##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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FORM 10-K



|      |                                                                                      
|----- | -------------------------------------------------------------------------------------
|[   ] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

OR



|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|[X] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the six month period from July 1, 1999 to
December 31, 1999.

Commission file number: 1-13521

HYPERCOM CORPORATION

(Exact name of registrant as specified in its
charter)


|                                |  |                       
|------------------------------- |  | ----------------------
|                               
|                               
|                               
|                               
|Delaware                        |  | 86-0828608            
|(State or other jurisdiction of |  | (I.R.S. Employer      
|incorporation or organization)  |  | Identification Number)

2851 West Kathleen Road

Phoenix, Arizona 85053


(Address of principal executive offices) (Zip
Code)


(602) 504-5000

(Registrants telephone number, including
area code)


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.  [   ]

The aggregate market value of the voting stock held by
non-affiliates of the registrant was $212,151,888 as of
March 14, 2000 (based on the closing price of the common
stock on the New York Stock Exchange on that date).

Number of shares of the registrants common stock, $.001 par
 value per share, outstanding as of March 14, 2000, was
34,509,593.

Documents Incorporated By Reference

Material from the Companys Proxy Statement relating to its
2000 Annual Meeting of Stockholders has been incorporated by
reference into Part III, Items 10, 11, 12, and 13.



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TABLE OF CONTENTS



|         |                                                                                               |  |  |  |  |  |  | 
|-------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  
|         | Item 2. Properties                                                                           
|         | Item 3. Legal Proceedings                                                                    
|         | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II 
|         | Item 5. Market for Registrants Common Equity and Related Shareholder Matters                
|         | Item 6. Selected Financial Data                                                              
|         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|         | Item 8. Financial Statements and Supplementary Data                                          
|         | Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure  
|PART III
|         | Item 10. Directors and Executive Officers of the Registrant                                  
|         | Item 11. Executive Compensation                                                              
|         | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|         | Item 13. Certain Relationships and Related Transactions                                      
|PART IV 
|         | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|         | SIGNATURES                                                                                   
|         | Item 14 (a). Financial Statement Schedule                                                    
|         | LIST OF EXHIBITS                                                                             



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TABLE OF CONTENTS

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|2.       |  | Properties                                                                             |  |      | 12 | 
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|3.       |  | Legal Proceedings                                                                      |  |      | 12 | 
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|4.       |  | Submission of Matters to a Vote of Security Holders                                    |  |      | 12 | 
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|PART II  |  |                                                                                        |  |      |    | 
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|5.       |  | Market for Common Equity and Related Shareholder Matters                               |  |      | 13 | 
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|6.       |  | Selected Financial Data                                                                |  |      | 14 | 
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|7.       |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |      | 15 | 
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|8.       |  | Financial Statements and Supplementary Data                                            |  |      | 21 | 
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|9.       |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  |      | 21 | 
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|PART III |  |                                                                                        |  |      |    | 
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|10.      |  | Directors and Executive Officers of the Company                                        |  |      | 22 | 
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|11.      |  | Executive Compensation                                                                 |  |      | 22 | 
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|12.      |  | Security Ownership of Certain Beneficial Owners and Management                         |  |      | 22 | 
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|13.      |  | Certain Relationships and Related Transactions                                         |  |      | 22 | 
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|PART IV  |  |                                                                                        |  |      |    | 
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|14.      |  | Exhibits, Financial Statement Schedules, and Reports on
	Form 8-K                      |  |      | 23 | 
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|         |  | Signatures                                                                             |  |      | 24 | 
|         |  | List of Exhibits                                                                      
|         |  | Exhibit Index                                                                         

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PART I

Item 1.  Business

Unless otherwise indicated, references to fiscal 1999 means
Hypercom Corporations year ended June 30, 1999.
References to six-month period 1999 means the 6-month period from
 July 1, 1999 to December 31, 1999. Hypercom is
transitioning from a June 30 fiscal year end to a
December 31 fiscal year end.

The Company

Hypercom Corporation (Hypercom or the
Company) is a single-source global provider of
end-to-end electronic payment solutions, including card payment
systems, peripherals, network products, software and e-commerce
payment solutions that add value at the point-of-sale for
consumers, merchants and acquirers.

With worldwide headquarters in Phoenix, Arizona, Hypercom markets
 its products in more than 70 countries through a global network
of affiliates and offices in Argentina, Australia, Brazil, Chile,
 China, Germany, Hong Kong, Hungary, Japan, Mexico, Russia,
Singapore, Sweden, the United Kingdom and Venezuela.

Hypercom Corporation is the successor to an Australian company
founded in 1978 by George Wallner, the Companys President
and Chief Executive Officer. The companys operations were
primarily focused on Asian markets until 1987 when the Australian
 company expanded its operations into the United States. On
June 5, 1996, the Company was reincorporated in Delaware,
and shortly thereafter, through a series of corporate
restructurings, became a U.S. holding company for the operations
of the Australian company and its subsidiaries and affiliates.
These restructuring activities were completed in July 1997.

The Company has the second largest installed base of POS
terminals in the U.S. and worldwide, and the largest installed
base in Latin America and Asia/ Pacific. The Companys total
 card payment systems provide a fast, flexible and secure global
transaction environment. Card-based payment systems enable users
to engage in payment and non-payment activities such as credit,
debit and charge payments, electronic benefit transfers
(EBT), loyalty systems, coupon programs and medical
claims and payments.

Hypercoms current products can be categorized as
(i) point-of-sale (POS) products and services
and (ii) networking products.

The Companys POS products, which include terminals and
peripherals, network solutions, Ascendent transaction software,
and services (deployment, help desk, PIN pad loading, repair and
telecommunications), accounted for 92.9% of Hypercoms net
revenues in the six-month period ended December 31, 1999.
Hypercoms Network Systems division accounted for
approximately 7.1% of Hypercoms net revenues in the
six-month period 1999. This unit develops, manufactures, markets
and supports both standard and customized networking solutions to
 support POS systems.

Hypercom Network Systems also designed carrier class gateway
products for the VoIP (Voice over Internet Protocol) market. In
December 1999, Hypercom Network Systems transferred its VoIP
assets, technology and 46 staff resources to Cirilium
Corporation. Jointly owned by Hypercom and Inter-Tel,
Incorporated, Cirilium is expected to target the worldwide VoIP
telephony system and equipment market. Its products will combine
Inter-Tels telephony core competencies (PBX call
processing, IP telephony products, computer telephone integration
 applications, voice processing software and long-distance
calling services) with Hypercoms carrier class VoIP
gateways and electronic payment technology. Management believes
that transferring the VoIP technology to Cirilium will create an
opportunity for Cirilium to focus solely on providing turnkey IP
solutions to gateway and carrier class markets.

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Industry Background

Point-of-Sale

Stand-alone payment terminals were introduced 18 years ago
to provide the simple tasks of authorizing a credit card payment.
 Over the years, they have evolved from authorization-only
devices into small computers capable of performing numerous
applications, such as debit and loyalty programs.

In recent years, consumers demanding fast, convenient and secure
methods of payment have increasingly preferred card-based
payments. The increasing use of debit, credit and charge cards
and the proliferation of new electronic payment methods and
programs are driving the need for POS payment systems which:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | support a wide array of payment and program options,                                                 
|
| |  | are scalable, flexible and cost-effective,                                                           
|
| |  | provide fast, secure data transmission and                                                           
|
| |  | can work with existing legacy systems, which form the backbone of
	 the electronic payments industry.

Many of todays installed base of POS terminals are
relatively old and need to be replaced to handle the increased
volume and data-intensive applications which are projected for
the POS market. In addition, the components of current POS
payment systems typically are supplied by multiple vendors, which
 may affect interoperability, scalability and upgradeability.

New electronic payment technologies are expected to facilitate
the introduction of additional electronic payment applications.
These include sophisticated customer loyalty programs and stored
value (smart) cards, and the use of POS systems in
new vertical industries, such as health care and the electronic
payment of government benefits, which is already available in
several states and is required to be available for federal
programs.

In addition, merchants and banks are working together to
eliminate processes which are costly and time consuming by
combining legacy and new POS systems, including the use of the
POS terminal for processing checks (check truncation) and
retrieval of electronic signatures or receipts. In addition, the
developing infrastructures of emerging markets, such as those in
Eastern Europe, Russia and China, are expected to contribute to
the increasing demand for electronic payment products.

Today, the emerging trend in payment processing is toward
customer-activated transaction terminals. As a result, the
personal identification number entry device or PIN
pad is being replaced by a touch-screen terminal that faces
 the customer. In addition to traditional financial transactions,
 the touch-screen terminal supports many new customer-activated
applications such as loyalty programs, utilizing the touch-screen
 terminal. Management believes that this trend will initiate and
sustain a replacement cycle, as merchants will be motivated to
upgrade their existing terminals.

According to the Nilson Report newsletter, based in Oxnard, CA;
four card-based systems  credit, debit, stored
value and electronic benefits transfer  accounted for
25.6% of total consumer payments in 1998 up from 24.0% in 1997.
By 2010, their share will increase to 47.1%. The biggest gain in
market share of card payments will come from debit cards whose
steadily increasing usage has the biggest effect on the declining
 use of checks and cash at the point of sale. Between 1998 and
2010 debit card volume will grow by 780%, credit card volume will
 increase by 163%, EBT card volumes will increase by 444% (as
these cards replace paper food stamps), and stored-value cards
(prepaid) card volume will increase by 481%. By 2005,
stored-value and EBT cards will become larger payment systems
than travelers checks and official checks are now.

Card payments through transaction terminals remain a critical
application and they require specialized and secure payment
devices that will continue to occupy a place on the merchant
countertop. But the trend is toward cardholder-activated
transactions. There is also an increased demand for electronic
receipt capture. Additionally, the Internet has generated more
e-commerce opportunities for merchant websites, advertising and
loyalty programs. The combination of these demands has created
the need for POS terminals to do more

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Products and Services

Hypercom provides system-level products and services
to its electronic transaction customers, including POS terminals
and peripherals, PINpads, network access controllers and
Internet-enabled, value-added applications. Hypercom offers its
customers a full range of functionality, from the basic to
advanced, and can also provide networking functionality. In
addition, Hypercom provides POS support services. See Footnote 15
 to the Consolidated Financial Statements for information on the
Companys business segments.

The Companys terminal products include stand-alone
terminals, compact terminals that have integrated printers and
wireless terminals for specific industry applications, such as
automobile rental, restaurants and temporary merchant locations.
The Companys terminal products are designed for use with
magnetic stripe cards, such as typical credit, debit or charge
cards, as well as with smart or chip cards. Terminal
functionality ranges from routine tasks, such as credit or debit
authorization, electronic draft capture and electronic batch
submission and settlement, to high level functions, such as
customer loyalty programs, eligibility checking for health
insurance or government benefits, time and attendance data
collection reporting and Internet access through the terminal.
These products feature a modular design to allow for easy
upgrades as new technologies become available.

The principal peripheral products that interface with Hypercom
terminals include printers, PINpads, signature capture devices
and communications products. Printers enable printing of customer
 receipts. PINpads allow acceptance of magnetic-stripe and chip
card-based debit cards and other forms of payment requiring a
personal identification number, and allow for support of
customer-activated stored value. Hypercom offers a Signature
Capture PINpad, which enables cost-effective digital capture and
storage of signature information for credit card transactions.

Point-of-Sale. During fiscal 1999, Hypercom introduced a
new generation of POS payment systems with its Interactive
Consumer Environment (ICE) product line. It also
introduced new modem technology called FastPOS, operating at 9600
 bits per second (bps). This technology facilitates
transactions in approximately 6 seconds or less, and accommodates
 new, data-intensive applications such as electronic receipt
capture. The Company also introduced the Ascendent transaction
software, which, among other features, includes functionality for
 secure Internet payments.

ePic. In the six-month period 1999, the Company
introduced its comprehensive Internet-based retail countertop
commerce and information system, called ePOS-infocommerce,
or ePic. The industrys first Internet-enabled POS payment
terminal and server system, ePic lets merchants support a range
of Internet-based functions via the Hypercom ICE series of
touch-screen terminals. In addition to traditional secure payment
 processing functions, when used in conjunction with
Hypercoms e-commerce web merchant-hosting software, ePic
enables merchants to set up centrally hosted web stores which can
 be operated via the terminal. ePic supports e-mail, on-screen
advertising, interactive electronic coupons, interactive loyalty
programs, electronic receipt capture, branding programs and
e-commerce.

Hypercom ICE Products. Hypercoms ICE
family of products consist of powerful, multi-function
touch-screen terminals incorporating a high-speed thermal
printer, paper cutter, and Hypercom FastPOS modem
technology. Hypercoms ICE terminal provides financial
transaction technology incorporated with Internet-enabled
functions and a highly interactive and intuitive user interface
to support complex transactions with minimal user training.

In addition to traditional credit and debit functions, the ICE
terminal is designed to support payment options such as smart
cards, and develop new business opportunities through customer
loyalty management systems. Products in this family include the
ICE 5000, ICE 5500, ICE 6000, ICE 6500 and
the mobile SmartICE for wireless transaction environments. The
ICE 5000 is currently shipping, the remaining products are
expected to begin shipping during calendar 2000.

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FastPOS. FastPOS moves digitized data at
9600 bps, which is four to eight times faster than the
1200/2400 bps industry standard, thus providing a competitive
advantage.

Ascendent Transaction Software. ICE terminals and
Ascendent, a comprehensive family of front-end
client/server payment and data transaction processing software,
supports electronic receipt capture, advertising at the point of
sale and customer loyalty programs.

With Hypercoms Ascendent Electronic Receipt Capture
(ERC) software, the receipt and signature are
captured at the point of sale and stored electronically. This
creates a completely paperless environment, which improves
merchant efficiency and service and reduces charge-backs.
Charge-back handling is completely automated as receipts are
accessed electronically for satisfactory settlement. Merchants
can view and retrieve receipts through the Internet with a
standard browser, print the data, or send it electronically to
the appropriate destination.

To support advertising at the point of sale, the touch-screen on
the ICE terminals can display the merchant logo, promotions, or
other advertising. Onscreen messages can inform, cross-sell,
motivate and build the brand image. Customized receipts with the
merchant logo or advertising message may offer discounts for
future purchases, extend advertising impact and encourage repeat
business.

Loyalty programs keep merchants in touch with their customers and
 inform them of new rewards, alert them to special offers or
simply remind them to use their credit or debit cards. Data
secured with loyalty cards can be used to make personalized
customer service improvements.

Ascendent RealPay is e-commerce payment processing
software that enables Internet acquirers to cost effectively
engage in secure online payment and transaction processing.
RealPay helps Internet acquirers deploy and manage complex
electronic and advanced financial applications. By using an
advanced, modular design, RealPay provides a comprehensive set of
 financial interfaces that can be integrated into the existing
technical infrastructure of a legacy system.

Services and Other Software

The Company provides a broad range of services related to its
POS payment systems and networking products. The Company
provides consulting services:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | to assist with strategies and alternatives for POS payment
	systems,                            
|
| |  | to assist in the design, installation, integration and management
	 of POS  payment systems, and
|
| |  | to design customized software applications.                                                     

The Company also provides deployment, training, technical
assistance, help desk and maintenance services for its products.

Terminal Application Software.The Company works closely
with its clients to develop standard and customized applications
that operate on Hypercom terminals. To date, the Company has
developed over 80 terminal software applications, ranging
from entry-level credit and debit solutions to complex systems
that support a comprehensive range of electronic payment and
medical transaction functions. Among these software applications
are specialized applications for specific markets such as
lodging, restaurants, multi-lane retail and health care.

Terminal Management Software.Every terminal application
software program produced by the Company has a management and
control module that interacts with the Companys Term-Master
 Terminal Network Management System. Term-Master is designed to
provide mission-critical functionality to users of
Hypercoms terminals. Term-Master is the basis for an
integrated terminal management approach that supports multiple
merchant locations, remote and automated downloading of terminal
application software, multiple application software management,
merchant terminal set-ups, performance monitoring and on-line
diagnostics.

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Networking and Connectivity

Hypercoms Integrated Enterprise Networking
(IEN) family of products are Network Access
Controllers (NAC) that provide the networking
hardware technology and communications infrastructure necessary
to achieve connectivity in the POS environment. NACs are
intelligent communications devices that provide a wide range of
digital and analog interfaces, line concentration, protocol
conversion, data concentration, transaction routing, backup
transmission paths and multiple device interface capabilities
that allow access to high-performance data communications
networks. Hypercoms IENs greatly reduce operating costs,
protect investments in current legacy networks and offer a wide
range of network technologies, such as X.25, frame relay,
asynchronous transfer mode (ATM), and Integrated
Services Digital Network (ISDN) and protocol
interfaces, including SNA and TCP/ IP. Hypercom delivers
networking solutions for POS systems as well as designs and
delivers custom networks. The NAC product line also includes the
MiniNAC2, which connects automated teller machines, POS terminals
 and PC or in-store controllers to existing hosts utilizing
standard dial-up access.

Competitive Advantages

The Company believes that its core POS business has the following
 key competitive advantages:

Technology Leader and Innovator.Since the introduction of
 POS payment terminals in the early 1980s, the Company has
established itself as a technology leader and innovator in the
electronic payments market. In the six-month period 1999,
Hypercoms technology leadership continued as it introduced
its comprehensive Internet-based retail countertop commerce and
information system, called ePOS-infocommerce, or ePic, with
 the high-performance ICE terminal as its central POS hardware
component. In fiscal 1999, the Company introduced Hypercom®
ICE terminals, its Interactive Consumer Environment product
 line of touch-screen based terminals; FastPOS, new modem
technology which operates at 9600 bits per second
(bps), which not only allows faster transactions but
new data-intensive applications such as electronic receipt
capture; and Ascendent transaction software, which includes
functionality for secure Internet payments.

Comprehensive POS Payment Systems Provider.With its
POS payment terminal technology, networking hardware and
software and transaction processing software, the Company is a
systems-level supplier. Most competitors offer only certain
components of a POS payment system. In contrast, Hypercom
products offer comprehensive payment systems, enabling seamless
integration and interoperability with other Hypercom or
competitors products.

Lower Total Cost of Ownership.The Company designs its
products to provide customers with a lower total cost of
ownership, enabling Hypercom products to command premium pricing.
 The Companys core products typically feature
multi-functionality, robust construction, scalability to
facilitate system growth and ready upgradeability to accommodate
new technological developments that can extend product life. The
Companys technologically advanced, easy-to-use products
also provide faster transaction processing times, reduce the time
 and costs needed to train merchant personnel who operate
Hypercom products and ensure the secure transmission of financial
 transactions.

International Experience and Global Presence.Hypercom was
 founded in Australia 22 years ago. It became the largest
supplier of POS systems in the Asia/ Pacific region prior to its
move to the United States. The Company currently sells its
products in more than 70 countries. According to the May
1999 Nilson Report, the Company has the second largest installed
base of POS terminals in the U.S. and worldwide, and the
largest installed base in Latin America and Asia/ Pacific. The
Company has gained significant expertise in adapting to local
customs, addressing local regulatory, certification and
telecommunications requirements and establishing key partnering
arrangements with local distributors and resellers. Further,
because the Companys products incorporate advanced
communications technology, the Company believes that its POS
payment systems perform better than its competitors
products in less developed telecommunications environments, most
of which support only earlier generations of communications
protocols.

Integrated Design and Production.The Company designs,
develops and manufactures substantially all of its products
in-house, enabling it to control the product development process
at all levels. In addition, the

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Technologically Advanced, Multi-service Architecture.
Hypercom has leveraged its extensive networking expertise in
POS payment systems to develop, manufacture, market and
support a family of flexible, stackable, multi-service
switch/routers under the trade name Integrated Enterprise Network
 (IEN). The Company believes that its IEN networking
products give it a competitive advantage in that they feature a
modular and distributed processing architecture, which supports
legacy and client/server environments and multiple traffic types.
 Each IEN device incorporates a switch, router, Frame Relay
Assembler/ Disassembler, protocol converter, dial back-up unit
and Channel Service Unit/ Data Service Unit, and performs data
compression and encryption. These products support all
WAN services critical for global networking, including frame
 relay, X.25 and ISDN, enabling networks to capitalize on the
lowest available telecommunications tariffs. IEN products
integrate legacy data, LAN, voice, fax and video applications
over a single network. The benefits of IEN products include
reduced telecommunications costs through the elimination of
duplicate networks, consolidation of customer premises equipment,
 common management interface, optimized network performance,
added reliability and system integrity for mission-critical
applications.

Customers

Hypercom POS Systems customers are predominantly large
 domestic and international financial institutions, electronic
payment processors, independent service organizations
(ISOs) and resellers. These customers generally have
substantial POS payment system requirements. Representative
direct and indirect POS customers include American Express
Company, Bank of America Merchant Services, Banamex, CrediCard
Brazil, First Data Merchant Services, TASQ Technologies, National
 Bank of Australia and Concord Equipment Sales. In any given
year, select customers may account for a significant percentage
of net revenue. Although no one customer accounted for more than
5.0% of the Companys net revenue in six-month period 1999,
the two largest customers accounted for 7.4% of the
Companys net revenue and the five largest customers
accounted for 15.8% of the Companys net revenue.

Hypercom Network Systems customers generally consist of
large financial institutions, retailers, electronic payment
processors, resellers and other enterprises that have substantial
 branch networking requirements spanning an average of
200 sites. Representative direct and indirect network
customers include Alamo Rent A Car, American Express Company,
AT&T Corp., First Data Merchant Services, The Home
Depot, Inc., and The Hong Kong and Shanghai Banking Corporation
Group.

The Company places special emphasis on offering high-performance,
 technologically-advanced POS payment system solutions and
networking products to enable its customers to gain market share
in their respective industries.

Sales, Marketing and Distribution

The Company sells its POS payment system solutions through its
direct sales force and through independent third-party resellers,
 including financial institutions, electronic payment processors
and service providers. In fiscal 1999, the Company merged its
domestic and international sales, marketing and operations
personnel, which are now managed from its Phoenix, AZ,
headquarters.

The Companys marketing programs include trade shows, press
releases, press interviews, speaker engagements, training and
technology seminars, sales collateral and white papers, print
advertising, articles and newsletters supported by
Hypercoms marketing and technical publications group.

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Financial Information about Industry and Geographic Segments

For detailed financial information concerning the Companys
industry segments and foreign and domestic operations and export
sales, reference is made to Note 15 of the Consolidated
Financial Statements included in Part II of this
Form 10-K.

Leasing Company

On January 10, 2000, Hypercoms wholly-owned subsidiary
 Hypercom Financial, Inc. completed the purchase of substantially
 all of the assets and business and the assumption of certain
liabilities of Golden Eagle LLC, a micro-ticket leasing
organization for point-of-sale terminals (Golden
Eagle). The purchase price paid at closing was $18.5
million in cash and $4.0 million in Hypercoms common stock.
 Golden Eagle could earn an amount up to $32.5 million in
Hypercoms common stock over the next three years if certain
 financial objectives are met. Management believes that Golden
Eagles equipment acquisition and deployment program, which
includes purchase, rental or lease options, will allow Hypercom
to more fully leverage the implementation of ePic, as traditional
 card payment terminals are replaced with Hypercoms
Internet-enabled, touch-screen ICE terminals.

Backlog

As of December 31, 1999, the Company had a backlog of $89
million. Backlog was $118 million at December 31, 1998. The
Company has taken steps to reduce terminal manufacturing
lead-time, which reduces the customers required lead-time.
These shorter lead times eliminate the prior requirements for
customers to book orders covering longer periods.

The Company includes in its backlog all revenue specified in
signed contracts and purchase orders to the extent that the
Company contemplates recognition of the related revenue within
one year. There can be no assurance that the contracts included
in backlog will actually generate the specified revenues or that
the actual revenues will be generated within the one-year period.

Customer Service and Support

The Company believes that it has established a reputation for
manufacturing high quality, reliable products and for providing
excellent service and support for its products. Through its
facilities in Phoenix, Arizona, the Company provides pre- and
post-sales consulting, application software development and
support, installation services, deployment and customer support
in addition to comprehensive repair facilities for its products
in St. Louis, Missouri.

