SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1996 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to __________

Commission file number 0-18376

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

Delaware 99-0206064
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Three Lagoon Drive, Redwood City, CA 94065
(Address of principal executive offices)

(415) 591-6500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01
par value

Securities registered pursuant to Section 12(g) of the Act: None

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

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, based upon the closing sale price of the Common Stock on March 7,
1997, as reported by the New York Stock Exchange, was approximately
$807,176,000.

The number of shares of the registrant's Common Stock outstanding on March 24,
1997, was 23,298,640.

DOCUMENTS INCORPORATED BY REFERENCE

(1) The registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission relating to the Company's 1997 Annual Meeting of
Stockholders to be held on May 9, 1997 (Part III of Form 10-K).

(2) Portions of the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1996 (Parts II and IV of Form 10-K).

PART I

ITEM 1. BUSINESS

INDEX

SECTION PAGE

Company Summary 4

Industry and Company Background 5

Products 6

Markets 8

Sales Organization 10

Manufacturing and Distribution 10

Research and Product Development 11

Proprietary Rights 11

Competition 12

Government Regulation 13

Factors That May Affect Future Results
And The Market Price Of The Company's Stock 13

FORWARD-LOOKING STATEMENTS

Forward-looking statements in this report -- including statements
regarding the Company's plans and strategies -- are all based on current
expectations, and the Company assumes no obligation to update this
information. Numerous factors could cause actual results to differ from those
described in the forward-looking statements, including the factors set forth
below under the heading "Factors That May Affect Future Results And The
Market Price Of The Company's Stock." The Company cautions investors that its
business is subject to significant risks and uncertainties.

COMPANY SUMMARY

VeriFone, Inc. (herein "VeriFone" or the "Company") is a corporation
organized in Hawaii in 1981 and reincorporated in Delaware in 1986. The
Company develops, manufactures, markets and supports hardware and software
systems which automate transactions -- principally electronic payment
transactions among consumers, merchants and financial institutions.

The Company's product line consists primarily of: terminal products which
interface with magnetic-stripe cards; products which interface with
integrated circuit cards ("chip cards"); peripherals such as printers, PIN
pads and communications products; and software and services. Currently, the
most prevalent use of the Company's products is to automate credit and debit
card payments at the point of sale in merchant establishments. The Company's
products also automate payments by check, electronic cash (i.e., stored value
on a chip card) and other means, and automate payment transactions in venues
other than merchant establishments, including credit card transactions over
the Internet. In addition to products used at the point of sale, some of the
Company's products are used by banks and payment processors, at their
"back-end" facilities, to process (e.g., sort and route) payment transactions
and to manage terminal operations. Other VeriFone products are used to
automate non-payment transactions, such as the collection of labor management
data, implementation of retail loyalty programs, submission of health
insurance claims, and issuance of government permits. The services provided
by the Company include consulting services (e.g., advice on system strategies
and alternatives), professional services (e.g., the design, installation and
integration of systems), support services (e.g., maintenance), and financing.
(See "Item 1 - Business - Products", below).

The Company distributes its products through direct sales and various
third party distribution arrangements. In 1996, the Company sold transaction
automation systems to more than 1,300 customers. No single customer accounted
for more than approximately 4 percent of the Company's net revenues in 1996.
Since its inception, the Company has delivered more than 5 million systems to
customers in more than 100 countries. The Company's customers include banks,
payment processors, retail merchants, petroleum service station and
convenience-store operators, supermarkets and other mass merchandisers,
healthcare providers, and government benefits disbursers (See "Item I -
Business - Markets" and "Item I - Business - Sales Organization," below.)

The Company employs approximately 2,800 persons in eighteen countries.
These employees are located in approximately 35 facilities, including
development centers, manufacturing and distribution centers, customer service
centers, and sales and support offices. (See "Item 2 - Properties," below.)

INDUSTRY AND COMPANY BACKGROUND

HISTORY

Until the 1980s, automating the processing of routine transactions --
credit and debit card authorization, check verification, and the like -- was not
cost-effective, and most transactions were completed manually. In the 1980s,
major changes in computer and telecommunications technology supported the
development of transaction automation systems that could rapidly capture and
process transaction data electronically. These systems could provide greater
convenience to consumers; speed settlement and customer throughput for
merchants; and potentially reduce processing costs and losses from fraud for
financial institutions.

While the transaction automation devices introduced in the early 1980s
offered significant potential benefits, they were relatively expensive,
generally slow, unreliable and difficult to use. The Company was established in
1981 to develop and deliver low-cost, highly reliable, easy-to-use transaction
systems, and has played a major role in developing the market for electronic
payment processing. Today, the Company is a leading provider of transaction
automation systems for the payment processing market.

