<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark one)

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

         For the quarterly period ended March 31, 1998

                                       OR

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

         For the transition period from _________ to __________

                           COMMISSION FILE NO. 1-13521

                              HYPERCOM CORPORATION

             (Exact Name of Registrant as Specified in Its Charter)

            DELAWARE                                    86-0828608
  (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or Organization)

2851 WEST KATHLEEN ROAD, PHOENIX, ARIZONA                               85023
(Address of Principal Executive Offices)                              (Zip Code)

                                 (602) 504-5000
                         (Registrant's telephone number)

         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 past 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[ ]

         Number of shares of the registrant's common stock, $.001 par value per
share, outstanding as of May 15, 1998 was 33,530,600.
<PAGE>   2
                                Table of Contents

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         (a)      Consolidated balance sheets..................................3
                  as of March 31, 1998 and June 30, 1997

         (b)      Consolidated statements of income............................5
                  for the three months ended March 31, 1998
                  and 1997; nine months ended March 31, 1998 and 1997

         (c)      Consolidated statements of cash flow.........................6
                  for the nine months ended March 31, 1998 and 1997

         (d)      Notes to consolidated financial statements...................7

Item 2.  Management's Discussion and Analysis of Financial Condition..........10
         and Results of Operations

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings....................................................23

Item 2.  Changes in Securities and Use of Proceeds............................24

Item 6.  Exhibits and Reports on Form 8-K.....................................24
<PAGE>   3
                         PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                              HYPERCOM CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          March 31, 1998  June 30, 1997
                                                           (unaudited)
<S>                                                       <C>             <C>     
ASSETS
    Current Assets
        Cash and cash equivalents                            $ 49,584       $ 16,318
        Short-term investments                                 60,381             --
        Accounts receivable
           (net of allowance for doubtful accounts
           of $1,330 and $779)                                 53,388         31,074
        Inventories                                            52,884         55,921
        Deferred income taxes                                   9,205          5,580
        Prepaid income taxes                                    1,031          6,127
        Prepaid expenses and
         other current assets                                   6,219          5,942
                                                             --------       --------
                  Total current assets                       $232,692       $120,962
        Property, plant and equipment, net                   $ 22,869       $ 16,424
        Investments in affiliated parties                          --            115
        Advances to related parties                               363            279
        Other assets                                            4,756            961
                                                             --------       --------
                  Total assets                               $260,679       $138,741
                                                             ========       ========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
EQUITY
    Current Liabilities:
        Bank notes payable                                   $  4,600       $  9,900
        Accounts payable                                       14,233         21,963
        Accrued liabilities                                    13,336         11,646
        Deferred revenue                                        1,110          8,279
        Income taxes payable                                    2,905          2,061
        Current portion of long term obligations                  395          2,164
        Current portion of long term obligations -
           related party                                           --          2,000
                                                             --------       --------
                  Total current liabilities                  $ 36,579       $ 58,013
</TABLE>
<PAGE>   4
<TABLE>
<S>                                                  <C>              <C>
    Deferred income taxes                            $     593              602
    Long term obligations                                1,216            8,952
    Long term obligations - related party                   --            1,554
    Other long term liabilities                          1,182            1,183
                                                     ---------        ---------
              Total liabilities                      $  39,570        $  70,304
Redeemable common stock                                     --            7,543
Stockholders' equity
    Common stock                                     $      13        $       4
    Additional paid-in capital                         145,464              965
    Receivables from stockholders                       (1,679)          (2,401)
    Retained earnings                                   77,312           62,326
                                                     ---------        ---------
              Total stockholders' equity             $ 221,110        $  60,894
                                                     ---------        ---------
                      Total liabilities,
                      redeemable common stock
                      and stockholders' equity       $ 260,680        $ 138,741
                                                     =========        =========
</TABLE>

    The accompanying notes are an integral part of these financial statements
<PAGE>   5
                              HYPERCOM CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                (Dollars in thousands, except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                  Three Months Ended                Nine Months Ended
                                               3/31/98          3/31/97          3/31/98          3/31/97
<S>                                           <C>              <C>              <C>              <C>      
Net revenue                                   $  54,339        $  45,912        $ 204,485        $ 151,344
Costs and expenses:
    Costs of revenue                             28,445           25,738          103,566           79,755
    Research and development                      6,097            3,018           17,015            8,866
    Selling, general and administrative          16,637           13,027           51,218           37,821
    Non-cash compensation                             0              529           10,963            4,368
                                              ---------        ---------        ---------        ---------
          Total costs and expenses            $  51,179        $  42,312        $ 182,762        $ 130,810
Income from operations                        $   3,160        $   3,600        $  21,723        $  20,534
Interest and other income                         1,361              381            2,634            1,466
Interest and other expense                          155             (646)          (1,661)          (1,235)
Interest expense - related party                   (446)            (106)            (372)            (317)
Foreign currency gain (loss)                        198               26           (1,048)             129
                                              ---------        ---------        ---------        ---------
Income before income taxes                    $   4,428        $   3,255        $  21,276        $  20,577
Income taxes                                       (394)          (1,089)          (6,291)          (6,882)
                                              ---------        ---------        ---------        ---------
Net income                                    $   4,034        $   2,166        $  14,985        $  13,695
                                              =========        =========        =========        =========
Net income per share:
    Basic                                     $    0.12        $    0.09        $    0.51        $    0.55
    Diluted                                   $    0.11        $    0.08        $    0.49        $    0.53
</TABLE>

