of the Cold War has also enabled Israel
to establish commercial and trade relations with a number of nations, including
Russia, China and the nations of Eastern Europe, with whom Israel had not
previously had such relations.

           Israel's economy has from time to time been subject to various
destabilizing factors, including a period of rampant inflation in the early to
mid-1980s, low foreign exchange reserves, fluctuations in world commodity
prices, military conflicts and civil unrest. For these and other reasons, the
Israeli Government has intervened in all sectors of the economy, employing,
among other means, fiscal and monetary policies, import duties, foreign currency
restrictions and controls of wages, prices and exchange rates. The Israeli
Government has frequently changed its policies in all these areas. For the
calendar years 1993 through 1997, the annual rates of inflation were
approximately 11%, 14%, 8%, 11% and 7%, respectively. This inflation, and the
associated increases in salaries that are linked by Israeli law to increases in
the consumer price index, have increased the cost of the Company's operations in
Israel, and salary costs have further increased as a result of the growing
competition for qualified scientific, engineering and technical personnel in
Israel. The increase in costs in recent periods has not been offset by
proportional devaluation of the Israeli shekel against the U.S. dollar, and
accordingly has had a negative impact on the Company's overall results of
operations.

           The results of operations of the Company have been favorably affected
by Efrat's participation in Israeli Government programs related to research and
development, as well as its utilization of certain tax incentives and other
incentives available under applicable Israeli laws and regulations, some of
which have been reduced, discontinued or otherwise modified in recent years. In
addition, the Company's ability to obtain benefits under various discretionary
funding programs has declined and may continue to decline as its internal
financial and operational resources increase relative to other applicants. The
results of operations of the Company could be adversely affected if these
programs were further reduced or eliminated and not replaced with equivalent
programs or if Efrat's ability to participate in these programs were to be
reduced significantly.

                                      -15-
<PAGE>
 
EMPLOYEES

           At January 31, 1998, the Company employed 2,823 individuals,
approximately 77% of whom are scientists, engineers and technicians engaged in
research and development, marketing and support activities.

           The Company is not a party to any collective bargaining or other
agreement with any labor organization; however, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordinating Bureau of Economic Organizations
(including the Industrialists' Association) are applicable to the Company's
Israeli employees by order of the Israeli Ministry of Labor. Israeli law
generally requires the payment by employers of severance pay upon the death of
an employee, his retirement or upon termination of his employment, and the
Company provides for such payment obligations through monthly contributions to
an insurance fund. Israeli employees and employers are required to pay
pre-determined sums to the National Insurance Institute, which payment covers
medical and other benefits similar to the benefits provided by the United States
Social Security Administration.

           The continuing success of the Company will depend, to a considerable
extent, on the contributions of its senior management and key employees, many of
whom would be difficult to replace, and on the Company's ability to attract and
retain qualified employees in all areas of its business. Competition for such
personnel is intense, particularly in the computer and telecommunications
industries. In order to attract and retain talented personnel, and to provide
incentives for their performance, the Company has emphasized the award of stock
options as an important element of its compensation program, including, in the
case of certain key management level personnel, options to purchase shares in
certain of the Company's subsidiaries, and cash bonuses based on several
parameters, including the profitability of their respective business units.

ITEM 2.    PROPERTIES.

           As of January 31, 1998, the Company leased an aggregate of
approximately 903,000 square feet of space for its operations worldwide,
including approximately 414,000 square feet in Tel Aviv, Israel, approximately
199,000 square feet in Wakefield, Massachusetts, approximately 98,000 square
feet in Andover, Massachusetts, approximately 46,000 square feet in Woodbury,
New York, approximately 31,000 square feet in Mt. Laurel, New Jersey,
approximately 22,000 square feet in Irvine, California, and an aggregate of
approximately 93,000 square feet at various other locations in the United
States, Israel, Western Europe, the Far East and Australia. The aggregate base
monthly rent for the facilities under lease at January 31, 1998 was
approximately $1,078,000, and all of such leases are subject to various
pass-throughs and escalation adjustments.

                                      -16-
<PAGE>
 
           In March 1998, the Company entered into a lease for approximately
93,500 square feet in Tel Aviv, Israel to increase the capacity of its Israeli
operations. The monthly base rent for the new premises starts at approximately
$103,000. The Company also has a commitment to lease 168,000 square feet in a
new office building to be constructed in Wakefield, Massachusetts. The monthly
base rent for these premises starts at approximately $236,000.

           The Company believes that its facilities currently under lease are
adequate for its current operations, and that additional facilities are
available on competitive market terms to provide for such future expansion of
the Company's operations as may be warranted.

ITEM 3.    LEGAL PROCEEDINGS.

           On February 2, 1998, Computel Computadores e Telecommunicacoes S.A.
("Computel") filed a Request for Arbitration with the International Chamber of
Commerce ("ICC") in Paris, France (No. 9858/FMS), claiming breaches by Boston
and its wholly-owned subsidiary, Boston Technology Investments, Inc., in respect
of agreements with Computel and its affiliates for the distribution of Boston's
systems in Brazil. Computel claims, among other things, that Boston breached its
obligations to Computel by engaging in the Merger and thereby competing with a
company jointly established by the parties in connection with such distribution
activities, by delivering equipment that did not conform to specifications, by
failing to support this equipment and by "fraudulently inducing" Computel to
terminate the agreement that established the jointly-owned company without
advising it of the possibility of the Merger. In its prayer for relief, Computel
alleges damages in excess of US $50 million as a result of lost business
opportunities, injury to its business reputation, investment losses and losses
due to currency devaluation. On March 10, 1998, the Company commenced an action
against Computel and an affiliate in the Middlesex Superior Court of
Massachusetts (Civil Action No. 98-1155) seeking declaratory judgments as to
arbitrability and the continuing validity of the Purchase and Sale Agreement
between the parties, Computel's specific performance of such agreement and
injunctions to prevent Computel from proceeding with the ICC arbitration. In
this action, the Company seeks damages in excess of $3,767,500 as a result of
Computel's failure to pay monies owed under the Purchase and Sale Agreement, as
well as costs and attorneys' fees. The defendants have filed a counterclaim in
that action raising substantially the same claims alleged in their Request for
Arbitration to the ICC. On March 11, 1998, the Company also filed a Demand for
Arbitration with the American Arbitration Association in Boston, Massachusetts,
against Computel and certain of its affiliates claiming breach of a Distribution
Agreement between the parties and unfair and deceptive trade practices. In this
arbitration, the Company seeks to recover damages in excess of $12,000,000, plus
interest, for systems shipped to respondents, and additional damages for
respondents' repudiation and anticipatory breach of contract and unfair and
deceptive trade practices. On April 3, 1998, the Middlesex Superior Court issued
a temporary injunction prohibiting Computel from proceeding with its ICC
arbitration request.

           On November 16, 1995, a purported class action was filed in the
United States District Court for the Eastern District of Pennsylvania against
Boston and certain of its officers. Two similar complaints were filed on
November 20, 1995 and November 21, 1995. The plaintiffs 

                                      -17-
<PAGE>
 
alleged violations of the Securities Exchange Act of 1934. On February 15, 1996,
the Court consolidated the three cases into one captioned In re Boston
Technology, Inc., Securities Litigation. On November 13, 1996, Boston was
allowed to transfer the consolidated action to the United States District Court
for the District of Massachusetts. On February 5, 1998, the Court issued an
order granting the defendants' motion to dismiss the Amended Complaint. No final
judgment has been entered in the case. The Company has received no information
regarding any plans the plaintiffs may have to ask the Court to reconsider its
order, attempt to re-plead their claims, or appeal from any judgment that might
be entered. However, if any of these actions are taken by the plaintiffs, the
Company and the other defendants intend to contest these actions vigorously.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

               At the 1997 Annual Meeting of Shareholders of Comverse, held on
January 13, 1998, the following matters, in addition to the reelection of the
incumbent Board of Directors, were approved by the shareholders with the votes
indicated:
<TABLE> 
<CAPTION> 
                                                                         Number of Shares

                                                                                                  Abstentions and
                                                        Voted For         Voted Against           Broker Non-Votes
<C>    <S>                                              <C>               <C>                     <C> 
1.     Adoption of the Agreement and Plan
       of Merger providing for the Merger
       and related actions.                             19,518,465            55,052                  4,023,159

2.     Ratification of the appointment of 
       Deloitte & Touche LLP as Comverse's
       independent auditors for the fiscal 
       year ending December 31, 1997.                   23,419,355            17,998                     75,567

3.     Approval of Comverse's 1997 Stock 
       Incentive Compensation Plan under 
       which up to 2.5 million shares of 
       Common Stock may be issued as 
       equity-based compensation to Company
       employees and directors.                         11,585,060         7,902,484                  4,025,376

4.     Approval of Comverse's 1997 Employee 
       Stock Purchase Plan under which up
       to 250,000 shares of Common Stock may 
       be issued for purchase by employees
       of the Company.                                  19,391,347           175,745                  3,945,828

</TABLE> 

                                      -18-
<PAGE>
 
                                    PART II


ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY
           AND RELATED STOCKHOLDER MATTERS.

           The Common Stock trades on the NASDAQ National Market System under
the symbol CMVT. The following table sets forth the range of closing prices of
the Common Stock as reported on NASDAQ for the past three calendar years and for
the period from January 1 through April 22, 1998.


      YEAR         CALENDAR QUARTER         LOW              HIGH           
                                                           
      1995         First Quarter           $ 11             $ 14-5/8        
                   Second Quarter          $ 13-1/4         $ 18-1/4        
                   Third Quarter           $ 17-9/64        $ 23-3/8        
                   Fourth Quarter          $ 19-15/16       $ 25-11/16      
                                                                            
      1996         First Quarter           $ 16-5/8         $ 25-1/8        
                   Second Quarter          $ 23-3/8         $ 30-1/2        
                   Third Quarter           $ 23-3/4         $ 41-3/8        
                   Fourth Quarter          $ 32-9/16        $ 38-1/8        
                                                                            
      1997         First Quarter           $ 36-7/8         $ 46-3/8        
                   Second Quarter          $ 36-1/2         $ 52            
                   Third Quarter           $ 45-15/16       $ 53-1/16       
                   Fourth Quarter          $ 32-5/16        $ 54-3/16       
                                                                            
      1998         January 1 through                                        
                   April 22, 1998          $ 30-5/8         $ 51-3/8        


           There were 2,945 holders of record of Common Stock at April 22, 1998.
Such record holders include a number of holders who are nominees for an
undetermined number of beneficial owners; the Company believes that the number
of beneficial owners of the shares of Common Stock outstanding at such date was
approximately 40,000.

           The Company has not declared or paid any cash dividends on its equity
securities and does not expect to pay any cash dividends in the foreseeable
future, but rather intends to retain its earnings to finance the development and
growth of the Company's business. Any future determination as to the declaration
and payment of dividends will be made by the Board of Directors in its
discretion, and will depend upon the Company's earnings, financial condition,
capital requirements and other relevant factors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

                                      -19-
<PAGE>
 
ITEM 6.    SELECTED FINANCIAL DATA.

           The following tables present selected consolidated financial data for
the Company for each of the years in the five years ended December 31, 1997 and
the one month period ended January 31, 1998. Such information has been derived
from the Company's audited consolidated financial statements and should be read
in conjunction with the Company's consolidated financial statements and the
notes to the consolidated financial statements included elsewhere in this
report. All financial information presented herein for periods prior to the 1995
acquisition of DGM&S has been retroactively adjusted to account for that
transaction as a pooling of interests. All financial information presented
herein has been retroactively adjusted for the Merger with Boston to account for
that transaction as a pooling of interests.