CURRENT DEVELOPMENTS

The Company introduced a number of new products in 1996, including: vGATE
and vPOS software, which enable payment by credit card over the Internet; the
OMNI 1250, a chip card device that can handle up to four stored value/electronic
purse schemes; the Smartnet 50 network controller, a controller optimized for
payment applications; the PrintPak 350, a modular thermal printer that couples
with the Zon Jr XL, TRANZ and OMNI 300 series of terminals to form an integrated
terminal/printer system; the CR500/550 electronic check reader, a stand-alone
check reading device; Softpay software, a modular software product which
simplifies the development of customer applications for OMNI terminals; and the
Lodgelink payment system, a software/hardware solution that allows hotels and
other large properties with multiple retail outlets to consolidate credit card,
reporting, settlement and funding. The Company also announced plans to develop
the VeriSmart system, which is designed to enable consumers to access various
chip card-based applications from their homes through a VeriFone Personal ATM or
other devices.

Other business developments in 1996 included the formation of two new
service organizations: the Centum Consultancy, which advises customers on a
range of electronic payment strategies and alternatives, and our Professional
Services group, which helps design, install, integrate and manage electronic
payment solutions for customers. In addition, the Company entered into a number
of strategic relationships in 1996, with companies including Hewlett Packard,
Microsoft, Netscape and Oracle.

PRODUCTS

The Company develops, manufactures, markets and supports a comprehensive
line of transaction automation products. The Company's product line consists
principally of: terminal products; chip card products; peripheral products; and
software and services.

TERMINAL PRODUCTS

The Company's terminal products -- which are designed for use principally
with magnetic-stripe cards, such as the typical credit or debit card -- may be
categorized in three groups:

Some terminals have limited functionality, generally performing credit
authorization only, or credit authorization and basic draft capture. The
principal product in this category is the ZON Jr XL, which was introduced in
1986 and is capable of credit authorization and basic draft capture functions.

Other terminals perform higher level functions, such as credit and debit
card authorization, draft capture and settlement; eligibility checking for
health insurance or government benefits; or time and attendance data collection
reporting. This category includes terminals which have integrated printers in a
single footprint, as well as stand-alone terminals with special advanced
functionality. The principal products in this category are the TRANZ 330, 380,
460 and 470, and the OMNI 395, 460 and 470. The TRANZ 330 continues to be the
Company's top-selling product, with approximately 264,000 units sold in 1996.

Other terminals are targeted mainly at the multi-lane retail and
petroleum/convenience-store markets, where the customer requirement is for
logical and/or physical integration of functionality with other devices, such as
in-lane electronic cash registers, pump controllers or scanning equipment. The
principal products in this category are the OMNI 490 and Everest, which were
developed specifically for supermarket payment systems, and the Ruby
SuperSystem, which integrates the functions of a pump controller, electronic
cash register and payment system.

CHIP CARD PRODUCTS

In addition to the Company's terminal products which are designed for use
principally with magnetic-stripe cards, the Company has a line of products
which are designed for use with integrated circuit cards -- also known as
"chip cards" or "smart cards." The principal products in this category are:
the CM 450, which reads from and writes to chip cards and functions as a
secure peripheral in payment and other transactions that require memory and
microprocessor chip cards; the SC 455, which supports a range of security
requirements to meet different local, regional and national requirements for
chip card transactions; the SC 550 and SC 552, which support memory and
microprocessor chip cards as well as magnetic-stripe credit and debit cards
in the same application; and the OMNI 1250, a chip card device that can
handle up to four stored value/electronic purse schemes.

PERIPHERAL PRODUCTS

The principal peripherals which interface with VeriFone terminal and chip
card products are printers, personal identification number devices (known as
PIN pads) and communications products. Printers enable printing of customer
receipts. PIN pads allow acceptance of debit card and other forms of payment
requiring a personal identification number. Communications products, such as
the Smartnet line of network controllers, facilitate communications among
terminals and between terminals and other devices.

SOFTWARE PRODUCTS

The Company has developed several families of software products which --
operating on VeriFone terminal or chip card products or on other platforms (such
as client-server computer systems) -- automate payment and other transactions.

TERMINAL APPLICATION SOFTWARE. The Company works closely with its
customers to develop custom applications which operate on VeriFone terminals.
To date, the Company has developed over 2,000 terminal software applications
ranging from entry-level credit and debit solutions to complex systems to
support large retail operations. Among these software applications are
specialized applications for specific markets such as lodging (the Lodgelink
product) and multi-lane (the PayLane product). The Company is also developing
a modular software product, Softpay, which simplifies the development of
customer applications for OMNI terminals.

TERMINAL MANAGEMENT SOFTWARE. The Company has developed a client-server
based terminal management system, VeriTalk, which enables the installation and
upgrade of terminal software via telephone lines. It allows multiple,
simultaneous downloading of application updates and has network diagnostic
capabilities.

PAYMENT PROCESSING SOFTWARE. The Company has developed a client-server
based software solution, Omnihost, which can efficiently perform enterprise-wide
transaction switching and electronic payment processing. This solution can
replace traditional mainframe host systems.