    The accompanying notes are an integral part of these financial statements
<PAGE>   6
                              HYPERCOM CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                             (Dollars in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                    Nine Months      Nine Months
                                                                    ended            ended
                                                                    3/31/98          3/31/97
<S>                                                                 <C>              <C>      
CASH FLOW FROM OPERATING ACTIVITIES:
    Cash received from customers                                    $ 180,624        $ 139,654
    Interest received                                                   2,489            1,467
    Cash paid to suppliers & consultants                             (182,589)        (125,434)
    Interest paid                                                      (1,898)          (1,552)
    Income taxes paid                                                  (5,074)         (18,754)
                                                                    ---------        ---------
         Net cash used in operating activities                         (6,448)          (4,619)
CASH FLOW FROM INVESTING ACTIVITIES:
    Acquisition of short term investments                             (60,381)              --
    Acquisition of other assets                                           (21)              --
    Proceeds from disposal of property, plant & equipment                (337)              --
    Purchase of property, plant & equipment                            (8,610)          (2,807)
                                                                    ---------        ---------
         Net cash used in investing activities                        (69,349)          (2,807)
CASH FLOW FROM FINANCING ACTIVITIES:
    Proceeds of bank note payable and other debt instruments           59,307           53,925
    Repayment of bank note payable and other debt instruments         (77,749)         (43,350)
    Proceeds from sale of common stock                                127,500               --
    Cash paid for stock offering costs                                 (1,453)              --
    (Advances to) repayment of related party loans                        559           (1,038)
                                                                    ---------        ---------
         Net cash provided by financing activities                    108,164            9,537
                                                                    ---------        ---------
Effect of exchange rate changes                                           899               36
                                                                    ---------        ---------
Net increase in cash                                                   33,266            2,147
Cash & equivalents, beginning of period                                16,318           16,113
                                                                    ---------        ---------
Cash & equivalents, end of period                                   $  49,584        $  18,260
                                                                    =========        =========
CASH AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of plant and equipment through capital                         --        $      49
    leases
</TABLE>

    The accompanying notes are an integral part of these financial statements
<PAGE>   7
                   Notes to Consolidated Financial Statements
                                   (unaudited)

NOTE 1 - BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of
Hypercom Corporation do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, financial statements included in this
report reflect all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the financial condition and
results of operations for the interim periods covered. The interim results are
not necessarily indicative of the results to be expected for the year ending
June 30, 1998.

This financial information should be read in conjunction with the Company's
audited financial statements for the year ended June 30, 1997 included in the
Company's Registration Statement on Form S-1 (Registration No. 333-35461), as
declared affective by the Securities and Exchange Commission on November 13,
1997.

NOTE 2 - COMPLETION OF 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 $126.1
million, of which approximately $23.1 million were used to repay indebtedness.

Upon completion of the IPO, the Company's obligation to repurchase the stock
options of a particular officer terminated. At this date, the amount previously
recorded as redeemable common stock was transferred to additional paid-in
capital. Additionally, at this date, the Company recorded a final compensation
charge, related to the options, of approximately $10.0 million.
<PAGE>   8
NOTE 3 - INVENTORIES

Inventories, stated at the lower of cost (first-in, first-out) or market,
consisted of (in thousands):

<TABLE>
<CAPTION>
                                                 March 31, 1998       June 30, 1997
                                                 --------------       -------------
<S>                                              <C>                  <C>    
Purchased parts                                    $29,923               $24,765
Work in process                                      3,375                 9,604
Finished goods                                      19,586                21,552
                                                   -------               -------
                                                   $52,884               $55,921
                                                   =======               =======
</TABLE>

NOTE 4 - EARNINGS PER SHARE (EPS) DISCLOSURES:

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") and the Securities and
Exchange Commission Staff Accounting Bulletin 98 ("SAB 98") effective December
31, 1997. SFAS 128 requires the presentation of basic and diluted earnings per
share. 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 incremental common shares issuable upon the exercise of stock
options. SAB 98 requires certain stock issued in conjunction with an initial
public offering for nominal consideration to be included in basic EPS
calculations as if it were outstanding for all periods presented; additionally,
certain stock and potential common stock issued for nominal consideration are
required to be included in diluted EPS calculations as if they were outstanding
for all periods. 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 128.
<PAGE>   9
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as follows
(in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                           Three Months Ended        Nine months Ended
                                            March 31                  March 31
                                                1998         1997         1998         1997
                                         (unaudited)  (unaudited)  (unaudited)  (unaudited)
<S>                                      <C>          <C>          <C>          <C>   
Numerator - Basic and Diluted EPS:
    Net income                            4,034        2,166       14,985       13,695
Denominator - Basic EPS:
    Common stock outstanding             33,531       25,000       29,107       25,000
Basic earnings per share                   0.12         0.09         0.51         0.55
                                         ======       ======       ======       ======
Denominator - Diluted EPS:
    Denominator - Basic EPS              33,531       25,000       29,107       25,000
Effect of Dilutive Securities
    Common stock options                  1,981          798        1,631          611
                                         ------       ------       ------       ------
                                         35,512       25,798       30,738       25,611
                                         ------       ------       ------       ------
Diluted earnings per share                 0.11         0.08         0.49         0.53
                                         ======       ======       ======       ======
</TABLE>
<PAGE>   10
NOTE 5 - 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 that interconnect and consolidate through wide area networks,
geographically dispersed legacy data, local area network, voice, fax and video
traffic into a single networked system.