<TABLE> 
<CAPTION> 
                                                                                                                      Transition
                                                                                                                     Period Ended
                                                                Year Ended December 31,                            January 31, 1998
                                        ------------------------------------------------------------------------   ----------------
                                           1993(1) (2)     1994(1) (2)     1995(1) (2)     1996(1) (2)    1997(3)
                                     
                                                           (In thousands, except per share data)
<S>                                     <C>             <C>             <C>             <C>             <C>         <C> 
Statement of Operations Data:        
Revenues:                                                                                       
     Sales                              $    151,703   $    197,206    $   242,416    $    389,639    $   488,940   $      14,401
     Interest and other income                 3,673          7,260          9,916          11,011         16,962           1,374
                                        ------------   ------------    -----------    ------------    -----------   -------------
          Total revenues                     155,376        204,466        252,332         400,650        505,902          15,775
                                                                                                                 
Costs and Expenses:                                                                                              
  Cost of sales                               60,065         79,060        104,980         169,524        202,640          21,146
  Selling, general and administrative         44,828         59,898         72,953          93,604        138,305          51,892
  Research and development, net               23,161         26,349         41,310          66,228         96,626          13,481
  Interest expense and other                   1,160          4,160          4,593           8,635         12,325           1,199
  Royalties and license fees                   1,996          2,385          3,321          10,443         12,243             520
  Non-recurring charges                            -              -         21,000               -              -          41,877
          Total costs and expenses           131,595        172,114        248,010         348,878        461,979         130,115
                                                                                                                 
Income before income tax provision            23,781         32,352          4,322          52,307         43,923        (114,340)
Income tax provision                           3,619          7,310          2,162          10,170          9,398             867
                                        ------------   ------------    -----------    ------------    -----------   -------------
          Net income                    $     20,162   $     25,042    $     2,160    $     42,137    $    34,525   $    (115,207)
                                        ============   ============    ===========    ============    ===========   ==============
                                                                                                                 
Earnings per share - diluted            $       0.54   $       0.65    $      0.06    $       1.01    $      0.75   $       (2.66)
                                        ============   ============    ===========    ============    ===========   ==============
                                     
Weighted average number of           
   common and common equivalent      
     shares outstanding                       37,076         38,606         38,760          44,377         45,969          43,353
<CAPTION> 
                                                                         December 31,                                 January 31,
                                        -------------------------------------------------------------------------   --------------
                                             1993(4)(5)       1994(5)       1995(5)        1996(5)       1997            1998
                                                                        (In thousands)
<S>                                     <C>             <C>             <C>             <C>             <C>             <C> 
   Balance Sheet Data:               
     Working capital                    $    169,433   $    185,660    $   193,693    $    332,660    $   395,744    $     280,793
     Total assets                            239,742        272,791        306,115         519,074        622,931          527,652
     Long-term debt, including                                                                                   
        current portion                       64,429         63,852         61,361         117,605        142,075          124,257
     Stockholders' equity                    132,449        158,405        176,080         288,550        346,161          231,390
</TABLE> 

(1)    Includes results for DGM&S for its fiscal year ended September 30.
(2)    Includes results for Boston for its fiscal year ended January 31.
(3)    Includes results for Boston for the 11 months ended December 31, 1997.
(4)    Includes amounts for DGM&S as of its fiscal year ended September 30.
(5)    Includes amounts for Boston as of its fiscal year ended January 31.

                                      -20-
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

           This report contains forward-looking statements that involve a number
of risks and uncertainties, including without limitation information regarding
competition and future trends in the industries in which the Company competes,
the Company's future revenues and expenses, and the Company's plans, strategies
and expectations for its business. There are a number of factors that could
cause the Company's actual results and business plans to differ materially from
those forecasted or projected in such forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Certain
Trends and Uncertainties". 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 obligations to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

           In connection with the Merger, the fiscal year of the Company has
been changed from the calendar year to the fiscal year ending January 31,
corresponding to Boston's fiscal year. The following discussion and analysis of
the Company's results of operations compares the operating results of Comverse
and its consolidated subsidiaries, including Boston, for the one month
transition period ended January 31, 1998 to the operating results of Comverse
and its consolidated subsidiaries for the one month ended January 31, 1997
combined with the results of Boston for the one month ended February 28, 1997.

COMPARISON OF 1997 AND 1998 OPERATIONS

           Total Revenues. Total revenues decreased from 1997 to 1998 by
approximately $3,574,000 (18%). The decrease is attributable primarily to a
reduced volume of sales of systems and parts. Sales decreased from 1997 to 1998
by approximately $4,056,000 (22%). Interest and other income increased from 1997
to 1998 by approximately $482,000 (54%), resulting primarily from increased
interest and dividend income.

           Cost of Sales. Cost of sales increased by approximately $10,595,000
(100%) from 1997 to 1998 primarily as a result of the writedown of inventory
resulting from the Merger. Gross margins decreased from approximately 43% in
1997 to approximately (47%) in 1998.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from 1997 to 1998 by approximately $43,252,000
(501%) and as a percentage of total revenues increased from approximately 45% in
1997 to approximately 329% in 1998. The increased amount was primarily a result
of the impairment of receivables resulting from duplicate customers or
distribution channels arising from the Merger.

                                      -21-
<PAGE>
 
           Research and Development Expenses. Net research and development
expenses during 1998 increased by approximately $5,203,000 (63%) over 1997 due
to overall growth of research and development operations, the initiation of
significant new research and development projects and increases in salaries and
other costs associated with research and development operations.

           Royalties and License Fees. Royalties and license fees decreased from
1997 to 1998 by approximately $11,000 (2%) due primarily to reduced sales in the
1998 period.

           Merger Related Charges. In 1998, merger and related charges totaling
$41,877,000 were charged to operations resulting from the Merger. Such charges
relate to the following: (i) $15,918,000 for the write-off of duplicate research
and development, license fees and other capital equipment and certain
capitalized software; (ii) $14,919,000 for the establishment of reserves for
severance pay, contract penalties and termination fees, and the closing of
duplicate facilities; and (iii) $11,040,000 for professional fees and other
direct merger costs.

           Income Tax Provision. Provision for income taxes increased from 1997
to 1998 by approximately $570,000 (192%). Such increase resulted from an
increase to the valuation allowance for deferred tax assets in 1998.

           Net Loss. Net loss after taxes increased from approximately
$10,221,000 in 1997 to approximately $115,207,000 in 1998, an increase of
approximately $104,986,000 (1027%). The increase resulted primarily from the
factors described above.

LIQUIDITY AND CAPITAL RESOURCES

           At January 31, 1998, the Company had cash and cash equivalents of
approximately $180,855,000, bank time deposits of approximately $35,700,000,
short-term investments of approximately $60,347,000 and working capital of
approximately $280,793,000. The Company believes that its existing working
capital, together with funds generated from operations, will be sufficient to
provide for its planned operations at least through January 31, 1999.

           The Company regularly examines opportunities for strategic
acquisitions of other companies or lines of business, and anticipates that it
may from time to time issue additional debt and/or equity securities either as
direct consideration for such acquisitions or to raise additional funds to be
used (in whole or in part) in payment for acquired securities or assets. The
issuance of such securities can be expected to have a dilutive impact on the
Company's shareholders, and there can be no assurance as to whether or when any
acquired business would contribute positive operating results commensurate with
the associated acquisition cost.

           The Company's liquidity and capital resources have not been, and are
not anticipated to be, materially affected by restrictions pertaining to the
ability of its subsidiaries in Israel to pay dividends or by withholding taxes
associated with any such dividend payments. Cash dividends paid by an Israeli
corporation to United States residents are subject to withholding of Israeli

                                      -22-
<PAGE>
 
income tax at source at rates of up to 25%, depending on the particular
facilities that have generated the earnings that are the source of the
dividends.

YEAR 2000

           The Company has taken actions to understand the nature and extent of
the work required to make its systems, products and infrastructure Year 2000
compliant and has begun work to prepare its products and its financial,
information and other computer-based systems for the Year 2000, including
replacing and/or updating existing legacy systems. The Company continues to
evaluate the estimated costs associated with these efforts. While these efforts
will involve additional costs, the Company believes, based on available
information, that it will be able to manage its total Year 2000 transition
without any material adverse effect on its business operations, products or
financial prospects.

CERTAIN TRENDS AND UNCERTAINTIES

           The Company has benefited from the growth in its business and capital
base over the past three years to make significant new investment in its
operations and infrastructure intended to enhance its opportunities for future
growth and profitability. The Company's results of operations reflect the
significant increase in its investment in operations over the past three years.
The Company intends to continue to make significant investments in the growth of
its business, and to examine opportunities for additional growth through
acquisitions and strategic investments. The impact of these decisions on future
profitability cannot be predicted with assurance, and the Company's commitment
to growth may increase its vulnerability to unforeseen downturns in its markets,
technology changes and shifts in competitive conditions. However, the Company
believes that significant opportunities exist in the markets for each of its
main product lines, and that continued strong investment in its technical,
product development, marketing and sales capabilities will enhance its
opportunities for long term growth and profitability.

           The Merger involves the integration of two companies that have
previously operated independently. The combination of two sizable
technology-based companies involves significant complexities, and no assurance
can be given that the combined Company will be able to integrate the operations
of Boston into the Company without encountering difficulties or experiencing the
loss of key Comverse or Boston personnel or that the benefits expected from such
integration will be realized. The integration of two companies across
geographically dispersed operations can create the risk of disruption in
operations of the combined company, and neither company's management has
substantial experience in managing such integration or the operations of an
entity the size of the combined Company. The Company does not expect to realize
cost savings in the near future as a result of the Merger, and no assurance can
be given that any savings can be achieved in future periods. Furthermore, there
can be no certainty that the Merger will not adversely affect the relationships
with key customers or key vendors of either company. As a result of its
significantly greater concentration on a small number of large telephone company

                                      -23-
<PAGE>
 
customers, Boston's business has historically been considerably more volatile
than that of Comverse, and the operations of the combined Company are likely to
be less predictable and subject to greater risks from actions of individual
customers than the operations of Comverse in recent years.

           The telecommunications industry is subject to rapid technological
change. The Company's revenue stream will depend on its ability to enhance its
existing products and to introduce new products on a timely and cost-effective
basis. This includes any customer-requested custom software enhancements
required in the normal course of product delivery and customer demands for the
technological convergence of the Company's products. The Company's products
involve sophisticated hardware and software technology that performs critical
functions to highly demanding standards. There can be no assurance that the
Company's current or future products will not develop operational problems,
which could have a material adverse effect on the Company. In addition, if the
Company were to delay the introduction of new products, or to delay the delivery
of specific custom software enhancements, the Company's operating results could
be adversely affected. The Company sells a majority of its products to companies
in the telecommunications industry. This industry is undergoing significant
change as a result of deregulation and privatization worldwide, reducing
restrictions on competition in the industry. Unforeseen changes in the
regulatory environment may have an impact on the Company's revenues and/or costs
in any given part of the world. The worldwide enhanced services systems industry
is already highly competitive and the Company expects competition to intensify.
The Company believes that existing competitors will continue to present
substantial competition, and that other companies, many with considerably
greater financial, marketing and sales resources than the Company, may enter the
enhanced services systems markets. The 1997 acquisition of Octel Communications
Corporation, a significant competitor of the Company, by Lucent Technologies,
Inc. may intensify the competitive environment in the industry, and there can be
no assurance that similar business combinations or industry consolidation will
not occur in the future.