INTERNET COMMERCE SOFTWARE. The Company has developed a suite of software
products, vPOS and vGATE, that enable credit card payments over the Internet.
The vPOS software provides an Internet merchant the ability to capture
orders and credit card payment data and to communicate with the vGATE system
at a financial institution or processor. The vGATE software receives the
merchant's data and interfaces this data with the financial institution's or
processor's internal systems. In addition to vPOS and vGATE, the Company is
developing vWALLET software, which will provide consumers with a convenient
way to purchase and pay for goods purchased via the Internet.

CONSUMER SYSTEMS/CHIP CARD SOFTWARE. The Company is currently developing a
client-server based software system, VeriSmart, which is designed to enable
consumers to access various chip card-based applications -- such as stored value
applications, loyalty programs and others -- expected to be offered in
the future by financial institutions, telephone companies, retail merchants and
others. The Company is also developing a hardware product, the Personal ATM,
which is one of the devices that consumers will be able to use to access a
VeriSmart system.

LABOR MANAGEMENT SOFTWARE. The Company continues to develop software
products that facilitate the collection and manipulation of labor management
data, including data relating to time and attendance, labor scheduling and
business forecasting.

SERVICES

The Company offers a range of services relating to its other products:

CONSULTING SERVICES. The Company's Centum Consultancy group provides
consulting services on strategies and alternatives for electronic payment
systems.

PROFESSIONAL SERVICES. VeriFone Professional Services provides services to
assist in the design, installation, integration and management of electronic
payment systems.

SUPPORT SERVICES. VeriFone Support Services provides deployment, training,
technical assistance and maintenance services for VeriFone products. The Company
generally provides a one-year warranty on its systems. Extended maintenance
agreements following the warranty period are also available.

FINANCING PROGRAMS. VeriFone Finance provides leasing, rental and other
financing programs for VeriFone systems.

MARKETS

The Company classifies its business into markets principally along
geographic lines: the United States market and international markets.

UNITED STATES MARKET

The Company's business in the United States, taken as a whole, is the
Company's largest market. In 1996, revenues from the United States were $287.5
million, up 16.9 percent over 1995, and represented 60.9 percent of total net
revenues, compared to 63.6 percent in 1995.

The Company's United States market consists of four vertical sub-markets:
the financial retail market, the petroleum/convenience-store market, the
multi-lane market, and the government/healthcare market.

* The financial retail market is referred to as such because the Company
uses bank and payment processor distribution channels to reach the
end-users in this market, who are typically retail merchants including
specialty stores, restaurants and lodging establishments.

* The petroleum/convenience-store market involves the sale of
transaction automation systems to large petroleum companies and
convenience-store operators, and other companies involved in the
petroleum and convenience-store industries.

* The multi-lane market has two components, both of which focus on the
same customers, principally supermarkets, drug store chains and
mass merchandisers. One component involves the sale of transaction
automation systems to multi-lane customers. The other component
involves the licensing of labor management software to multi-lane
customers.

* The government market involves the sale of transaction automation
systems which are used principally in the automation of government
benefits and licenses. The healthcare market involves the sale of
transaction automation systems to facilitate healthcare payments,
verify patient eligibility for insurance coverage and submit insurance
claims for healthcare providers.

The financial retail market differs in a number of respects from the
petroleum/convenience-store market, multi-lane market, and government/healthcare
market (which are sometimes referred to as the "emerging markets"). Relative to
the financial retail market, the emerging markets are characterized by longer
sales cycles, small numbers of accounts, and uneven order flows. Accordingly,
the emerging markets tend to be "lumpy" and to some extent unpredictable, in
that customers' orders are typically large and placed infrequently. In addition,
customers in the government market face the complexity of the government
procurement process, which typically extends the purchasing and implementation
cycle.

INTERNATIONAL MARKETS

The contribution of the Company's international business to the Company's
total net revenues has increased steadily. In 1996, revenues outside the United
States were $185.0 million, up 31.2 percent over 1995, and represented 39.1
percent of total net revenues, compared to 36.4 percent in 1995. During 1996,
the Company delivered systems in more than 100 countries. For additional
financial information on the Company's international operations, see Note Eight
to the consolidated financial statements contained in the Company's 1996 Annual
Report to Stockholders.

International markets, in the aggregate, are potentially larger than the
United States market, and are currently less penetrated. However, market
opportunities, conditions and requirements vary widely from country to country.
In addition, international operations involve

a number of special risks. (See "Factors That May Affect The Company's Future
Results And The Market Price Of The Company's Stock," below.)

The Company's international markets are divided into three regions: the
Americas, which is all of North and South America except the United States;
Europe, the Middle East and Africa (EMEA); and Asia Pacific (ASPAC). The
customers in these regions are principally financial retail customers, similar
to the United States financial retail customers described above.

SALES ORGANIZATION

The Company markets its products through both direct sales to end-users and
third party distribution arrangements with financial institutions, processors,
service providers and other resellers. The Company's sales force is organized to
address specific segments of the transaction automation market, including retail
merchants, petroleum service stations/convenience stores, multi-lane retailers,
healthcare providers, and state and federal government agencies.