The Company provides a five-year warranty on its
POS terminal products and one to five-year warranties on
other products. The Company has not incurred significant warranty
 expenses to date. The Company believes that its five-year
warranty on POS terminal products has contributed
significantly to its reputation for manufacturing high quality,
reliable products, and that this warranty results in a lower
total cost of ownership than competitors products.

Manufacturing

The Companys primary manufacturing facility is in China,
where the Company manufactures POS payment systems. The
Company also manufactures POS products at its facilities in
Arizona and Brazil. The Company also relies on third-party
suppliers for certain components of its POS payment system
products.

To control product costs, the Company centrally manages its
material requirements planning and bills of material from its
Phoenix facility on an integrated computer system, which is
networked to all Hypercom manufacturing centers. By managing its
purchasing centrally, the Company is able to obtain discounts on
volume purchases. The Company also strives to maintain sufficient
 flexibility in its purchasing to allow it to take advantage of
favorable pricing in regional markets. Central management of
purchases also assists the Company in ensuring that quality
components are used in its products. However, increased
competition and

8



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##### Table of Contents





For information relating to the Companys dependence on
suppliers, see Dependence On Certain Suppliers And
Third-Party Distributors in Exhibit 99.1 which is
attached hereto and incorporated by reference into this
Transition Report on Form 10-K.

Research and Product Development

Since its inception, the Company has made substantial investments
 in research and development. With respect to its
POS payment system products, the Companys development
efforts are focused on products, including both hardware and
software, that support new technologies and payment products
emerging in the electronic payments industry. The Company works
closely with its customers to define new product concepts and
identify emerging applications for both its hardware and software
 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 technology, staff resources and
engineering expertise requirements.

The Company designs and develops all of its products and
incorporates, where appropriate, technologies from third parties
and those available in the public domain. The Companys
product development units are principally headquartered in
Phoenix, Arizona. Development staffs also are located in
Australia, Dallas, TX, Rochester, NY, Hong Kong, Singapore,
Sweden, Brazil, Russia and the United Kingdom. The Company
maintained a separate development group dedicated to electronic
commerce transaction software, which had been located in
Australia, but in 1999 relocated this group to Atlanta, GA, to
enhance the ability to hire additional software developers and to
 benefit from certain research and experimentation tax credits.

The markets for the Companys products are characterized by
changing technology, evolving industry standards and frequent
product introductions. Management believes that the
Companys future success depends in large part upon its
ability to continue to enhance its existing products and develop
new products. The Company is dedicated to complying with industry
 standards and supporting important new standards as they emerge.

At December 31, 1999, 423 employees of the Company were
engaged in research and product development, including 350 in POS
 payment systems development, 42 in Ascendent development and 31
in networking systems. In the six-month periods ended
December 31, 1999 and 1998, the Companys research and
development expenditures were $19.6 million and $15.8 million
respectively. To date, a substantial majority of the
Companys research and development costs have been expensed
as incurred. Beginning in the third quarter of fiscal 1999, the
Company began capitalizing costs in relation to the development
of specific software enhancements related to its Ascendent
software products. In fiscal 1999 and in the six-month period
ended December 31, 1999 the Company capitalized
approximately $2.0 million and $0.7 million respectively related
to Ascendent software products. Additionally, during the six
months ended December 31, 1999, the Company capitalized $0.8
 million of development costs related to the development of its
Windows CE and multi-lane products. Amortized software
development costs amounted to $0 and $0.4 million for the fiscal
year ended June 30, 1999 and the six months ended
December 31, 1999 respectively. The Company expects that it
will continue to expend substantial resources on research and
product development.

Seasonality

Hypercom continues to experience some degree of seasonality. For
this reason, net revenue and results of operations are stronger
from July to December reflecting:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased POS purchases to satisfy increased retail demand during
	 the holiday season,                                             
|
| |  | Incentive programs VISA and MasterCard offer from July to
	December to encourage merchants to offer card-based payment
	systems, and
|
| |  | Allocation of customers capital budgets by the end of March
	 with volume shipments beginning in July.                             

9



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##### Table of Contents



Competition

The markets in which the Company operates are highly competitive
and are becoming increasingly more competitive. With respect to
its POS payment system products, the Company competes primarily
on the basis of ease-of-use, product performance, price,
features, quality, the availability of application software
programs, the number of third-party network host and telephone
system certifications it has obtained for its products and
application programs, rapid development, release and delivery of
software products and customer support and responsiveness.
Software products compete on the basis of functionality,
scalability, quality and support.

Although the market for the Companys POS payment system
products is competitive, the need for highly reliable and fully
certified software creates a barrier to entry by new competitors.
 For example, electronic payment processors have specific
requirements that POS payment systems software must meet,
including requirements relating to security, host communications
and message format. Accordingly, POS terminal devices must
accurately capture information required to process the
transaction, package the information, transmit it to the
processors host system in the specified format and receive
the host systems response. Each processor has its own
unique requirements that require the development of different
software applications and the successful completion of a lengthy
certification process. As a result, to compete effectively,
competitors must be able to develop software applications
compatible with the diverse requirements of numerous processors
of electronic transactions and satisfy the diverse certification
standards of these processors.

Hypercom competes with companies such as IBM, Siemens, NCR, ICL
and Micros in the overall POS marketplace. In the POS terminal
portion of the marketplace the Companys primary competitor
is VeriFone, Inc., which was acquired by Hewlett-Packard Company
in 1997.

Many of the Companys current and potential competitors have
 significantly greater financial, technical and marketing
resources than the Company, as well as better name recognition
and a larger customer base than the Company. As a result, they
may be able to devote greater resources to the development,
promotion, sale and support of their products than the Company.
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.

Proprietary Rights

The Companys success is dependent upon its proprietary
technology. The Company relies upon copyrights, trademark and
trade secret laws and more recently upon patent law protection,
to establish and maintain its proprietary rights in its
technology and products.

The Company currently holds patents issued in the U.S. (and
several other countries) relating to a POS terminal configured
with a substantial portion of its functionality at a remote
processor, and a POS terminal with replaceable printer cartridge,
 and has several patents pending. Foreign patents have also been
issued on several other patent applications, including the
replaceable printer mechanism, which has been instituted by
Hypercom in its integrated POS terminals containing a printer.
Hypercom has pending a number of U.S. and foreign patent
applications relating to both the POS terminal products as well
as the IEN product family.

The Company has U.S. federal registration for its
Hypercom trademark. In addition, the Hypercom
trademark is registered in 34 countries and has registration
pending in 5 countries. In addition to the registered trademark
of the Hypercom® name and logo, the Company has U.S. federal
 registrations for the following trademarks: MEGANAC®,
MININAC®, MINIROUTER®, TERM-MASTER®, VIRTUAL
MAPPED SNA®, PAYSEC®, CHIPSTRIPE® and VIRTUAL
POS®.

The Companys trademark applications for U.S. registrations
include: ASCENDENT, HYPERCOM FASTPOS,
HYPERWARE, ICE, ICEPAC, IEN 2000,
REALPAY, TOKEN TRACKING SYSTEM,
EPOSINFOCOMMERCE, HYPERCOM.COM, HYPER-FORMANCE,
 HYPER-FORMANCE GATEWAY, IENVIEW, and SMARTICE.

10



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##### Table of Contents



The Company embeds copyright notices in its software products
advising all users that the software is owned by Hypercom. The
Company also places copyright notices on documentation related to
 these products. The Company routinely relies on contractual
arrangements to protect its proprietary software programs,
including written contracts prior to product distribution or
through the use of shrink-wrap license agreements. The Company
typically does not obtain federal copyright registrations for its
 software.

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

Government Regulation

The Companys products must meet industry standards, such as
 those imposed by VISA and MasterCard, and receive certification
for connection to certain public telecommunications networks
prior to their sale. In the U.S., the Companys products
must comply with various regulations defined by the FCC and
Underwriters Laboratories. Internationally, the Companys
products must comply with standards established by
telecommunications authorities in various countries, as well as
with recommendations of quasi-regulatory authorities and
standards-setting committees. In addition, public carriers
require that equipment connected to their networks comply with
their own standards, which in part reflect their currently
installed equipment. Some public carriers have installed
equipment that does not fully comply with current industry
standards, and this noncompliance must be addressed in the design
 of the Companys enterprise networking products. Any future
 inability to obtain on a timely basis or retain domestic or
foreign regulatory approvals or certifications or to comply with
existing or evolving industry standards could have a material
adverse effect on the Companys business, operating results
and financial condition. In addition, rates for public
telecommunications services, including features and capacity of
such services, are governed by tariffs determined by carriers and
 subject to regulatory approval. Changes in these tariffs could
have a material adverse effect on the Companys business,
operating results and financial condition.

The Companys operations are subject to various state,
federal and international laws governing, among other things,
occupational health and safety, minimum wages, overtime,
retirement plans and profit-sharing and severance payments, and
the use, storage, handling and disposal of certain chemicals used
 in the Companys production processes. Although the Company
 believes that its operations comply in all material respects
with such regulatory requirements, any failure to comply with
applicable requirements, or the adoption of new regulations or
changes in existing regulations, could impose additional
compliance costs on the Company, require a cessation of certain
activities or otherwise have a material adverse effect on the
Companys business, operating results and financial
condition.

Employees

At December 31, 1999, the Company employed 1176 persons,
including 154 in manufacturing, 231 in service and support, 71 in
 sales and marketing, 423 in research and development and 297 in
finance and administration. Approximately 436 of the employees
were in international locations.

None of the Companys employees is represented by a labor
union, and the Company considers its relations with its employees
 to be positive. The Company has experienced no work stoppages.

Competition for technical personnel in the Companys
industry is intense. To date, the Company has been successful in
recruiting and retaining qualified employees, but there is no
assurance that it will continue to be successful in doing so in
the future. The Companys future success depends in part on
its continued ability to hire, assimilate and retain qualified
personnel.

11



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##### Table of Contents



Executive Officers of the Registrant

The following are the executive officers of the Company as of
February 9, 2000:

George R. Wallner, 48:President and Chief Executive
Officer since July 1, 1999; Chief Technologist since he
founded the Company in 1978; and Chairman of the Board of
Directors from 1978 until June 30, 1999.

Jonathon E. Killmer, 58:Executive Vice President, Chief
Financial Officer and Chief Administrative Officer of Hypercom
Corporation since January, 1999; Senior Vice President, Chief
Financial Officer and Treasurer of Digi International Inc. from
October 1996 to October 1998; Managing Partner of the
Minneapolis/ St. Paul Coopers & Lybrand L.L.P.
office from October 1990 to September 1996.

Christopher S. Alexander, 51:President of Hypercom
Transaction Systems Group since July 1, 1999; Chief
Operating Officer of Hypercom Corporation from October 1,
1998 to June 30, 1999; and Chief Operating Officer of
Hypercom International from 1993 to September 30, 1998.

Peter J. Stutsman, 47:General Counsel, Corporate
Secretary, Senior Vice President, Legal and Contract Affairs
since September 1998, Secretary and Vice President, Legal and
Contract Affairs since September 1997, and Corporate
Secretary since October 1995.




Item 2.  Properties

The Companys principal administrative, assembly and
warehouse facilities are located in Phoenix, AZ, where it owns an
 approximate 142,000 square foot building. The Company leases an
adjacent 23,800 square foot building for Hypercom Network
Systems. The lease expires August 31, 2011.

The Company leases an approximate 15,000 square foot facility in
Sydney, Australia, and owns an approximate 17,000 square foot
facility in Brazil. The latter is utilized for additional POS
manufacturing capacity.

The Company also leases office space in Arizona, Florida,
Georgia, Maryland, Missouri and New York. Facilities in Texas,
Hong Kong, China, Singapore, Sweden, Japan, Chile, Argentina,
Venezuela, Mexico, Russia, Hungary and the United Kingdom, all
are dedicated primarily to POS sales and support with the
exception of China, which contains the Companys primary
manufacturing facility. The Company believes that its facilities
are adequate for its operations and will be sufficient for the
foreseeable future. Reference is hereby made to Note 13 of
the Consolidated Financial Statements on page 45 for
detailed information relating to the Companys lease
commitments.




Item 3.  Legal Proceedings

From time to time, the Company is subject to claims and
litigation incident to its business. On September 23, 1998,
an employee of the Company filed a lawsuit in the Maricopa County
 Superior Court against two senior executives of the Company and
the Company alleging sexual misconduct by the executives and
seeking damages, including punitive damages. On November 22,
 1999, the court issued a ruling, that effectively dismissed all
causes of action against Hypercom and the two named defendants,
leaving one issue to be resolved at a later date. Since the court
 ruling, there has been no action on this matter from either
party. The Company believes that the one remaining issue in the
lawsuit will not have a material adverse effect on its financial
condition.




Item 4.  Submission of Matters to a Vote of
Security Holders

The Company held its Annual Meeting on Tuesday, November 16,
 1999, at which time board members Jock Patton and Peter J.
Hart were each elected to serve a two-year term until the 2001
Annual Meeting of Stockholders, receiving a majority of the votes
 cast. Continuing directors are Albert A. Irato, George R.
Wallner and William E. Fisher.

12



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##### Table of Contents



In addition, stockholders approved amendments to the Hypercom
Corporation 1997 Employee Stock Purchase Plan, with the following
 vote: for  30,526,032; against  88,355;
and abstained  5,551. Such amendments increased the
number of offering periods in a calendar year from two to four
and increased the discount on the purchase price from ten percent
 to fifteen percent.




PART II




Item 5.  Market for Registrants Common
 Equity and Related Shareholder Matters

The Companys common stock trades on the New York Stock
Exchange (NYSE) under the symbol HYC. The
 following table sets forth, for the fiscal quarters indicated,
the high and low sales prices for the common stock as reported on
 the NYSE.

|                            |  |      |        |     |  |   |        | 
|--------------------------- |  | ---- | ------ | --- |  | - | ------ | 
|                            |  | High |        | Low
|                            |  |      |        |    
|Six Months Ended 12/31/99   |  |      |        |     |  |   |        | 
|                           
|                           
|                           
|                           
|First Quarter               |  | $    | 9.688  |     |  | $ | 7.688  | 
|                           
|                           
|                           
|                           
|Second Quarter              |  | $    | 10.250 |     |  | $ | 7.500  | 
|                           
|                           
|                           
|                           
|                           
|Twelve Months Ended 6/30/99 |  |      |        |     |  |   |        | 
|                           
|                           
|                           
|                           
|First Quarter               |  | $    | 10.500 |     |  | $ | 4.938  | 
|                           
|                           
|                           
|                           
|Second Quarter              |  |      | 12.000 |     |  |   | 4.375  | 
|                           
|                           
|                           
|                           
|Third Quarter               |  |      | 13.938 |     |  |   | 5.313  | 
|                           
|                           
|                           
|                           
|Fourth Quarter              |  |      | 9.563  |     |  |   | 5.563  | 
|                           
|                           
|                           
|                           
|                           
|Twelve Months Ended 6/30/98 |  |      |        |     |  |   |        | 
|                           
|                           
|                           
|                           
|First Quarter               |  | $    | 16.063 |     |  | $ | 16.000 | 
|                           
|                           
|                           
|                           
|Second Quarter              |  |      | 17.313 |     |  |   | 12.750 | 
|                           
|                           
|                           
|                           
|Third Quarter               |  |      | 18.938 |     |  |   | 11.118 | 
|                           
|                           
|                           
|                           
|Fourth Quarter              |  |      | 13.818 |     |  |   | 9.938  | 

The Company has not paid any cash dividends on its Common Stock.
The Company currently intends to retain its earnings for its
business and does not anticipate paying any cash dividends on its
 Common Stock in the foreseeable future. The Companys
ability to pay cash dividends on its common stock is also limited
 by certain covenants contained in a loan agreement to which the
Company is a party. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources on
page 18.

The approximate number of shareholders of record as of
March 2000 was 3,200.

13



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##### Table of Contents






Item 6.  Selected Financial Data

The following table presents selected historical financial data
of Hypercom at the dates and for each of the periods indicated.
The selected financial data should be read in conjunction with
the Companys Consolidated Financial Statements and notes
thereto included elsewhere herein and Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Historical consolidated financial data may not
be indicative of the Companys future performance.

|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------- |  | ------------------------------------------------ | ------- | -------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |  |                                                  |         |                      |  |      |         |     
|                                    |  | Six Month Period                                 |         |                     
|                                    |  | Ended December 31,                               |         | Years ended June 30,
|                                    |  |                                                  |         |                     
|                                    |  | 1999                                             |         | 1998                 |  | 1999 |         | 1998 |  | 1997
|                                    |  |                                                  |         |                      |  |      |         |      |  |     
|                                    |  |                                                 
|                                    |  | (amounts in thousands, except per share amounts)
|                                   
|                                   
|                                   
|                                   
|Net revenue                         |  | $                                                | 149,282 |                      |  | $    | 136,577 |      |  | $    | 261,515 |   |  | $ | 257,227 |   |  | $ | 196,742 |  
|                                   
|                                   
|                                   
|                                   
|Costs of revenue                    |  |                                                  | 81,177  |                      |  |      | 68,884  |      |  |      | 141,831 |   |  |   | 130,475 |   |  |   | 103,672 |  
|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Gross profit                        |  | $                                                | 68,105  |                      |  | $    | 67,693  |      |  | $    | 119,684 |   |  | $ | 126,752 |   |  | $ | 93,070  |  
|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Percent of net revenue              |  |                                                  | 45.6    | %                    |  |      | 49.6    | %    |  |      | 45.8    | % |  |   | 49.3    | % |  |   | 47.3    | %
|                                   
|                                   
|                                   
|                                   
|Selling, general and administrative |  | $                                                | 43,505  |                      |  | $    | 35,253  |      |  | $    | 74,772  |   |  | $ | 72,506  |   |  | $ | 52,530  |  
|                                   
|                                   
|                                   
|                                   
|Research and development            |  |                                                  | 19,637  |                      |  |      | 15,850  |      |  |      | 30,249  |   |  |   | 23,495  |   |  |   | 12,926  |  
|                                   
|                                   
|                                   
|                                   
|Non-cash compensation(1)            |  |                                                  |        |                      |  |      |        |      |  |      |        |   |  |   | 10,963  |   |  |   | 4,784   |  
|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    |  | $                                                | 63,142  |                      |  | $    | 51,103  |      |  | $    | 105,021 |   |  | $ | 106,964 |   |  | $ | 70,240  |  
|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income from operations              |  | $                                                | 4,963   |                      |  | $    | 16,590  |      |  | $    | 14,663  |   |  | $ | 19,788  |   |  | $ | 22,830  |  
|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income                          |  | $                                                | 5,385   |                      |  | $    | 12,359  |      |  | $    | 9,173   |   |  | $ | 13,989  |   |  | $ | 15,562  |  
|                                    |  |                                                  |         |                      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income per share (diluted)      |  | $                                                | 0.16    |                      |  | $    | 0.36    |      |  | $    | 0.27    |   |  | $ | 0.44    |   |  | $ | 0.60    |  
|                                   
|                                   
|                                   
|                                   
|Shares used in calculations         |  |                                                  | 34,446  |                      |  |      | 34,549  |      |  |      | 34,428  |   |  |   | 31,830  |   |  |   | 25,754  |  
|                                   
|                                   
|                                   
|                                   
|Cash and equivalents                |  | $                                                | 26,093  |                      |  | $    | 37,795  |      |  | $    | 36,727  |   |  | $ | 55,659  |   |  | $ | 16,318  |  
|                                   
|                                   
|                                   
|                                   
|Working capital                     |  |                                                  | 156,991 |                      |  |      | 178,879 |      |  |      | 162,152 |   |  |   | 186,799 |   |  |   | 61,972  |  
|                                   
|                                   
|                                   
|                                   
|Total assets                        |  |                                                  | 297,777 |                      |  |      | 270,410 |      |  |      | 276,280 |   |  |   | 259,577 |   |  |   | 138,741 |  
|                                   
|                                   
|                                   
|                                   
|Short and long term debt            |  |                                                  | 11,176  |                      |  |      | 2,188   |      |  |      | 11,284  |   |  |   | 1,797   |   |  |   | 24,570  |  
|                                   
|                                   
|                                   
|                                   
|Total shareholders equity          |  |                                                  | 231,734 |                      |  |      | 228,323 |      |  |      | 226,023 |   |  |   | 220,431 |   |  |   | 60,894  |  




|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Non-cash compensation was charged in connection with stock
	options granted to an executive officer. Upon completion of the
	Companys initial public offering in November 1997,
	this form of compensation ceased and no charge was incurred in
	the third and fourth quarters of fiscal 1998.