           The enhanced services platforms industry has experienced a continuing
evolution of product offerings and alternatives for delivery of services. These
trends have affected and may be expected to have a significant continuing
influence on conditions in the industry, although the impact on the industry
generally and on the Company's position in the industry cannot be predicted with
assurance. Significant changes in the industry make planning decisions more
difficult and increase the risk inherent in the planning process.

           The market for telecommunications monitoring systems is also in a
period of significant transition. Budgetary constraints, uncertainties resulting
from the introduction of new technologies in the telecommunications environment
and shifts in the pattern of government expenditures resulting from geopolitical
events have increased uncertainties in the market, resulting in certain
instances in the attenuation of government procurement programs beyond their
originally expected performance periods and an increased incidence of delay,
cancellation or reduction of planned projects. The continuing delay and
uncertainties surrounding the Communications Assistance for Law Enforcement Act
("CALEA") have had a significant impact on acquisition plans of law enforcement
agencies in North America engaged in monitoring 

                                      -24-
<PAGE>
 
activities, and no assurances can be given as to the timing or ultimate content
of the proposed legislation. Competitive conditions in this sector have also
been affected by the increasing use by certain potential government customers of
their own internal development resources rather than outside vendors to provide
certain technical solutions. In addition, a number of established government
contractors, particularly developers and integrators of technology products,
have taken steps to redirect their marketing strategies and product plans in
reaction to cut-backs in their traditional areas of focus, resulting in an
increase in the number of competitors and the range of products offered in
response to particular requests for proposals. The lack of predictability in the
timing and scope of government procurements have similarly made planning
decisions more difficult and have increased the associated risks.

           The Company has historically derived a significant portion of its
sales and operating profit from a relatively small number of contracts for large
system installations with major customers. Boston's operating results, in
particular, have often been characterized by volatility and lack of
predictability, reflecting its traditional customer concentration among major
telecommunications services providers such as the Regional Bell Operating
Companies. The Company continues to emphasize large capacity systems in its
product development and marketing strategies. Contracts for large installations
typically involve a lengthy and complex bidding and selection process, and the
ability of the Company to obtain particular contracts is inherently difficult to
predict. The Company believes that opportunities for large installations will
continue to grow in both its commercial and government markets, and intends to
continue to expand its research and development, manufacturing, sales and
marketing and product support capabilities in anticipation of such growth.
However, the timing and scope of these opportunities and the pricing and margins
associated with any eventual contract award are difficult to forecast, and may
vary substantially from transaction to transaction. The Company's future
operating results may accordingly exhibit a higher degree of volatility than the
operating results of other companies in its industries that have adopted
different strategies, and than the Company has experienced in prior periods.
Although the Company is actively pursuing a number of significant procurement
opportunities in the United States and internationally, both the timing of any
eventual procurements and the probability of the Company's receipt of
significant contract awards are uncertain. The degree of dependence by the
Company on large orders, and the investment required to enable the Company to
perform such orders, without assurance of continuing order flow from the same
customers and predictability of gross margins on any future orders, increase the
risk associated with its business.

           The Company has significantly increased its expenditures in all areas
of its operations during recent periods, including the areas of research and
development and marketing and sales, and the Company plans to further increase
these expenditures in the foreseeable future. The increase in research and
development expenditures reflects the Company's concentration on enhancing the
range of features and capabilities of its existing product lines and developing
new generations of its products. The Company believes that these efforts are
essential for the continuing competitiveness of its product offerings and for
positioning itself to participate in future growth opportunities in both the
commercial and government sectors. The increase in sales and marketing
expenditures primarily results from the Company's decision to expand its
activities and direct presence in a growing number of world markets. The
Company's costs of 

                                      -25-
<PAGE>
 
operations have also been affected by increases in the cost of its operations in
Israel, resulting both from general inflation and increases in the cost of
attracting and retaining qualified scientific, engineering and technical
personnel in Israel, where the demand for such personnel is growing rapidly with
the expansion of technology-based industries in that country. The increase in
these costs in recent periods has not been offset by proportional devaluation of
the Israeli shekel against the United States dollar, and accordingly has had a
negative impact on the Company's overall results of operations. Continuation of
such trends may have a material adverse effect on the Company's future results
of operations.

           A significant portion of the Company's research and development and
manufacturing operations are located in Israel and may be affected by
regulatory, political, military and economic conditions in that country. The
Company's historical operating results reflect substantial benefits from
programs sponsored by the Israeli government for the support of research and
development, as well as favorable tax rates available to "Approved Enterprises"
in Israel. The Israeli government has indicated its intention to reexamine
certain of its policies in these areas. Recently, the government acted to
increase, from between 2% and 3% of associated product sales to 3% of associated
product revenues (including service and other related revenues), the annual rate
of royalties to be applied to repayment of benefits under the conditional grant
program administered by the Office of the Chief Scientist of the Ministry of
Industry and Trade, a program in which the Company has regularly participated
and under which it continues to receive significant benefits through
reimbursement of qualified research and development expenditures. The Company's
repayment of amounts received under the program will be accelerated through
these higher royalty rates until repayment is completed. In addition, permission
from the government of Israel is required for the Company to manufacture outside
of Israel products resulting from research and development activities funded
under such programs, or to transfer outside of Israel related technology rights,
and in order to obtain such permission the Company may be required to increase
the royalties to the applicable funding agencies and/or repay certain amounts
received as reimbursement of research and development costs. The Company expects
to incur additional royalty expenses and/or repayment obligations as a result of
the Merger and the location of certain manufacturing and research and
development operations pertaining to its TRILOGUE product line at its Boston
facilities. The Israeli authorities have also indicated that this funding
program will be further reduced in the future, particularly for larger entities
such as the Company. The Israeli government has also shortened the period of the
tax moratorium applicable to "Approved Enterprises" from four years to two
years. Although this change has not affected the tax status of the Company's
projects that were eligible for the moratorium prior to 1997, it applies to the
subsequent "Approved Enterprises" of the Company. If further changes in the law
or government policies regarding those programs were to result in their
termination or adverse modification, or if the Company were to become unable to
participate in or take advantage of those programs, the cost to the Company of
its operations in Israel would materially increase and there would be an adverse
effect on the results of the Company's operations as a whole. To the extent the
Company increases its activities outside Israel, which will result from the
Merger and possible future acquisitions, such increased activities will not be
eligible for programs sponsored by Israel. Most of the Company's research and
development and manufacturing operations attributable to Boston are expected to
continue to be located in the United States and thus will not be eligible for
the benefits of those programs. 

                                      -26-
<PAGE>
 
Accordingly, the effective cost to the Company of its future research and
development activities in particular, and its operations in general, could
significantly increase relative to that of Comverse, historically.

           The Company currently derives a significant portion of its total
sales from customers outside of the United States. International transactions
involve particular risks, including political decisions affecting tariffs and
trade conditions, rapid and unforeseen changes in economic conditions in
individual countries, turbulence in foreign currency and credit markets, and
increased costs resulting from lack of proximity to the customer. Volatility in
international currency exchange rates may have a significant impact on the
Company's operating results. The Company has, and anticipates that it will
continue to receive, significant contracts denominated in foreign (primarily
Western European and Japanese) currencies. As a result of the unpredictable
timing of purchase orders and payments under such contracts and other factors,
it is often not practicable for the Company to effectively hedge the risk of
significant changes in currency rates during the contract period. Since the
Company will hedge the exchange rate risks associated with long-term contracts
denominated in foreign currencies only to a limited extent, operating results
can be affected by the impact of currency fluctuations as well as the cost of
such hedging.

           While the Company believes that prevailing economic conditions in the
Far East and Southeast Asia have reduced the demand for its systems in certain
countries, overall sales in the region have increased over the past 12 months.
The Company cannot currently predict the effect on its business should regional
economic conditions fail to improve.

           The trading price of the Company's shares may be affected by the
factors noted above as well as prevailing economic and financial trends and
conditions in the public securities markets. Share prices of companies in
technology and government contracting businesses, and particularly smaller and
medium-sized publicly traded companies such as the Company, tend to exhibit a
high degree of volatility. The Company's revenues and earnings may be more
volatile than that of Comverse historically as a result of the greater
concentration of Boston's business on a limited number of large customers.
Shortfalls in revenues or earnings from the levels anticipated by the public
markets could have an immediate and significant effect on the trading price of
the Company's shares in any given period. Such shortfalls may result from events
that are beyond the Company's immediate control, can be unpredictable and, since
a significant proportion of the Company's sales during each fiscal quarter tend
to occur in the latter stages of the quarter, may not be discernible until the
end of a financial reporting period. These factors contribute to the volatility
of the trading value of its shares regardless of the Company's long-term
prospects. The trading price of the Company's shares may also be affected by
developments, including reported financial results and fluctuations in trading
prices of the shares of other publicly-held companies in the voice processing
industry, which may not have any direct relationship with the Company's business
or prospects.

                                      -27-
<PAGE>
 
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

           The financial information required by Item 8 is included elsewhere in
this report.

           See Part IV, Item 14.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE.

           Not applicable.


                                   PART III

           The information required by Part III is omitted pursuant to
instruction G(3).

                                      -28-
<PAGE>
 
<TABLE> 
<CAPTION> 
                                    PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES
           AND REPORTS ON FORM 8-K.

                                                                                  Page(s)
                                                                                  -------
           (a)       Documents filed as part of this report.
                     --------------------------------------
              <C>       <S>                                                     <C> 
              (1)        Financial Statements.                                                                 
                         --------------------  

                         Index to Consolidated Financial Statements                  F-1                         
                                                                                                                                 
                         Independent Auditors' Report  F-2                                                                       
                                                                                                                                 
                         Consolidated Balance Sheet as of January 31, 1998           F-3                                         
                                                                                                                                 
                         Consolidated Statement of Operations for the                                                            
                         One Month Ended January 31, 1998                            F-4                                         
                                                                                                                                 
                         Consolidated Statement of Stockholders'                                                                 
                         Equity for the One Month Ended January 31, 1998             F-5                                         
                                                                                                                                 
                         Consolidated Statement of Cash Flows for the                                                            
                         One Month Ended January 31, 1998                            F-6                                         
                                                                                                                                 
                         Consolidated Statement of Comprehensive                                                                 
                         Income for the One Month Ended January 31, 1998             F-7                                         
                                                                                                                                 
                         Notes to Consolidated Financial Statements                  F-8                                         
</TABLE> 
              (2)        Financial Statement Schedules.  
                         -----------------------------

                         None                                      
                                                                   
              (3)        Exhibits.                                 
                         --------                                  
                                                                   
                         The Index of Exhibits commences on the    
                         following page. Exhibits numbered 10.3    
                         through 10.8, 10.13 through 10.16 and     
                         10.24 through 10.30 comprise material     
                         compensatory plans and arrangements of    
                         the registrant.                           

                                      -29-
<PAGE>
 
EXHIBITS
--------

NO.        DESCRIPTION
---        -----------

2.1*       Agreement and Plan of Merger dated as of August 20, 1997, between
           Registrant and Boston Technology, Inc. (Incorporated by reference to
           the Definitive Proxy Materials for the Registrant's Annual Meeting of
           Stockholders held January 13, 1998.)