The Company has ten United States sales offices. Outside the United
States, the Company's products are marketed through direct sales offices in
or near Frankfurt, which serves central and eastern Europe; London, which
serves northern and southern Europe, Russia, the Middle East and parts of
English-speaking Africa; Barcelona, which serves Spain and Portugal; Milan,
which serves Italy; Paris, which serves France and French-speaking Africa;
Johannesburg, which serves South Africa and Zimbabwe; Bangalore, Beijing,
Hong Kong, Singapore, Sydney, and Tokyo, which serve the Asia-Pacific region;
Toronto, which serves Canada; Miami, which serves Central and South America;
Mexico City, which serves Mexico; Buenos Aires, which serves Argentina; and
Sao Paulo, which serves Brazil. Many of the Company's sales offices are
staffed with application software programmers, technical systems analysts and
customer support personnel.

The Company's use of third party distribution arrangements is prevalent
especially in international sales. The Company currently has a network of more
than 50 international distributors.

The Company's leasing programs are offered through its leasing subsidiary,
VeriFone Finance.

MANUFACTURING AND DISTRIBUTION

The Company's manufacturing and distribution operations have been
structured and geographically located with the aim to deliver high-quality,
competitively priced products to customers on time. The Company owns and
operates a manufacturing and distribution facility in Kaohsiung, Taiwan, R.O.C.
and a newly constructed manufacturing facility in Kunshan, near Shanghai,
People's Republic of China. Currently, more than 1,300 employees are producing
approximately 170,000 units (including printers, PIN pads, etc.) per month at
these facilities.

The Company conducts limited manufacturing at its facility in Costa
Mesa, California, which has special-configuration and light manufacturing
capabilities. The Costa Mesa facility also provides distribution to customers
in North, Central and South America, and includes a distribution capability
for expediting delivery to customers in Asia, Australia, Europe, Africa and
the Middle East.

For certain low-volume products, and to augment production capacity, the
Company occasionally uses subcontractors. A few VeriFone products are
procured through original equipment manufacturers (OEMs).

RESEARCH AND PRODUCT DEVELOPMENT

The Company conducts its major research and development at seven facilities
worldwide, which are located in or near: Auburn, California; Bangalore, India;
Dallas, Texas; Honolulu, Hawaii; Paris, France; San Francisco, California;
Taipei, Taiwan; and Tampa, Florida.

The Company works closely with its customers to define new product concepts
and identify emerging applications for its products. Development projects are
evaluated through a management review process and assigned to the Company's
development centers based upon the potential value of the target markets as well
as the manpower and engineering expertise requirements.

The Company's research and development efforts are focused on new products
(including products for the Internet commerce and consumer markets);
modifications of and extensions to existing products for new market
opportunities; and the development of applications for advanced transaction
systems. There can be no assurance that any of the Company's research and
product development projects will be successfully completed.

In 1996, 1995 and 1994, the Company's research and product development
expenses were approximately $53.4 million, $45.0 million, and $38.4 million,
respectively. The Company currently expects that, in the long term, its research
and development expenses will continue to increase in absolute dollars but may
decline as a percentage of net revenues.

PROPRIETARY RIGHTS

The Company currently holds 41 United States patents, one Canadian patent
and one Australian patent. These patents cover a number of inventions, including
among others a magnetic-stripe card reader apparatus integrated into the card
slot of the Company's transaction automation systems, a programming method for
downloading an operating system into local VeriFone systems from a remote host
computer, a check processing system, a print element drive control, and the
unique design of several VeriFone products. In 1996, the Company filed

32 United States patent applications and, as of the end of the year, had a total
of 37 pending United States patent applications.

The Company's trademarks registered in the United States include
VeriFone's name and logo, and the names of a number of VeriFone products,
including ZON, TRANZ, OMNI, Ruby SuperSystem, VeriFone Folio, and Omnihost.
The Company has also applied for registration in the United States for over
40 other trademarks that it is using or intends to use, including Everest,
SC, Folio, PATM, Personal ATM, PrintPak, VeriTalk, SoftPay, vGATE, vPOS,
vWALLET, Lodgelink and LaborDay. The Company has trademarks registered or
pending registration in numerous foreign jurisdictions where the Company does
business, including VeriFone's name and logo and the names of several
VeriFone products. Numerous other trademarks or markings are used to
identify products of VeriFone and distinguish them from products of others.

The Company relies on copyrights and contractual arrangements to protect
proprietary software programs, and the Company seeks to protect its trade
secrets by entering into confidentiality agreements with its employees and third
parties and implementing various internal safeguards.

There can be no assurance that others will not develop products or
technology that are equivalent or superior to those of the Company, or that the
patents, trademarks, copyrights, confidentiality agreements and internal
safeguards upon which the Company relies will be adequate to protect its
interests.

COMPETITION

The Company competes in its hardware businesses primarily on the basis of
product quality, features and price; the availability of application software
programs; the number of network, host and telephone system certifications it
obtains for it products and application programs; and customer support and
responsiveness. The Company competes in its software businesses, including
its Internet commerce business, primarily on the basis of the rapid
development, release and delivery of its software products.