14



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##### Table of Contents








|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

Results of Operations

The following table sets forth the operating results expressed as
 a percentage of net revenue for the periods indicated and the
percentage change in such operating results between periods.
Results for any one or more periods are not necessarily
indicative of future results:

Percentage of Net Revenue

|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |      |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|--------------------------------------- |  | ------------ | ----- | -------------- |  | --------------- | ----- | -------- |  | ------------------------------------ | ----- | --------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | - |  |  | ------ | - |  |  | ----- | -
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                
|                                        |  |              |       |                |  |                 |       |          |  | Period to Period Increase (Decrease)
|                                        |  | Six Months   |       |                |  |                
|                                        |  | Ended        |       | Fiscal Years   |  | Six Months 1999 |       | 1999     |  | 1998                                
|                                        |  | December 31, |       | Ended June 30, |  |                 |       | Compared |  |                                     
|                                        |  |              |       |                |  |                 |       | to       |  |                                     
|                                        |  | 1999         |       | 1998           |  | 1999            |       | 1998     |  | 1997                                 |       | Six Months 1998 |  | 1998 |       | 1997
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |     
|Net revenue                             |  |              | 100.0 | %              |  |                 | 100.0 | %        |  |                                      | 100.0 | %               |  |      | 100.0 | %    |  |  | 100.0 | % |  |  | 9.3   | % |  |  | 1.7    | % |  |  | 30.7  | %
|                                       
|                                       
|                                       
|                                       
|Costs of revenue                        |  |              | 54.4  |                |  |                 | 50.4  |          |  |                                      | 54.2  |                 |  |      | 50.7  |      |  |  | 52.7  |   |  |  | 17.8  |   |  |  | 8.7    |   |  |  | 25.9  |  
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |      |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|Gross profit                            |  |              | 45.6  |                |  |                 | 49.6  |          |  |                                      | 45.8  |                 |  |      | 49.3  |      |  |  | 47.3  |   |  |  | 0.6   |   |  |  | (5.6   | ) |  |  | 36.2  |  
|                                       
|                                       
|                                       
|                                       
|Selling, general and administrative     |  |              | 29.1  |                |  |                 | 25.8  |          |  |                                      | 28.6  |                 |  |      | 28.2  |      |  |  | 26.7  |   |  |  | 23.4  |   |  |  | 3.1    |   |  |  | 38.0  |  
|                                       
|                                       
|                                       
|                                       
|Research and development                |  |              | 13.2  |                |  |                 | 11.6  |          |  |                                      | 11.6  |                 |  |      | 9.1   |      |  |  | 6.6   |   |  |  | 23.9  |   |  |  | 28.7   |   |  |  | 81.8  |  
|                                       
|                                       
|                                       
|                                       
|Non-cash compensation                   |  |              |      |                |  |                 |      |          |  |                                      |      |                 |  |      | 4.3   |      |  |  | 2.4   |   |  |  |      |   |  |  | (100.0 | ) |  |  | 129.2 |  
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |      |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|Income from operations                  |  |              | 3.3   |                |  |                 | 12.2  |          |  |                                      | 5.6   |                 |  |      | 7.7   |      |  |  | 11.6  |   |  |  | (70.1 | ) |  |  | (25.9  | ) |  |  | (13.3 | )
|                                       
|                                       
|                                       
|                                       
|Interest income net of interest expense |  |              | 0.8   |                |  |                 | 1.7   |          |  |                                      | 1.8   |                 |  |      | 0.7   |      |  |  | 0.1   |   |  |  |       |   |  |  |        |   |  |  |       |  
|                                       
|                                       
|                                       
|                                       
|Foreign currency exchange gain (loss)   |  |              | (0.2  | )              |  |                 | (0.7  | )        |  |                                      | (2.6  | )               |  |      | (0.7  | )    |  |  | 0.2   |   |  |  |       |   |  |  |        |   |  |  |       |  
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |      |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|Income before income taxes              |  |              | 3.9   |                |  |                 | 13.2  |          |  |                                      | 4.8   |                 |  |      | 7.7   |      |  |  | 11.9  |   |  |  | (67.8 | ) |  |  | (36.7  | ) |  |  | 15.1  |  
|                                       
|                                       
|                                       
|                                       
|Income taxes                            |  |              | 0.3   |                |  |                 | 4.1   |          |  |                                      | 1.3   |                 |  |      | 2.3   |      |  |  | 4.0   |   |  |  |       |   |  |  |        |   |  |  |       |  
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |      |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  
|Net income                              |  |              | 3.6   | %              |  |                 | 9.1   | %        |  |                                      | 3.5   | %               |  |      | 5.4   | %    |  |  | 7.9   | % |  |  | (56.4 | ) |  |  | (34.4  | ) |  |  | (10.1 | )
|                                        |  |              |       |                |  |                 |       |          |  |                                      |       |                 |  |      |       |      |  |  |       |   |  |  |       |   |  |  |        |   |  |  |       |  

Net revenue by geographic region are presented in the following
table as a percentage of net revenues for the periods indicated:

|                                |        |              |    |                    |   |      |    |      |   |      |    |     |   |  |    |     |   |  |    |     |  
|------------------------------- | ------ | ------------ | -- | ------------------ | - | ---- | -- | ---- | - | ---- | -- | --- | - |  | -- | --- | - |  | -- | --- | -
|                                |        |              |    |                    |   |      |    |     
|                                |        | Six Months   |    |                   
|                                |        | Ended        |    | Fiscal Years Ended
|                                |        | December 31, |    | June 30,          
|                                |        |              |    |                   
|Revenues by Region              |        | 1999         |    | 1998               |   | 1999 |    | 1998 |   | 1997
|                                |        |              |    |                    |   |      |    |      |   |     
|United States                   |        |              | 44 | %                  |   |      | 54 | %    |   |      | 54 | %   |   |  | 43 | %   |   |  | 44 | %  
|                               
|                               
|                               
|                               
|Latin America (includes Mexico) |        |              | 27 |                    |   |      | 26 |      |   |      | 23 |     |   |  | 29 |     |   |  | 24 |    
|                               
|                               
|                               
|                               
|Asia/ Pacific                   |        |              | 14 |                    |   |      | 13 |      |   |      | 13 |     |   |  | 22 |     |   |  | 30 |    
|                               
|                               
|                               
|                               
|Europe                          |        |              | 15 |                    |   |      | 7  |      |   |      | 10 |     |   |  | 6  |     |   |  | 2  |    
|                                |        |              |    |                    |   |      |    |      |   |      |    |     |   |  |    |     |   |  |    |    
|                                | Totals |              |    | 100                | % |      |    | 100  | % |      |    | 100 | % |  |    | 100 | % |  |    | 100 | %

Explanatory Note

On April 20, 1999, Hypercom changed its fiscal year end from
 June 30 to December 31. As a result, pursuant to the rules
of the Securities and Exchange Commission, this Transition Report
 on Form 10-K presents financial information for the
six-month period ending December 31, 1999. The results of
operations and cash flows of the Company for the six months ended
 December 31, 1999 contained 184 days compared to
365 days for the twelve months ended June 30, 1999,
1998 and 1997.

Comparison of Six Months ended
December 31, 1999 and 1998.

For the six months ended December 31, 1999 and 1998, net
revenues increased 9.3% or $12.7 million from $136.6 million to
$149.3 million, principally due to growth in Europe ($11.8
million), Asia ($3.2 million) and Latin America ($4.1 million).
The significant increase in European sales was due to a rapid
expansion of the customer base in an emerging market for the
Company as well as the acquisition of ICL

15



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For the six months ended December 31, 1999 and 1998, Network
 Systems revenue decreased $5.3 million or 33.3% from $15.9
million to $10.6 million. The decrease was primarily due to the
transfer of this units VoIP technology to a new joint
venture, Cirilium Corporation, with Inter-Tel, Incorporated, a
provider of telephony products. Revenue from Voice over
Internet Protocol (VoIP) customers declined in anticipation
 of the formation of the new joint venture. In addition, Network
Systems personnel spent significant time planning the
reorganization of the business unit and refocusing the sales and
development efforts which contributed to the reduced revenue from
 Network Systems for the six-month period.

Gross profit as a percentage of net revenue decreased from 49.6%
to 45.6% for the six months ended December 31, 1999 compared
 to the six months ended December 31, 1998. The decrease was
 related to the impact of the acquisition of substantially all
the assets of the Horizon Group Inc. (Horizon). Horizon typically
 operates on a much lower gross margin percentage than historical
 Hypercom gross margin percentages and, as a result, has a
dilutive effect on overall gross margin. Horizon was acquired on
October 1, 1998 and thus the Company only included three
months of Horizon financial results in the six-month period ended
 December 31, 1998. As a result, Horizons dilutive
impact on the Companys gross margin (1.8%) for the six
months ended December 31, 1998 was less than for the six
months ended December 31, 1999. Horizons financial
results for the six-months ended December 31, 1999 included
net revenue of $14.9 million resulting in a gross margin of $1.4
million or 9.3%. These results had a much more significant effect
 (4.0%) on the Companys overall gross margin for the six
months ended December 31, 1999. Additionally, increased
competition and pricing pressure, as well as rising manufacturing
 costs related to some electronic component supply shortages have
 affected, and may continue to affect, margins.

Selling, general and administrative expense increased 23.4% or
$8.2 million to $43.5 million for the six months ended
December 31, 1999 compared to $35.3 million for the
comparable six-month period ended December 31, 1998. These
increases were primarily due to additional basic corporate
infrastructure in Phoenix related to accounting, legal and human
resources and information systems. Additionally, the Company
incurred significant increases in US, Asian, and Australian
selling expenses, as well as additional overhead related to the
acquisitions of Horizon and ICL Financial Terminals and the
establishment of the Companys internet division, Hypercom
Net Commerce.

Research and development expense increased 23.9% or $3.8 million
to $19.6 million for the six months ended December 31, 1999
compared to $15.8 million for the six months ended
December 31, 1998. This increase is consistent with the
Companys planned investment in new product development to
maintain its competitive edge.

Income from operations decreased 70.1% or $11.6 million from
$16.6 million for the six months ended December 31, 1998 to
$5.0 million for the six months ended December 31, 1999. The
 decrease is directly related to the aforementioned reduced gross
 margins, higher selling, general and administrative expenses,
and increased research and development activities.

Net interest income decreased 47.8% or $1.1 million from $2.3
million for the six months ended December 31, 1998 to $1.2
million for the six months ended December 31, 1999. The
decrease is due to declining cash and short term investment
balances. Interest income consisted primarily of returns on short
 and long-term investments net of interest expense incurred
related to short term bank borrowings.

Foreign currency losses result from operating in volatile
markets, principally Brazil. During the six months ended
December 31, 1999, the Company recorded a $0.4 million loss
compared to $1.0 million for the six months ended
December 31, 1998. The Company has entered into hedging
strategies to mitigate the impact of foreign currency
fluctuations, which resulted in the significant decrease in the
loss for the six months ended December 31, 1999.

The provisions for federal, state and foreign income taxes were
$0.4 million and $5.6 million for the six-month periods ended
December 31, 1999 and 1998, respectively. The Companys
 effective tax rate was

16



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| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | Sales in foreign jurisdictions with lower rates (particularly in
	the six months ended December 31, 1999);
|
| |  | Research and experimentation credits in Australia and the US; and                                         
|
| |  | The use of foreign sales corporations offering lower taxes on
	certain international sales.               

Comparison of Fiscal Years Ended
June 30, 1999 and 1998

Net revenue in fiscal 1999 increased $4.3 million or 1.7%
primarily due to the acquisition of the Horizon Group, Inc.
(Horizon) in fiscal 1999. The increase in revenue
reflected growth in the United States and Europe where the
Company has been establishing new sales and service operations.
Revenues in Asia and Latin America have slowed due to regional
economic conditions and currency devaluation.

Gross profit as a percentage of net revenue decreased from 49.3%
in fiscal 1998 to 45.8% in fiscal 1999. This decrease was due in
part to the impact of Horizon which is a national distributor of
equipment for Hypercom and other POS manufacturers. Horizon
historically operates at margins significantly less (12%-15%)
than the Companys historical gross profit margin. In
addition, gross profit also declined due to reduced selling
prices as a result of increased worldwide competitive factors as
well as declining economic conditions in some foreign countries.

Selling, general and administrative expense increased $2.3
million, or 3.1%, to $74.8 million in fiscal 1999 as the Company
continued to invest in its worldwide operations, including
expanding its headquarter facilities in Phoenix, Arizona as well
as a new distribution center, opening new international sales and
 support offices, and expanding and improving its worldwide
administrative, financial, and information technology related
infrastructure.

Research and development expense increased $6.7 million, or
28.7%, to $30.2 million in fiscal 1999. The increase was
primarily for POS product development as the Company prepared to
introduce in fiscal 1999 its new ICE terminal products; its
FastPOS 9600 bps terminals; and Ascendent client/server software.
 Beginning in the third quarter of fiscal 1999, the Company began
 capitalizing costs in relation to the development of specific
software enhancements related to its Ascendent software products.
 The amount capitalized in fiscal 1999 was approximately $2.0
million.

Non-cash compensation was previously charged in connection with a
 grant of stock options which included a stock repurchase
arrangement. The Company recorded a non-cash compensation charge
of $11.0 million in the first half of fiscal 1998 and incurred no
 further charge during the year as the repurchase arrangement
terminated upon the closing of the Companys initial public
offering in November, 1997. There was no non-cash compensation
charge for fiscal 1999.

Income from operations decreased $5.1 million, or 25.9%, to $14.7
 million in fiscal 1999 due primarily to reduced gross margins,
higher selling, general and administrative expenses and higher
research and development expense.

Net interest income for fiscal 1999 increased $2.8 million to
$4.6 million from $1.8 million in fiscal 1998. Interest income
consisted primarily of returns on short and long-term investments
 net of interest expense incurred related to short term bank
borrowings.

Foreign currency losses resulted from operating in volatile
markets, principally Brazil. During fiscal 1999 the Company
recorded a $4.4 million loss related to the net monetary asset
exposure in Brazil. The Company has entered into hedging
strategies to mitigate the impact of future foreign currency
fluctuations.

The provisions for federal, state, and foreign income taxes were
$3.4 million and $5.9 million for the fiscal years ended
June 30, 1999 and 1998, respectively. The Companys
effective rate of tax was 27% and 30% for

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| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | Research and experimentation credits in Australia and the US.                              
|
| |  | Sales in foreign jurisdictions with lower tax rates.                                       
|
| |  | The use of foreign sales corporations offering lower taxes on
	certain international sales.

Comparison of Fiscal Years Ended
June 30, 1998 and 1997

Net revenue in fiscal 1998 increased $60.5 million or 30.7% due
to increased POS Systems revenue of $58.1 million. The increase
in POS Systems revenue reflected strong growth in Europe where
the Company established new sales and service operations. Latin
America also experienced strong growth and benefited from a new
manufacturing facility in Sao Paulo, Brazil. Growth in Asia
slowed due to local currency devaluation. Network Systems revenue
 growth was also slowed due to economic uncertainties in Asia and
 increased competition in its branch access networking equipment
markets.

Gross profit as a percentage of net revenue increased to 49.3% in
 fiscal 1998 from 47.3% in fiscal 1997. This increase was due to
lower costs realized from a transfer of the Australian
manufacturing operations to manufacturing in China and to the
Companys facilities in Phoenix, Arizona.

Selling, general and administrative expense increased $20.0
million, or 38.0%, to $72.5 million in fiscal 1998. $6.6 million
of this increase was the continued expansion of selling and
administrative activities in Network Systems; $2.7 million of
this increase was related to the introduction of the
Companys Ascendent POS client/server software products; and
 $2.5 million of the increase was for the establishment of a new
POS sales and service infrastructure in Europe. The remaining
increases related to normal growth caused by increased business
with a $6.3 million increase- for ongoing expansion of sales
operations in the United States, Latin America and Asia and $1.9
million increase in the Companys corporate, general and
administrative areas.

Research and development expense increased $10.6 million, or
81.8%, to $23.5 million in fiscal 1998, of which $9.2 million of
the increase was for POS product development as the Company
prepared to introduce in fiscal 1999 its new ICE terminal
products; its FastPOS 9600 bps terminals; and Ascendent
client/server software.

Non-cash compensation was charged in connection with a grant of
stock options which included a stock repurchase arrangement. The
Company recorded a non-cash compensation charge of $11.0 million
in the first half of fiscal 1998 and incurred no further charge
during the year as the repurchase arrangement terminated upon the
 closing of the Companys initial public offering in
November, 1997.

Income from operations decreased $3.0 million to $19.8 million in
 fiscal 1998 due primarily to an increase of $6.2 million in
non-cash compensation and higher selling, general and
administrative expense and higher research and development
expense.

Liquidity and Capital Resources

The Company has historically financed its operations primarily
through cash generated from operations and from borrowings under
a line of credit. Additionally, in November 1997, the
Company completed its initial public offering which provided
$125.7 million in cash. The Companys principal uses of
 this cash has been to support working capital requirements such
as inventory and accounts receivable growth, and to fund
acquisitions and capital expenditures.

The Companys working capital was $158.4 million as of
December 31, 1999 compared to $162.1 million at
June 30, 1999. The decrease relates primarily to an increase
 in working capital requirements related to accounts receivable
and inventory, as well as the acquisition of substantially all
the assets of MicroTrax, Ltd., Inc., a leading provider
 of Windows NT electronic payment software systems. Additionally,
 the

18



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##### Table of Contents





Capital expenditures related to property, plant and equipment
totaled $9.0 million for the six-month period ended
December 31, 1999 with depreciation expense of $3.2 million.
 Capital expenditures for the fiscal years ended June 30,
1999 and 1998 totaled $12.8 million and $10.0 million
respectively. Related depreciation was $5.5 million and
$4.1 million in the twelve months ended June 30, 1999
and 1998 respectively.

In February 2000, the Company increased its revolving line
of credit to $20 million from $10 million with Bank One
 Arizona, N.A. The loan agreement contains various
restrictions on the Company, including the prohibitions of
declaring or paying dividends, limitations on the incurrence of
additional debt, liens, or encumbrances and restricting the
Companys ability to consolidate or merge into any other
entity. The loan agreement also contains certain financial
covenants, including a minimum current ratio, minimum working
capital, minimum tangible net worth, and minimum
shareholders equity and debt coverage ratios.

Concurrent with the closing of the Golden Eagle acquisition in
January 2000, the Company entered into an additional
$25 million revolving line of credit agreement with Bank
One, to provide a temporary funding source for certain of Golden
Eagles borrowings that were not assumed under the purchase
transaction to facilitate the acquisition closing. The
Companys accounts receivables and inventory have been
utilized as security interests in connection with the expanded
line. The interest rate under the line was at prime rate.

The Company believes that these financing facilities will be
sufficient to fund operations for the foreseeable future.

New Pronouncements

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and
 Hedging Activities. This statement requires recognition of all
derivatives as either assets or liabilities on the balance sheet
and measurement of those instruments at fair value. Changes in
fair value of derivatives are recorded each period in current
earnings or other comprehensive income (loss). Proper accounting
for changes in fair value of derivatives held, is dependent on
whether the derivative transaction qualifies as an accounting
hedge and on the classification of the hedge transaction. The
statement was originally required to be adopted and is effective
for all fiscal years beginning after June 15, 2000. The
Company is evaluating the effect Statement 133 will have on its
financial reporting and disclosures as well as on its derivative
and hedging activities.

In December 1999, the Securities Exchange Commission issued Staff
 Accounting Bulletin (SAB) 101, Revenue Recognition in
Financial Statements. The effective date of SAB 101 for
the Company is the second fiscal quarter of the year ending
December 31, 2000. The Company is currently evaluating the
effect of this SAB on its financial statements.

Year 2000

The Company has not experienced any significant Year 2000
disruptions, nor do we anticipate any significant problems in the
 future. The Company has not expended any significant amounts to
address Year 2000 compliance, nor does it anticipate any
significant future expenditures for Year 2000 compliance.

Backlog

As of December 31, 1999, the Company had a backlog of $89
million. Backlog was $118 million at December 31, 1998. The
Company has taken steps to reduce terminal manufacturing lead
time which reduces customers required lead time. These shorter
lead times eliminate the prior requirements for customers to book
 orders covering longer periods.

The Company includes in its backlog all revenue specified in
signed contracts and purchase orders to the extent that the
Company contemplates recognition of the related revenue within
one year. There can be no

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Special Note Concerning Forward Looking
Statements

This Transition Report on Form 10-K, including the Notes to
the Consolidated Financial Statements and in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains
forward-looking statements. Additional written or oral
forward-looking statements may be made by the Company from time
to time in filings with the Securities and Exchange Commission,
in its press releases, or otherwise. The words believe
expect, anticipate intends forecast,
project, and similar expressions identify
forward-looking statements. Such statements may include, but not
be limited to, the anticipated outcome of contingent events,
including litigation, projections of revenues, income or loss,
capital expenditures, plans for future operations, growth and
acquisitions, financing needs or plans and the availability of
financing, and plans relating to services of the Company, as well
 as assumptions relating to the foregoing. Such forward-looking
statements are within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended.

Forward-looking statements reflect the Companys current
views with respect to future events and financial performance and
 speak only as of the date the statements are made. Such
forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified.
Future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward
looking statements. Statements in this Annual Report, including
the Notes to the Consolidated Financial Statements and in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations, describe factors,
among others, that could contribute to or cause such differences.
 Additional factors that could cause actual results to differ
materially from those expressed in such forward looking
statements are set forth in Exhibit 99.1 which is attached
hereto and incorporated by reference into this Transition Report
on Form 10-K. In addition, new factors emerge from time to
time and it is not possible for management to predict all of such
 factors, nor can it assess the impact of each such factor on the
 business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from
forward-looking statements.

The Company undertakes no obligation to publicly update or review
 any forward looking statements, whether as a result of new
information, future events, or otherwise.

Quantitative and Qualitative Disclosures
About Market Risk

The Company is exposed to financial market risks, including
changes in interest rates and foreign currency exchange rates.
Nevertheless, the fair value of the Companys investment
portfolio or related income would not be significantly impacted
by either a 100 basis point increase or decrease in interest
rates, due primarily to the short-term nature of the major
portion of the Companys investment portfolio.

A substantial portion of the Companys revenue and capital
spending is transacted in U.S. dollars. However, the Company does
 at times enter into these transactions in other currencies, such
 as the Hong Kong dollar, Australian dollar, Brazilian Real and
other Asian and European currencies. No hedging transactions were
 entered into during the fiscal year ended June 30, 1999.
The Company has since established revenue and balance sheet
hedging programs to protect against reductions in value and cash
flow volatility caused by changes in foreign exchange rates. Such
 programs are intended to reduce market risks, but do not always
eliminate the impact of foreign currency exchange volatility.

The Company does not purchase or hold any such derivative
financial instruments for the purpose of speculation or
arbitrage. See information/discussion appearing in subcaption
Risks Associated with International Operations and Foreign
Currency Fluctuations of Cautionary Statement
Regarding Forward Looking Statements and Risk Factors set
forth in Exhibit 99.1 attached hereto.

20



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##### Table of Contents



The following summarizes outstanding foreign currency forward
contracts and their fair value as of December 31, 1999. Such
 forward contracts will settle through September 2000.

|                   |  |                |       |         |  |                |        |  |  |   |      |  
|------------------ |  | -------------- | ----- | ------- |  | -------------- | ------ |  |  | - | ---- | -
|                   |  | Notional       |       | Average |  | Fair          
|Contract           |  | Amount         |       | Rate    |  | Value         
|                   |  |                |       |         |  |               
|                   |  | (In thousands) |       |         |  | (In thousands)
|                  
|                  
|                  
|                  
|Brazilian Real     |  | $              | 3,056 |         |  | $              | 2.1350 |  |  | $ | (364 | )
|                  
|                  
|                  
|                  
|Austrailian Dollar |  |                | 750   |         |  |                | 0.6558 |  |  |   | (1   | )
|                  
|                  
|                  
|                  
|Argentine Peso     |  |                | 641   |         |  |                | 1.0395 |  |  |   | (21  | )




Item 8.  Financial Statements and
Supplementary Data

The financial statements and supplementary data required by
Regulation S-X are included in Part IV, Item 14 of this
 Transition Report on Form 10-K.






|        |                                                                                     
|------- | ------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreement with Accountants on Accounting
	and Financial Disclosure

Effective as of February 4, 2000, PricewaterhouseCoopers LLP
 (PWC) was dismissed as the independent accountants
of the Company. On February 9, 2000, the Company engaged
Ernst & Young LLP (E&Y) as its independent
accountants to audit the Companys consolidated financial
statements for the fiscal six months ended December 31,
1999. The decision to change independent accountants was approved
 by the Audit Committee of the Companys Board of Directors.

PWCs reports on the consolidated financial statements of
the Company as of June 30, 1999 and 1998 did not contain an
adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or
accounting principles.

During the Companys two most recent fiscal years ended
June 30, 1999 and 1998, and for the period from July 1,
 1999 through February 4, 2000, there were no disagreements
with PWC on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of PWC,
would have caused it to make reference to the subject matter of
the disagreement in connection with its report. In addition,
during the Companys two most recent fiscal years ended
June 30, 1999 and 1998, and for the period from July 1,
 1999 through February 4, 2000, there did not occur any kind
 of event listed in paragraphs (a)(1)(v)(A)
through (D) of Regulation S-K, Item 304.

In connection with the Companys engagement of E&Y as
its independent accountants for the fiscal six months ended
December 31, 1999, neither the Company nor any person acting
 on behalf of the Company, consulted E&Y regarding
(i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Companys financial
statements; or (ii) any matter that was either the subject
of a disagreement (as defined in paragraph (a)(1)
(iv) of Regulation S-K, Item 304, and the related
instructions) or a reportable event as described in
paragraph (a)(1) (v) of Regulation S-K,
Item 304.

21



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##### Table of Contents






PART III




Item 10.  Directors and Executive Officers
of the Registrant

a.  Identification of Directors: The information set forth
in the Companys 2000 Proxy Statement under the caption
Board of Directors is incorporated herein by
reference.

b.  Identification of Executive Officers: See Part I of
 this Form 10-K.

c.  Compliance with Section 16(a) of the Securities
Exchange Act of 1934: The information set forth in the
Companys 2000 Proxy Statement under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by reference.




Item 11.  Executive Compensation

The information set forth in the Companys 2000 Proxy
Statement under the caption Executive Compensation is
 incorporated herein by reference. The sections captioned
Report of the Compensation Committee on Executive
Compensation and Stock Price Performance Graph
in the Companys 2000 Proxy Statement are not incorporated
herein by reference.




Item 12.  Security Ownership of Certain
Beneficial Owners and Management

The information set forth in the Companys 2000 Proxy
Statement under the caption Security Ownership of Principal
 Stockholders and Management is incorporated herein by
reference.




Item 13.  Certain Relationships and Related
Transactions

The information set forth in the Companys 2000 Proxy
Statement under the caption Certain Transactions and
Relationships is incorporated herein by reference.