3          Articles of Incorporation and By-Laws:

           3.1*         Certificate of Incorporation. (Incorporated by reference
                        to the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1987.)

           3.2*         Certificate of Amendment of Certificate of Incorporation
                        effective February 26, 1993. (Incorporated by reference
                        to the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1992.)

           3.3*         Certificate of Amendment of Certificate of Incorporation
                        effective January 12, 1995. (Incorporated by reference
                        to the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1994.)

           3.4*         By-Laws, as amended. (Incorporated by reference to the
                        Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1987.)

4          Instruments defining the rights of security holders including
           indentures:

           4.1*         Excerpts from Certificate of Incorporation.
                        (Incorporated by reference to the Registrant's
                        Registration Statement on Form S-1 under the Securities
                        Exchange Act of 1933, Registration No.

                        33-9147.)

           4.2*         Excerpt from Certificate of Amendment of Certificate of
                        Incorporation effective February 26, 1993. (Incorporated
                        by reference to the Registrant's Annual Report on Form
                        10-K under the Securities Exchange Act of 1934 for the
                        year ended December 31, 1992.)

           4.3*         Excerpt from Certificate of Amendment of Certificate of
                        Incorporation effective January 12, 1995. (Incorporated
                        by reference to the Registrant's Annual Report on Form
                        10-K under the Securities Exchange Act of 1934 for the
                        year ended December 31, 1994.)

                                      -30-
<PAGE>
 
           4.4*         Excerpts from By-Laws, as amended. (Incorporated by
                        reference to the Registrant's Annual Report on Form 10-K
                        under the Securities Exchange Act of 1934 for the year
                        ended December 31, 1992.)

           4.5*         Specimen stock certificate. (Incorporated by reference
                        to the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1992.)

           4.6*         Indenture dated as of October 4, 1996 from Comverse
                        Technology, Inc. to The Chase Manhattan Bank, N.A.,
                        Trustee. (Incorporated by reference to the Registrant's
                        Current Report on Form 8-K under the Securities Exchange
                        Act of 1934 filed October 10, 1996.)

           4.7*         Specimen 5 3/4% Convertible Subordinated Debenture due
                        2006. (Incorporated by reference to the Registrant's
                        Current Report on Form 8-K under the Securities Exchange
                        Act of 1934 filed October 10, 1996.)

10         Material contracts:

           10.1*        Proxy Agreement dated as of September 5, 1991 by and
                        among Comverse Government Systems Corporation, James R.
                        Allen, Robert W. Bazley, Robert T. Marsh and Comverse
                        Technology, Inc. (Incorporated by reference to the
                        Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1991.)

           10.2*        Visitation Approval Procedure Agreement dated as of
                        September 5, 1991 by and among Comverse Government
                        Systems Corporation, James R. Allen, Robert W. Bazley,
                        Robert T. Marsh and Comverse Technology, Inc.
                        (Incorporated by reference to the Registrant's Annual
                        Report on Form 10-K under the Securities Exchange Act of
                        1934 for the year ended December 31, 1991.)

           10.3*        Form of Stock Option Agreement pertaining to shares of
                        certain subsidiaries of Comverse Technology, Inc.
                        (Incorporated by reference to the Registrant's Annual
                        Report on Form 10-K under the Securities Exchange Act of
                        1934 for the year ended December 31, 1993.)

           10.4*        Employment Agreement effective as of July 1, 1994 by and
                        between Comverse Technology, Inc. and Kobi Alexander.
                        (Incorporated by reference to the Registrant's Annual
                        Report on Form 10-K under the Securities Exchange Act of
                        1934 for the year ended December 31, 1994.)

           10.5*        1994 Stock Option Plan. (Incorporated by reference to
                        the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1994.)

                                      -31-
<PAGE>
 
           10.6*        1995 Stock Option Plan. (Incorporated by reference to
                        the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1995.)

           10.7*        1996 Stock Option Plan. (Incorporated by reference to
                        the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1996.)

           10.8*        Form of Incentive Stock Option Agreement. (Incorporated
                        by reference to the Registrant's Registration Statement
                        on Form S-1 under the Securities Act of 1933,
                        Registration No. 33-9147.)

           10.9*        Deed of Guarantee from Comverse Technology, Inc. to Bank
                        Hapoalim B.M. dated July 30, 1986. (Incorporated by
                        reference to the Registrant's Registration Statement on
                        Form S-1 under the Securities Act of 1933, Registration
                        No. 33-9147.)

           10.10*       Continuing Guarantee from Comverse Technology, Inc. to
                        Bank Leumi le-Israel B.M. (Incorporated by reference to
                        the Registrant's Registration Statement on Form S-1
                        under the Securities Act of 1933, Registration No. 33-
                        9147.)

           10.11*       Patent License Agreement by and between Efrat Future
                        Technology Ltd. and VMX, Inc. (Incorporated by reference
                        to the Registrant's Registration Statement on Form S-1
                        under the Securities Act of 1933, Registration No. 33-
                        9147.)

           10.12*       Form of Indemnity Agreement between Comverse Technology,
                        Inc. and its Officers and Directors. (Incorporated by
                        reference to the Registrant's Annual Report on Form 10-K
                        under the Securities Exchange Act of 1934 for the year
                        ended December 31, 1987.)

           10.13*       1987 Stock Option Plan, as amended. (Incorporated by
                        reference to the Registrant's Annual Report on Form 10-K
                        under the Securities Exchange Act of 1934 for the year
                        ended December 31, 1987.)

           10.14*       Form of Stock Option Agreement for options other than
                        Incentive Stock Options. (Incorporated by reference to
                        the Registrant's Annual Report on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        December 31, 1987.)

           10.15*       1997 Employee Stock Purchase Plan. (Incorporated by
                        reference to the Definitive Proxy Materials for the
                        Registrant's Annual Meeting of Stockholders held January
                        13, 1998.)

           10.16*       1997 Stock Incentive Compensation Plan. (Incorporated by
                        reference to the Definitive Proxy Materials for the
                        Registrant's Annual Meeting of Stockholders held January
                        13, 1998.)

                                      -32-
<PAGE>
 
           10.17*       Memorandum of Agreement dated November 22, 1995 between
                        Boston Technology, Inc. and AT&T. (Incorporated by
                        reference to the Annual Report of Boston Technology,
                        Inc. on Form 10-K under the Securities Exchange Act of
                        1934 for the year ended January 31, 1996, confidential
                        treatment requested as to certain portions.)

           10.18*       Lease dated November 5, 1990 between Boston Technology,
                        Inc. and Wakefield Park Limited Partnership.
                        (Incorporated by reference to the Annual Report of
                        Boston Technology, Inc. on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        January 31, 1991.)

           10.19*       First Amendment dated as of March 31, 1993 to Lease
                        dated November 5, 1990 between Boston Technology, Inc.
                        and Wakefield Park Limited Partnership. (Incorporated by
                        reference to the Quarterly Report of Boston Technology,
                        Inc. on Form 10-Q under the Securities Exchange Act of
                        1934 for the quarter ended October 31, 1993.)

           10.20*       Second Amendment dated as of August 31, 1994 to Lease
                        dated November 5, 1990 between Boston Technology, Inc.
                        and Wakefield Park Limited Partnership. (Incorporated by
                        reference to the Annual Report of Boston Technology,
                        Inc. on Form 10-K under the Securities Exchange Act of
                        1934 for the year ended January 31, 1995.)

           10.21*       License Agreement dated November 15, 1988 between Boston
                        Technology, Inc. and VMX, Inc. (Incorporated by
                        reference to the Registration Statement of Boston
                        Technology, Inc. on Form S-1 under the Securities Act of
                        1933, Registration No. 33-32134.)

           10.22*       License Agreement dated January 22, 1990 between Boston
                        Technology, Inc. and Dytel Corporation. (Incorporated by
                        reference to the Annual Report of Boston Technology,
                        Inc. on Form 10-K under the Securities Exchange Act of
                        1934 for the year ended January 31, 1990.)

           10.23*       Settlement Agreement dated December 28, 1993 between the
                        Boston Technology, Inc. and Theis Research, Inc. and
                        Peter F. Theis. (Incorporated by reference to the Annual
                        Report of Boston Technology, Inc. on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        January 31, 1994.)

           10.24*       Boston Technology, Inc. 1995 Director Stock Option Plan.
                        (Incorporated by reference to the Quarterly Report of
                        Boston Technology, Inc. on Form 10-Q under the
                        Securities Exchange Act of 1934 for the quarter ended
                        July 31, 1995.)

           10.25*       Boston Technology, Inc. 1992 Directors' Stock Option
                        Plan, as amended. (Incorporated by reference to the
                        Annual Report of Boston 

                                      -33-
<PAGE>
 
                        Technology, Inc. on Form 10-K under the Securities
                        Exchange Act of 1934 for the year ended January 31,
                        1994.)

           10.26*       Boston Technology, Inc. 1994 Stock Incentive Plan.
                        (Incorporated by reference to the Annual Report of
                        Boston Technology, Inc. on Form 10-K under the
                        Securities Exchange Act of 1934 for the year ended
                        January 31, 1994.)

           10.27*       Boston Technology, Inc. 1989 Incentive Stock Option
                        Plan, as amended. (Incorporated by reference to the
                        Definitive Proxy Materials for Boston Technology, Inc.'s
                        Annual Meeting of Stockholders held July 14, 1992.)

           10.28*       Boston Technology, Inc. Employee Savings and Profit
                        Sharing Plan. (Incorporated by reference to Registration
                        Statement of Boston Technology, Inc. on Form S-1 under
                        the Securities Act of 1933, Registration No. 33-32134.)

           10.29*       Boston Technology, Inc. Employee Severance Benefit Plan.
                        (Incorporated by reference to the Current Report of
                        Boston Technology, Inc. on Form 8-K under the Securities
                        Exchange Act of 1934 dated May 9, 1991.)

           10.30*       Boston Technology, Inc. 1996 Stock Incentive Plan.
                        (Incorporated by reference to the Definitive Proxy
                        Materials for Boston Technology, Inc.'s Annual Meeting
                        of Stockholders held June 25, 1996.)

           10.31*       Lease dated June 7, 1996 between Boston Technology, Inc.
                        and WBAM Limited Partnership. (Incorporated by reference
                        to the Annual Report of Boston Technology, Inc. on Form
                        10-K under the Securities Exchange Act of 1934 for the
                        year ended January 31, 1997.)

21*        Subsidiaries of Registrant. (Incorporated by reference to the
           Registrant's Annual Report on Form 10-K under the Securities Exchange
           Act of 1934 for the year ended December 31, 1997.)

23         Consent of Deloitte & Touche LLP

27         Financial Data Schedule

- ----------------

* Incorporated by reference.