The Company believes that it is competitive with respect to each of these
factors. However, certain competitors have significantly larger financial,
technical and marketing resources than the Company, and there can be no
assurance that the Company will remain competitive in the future. Also, the
Company often faces additional competitive factors in foreign countries,
including preferences for national vendors, and difficulties in obtaining
necessary certifications and in meeting the requirements of government policies.

GOVERNMENT REGULATION

Government regulatory policies affect charges and terms for both
private-line and public network service. Therefore, changes in such policies
that make it more costly to communicate on such networks could adversely
affect the demand for transaction automation systems. The Company must also
obtain product certification on applicable communications networks both in
the United States and other countries. Any delays in obtaining necessary
certifications with respect to future products could delay their
introduction. In addition, the Federal Communications Commission requires
that the Company's products comply with certain rules and regulations
governing their performance.

FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS AND THE MARKET PRICE OF THE
COMPANY'S STOCK

The Company's operations are subject to various risks and uncertainties,
many of which are beyond the Company's control. The following highlights some of
these risks.

VARIATIONS IN QUARTERLY RESULTS

The Company's quarterly operating results are subject to various risks and
uncertainties, including risks and uncertainties related to: local economic
conditions; competitive pressures; the composition, timing and size of orders
from and shipments to major customers; variations in product mix and the mix
between leases and sales; variations in product cost; infrastructure costs;
obsolescence of inventory; and other factors as discussed below. Accordingly,
the Company's operating results may vary materially from quarter to quarter.

The Company operates with little backlog and, as a result, net revenues in
any quarter are substantially dependent on the orders booked and shipped in that
quarter. Because the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed, if anticipated shipments in any quarter do not occur as
expected, the Company's operating results may be adversely affected and fall
significantly short of expectations. Any other unanticipated decline in the
growth rate of the Company's net revenues, without a corresponding and timely
reduction in the growth of operating expenses, could also have an adverse effect
on the Company and its future operating results.

The Company aims to prudently control its operating expenses. However,
there is no assurance that, in the event of any revenue, gross margin or other
shortfall in a quarter, the Company will be able to control expenses
sufficiently to meet profitability objectives for the quarter.

Compounding these risks is the fact that a substantial portion of the
Company's net revenues in each quarter generally results from shipments during
the latter part of the quarter. For this and other reasons, the Company may not
learn of shortfalls in revenues, earnings or

other financial results relative to expectations until very late in a quarter.
Any such shortfall could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock.

The Company's business may be characterized as showing a pattern -- in that,
historically, net revenues during the first calendar quarter of a year have
generally been less than net revenues during the fourth quarter of the preceding
year.

CHANGES IN GROSS MARGINS

Certain of the Company's net revenues are derived from products and markets
- -- such as international and government markets -- which typically have lower
gross margins compared to other products and markets, due to higher costs and/or
lower prices associated with the lower gross margin products and markets. The
Company currently expects that its net revenues from international markets will
continue to increase as a percentage of total net revenues, and its net revenues
from government markets may increase. In addition, the Company is currently
experiencing pricing pressures due to a number of factors, including competitive
conditions and consolidation within certain groups of customers. To the extent
that these factors continue, the Company's gross margins would decline, which
would adversely affect the Company and its future operating results.

Downward pressure on the Company's gross margins may be mitigated by other
factors, such as a reduction in product costs and/or an increased percentage of
net revenues from higher gross margin products, such as software. The Company is
aiming to reduce its product costs and to increase its percentage of net
revenues from software. However, there is no assurance that these efforts will
be successful.

NEW MARKETS AND PRODUCTS

The Company is entering new markets, including the Internet commerce market
and the consumer smart card market. At present, these new markets are relatively
small and rapidly changing, and the development of these markets depends in
significant part on the widespread adoption of new technologies by financial
institutions, merchants and consumers, the emergence of industry standards, and
other factors. There is no assurance that these markets will develop as expected
by the Company. If these markets do not develop as expected by the Company, or
the Company's strategies for these markets are unsuccessful, or the Company
fails to successfully and timely develop and introduce products suitable for
these markets, the Company and its future operating results may be adversely
affected.

The Company is developing a number of products for these new markets
including a number of Internet commerce and consumer products. There is no
assurance that these development efforts will be successful or that, if
successfully developed, these products will achieve commercial success.

Similarly, in connection with entering these new markets, the Company has
entered into or expects to enter into relationships with a number of companies
in these markets, including Microsoft, Netscape, Oracle and others. These
relationships may not develop as expected by the Company, and thus, the expected
benefits from the relationships may not be obtained.

GROWTH DEPENDENCIES

In general, the Company's future growth is dependent on the Company's
ability to successfully and timely enhance existing products, develop and
introduce new products, establish new distribution channels, develop
affiliations with leading market participants in order to facilitate product
development and distribution, and certify its existing and new products with
service providers, telephone companies and others. The failure to achieve these
and other objectives could limit future growth and have an adverse effect on the
Company and its future operating results.