22



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##### Table of Contents






PART IV




Item 14.  Exhibits, Financial Statement
Schedules, and Reports on Form 8-K

a.  The following documents are filed as part of this
report:

|   |  |                                                                                                                                                                                                                                         |  |   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|1. |  | Consolidated Financial Statements of Hypercom Corporation                                                                                                                                                                               |  |   
|  
|  
|  
|  
|   |  | Report of Independent Auditors                                                                                                                                                                                                          |  | 25
|  
|  
|  
|  
|   |  | Report of Independent Accountants                                                                                                                                                                                                       |  | 26
|  
|  
|  
|  
|   |  | Consolidated Balance Sheets as of December 31, 1999,
	June  30, 1999 and June 30, 1998                                                                                                                                                  |  | 27
|  
|  
|  
|  
|   |  | Consolidated Statements of Income for the Six Months Ended
	December 31, 1999 and for the Years Ended June 30,
	1999, 1998 and 1997                                                                                                     |  | 28
|  
|  
|  
|  
|   |  | Consolidated Statements of Stockholders Equity for the Six
	Months Ended December 31, 1999 and for the Years Ended
	June 30, 1999, 1998 and 1997                                                                                       |  | 29
|  
|  
|  
|  
|   |  | Consolidated Statements of Cash Flows for the Six Months Ended
	December 31, 1999 and for the Years Ended June 30,
	1999, 1998 and 1997                                                                                                 |  | 30
|  
|  
|  
|  
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                              |  | 31
|  
|2. |  | Financial Statement Schedules                                                                                                                                                                                                           |  |   
|  
|  
|  
|  
|   |  | Report of Independent Accountants on Financial Statement Schedule                                                                                                                                                                       |  | 52
|   |  | Financial Statement Schedule:                                                                                                                                                                                                           |  |   
|  
|  
|  
|  
|   |  | Six Months Ended December 31, 1999 and Years Ended
	June 30, 1999, 1998 and   1997                                                                                                                                                      |  | 53
|   |  | All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are
inapplicable and therefore, have been omitted.

b.  The Company filed Form 8-Ks as follows:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | April 27, 1999, regarding the change in the Companys
	fiscal year end of June  30 to December 31.                        
|
| |  | December 20, 1999, regarding the agreement to acquire
	substantially all the assets of Golden Eagle LLC.                  
|
| |  | January 12, 2000, regarding the acquisition of Golden Eagle
	LLC.                                                         
|
| |  | February 10, 2000, regarding the change of independent
	accountants from PricewaterhouseCoopers LLP to Ernst & Young
	LLP.

c.  The Index to Exhibits and required Exhibits are included
 following the Financial Statement Schedule beginning on
Page 54 of this report.

23



---



##### Table of Contents






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.



| |                     
| | --------------------
| | Hypercom Corporation



| |    |                   
| | -- | ------------------
| | By | /s/ GEORGE WALLNER

| |                                      
| | -------------------------------------
| |                                      
| | George Wallner                       
| | President and Chief Executive Officer

Date: March 29, 2000

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 indicated on
March 29, 2000.

|                                                           |  |                                                                                    
|---------------------------------------------------------- |  | -----------------------------------------------------------------------------------
|Signature                                                  |  | Title                                                                              
|                                                           |  |                                                                                    
|(1) Principal Executive, Financial and Accounting Officers
|/s/ GEORGE WALLNERGeorge Wallner                           |  | President, Chief Executive Officer and Director                                    
|                                                          
|/s/ JONATHON E. KILLMERJonathon E. Killmer                 |  | Executive Vice President, Chief Financial Officer and Chief
	Administrative Officer
|                                                          
|(2) Directors                                              |  |                                                                                    
|                                                          
|/s/ ALBERT IRATOAlbert Irato                               |  | Chairman of the Board                                                              
|                                                          
|/s/ WILLIAM E. FISHERWilliam E. Fisher                     |  | Director                                                                           
|                                                          
|/s/ PETER J. HARTPeter J. Hart                             |  | Director                                                                           
|                                                          
|/s/ JOCK PATTONJock Patton                                 |  | Director                                                                           

24



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and



We have audited the accompanying consolidated balance sheet of
Hypercom Corporation as of December 31, 1999, and the
related consolidated statements of income, stockholders
equity, and cash flows for the six-month period ended
December 31, 1999. 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 auditing standards
generally accepted in the United States. 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 a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Hypercom Corporation as of
December 31, 1999, and the consolidated results of its
operations and its cash flows for the six month period ended
December 31, 1999, in conformity with accounting principles
generally accepted in the United States.



| |                  
| | -----------------
| | Ernst & Young LLP

Phoenix, Arizona



25



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and



In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, stockholders
 equity, and of cash flows present fairly, in all material
respects, the financial position of Hypercom Corporation and its
subsidiaries at June 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years
 in the period ended June 30, 1999, in conformity with
generally accepted accounting principles. 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 audits. We conducted our audits
 of these statements in accordance with generally accepted
auditing standards which 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, assessing the accounting
 principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.



| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP

Phoenix, Arizona



26



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##### Table of Contents



HYPERCOM CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |         |  
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------- | -------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                           |                                                                                                                                                                                     |                        |         |         
|                                           |                                                                                                                                                                                     |                        |         | June 30,
|                                           |                                                                                                                                                                                     | December 31,           |         |         
|                                           |                                                                                                                                                                                     | 1999                   |         | 1999     |   | 1998
|                                           |                                                                                                                                                                                     |                        |         |          |   |     
|                                           |                                                                                                                                                                                     |                       
|                                           |                                                                                                                                                                                     | (amounts in thousands)
|                                          
|                                          
|                                          
|                                          
|ASSETS                                     |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|                                          
|                                          
|                                          
|                                          
|Current assets:                            |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                                                                                                                                           |                        | $       | 26,093   |   |      | $       | 36,727  |   |   | $       | 55,659  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Marketable securities, at market                                                                                                                                                    |                        |         | 23,015   |   |      |         | 26,731  |   |   |         | 42,641  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net of allowance for doubtful accounts of
	$1,589, $3,082 and $3,729                                                                                           |                        |         | 57,370   |   |      |         | 52,589  |   |   |         | 43,989  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories, net                                                                                                                                                                    |                        |         | 72,897   |   |      |         | 57,482  |   |   |         | 60,539  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                                                                                                                                                               |                        |         | 10,972   |   |      |         | 11,430  |   |   |         | 10,991  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid taxes                                                                                                                                                                       |                        |         | 5,045    |   |      |         | 4,762   |   |   |         | 2,893   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses and other current assets                                                                                                                                           |                        |         | 17,344   |   |      |         | 11,894  |   |   |         | 7,173   |  
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|Total current assets                       |                                                                                                                                                                                     |                        | 212,736 |          |   |      | 201,615 |         |   |   | 223,885 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Property, plant and equipment, net                                                                                                                                                  |                        |         | 35,511   |   |      |         | 30,756  |   |   |         | 23,570  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Investment in equity affiliates                                                                                                                                                     |                        |         | 5,776    |   |      |         |        |   |   |         | 258     |  
|                                          
|                                          
|                                          
|                                          
|                                           | Long-term marketable securities, at market                                                                                                                                          |                        |         | 13,762   |   |      |         | 21,344  |   |   |         | 9,931   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                                                                                                                                                               |                        |         | 3,613    |   |      |         | 146     |   |   |         |        |  
|                                          
|                                          
|                                          
|                                          
|                                           | Goodwill, net of amortization of $1,062, $361 and $0                                                                                                                                |                        |         | 9,208    |   |      |         | 6,062   |   |   |         |        |  
|                                          
|                                          
|                                          
|                                          
|                                           | Intangible assets, net of amortization of $1,018, $361 and $0                                                                                                                       |                        |         | 5,693    |   |      |         | 4,886   |   |   |         |        |  
|                                          
|                                          
|                                          
|                                          
|                                           | Other assets                                                                                                                                                                        |                        |         | 11,478   |   |      |         | 11,471  |   |   |         | 1,933   |  
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|Total assets                               |                                                                                                                                                                                     | $                      | 297,777 |          |   | $    | 276,280 |         |   | $ | 259,577 |        
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                       |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                                                                                                                                                    |                        | $       | 28,538   |   |      | $       | 18,316  |   |   | $       | 17,134  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued liabilities                                                                                                                                                                 |                        |         | 19,379   |   |      |         | 14,599  |   |   |         | 16,537  |  
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred revenue                                                                                                                                                                    |                        |         | 4,770    |   |      |         | 3,824   |   |   |         | 608     |  
|                                          
|                                          
|                                          
|                                          
|                                           | Income taxes payable                                                                                                                                                                |                        |         | 2,180    |   |      |         | 2,234   |   |   |         | 2,209   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Current portion of long-term obligations                                                                                                                                            |                        |         | 878      |   |      |         | 490     |   |   |         | 598     |  
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|Total current liabilities                  |                                                                                                                                                                                     |                        | 55,745  |          |   |      | 39,463  |         |   |   | 37,086  |        
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                                                                                                                                                               |                        |         |         |   |      |         |        |   |   |         | 861     |  
|                                          
|                                          
|                                          
|                                          
|                                           | Long-term obligations                                                                                                                                                               |                        |         | 10,298   |   |      |         | 10,794  |   |   |         | 1,199   |  
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|Total liabilities                          |                                                                                                                                                                                     |                        | 66,043  |          |   |      | 50,257  |         |   |   | 39,146  |        
|                                          
|                                          
|                                          
|                                          
|Stockholders equity:                      |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock, $.001 par value; 100,000,000 shares authorized;
	33,234,525, 33,199,517 and 33,548,625 shares outstanding at
	December 31, 1999, June 30, 1999 and 1998, respectively |                        |         | 13       |   |      |         | 13      |   |   |         | 13      |  
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                                                                                                                                          |                        |         | 146,040  |   |      |         | 146,011 |   |   |         | 145,601 |  
|                                          
|                                          
|                                          
|                                          
|                                           | Receivables from stockholders                                                                                                                                                       |                        |         | (1,498   | ) |      |         | (1,498  | ) |   |         | (1,498  | )
|                                          
|                                          
|                                          
|                                          
|                                           | Retained earnings                                                                                                                                                                   |                        |         | 90,873   |   |      |         | 85,488  |   |   |         | 76,315  |  
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|                                           |                                                                                                                                                                                     |                        | 235,428 |          |   |      | 230,014 |         |   |   | 220,431 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Treasury stock, 360,141 and 394,649 shares (at cost) at
	December 31, 1999 and June 30, 1999, respectively                                                                          |                        |         | (3,694   | ) |      |         | (3,991  | ) |   |         |        |  
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|Total stockholders equity                 |                                                                                                                                                                                     |                        | 231,734 |          |   |      | 226,023 |         |   |   | 220,431 |        
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        
|Total liabilities and stockholders equity |                                                                                                                                                                                     | $                      | 297,777 |          |   | $    | 276,280 |         |   | $ | 259,577 |        
|                                           |                                                                                                                                                                                     |                        |         |          |   |      |         |         |   |   |         |        

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

27



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##### Table of Contents



HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |         | 
|-------------------------------- | -------------------------------------- | --------------------------------------------- | ------- | -------------------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                 |                                        |                                               |         |                     
|                                 |                                        | Six Months Ended                              |         | Years Ended June 30,
|                                 |                                        | December 31,                                  |         |                     
|                                 |                                        | 1999                                          |         | 1999                 |  | 1998 |         | 1997   
|                                 |                                        |                                               |         |                      |  |      |         |        
|                                 |                                        |                                              
|                                 |                                        | (amounts in thousands, except per share data)
|                                
|                                
|                                
|                                
|Net revenue                      |                                        | $                                             | 149,282 |                      |  | $    | 261,515 |         |  | $ | 257,227 |         |  | $ | 196,742 |        
|                                
|                                
|                                
|                                
|Costs and expenses:              |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|                                
|                                
|                                
|                                
|                                 | Costs of revenue                       |                                               |         | 81,177               |  |      |         | 141,831 |  |   |         | 130,475 |  |   |         | 103,672 | 
|                                
|                                
|                                
|                                
|                                 | Research and development               |                                               |         | 19,637               |  |      |         | 30,249  |  |   |         | 23,495  |  |   |         | 12,926  | 
|                                
|                                
|                                
|                                
|                                 | Selling, general and administrative    |                                               |         | 43,505               |  |      |         | 74,772  |  |   |         | 72,506  |  |   |         | 52,530  | 
|                                
|                                
|                                
|                                
|                                 | Non-cash compensation                  |                                               |         |                     |  |      |         |        |  |   |         | 10,963  |  |   |         | 4,784   | 
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|Total costs and expenses         |                                        |                                               | 144,319 |                      |  |      | 246,852 |         |  |   | 237,439 |         |  |   | 173,912 |        
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|Income from operations           |                                        |                                               | 4,963   |                      |  |      | 14,663  |         |  |   | 19,788  |         |  |   | 22,830  |        
|                                
|                                
|                                
|                                
|Interest and other income        |                                        |                                               | 2,355   |                      |  |      | 5,888   |         |  |   | 4,435   |         |  |   | 2,248   |        
|                                
|                                
|                                
|                                
|Interest and other expense       |                                        |                                               | (1,155  | )                    |  |      | (1,228  | )       |  |   | (2,155  | )       |  |   | (1,718  | )      
|                                
|                                
|                                
|                                
|Interest expense  related party |                                        |                                               |        |                      |  |      |        |         |  |   | (446    | )       |  |   | (422    | )      
|                                
|                                
|                                
|                                
|Foreign currency gain (loss)     |                                        |                                               | (392    | )                    |  |      | (6,757  | )       |  |   | (1,760  | )       |  |   | 445     |        
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|Income before income taxes       |                                        |                                               | 5,771   |                      |  |      | 12,566  |         |  |   | 19,862  |         |  |   | 23,383  |        
|                                
|                                
|                                
|                                
|Provision for income taxes       |                                        |                                               | (386    | )                    |  |      | (3,393  | )       |  |   | (5,873  | )       |  |   | (7,821  | )      
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|Net income                       |                                        | $                                             | 5,385   |                      |  | $    | 9,173   |         |  | $ | 13,989  |         |  | $ | 15,562  |        
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|Net income per share:            |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|                                
|                                
|                                
|                                
|                                 | Basic earnings per share               |                                               | $       | 0.16                 |  |      | $       | 0.28    |  |   | $       | 0.46    |  |   | $       | 0.62    | 
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|                                 | Weighted average basic common shares   |                                               |         | 33,232               |  |      |         | 33,148  |  |   |         | 30,215  |  |   |         | 25,000  | 
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|                                 | Diluted earnings per share             |                                               | $       | 0.16                 |  |      | $       | 0.27    |  |   | $       | 0.44    |  |   | $       | 0.60    | 
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        
|                                 | Weighted average diluted common shares |                                               |         | 34,446               |  |      |         | 34,428  |  |   |         | 31,830  |  |   |         | 25,754  | 
|                                 |                                        |                                               |         |                      |  |      |         |         |  |   |         |         |  |   |         |        

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

28



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##### Table of Contents



HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |        |        |        |   |   |        |        |  |   |        |        |   |   |         |         |  
|------------------------------- | ------------------------------------------- | ----------------------------------------- | ---------- | ---------- | - | ----------- | -- | ------------ |  | -------- | ------- | ------------ | - | ------ | ------ | ------ | - | - | ------ | ------ |  | - | ------ | ------ | - | - | ------- | ------- | -
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |             
|                                |                                             | Common Stock                              |            | Additional |   | Receivables |    |              |  |          |         | Total       
|                                |                                             |                                           |            | Paid-in    |   | from        |    | Retained     |  | Treasury |         | Stockholders
|                                |                                             | Shares                                    |            | Balance    |   | Capital     |    | Stockholders |  | Earnings |         | Stock        |   | Equity
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |       
|                                |                                             |                                          
|                                |                                             | (amounts in thousands, except share data)
|                               
|                               
|                               
|                               
|Balance as of June 30, 1996     |                                             |                                           | 25,000,000 |            |   | $           | 4  |              |  | $        | 425     |              |   | $      | (1,961 | )      |   | $ | 46,764 |        |  | $ |       |        |   | $ | 45,232  |        
|                               
|                               
|                               
|                               
|                                | Contributions from stockholders             |                                           |            |           |   |             |    |             |  |          |         | 540          |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 540     |  
|                               
|                               
|                               
|                               
|                                | Advances to stockholders                    |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        | (440   | ) |   |        |       |  |   |        |       |   |   |         | (440    | )
|                               
|                               
|                               
|                               
|                                | Net income                                  |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        |       |   |   |        | 15,562 |  |   |        |       |   |   |         | 15,562  |  
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |        |        |        |   |   |        |        |  |   |        |        |   |   |         |        
|Balance as of June 30, 1997     |                                             |                                           | 25,000,000 |            |   |             | 4  |              |  |          | 965     |              |   |        | (2,401 | )      |   |   | 62,326 |        |  |   |       |        |   |   | 60,894  |        
|                               
|                               
|                               
|                               
|                                | Issuance of common stock                    |                                           |            | 8,500,000  |   |             |    | 9            |  |          |         | 127,491      |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 127,500 |  
|                               
|                               
|                               
|                               
|                                | Costs of public offering                    |                                           |            |           |   |             |    |             |  |          |         | (1,768       | ) |        |        |       |   |   |        |       |  |   |        |       |   |   |         | (1,768  | )
|                               
|                               
|                               
|                               
|                                | Reclassification of redeemable common stock |                                           |            |           |   |             |    |             |  |          |         | 18,506       |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 18,506  |  
|                               
|                               
|                               
|                               
|                                | Exercise of options                         |                                           |            | 38,625     |   |             |    |             |  |          |         | 247          |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 247     |  
|                               
|                               
|                               
|                               
|                                | Payment of advances to stockholders         |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        | 2,276  |   |   |        |       |  |   |        |       |   |   |         | 2,276   |  
|                               
|                               
|                               
|                               
|                                | Advances to stockholders                    |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        | (1,373 | ) |   |        |       |  |   |        |       |   |   |         | (1,373  | )
|                               
|                               
|                               
|                               
|                                | Acquisition of investee                     |                                           |            | 10,000     |   |             |    |             |  |          |         | 160          |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 160     |  
|                               
|                               
|                               
|                               
|                                | Net income                                  |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        |       |   |   |        | 13,989 |  |   |        |       |   |   |         | 13,989  |  
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |        |        |        |   |   |        |        |  |   |        |        |   |   |         |        
|Balance as of June 30, 1998     |                                             |                                           | 33,548,625 |            |   |             | 13 |              |  |          | 145,601 |              |   |        | (1,498 | )      |   |   | 76,315 |        |  |   |       |        |   |   | 220,431 |        
|                               
|                               
|                               
|                               
|                                | Purchase of treasury stock                  |                                           |            | (587,700   | ) |             |    |             |  |          |         |             |   |        |        |       |   |   |        |       |  |   |        | (5,396 | ) |   |         | (5,396  | )
|                               
|                               
|                               
|                               
|                                | Issuance of common stock                    |                                           |            | 45,541     |   |             |    |             |  |          |         | 410          |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 410     |  
|                               
|                               
|                               
|                               
|                                | Issuance of treasury stock                  |                                           |            | 189,301    |   |             |    |             |  |          |         |             |   |        |        |       |   |   |        |       |  |   |        | 1,369  |   |   |         | 1,369   |  
|                               
|                               
|                               
|                               
|                                | Exercise of options                         |                                           |            | 3,750      |   |             |    |             |  |          |         |             |   |        |        |       |   |   |        |       |  |   |        | 36     |   |   |         | 36      |  
|                               
|                               
|                               
|                               
|                                | Net income                                  |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        |       |   |   |        | 9,173  |  |   |        |       |   |   |         | 9,173   |  
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |        |        |        |   |   |        |        |  |   |        |        |   |   |         |        
|Balance as of June 30, 1999     |                                             |                                           | 33,199,517 |            |   |             | 13 |              |  |          | 146,011 |              |   |        | (1,498 | )      |   |   | 85,488 |        |  |   | (3,991 | )      |   |   | 226,023 |        
|                               
|                               
|                               
|                               
|                                | Issuance of treasury stock                  |                                           |            | 34,508     |   |             |    |             |  |          |         | 24           |   |        |        |       |   |   |        |       |  |   |        | 297    |   |   |         | 321     |  
|                               
|                               
|                               
|                               
|                                | Exercise of options                         |                                           |            | 500        |   |             |    |             |  |          |         | 5            |   |        |        |       |   |   |        |       |  |   |        |       |   |   |         | 5       |  
|                               
|                               
|                               
|                               
|                                | Net income                                  |                                           |            |           |   |             |    |             |  |          |         |             |   |        |        |       |   |   |        | 5,385  |  |   |        |       |   |   |         | 5,385   |  
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |        |        |        |   |   |        |        |  |   |        |        |   |   |         |        
|Balance as of December 31, 1999 |                                             |                                           | 33,234,525 |            |   | $           | 13 |              |  | $        | 146,040 |              |   | $      | (1,498 | )      |   | $ | 90,873 |        |  | $ | (3,694 | )      |   | $ | 231,734 |        
|                                |                                             |                                           |            |            |   |             |    |              |  |          |         |              |   |        |        |        |   |   |        |        |  |   |        |        |   |   |         |        