                                      -34-
<PAGE>
 
042198

ONE MONTH ENDED JANUARY 31, 1998
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                                          PAGE

Independent Auditors' Report                                               F-2  
                                                                                
Consolidated Balance Sheet as of January 31, 1998                          F-3  
                                                                                
Consolidated Statement of Operations for the                                    
   One Month Ended January 31, 1998                                        F-4  
                                                                                
Consolidated Statement of Stockholders' Equity for the                          
   One Month Ended January 31, 1998                                        F-5  
                                                                                
Consolidated Statement of Cash Flows for the                                    
   One Month Ended January 31, 1998                                        F-6  
                                                                                
Consolidated Statement of Comprehensive Income for the                          
   One Month Ended January 31, 1998                                        F-7  
                                                                                
Notes to Consolidated Financial Statements                                 F-8  

                                      F-1
<PAGE>
 
INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Comverse Technology, Inc.
Woodbury, New York

We have audited the accompanying consolidated balance sheet of Comverse
Technology, Inc. and subsidiaries (the "Company") as of January 31, 1998, and
the related consolidated statement of operations, stockholders' equity, cash
flows, and comprehensive income for the one month period ended January 31, 1998.
These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comverse Technology, Inc. and
subsidiaries as of January 31, 1998, and the results of their operations and
their cash flows for the one month period ended January 31, 1998 in conformity
with generally accepted accounting principles.


Deloitte & Touche LLP


New York, New York
March 31, 1998

                                      F-2
<PAGE>
 
<TABLE> 
<CAPTION> 

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------------------------------------------------- 


ASSETS
------
<S>                                                                               <C> 
CURRENT ASSETS:
   Cash and cash equivalents                                                       $      180,855   
   Bank time deposits                                                                      35,700   
   Short-term investments                                                                  60,347   
   Accounts receivable, net of allowance for doubtful accounts of $24,454                  79,693   
   Inventories                                                                             63,024   
   Prepaid expenses and other current assets                                               27,863   
   Deferred income tax benefits                                                             1,652   
                                                                                   --------------    
TOTAL CURRENT ASSETS                                                                      449,134   
PROPERTY AND EQUIPMENT, net                                                                53,413   
INVESTMENTS                                                                                 6,838
OTHER ASSETS                                                                               18,267                           
                                                                                   --------------    
TOTAL ASSETS                                                                       $      527,652                           
                                                                                   ==============    

-------------------------------------------------------------------------------------------------------- 

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                           $      125,941
   Bank loans                                                                              16,600                                 
   Advance payments from customers                                                         22,680                                 
   Other current liabilities                                                                3,120                                 
                                                                                   --------------                                 
TOTAL CURRENT LIABILITIES                                                                 168,341                                 
CONVERTIBLE SUBORDINATED DEBENTURES                                                       115,000                                 
LIABILITY FOR SEVERANCE PAY                                                                 4,481                                 
OTHER LIABILITIES                                                                           8,440                                 
                                                                                   --------------                                  
TOTAL LIABILITIES                                                                         296,262                                 
                                                                                   --------------                                 
                                                                                                                                  
COMMITMENTS AND CONTINGENCIES                                                                                                     
STOCKHOLDERS' EQUITY                                                                                                              
   Preferred stock, $0.01 par value--authorized, 2,500,000 shares;                                                                
     issued, none                                                                               -                                 
   Common stock, $0.10 par value -- authorized, 100,000,000 shares;                                                               
     issued and outstanding, 43,390,797 shares                                              4,339                                 
     Additional paid-in capital                                                           219,362                                 
   Retained earnings                                                                        6,559                                 
   Accumulated other comprehensive income                                                   1,130                                 
                                                                                   --------------                                  
TOTAL STOCKHOLDERS' EQUITY                                                                231,390                                 
                                                                                   --------------                                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $      527,652                                 
                                                                                   ==============                                  

                           See notes to consolidated financial statements.
</TABLE> 

                                      F-3
<PAGE>
 
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
ONE MONTH ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------


REVENUES:
   Sales                                                      $      14,401 
   Interest and other income                                          1,374 
                                                              --------------  
                                                                             
TOTAL REVENUES                                                       15,775 
                                                              --------------  

COSTS AND EXPENSES:                                                          
   Cost of sales                                                     21,146 
   Selling, general and administrative                               51,892 
   Research and development, net                                     13,481 
   Interest expense and other                                         1,199 
   Royalties and license fees                                           520 
   Merger related charges                                            41,877 
                                                              --------------  
                                                                             
TOTAL COSTS AND EXPENSES                                            130,115 
                                                              --------------  

LOSS BEFORE INCOME TAX                                             (114,340)
                                                                             
INCOME TAX PROVISION                                                   (867)
                                                              --------------  

NET LOSS                                                      $    (115,207) 
                                                              ============== 
LOSS PER SHARE:                                                              
     Basic                                                    $       (2.66) 
                                                              ============== 
     Diluted                                                  $       (2.66) 
                                                              ==============


                See notes to consolidated financial statements.

                                      F-4
<PAGE>
 
<TABLE> 
<CAPTION> 

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ONE MONTH ENDED JANUARY 31, 1998
(In thousands, except share data)
-----------------------------------------------------------------------------------------------------------------------------

                                                  COMMON STOCK       
                                             ----------------------         ADDITIONAL                     CUMULATIVE   
                                             NUMBER OF         PAR           PAID-IN          RETAINED     TRANSLATION 
                                              SHARES          VALUE          CAPITAL          EARNINGS      ADJUSTMENT    
                                              ------          -----          -------          --------      ----------
<S>                                         <C>           <C>              <C>            <C>              <C> 
BALANCE, DECEMBER 31, 1997,                                                                                              
       as previously reported                25,199,176   $    2,519       $   142,998     $    114,856    $        (8)  
Pooling of interests                         18,141,185        1,814            75,503            6,910            452   
                                             ----------   ----------       -----------     ------------    ----------- 
BALANCE, as restated                         43,340,361        4,333           218,501          121,766            444   
                                                                                                                         
Unrealized (loss)  on available-for-sale                                                                                 
   securities, net of tax                             -            -                 -                -              -   
Common stock issued in connection with                                                                                   
   exercise of stock options                     50,436            6               861                -              -   
Translation adjustment                                -            -                 -                -             45   
Net loss, one month ended January 31, 1998            -            -                 -          (115,207)            -   
                                             ----------   ----------       -----------     ------------    -----------  
                                                                                                                         
                                             43,390,797   $    4,339       $   219,362        $    6,559   $       489   
                                             ==========   ==========       ===========     ============    =========== 

                                             UNREALIZED               
                                               GAINS                              
                                              (LOSSES)      TOTAL                     
                                              --------      -----                      

BALANCE, DECEMBER 31, 1997,                                                                                        
       as previously reported                $    1,117   $ 261,482                       
Pooling of interests                                  -      84,679                       
                                             ----------   ----------        
BALANCE, as restated                              1,117     346,161                           
                                                                                              
Unrealized (loss)  on available-for-sale                                                      
   securities, net of tax                          (476)       (476)                          
Common stock issued in connection with                                                        
   exercise of stock options                          -         867                            
Translation adjustment                                -          45                            
Net loss, one month ended January 31, 1998            -    (115,207)                            
                                             ----------   ----------                          
                                             $      641   $ 231,390      
                                             ==========   ==========        


See notes to consolidated financial statements.    
</TABLE> 
                                                                        
                                                                        

                                      F-5
<PAGE>
 
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
ONE MONTH ENDED JANUARY 31, 1998
(In thousands)
<TABLE> 
<CAPTION> 
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>     
   Net loss  $                                                                       (115,207)
   Adjustments to reconcile net income to net cash provided
        by operating activities:
     Merger related charges                                                             41,877       
 Depreciation and amortization                                                           2,446       
 Changes in assets and liabilities:                                                                  
    Accounts receivable                                                                 62,229       
    Inventories                                                                          2,334       
    Prepaid expenses and other current assets                                            2,333       
    Accounts payable and accrued expenses                                               11,723       
    Advance payments from customers                                                    (2,394)       
    Liability for severance pay                                                            966       
    Other                                                                                2,301       
                                                                                ---------------       
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                8,608    
                                                                               ---------------    
                                                                                                  
CASH FLOWS FROM INVESTING ACTIVITIES:                                                             
   Maturities and sales of bank time deposits                                                     
                                                                                                  
     and investments, net                                                                4,985    
Purchase of property and equipment                                                      (3,784) 
Capitalization of software development costs                                              (501)   
                                                                               ----------------   
                                                                                                  
NET CASH PROVIDED BY INVESTING ACTIVITIES                                                  700    
                                                                               ---------------    
                                                                                                  
CASH FLOWS FROM FINANCING ACTIVITIES:                                                             
                                                                                                  
   Proceeds from issuance of common stock in connection with                                      
                                                                                                  
     exercise of stock options                                                             867    
   Net payments of bank loans and other debt                                           (17,343)   
                                                                                                  
NET CASH (USED IN) FINANCING ACTIVITIES                                                (16,476)   
                                                                               ----------------   
                                                                                                  
NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                             (7,168)   
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         188,023    
                                                                               ---------------    
CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $       180,855    
                                                                               ===============    
                                                                                                  
SUPPLEMENTAL DISCLOSURES OF                                                                       
CASH FLOW INFORMATION:                                                                            
                                                                                                  
   Cash paid during the period for interest                                    $           307    
                                                                               ===============    
   Cash paid during the period for income taxes                                $            29    
                                                                               ===============    
</TABLE> 
See notes to consolidated financial statements.

                                      F-6
<PAGE>
 
<TABLE> 
<CAPTION> 
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

ONE MONTH ENDED JANUARY 31, 1998

(In thousands)
<S>                                                                                                  <C> 
NET LOSS                                                                                               $      (115,207)
                                                                                                       ----------------

OTHER COMPREHENSIVE INCOME, NET OF TAX:

     Foreign currency translation adjustments 45 Unrealized losses on
     securities:

           Unrealized holding losses arising during period                      $     (461)
           Less: reclassification adjustments for gains
                     included in net loss                                             (15)                        (476)
                                                                                -----------               --------------

COMPREHENSIVE INCOME                                                                                   $      (115,638)
                                                                                                        ================

See  notes to consolidated financial statements.
</TABLE> 

                                      F-7
<PAGE>
 
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ONE MONTH ENDED JANUARY 31, 1998
--------------------------------------------------------------------------------
1.       ORGANIZATION AND BUSINESS

         Comverse Technology, Inc. ("Comverse" and, together with its
         subsidiaries, "the Company") was organized as a New York corporation in
         October 1984. The Company is engaged in the design, development,
         manufacture, marketing and support of special purpose computer and
         telecommunications systems and software for multimedia communications
         and information processing applications.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation - The consolidated financial statements
         include the accounts of Comverse and its wholly-owned and
         majority-owned subsidiaries. All material intercompany balances and
         transactions have been eliminated.

         Cash, Cash Equivalents and Bank Time Deposits - The Company considers
         all highly liquid investments purchased with original maturities of
         three months or less to be cash equivalents. Bank deposits with
         maturities in excess of three months are classified as bank time
         deposits.

         Short-Term Investments - The Company classifies all of its short-term
         investments (including U.S. treasury bills) as available-for-sale,
         accounted for at fair value, with resulting unrealized gains or losses
         reported as a separate component of stockholders' equity, on a
         net-of-tax basis.

         Concentration of Credit Risk - Financial instruments which potentially
         expose the Company to concentration of credit risk, consist primarily
         of cash investments and accounts receivable. The Company places its
         cash investments with high-credit quality financial institutions and
         currently invests primarily in bank time deposits, money market funds
         placed with major banks and financial institutions, corporate
         commercial paper, corporate medium-term notes, and U.S. government
         obligations that have maturities of one year or less. Accounts
         receivable are generally diversified due to the number of commercial
         and government entities comprising the Company's customer base and
         their dispersion across many geographical regions. The Company believes
         no significant concentration of credit risk exists with respect to
         these cash investments and accounts receivable.