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 as of and for
the three and nine month periods ended March 31, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
                                             Three months ended 3/31/98                    Nine months ended 3/31/98
                                      POS            Network                        POS            Network
                                      Systems        Systems         Total          Systems        Systems         Total
<S>                                   <C>            <C>             <C>            <C>            <C>             <C>     
Revenue from external customers       $ 50,041       $  4,298        $ 54,339       $182,685       $ 21,800        $204,485
Intersegment revenues                       --          1,182           1,182             --          9,050           9,050
                                      --------       --------        --------       --------       --------        --------
    Total revenues                      50,041          5,480          55,521        182,685         30,850         213,535
                                      --------       --------        --------       --------       --------        --------
Segment income from operations        $ 10,380       $ (2,243)       $  8,137       $ 47,856       $   (393)       $ 47,463
                                      ========       ========        ========       ========       ========        ========
Segment assets                                                                      $294,897       $ 32,552        $327,449
                                                                                    ========       ========        ========
</TABLE>

<TABLE>
<CAPTION>
                                           Three months ended 3/31/97                     Nine months ended 3/31/97
                                      POS            Network                        POS            Network
                                      Systems        Systems         Total          Systems        Systems        Total
<S>                                   <C>            <C>             <C>            <C>            <C>            <C>     
Revenue from external customers       $ 40,549       $  5,363        $ 45,912       $134,192       $ 17,152       $151,344
Intersegment revenues                       --          1,651           1,651             --          4,979          4,979
                                      --------       --------        --------       --------       --------       --------
    Total revenues                      40,549          7,014          47,563        134,192         22,131        156,323
                                      --------       --------        --------       --------       --------       --------
Segment income from operations        $  5,962       $   (929)       $  5,033       $ 38,767 $          846       $ 39,613
                                      ========       ========        ========       ========       ========       ========
Segment assets                                                                      $203,625       $ 17,954       $221,579
                                                                                    ========       ========       ========
</TABLE>

RECONCILIATION

<TABLE>
<CAPTION>
                                                   Three months     Nine months     Three months    Nine Months
                                                   ended 3/31/98   ended 3/31/98   ended 3/31/97   ended 3/31/97
<S>                                                <C>             <C>             <C>             <C>     
INCOME FROM OPERATIONS
Income from operations for reportable segments       $  8,137        $ 47,463        $  5,033        $ 39,613
Elimination of intersegment profits                    (1,028)         (1,870)          2,651          (3,455)
Unallocated amounts
    Corporate expenses                                 (3,949)        (23,870)         (4,084)        (15,624)
                                                     --------        --------        --------        --------
        Consolidated income from operations          $  3,160        $ 21,723        $  3,600        $ 20,534
                                                     ========        ========        ========        ========
</TABLE>
<PAGE>   11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         This discussion and analysis of financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related disclosures included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included as part of the Company's Registration Statement
on Form S-1 (Registration No. 333-35461), as declared effective by the
Securities and Exchange Commission on November 13, 1997.

RESULTS OF OPERATIONS

         NET REVENUE. Net revenues for the three months ended March 31, 1998
increased 18.4% to $54.3 million from $45.9 million for the three month period
ended March 31, 1997 due primarily to a 23.4% increase in Point of Sale (POS)
Systems sales of $9.5 million. Network Systems revenues decreased $1.1 million
or 19.9%. The increase in POS Systems sales reflected continued growth of POS
terminal sales into both international and domestic markets. Network Systems
revenues declined due to lower shipments into the Asian markets caused by
economic uncertainties in that region. Network Systems revenues in Asia are
expected to remain at these low levels for the foreseeable future.

         Net revenue for the nine months ended March 31, 1998 increased 35.1% to
$204.5 million from $151.3 million for the nine month period ending March 31,
1997. POS Systems sales increased $48.5 million or 36.1% in the nine months
ended March 31, 1998 with international revenues rising 41.0% and domestic
revenues increasing 27.6%. The increase in POS Systems sales was due to a
greater number of POS terminals sold, reflecting continued growth in the
consumers usage of card-based payments and particularly an expanding usage of
credit and debit cards in international markets. Network Systems revenue
increased $4.6 million or 27.1 % in the nine months ended March 31, 1998 over
the same period of the prior year due to the continuing market acceptance of the
Company's enterprise networking products. However, Network Systems revenues in
Asia declined $2.9 million to $3.5 million in the nine months ended March 31,
1998 compared to the same period in the prior year. The Company anticipates
continued weakness in Asia's Network Systems business. For the twelve months
ended June 30, 1997, the Company's Asia revenues for Network Systems were $7.9
million or 4.0% of the consolidated revenues.
<PAGE>   12
         COST OF REVENUE. The Company's cost of revenue includes raw material
costs, manufacturing labor and overhead and subcontract manufacturing costs.
Cost of revenue increased $2.7 million from $25.7 million to $28.4 million for
the three months ended March 31, 1998 compared to the same quarter in the prior
year, due to higher sales of POS units. Cost of revenue increased $23.8 million
from $79.8 million for the nine months ended March 31, 1997 to $103.6 for the
nine months ended March 31, 1998. As a percentage of revenue, cost of revenue
decreased slightly from 52.7% for the nine months ended March 31, 1997 to 50.6%
for the nine months ended March 31, 1998. Cost of revenue declined in the three
months and nine months ended March 31, 1998 due to lower labor and overhead
costs per unit realized from improved manufacturing productivity.

         RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
consists primarily of software and hardware engineering costs and development
personnel expenses. Research and development expense increased $3.1 million, or
102% to $6.1 million in the 1998 period compared to $3.0 million in the 1997
period. This increase was a result of higher development costs of new POS
payment system products including the Company's Pinnacle Server Environment and
increased development expense in preparing products for international markets.
Research and development expense increased $8.1 million from $8.9 million in the
nine months ended March 31, 1997 to $17.0 million for the same nine month period
ended March 31, 1998. The increased research & development expense for the nine
months also included higher development expense for the Company's Network
Systems products.