On a related note, the pressure to develop and enhance products, and to
establish and expand markets, may cause the Company's research and development
expenses and selling, general and administrative expenses to increase
substantially, which could also have an adverse effect on the Company and its
future operating results.

ACQUISITIONS

The Company may acquire or make substantial investments in other businesses
in the future. Any such acquisition or investment would entail various risks,
including the difficulty of assimilating the operations and personnel of the
acquired business; the potential disruption of the Company's ongoing business;
and generally, the potential inability of the Company to obtain the desired
financial and strategic benefits from the acquisition or investment. These
factors could have a material adverse effect on the Company and its future
operating results. Future acquisitions and investments by the Company could also
result in substantial cash expenditures, potentially dilutive issuances of
equity securities, the incurrence of additional debt and contingent liabilities,
and amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company and its future operating results.

INTERNATIONAL OPERATIONS

The Company's international operations, including international sales and
manufacturing, have grown substantially, and thus, the Company is
increasingly affected by the risks associated with international operations.
Such risks include: managing an organization spread over various countries;
fluctuations in currency exchange rates (as discussed further below); the
burden of complying with international laws and other regulatory and product
certification requirements, and changes in such laws and requirements;
tariffs and other trade barriers; import and export controls; international
staffing and employment issues; political and economic instability; and
longer payment cycles in certain countries. The Company's manufacturing
facilities outside of the United States, which are in Taiwan and the People's

Republic of China, are subject to particular risks relating to political
developments and trade barriers. The inability to effectively manage these and
other risks could adversely affect the Company and its future operating results.

The majority of the Company's international sales are denominated in United
States currency. An increase in the value of the United States dollar relative
to foreign currencies could make the Company's products sold internationally
less competitive. The Company has offices in a number of foreign countries, the
operating expenses of which are also subject to the effects of fluctuations in
foreign currency exchange rates. Although the Company engages in hedging
transactions which may partially offset the effects of fluctuations in foreign
currency exchange rates, financial exposure may nonetheless result primarily due
to the timing of transactions and movement of exchange rates.

COMPETITION

The various markets in which the Company operates are becoming increasingly
competitive as a number of other companies are developing and selling products
which compete with the Company's products in these markets. Certain of these
competitors have significantly more financial and technical resources than the
Company. The Company faces additional competitive factors in foreign countries,
including preferences for national vendors, and difficulties in obtaining
necessary certifications and in meeting the requirements of government policies.
These competitive factors may result in, among other things, price discounts by
the Company and sales lost by the Company to competitors, which may adversely
affect the Company and its future operating results.

THIRD PARTY DISTRIBUTORS

The Company uses various channels to market and distribute its products,
including direct sales to end-users and sales to end-users via third party
distributors. Third party distributors are a substantial channel for
distribution internationally and are increasingly becoming a substantial channel
for distribution in the United States. Accordingly, the Company's ability to
market and distribute its products depends in significant part on its
relationship with third party distributors, as well as the performance and
financial condition of these distributors. In the event that the Company's
relationship with its distributors deteriorates, or the performance or financial
condition of the distributors becomes unsatisfactory, the Company and its future
operating results could be adversely affected.

SOLE SUPPLIERS

The Company is currently dependent on single suppliers for certain
product components, including mask-programmed microcontrollers, various
printer mechanisms, display devices, certain integrated circuits, and certain
magnetic parts. The failure of any such supplier to continue to provide these
components to the Company could result in significant manufacturing delays
that could adversely affect the Company and its future operating results.

EXCESS OR OBSOLETE INVENTORY

Managing the Company's inventory of components and finished products is a
complex task. A number of factors -- including the need to maintain a
significant inventory of certain components which are in short supply or which
must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products, and customer requests for
quick delivery schedules -- may result in the Company maintaining excess
inventory. Other factors -- including changes in market demand and technology --
may cause inventory to become obsolete. Any excess or obsolete inventory could
result in price reductions and inventory write-downs, which in turn could
adversely affect the Company and its operating results.

SECURITY FEATURES OF PRODUCTS

Most of the Company's products are used to process payment transactions,
and thus, the security features of the products are important. In general, the
Company's products are designed to comply with industry practices relating to
security in payment transactions. However, no security feature, whether or not
an industry practice, is infallible. In the event of a significant breach of the
security features in the Company's products, the Company and its future
operating results could be adversely affected.

PROPRIETARY TECHNOLOGY

The Company seeks to establish and protect the proprietary aspects of its
products by relying on applicable patent, copyright, trademark and trade secret
laws and on confidentiality, licensing and other contractual arrangements.
Notwithstanding the Company's efforts to protect its proprietary rights, it may
be possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology that the
Company regards as proprietary. In addition, the laws of certain countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Accordingly, there can be no assurance that the Company
will be able to protect its proprietary technology against unauthorized third
party copying or use, which could adversely affect the Company's competitive
position.