         Inventories - Inventories are stated at the lower of cost or market.
         Cost is determined by the first-in, first-out method.

         Property and Equipment - Property and equipment are carried at cost
         less accumulated depreciation and amortization. The Company depreciates
         its property and equipment on a straight-line basis over periods
         ranging from three to seven years. The cost of maintenance and repairs
         is charged to operations as incurred. Significant renewals and
         betterments are capitalized.

         Income Taxes - The Company accounts for its income taxes using the
         asset and liability method. Under this method, deferred tax assets and
         liabilities are determined based on differences between 

                                      F-8
<PAGE>
 
         financial reporting and tax bases of assets and liabilities, and are
         measured using the enacted tax rates and laws that are expected to be
         in effect when the differences are expected to reverse.

         Revenue and Expense Recognition - Revenues from product sales are
         generally recognized upon shipment. Products shipped for customer
         trials are carried in finished goods inventory until customer
         acceptance is obtained, at which time revenue is recognized.

         Revenues from certain contracts are recognized under the
         percentage-of-completion method on the basis of physical completion to
         date or using actual costs incurred to total expected costs under the
         contract. Amounts received from customers in excess of revenues earned
         under the percentage-of-completion method are recorded as advance
         payments from customers. Related contract costs include all direct
         material and labor costs and those indirect costs related to contract
         performance, and are included in cost of sales in the consolidated
         statements of income.

         Expenses incurred in connection with research and development
         activities, other than certain software development costs that are
         capitalized, and selling, general and administrative expenses are
         charged to operations as incurred.

         Software Development Costs - Software development costs are capitalized
         upon the establishment of technological feasibility and are amortized
         over the estimated useful life of the software, which to date has been
         four years or less. Amortization begins in the period in which the
         related product is available for general release to customers.

         Functional Currency and Foreign Currency Transaction Gains and Losses -
         The United States dollar (the "dollar") is the functional currency of
         the major portion of the Company's foreign operations. Most of the
         Company's sales, and materials purchased for manufacturing, are
         denominated in or linked to the dollar. Certain operating costs,
         principally salaries, of foreign operations are denominated in local
         currencies. In those instances where a foreign subsidiary has a
         functional currency other than the dollar, the Company records any
         necessary foreign currency translation adjustment, reflected in
         stockholders' equity, at the end of each reporting period.

         Net losses from foreign currency transactions, included in the
         consolidated statements of income, approximated $203,000 for the one
         month ended January 31, 1998.

         The Company occasionally enters into foreign exchange forward contracts
         and options on foreign currencies. The purpose of the Company's foreign
         currency hedging activities is to protect the Company from the risk
         that the eventual dollar cash flows resulting from the sale of products
         to international customers will be adversely affected by changes in
         exchange rates. Any gain or loss on a foreign exchange contract which
         hedges a firm commitment is deferred until the underlying transaction
         is realized, at which time it is included in the consolidated statement
         of income. At January 31, 1998, there were outstanding forward
         contracts to purchase approximately $3,500,000 in Western European
         currencies. The Company also purchases foreign exchange options which
         permit, but do not require, the Company to exchange foreign currencies
         at a future date with another party at a contracted exchange rate. To
         finance premiums paid on such options, from time to time the Company
         may also write offsetting options at exercises prices which limit, but
         do not eliminate, the effect of purchased options as a hedge. As of
         January 31, 1998, the Company had purchased foreign exchange options of
         $8,000,000 and written foreign exchange options of $8,000,000 in
         Western European currencies.

                                      F-9
<PAGE>
 
         Other Assets - Licenses of patent rights and acquired "know-how" are
         recorded at cost and amortized using the straight-line method over the
         estimated useful lives of the related technology, not exceeding five
         years. Goodwill and other intangible assets associated with acquired
         subsidiaries are amortized over periods ranging from five to twelve
         years. Debt issue costs are amortized over the ten-year term of the
         related debt, on a straight-line basis.

         Long-Lived Assets - The Company reviews for the impairment of
         long-lived assets and certain identifiable intangibles whenever events
         or changes in circumstances indicate that the carrying amount of an
         asset may not be recoverable. An impairment loss would be recognized
         when estimated future cash flows expected to result from the use of the
         asset and its eventual disposition is less than its carrying amount.

         Pervasiveness of Estimates - The preparation of financial statements in
         conformity with generally accepted accounting principles requires
         management to make estimates and assumptions that affect the reported
         amounts of assets and liabilities and disclosure of contingent assets
         and liabilities at the date of the financial statements and the
         reported amounts of revenues and expenses during the reporting period.
         Actual results could differ from those estimates.

3.       RESEARCH AND DEVELOPMENT

         A significant portion of the Company's research and development
         operations are located in Israel where the Company derives substantial
         benefits from participation in programs sponsored by the Government of
         Israel for the support of research and development activities conducted
         in that country. For the one month ended January 31, 1998, the
         Company's research and development activities included projects
         submitted for partial funding under a program administered by the
         Office of the Chief Scientist of the Ministry of Industry and Trade of
         the State of Israel (the "OCS"), under which reimbursement of a portion
         of the Company's research and development expenditures will be made
         subject to final approval of project budgets. The Company is required
         to pay royalties to the OCS based on the sale of products incorporating
         technology developed in these projects. In addition, under the terms of
         the applicable funding agreements, products resulting from projects
         funded by the OCS may not be manufactured outside of Israel without
         government approval. OCS reimbursements for the one month ended January
         31, 1998 was $1,136,000.

                                      F-10
<PAGE>
 
4.       SHORT-TERM INVESTMENTS

         The Company classifies all of its short-term investments as
available-for-sale securities. The following is a summary of available-for-sale
securities as of January 31, 1998:
<TABLE> 
<CAPTION> 
                                                                            Gross                   Gross            Estimated
                                                                        Unrealized              Unrealized               Fair
                                                    Cost                    Gains                  Losses              Value
                                            ---------------------------------------------------------------------------------------
                                                                                    (In thousands)
<S>                                      <C>                         <C>                    <C>                     <C> 
         U.S. treasury notes                    $      248                 $       4             $       -             $       252
         Corporate debt securities                  35,722                       129                     -                  35,851
         U.S. Government
            agency bonds                               750                         -                     -                     750
                                                ----------                 ---------             ---------             -----------
         Total debt securities                      36,720                       133                     -                  36,853
                                                ----------                 ---------             ---------             -----------

         Common stock                               14,359                     1,880                 1,347                  14,892
         Mutual funds investing in
            U.S. government and

            agencies obligations                     1,929                        49                     -                   1,978
         Preferred stock                             5,981                       804                   161                   6,624
                                               -----------                 ---------             ---------             -----------
         Total equity securities                    22,269                     2,733                 1,508                  23,494
                                               -----------                 ---------             ---------             -----------

                                               $    58,989                 $   2,866             $   1,508             $    60,347
                                               ===========                 =========             =========             ===========
</TABLE> 

         During the one month ended January 31, 1998, the Company did not have
any realized gains or losses on sales of securities.

         The amortized cost and estimated fair value of debt securities at
January 31, 1998, by contractual maturity, are as follows:
<TABLE> 
<CAPTION> 
                                                                                                 Estimated
                                                                           Cost                  Fair Value
                                                                           ----                  -----------
                                                                                 (In thousands)
         <S>                                                        <C>                         <C> 
         Due in one year or less                                       $   15,083                  $    15,097
         Due after one year through three years                            21,588                       21,704
         Due after three years                                                 49                           52
                                                                       ----------                  -----------

                                                                       $   36,720                  $    36,853
                                                                       ==========                  ===========
</TABLE> 

                                      F-11
<PAGE>
 
5.       INVENTORIES

<TABLE> 
<CAPTION> 
       <S>                                                                                <C> 
         Inventories consist of:                                 
                                                                       January 31, 1998
                                                                      -------------------
                                                                        (In thousands)
                                                                 
                          Raw materials                               $        29,735
                          Work in process                                      20,413
                          Finished goods                                       12,876
                                                                      ---------------
                                                                       $       63,024
                                                                      ================
                                                                 
                                                                 
6.       PROPERTY AND EQUIPMENT                                  
                                                                 
         Property and equipment consists of:                     
                                                                 
                                                                       January 31, 1998
                                                                     -------------------           
                                                                        (In thousands)
                                                                 
                          Fixtures and equipment                      $        99,667
                          Transportation vehicles                               2,872
                          Leasehold improvements                                2,148
                                                                      ---------------
                                                                              104,687
                          Less accumulated depreciation          
                                 and amortization                             (51,274)
                                                                      ----------------
                                                                      $        53,413
                                                                      ================ 
7.       OTHER ASSETS                                            
                                                                 
         Other assets consist of:                                
                                                                 
                                                                       January 31, 1998
                                                                     --------------------  
                                                                        (In thousands)
                                                                 
             Software development costs, net of accumulated      
                   amortization of $10,896                            $         9,801
                                                                 
             Other assets                                                       8,466
                                                                      ----------------
                                                                      $        18,267
                                                                      ================
</TABLE> 
8.       ACQUISITIONS

         On January 14, 1998, Boston Technology, Inc., a Delaware corporation,
         ("BTI") merged with and into Comverse in a transaction that was
         accounted for as a pooling of interests. BTI designed, developed,
         manufactured, marketed and supported standard and customized enhanced
         services platforms and software applications for the telephone network
         operator market. Pursuant to the 

                                      F-12
<PAGE>
 
         merger, the issued and outstanding shares of BTI at the effective date
         of the merger were converted into an aggregate of approximately
         18,141,185 shares of Comverse's common stock and outstanding options
         and warrants to purchase BTI stock were converted into options and
         warrants to purchase an aggregate of 3,458,265 Comverse shares.

         In connection with the merger, the fiscal year of the Company has been
         changed from the calendar year to the fiscal year ending January 31,
         corresponding to BTI's fiscal year.

         Unaudited consolidated statement of operations data for the one month
         ended January 31, 1997 for Comverse and the one month ended February
         28, 1997 for BTI is as follows:

             Sales                          $        18,457
             Gross profit                   $         7,906
             Income tax provision           $           297
             Net (loss)                     $       (10,221)
             Loss per share                 $         (0.25)

         In connection with the merger, the Company has charged $41,877,000 to
         operations for merger related charges. Such charges relate to the
         following: (i) $15,918,000 for the write-off of duplicate research and
         development, license fees and other capital equipment and certain
         capitalized software; (ii) $14,919,000 for the establishment of
         reserves for severance pay, contract penalties and termination fees,
         and the closing of duplicate facilities; and (iii) $11,040,000 for
         professional fees and other direct merger costs.

         In addition, approximately $36,055,000 has been charged to selling,
         general and administrative expenses relating to the merger. Such charge
         relates to the impairment of receivables resulting from duplicate
         customers or distribution channels. Approximately $7,831,000 has been
         charged to cost of sales relating to the merger. Such charge relates to
         the write-off of inventory that is considered obsolete and duplicative
         as a result of the merger.

9.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of:

                                                               January 31, 1998
                                                          
                                                                 (In thousands)
                                                          
                           Accounts payable                     $      37,488
                           Accrued salaries                            15,492
                           Accrued vacation                             6,718
                           Accrued royalties                            6,271
                           Other accrued expenses                      59,972
                                                                -------------
                                                                $     125,941
                                                                =============
                                      F-13
<PAGE>
 
10.     BANK LOANS

        As of January 31, 1998, a subsidiary of Comverse has a bank loan of
        $16,500,000. The loan has an interest rate of 6% and is repayable in
        July 1998. The loan is secured by a $16,500,000 deposit with the bank.