         To date, all of the Company's software development costs have been
expensed as incurred and included in research and development. The Company's
product development process is such that technological feasibility is
established upon completion of a working model. Costs incurred between
completion of the working model and the point at which the product is ready for
initial shipment have not been significant.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense is comprised largely of sales and marketing expenses,
administrative personnel costs and facilities costs. Selling, general and
administrative expense increased $3.6 million from $13.0 million in the 1997
period to $16.6 million in the three month 1998 period. As a percentage of
revenues, these expenses increased from 28.4% of revenues in the 1997 period to
30.6% of revenues in the 1998 period. The majority of this increase was in
Network Systems. Selling, general and administrative expense increased $13.4
million from $37.8 million in the nine month period ended March 31, 1997 to
$51.2 million in the same period ended March 31, 1998 period. Expenses increased
$5.5 million in Network System. These expenses represented 25.0% of revenues in
both the 1997 period and the 1998 period. These expenses have increased
consistent with sales in the first nine months due to increased selling expense
associated with higher revenues and expanded sales operations including opening
of additional international sales offices. The Company also realized growth in
computer systems, administrative and finance functions to support its current
and future growth.
<PAGE>   13
         NON-CASH COMPENSATION EXPENSE. In connection with the grant of certain
stock options to the Company's President and Chief Executive Officer, which
includes a stock repurchase arrangement that terminated upon the completion of
the Company's initial public offering (the "Offering"), the Company recorded
non-cash compensation charges of $529 thousand and zero for the three months
ended March 31, 1997 and 1998, respectively. These non-cash compensation charges
amounted to $4.4 and $11.0 million for the nine month periods ended March 31,
1997 and 1998. Due to the termination of the repurchase arrangement, the Company
does not anticipate future non-cash compensation charges related to employee
stock options.

         INCOME FROM OPERATIONS. Income from operations decreased $0.4 million
from $3.6 million in the three months ended March 31, 1997 to $3.2 million for
the three months ended March 31, 1998. As a percentage of revenue, income from
operations was 5.8% in the three months ended March 31, 1998 compared to 7.8%
for the three months ended March 31, 1997. This decrease was primarily a result
of increased research and development expenditures. As a percentage of revenue,
income from operations excluding non-cash compensation expense and research and
development expenses was 17.0% for the 1998 period and 15.6% for the 1997
period.

         Income from operations increased $1.2 million from $20.5 million in the
nine months ended March 31, 1997 to $21.7 million for the nine months ended
March 31, 1998. As a percentage of revenue, income from operations was 10.6% in
the nine months ended March 31, 1998 compared to 13.6% for the nine months ended
March 31, 1997. This decrease was a result of the increase in non-cash
compensation expense and increased research and development expenditures. As a
percentage of revenue, income from operations excluding non-cash compensation
expense and research and development expenses was 24.3% for the 1998 period and
22.3% for the 1997 period.

         The Company anticipates no future non-cash compensation charges related
to employee stock plans. As a percentage of revenue, income from operations
excluding non-cash compensation was 5.8% for three months ended March 31, 1998,
and 8.9% for the same period in 1997. For the nine months ended March 31, 1998
and 1997, operating profit excluding non-cash compensation was 16.0% and 16.5%
respectively, as a percentage of revenue.

         NET INTEREST AND OTHER INCOME. Interest and other income, consisting
primarily of interest income on short-term investments and cash balances, which
exceeded interest expense by $1.1 million in the three month period ended March
31, 1998. As a result of higher borrowings, interest expense exceeded interest
and other income by $371,000 in the three month period ending March 31, 1997.
Interest and other income exceeded interest expense by $601,000 in the nine
month period ended March 31, 1998. As a result of higher borrowings, interest
expense exceeded interest and other income by $86,000 in the comparable 1997
period.
<PAGE>   14
         INCOME TAXES. The provisions for federal, state and foreign taxes were
$0.4 million and $1.1 million in the three months ended March 31, 1998 and 1997,
respectively. The provisions for federal, state and foreign taxes were $6.3
million and $6.9 million in the nine month 1998 and 1997 periods, respectively.
The effective tax rates were 8.9% and 33.5% in the three month 1998 and 1997
periods, respectively, and 29.6% and 33.5% in the nine month periods of 1998 and
1997. The current quarter effective tax rate is lower due to recognizing as
income the fiscal 1997 tax return to accrual difference. The Company's tax rate
typically is lower than the US federal statutory rate due to: (i) use of certain
tax credits, such as research and experimentation tax credits in the US and
Australia, (ii) sales attributable to certain foreign jurisdictions that impose
lower tax rates and (iii) use of a foreign sales corporation which affords the
Company lower tax rates on certain international sales.

LIQUIDITY AND CAPITAL RESOURCES

         The Company requires working capital to support inventory and accounts
receivables, and to fund capital expenditures necessary to support its growth.
As of March 31, 1998, the Company's working capital was $216.2 million, which
included cash, cash equivalents, and short term investments of $110.0 million.
The Company funds working capital requirements with cash from operations and
borrowings, principally a line of credit. Net cash used in operating activities
in the nine month periods ended March 31, 1998 and 1997, was $6.5 million and
$4.6 million, respectively.

         The Company's capital commitments consist primarily of the purchase or
lease of facilities and equipment. The Company used $4.3 million and $8.6
million in three and nine months ended March 31, 1998, respectively, to purchase
property, plant and equipment, primarily manufacturing equipment, facilities and
computer hardware and software to support the Company's growth. The Company
anticipates that it will spend approximately $25.0 million to fund capital
improvements during fiscal 1998, including $20.0 million relating to the
expansion of its manufacturing, warehouse and corporate facilities in Phoenix,
Arizona.