The Company from time to time receives notices from third parties claiming
that the Company's products infringe such parties' proprietary rights.
Regardless of its merit, any such claim can be time-consuming, result in costly
litigation and require the Company to enter into royalty and licensing
agreements. Such royalty or licensing agreements may not be offered or may not
be available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company and its future operating results could be adversely
affected.

HIRING AND RETENTION OF EMPLOYEES

The Company's continued growth and success depends to a significant extent
on the continued service of senior management and other key employees and the
hiring of new qualified employees. Competition for highly skilled business,
technical, marketing and other personnel is intense, particularly in the strong
economic cycle currently prevailing for high technology companies. The loss of
one or more key employees or the Company's inability to attract additional
qualified employees or retain other employees could have an adverse effect on
the Company and its future operating results. In addition, the Company may
experience increased compensation costs in order to compete for skilled
employees.

REGULATORY REQUIREMENTS

The Company's operations are subject to various laws, regulations,
governmental policies and product certification requirements worldwide. Changes
in such laws, regulations, policies or requirements could affect the demand for
the Company's products or result in the need to modify products, which may
involve substantial costs or delays in sales and could have an adverse effect on
the Company and its future operating results.

SEISMIC RISKS

The Company's manufacturing and distribution facilities, as well as a
portion of the Company's research and development, sales and administrative
functions, are located near major earthquake faults. In the event of a major
earthquake, the Company and its future operating results could be adversely
affected

STOCK MARKET FLUCTUATIONS

In recent years, the stock market in general, and the market for technology
stocks in particular, including the Company's Common Stock, have experienced
extreme price fluctuations. The market price of the Company's Common Stock may
be significantly affected by various factors such as: quarterly variations in
the Company's operating results; changes in revenue growth rates for the Company
as a whole or for specific geographic areas, business units or products; changes
in earnings estimates by market analysts; the announcement of new products or
product enhancements by the Company or its competitors; speculation in the press
or analyst community; and general market conditions or market conditions
specific to particular industries. There can be no assurance that the market
price of the Company's Common Stock will not experience significant fluctuations
in the future.

ITEM 2. PROPERTIES

The Company's corporate offices are located in approximately 55,000 square
feet of leased office space in Redwood City, California. The Company is planning
to relocate these offices to a new facility in Santa Clara, California in late
1997 or early 1998.

The Company's United States distribution, repair and customer service
center is located in two adjacent leased office and warehouse buildings which,
in the aggregate, total approximately 156,700-square-feet in Costa Mesa,
California.

The Company owns a 120,000-square-foot manufacturing and distribution
facility in Kaohsiung, Taiwan, R.O.C. and a 180,000-square-foot manufacturing
and distribution facility in Kunshan, near Shanghai, People's Republic of China.
In addition, the Company leases a 65,000-square-foot software engineering center
in Bangalore, India.

The Company leases space for various purposes (including sales, development
and customer service) in or near Atlanta, Georgia; Auburn, California;
Bangalore, India; Barcelona, Spain; Beijing, People's Republic of China; Buenos
Aires, Argentina; Chicago, Illinois; Dallas, Texas; Dayton, Ohio; Fort
Lauderdale, Florida; Frankfurt, Germany; Guangzhou, People's Republic of China;
Honolulu, Hawaii; Hong Kong; Johannesburg, South Africa; London, United Kingdom;
Louisville, Kentucky; Madrid, Spain; Mexico City, Mexico; Miami, Florida; Milan,
Italy; New York, New York; Palo Alto, California; Paris, France; Portland,
Oregon; Sao Paulo, Brazil; Singapore; Sydney, Australia; Taipei, Taiwan; Tampa,
Florida; Tokyo, Japan; and Toronto, Canada.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, various legal proceedings are
initiated against the Company. The Company is not currently aware of any
legal proceeding pending against it, the resolution of which is expected
to have a material impact on the Company's financial condition.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 1996.

PART II

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

Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "VFIC Stock Performance," page 33.

ITEM 6. SELECTED FINANCIAL DATA

Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Selected Consolidated Financial Data," page 10.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Management's Discussion and Analysis," pages 11
through 17.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Incorporated by reference to the sections of the Company's 1996 Annual
Report to Stockholders included in the financial statements and notes on pages
18 through 32, and in "Quarterly Data" on page 34.

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

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to the sections of the Company's proxy statement
for the 1997 Annual Meeting of Stockholders entitled "Election of Directors",
"Management" and "Certain Transactions."

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Compensation of
Directors" and "Compensation of Executive Officers."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the section of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Security
Ownership of Management and Principal Stockholders."

ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS

Incorporated by reference to the section of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Certain
Transactions."