11.     CONVERTIBLE SUBORDINATED DEBENTURES

        In October 1996, the Company issued $115,000,000 of convertible
        subordinated debentures bearing interest at 5-3/4% per annum, payable
        semi-annually. The debentures mature on October 1, 2006. The debentures
        are convertible into shares of the Company's common stock at a
        conversion price of $45.75 per share, subject to adjustment in certain
        events. The debentures are subordinated in right of payment to all
        existing and future senior indebtedness of the Company. The debentures
        are redeemable at the option of the Company, in whole or in part, at
        prices decreasing from 102% of the face amount on October 12, 1999 to
        par on October 1, 2001. The debenture holders may require the Company to
        repurchase the debentures at par in the event that the common stock
        ceases to be publicly traded and, in certain instances, upon a change in
        control of the Company.

12.      LIABILITY FOR SEVERANCE PAY

         Liability for severance pay consists of the Company's unfunded
         liability for severance pay to employees of certain foreign
         subsidiaries and accrued severance to the Company's chief executive
         officer.

         The Company's statutory obligation for severance pay to employees of
         its Israeli subsidiaries is determined on the basis of each
         individual's current salary and length of employment. Funding is
         currently provided primarily by premiums paid by the Company to
         insurance providers.

         The Company is obligated under an agreement with its chief executive
         officer to provide a severance payment upon the termination of his
         employment with the Company. Approximately $1,405,000 has been accrued
         as of January 31, 1998 relating to this liability.

13.      STOCK OPTIONS

        Employee Stock Options - At January 31, 1998, 8,263,795 shares of common
        stock were reserved for issuance upon the exercise of options then
        outstanding and 943,519 options were available for future grant under
        Comverse's Stock Option Plans, under which options may be granted to key
        employees, directors, and other persons rendering services to the
        Company. Options which are designated as "incentive stock options" under
        the option plans may be granted with an exercise price not less than the
        fair market value of the underlying shares at the date of grant and are
        subject to certain quantity and other limitations specified in Section
        422 of the Internal Revenue Code. Options which are not intended to
        qualify as incentive stock options may be granted at any price, but not
        less than the par value of the underlying shares, and without
        restriction as to amount. The options and the underlying shares are
        subject to adjustment in accordance with the terms of the 

                                      F-14
<PAGE>
 
        plans in the event of stock dividends, recapitalizations and similar
        transactions. The right to exercise the options generally vests in
        annual increments over periods of up to four years from the date of
        grant or the date of commencement of the grantee's employment with the
        Company.

        The changes in the number of options were as follows:

                  Outstanding at December 31, 1997       5,277,904
                  Granted during the period              3,109,473
                  Exercised during the period              (50,436)
                  Canceled, terminated and expired         (73,146)
                                                       ------------
                                                       
                  Outstanding at January 31, 1998        8,263,795
                                                       ============


        At January 31, 1998, options to purchase an aggregate of 2,318,133
        shares were vested and currently exercisable under the option plans and
        options to purchase an additional 5,945,662 shares vest at various dates
        extending through the year 2002.

        Weighted average option exercise price information for the one month
        period ended January 31, 1998 was as follows:

                  Outstanding at December 31, 1997    $    22.00
                  Granted during the period                31.25
                  Exercised during the period              16.67
                  Canceled, terminated and expired         33.95
                  Exercisable at January 31, 1998          13.14


        Significant option groups outstanding at January 31, 1998 and related
weighted average price and life information were as follows:
<TABLE> 
<CAPTION> 
                                                 Weighted Average             Weighted                               Weighted
        Range of                     Number          Remaining               Average               Number            Average
        Exercise Price            Outstanding         Contractual Life        Exercise Price        Exercisable       Exercise Price
        ---------------         -----------         ------------------      -----------------    ------------       --------------
<S>                   <C>            <C>              <C>                 <C>                   <C>                <C> 
        $  1.40 -      $11.92         1,648,658            5.36                $   7.65               1,375,908         $   7.01
        $  12.69 -     $28.66         1,932,108            7.74                   20.41                 821,795            19.12
        $  31.25 -     $31.25         3,109,473            9.99                   31.20                       0                0
        $  33.25 -     $51.83         1,573,556            9.18                   41.33                 120,430         $  42.40
                                  -------------            ----                --------              ----------         --------

                                      8,263,795            8.39                $  25.91               2,318,133         $  13.14
                                  =============            ====                ========               =========         ========
</TABLE> 

        The Company applies Accounting Principles Board Opinion No. 25,
        "Accounting for Stock Issued to Employees," and related interpretations
        in accounting for its option plans. Accordingly, as all options have
        been granted at exercise prices equal to fair market value on the date
        of grant, no compensation expense has been recognized by the Company in
        connection with its stock-based compensation plans. Had compensation
        cost for the Company's stock option plans been determined based upon the
        fair value at the grant date for awards under these plans consistent
        with 

                                      F-15
<PAGE>
 
        the methodology prescribed under Statement of Financial Accounting
        Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation",
        the Company's net loss and loss per share would have been increased by
        approximately $1,427,000 or $0.03 per diluted share in the one month
        ended January 31, 1998. The weighted average fair value of the options
        granted during the one month ended January 31, 1998 is estimated at
        $16.50 on the date of grant (using the Black-Scholes option pricing
        model) with the following weighted average assumptions: volatility of
        54%, risk-free interest rate of 5.6%, and an expected life of five
        years.

        Options on Subsidiary Shares - Comverse has granted to its chief
        executive officer, under the terms of his employment agreement, options
        to acquire 7.5% of the equity of Comverse's subsidiaries, other than
        Efrat Future Technology, Ltd. ("Efrat"). In addition, Comverse has
        granted to certain other key executives of the Company options to
        acquire shares of certain subsidiaries, other than Efrat, as a means of
        providing incentives directly tied to the performance of those
        subsidiaries for which different executives have direct responsibility.
        The amount of shares subject to such additional options varies, up to
        23.6% of the outstanding subsidiary shares, among the various
        subsidiaries included in the option grants. The options generally have
        terms of ten years and become exercisable and vest in equal ratable
        annual increments over periods ranging from three to five years from the
        first anniversary of the date of initial grant. The exercise price of
        each option is equal to the higher of the book value of the underlying
        shares at the date of grant or the fair market value of such shares at
        that date determined on the basis of an arms'-length transaction with a
        third party or, if no such transactions have occurred, on a reasonable
        basis as determined by a committee of the Board of Directors. Upon the
        exercise, in whole or in part, of any option, Comverse will receive an
        irrevocable proxy to vote the underlying shares and a right of first
        refusal to purchase the shares upon any proposed sale, transfer or other
        disposition, until such time as the shares shall have been sold in a
        bona fide open market transaction.

14.      WARRANTS

        In November 1995, the Company entered into an agreement to supply its
        products to a customer. Pursuant to this agreement, the Company issued
        warrants to purchase shares of its common stock at an exercise price of
        $21.54 per share. The warrants vest in five equal annual increments,
        commencing with the first anniversary of the date of grant, and remain
        exercisable for 30 months after first becoming exercisable. Any stock
        issued as a result of the exercise of the warrants would be for the
        customer's investment purposes only, and would be "restricted
        securities" under Rule 144 of the Securities Act of 1933. As of January
        31, 1998, warrants to purchase 1,914,432 shares are outstanding, none of
        which are exercisable.

15.     EARNINGS PER SHARE ("EPS")

         In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". Basic
         earnings per share is determined by using the weighted average number
         of shares of common stock outstanding during each period. Diluted
         earnings per share further assumes the issuance of common shares for
         all dilutive potential common shares outstanding. The calculation for
         earnings per share for the one month ended January 31, 1998 was as
         follows:

                                      F-16
<PAGE>
 
                                        LOSS         SHARES    PER SHARE AMOUNT

                                          (In thousands, except per share data)

         Basic and Diluted EPS      $ (115,207)      43,353      $   (2.66)
         ---------------------      ==============   ======      ==========



         Debentures, options and warrants convertible into 2,513,661, 8,263,795
         and 1,914,432 shares, respectively, were outstanding as of January 31,
         1998, respectively, but were not included in the computation of diluted
         EPS because the effect of including them would be antidilutive.

16.     FOREIGN OPERATIONS

         Condensed net assets, exclusive of intercompany balances, applicable to
         foreign operations, principally located in Israel, included in the
         consolidated balance sheet, are summarized as follows:

                                                           January 31, 1998
                                                           
                                                             (In thousands)
                                                           
                     Current Assets                            $      127,380
                     Property and equipment, net                       19,086
                     Other assets                                      10,958
                                                               --------------
                                                           
                             Total assets                             157,424
                                                               --------------   
                     Current liabilities                               57,073
                     Other liabilities                                  4,153
                                                               --------------
                             Total liabilities                         61,226
                                                               --------------
                                    Net assets                 $       96,198
                                                               ==============


         Condensed operating information, exclusive of intercompany
         transactions, applicable to foreign operations, principally located in
         Israel, included in the consolidated statement of operations, is
         summarized as follows:

                                                          Month Ended
                                                
                                                       January 31, 1998
                                                
                                                         (In thousands)
                                                
                     Total revenues                        $       10,845
                     Costs and expenses                            36,147
                                                           --------------
                     Operating (loss)                      $      (25,302)
                                                           ===============


         The operating results shown above reflect the inclusion in costs and
         expenses of fixed charges incurred by Comverse's foreign subsidiaries
         necessary to support a level of activity which is greater than that
         shown in the table due to the exclusion of intercompany revenue.

                                      F-17
<PAGE>
 
17.      INCOME TAXES

         The provision for income taxes consists of the following:

                                                        Month Ended
                                             
                                                      January 31, 1998
                                             
                                                       (In thousands)
                                             
             Current (benefit):              
                                             
               Federal                                 $         -
               State                                             -
               Foreign                                        (205)
                                                        ----------------
                                                              (205)
                                             
             Deferred:                       
                                             
               Federal                                 $       985
               State                                            87 
               Foreign                                           -
                                                       ------------
                                                             1,072
                                             
                                                       $       867
                                                       ============= 
         The reconciliation of the U.S. Federal statutory tax rate to the
Company's effective tax rate is as follows:

                     U.S. Federal statutory rate               35%
                     Consolidated worldwide loss  
                                                  
                          in excess of U.S. loss               (8)
                     Unrecognized tax benefits                (26)
                     Other                                     (2)
                                                            --------
                     Company's effective tax rate              (1) %
                                                           =========


           Deferred income taxes reflect the net tax effects of (a) temporary
           differences between the carrying amounts of assets and liabilities
           for financial reporting purposes and the amounts used for income tax
           purposes and (b) operating loss carryforwards. The tax effects of
           significant items comprising the Company's deferred tax asset and
           liability at January 31, 1998 is as follows:

                                      F-18
<PAGE>
 
                                                                (In thousands)

             Deferred tax liability:                            
               Expenses deductible for tax purposes and         
                                                                
                  not for financial reporting purposes           $       1,433
               Unrealized gain on available-for-sale securities            679
                                                                 -------------
                                                                 $       2,112
                                                                
             Deferred tax asset:                                
                                                                
               Reserves not currently deductible                 $      20,262
               Tax loss carryforwards                                   17,480
               Inventory capitalization                                    388
               Other                                                       852
                                                                 -------------
                                                                        38,982
               Less: valuation allowance                               (37,330)
                                                                --------------
                                                                
                    Total deferred tax asset                     $       1,652
                                                                 =============


         Income tax has not been provided on unrepatriated earnings of foreign
         subsidiaries as currently it is the intention of the Company to
         reinvest such foreign earnings in their operations.