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

29



---



##### Table of Contents



HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |         |        |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------- | ------- | -------------------- | ------ | ---- | ------- | -------- | ------- | - | ------ | -------- | ------- | - | ------ | ------- | ------ | -
|                                                                                             |                                                                            |                                                     |         |                     
|                                                                                             |                                                                            | Six Months Ended                                    |         | Years Ended June 30,
|                                                                                             |                                                                            | December 31,                                        |         |                     
|                                                                                             |                                                                            | 1999                                                |         | 1999                 |        | 1998 |         | 1997    
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |         
|                                                                                             |                                                                            |                                                    
|                                                                                             |                                                                            | (amounts in thousands)                             
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash flows from operating activities:                                                        |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Net income                                                                 |                                                     | $       | 5,385                |        |      | $       | 9,173    |         |   | $      | 13,989   |         |   | $      | 15,562  |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Adjustments to reconcile net income to net cash (used in)
	provided by operating activities: |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Non-cash compensation expense                                              |                                                     |         |                     |        |      |         |         |         |   |        | 10,963   |         |   |        | 4,784   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Depreciation/amortization                                                  |                                                     |         | 4,550                |        |      |         | 6,566    |         |   |        | 4,164    |         |   |        | 2,888   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Bad debt expense (credit)                                                  |                                                     |         | (24                  | )      |      |         | 1,386    |         |   |        | 2,972    |         |   |        | 1,427   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Provision (credit) for excess and obsolete inventory                       |                                                     |         | (281                 | )      |      |         | 2,925    |         |   |        | 2,510    |         |   |        | 994     |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Foreign currency (gain) loss                                               |                                                     |         | 392                  |        |      |         | 6,757    |         |   |        | 1,760    |         |   |        | (445    | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Deferred income tax benefit                                                |                                                     |         | (3,009               | )      |      |         | (1,446   | )       |   |        | (5,153   | )       |   |        | (2,948  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Other                                                                      |                                                     |         | 121                  |        |      |         |         |         |   |        | 134      |         |   |        | (231    | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|(Increase) decrease in:                                                                      |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Accounts receivable                                                        |                                                     |         | (6,694               | )      |      |         | (9,837   | )       |   |        | (16,102  | )       |   |        | (7,316  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Inventories                                                                |                                                     |         | (15,134              | )      |      |         | 4,940    |         |   |        | (6,617   | )       |   |        | (15,290 | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Prepaid taxes                                                              |                                                     |         | (283                 | )      |      |         | (1,932   | )       |   |        | 3,281    |         |   |        | (6,127  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Prepaid expenses and other current assets                                  |                                                     |         | (3,537               | )      |      |         | (4,567   | )       |   |        | (1,351   | )       |   |        | (2,715  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Other assets                                                               |                                                     |         | (567                 | )      |      |         | (6,767   | )       |   |        |         |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Increase (decrease) in:                                                                      |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Accounts payable                                                           |                                                     |         | 10,065               |        |      |         | (6,647   | )       |   |        | (5,272   | )       |   |        | 2,208   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Accrued liabilities                                                        |                                                     |         | 4,781                |        |      |         | (2,421   | )       |   |        | 2,625    |         |   |        | 5,930   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Deferred revenue                                                           |                                                     |         | 584                  |        |      |         | 3,216    |         |   |        | (7,782   | )       |   |        | 6,707   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Income taxes payable                                                       |                                                     |         | (54                  | )      |      |         | 25       |         |   |        | 150      |         |   |        | (2,163  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Other liabilities                                                          |                                                     |         |                     |        |      |         |         |         |   |        |         |         |   |        | (70     | )     
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                             |                                                                            | Net cash (used in) provided by operating activities |         |                      | (3,705 | )    |         |          | 1,371   |   |        |          | 271     |   |        |         | 3,195  |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash flows from investing activities:                                                        |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Advances to and investment in equity affiliates and related
	parties       |                                                     |         | (5,000               | )      |      |         |         |         |   |        |         |         |   |        | (518    | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Repayments from related parties                                            |                                                     |         |                     |        |      |         | 294      |         |   |        |         |         |   |        | 641     |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Notes receivable                                                           |                                                     |         |                     |        |      |         | (3,900   | )       |   |        |         |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Payments received on notes receivables                                     |                                                     |         | 563                  |        |      |         | 723      |         |   |        |         |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Acquisition of controlling interest in subsidiaries, net of cash
	acquired |                                                     |         | (3,600               | )      |      |         | (9,279   | )       |   |        | (500     | )       |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Acquisition of other assets                                                |                                                     |         | (1,510               | )      |      |         | (2,068   | )       |   |        |         |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Proceeds from disposal of property, plant and equipment                    |                                                     |         | 149                  |        |      |         | 438      |         |   |        | 120      |         |   |        | 1,260   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Purchase of property, plant and equipment                                  |                                                     |         | (8,969               | )      |      |         | (12,768  | )       |   |        | (10,023  | )       |   |        | (6,930  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Purchase of marketable securities                                          |                                                     |         | (18,567              | )      |      |         | (247,399 | )       |   |        | (242,164 | )       |   |        | (546    | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Proceeds from maturity of marketable securities                            |                                                     |         | 29,865               |        |      |         | 252,000  |         |   |        | 189,559  |         |   |        | 61      |       
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                             |                                                                            | Net cash used in investing activities               |         |                      | (7,069 | )    |         |          | (21,959 | ) |        |          | (63,008 | ) |        |         | (6,032 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash flows from financing activities:                                                        |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Proceeds of bank notes payable and other debt instruments                  |                                                     |         | 35,238               |        |      |         | 72,837   |         |   |        | 65,795   |         |   |        | 76,746  |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Repayment of bank notes payable and other debt instruments                 |                                                     |         | (35,346              | )      |      |         | (66,465  | )       |   |        | (89,266  | )       |   |        | (72,761 | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Advances to stockholders                                                   |                                                     |         |                     |        |      |         |         |         |   |        | (1,373   | )       |   |        | (530    | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Payment of advances to stockholders                                        |                                                     |         |                     |        |      |         |         |         |   |        | 2,276    |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Proceeds from issuance of common stock                                     |                                                     |         | 326                  |        |      |         | 746      |         |   |        | 127,747  |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Purchase of treasury stock                                                 |                                                     |         |                     |        |      |         | (5,396   | )       |   |        |         |         |   |        |        |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Contributions from stockholders                                            |                                                     |         |                     |        |      |         |         |         |   |        |         |         |   |        | 540     |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Stock offering costs                                                       |                                                     |         |                     |        |      |         |         |         |   |        | (1,768   | )       |   |        |        |       
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|                                                                                             |                                                                            | Net cash provided by financing activities           |         |                      | 218    |      |         |          | 1,722   |   |        |          | 103,411 |   |        |         | 3,995  |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Effect of exchange rate changes                                                              |                                                                            |                                                     | (78     | )                    |        |      | (66     | )        |         |   | (1,333 | )        |         |   | (953   | )      
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|Net (decrease) increase in cash                                                              |                                                                            |                                                     | (10,634 | )                    |        |      | (18,932 | )        |         |   | 39,341 |          |         |   | 205    |        
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash and equivalents, beginning of period                                                    |                                                                            |                                                     | 36,727  |                      |        |      | 55,659  |          |         |   | 16,318 |          |         |   | 16,113 |        
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        
|Cash and equivalents, end of period                                                          |                                                                            | $                                                   | 26,093  |                      |        | $    | 36,727  |          |         | $ | 55,659 |          |         | $ | 16,318 |        
|                                                                                             |                                                                            |                                                     |         |                      |        |      |         |          |         |   |        |          |         |   |        |        

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

30



---



##### Table of Contents



HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1999


1.  Description of Business

Hypercom Corporation (with its subsidiaries, the
Company) is a single-source global provider of
end-to-end electronic payment solutions, including card payment
terminals, peripherals, network products, software and e-commerce
 payment solutions that add value at the point-of-sale for
consumers, merchants and acquirers.

The U.S. operations, headquartered in Phoenix, Arizona, primarily
 consist of product development, manufacturing, sales and
marketing, distribution and customer service. The European
operations consist of product distribution through the
Companys sales and support offices located in the United
Kingdom, Russia, Sweden, and Hungary. Latin American operations
engage primarily in product distribution through the
Companys subsidiaries in Mexico, Brazil, Chile, Argentina
and Venezuela; however, certain manufacturing operations exist in
 Brazil. The Companys primary manufacturing is performed in
 China and is coordinated by the Hong Kong office. The Asia/
Pacific operations are also engaged in product development and
product distribution through the Companys subsidiaries or
business units in Singapore, Hong Kong, Japan and Australia.

2.  Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements are comprised of the
accounts of Hypercom Corporation and all subsidiaries in which a
controlling interest is held. All significant inter-company
balances and transactions have been eliminated.

Basis of Presentation

Effective July 1, 1999, the Company changed its fiscal year
from a twelve month period ending June 30, to a twelve month
 period ending December 31. The consolidated financial
statements include presentation of the transition period
beginning July 1, 1999 and ending on December 31, 1999.

The following table presents certain financial information for
the six months ended December 31, 1999 and 1998,
respectively (dollars in thousands, except per share amounts):

|                                         |  |                  |         |             |  |   |         | 
|---------------------------------------- |  | ---------------- | ------- | ----------- |  | - | ------- | 
|                                         |  |                 
|                                         |  | Six Months Ended
|                                         |  | December 31,    
|                                         |  |                 
|                                         |  | 1999             |         | 1998       
|                                         |  |                  |         |            
|                                         |  |                  |         | (unaudited)
|                                        
|                                        
|                                        
|                                        
|Revenues                                 |  | $                | 149,282 |             |  | $ | 136,577 | 
|                                        
|                                        
|                                        
|                                        
|Gross profit                             |  | $                | 68,105  |             |  | $ | 67,693  | 
|                                        
|                                        
|                                        
|                                        
|Income from operations before income tax |  | $                | 5,771   |             |  | $ | 17,912  | 
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |  | $                | 386     |             |  | $ | 5,553   | 
|                                        
|                                        
|                                        
|                                        
|Net income                               |  | $                | 5,385   |             |  | $ | 12,359  | 
|                                        
|                                        
|                                        
|                                        
|Diluted earnings per share               |  | $                | 0.16    |             |  | $ | 0.36    | 
|                                        
|                                        
|                                        
|                                        
|Weighted average common shares           |  |                  | 34,446  |             |  |   | 34,549  | 

Use 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.

31



---



##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Foreign Currency

The foreign subsidiaries and divisions use the U.S. dollar as the
 functional currency. Their local currency financial statements
are re-measured as follows: monetary assets and liabilities at
year-end exchange rates, and inventories, property and
non-monetary assets and liabilities at historical rates. During
the six month period ended December 31, 1999 and the years
ended June 30, 1999, 1998 and 1997, the Company recorded net
 gains (losses) on re-measurement of approximately $81,000,
($5,275,000), ($2,084,000) and $630,000, respectively. For the
same periods, the Company recorded net gains (losses) on
transactions denominated in foreign currencies of approximately
($473,000), ($1,482,000), $324,000 and ($185,000), respectively.
These amounts are included in the results of operations.

Cash and Cash Equivalents

The Company considers all investment instruments with an
remaining maturity of three months or less when purchased, to be
cash equivalents.

Marketable Securities

Management determines the appropriate classification of its
investments in tradable debt and equity securities at the time of
 purchase. Securities for which the Company does not have the
intent or ability to hold to maturity are classified as available
 for sale and are carried at fair value, with the unrealized
holding gain and losses, net of tax, reported in a separate
component of stockholders equity, if material. Cost is
determined based on specific identification. Securities
classified as available for sale include both securities due
within one year and securities with maturity dates beyond one
year. Securities with a maturity date within one year are
classified as Marketable Securities as a part of Current Assets.
Securities with a maturity date beyond one year are classified as
 Long-Term Marketable Securities.

Fair Value of Financial Instruments

The Company values financial instruments as required by Statement
 of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments(SFAS
No. 107). The carrying amounts of cash and cash
equivalents and bank notes payable approximate fair value due to
the short maturity of those instruments. The fair value of
marketable securities and long-term marketable securities is
determined based on quoted market prices. The fair value of
long-term obligations is estimated by discounting the future cash
 flows required under the terms of each respective debt agreement
 by current market rates for the same or similar issues of debt
with similar remaining maturities. The fair value of financial
hedge instruments are based on quotes from brokers using market
prices for those or similar instruments. The Corporation does not
 acquire, hold, or issue derivative financial instruments for
trading purposes. Derivative financial instruments are used to
manage foreign exchange and interest rate risks that arise out of
 the Companys core business activities. The Companys
only significant foreign currency contract is a six month forward
 contract for the Brazilian Real which matures on April 15,
2000 and is intended to partially hedge remeasurements of certain
 of the companys net foreign assets. The U.S. dollar amount
 of the contract is approximately $3 million. At
December 31, 1999, the total liability recorded under all
such contracts was approximately $418,000.

Inventories

Inventories are stated at the lower of standard cost or market.
Standard costs approximate first-in, first-out (FIFO)
 costs. Reserves for estimated excess and/or obsolete inventory
are established on a part level basis and netted against the
related inventory item.

32



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Investment in Equity Affiliates

The Company uses the equity method of accounting for restricted
share investments held in entities for which it holds greater
than 20% equity interest yet does not have financial control as
defined by SFAS No. 94. Under this method the Company will
record it proportionate share of the operating results of the
investee.

At December 31, 1999, the first such investment was made by
contribution of certain assets and intellectual property with a
net book value of $776,000 and through an advance of funds
totaling $5,000,000 to Cirilium Corporation.

The advance is in the form of a 8.5% note receivable due the
earlier of December 10, 2002, a qualifying initial public
offering, the sale of more than 50% of the voting stock of
Cirilium or the merger of Cirilium into another Corporation.
There is no proportionate share of operating results in Cirilium
as of December 31, 1999, as Cirilium effectively commenced
operations on January 3, 2000.

Capitalized Software

Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed(SFAS No. 86),
requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. The
 Companys historical product development process was such
that technological feasibility was established upon completion of
 a working model. Costs incurred between completion of the
working model and the point at which the product was ready for
initial shipment were not historically significant. Accordingly,
prior to fiscal year 1999 all software development costs were
expensed as incurred and included in research and development
costs. However, due to a change in certain software development
documentation during the fiscal year ended June 30, 1999,
certain software development costs required capitalization. The
amounts capitalized in the six month period ended
December 31, 1999 and in the year ended June 30, 1999,
were approximately $1.5 million and $2.0 million respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation
and amortization are provided on straight-line and accelerated
methods over the following useful lives:

|                        |  |             
|----------------------- |  | ------------
|                       
|                       
|                       
|                       
|Building                |  | 31.5 years  
|                       
|                       
|                       
|                       
|Machinery and equipment |  | 5-7 years   
|                       
|                       
|                       
|                       
|Furniture and fixtures  |  | 5-7 years   
|                       
|                       
|                       
|                       
|Vehicles                |  | 5 years     
|                       
|                       
|                       
|                       
|Leasehold improvements  |  | 2.5-15 years

Goodwill

Goodwill represents the excess of purchase price and related
costs over the fair value assigned to the net tangible and
identifiable intangible assets of businesses acquired, which is
being amortized on a straight-line basis over periods ranging
from 5 to 20 years.

Intangible assets

Intangible assets represent capitalized software costs, acquired
customer lists, work force and covenants not to compete, which
are being amortized on a straight-line basis over periods ranging
 from 3 to 7.5 years.

33



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income Taxes

Deferred tax assets and liabilities are recognized for the future
 tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax laws
(including rates) is recognized in income in the period that
includes the enactment date.

The Company does not provide for federal income taxes on the
undistributed earnings of its international subsidiaries because
earnings are reinvested and, in the opinion of management, will
continue to be reinvested indefinitely.

Revenue Recognition

The Company generally recognizes product revenue, including sales
 to distributors, upon shipment of product. Revenue from service
obligations is recognized over the lives of the contracts. The
Company accrues for warranty costs, sales returns and other
allowances at the time of shipment.

The Company has a contract in which it provides a warranty to the
 customer during the third party installation period. If the
product does not function properly during this period, the
Company is obligated to repair it. At initiation of this
contract, the Company recognized revenue at the end of the
installation period due to its lack of history with the customer
and contract, and resulting inability to estimate warranty costs.
 During the year ended June 30, 1999, the Company began
recognizing revenue upon shipment for this contract based on the
history provided by a large number of sales and its resulting
ability to accurately estimate such warranty costs. This change
resulted in incremental revenues of $4.4 million for the year
ended June 30, 1999. During the six-month period ended
December 31, 1999 and the fiscal year 1999, revenues
recognized under this contract totaled $4.2 million and $11.7
million respectively.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation,(SFAS No. 123) which defines a
 fair value based method of accounting for employee stock options
 or similar equity instruments. However, it also allows an entity
 to continue to account for these plans according to Accounting
Principles Board Opinion No. 25 (APB 25),
provided pro forma disclosures of net income are made as if the
fair value based method of accounting, defined by SFAS
No. 123, had been applied.

The Company has elected to continue to measure compensation
expense related to employee stock purchase options using
APB 25, and has provided the required pro forma disclosures.

Net Income Per Share

The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share
(SFAS No. 128) and the Securities and Exchange
Commission Staff Accounting Bulletin 98
(SAB 98) effective December 31, 1997. SFAS
No. 128 requires the presentation of basic and diluted
earnings per share (EPS). Basic EPS is computed by dividing
income available to common stockholders by the weighted average
number of common shares outstanding for the period.
Diluted EPS is computed giving effect to all dilutive
potential common shares that were outstanding during the period.
Dilutive potential common shares consist of the net incremental
common shares issuable upon the exercise of stock options.
SAB 98 does not affect the Companys
EPS calculations. All prior period earnings per share
amounts have been restated to comply with the SFAS No. 128.

34



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In accordance with the disclosure requirements of SFAS
No. 128, a reconciliation of the numerator and denominator
of basic and diluted EPS is provided as follows (in thousands,
except per share amounts):

|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|---------------------------------------------------- |  | ---------------- | ------ | -------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                     |  |                  |        |                     
|                                                     |  | Six Months Ended |        | Years Ended June 30,
|                                                     |  | December 31,     |        |                     
|                                                     |  | 1999             |        | 1999                 |  | 1998 |        | 1997
|                                                     |  |                  |        |                      |  |      |        |     
|Numerator  Basic and Diluted EPS:                   |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|                                                    
|                                                    
|                                                    
|                                                    
|Net income                                           |  | $                | 5,385  |                      |  | $    | 9,173  |      |  | $ | 13,989 |  |  | $ | 15,562 | 
|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|Denominator  Basic EPS:                             |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|                                                    
|                                                    
|                                                    
|                                                    
|Weighted average common shares outstanding           |  |                  | 33,232 |                      |  |      | 33,148 |      |  |   | 30,215 |  |  |   | 25,000 | 
|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|Basic earnings per share                             |  | $                | 0.16   |                      |  | $    | 0.28   |      |  | $ | 0.46   |  |  | $ | 0.62   | 
|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|Denominator  Diluted EPS:                           |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|                                                    
|                                                    
|                                                    
|                                                    
|Denominator  Basic EPS                              |  |                  | 33,232 |                      |  |      | 33,148 |      |  |   | 30,215 |  |  |   | 25,000 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Effect of dilutive securities  common stock options |  |                  | 1,214  |                      |  |      | 1,280  |      |  |   | 1,615  |  |  |   | 754    | 
|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|Weighted average diluted common shares outstanding   |  |                  | 34,446 |                      |  |      | 34,428 |      |  |   | 31,830 |  |  |   | 25,754 | 
|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted earnings per share                           |  | $                | 0.16   |                      |  | $    | 0.27   |      |  | $ | 0.44   |  |  | $ | 0.60   | 
|                                                     |  |                  |        |                      |  |      |        |      |  |   |        |  |  |   |        | 

Treasury Stock

In June 1998, the Board of Directors authorized the repurchase,
at managements discretion, of up to 1,000,000 shares of the
 Companys stock. Shares repurchased under this
authorization were used to offset dilution caused by the
Employees Stock Purchase Plan and Stock Option Plan. The
Companys repurchases of shares of common stock are recorded
 as treasury stock and result in a reduction of
stockholders equity. When treasury shares are issued, the
Company uses a first-in, first-out method and any excess of
repurchase costs over the reissue price is treated as a reduction
 of retained earnings.

Self-Insurance

The Company self-insures, with certain stop loss insurance
coverages, for short-term disability, life and employee
healthcare. Claims expense is recorded in the year of occurrence
through the accrual of claim reserves based on estimates of
ultimate claims costs. Claims incurred but not yet reported are
estimated and reserved for based on historical claims data.

Operating Segments

In June 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information
(SFAS No. 131), superseding SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise
(SFAS No. 14). SFAS No. 131 establishes
standards for the way public business enterprises report
information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial
statements. It also requires disclosures about products and
services, geographic areas and major customers. The Company
adopted SFAS No. 131 for the fiscal year ended June 30,
 1997, and has provided the required disclosures.

The accounting policies of the reportable segments are the same
as those used for the consolidated entity. Performance is
evaluated based on profit or loss from operations. Intersegment
sales and transfers are accounted for based on defined transfer
prices.

35



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Reclassification

Certain prior year amounts have been reclassified to conform with
 the current period presentation.

New Pronouncements

In June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. This
statement requires recognition of all derivatives as either
assets or liabilities on the balance sheet and measurement of
those instruments at fair value. Changes in fair value of
derivatives are recorded each period in current earnings or other
 comprehensive income (loss). The statement was originally
required to be adopted and is effective for all fiscal years
beginning after June 15, 2000. The Company is evaluating the
 effect SFAS No. 133 will have on its financial reporting
and disclosures as well as on its derivative and hedging
activities.

In December 1999, the Securities Exchange Commission issued Staff
 Accounting Bulletin (SAB) 101, Revenue Recognition in
Financial Statements. The effective date of SAB 101 for
the Company is the second fiscal quarter of the year ending
December 31, 2000. The Company is currently evaluating the
effect of this SAB on its financial statements.

In December 1998, SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain
Transactionswas issued. This SOP modified SOP 97-2 to
permit recognition of revenue for the delivered elements of a
contract when the vendor-specific objective evidence of fair
value exists for the undelivered elements of the contract. The
SOP was effective for transactions that are entered into in the
fiscal years beginning after March 15, 1999. The adoption of
 this SOP did not have a significant impact on the Companys
 financial statements.

3.  Concentrations of Credit and Other Risks

Financial Instruments

The Companys financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents, accounts receivable, marketable securities, and
long-term marketable securities.

The Companys cash and cash equivalents are in high quality
securities placed with major international banks and financial
institutions. The Company, in the normal course of business,
maintains balances in excess of the Federal Deposit Insurance
Corporations insurance limit. The balance in excess of the
insurance limit at December 31, 1999 and June 30, 1999
and 1998 was approximately $7.7 million, $1.5 million and $5.2
million, respectively. The Company also maintains balances in
foreign banks that are used for current operations of
subsidiaries located abroad. Foreign deposits that are uninsured
amounted to approximately $10.7 million, $12.5 million and $8.3
million as of December 31, 1999 and June 30, 1999 and
1998, respectively.

The Companys accounts receivable result primarily from
credit sales to a broad customer base, both nationally and
internationally. The Company routinely assesses the financial
strength of its customers, requiring letters of credit from
certain foreign customers, and provides an allowance for doubtful
 accounts as necessary.

Inventories

Most components used in the Companys systems are purchased
from outside sources. Certain components are purchased from
single suppliers. The failure of any such supplier to meet its
commitment on schedule could have a material adverse effect on
the Companys business, operating results and financial
condition. If a sole-source supplier were to go out of business
or otherwise become unable to meet its supply commitments, the
process of locating and qualifying alternate sources could
require up to several months,

36



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

during which time the Companys production could be delayed.
 Such delays could have a material adverse effect on the
Companys business, operating results and financial
condition.

The Company estimates inventory provisions for potentially excess
 and obsolete inventory on a part level basis based on forecasted
 demand. Actual demand may differ from such anticipated demand
and may have a material adverse effect on inventory valuation.

International Operations

The Companys international business is an important
contributor to the Companys net revenue and profits.
However, the majority of the Companys international sales
are denominated in the U.S. dollar, and an increase in the
value of the U.S. dollar relative to foreign currencies
could make products sold internationally less competitive. The
operating expenses of the Companys overseas offices are
paid in local currencies and are subject to the effects of
fluctuations in foreign currency exchange rates.

The Company conducts manufacturing operations in Brazil,
Australia, and China. Foreign manufacturing is subject to certain
 risks, including the imposition of tariffs and import and export
 controls, together with changes in governmental policies. The
occurrence of any of these events could have a material adverse
effect on the Companys business, operating results and
financial condition.

As of December 31, 1999, the Company maintained significant
accounts receivable balances in the Asia Pacific region, which
are subject to the economic risks inherent to that region.