         The Company maintains a $10.0 million revolving line of credit, which
expires in December 1999. The line of credit is secured by the Company's account
receivables and inventories. Under the terms of the agreement, the Company may
borrow up to an amount equal to 80.0% of its domestic accounts receivable under
90 days past due and 35.0% of its raw material and finished goods inventories.
The outstanding balance as of March 31, 1998 was $4.6 million. The credit
agreement limits the incurrence of additional debt and the granting of liens or
encumbrances on assets and restricts the use of borrowed funds to working
capital needs.

         The Company believes that the net proceeds from the Offering together
with cash generated by operations and available borrowings will be sufficient to
fund the Company's operations for the foreseeable future.
<PAGE>   15
BACKLOG

         As of March 31, 1998, the Company had a backlog of $72.4 million.
Backlog was $111.00 million at June 30, 1997. The backlog has declined due to
the seasonality in the Company's business. In addition, the Company has taken
steps to reduce terminal manufacturing lead time. These shorter lead times
eliminate the prior requirements for customers to book orders covering longer
periods. Therefore this decline in backlog may be due to changes in business
conditions and is not an indication of lower future revenues.

         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.

SEASONALITY

         Historically, the Company's net revenue and results of operations have
been stronger in the first half of the fiscal year reflecting (i) increased
purchases of POS payment systems to satisfy increased retail demand during the
holiday season, (ii) incentive programs offered by VISA and MasterCard from July
to December of each year that encourage merchants to offer card-based payment
systems and (iii) allocation of customers' capital budgets which typically
occurs by the end of March with volume shipments commencing in July.

SPECIAL NOTE CONCERNING FORWARD LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q, 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
<PAGE>   16
differ materially from those set forth in, contemplated by, or underlying the
forward looking statements. Statements in this Quarterly Report, including the
Notes to the Condensed 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. Other factors that could cause actual results to differ
materially from those expressed in such forward looking statements are set forth
below under the caption "Factors That May Affect Future Operating Results and
Financial Condition." 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.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS AND FINANCIAL CONDITION.

         The Company's future operating results and financial condition are
dependent on a number of factors that the Company must successfully manage in
order to achieve favorable future operating results and financial condition. The
following potential risks and uncertainties, together with those mentioned
elsewhere herein, could affect the Company's future operating results, financial
condition, and the market price of its Common Stock.

Difficulty in Forecasting Net Revenue; Significant Fluctuations in Quarterly
Results; Seasonality

         The Company's net revenue in a given period is difficult to forecast as
a result of a variety of factors, including the timing of product purchases by
the Company's customers, the length of the sales cycle for the Company's
products and quarterly fluctuations. Hypercom POS Systems and its customers
enter into purchase agreements, which generally have a one-year term and minimum
purchase commitments. However, under the terms of these agreements, the
Company's customers are not required to make purchases at any particular times
during the term of the agreement or to purchase products exclusively from the
Company. Because the timing of product purchases in any given period is solely
within the customers' discretion and control, net revenue attributable to POS
payment systems products is difficult to forecast in any given period. This
difficulty in forecasting net revenue is compounded in certain international
markets in which large orders for complete systems sales occur more frequently
than in the U.S. Due to the significant commitment of capital associated with
complete systems sales, the sales cycle for such systems is generally lengthy
and difficult to predict. With respect to Hypercom Network Systems, the Company
generally operates with little backlog and, as a result, net revenue
attributable to enterprise networking products in any quarter is substantially
dependent on the orders booked and shipped in that quarter. Further, the highly
technical nature of these sales generally results in a sales cycle that ranges
from 12 to 18 months.
<PAGE>   17
         The Company's operating results also are subject to other
uncertainties, including risks and uncertainties related to general industry and
economic conditions, competitive pressures, the composition, timing and size of
orders from and shipments to major customers, variations in product mix and
product cost, overhead costs, obsolescence of inventory, manufacturing or
production difficulties, certain nonrecurring charges and other factors.
Accordingly, the Company's operating results vary materially from quarter to
quarter. Because a high percentage of the Company's operating expenses are
relatively fixed, if anticipated sales and shipments in any quarter do not occur
as expected, the Company's operating results may be adversely affected and fall
significantly short of expectations. Any unanticipated decline in the growth of
the Company's net revenue, without a corresponding and timely reduction in the
growth of operating expenses, could have a material adverse effect on the
Company's business, operating results and financial condition. There is no
assurance that, in the event of any shortfall of sales or reduction in gross
margin in a quarter, the Company will be able to control expenses sufficiently
or promptly to meet profitability objectives for that quarter.

         Historically, the Company's business has experienced, and is expected
to continue to experience some degree of seasonality. In this regard, the
Company's net revenue and results of operations have been stronger in the first
half of the fiscal year reflecting (i) increased purchases of POS payment
systems to satisfy increased retail demand during the holiday season, (ii)
incentive programs offered by VISA and MasterCard from July to December of each
year that encourage merchants to offer card-based payment systems and (iii)
allocation of customers' capital budgets which typically occurs by the end of
March with volume shipments commencing in July.