18.      BUSINESS SEGMENT INFORMATION

         The Company is engaged in one business segment: the design,
         development, manufacture, marketing and support of special purpose
         computer and telecommunications systems and software for multimedia
         communications and information processing applications.

         Sales by geographic regions, as a percentage of total sales, for the
one month ended January 31, 1998 is as follows:

                               United States                       3%
                               Europe                             41%
                               Far East/Australia                 36%
                               Latin America                       8%
                               Other                              12%
                                                         ------------
                                                    
                               Total                             100%

19.      COMMITMENTS AND CONTINGENCIES

         Leases - The Company leases office, manufacturing, and warehouse space
         under non-cancelable operating leases. Rent expense for all leased
         premises approximated $995,000 in the one month ended January 31, 1998.

         As of January 31, 1998, the minimum annual rent obligations of the
         Company were approximately as follows:

                                      F-19
<PAGE>
 
                  Twelve Months Ended            
                                                 
                      January 31,                                    Amount
                                                 
                                                                 (In thousands)
                                                 
                          1999                                  $      15,079
                          2000                                         12,690
                          2001                                         10,525
                          2002                                          9,863
                      2003 and thereafter                              63,877
                                                                -------------
                                                                $     112,034
                                                                =============

         Employment Agreements - The Company is obligated under employment
         contracts with its chief executive officer to provide salary, bonuses,
         and fringe benefits through June 30, 2000. Minimum salary payments
         under the contracts currently amount to $350,000 per year and aggregate
         $846,000 through June 30, 2000. The executive is entitled to annual
         bonuses equal to at least 3% of the Company's consolidated after-tax
         net income during each year. Upon termination or expiration of the term
         of employment, the executive is entitled to receive a severance payment
         equal to $93,170 for each year of his previous and current employment
         with the Company, which is increased by the rate of 10% per annum
         compounded for each year of employment, plus continued
         employment-related benefits for the period of 36 months thereafter. If
         the termination of employment results from a unilateral termination or
         fundamental breach of the agreement by the Company, or the resignation
         of the executive within six months following a change in control of the
         Company not approved by the executive in his capacity as a director of
         Comverse, the executive is entitled to an additional payment equal to
         299% of the average annual cash compensation, including salary and any
         bonus payments, received by the executive from the Company during the
         three immediately preceding fiscal years, plus an amount equal to the
         income tax resulting from such payment. The agreements also provide for
         the executive to receive options entitling him to purchase 7-1/2% of
         the equity of Comverse's subsidiaries, other than Efrat, at prices
         equal to the higher of book value of the underlying shares at the date
         of option grant or the fair market value of such shares at that date
         determined on the basis of an arms'-length transaction with a third
         party or, if no such transactions have occurred, on a reasonable basis
         as determined by the Board of Directors.

                     Most other employment agreements of the Company are
         terminable with or without cause with prior notice of 60 days or less.
         In certain instances, the termination of employment agreements without
         cause entitles the employees to certain benefits, including
         acceleration of the vesting of stock options and severance payments of
         as much as one year's compensation.

         Licenses and Royalties - The Company licenses certain technology,
         "know-how," software and related rights for use in the manufacture and
         marketing of its products, and pays royalties to third parties under
         such licenses and under other agreements entered into in connection
         with research and product development activities. The Company currently
         pays royalties on the sale of substantially all of its product lines in
         varying amounts based upon the revenues attributed to the various
         components of such products. Royalties typically range up to 6% of net
         sales of the related products and, in the case of royalties due to
         government funding sources in respect of research and development
         projects, are required to be paid until the funding organization has
         received total 

                                      F-20
<PAGE>
 
        royalties ranging from 100% to 150% of the amounts received by the
        Company under the approved project budgets.

        Dividend Restrictions - The ability of Comverse's Israeli subsidiaries
        to pay dividends is governed by Israeli law, which provides that cash
        dividends may be paid by an Israeli corporation only out of retained
        earnings as determined for statutory purposes in Israeli currency. In
        the event of a devaluation of the Israeli currency against the dollar,
        the amount in dollars available for payment of cash dividends out of
        prior years' earnings will decrease accordingly. Cash dividends paid by
        an Israeli corporation to United States residents are subject to
        withholding of Israeli income tax at source at a rate of up to 25%,
        depending on the particular facilities which have generated the earnings
        that are the source of the dividends.

        Investments - In 1997, wholly-owned subsidiaries of Comverse and Quantum
        Industrial Holdings Ltd. organized two new companies to make investments
        primarily relating to Israel, including investments in high technology
        ventures. Each participant committed a total of $25,000,000 to the
        capital of the new companies, for use as suitable investment
        opportunities are identified. Quantum Industrial Holdings Ltd. is the
        principal direct investment vehicle of the Quantum Group, a group of
        investment funds managed by Soros Fund Management LLC.

        Guaranties - The Company has obtained bank guaranties primarily for
        performance of certain obligations under contracts with customers.
        These guaranties, which aggregated approximately $13,138,000 at January
        31, 1998, are to be released by the Company's performance of specified
        contract milestones, which are scheduled to be completed primarily
        during 1998.

        Litigation - On February 2, 1998, Computel Computadores e
        Telecommunicacoes S.A. ("Computel") filed a Request for Arbitration
        with the International Chamber of Commerce ("ICC") in Paris, France
        (No. 9858/FMS), claiming breaches by BTI and its wholly-owned
        subsidiary, Boston Technology Investments, Inc., in respect of
        agreements with Computel and its affiliates for the distribution of
        BTI's systems in Brazil. Computel claims, among other things, that BTI
        breached its obligations to Computel by merging with Comverse and
        thereby competing with a company jointly established by the parties in
        connection with such distribution activities, by delivering equipment
        that did not conform to specifications, by failing to support this
        equipment and by "fraudulently inducing" Computel to terminate the
        agreement that established the jointly-owned company without advising
        it of the possibility of the merger. In its prayer for relief, Computel
        alleges damages in excess of US $50 million as a result of lost
        business opportunities, injury to its business reputation, investment
        losses and losses due to currency devaluation. On March 10, 1998, the
        Company commenced an action against Computel and an affiliate in the
        Middlesex Superior Court of Massachusetts (Civil Action No. 98-1155)
        seeking declaratory judgments as to arbitrability and the continuing
        validity of the Purchase and Sale Agreement between the parties,
        Computel's specific performance of such agreement and injunctions to
        prevent Computel from proceeding with the ICC arbitration. In this
        action, the Company seeks damages in excess of $3,767,500 as a result
        of Computel's failure to pay monies owed under the Purchase and Sale
        Agreement, as well as costs and attorneys' fees. The defendants have
        filed a counterclaim in that action raising substantially the same
        claims alleged in their Request for Arbitration to the ICC. On March
        11, 1998, the Company also filed a Demand for Arbitration with the
        American Arbitration Association in Boston, Massachusetts, against
        Computel and certain of its affiliates claiming breach of a
        Distribution Agreement between the parties and unfair and deceptive
        trade practices. In this arbitration, the Company seeks to recover
        damages in excess of $12,000,000, plus interest, for systems shipped to
        respondents, and additional damages for respondents' repudiation and
        anticipatory breach of contract and unfair and deceptive trade
        practices. On April 

                                      F-21
<PAGE>
 
        3, 1998, the Middlesex Superior Court issued a temporary injunction
        prohibiting Computel from proceeding with its ICC arbitration request.

         The Company is subject to certain other legal actions arising in the
         normal course of business. After taking into consideration legal
         counsel's evaluation of such actions, management is of the opinion that
         their final resolution will not have any significant adverse effect
         upon the Company's business or its consolidated financial statements.

20.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated fair value amounts have been determined by the Company,
         using available market information and appropriate valuation
         methodologies. However, considerable judgment is necessarily required
         in interpreting market data to develop the estimates of fair value.
         Accordingly, the estimates presented herein are not necessarily
         indicative of the amounts that the Company could realize in a current
         market exchange. The use of different market assumptions and/or
         estimation methodologies may have a material effect on the estimated
         fair value amounts.

<TABLE> 
<CAPTION> 
                                                                    January 31, 1998
                                                    ---------------------------------------------
                                                      Carrying                 Estimated
                                                       Amount                  Fair Value
                                                                  (In thousands)
<S>                                            <C>                            <C> 
        Liabilities:                                  
                                                      
           Convertible subordinated debentures     $     115,000                    $      116,438
                                                                                   
        Off-balance sheet financial instruments:                                   
        Foreign exchange forward contracts                                         
                                                                                   
           used for hedging purposes               $      -                         $         (126)
</TABLE> 

         Cash and Cash Equivalents, Bank Time Deposits, Short-Term Investments,
         Accounts Receivable, Investments, and Accounts Payable - The carrying
         amounts of these items are a reasonable estimate of their fair value.

         Convertible Subordinated Debentures and Foreign Exchange Forward
         Contracts - The fair value of these securities is estimated based on
         quoted market prices or recent sales for those or similar securities.

         The fair value estimates presented herein are based on pertinent
         information available to management as of January 31, 1998. Although
         management is not aware of any factors that would significantly affect
         the estimated fair value amounts, such amounts have not been
         comprehensively revalued for purposes of these financial statements
         since that date, and current estimates of fair value may differ
         significantly from the amounts presented herein.

                                      F-22
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                        COMVERSE TECHNOLOGY, INC.
                                               (Registrant)

                                        By:    S/ Kobi Alexander
                                             -----------------------------------
Date:   April 28, 1998                         Kobi Alexander, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


S/ Kobi Alexander                                            April 28, 1998  
-------------------------------------- 
Kobi Alexander, President,                                                   
Chairman of the Board and                                                    
Chief Executive Officer; Director                                            
                                                                             

S/ Igal Nissim                                               April 28, 1998  
--------------------------------------      
Igal Nissim, Chief Financial Officer                                         
                                                                             

S/ Zvi Alexander                                             April 28, 1998  
--------------------------------------  
Zvi Alexander, Director                                                      
                                                                             

S/ Gregory C. Carr                                           April 28, 1998  
-------------------------------------- 
Gregory C. Carr, Director                                                    
                                                                             

S/ John H. Friedman                                          April 28, 1998  
-------------------------------------- 
John H. Friedman, Director                                                   
                                                                             

S / Francis E. Girard                                        April 28, 1998  
-------------------------------------- 
Francis E. Girard, Director                                                  
                                                                             

S / Sam Oolie                                                April 28, 1998  
-------------------------------------- 
Sam Oolie, Director                                                          
                                                                             

S/ William F. Sorin                                          April 28, 1998  
-------------------------------------- 
William F. Sorin, Director                                                   
                                                                             

S/ Carmel Vernia                                             April 28, 1998  
--------------------------------------    
Carmel Vernia, Director                                                      
                                                                             

S/ Shaula A. Yemini                                          April 28, 1998  
-------------------------------------- 
Dr. Shaula A. Yemini, Director