4.  Marketable Securities

As of December 31, 1999 and as of June 30, 1999 and
1998, the difference between amortized cost and fair market value
 of the Companys marketable securities and long-term
marketable securities was not material. Accordingly, the Company
has not disclosed unrealized gains and losses. The Companys
 municipal bonds and corporate notes have maturities that range
from three months to two years. As of December 31, 1999 and
June 30, 1999 and 1998, marketable securities consist of the
 following (dollars in thousands):

|                                          |                                       |              |        |          |  |      |        |        |  |   |        |        | 
|----------------------------------------- | ------------------------------------- | ------------ | ------ | -------- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                          |                                       |              |        |         
|                                          |                                       |              |        | June 30,
|                                          |                                       | December 31, |        |         
|                                          |                                       | 1999         |        | 1999     |  | 1998
|                                          |                                       |              |        |          |  |     
|Municipal bonds and government securities |                                       | $            | 3,702  |          |  | $    | 8,053  |        |  | $ | 34,201 |       
|                                         
|                                         
|                                         
|                                         
|Corporate bonds                           |                                       |              | 5,554  |          |  |      | 8,443  |        |  |   | 6,671  |       
|                                         
|                                         
|                                         
|                                         
|Commercial paper                          |                                       |              | 10,843 |          |  |      | 10,235 |        |  |   |       |       
|                                         
|                                         
|                                         
|                                         
|Mutual funds                              |                                       |              | 2,916  |          |  |      |       |        |  |   | 1,769  |       
|                                          |                                       |              |        |          |  |      |        |        |  |   |        |       
|                                          | Total marketable securities           |              | $      | 23,015   |  |      | $      | 26,731 |  |   | $      | 42,641 | 
|                                          |                                       |              |        |          |  |      |        |        |  |   |        |       
|Municipal bonds and government securities |                                       |              | 7,903  |          |  |      | 13,070 |        |  |   | 3,740  |       
|                                         
|                                         
|                                         
|                                         
|Corporate bonds                           |                                       |              | 5,859  |          |  |      | 8,274  |        |  |   | 6,191  |       
|                                          |                                       |              |        |          |  |      |        |        |  |   |        |       
|                                          | Total long-term marketable securities |              | $      | 13,762   |  |      | $      | 21,344 |  |   | $      | 9,931  | 
|                                          |                                       |              |        |          |  |      |        |        |  |   |        |       

37



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.  Fair Value of Financial Instruments

A summary of carrying amounts and fair values as of
December 31, 1999, June 30, 1999 and 1998 are as
follows (dollars in thousands):

|                       |                                 |                   |   |               |  |               |   |            |  |          |   |            |  |  |   |        |  |  |   |        |  |  |   |        | 
|---------------------- | ------------------------------- | ----------------- | - | ------------- |  | ------------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                       |                                 |                   |   |               |  |              
|                       |                                 | December 31, 1999 |   | June 30, 1999 |  | June 30, 1998
|                       |                                 |                   |   |               |  |              
|                       |                                 | Carrying          |   | Estimated     |  | Carrying      |   | Estimated  |  | Carrying |   | Estimated 
|                       |                                 | Amount            |   | Fair Value    |  | Amount        |   | Fair Value |  | Amount   |   | Fair Value
|                       |                                 |                   |   |               |  |               |   |            |  |          |   |           
|Financial Assets:      |                                 |                   |   |               |  |               |   |            |  |          |   |            |  |  |   |        |  |  |   |        |  |  |   |       
|                      
|                      
|                      
|                      
|                       | Cash and cash equivalents       |                   | $ | 26,093        |  |               | $ | 26,093     |  |          | $ | 36,727     |  |  | $ | 36,727 |  |  | $ | 55,659 |  |  | $ | 55,659 | 
|                      
|                      
|                      
|                      
|                       | Marketable securities           |                   |   | 23,015        |  |               |   | 23,015     |  |          |   | 26,731     |  |  |   | 26,731 |  |  |   | 42,641 |  |  |   | 42,641 | 
|                      
|                      
|                      
|                      
|                       | Long-term marketable securities |                   |   | 13,762        |  |               |   | 13,762     |  |          |   | 21,344     |  |  |   | 21,344 |  |  |   | 9,931  |  |  |   | 9,931  | 
|                      
|                      
|                      
|                      
|Financial Liabilities: |                                 |                   |   |               |  |               |   |            |  |          |   |            |  |  |   |        |  |  |   |        |  |  |   |       
|                      
|                      
|                      
|                      
|                       | Long-term obligations           |                   |   | 11,176        |  |               |   | 11,176     |  |          |   | 11,284     |  |  |   | 11,284 |  |  |   | 1,797  |  |  |   | 1,822  | 

6.  Inventories

Inventories consist of the following (dollars in thousands):

|                |  |              |        |          |  |      |        |  |  |   |        | 
|--------------- |  | ------------ | ------ | -------- |  | ---- | ------ |  |  | - | ------ | 
|                |  |              |        |         
|                |  |              |        | June 30,
|                |  | December 31, |        |         
|                |  | 1999         |        | 1999     |  | 1998
|                |  |              |        |          |  |     
|Purchased parts |  | $            | 31,827 |          |  | $    | 20,308 |  |  | $ | 18,710 | 
|               
|               
|               
|               
|Work in process |  |              | 5,581  |          |  |      | 5,249  |  |  |   | 11,388 | 
|               
|               
|               
|               
|Finished goods  |  |              | 35,489 |          |  |      | 31,925 |  |  |   | 30,441 | 
|                |  |              |        |          |  |      |        |  |  |   |        | 
|                |  | $            | 72,897 |          |  | $    | 57,482 |  |  | $ | 60,539 | 
|                |  |              |        |          |  |      |        |  |  |   |        | 

7.  Property, Plant and Equipment

Property, plant and equipment consist of the following (dollars
in thousands):

|                              |  |              |         |          |  |      |         |   |  |   |        |  
|----------------------------- |  | ------------ | ------- | -------- |  | ---- | ------- | - |  | - | ------ | -
|                              |  |              |         |         
|                              |  |              |         | June 30,
|                              |  | December 31, |         |         
|                              |  | 1999         |         | 1999     |  | 1998
|                              |  |              |         |          |  |     
|Land and improvements         |  | $            | 4,701   |          |  | $    | 4,664   |   |  | $ | 4,264  |  
|                             
|                             
|                             
|                             
|Building                      |  |              | 14,637  |          |  |      | 10,791  |   |  |   | 6,027  |  
|                             
|                             
|                             
|                             
|Machinery and equipment       |  |              | 24,100  |          |  |      | 22,721  |   |  |   | 17,022 |  
|                             
|                             
|                             
|                             
|Furniture and fixtures        |  |              | 5,607   |          |  |      | 4,224   |   |  |   | 2,826  |  
|                             
|                             
|                             
|                             
|Vehicles                      |  |              | 1,255   |          |  |      | 1,142   |   |  |   | 1,096  |  
|                             
|                             
|                             
|                             
|Leasehold improvements        |  |              | 1,786   |          |  |      | 1,710   |   |  |   | 1,617  |  
|                              |  |              |         |          |  |      |         |   |  |   |        |  
|                              |  |              | 52,086  |          |  |      | 45,252  |   |  |   | 32,852 |  
|                             
|                             
|                             
|                             
|Less accumulated depreciation |  |              | (16,575 | )        |  |      | (14,496 | ) |  |   | (9,282 | )
|                              |  |              |         |          |  |      |         |   |  |   |        |  
|                              |  | $            | 35,511  |          |  | $    | 30,756  |   |  | $ | 23,570 |  
|                              |  |              |         |          |  |      |         |   |  |   |        |  

38



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.  Long-term Obligations

Long-term obligations consist of the following (dollars in
thousands):

|                                                                                                                                                                                                                               |  |              |        |          |  |      |        |   |  |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | -------- |  | ---- | ------ | - |  | - | ----- | -
|                                                                                                                                                                                                                               |  |              |        |         
|                                                                                                                                                                                                                               |  |              |        | June 30,
|                                                                                                                                                                                                                               |  | December 31, |        |         
|                                                                                                                                                                                                                               |  | 1999         |        | 1999     |  | 1998
|                                                                                                                                                                                                                               |  |              |        |          |  |     
|Floating Rate Option note payable to Bank One, Arizona; payable
	in semi-annual installments plus interest at a variable rate, due
	 April 1, 2019; collateralized by unconditional,
	irrevocable, direct pay letter of credit |  | $            | 10,086 |          |  | $    | 10,220 |   |  | $ |      |  
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Capital leases                                                                                                                                                                                                                 |  |              | 744    |          |  |      | 658    |   |  |   | 825   |  
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Other                                                                                                                                                                                                                          |  |              | 346    |          |  |      | 406    |   |  |   | 972   |  
|                                                                                                                                                                                                                               |  |              |        |          |  |      |        |   |  |   |       |  
|                                                                                                                                                                                                                               |  |              | 11,176 |          |  |      | 11,284 |   |  |   | 1,797 |  
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Current portion of long-term obligations                                                                                                                                                                                       |  |              | (878   | )        |  |      | (490   | ) |  |   | (598  | )
|                                                                                                                                                                                                                               |  |              |        |          |  |      |        |   |  |   |       |  
|                                                                                                                                                                                                                               |  | $            | 10,298 |          |  | $    | 10,794 |   |  | $ | 1,199 |  
|                                                                                                                                                                                                                               |  |              |        |          |  |      |        |   |  |   |       |  

In connection with the floating rate option note, the letter of
credit is subject to renewal on April 1, 2006. If the letter
 of credit is not renewed, the entire remaining principal balance
 will become due and payable. The letter of credit is
collateralized by land and buildings. The Company is required to
make increasing monthly deposits of $18,490 up to $81,752 over
the life of the note into a sinking fund to provide periodic
repayment of the notes. The Company has entered into an interest
rate swap agreement to fix the effective interest rate at 7.895%.
 The interest rate swap agreement matures at the time the related
 note matures. The Company is exposed to credit loss in the event
 of non-performance by the other parties to the interest rate
swap agreement. However, the Company does not anticipate
nonperformance by the counter-parties.

The Company has a $10.0 million revolving line of credit
agreement with Bank One, Arizona. Under the terms of the
agreement, the Company may borrow up to an amount equal to 80% of
 its accounts receivable under ninety days past due and 35% of
its raw material (purchased parts) and finished goods inventory.
There was no outstanding balance as of December 31, 1999.

At December 31, 1999, the Company had a $5 million
letter of credit facility with Bank One, Hong Kong used to
collateralize certain obligations to third parties for the
purchase of inventory. The letters of credit drawn on this
facility have a term of 180 days and bear interest at the
banks prime rate. The facility itself terminates on
December 31, 2001. There were no letters of credit
outstanding on this facility as of December 31, 1999.

The loan agreements relating to the floating rate option notes
and line of credit with Bank One, Arizona, NA impose various
restrictions on the Company, including the prohibitions of
declaring or paying dividends, limitations on the incurrence of
additional debt, liens, or encumbrances and restricting the
Companys ability to consolidate or merge into any other
entity. In addition, the loan agreements contain certain
financial covenants, including a minimum current ratio, minimum
working capital, minimum tangible net worth, and minimum
owners equity and debt coverage ratios.

39



---



##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The aggregate principal payments due on long-term obligations are
 as follows (dollars in thousands):

|                          |  |   |        | 
|------------------------- |  | - | ------ | 
|Years Ending December 31, |  |  
|                          |  |  
|2000                      |  | $ | 878    | 
|                         
|                         
|                         
|                         
|2001                      |  |   | 423    | 
|                         
|                         
|                         
|                         
|2002                      |  |   | 378    | 
|                         
|                         
|                         
|                         
|2003                      |  |   | 346    | 
|                         
|                         
|                         
|                         
|2004                      |  |   | 341    | 
|                         
|                         
|                         
|                         
|Thereafter                |  |   | 8,810  | 
|                          |  |   |        | 
|                          |  | $ | 11,176 | 
|                          |  |   |        | 

9.  Income Taxes

Income before income taxes consists of the following (dollars in
thousands):

|                                   |               |              |       |          |   |      |        |        |   |   |        |        |   |   |        |        | 
|---------------------------------- | ------------- | ------------ | ----- | -------- | - | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | 
|                                   |               |              |       |         
|                                   |               |              |       | June 30,
|                                   |               | December 31, |       |         
|                                   |               | 1999         |       | 1999     |   | 1998 |        | 1997  
|                                   |               |              |       |          |   |      |        |       
|Income (loss) before income taxes: |               |              |       |          |   |      |        |        |   |   |        |        |   |   |        |       
|                                  
|                                  
|                                  
|                                  
|                                   | United States |              | $     | (2,482   | ) |      | $      | 13,702 |   |   | $      | 21,149 |   |   | $      | 13,621 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Foreign       |              |       | 8,253    |   |      |        | (1,136 | ) |   |        | (1,287 | ) |   |        | 9,762  | 
|                                   |               |              |       |          |   |      |        |        |   |   |        |        |   |   |        |       
|                                   |               | $            | 5,771 |          |   | $    | 12,566 |        |   | $ | 19,862 |        |   | $ | 23,383 |       
|                                   |               |              |       |          |   |      |        |        |   |   |        |        |   |   |        |       

The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows (dollars in thousands):

|                                                |                                  |                                                    |   |          |        |      |   |        |        |  |   |        |        |  
|----------------------------------------------- | -------------------------------- | -------------------------------------------------- | - | -------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | -
|                                                |                                  |                                                    |   |         
|                                                |                                  |                                                    |   | June 30,
|                                                |                                  | December 31,                                       |   |         
|                                                |                                  | 1999                                               |   | 1999     |        | 1998
|                                                |                                  |                                                    |   |          |        |     
|Deferred tax assets, current:                   |                                  |                                                    |   |          |        |      |   |        |        |  |   |       
|                                               
|                                               
|                                               
|                                               
|                                                | Inventory valuation and reserves |                                                    | $ | 2,196    |        |      | $ | 2,471  |        |  | $ | 2,948  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Compensation accruals            |                                                    |   | 7,599    |        |      |   | 7,437  |        |  |   | 7,268  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Allowance for doubtful accounts  |                                                    |   | 195      |        |      |   | 662    |        |  |   |       |       
|                                               
|                                               
|                                               
|                                               
|                                                | Other                            |                                                    |   | 982      |        |      |   | 860    |        |  |   | 775    |       
|                                                |                                  |                                                    |   |          |        |      |   |        |        |  |   |       
|                                                |                                  | Deferred tax assets, current                       |   | $        | 10,972 |      |   | $      | 11,430 |  |   | $      | 10,991 |  
|                                                |                                  |                                                    |   |          |        |      |   |        |        |  |   |       
|Deferred tax assets (liabilities), non-current: |                                  |                                                    |   |          |        |      |   |        |        |  |   |       
|                                               
|                                               
|                                               
|                                               
|                                                | Tax loss carry forwards          |                                                    | $ | 4,772    |        |      | $ | 2,384  |        |  | $ | 1,004  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Property, plant and equipment    |                                                    |   | (874     | )      |      |   | (1,035 | )      |  |   | (747   | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Other                            |                                                    |   | (285     | )      |      |   | (1,203 | )      |  |   | (1,118 | )     
|                                                |                                  |                                                    |   |          |        |      |   |        |        |  |   |       
|                                                |                                  | Net deferred tax assets (liabilities), non-current |   | $        | 3,613  |      |   | $      | 146    |  |   | $      | (861   | )
|                                                |                                  |                                                    |   |          |        |      |   |        |        |  |   |       

40



---



##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of income tax expense are as follows (dollars in
thousands):

|          |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |        |  
|--------- | ------- | ------------ | ------ | -------- | - | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|          |         |              |        |         
|          |         |              |        | June 30,
|          |         | December 31, |        |         
|          |         | 1999         |        | 1999     |   | 1998 |        | 1997  
|          |         |              |        |          |   |      |        |       
|Current:  |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |       
|         
|         
|         
|         
|          | Federal |              | $      |         |   |      | $      | 3,584  |   |   | $      | 8,473  |   |   | $      | 6,904  |  
|         
|         
|         
|         
|          | State   |              |        | 12       |   |      |        | 277    |   |   |        | 1,239  |   |   |        | 1,227  |  
|         
|         
|         
|         
|          | Foreign |              |        | 3,383    |   |      |        | 978    |   |   |        | 1,314  |   |   |        | 2,638  |  
|          |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |       
|          |         |              | 3,395  |          |   |      | 4,839  |        |   |   | 11,026 |        |   |   | 10,769 |       
|         
|         
|         
|         
|Deferred: |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |       
|         
|         
|         
|         
|          | Federal |              |        | (1,503   | ) |      |        | (35    | ) |   |        | (3,810 | ) |   |        | (2,601 | )
|         
|         
|         
|         
|          | State   |              |        | (250     | ) |      |        | (5     | ) |   |        | (653   | ) |   |        | (446   | )
|         
|         
|         
|         
|          | Foreign |              |        | (1,256   | ) |      |        | (1,406 | ) |   |        | (690   | ) |   |        | 99     |  
|          |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |       
|          |         |              | (3,009 | )        |   |      | (1,446 | )      |   |   | (5,153 | )      |   |   | (2,948 | )     
|          |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |       
|          |         | $            | 386    |          |   | $    | 3,393  |        |   | $ | 5,873  |        |   | $ | 7,821  |       
|          |         |              |        |          |   |      |        |        |   |   |        |        |   |   |        |       

Consolidated income tax expense differed from the amount computed
 by applying the U.S. federal income tax rate to income taxes
before income as shown below:

|                                                                                   |  |              |       |          |  |      |      |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ----- | -------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                                   |  |              |       |         
|                                                                                   |  |              |       | June 30,
|                                                                                   |  | December 31, |       |         
|                                                                                   |  | 1999         |       | 1999     |  | 1998 |      | 1997
|                                                                                   |  |              |       |          |  |      |      |     
|Tax expense at the federal statutory rate                                          |  |              | 35.0  | %        |  |      | 35.0 | %    |  |  | 35.0 | % |  |  | 35.0 | %
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|State income taxes (benefit), net of federal income tax effect                     |  |              | (2.7  | )        |  |      | 1.4  |      |  |  | 4.1  |   |  |  | 3.4  |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Foreign taxes attributable to foreign operations less than
	federal statutory rate |  |              | (13.2 | )        |  |      | (3.2 | )    |  |  | (2.5 | ) |  |  | (3.3 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Research and experimentation credit                                                |  |              | (12.4 | )        |  |      | (9.0 | )    |  |  | (4.5 | ) |  |  | (2.1 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Foreign sales corporation                                                          |  |              |      |          |  |      | (2.2 | )    |  |  | (7.0 | ) |  |  | (2.7 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Tax exempt interest                                                                |  |              | (0.5  | )        |  |      | (3.5 | )    |  |  | (1.4 | ) |  |  |      |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Translation loss                                                                   |  |              |      |          |  |      | 11.8 |      |  |  | 9.1  |   |  |  |      |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Other                                                                              |  |              | 0.5   |          |  |      | (3.4 | )    |  |  | (3.2 | ) |  |  | 3.1  |  
|                                                                                   |  |              |       |          |  |      |      |      |  |  |      |   |  |  |      |  
|Effective tax rate                                                                 |  |              | 6.7   | %        |  |      | 26.9 | %    |  |  | 29.6 | % |  |  | 33.4 | %
|                                                                                   |  |              |       |          |  |      |      |      |  |  |      |   |  |  |      |  

As of December 31, 1999 and June 30, 1999, 1998 and
1997, the Company had not provided deferred income tax benefits
on cumulative losses of individual international subsidiaries of
$28,108,000, $29,200,000, $5,620,000 and $2,109,000,
respectively. If deferred income tax assets were recognized for
these net operating losses, they would be approximately
$5,622,000, $7,855,000, $1,663,000 and $704,000 respectively.
Upon distribution of earnings in the form of dividends or
otherwise, the Company may be subject to both U.S. income taxes
and withholding taxes in its various international jurisdictions.

As a result of certain employment actions and capital investments
 undertaken by Hypercom, income from manufacturing activities in
certain countries is subject to reduced tax rates, and in some
cases is wholly exempt from taxes, for years through 2005.

10.  Profit Sharing Plans

The Company has a 401(k) profit sharing plan, which commenced in
fiscal 1998, covering all eligible full-time employees of the
Company. Contributions to the 401(k) plan are made by the
participants to their individual accounts through payroll
withholding. Additionally, the plan provides for the Company to
make

41



---



##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

profit sharing contributions to the plan in amounts at the
discretion of management. The employer contribution for the
six-month period ended December 31, 1999, and the years
ended June 30, 1999 and 1998 was approximately $439,000,
$867,000 and $36,000, respectively.

Beginning with fiscal year 1999, the Company has paid a matching
contribution each pay period of 50% of the employees
contributions, up to 6% of employees compensation, to the
Federal limit of $10,000 per calendar year.

11. Stockholders Equity

Stock Splits

On November 25, 1996, the Company declared a 10,000-for-1
stock split, effected in the form of a stock dividend. On
September 10, 1997, the Company declared a 5-for-4 stock
split, effected in the form of a stock dividend. All references
to the number of common shares outstanding, common shares
reserved for issuance under the Plan, and per share information
have been adjusted to reflect the stock splits on a retroactive
basis.

Stock Options and Non-cash Compensation

In connection with an officers employment agreement (the
Agreement), as amended, the Company provided for
stock options to be granted to an officer equal to 1.0% of the
outstanding common shares of the Company as of June 30,
1992, 1993 and 1994 with exercise prices equal to the fair market
 values defined by a net income formula in the Agreement
(Defined Fair Market Value) at the respective dates.
The options are exercisable as of July 1, 1995, 1996 and
1997, respectively, and remain exercisable for 10 years from
these dates. The Agreement also provides for additional stock
options immediately exercisable to purchase 1.0% of the
outstanding common stock of the Company on January 1, 1994
and 1995 with an exercise price equal to the Defined Fair Market
Value as of the respective dates; the options remain exercisable
for 10 years. In accordance with variable plan accounting,
compensation expense of $10,963,000, and $4,784,000 was
recognized for the years ended June 30, 1998 and 1997,
respectively. No compensation expense was recognized for the year
 ended June 30, 1999 or the six month period ended
December 31, 1999.

Prior to the completion of the Companys IPO, the Agreement
required the Company to purchase all or part of any shares then
owned by the officer under certain circumstances. The purchase
obligation terminated at the completion of the Companys IPO
 in November 1997. No compensation expense related to the options
 was recognized after that date. Since the Company was obligated
to repurchase the officers shares, the estimated value of
the shares was recorded as redeemable common stock. Upon
termination of the obligation, this amount was reclassified to
additional paid-in capital.

During fiscal 1997, the Companys board of directors
approved the Hypercom Corporation Long-Term Incentive Plan (the
Plan) which allocates 5,000,000 shares of common
stock for issuance at the Companys discretion. The Plan
authorizes issuance of incentive stock options (as
defined by the Internal Revenue Code of 1986), non-qualified
stock options, stock appreciation rights, restricted stock
awards, performance share awards, dividend equivalent awards and
other stock-based awards. Stock options issued under the Plan
become exercisable over a period determined by the Board of
Directors (generally over five years) and expire ten years after
the date of grant.