Risks Associated with International Operations and Foreign Currency Fluctuations

         For the fiscal years 1997, 1996 and 1995, net revenue from
international sales comprised approximately 55.8%, 58.1% and 60.4%,
respectively, of the Company's net revenues. The Company expects that
international sales will continue to account for a significant percentage of the
Company's net revenue in the foreseeable future. Accordingly, the Company is
subject to risks associated with international operations, including management
of a multinational organization, fluctuations in currency exchange rates,
compliance with local laws and other regulatory and product certification
requirements and changes in such laws and requirements, tariffs and other trade
barriers, import and export controls, restrictions on the repatriation of funds,
inflationary conditions, staffing, employment and severance issues, political
and economic instability, war or other hostilities, expropriation or
nationalization of assets, overlap of tax structures, renegotiation or
nullification of contracts and longer payment cycles in certain countries. The
Company's manufacturing facilities in Australia and Brazil and its subcontracted
manufacturing facilities in China are subject to particular risks relating to
political developments, tariffs, duties, taxes, local content requirements,
embargoes, boycotts and other trade barriers in or directed at those countries.
The inability to effectively manage these and other risks could adversely affect
the Company's business, operating results and financial condition.
<PAGE>   18
         The Company generally does not engage in hedging transactions which
could partially offset the effects of fluctuations in currency exchange rates.
However, as the Company continues to expand its international operations,
exposure to gains and losses on foreign currency transactions may increase. The
Company may choose to limit such exposure by entering into forward foreign
exchange contracts or engaging in similar hedging strategies. There can be no
assurance that any currency exchange strategy would be successful in avoiding
exchange-related losses or that the failure to manage currency risks will not
have a material adverse effect on the Company's business, operating results or
financial condition.

Industry and Technological Changes; Dependence on Development and Market
Acceptance of New Products

         The market for POS payment systems products in the electronic payments
industry is driven by consumers who want to use a variety of payment options and
the merchant's need to offer new payment options as required to remain
competitive. Although the technologies and payment options used in the
electronic payment industry have not changed substantially in recent years, the
Company believes that demand for lower cost products that feature greater
functionality at the point of sale, more rapid and accurate processing of
transactions and improvements in security features, as well as emerging
technologies and payment programs, will result in significant changes in the
electronic payments industry over the next few years. In addition, the
enterprise networking industry has been, and continues to be, characterized by
rapidly changing technologies and new product introductions. The Company's
success, particularly in the enterprise networking industry, will depend to a
substantial degree upon its continued ability to develop and introduce, in a
timely fashion, enhancements to its existing products and new products that meet
changing market and industry requirements.

         The development of new products and technologies is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will be able to identify, develop, manufacture, market or support
new products and technologies successfully, that such new products and
technologies will gain market acceptance and be successful or that the Company
will be able to respond effectively to technological changes, emerging industry
standards or product announcements by competitors. In addition, the Company
occasionally has experienced delays in the introduction of product enhancements
and new products. There can be no assurance that the Company will be able to
introduce product enhancements or new products on a timely basis in the future.
Further, from time to time, the Company may announce new products, capabilities
or technologies that have the potential to replace or shorten the life cycle of
the Company's existing product offerings. There can be no assurance that
announcements of product enhancements or new product offerings will not cause
customers to defer purchasing existing Company products or cause distributors or
other resellers to return products to the Company. Failure to introduce new
products or product enhancements effectively and on a timely basis, customer
delays in purchasing products in anticipation of new
<PAGE>   19
product introductions and any inability of the Company to respond effectively to
technological changes, emerging industry standards or product announcements by
competitors could have a material adverse effect on the Company's business,
operating results and financial condition.

Dependence on Current Management and Key Personnel

         George Wallner, Albert A. Irato, Paul Wallner and Jairo Gonzalez have
been, and will continue to be, instrumental in the development, growth and
operations of the Company. The Company has employment agreements with Messrs.
Irato and Gonzalez, but does not have employment agreements with George Wallner
and Paul Wallner or any other member of senior management. Although the Company
has no current plans to enter into employment agreements with any other
executive officers or key employees, the Company intends to review the
desirability of such employment agreements from time to time in the future. The
Company maintains and is the beneficiary of key man life insurance of $1.0
million on each of George Wallner and Paul Wallner. The loss of any of Messrs.
Wallner, Irato, Wallner or Gonzalez could have a material adverse effect on the
Company's business, operating results and financial condition.

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

Excess or Obsolete Inventory

         Managing the Company's inventory of components and finished products is
a complex task. A number of factors, including the need to maintain a
significant inventory of certain components which are in short supply or which
must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products and customer requests for quick
delivery schedules, may result in the Company maintaining excess inventory.
Other factors, including changes in market demand and technology, and new
product introductions that may replace or shorten the life cycle of the
Company's existing product offerings, may cause the Company's inventory to
become obsolete. Any excess or obsolete inventory could result in price
reductions and inventory write-downs, which in turn could adversely affect the
Company's business, operating results and financial condition.
<PAGE>   20
Implementation of Information Systems; Management of Quarterly Financial
Reporting

         The Company's predecessor was started in Australia in 1978, and
expanded into other international markets and the U.S. through a number of
affiliated or subsidiary companies or divisions that operated as autonomous
business units. These business units were responsible for their own financial
reporting and cash management and, in some cases, manufacturing. Typically,
detailed financial statements were prepared only on an annual basis. In 1996,
the Company was formed as a U.S. holding company for these various business
operations, which were restructured into new operating units. In addition, the
Company centralized certain functions such as purchasing and manufacturing,
implemented an Oracle-based management information system to improve financial
reporting and budgeting and began to manage its business toward quarterly
reporting. There can be no assurance that these efforts will result in improved
quarterly reporting, more consistent operating results or that they will not
adversely affect the Company's business, operating results and financial
condition.

Competition

         The markets in which the Company operates are highly competitive and
are becoming increasingly competitive. Principal competitive factors include
product quality, reliability, performance, functionality, pricing,
certification, and upgradeability. In the electronic payment industry the
Company competes primarily against VeriFone, Inc., which was recently acquired
by Hewlett-Packard Company, and in the enterprise networking market competes
with Cisco Systems, Inc., 3Com Corporation, Bay Networks, Inc., Motorola
Information Systems Group, and other providers. Certain of the Company's
competitors have significantly greater financial and technical resources than
the Company, as well as better name recognition and a larger customer base than
the Company. The Company faces additional competitive factors in foreign
countries, including preferences for national vendors, and difficulties in
obtaining necessary certifications and in meeting the requirements of government
policies. Competitive factors may result in, among other things, price discounts
or other concessions by the Company and sales lost by the Company to
competitors, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully in the future.