PART IV

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

(a)1. INDEX TO FINANCIAL STATEMENTS

The following documents are incorporated in Part II of this Annual Report
by reference to the 1996 Annual Report to Stockholders:

Annual Report
to Stockholders
---------------

Consolidated Balance Sheets
as of December 31, 1996 and 1995 Page 18

Consolidated Statements of Income
for each of the three years in the period
ended December 31, 1996 Page 19

Consolidated Statements of Stockholders' Equity
for each of the three years in the period
ended December 31, 1996 Page 20

Consolidated Statements of Cash Flows
for each of the three years in the period
ended December 31, 1996 Page 21

Notes to Consolidated Financial Statements Pages 22-32

The Report of Independent Auditors on page 33 of the 1996 Annual Report to
Stockholders is also incorporated by reference. With the exception of the
information expressly incorporated by reference into Items 5, 6, 7 and 8 of this
Annual Report, the 1996 Annual Report to Stockholders, attached as Exhibit 13.1,
is not deemed filed as part of this report.

(a)2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is filed as a part of the Annual
Report and should be read in conjunction with the Financial Statements:

Schedule II Valuation and Qualifying Accounts

All other schedules are omitted because they are not required, or not
applicable, or because the required information is included in the 1996 Annual
Report to Stockholders, filed as Exhibit 13.1.

(a)3. EXHIBITS

Exhibit
Number Description
------ -----------

3.1 Restated Certificate of Incorporation (1)

3.2 Bylaws of Registrant as currently in effect

10.1 Incentive Stock Option Plan, as amended *

10.2 1987 Supplemental Stock Option Plan, as amended *

10.3 1992 Non-Employee Directors' Stock Option Plan, as
amended *

10.4 1996 Restricted Phantom Stock Plan *

10.5 Form of Indemnity Agreement between the Company
and each of its directors (1) *

10.6 Form of Indemnity Agreement between the Company
and each of its executive officers (3) *

10.7 Series D Preferred Stock Purchase Agreement, dated
August 11, 1988, as amended on January 26, 1990
(1)

10.8 Employment letter agreement between the Company
and Hatim Tyabji, dated August 26, 1986 (2) *

11.1 Statement of Computation of Net Earnings per Share

13.1 1996 Annual Report to Stockholders

21.1 List of Subsidiaries

23.1 Consent of Ernst & Young LLP, Independent Auditors

24.1 Power of Attorney. Reference is made to the
signature page.

(1) Incorporated by reference from the exhibits in the Company's
Registration Statement on Form S-l filed with the Commission
(File No. 33-33304) on or about February 1, 1990.

(2) Incorporated by reference from the exhibits in the Company's
Annual Report on Form 10-K filed with the Commission (File No.
0-18376) on or about March 24, 1993.

(3) Incorporated by reference from the exhibits in the Company's
Annual Report on Form 10-K filed with the Commission (File No.
0-18376) on or about March 29, 1994.

* Designates "management contract or compensatory plan."

(b) REPORTS ON FORM 8-K

None.

SIGNATURES AND POWER OF ATTORNEY

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.

VERIFONE, INC.

Dated: March 26, 1997 By: /S/ JOSEPH M. ZAELIT
--------------------
Joseph M. Zaelit
Senior Vice President,
Finance and Administration,
and Chief Financial Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hatim A. Tyabji and Joseph M. Zaelit, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him in any and all capacities, to sign any amendments
to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

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

Signature Title Date

/S/ HATIM A. TYABJI Director, Chairman of the March 26, 1997
- ------------------- Board, President and
(Hatim A. Tyabji) Chief Executive Officer

/S/ JOSEPH M. ZAELIT Senior Vice President, March 26, 1997
- --------------------- Finance and Administration,
(Joseph M. Zaelit) and Chief Financial Officer
(principal financial officer)

/S/ ELDON M. BULLINGTON Vice President and March 26, 1997
- ------------------------ Corporate Controller
(Eldon M. Bullington) (principal accounting officer)

/S/ H. H. HAIGHT IV Director March 10, 1997
- -------------------
(H. H. Haight IV)

/S/ J. ROBERT HARCHARIK Director March 7, 1997
- -----------------------
(J. Robert Harcharik)

/S/ THOMAS E. PETERSON Director March 6, 1997
- ----------------------
(Thomas E. Peterson)

/S/ JOHN R. C. PORTER Director March 7, 1997
- ---------------------
(John R. C. Porter)

/S/ CLINTON V. SILVER Director March 10, 1997
- ---------------------
(Clinton V. Silver)

/S/ A. MICHAEL SPENCE Director March 6, 1997
- ---------------------
(A. Michael Spence)

/S/ R. ELTON WHITE Director March 26, 1997
- ------------------
(R. Elton White)

SCHEDULE II

VERIFONE, INC.

VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Balance at
Beginning of Costs and Deductions/ Balance at End
Description Period Expenses Write-Offs of Period
- ----------- ------ -------- ---------- ---------

Year Ended December 31, 1994 $3,900 $3,250 $(2,245) $4,905
Allowance for doubtful accounts ------ ------ ------- ------
------ ------ ------- ------

Year Ended December 31, 1995
Allowance for doubtful accounts $4,905 $5,495 $(5,725) $4,675
------ ------ ------- ------
------ ------ ------- ------
Year Ended December 31, 1996
Allowance for doubtful accounts $4,675 $ 371 $(1,204) $3,842
------ ------ ------- ------
------ ------ ------- ------