42



---



##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the Companys stock option activity and related
 information follows:

|                              |           |                   |           |           |   |                      |      |           |  |         |           |           |   |         |      |           |  |  |           |         |   |   |      |      |  |  |           |           |  |   |      |      | 
|----------------------------- | --------- | ----------------- | --------- | --------- | - | -------------------- | ---- | --------- |  | ------- | --------- | --------- | - | ------- | ---- | --------- |  |  | --------- | ------- | - | - | ---- | ---- |  |  | --------- | --------- |  | - | ---- | ---- | 
|                              |           |                   |           |           |   |                     
|                              |           |                   |           |           |   | Years Ended June 30,
|                              |           |                   |           |          
|                              |           | Six Months Ended  |           |           |   |                      |      |          
|                              |           | December 31, 1999 |           | 1999      |   | 1998                 |      | 1997     
|                              |           |                   |           |           |   |                      |      |          
|                              |           |                   |           | Weighted  |   |                      |      | Weighted  |  |         |           | Weighted  |   |         |      | Weighted 
|                              |           | Shares            |           | Average   |   | Shares               |      | Average   |  | Shares  |           | Average   |   | Shares  |      | Average  
|                              |           | under             |           | Exercised |   | under                |      | Exercised |  | under   |           | Exercised |   | under   |      | Exercised
|                              |           | Options           |           | Price     |   | Options              |      | Price     |  | Options |           | Price     |   | Options |      | Price    
|                              |           |                   |           |           |   |                      |      |           |  |         |           |           |   |         |      |          
|Beginning balance outstanding |           |                   | 5,084,679 |           |   | $                    | 6.96 |           |  |         | 3,745,875 |           |   | $       | 5.83 |           |  |  | 2,943,750 |         |   | $ | 4.75 |      |  |  | 1,030,000 |           |  | $ | 1.62 |     
|                             
|                             
|                             
|                             
|                              | Granted   |                   |           | 969,780   |   |                      |      | 9.21      |  |         |           | 1,520,304 |   |         |      | 9.98      |  |  |           | 860,750 |   |   |      | 9.65 |  |  |           | 1,913,750 |  |   |      | 6.43 | 
|                             
|                             
|                             
|                             
|                              | Exercised |                   |           | (500      | ) |                      |      | 9.60      |  |         |           | (3,750    | ) |         |      | 9.60      |  |  |           | (38,625 | ) |   |      | 6.40 |  |  |           |           |  |   |      |      | 
|                             
|                             
|                             
|                             
|                              | Forfeited |                   |           | (414,275  | ) |                      |      | 8.96      |  |         |           | (177,750  | ) |         |      | 9.12      |  |  |           | (20,000 | ) |   |      | 9.60 |  |  |           |           |  |   |      |      | 
|                              |           |                   |           |           |   |                      |      |           |  |         |           |           |   |         |      |           |  |  |           |         |   |   |      |      |  |  |           |           |  |   |      |     
|Ending balance outstanding    |           |                   | 5,639,684 |           |   | $                    | 7.14 |           |  |         | 5,084,679 |           |   | $       | 6.96 |           |  |  | 3,745,875 |         |   | $ | 5.83 |      |  |  | 2,943,750 |           |  | $ | 4.75 |     
|                              |           |                   |           |           |   |                      |      |           |  |         |           |           |   |         |      |           |  |  |           |         |   |   |      |      |  |  |           |           |  |   |      |     
|Exercisable at end of year    |           |                   | 2,503,150 |           |   | $                    | 4.92 |           |  |         | 2,179,971 |           |   | $       | 4.41 |           |  |  | 1,917,125 |         |   | $ | 3.84 |      |  |  | 1,436,250 |           |  | $ | 3.77 |     
|                              |           |                   |           |           |   |                      |      |           |  |         |           |           |   |         |      |           |  |  |           |         |   |   |      |      |  |  |           |           |  |   |      |     

The following table summarizes additional information about the
Companys stock options outstanding as of December 31,
1999:

|                |                |                     |  |                     |           |          |  |         |     |          |  |   |       |  |  |  |           |  |  |   |       | 
|--------------- | -------------- | ------------------- |  | ------------------- | --------- | -------- |  | ------- | --- | -------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |                |                     |  |                    
|                |                | Options Outstanding |  | Options Exercisable
|                |                |                     |  |                    
|                |                |                     |  | Weighted            |           | Weighted |  |         |     | Weighted
|                |                | Shares              |  | Average             |           | Average  |  | Shares  |     | Average 
|Range of        |                | under               |  | Remaining           |           | Exercise |  | under   |     | Exercise
|Exercise Prices |                | Options             |  | Contractual         |           | Price    |  | Options |     | Price   
|                |                |                     |  |                     |           |          |  |         |     |         
|                | $0.66  2.66   |                     |  |                     | 1,030,000 |          |  |         | 3.0 |          |  | $ | 1.62  |  |  |  | 1,030,000 |  |  | $ | 1.62  | 
|                | $5.00  8.375  |                     |  |                     | 2,171,625 |          |  |         | 6.6 |          |  |   | 6.58  |  |  |  | 1,130,126 |  |  |   | 6.41  | 
|                | $8.50  12.80  |                     |  |                     | 2,436,659 |          |  |         | 9.8 |          |  |   | 9.97  |  |  |  | 341,624   |  |  |   | 9.85  | 
|                | $15.88  18.00 |                     |  |                     | 1,400     |          |  |         | 8.1 |          |  |   | 17.39 |  |  |  | 1,400     |  |  |   | 17.39 | 
|                |                |                     |  |                     |           |          |  |         |     |          |  |   |       |  |  |  |           |  |  |   |       | 
|                |                |                     |  |                     | 5,639,684 |          |  |         |     |          |  |   |       |  |  |  | 2,503,150 |  |  |   |       | 
|                |                |                     |  |                     |           |          |  |         |     |          |  |   |       |  |  |  |           |  |  |   |       | 

The weighted average fair value of options granted in fiscal
years ended June 30, 1997, 1998, 1999 and the six months
ended December 31, 1999 was $4.74, $5.85, $6.92 and $7.05,
respectively.

Pro forma information regarding net income and net income per
share is required by SFAS No. 123, and has been determined
as if the Company had accounted for its stock option plans under
the fair value based method of that Statement.

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes valuation method with the following
 assumptions: risk free interest rates of 6.50%; an average
expected time to exercise of five years; expected volatility of
80%; and no dividends.

For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options
vesting period. The pro forma information for the six months
ended December 31, 1999 and the years ended June 30,
1999 and 1998 follows (dollars in thousands except for net income
 per share information):

|                                         |  |              |       |                      |  |      |       |      |  |   |        |  |  |   |        | 
|---------------------------------------- |  | ------------ | ----- | -------------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                                         |  | Six Months   |       |                     
|                                         |  | Ended        |       | Years Ended June 30,
|                                         |  | December 31, |       |                     
|                                         |  | 1999         |       | 1999                 |  | 1998 |       | 1997
|                                         |  |              |       |                      |  |      |       |     
|Pro forma net income                     |  | $            | 3,462 |                      |  | $    | 7,078 |      |  | $ | 11,713 |  |  | $ | 14,834 | 
|                                        
|                                        
|                                        
|                                        
|Pro forma net income per share  basic   |  |              | 0.10  |                      |  |      | 0.21  |      |  |   | 0.39   |  |  |   | 0.59   | 
|                                        
|                                        
|                                        
|                                        
|Pro forma net income per share  diluted |  |              | 0.10  |                      |  |      | 0.21  |      |  |   | 0.37   |  |  |   | 0.58   | 

43



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The above pro forma disclosure is not necessarily representative
of the effects on reported net income for future years.

Employee Stock Purchase Plan

On September 8, 1997, the Companys Board of Directors
adopted and the stockholders of the Company approved the Hypercom
 Corporation 1997 Employee Stock Purchase Plan (the
Purchase Plan). The Purchase Plan allows eligible
employees of the Company to purchase shares of the Common Stock
through periodic payroll deductions. The initial offering period
commenced immediately following the IPO and extended through
June 30, 1998, with subsequent offering periods beginning
every six months thereafter (every three months effective
November 16, 1999). At the end of each offering period,
payroll deductions for the offering period are used to purchase
shares of Common Stock for each participants account at a
price equal to 90% (85% effective November 16, 1999) of the
fair market value of the Common Stock on either the first or last
 day of the offering period, whichever is less. Payroll
deductions under the Purchase Plan are limited to 10% of each
eligible employees earnings during the offering period, and
 no single participant will be granted an option to purchase
shares with a value in excess of $25,000 for each calendar year.
The Board has reserved 625,000 shares of Common Stock for
issuance under the Purchase Plan, subject to adjustment in the
event of a stock split, reverse stock split, stock dividend or
similar event. Under the plan, for the six month period ended
December 31, 1999 and years ended June 30, 1999 and
June 30, 1998 the Company sold 34,508, 79,133 and
0 shares to employees at weighted average prices of $8.61,
$9.09 and $0 a share, respectively.

Preferred Stock

On September 8, 1997, the Companys board of directors
authorized 10,000,000 shares of $0.001 par value preferred stock.
 As of December 31, 1999, no shares were outstanding.

Directors Stock Plan

On September 8, 1997, the Companys Board of Directors
adopted and the stockholders of the Company approved the Hypercom
 Corporation Directors Stock Plan (the Director
Plan). The Director Plan is administered by a committee
appointed by the Board and provides for an initial grant to each
Director of an option to purchase 6,250 shares of Common Stock
immediately following the Offering. In addition, each individual
who first becomes a Director after the date of the initial grant
of options will be granted an option to purchase 6,250 shares of
Common Stock, and will receive an annual grant of options to
purchase 6,250 shares of Common Stock. The aggregate number of
shares of Common Stock subject to the Director Plan may not
exceed 93,750, subject to adjustment in the event of a stock
split, reverse stock split, stock dividend or similar event.
Options granted under the Director Plan are fully vested and
become fully exercisable on the first anniversary of the date of
grant and have a term of ten years. The exercise price per share
under the Director Plan is equal to the fair market value of such
 shares upon the date of grant. In general, options may be
exercised by payment in cash or a cash equivalent, previously
acquired shares having a fair market value at the time of
exercise equal to the total option exercise price or a
combination thereof.

Initial Public Offering

On November 19, 1997, the Company completed an initial
public offering (IPO) of its common stock, in which
it sold 8,500,000 shares of common stock for $16 per share. Net
proceeds received by the Company were approximately $127.5
million, of which approximately $23.1 million was used to repay
indebtedness.

44



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

12.  Brazil Devaluation

As a result of the devaluation of the Brazilian Real, the Company
 recorded a pretax loss of $4.4 million related to the net
monetary asset exposure for the fiscal year ended June 30,
1999. This loss is included in the $6.7 million foreign currency
loss for the fiscal year ended June 30, 1999.

13.  Commitments and Contingencies

Lease Commitments

The Company leases office and warehouse space, equipment and
vehicles under non-cancelable operating leases. The office space
leases provide for annual rent payments plus a share of taxes,
insurance and maintenance on the properties. The Company also
leases various equipment and vehicles under capital leases.

Future minimum payments under the operating and capital leases
are as follows (dollars in thousands):

|                                        |  |           |       |         |  |   |     | 
|--------------------------------------- |  | --------- | ----- | ------- |  | - | --- | 
|                                        |  | Operating |       | Capital
|Years Ending December 31,               |  | Leases    |       | Leases 
|                                        |  |           |       |        
|2000                                    |  | $         | 1,583 |         |  | $ | 424 | 
|                                       
|                                       
|                                       
|                                       
|2001                                    |  |           | 3,061 |         |  |   | 119 | 
|                                       
|                                       
|                                       
|                                       
|2002                                    |  |           | 1,163 |         |  |   | 111 | 
|                                       
|                                       
|                                       
|                                       
|2003                                    |  |           | 826   |         |  |   | 59  | 
|                                       
|                                       
|                                       
|                                       
|2004                                    |  |           | 643   |         |  |   | 31  | 
|                                       
|                                       
|                                       
|                                       
|Thereafter                              |  |           | 645   |         |  |   |    | 
|                                        |  |           |       |         |  |   |     | 
|Total minimum lease payments            |  | $         | 7,921 |         |  |   | 744 | 
|                                        |  |           |       |         |  |   |     | 
|Less imputed interest                   |  |           |       |         |  |   | 89  | 
|                                        |  |           |       |         |  |   |     | 
|Present value of minimum lease payments |  |           |       |         |  | $ | 655 | 
|                                        |  |           |       |         |  |   |     | 

Litigation

On September 23, 1998, an employee of the Company filed a
lawsuit in the Maricopa County Superior Court against the Company
 and two senior executives alleging sexual misconduct by the
executives and seeking damages, including punitive damages. On
November 22, 1999, the court issued a ruling, which
effectively dismissed all causes of action against the Company
and the two named defendants, leaving one issue to be resolved at
 a later date. Since the court ruling, there have been no actions
 on this matter by either party. The Company believes that the
one remaining issue in the lawsuit will not have a material
adverse effect on its financial condition.

The Company is subject to other legal demands, which have arisen
in the ordinary course of its business. Although there can be no
assurance as to the ultimate disposition of these matters and the
 proceedings disclosed above, it is the opinion of the
Companys management, based upon the information available
at this time, that the expected outcome of these matters,
individually or in the aggregate, will not have a material
adverse effect on the results of operations and financial
condition of the Company.

14.  Related Party Transactions

Hypercom Unit Trust

During fiscal 1999, 1998 and 1997, the Company paid approximately
 $92,000, $97,000, and $109,000 in rent to Hypercom Unit Trust, a
 trust fund controlled by certain stockholders. During the six
month period ended December 31, 1999, such payments amounted
 to $17,197.

45



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Express Card Systems, Inc.

A relative of an officer of the Company is a Vice President of
Express Card Systems, Inc. (ECS), a sales company,
which derives a significant portion of its revenues from products
 sold to the Company. During fiscal 1999, 1998 and 1997, ECS was
paid $246,000, $314,000 and $340,000, respectively, with respect
to sales of product to the Company. During the six month period
ended December 31, 1999, such payments amounted to $129,857.

15.  Segment Information

The Company has two reportable segments: POS Systems and Network
Systems. POS Systems develops, manufactures, markets and supports
 products that automate electronic payment transactions at the
point of sale in merchant establishments. Network Systems
develops, manufactures, markets and supports enterprise
networking systems.

The Companys reportable segments are strategic business
units that offer different products and services. They are
managed separately because each business requires different
technologies and marketing strategies.

The following table presents certain segment financial
information and the reconciliation of segment financial
information to consolidated totals as of and for the six-months
ended December 31, 1999 and the years ended June 30,
1999, 1998 and 1997 (dollars in thousands):

|                                      |  |                                    |         |         |  |       |        |   |  |   |         | 
|------------------------------------- |  | ---------------------------------- | ------- | ------- |  | ----- | ------ | - |  | - | ------- | 
|                                      |  |                                   
|                                      |  | Six Months Ended December 31, 1999
|                                      |  |                                   
|                                      |  | POS                                |         | Network |  |      
|                                      |  | Systems                            |         | Systems |  | Total
|                                      |  |                                    |         |         |  |      
|Revenue from external customers       |  | $                                  | 138,672 |         |  | $     | 10,610 |   |  | $ | 149,282 | 
|                                     
|                                     
|                                     
|                                     
|Intersegment revenues                 |  |                                    | 5,798   |         |  |       | 5,738  |   |  |   | 11,536  | 
|                                      |  |                                    |         |         |  |       |        |   |  |   |         | 
|Total revenues                        |  | $                                  | 144,470 |         |  | $     | 16,348 |   |  | $ | 160,818 | 
|                                      |  |                                    |         |         |  |       |        |   |  |   |         | 
|Segment income (loss) from operations |  | $                                  | 12,748  |         |  | $     | (48    | ) |  | $ | 12,700  | 
|                                      |  |                                    |         |         |  |       |        |   |  |   |         | 
|Depreciation and amortization expense |  | $                                  | 3,313   |         |  | $     | 281    |   |  | $ | 3,594   | 
|                                      |  |                                    |         |         |  |       |        |   |  |   |         | 
|Segment assets                        |  | $                                  | 376,673 |         |  | $     | 26,227 |   |  | $ | 402,900 | 
|                                      |  |                                    |         |         |  |       |        |   |  |   |         | 

|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|------------------------------------- |  | ------------------------------- | ------- | ------- |  | ----- | ------ | - |  | - | ------- | 
|                                      |  |                                
|                                      |  | Fiscal Year Ended June 30, 1999
|                                      |  |                                
|                                      |  | POS                             |         | Network |  |      
|                                      |  | Systems                         |         | Systems |  | Total
|                                      |  |                                 |         |         |  |      
|Revenue from external customers       |  | $                               | 231,011 |         |  | $     | 30,504 |   |  | $ | 261,515 | 
|                                     
|                                     
|                                     
|                                     
|Intersegment revenues                 |  |                                 | 8,976   |         |  |       | 5,506  |   |  |   | 14,482  | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Total revenues                        |  | $                               | 239,987 |         |  | $     | 36,010 |   |  | $ | 275,997 | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Segment income (loss) from operations |  | $                               | 30,586  |         |  | $     | (80    | ) |  | $ | 30,506  | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Depreciation and amortization expense |  | $                               | 4,398   |         |  | $     | 529    |   |  | $ | 4,927   | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Segment assets                        |  | $                               | 303,561 |         |  | $     | 23,116 |   |  | $ | 326,677 | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 

46



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|------------------------------------- |  | ------------------------------- | ------- | ------- |  | ----- | ------ | - |  | - | ------- | 
|                                      |  |                                
|                                      |  | Fiscal Year Ended June 30, 1998
|                                      |  |                                
|                                      |  | POS                             |         | Network |  |      
|                                      |  | Systems                         |         | Systems |  | Total
|                                      |  |                                 |         |         |  |      
|Revenue from external customers       |  | $                               | 230,839 |         |  | $     | 26,388 |   |  | $ | 257,227 | 
|                                     
|                                     
|                                     
|                                     
|Intersegment revenues                 |  |                                 |        |         |  |       | 1,680  |   |  |   | 1,680   | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Total revenues                        |  | $                               | 230,839 |         |  | $     | 28,068 |   |  | $ | 258,907 | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Segment income (loss) from operations |  | $                               | 55,118  |         |  | $     | (4,828 | ) |  | $ | 50,290  | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Depreciation and amortization expense |  | $                               | 2,157   |         |  | $     | 453    |   |  | $ | 2,610   | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 
|Segment assets                        |  | $                               | 311,011 |         |  | $     | 28,350 |   |  | $ | 339,361 | 
|                                      |  |                                 |         |         |  |       |        |   |  |   |         | 

|                                      |  |                                 |         |         |  |       |        |  |  |   |         | 
|------------------------------------- |  | ------------------------------- | ------- | ------- |  | ----- | ------ |  |  | - | ------- | 
|                                      |  |                                
|                                      |  | Fiscal Year Ended June 30, 1997
|                                      |  |                                
|                                      |  | POS                             |         | Network |  |      
|                                      |  | Systems                         |         | Systems |  | Total
|                                      |  |                                 |         |         |  |      
|Revenue from external customers       |  | $                               | 172,682 |         |  | $     | 24,060 |  |  | $ | 196,742 | 
|                                     
|                                     
|                                     
|                                     
|Intersegment revenues                 |  |                                 |        |         |  |       | 10,468 |  |  |   | 10,468  | 
|                                      |  |                                 |         |         |  |       |        |  |  |   |         | 
|Total revenues                        |  | $                               | 172,682 |         |  | $     | 34,528 |  |  | $ | 207,210 | 
|                                      |  |                                 |         |         |  |       |        |  |  |   |         | 
|Segment income from operations        |  | $                               | 32,005  |         |  | $     | 3,933  |  |  | $ | 35,938  | 
|                                      |  |                                 |         |         |  |       |        |  |  |   |         | 
|Depreciation and amortization expense |  | $                               | 2,199   |         |  | $     | 435    |  |  | $ | 2,634   | 
|                                      |  |                                 |         |         |  |       |        |  |  |   |         | 
|Segment assets                        |  | $                               | 186,863 |         |  | $     | 31,455 |  |  | $ | 218,318 | 
|                                      |  |                                 |         |         |  |       |        |  |  |   |         | 

Reconciliation

|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |         |         |        | 
|--------------------------------------------------------------- | -------------------------------------------- | --------------------------------------- | -------------------------------------------------- | -------------------- | ------- | ----- | ------- | ------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------ | 
|                                                                |                                              |                                         |                                                    |                     
|                                                                |                                              | Six Months Ended                        |                                                    | Years Ended June 30,
|                                                                |                                              | December 31,                            |                                                    |                     
|                                                                |                                              | 1999                                    |                                                    | 1999                 |         | 1998  |         | 1997   
|                                                                |                                              |                                         |                                                    |                      |         |       |         |        
|Net Revenues                                                    |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|                                                               
|                                                               
|                                                               
|                                                               
|Net revenues for reportable segments                            |                                              | $                                       | 160,818                                            |                      |         | $     | 275,997 |         |         | $      | 258,907 |        |         | $      | 207,210 |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Elimination of intersegment revenues         |                                         |                                                    | (11,536              | )       |       |         | (14,482 | )       |        |         | (1,680 | )       |        |         | (10,468 | )      
|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|                                                                |                                              | Total consolidated revenues             |                                                    | $                    | 149,282 |       |         | $       | 261,515 |        |         | $      | 257,227 |        |         | $       | 196,742 |       
|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|Income from Operations                                          |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|                                                               
|                                                               
|                                                               
|                                                               
|Income from operations for reportable segments                  |                                              | $                                       | 12,700                                             |                      |         | $     | 30,506  |         |         | $      | 50,290  |        |         | $      | 35,938  |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Elimination of intersegment profits (losses) |                                         |                                                    | 3,710                |         |       |         | 4,813   |         |        |         | (3,021 | )       |        |         | (5,341  | )      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Unallocated amounts:                         |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |         |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                              | Corporate expenses                      |                                                    |                      | (11,447 | )     |         |         | (20,656 | )      |         |        | (27,481 | )      |         |         | (7,767  | )     
|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|                                                                |                                              |                                         | Consolidated income from operations                |                      | $       | 4,963 |         |         | $       | 14,663 |         |        | $       | 19,788 |         |         | $       | 22,830 | 
|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|Depreciation and Amortization Expenses                          |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|                                                               
|                                                               
|                                                               
|                                                               
|Depreciation and amortization expenses from reportable segments |                                              | $                                       | 3,594                                              |                      |         | $     | 4,927   |         |         | $      | 2,610   |        |         | $      | 2,634   |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Unallocated amounts:                         |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |         |        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                              | Corporate depreciation and amortization |                                                    |                      | 956     |       |         |         | 1,639   |        |         |        | 1,554   |        |         |         | 254     |       
|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        
|                                                                |                                              |                                         | Consolidated depreciation and amortization expense |                      | $       | 4,550 |         |         | $       | 6,566  |         |        | $       | 4,164  |         |         | $       | 2,888  | 
|                                                                |                                              |                                         |                                                    |                      |         |       |         |         |         |        |         |        |         |        |         |        

47



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|               |                      |                                |                     |                      |          |         |         |  |         |         |         |  |          |         |  |  |  |  | 
|-------------- | -------------------- | ------------------------------ | ------------------- | -------------------- | -------- | ------- | ------- |  | ------- | ------- | ------- |  | -------- | ------- |  |  |  |  | 
|               |                      |                                |                     |                      |          |        
|               |                      | Six Months Ended               |                     | Years Ended June 30, |          |        
|               |                      | December 31,                   |                     |                      |          |        
|               |                      | 1999                           |                     | 1999                 |          | 1998    |         | 
|               |                      |                                |                     |                      |          |         |         | 
|Assets         |                      |                                |                     |                      |          |         |         |  |         |         |         |  |          |         |  | 
|              
|              
|              
|              
|Segment assets |                      | $                              | 402,900             |                      |          | $       | 326,677 |  |         | $       | 339,361 |  |          |         |  | 
|              
|              
|              
|              
|               | Unallocated amounts: |                                |                     |                      |          |         |         |  |         |         |         |  |          |         |  |  | 
|              
|              
|              
|              
|               |                      | Corporate assets               |                     |                      | 137,424  |         |         |  | 143,057 |         |         |  | 140,697  |         |  |  |  | 
|              
|              
|              
|              
|               | Eliminations:        |                                |                     |                      |          |         |         |  |         |         |         |  |          |         |  |  | 
|              
|              
|              
|              
|               |                      | Intercompany receivables       |                     |                      | (102,969 | )       |         |  | (94,432 | )       |         |  | (131,840 | )       |  |  |  | 
|              
|              
|              
|              
|               |                      | Investments in related parties |                     |                      | (54,254  | )       |         |  | (49,937 | )       |         |  | (34,707  | )       |  |  |  | 
|              
|              
|              
|              
|               |                      | Advances to related parties    |                     |                      | (82,999  | )       |         |  | (43,380 | )       |         |  | (43,742  | )       |  |  |  | 
|              
|              
|              
|              
|               |                      | Profit in ending inventory     |                     |                      | (1,684   | )       |         |  | (4,841  | )       |         |  | (10,192  | )       |  |  |  | 
|              
|              
|              
|              
|               |                      | Other profit eliminations      |                     |                      | (641     | )       |         |  | (864    | )       |         |  |          |         |  |  |  | 
|               |                      |                                |                     |                      |          |         |         |  |         |         |         |  |          |         |  | 
|               |                      |                                | Consolidated assets |                      | $        | 297,777 |         |  | $       | 276,280 |         |  | $        | 259,577 |  |  |  |  | 
|               |                      |                                |                     |                      |          |         |         |  |         |         |         |  |          |         |  | 

Net revenues to external customers are based on the location of
the customer. Geographic information as of December 31, 1999
 and for each of the three years ended June 30, 1999, 1998
and 1997 is presented in the table below (dollars in thousands):

|                                    |  |               |         |               |  |              |        |        |  |       |        |  |  |   |        |  |  |   |         | 
|----------------------------------- |  | ------------- | ------- | ------------- |  | ------------ | ------ | ------ |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                    |  | United States |         | Latin America |  | Asia/Pacific |        | Europe |  | Total
|                                    |  |               |         |               |  |              |        |        |  |      
|Six months ending December 31, 1999 |  |               |         |               |  |              |        |        |  |       |        |  |  |   |        |  |  |   |         | 
|                                   
|                                   
|                                   
|                                   
|Revenues                            |  | $             | 66,224  |               |  | $            | 39,971 |        |  | $     | 21,275 |  |  | $ | 21,812 |  |  | $ | 149,282 | 
|                                   
|                                   
|                                   
|                                   
|Long-lived assets                   |  |               | 42,053  |               |  |              | 8,136  |        |  |       | 9,530  |  |  |   | 7,948  |  |  | $ | 67,667  | 
|                                   
|                                   
|                                   
|                                   
|Year ending June 30, 1999           |  |               |         |               |  |              |        |        |  |       |        |  |  |   |        |  |  |   |         | 
|                                   
|                                   
|                                   
|                                   
|Revenues                            |  | $             | 141,100 |               |  | $            | 59,461 |        |  | $     | 34,253 |  |  | $ | 26,701 |  |  | $ | 261,515 | 
|                                   
|                                   
|                                   
|                                   
|Long-lived assets                   |  |               | 32,012  |               |  |              | 7,315  |        |  |       | 7,030  |  |  |   | 6,818  |  |  | $ | 53,175  | 
|                                   
|                                   
|                                   
|                                   
|Year ending June 30, 1998           |  |               |         |               |  |              |        |        |  |       |        |  |  |   |        |  |  |   |         | 
|                                   
|                                   
|                                   
|                                   
|Revenues                            |  | $             | 110,410 |               |  | $            | 74,632 |        |  | $     | 57,909 |  |  | $ | 14,276 |  |  | $ | 257,227 | 
|                                   
|                                   
|                                   
|                                   
|Long-lived assets                   |  |               | 16,096  |               |  |              | 4,774  |        |  |       | 3,188  |  |  |   | 595    |  |  | $ | 24,653  | 
|                                   
|                                   
|                                   
|                                   
|Year ending June 30, 1997           |  |               |         |               |  |              |        |        |  |       |        |  |  |   |        |  |  |   |         | 
|                                   
|                                   
|                                   
|                                   
|Revenues                            |  | $             | 86,904  |               |  | $            | 47,482 |        |  | $     | 58,233 |  |  | $ | 4,123  |  |  | $ | 196,742 | 

16.  Acquisitions

Horizon Sales Group, Inc.