Limited History of Profitability of Hypercom Network Systems

         The Company established Hypercom Network Systems in 1994 to continue to
develop enterprise networking products and technologies for the electronic
payments industry and to leverage these technologies to address other enterprise
networking opportunities. Since its formation, Hypercom Network Systems has
expended substantial sums on research and development and on establishing
distinct manufacturing operations and distribution channels. Until recently, the
majority of Hypercom Network Systems' sales were to Hypercom POS Systems. The
Company believes that Hypercom Network Systems has only recently achieved
profitability as a standalone business, and there can
<PAGE>   21
be no assurance that it will continue to remain profitable as a separate
business, particularly in light of the competitive nature of the industry in
which it operates.

Dependence on Certain Suppliers and Third-Party Distributors

         The Company utilizes a contract manufacturer to build networking
products and is dependent on sole-source suppliers for certain product
components, including microprocessors, certain integrated circuits and other
electronic components, while certain other components are available from only a
limited number of sources. Although to date the Company generally has been able
to obtain adequate supplies of products and components, the Company's inability
to obtain sufficient products or components or to develop alternative sources
could result in delays in product introductions or shipments, which could have a
material adverse effect on the Company's business, operating results and
financial condition.

         The Company uses various channels to market and distribute its
products, including sales to end-users via third-party distributors. Third-party
distributors are a substantial channel for distribution in some international
markets and increasingly are becoming a substantial channel for distribution in
the U.S., particularly with respect to the Company's enterprise networking
products. Accordingly, the Company's ability to market and distribute its
products depends significantly on its relationship with third-party
distributors, as well as the performance and financial condition of these
distributors. In the event that the Company's relationship with its distributors
deteriorates, or the performance or financial condition of the distributors
affects their performance or ability to pay the Company, the Company's business,
operating results and financial condition could be materially adversely
affected. Further, the Company's ability to terminate poorly performing
distributors in certain markets or countries could be restricted under local
laws.

Reliance on Certain Hypercom POS Systems Customers

         A significant portion of Hypercom POS Systems sales has resulted, and
is expected to continue to result, from substantial purchases made by a limited
number of large organizations. Although no one customer accounted for more than
10% of the Company's net revenue in 1997, the Company derived 19.5% of its net
revenue from sales to its two largest customers and 33.6% of its net revenue
from sales to its five largest customers. The Company typically enters into
purchase agreements with its larger customers which generally have a one-year
term and provide for minimum purchase commitments. However, these agreements do
not require such customers to purchase POS payment system products exclusively
from the Company. The failure of any of the Company's larger POS payment system
customers to continue to purchase such products from the Company, or any
significant delay in purchases by such customers, could have a material adverse
effect on the Company's business, operating results and financial condition. The
Company expects that in the future it will continue to rely on a limited number
of customers in any given period for a significant portion of its net revenue.
Further, customer demand can be adversely affected by numerous variables,
<PAGE>   22
including budgetary constraints, changes in the customers' competitive
environment, mergers or other strategic alignments involving customers, pricing
policies by the Company or its competitors, personnel changes, the number,
timing and significance of new product and product enhancement announcements by
the Company and its competitors, the ability of the Company to develop,
introduce and market new and enhanced products on a timely basis and general
economic factors. There can be no assurance that the Company's significant
customers will continue to purchase products from the Company at historical or
any particular levels.

Impact of Industry Regulation and Standards

         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 Federal
Communications Commission (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. Although the Company believes that its products currently
comply with all applicable industry standards in the markets in which the
Company competes, there can be no assurance that the Company's products will
comply with any future changes in such industry standards or with standards in
markets in which the Company may seek to compete in the future. Any future
inability to obtain on a timely basis or retain domestic or foreign regulatory
approvals or certifications or to comply with 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 and profit-sharing plans and
severance payments, and the use, storage, handling and disposal of certain
chemicals used in the Company's production processes. 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.
<PAGE>   23
Product Defects

         Products as complex as those offered by the Company may contain
undetected design defects of software or hardware errors that could be difficult
to detect and correct when first introduced or as new versions are released.
Such errors have occurred in the past, and there can be no assurance that,
despite testing by the Company and customers, errors will not be found in new or
enhanced products after commencement of commercial shipments. Moreover, there
can be no assurance that once detected, such errors can be corrected in a timely
manner, if at all. Software errors may take several months to correct, if they
can be corrected at all, and hardware errors may take even longer to rectify.
The occurrence of any such software or hardware errors, as well as any delay in
correcting them, could result in delays in shipment of products, loss of market
acceptance of the Company's products, additional warranty expense, diversion of
engineering and other resources from the Company's product development efforts
or the loss of credibility with the Company's distributors and customers, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition.

         The Company's POS payment systems products are used to process payment
transactions and, as a result, the security features of the such products are
important. In general, the Company's POS payment systems products are designed
to comply with industry practices relating to security in payment transactions.
Any failure of the security features of the Company's products could adversely
affect the marketing of its products and any violation of its product warranties
resulting from security breaches could result in claims against the Company.

Dependence on Proprietary Technology

         The Company seeks to establish and protect the proprietary aspects of
its products by relying on applicable patent, copyright, trademark and trade
secret laws and on confidentiality, licensing and other contractual
arrangements, all of which may afford only limited protection. Notwithstanding
the Company's efforts to protect its proprietary rights, it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
to reverse engineer or obtain and use technology that the Company regards as
proprietary. In addition, the laws of certain countries do not protect the
Company's proprietary rights to the same extent as do the laws of the U.S.
Accordingly, there can be no assurance that the Company will be able to protect
its proprietary technology against unauthorized copying or use, which could
adversely affect the Company's competitive position. The Company has
applications for certain patents and trademarks pending. There can be no
assurance that any patents or trademarks will be granted or, if granted, that
any patents will cover all claims sought to be protected. Further, there can be
no assurance that any patent or trademark held by or granted to the Company, if
challenged, will be found valid or enforceable.

         The Company's products and technologies incorporate subject matter that
the Company believes is in the public domain or are otherwise within the rights
of the Company to use, such as products and technologies designed and provided
by third
<PAGE>   24
parties. There can be no assurance, however, that third parties will not assert
patent or other intellectual property infringement claims against the Company
with respect to its products and technologies. From time to time, the Company
receives notices from third parties claiming that the Company's products
infringe such parties' proprietary rights, and the Company may receive such
notices in the future. Regardless of its merit, any such claim can be
time-consuming, result in costly litigation and require the Company to enter
into royalty and licensing agreements. Such royalty or licensing agreements may
not be offered or be available on terms acceptable to the Company. If a
successful claim is made against the Company and the Company fails to timely
develop or license a substitute technology, the Company's business, operating
results and financial condition could be materially adversely affected.

Risks of Potential Acquisitions

         The Company may acquire or make substantial investments in
complementary businesses, technologies or products in the future. Any such
acquisition or investment would entail various risks, including the difficulty
of assimilating the technologies, operations and personnel of the acquired
business, technology or product, the potential disruption of the Company's
ongoing business and, generally, the potential inability of the Company to
obtain the desired financial and strategic benefits from the acquisition or
investment. These factors could have a material adverse effect on the Company's
business, operating results and financial condition. Future acquisitions and
investments by the Company also could result in substantial cash expenditures,
potentially dilutive issuances of equity securities, the incurrence of
additional debt and contingent liabilities, and amortization expenses related to
goodwill and other intangible assets, which could adversely affect the Company's
business, operating results and financial condition. Although the Company
engages from time to time in discussions with respect to potential acquisitions,
the Company has no current plans, commitments or agreements with respect to any
potential acquisitions.

Voting Control by Existing Stockholders

         George Wallner and Paul Wallner will, in the aggregate, beneficially
own 63.4% of the Company's outstanding Common Stock following the completion of
the Offering, assuming no exercise of the underwriters' over-allotment option.
Accordingly, George Wallner and Paul Wallner, acting together, will have the
ability to control the affairs of the Company, including the election of all of
the directors to the Company's Board of Directors and, except as otherwise
provided by law, approving or disapproving other matters submitted to a vote of
the Company's stockholders, including a merger, consolidation or sale of assets.
This voting control also may have the effect of delaying or preventing a change
in control of the Company and may affect the price that investors might be
willing to pay in the future for shares of the Company's Common Stock.
<PAGE>   25
Potential Volatility of Stock Price

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

Anti-takeover Effect of Certain Charter and Bylaw Provisions and Delaware Law

         Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could limit
the price that certain investors may be willing to pay in the future for shares
of the Company's Common Stock. Certain of these provisions allow the Company to
issue Preferred Stock without any vote or further action by the stockholders,
provide for a classified Board of Directors and regulate nominations for the
Board of Directors. These provisions may make it more difficult for stockholders
to take certain corporate actions and could have the effect of delaying or
preventing a change in control of the Company. In addition, certain provisions
of Delaware law applicable to the Company also could delay or make more
difficult a merger, tender offer or proxy contest involving the Company.
<PAGE>   26
                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         From time to time, the Company is subject to claims and litigation
incident to its business. As of the date of this Quarterly Report on Form 10-Q,
there is no material legal proceeding to which the Company is a party.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

USE OF PROCEEDS

         The Company sold 8,500,000 shares of Common Stock, $0.001 par value per
share, pursuant to a Registration Statement on Form S-1 (File No. 333-35461),
which was declared effective by the Securities and Exchange Commission on
November 13, 1997 (the "Offering"). All registered securities subject to this
Offering were sold prior to the termination of the Offering. The lead
underwriters of the offering were Lehman Brothers, Salomon Brothers, Inc. and
Cowen & Company. All securities were sold for the account of the Company and
there were no selling security holders. The aggregate gross proceeds of the
Offering were $180,000,000. The Company's total expenses in connection with the
Offering from the effective date of the registration statement through March 31,
1998 were approximately $12.6 million, of which $11.3 million was for
underwriting discounts and commissions and approximately $1.4 million was for
other expenses, all of which were paid to persons other than directors or
officers of the Company, persons owning more than 10 percent of any class of
equity securities of the Company, or affiliates of the Company. The Company's
net proceeds from the Offering were approximately $126.1 million. As of March
31, 1998, the Company expended $23.2 million of such net proceeds for repayment
of debt as follows: BankOne Loan - $6.0 million; Industrial Development Bonds -
$3.7 million; stockholder's loans - $3.6 million; and revolving line of credit -
$9.9 million.
<PAGE>   27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

         Exhibit No.       Description

         27.1              Financial Data Schedule

         (b)      REPORTS ON FORM 8-K

         No report on Form 8-K was filed during the quarter ended March 31,
         1998.

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    HYPERCOM CORPORATION

Date:    May 15, 1998               By: /s/ Albert A. Irato
                                        ----------------------------------------
                                            Albert A. Irato
                                            Chief Executive Officer

Date:  May 15, 1998                 By: /s/ Thomas E. Linnen
                                        ----------------------------------------
                                            Thomas E. Linnen
                                            Chief Financial Officer

EXHIBIT INDEX

Exhibit No.                                       Description

27.1                                              Financial Data Schedule