Effective October 1, 1998, Hypercom purchased substantially
all the assets of the Horizon Group, Inc. (Horizon). Horizon is a
 national distributor of equipment for Hypercom and other POS
manufacturers. In addition to sales of new equipment, Horizon
provides a variety of services, including refurbishing equipment,
 help desk, PIN pad key loading, terminal deployment and other
custom programs.

Horizon was acquired for $5.0 million in cash and
$0.5 million in Hypercom common stock issued from Treasury
Stock. The acquisition agreement provides for additional payments
 up to $7.0 million, based on Horizons earnings over
the three-year period subsequent to the acquisition date. The
additional payments, if applicable, are to be in the form of
Hypercom common stock.

The acquisition was accounted for under the purchase method of
accounting. The purchase price, including direct costs incurred
in connection with the acquisition was allocated to identifiable
net tangible assets and liabilities of $1.0 million,
identifiable intangibles of $3.2 million and goodwill of
$1.6 million. The

48



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

results of Horizons operations are included in
Hypercoms consolidated statements of income and cash flows
beginning with the date of the acquisition.

SP/RJ Service Company

Effective January 1, 1999 Hypercoms Brazilian
subsidiary purchased substantially all of the assets of SP/RJ
Service Company (SP/RJ) for $900,000 in cash. SP/RJ is primarily
involved in the installation and maintenance of POS terminals in
Southern Brazil.

The acquisition was accounted for under the purchase method of
accounting. The purchase price, including direct costs incurred
in connection with the acquisition, was allocated to identifiable
 net tangible assets and liabilities of ($0.3) million and
goodwill of $1.2 million. The results of the operations are
included in Hypercoms consolidated statements of income and
 cash flows beginning with the date of the acquisition.

JTS ChequeOut Solutions Inc.

Effective April 8, 1999, Hypercom purchased substantially
all the assets of the Rochester, NY-based JTS ChequeOut Solutions
 Inc., a provider of card-based, multi-lane financial and
marketing systems for U.S. supermarket chains for
$1.5 million in cash and $0.6 million in common stock issued
 from treasury stock.

The acquisition was accounted for under the purchase method of
accounting. The purchase price, including direct costs incurred
in connection with the acquisition, was allocated to identifiable
 net tangible assets and liabilities of ($40,000) and goodwill of
 $2.1 million. The results of the operations are included in
Hypercoms consolidated statements of income and cash flows
beginning with the date of the acquisition.

ICL Financial Terminals AB

Effective April 14, 1999, Hypercom purchased substantially
all the assets of the payment security business of ICLs
Financial Terminals division in Sweden. ICL Financial Terminals
was a provider of secure payment devices, smart card products and
 self-service point-of-sale (POS) terminals.

The acquisition was accounted for under the purchase method of
accounting. The purchase price, including direct costs incurred
in connection with the acquisition, was allocated to identifiable
 net tangible assets and liabilities of $0.3 million and
goodwill of $1.3 million. The results of the operations are
included in Hypercoms consolidated statements of income and
 cash flows beginning with the date of the acquisition.

The purchase price was $1.5 million in cash. The acquisition
 agreement also provides for a contingent payment of
$0.5 million cash to be paid to ICL upon Hypercoms
collection of $6 million from ICL relating to ICL meeting an
 annual purchase requirement of $6 million in product from
Hypercom by April 1, 2000.

MicroTrax, Ltd., Inc.

Effective October 19, 1999, the Company acquired the assets
and business of MicroTrax, Ltd., Inc., a leading provider of
Windows NT electronic payment software systems for
$3.6 million in cash. The results of the operations are
included in Hypercoms consolidated statements of income and
 cash flows beginning with the date of acquisition.

49



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##### Table of Contents



HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.  Supplemental Cash Flow Information

|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |     | 
|------------------------------------------------------------------------------------- | --------------------------------------------------------- | ---------------- | ----- | -------------------- | - | ---- | ------ | ------ | - | - | ------ | ---- | - | - | ------- | --- | 
|                                                                                      |                                                           |                  |       |                     
|                                                                                      |                                                           | Six Months Ended |       | Years Ended June 30,
|                                                                                      |                                                           | December 31,     |       |                     
|                                                                                      |                                                           | 1999             |       | 1999                 |   | 1998 |        | 1997  
|                                                                                      |                                                           |                  |       |                      |   |      |        |       
|Interest paid                                                                         |                                                           | $                | (541  | )                    |   | $    | (455   | )      |   | $ | (2,543 | )    |   | $ | (2,247  | )  
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|Income taxes paid                                                                     |                                                           | $                | (18   | )                    |   | $    | (5,652 | )      |   | $ | (4,837 | )    |   | $ | (15,880 | )  
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|Cash and noncash investing and financing activities                                   |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Acquisition of plant and equipment through capital leases |                  |       |                     |   |      |        |       |   |   | $      | 698  |   |   | $       | 133 | 
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|                                                                                      | Contribution of assets to jointly-owned company           |                  | $     | 776                  |   |      |        |       |   |   |        |     |   |   |         |    | 
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|Changes in accounts payable related to the purchase of property,
	plant and equipment |                                                           | $                | (95   | )                    |   | $    | 210    |        |   | $ | 367    |      |   | $ | 36      |    
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|Acquisition of controlling interest in subsidiaries:                                  |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Assets acquired (net of seller financing)                 |                  | $     | 3,962                |   |      | $      | 18,290 |   |   | $      | 744  |   |   |         |     | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Liabilities assumed                                       |                  |       | (362                 | ) |      |        | (7,942 | ) |   |        | (244 | ) |   |         |     | 
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|                                                                                      | Net assets acquired                                       |                  | $     | 3,600                |   |      |        | 10,348 |   |   |        | 500  |   |   |         |     | 
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                      | Less issuance of treasury stock                           |                  |       |                     |   |      |        | (1,069 | ) |   |        |     |   |   |         |     | 
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    
|Net cash paid for acquisition of controlling interest in
	subsidiaries                |                                                           | $                | 3,600 |                      |   | $    | 9,279  |        |   | $ | 500    |      |   |   |         |    
|                                                                                      |                                                           |                  |       |                      |   |      |        |        |   |   |        |      |   |   |         |    

18.  Interim Financial Results (Unaudited)

The following tables set forth certain unaudited consolidated
financial information for each of the four quarters in fiscal
1999 and 1998 and for each of the two quarters in the six months
ended December 31, 1999. In managements opinion, this
unaudited quarterly information has been prepared on the same
basis as the audited consolidated financial statements and
includes all necessary adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a
fair presentation of the unaudited quarterly results when read in
 conjunction with the Consolidated Financial Statements and
Notes. The Company believes that quarter-to-quarter comparisons
of its financial results are not necessarily meaningful and
should not be relied upon as an indication of future performance.
 (Dollars in thousands, except per share amounts.)

|                           |  |                        |        |             |  |            |        |  |  |   |         | 
|-------------------------- |  | ---------------------- | ------ | ----------- |  | ---------- | ------ |  |  | - | ------- | 
|                           |  |                        |        |            
|                           |  | Six Month Period Ended |        |            
|                           |  | December 31, 1999      |        |            
|                           |  |                        |        |            
|                           |  | September 30           |        | December 31 |  | Six Months
|                           |  |                        |        |             |  |           
|Net revenue                |  | $                      | 73,302 |             |  | $          | 75,980 |  |  | $ | 149,282 | 
|                          
|                          
|                          
|                          
|Gross profit               |  |                        | 33,333 |             |  |            | 34,772 |  |  |   | 68,105  | 
|                          
|                          
|                          
|                          
|Income from operations     |  |                        | 4,040  |             |  |            | 923    |  |  |   | 4,963   | 
|                          
|                          
|                          
|                          
|Net income                 |  |                        | 3,422  |             |  |            | 1,963  |  |  |   | 5,385   | 
|                          
|                          
|                          
|                          
|Basic earnings per share   |  |                        | 0.10   |             |  |            | 0.06   |  |  |   | 0.16    | 
|                          
|                          
|                          
|                          
|Diluted earnings per share |  |                        | 0.10   |             |  |            | 0.06   |  |  |   | 0.16    | 

50



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HYPERCOM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                  |  |              |        |             |  |          |        |         |  |             |        |   |  |   |        |   |  |   |         | 
|--------------------------------- |  | ------------ | ------ | ----------- |  | -------- | ------ | ------- |  | ----------- | ------ | - |  | - | ------ | - |  | - | ------- | 
|                                  |  |              |        |            
|                                  |  | Fiscal 1999  |        |            
|                                  |  |              |        |            
|                                  |  | September 30 |        | December 31 |  | March 31 |        | June 30 |  | Fiscal Year
|                                  |  |              |        |             |  |          |        |         |  |            
|Net revenue                       |  | $            | 65,983 |             |  | $        | 70,594 |         |  | $           | 56,304 |   |  | $ | 68,634 |   |  | $ | 261,515 | 
|                                 
|                                 
|                                 
|                                 
|Gross profit                      |  |              | 33,355 |             |  |          | 34,338 |         |  |             | 24,327 |   |  |   | 27,664 |   |  |   | 119,684 | 
|                                 
|                                 
|                                 
|                                 
|Income (loss) from operations     |  |              | 7,324  |             |  |          | 9,266  |         |  |             | (1,744 | ) |  |   | (183   | ) |  |   | 14,663  | 
|                                 
|                                 
|                                 
|                                 
|Net income (loss)                 |  |              | 5,755  |             |  |          | 6,604  |         |  |             | (3,666 | ) |  |   | 480    |   |  |   | 9,173   | 
|                                 
|                                 
|                                 
|                                 
|Basic earnings (loss) per share   |  |              | 0.17   |             |  |          | 0.20   |         |  |             | (0.11  | ) |  |   | 0.01   |   |  |   | 0.28    | 
|                                 
|                                 
|                                 
|                                 
|Diluted earnings (loss) per share |  |              | 0.17   |             |  |          | 0.19   |         |  |             | (0.11  | ) |  |   | 0.01   |   |  |   | 0.27    | 

|                                  |  |              |        |             |  |          |        |         |  |             |        |  |  |   |        |   |  |   |         | 
|--------------------------------- |  | ------------ | ------ | ----------- |  | -------- | ------ | ------- |  | ----------- | ------ |  |  | - | ------ | - |  | - | ------- | 
|                                  |  |              |        |            
|                                  |  | Fiscal 1998  |        |            
|                                  |  |              |        |            
|                                  |  | September 30 |        | December 31 |  | March 31 |        | June 30 |  | Fiscal Year
|                                  |  |              |        |             |  |          |        |         |  |            
|Net revenue                       |  | $            | 78,937 |             |  | $        | 71,209 |         |  | $           | 54,339 |  |  | $ | 52,742 |   |  | $ | 257,227 | 
|                                 
|                                 
|                                 
|                                 
|Gross profit                      |  |              | 38,106 |             |  |          | 36,919 |         |  |             | 25,894 |  |  |   | 25,833 |   |  |   | 126,752 | 
|                                 
|                                 
|                                 
|                                 
|Income (loss) from operations     |  |              | 14,698 |             |  |          | 3,865  |         |  |             | 3,160  |  |  |   | (1,935 | ) |  |   | 19,788  | 
|                                 
|                                 
|                                 
|                                 
|Net income (loss)                 |  |              | 9,110  |             |  |          | 1,841  |         |  |             | 4,034  |  |  |   | (996   | ) |  |   | 13,989  | 
|                                 
|                                 
|                                 
|                                 
|Basic earnings (loss) per share   |  |              | 0.36   |             |  |          | 0.06   |         |  |             | 0.12   |  |  |   | (0.03  | ) |  |   | 0.46    | 
|                                 
|                                 
|                                 
|                                 
|Diluted earnings (loss) per share |  |              | 0.35   |             |  |          | 0.06   |         |  |             | 0.11   |  |  |   | (0.03  | ) |  |   | 0.44    | 

19.  Subsequent Events

On January 10, 2000, the Company announced that its wholly
owned subsidiary, Hypercom Financial, Inc. had completed the
purchase of substantially all of the assets and business and the
assumption of certain liabilities of Golden Eagle LLC
(Golden Eagle). Golden Eagle is a lessor of POS
equipment. The purchase price paid was $18.5 million in cash and
$4 million in the Companys common stock. The purchase
agreement provides for additional payments up to $32.5 million,
payable in the Companys common stock based on Golden
Eagles earnings over the next three-year period subsequent
to the acquisition date.

The acquisition is to be accounted for under the purchase method
of accounting. It is estimated that substantially all the
purchase price will be allocated to identifiable net tangible
assets and liabilities of $0.14 million and identifiable
intangibles and goodwill amounting to $22.36 million, which will
be amortized over 15 years.

Concurrent with the closing of the Golden Eagle acquisition, the
Company entered into an additional $25 million revolving line of
credit agreement with Bank One, to provide a temporary funding
source for certain of Golden Eagles borrowings that were
not assumed under the purchase transaction to facilitate the
acquisition closing. The Companys accounts receivables and
inventory have been utilized as security interests in connection
with the expanded line. The interest rate under the line was at
the prime rate.

In February 2000, the Company increased its revolving line
of credit to $20 million from $10 million with Bank One Arizona,
N.A.. The loan agreement contains various restrictions on the
Company, including the prohibitions of declaring or paying
dividends, limitations on the incurrence of additional debt,
liens, or encumbrances and restricting the Companys ability
 to consolidate or merge into any other entity. The loan
agreement also contains certain financial covenants, including a
minimum current ratio, minimum working capital, minimum tangible
net worth, and minimum shareholders equity and debt
coverage ratios.

51



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##### Table of Contents






Item 14 (a).  Financial Statement
Schedule

REPORT OF INDEPENDENT ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Stockholders



Our audits of the consolidated financial statements for the years
 ended June 30, 1999, 1998 and 1997 referred to in our
report dated July 20, 1999 which report and consolidated
financial statements are included in this Transition Report on
Form 10-K also included an audit of the financial statements
 schedule for the years ended June 30, 1999, 1998 and 1997
listed in Item 14(a) (2) of this Form 10-K. In our
 opinion, this financial statement schedule for the years ended
June 30, 1999, 1998 and 1997 presents fairly, in all
material respects, the information set forth therein when read in
 conjunction with the related consolidated financial statements.



| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP

Phoenix, Arizona



52



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##### Table of Contents



FINANCIAL STATEMENT SCHEDULE

|                                    |                                 |                        |   |            |  |            |   |            |   |               |  |    |  |  |   |        |   |  |   |       | 
|----------------------------------- | ------------------------------- | ---------------------- | - | ---------- |  | ---------- | - | ---------- | - | ------------- |  | -- |  |  | - | ------ | - |  | - | ----- | 
|                                    |                                 |                        |   |            |  |            |   |           
|                                    |                                 |                        |   | Additions  |  |            |   |           
|                                    |                                 |                        |   |            |  |            |   |           
|                                    |                                 | Balance at             |   | Charged to |  | Charged to |   |            |   |              
|                                    |                                 | Beginning of           |   | Costs and  |  | Other      |   |            |   | Balance at   
|                                    |                                 | Period                 |   | Expenses   |  | Accounts   |   | Deductions |   | End of Period
|                                    |                                 |                        |   |            |  |            |   |            |   |              
|                                    |                                 |                       
|                                    |                                 | (Dollars in thousands)
|                                   
|                                   
|                                   
|                                   
|Year Ended June 30, 1997:           |                                 |                        |   |            |  |            |   |            |   |               |  |    |  |  |   |        |   |  |   |      
|                                   
|                                   
|                                   
|                                   
|                                    | Allowance for doubtful accounts |                        | $ | 761        |  |            | $ | 1,427      |   |               |  |    |  |  | $ | (1,409 | ) |  | $ | 779   | 
|                                   
|                                   
|                                   
|                                   
|                                    | Inventory reserves              |                        |   | 2,133      |  |            |   | 994        |   |               |  |    |  |  |   | (525   | ) |  |   | 2,602 | 
|                                   
|                                   
|                                   
|                                   
|Year Ended June 30, 1998:           |                                 |                        |   |            |  |            |   |            |   |               |  |    |  |  |   |        |   |  |   |      
|                                   
|                                   
|                                   
|                                   
|                                    | Allowance for doubtful accounts |                        |   | 779        |  |            |   | 2,972      |   |               |  |    |  |  |   | (22    | ) |  |   | 3,729 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Inventory reserves              |                        |   | 2,602      |  |            |   | 2,510      |   |               |  |    |  |  |   | (469   | ) |  |   | 4,643 | 
|                                   
|                                   
|                                   
|                                   
|Year Ended June 30, 1999:           |                                 |                        |   |            |  |            |   |            |   |               |  |    |  |  |   |        |   |  |   |      
|                                   
|                                   
|                                   
|                                   
|                                    | Allowance for doubtful accounts |                        |   | 3,729      |  |            |   | 1,386      |   |               |  |    |  |  |   | (2,033 | ) |  |   | 3,082 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Inventory reserves              |                        |   | 4,643      |  |            |   | 2,925      |   |               |  |    |  |  |   | (2,295 | ) |  |   | 5,273 | 
|                                   
|                                   
|                                   
|                                   
|Six Months Ended December 31, 1999: |                                 |                        |   |            |  |            |   |            |   |               |  |    |  |  |   |        |   |  |   |      
|                                   
|                                   
|                                   
|                                   
|                                    | Allowance for doubtful accounts |                        |   | 3,082      |  |            |   | (24        | ) |               |  |    |  |  |   | (1,469 | ) |  |   | 1,589 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Inventory reserves              |                        |   | 5,273      |  |            |   | (281       | ) |               |  | 32 |  |  |   |        |   |  |   | 5,024 | 

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##### Table of Contents








LIST OF EXHIBITS


|        |            |                     |  |                                                                                                                                                                                                                                  
|------- | ---------- | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |                    
|No      |            | Exhibit Description
|        |            |                    
|        | 3.1        |                     |  | Amended and Restated Certificate of Incorporation of the Company.
	 Incorporated by reference to Exhibit 3.1 of the
	Companys Registration Statement on Form S-1
	(Registration No. 333-35461).                                 
|        | 3.2        |                     |  | Amended and Restated Bylaws of the Company. Incorporated by
	reference to Exhibit 3.2 of the Companys Registration
	Statement on Form S-1 (Registration No. 333-35461).                                                         
|        | 4          |                     |  | Amended and Restated Certificate of Incorporation of the Company.
	 Incorporated by reference to Exhibit 3.1 of the
	Companys Registration Statement on Form S-1
	(Registration No. 333-35461).                                 
|        | 10.1(a)**  |                     |  | Revolving Credit Agreement by and between Hypercom Corporation
	and Bank One, Arizona, NA, dated January 20, 1998.                                                                                                               
|        | 10.1(b)*** |                     |  | Modification Agreement to Revolving Credit Agreement by and
	between Hypercom Corporation and Bank One, Arizona, NA, dated
	January 25, 1999.                                                                                    
|        | 10.2*      |                     |  | Lease, as amended, dated June 14, 1996, by and between
	Estes-Samuelson Partnership and Hypercom, Inc.                                                                                                                           
|        | 10.3*      |                     |  | Hypercom Corporation Long-Term Incentive Plan.                                                                                                                                                                                  
|        | 10.4*      |                     |  | Hypercom Corporation 1997 Employee Stock Purchase Plan.                                                                                                                                                                         
|        | 10.5*      |                     |  | Promissory Note, dated October 17, 1994, by and between Hypercom,
	 Inc., and George Wallner.                                                                                                                                   
|        | 10.6*      |                     |  | Hypercom Corporation Non-employee Directors Stock Option
	Plan.                                                                                                                                                                
|        | 10.7*      |                     |  | Employment Agreement with Jairo Gonzalez, dated January 1,
	1997.                                                                                                                                                               
|        | 10.8*      |                     |  | Employment Agreement with Albert A. Irato, dated January 1,
	1997.                                                                                                                                                              
|        | 10.9*      |                     |  | Loan Agreement, dated October 12, 1996, by and between Hypercom
	Pty. Ltd., and George Wallner.                                                                                                                                 
|        | 10.10*     |                     |  | Loan Agreement, dated October 12, 1996, by and between Hypercom
	Pty. Ltd., and Paul Wallner.                                                                                                                                   
|        | 10.11*     |                     |  | Description of lease by and between Hypercom Pty. Ltd., and
	Hypercom Unit Trust.                                                                                                                                                
|        | 10.12***   |                     |  | Severance agreement, dated June 1, 1999 by and between Thomas
	Linnen and Hypercom Corporation.                                                                                                                                  
|        | 10.13***   |                     |  | Promissory Note by and between Hypercom Corporation and Capital
	One Funding Corporation, dated April 1, 1999.                                                                                                                   
|        | 10.14***   |                     |  | Reimbursement Agreement by and between Hypercom Corporation, Bank
	 One, Arizona, NA, and Capital One Funding Corporation, dated
	April 1, 1999,                                                                                 
|        | 10.15****  |                     |  | Agreement of Purchase and Sale of Assets by and Among Hypercom
	Corporation, Hypercom Financial, Inc., Golden Eagle LLC, Golden
	Corporation, Lawrence T. Lawler, Jr., and Leonard E. Friedlander
	dated as of December 14, 1999.
|        | 16*****    |                     |  | Letter re Change in Certifying Accountant                                                                                                                                                                                        
|        | 21***      |                     |  | Subsidiaries of the Company                                                                                                                                                                                                      
|        | 23.1       |                     |  | Consent of Independent Auditors                                                                                                                                                                                                  
|        | 23.2       |                     |  | Consent of Independent Public Accountants                                                                                                                                                                                        
|        | 27         |                     |  | Financial Data Schedule                                                                                                                                                                                                          
|        | 99.1       |                     |  | Cautionary Statement Regarding Forward-Looking Statements and
	Risk Factors                                                                                                                                                      




|      |                                                                                                             
|----- | ------------------------------------------------------------------------------------------------------------
|*     | Incorporated by reference to the Companys Registration
	Statement on Form S-1 (Registration No. 333-35641).
|**    | Incorporated by reference to the Companys Annual Report on
	Form 10-K/ A filed on November 3, 1998.        
|***   | Incorporated by reference to the Companys Annual Report on
	Form 10-K filed on September 23, 1999.         
|****  | Incorporated by reference to the Companys Current Report on
	 Form 8-K filed on January 12, 2000.          
|***** | Incorporated by reference to the Companys Current Report on
	 Form 8-K filed on February 4, 2000.          



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