##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
____________ to ____________
 Commission file number: 1-13521
 HYPERCOM CORPORATION
  Delaware
    
    86-0828608(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)8888 E. Raintree Drive, Suite 300, Scottsdale, Arizona 
Arizona
    
    85260(Address of principal executive offices)
    
    (Zip Code)
 (480) 642-5000
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Class
    
    Outstanding at August 6, 2008Common Stock, $.001 par value per share
    
    53,402,958 shares




---



##### 



INDEX
  
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    3Consolidated Balance Sheets  June 30, 2008 and December
31, 2007
    
    3Consolidated Statements of Operations  Three and six
months ended June 30, 2008 and 2007
    
    4Consolidated Statements of Cash Flows  Three and six
months ended June 30, 2008 and 2007
    
    5Notes to Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    31Item 4. Controls and Procedures
    
    31PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    32Item 1A. Risk Factors
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    33Item 6. Exhibits
    
    34Signatures
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 HYPERCOM CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 June 30,
    
    
    December 31,Amounts in thousands, except share data
    
    2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    37,875
    
    
    $
    76,925Short-term investments
    
    
    4,022
    
    
    
    4,988Accounts receivable, net of allowance for doubtful accounts of
$7,943 and $4,034, respectively
    
    
    104,159
    
    
    
    71,341Inventories
    
    
    41,336
    
    
    
    22,343Prepaid expenses and other current assets
    
    
    20,421
    
    
    
    15,251Deferred income taxes
    
    
    
    
    
    
    497Total current assets
    
    
    207,813
    
    
    
    191,345Property, plant and equipment, net
    
    
    24,005
    
    
    
    17,694Intangible assets, net
    
    
    81,395
    
    
    
    10,502Goodwill
    
    
    96,874
    
    
    
    10,224Deferred acquisition costs
    
    
    
    
    
    
    12,529Other long-term assets
    
    
    13,004
    
    
    
    7,950Total assets
    
    $
    423,091
    
    
    $
    250,244LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    78,942
    
    
    $
    30,448Accrued payroll and related expenses
    
    
    22,188
    
    
    
    9,889Accrued sales and other taxes
    
    
    8,731
    
    
    
    7,427Product warranty liabilities
    
    
    6,940
    
    
    
    1,754Accrued other liabilities
    
    
    26,539
    
    
    
    16,154Deferred revenue
    
    
    13,676
    
    
    
    5,497Income taxes payable
    
    
    4,223
    
    
    
    519Total current liabilities
    
    
    161,239
    
    
    
    71,688Deferred tax liabilities
    
    
    22,828
    
    
    
    620Long-term debt
    
    
    44,898
    
    
    
    Other liabilities
    
    
    9,316
    
    
    
    3,437Total liabilities
    
    
    238,281
    
    
    
    75,745Commitments and contingenciesStockholders equity:Common stock, $.001 par value; 100,000,000 shares authorized;
53,402,858 and 53,167,702 shares outstanding, respectively
    
    
    57
    
    
    
    56Additional paid-in capital
    
    
    271,072
    
    
    
    251,034Accumulated deficit
    
    
    (65,069
    )
    
    
    (53,842
    )Treasury stock, 3,162,248 shares (at cost)
at June 30, 2008 and December 31, 2007
    
    
    (22,749
    )
    
    
    (22,749
    )Accumulated other comprehensive income
    
    
    1,499
    
    
    
    Total stockholders equity
    
    
    184,810
    
    
    
    174,499Total liabilities and stockholders equity
    
    $
    423,091
    
    
    $
    250,244
  3




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##### Table of Contents



HYPERCOM CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Amounts in thousands, except share and per share data)Net revenue:Products
    
    $
    92,774
    
    
    $
    47,865
    
    
    $
    142,358
    
    
    $
    96,033Services
    
    
    32,650
    
    
    
    19,612
    
    
    
    54,762
    
    
    
    36,271Total net revenue
    
    
    125,424
    
    
    
    67,477
    
    
    
    197,120
    
    
    
    132,304Costs of revenue:Products
    
    
    64,484
    
    
    
    41,296
    
    
    
    97,538
    
    
    
    71,042Services
    
    
    26,103
    
    
    
    17,373
    
    
    
    44,890
    
    
    
    31,650Amortization of purchased intangible assets
    
    
    1,066
    
    
    
    94
    
    
    
    1,157
    
    
    
    170Total costs of revenue
    
    
    91,653
    
    
    
    58,763
    
    
    
    143,585
    
    
    
    102,862Gross profit
    
    
    33,771
    
    
    
    8,714
    
    
    
    53,535
    
    
    
    29,442Operating expenses:Research and development
    
    
    14,892
    
    
    
    8,108
    
    
    
    21,004
    
    
    
    15,437Selling, general and administrative
    
    
    24,878
    
    
    
    11,193
    
    
    
    40,434
    
    
    
    27,247Amortization of purchased intangible assets
    
    
    1,989
    
    
    
    162
    
    
    
    2,150
    
    
    
    280Gain on sale of real property
    
    
    
    
    
    
    (3,774
    )
    
    
    
    
    
    
    (3,774
    )Total operating expenses
    
    
    41,759
    
    
    
    15,689
    
    
    
    63,588
    
    
    
    39,190Loss from continuing operations
    
    
    (7,988
    )
    
    
    (6,975
    )
    
    
    (10,053
    )
    
    
    (9,748
    )Interest income
    
    
    322
    
    
    
    842
    
    
    
    1,119
    
    
    
    1,726Interest expense
    
    
    (2,512
    )
    
    
    (58
    )
    
    
    (2,512
    )
    
    
    (103
    )Foreign currency loss
    
    
    (254
    )
    
    
    (411
    )
    
    
    (205
    )
    
    
    (1,029
    )Other expense
    
    
    70
    
    
    
    2
    
    
    
    149
    
    
    
    6Loss before income taxes and
discontinued operations
    
    
    (10,362
    )
    
    
    (6,600
    )
    
    
    (11,502
    )
    
    
    (9,148
    )Income tax benefit (provision)
    
    
    (673
    )
    
    
    896
    
    
    
    (10
    )
    
    
    229Loss before discontinued operations
    
    
    (11,035
    )
    
    
    (5,704
    )
    
    
    (11,512
    )
    
    
    (8,919
    )Income from discontinued operations
    
    
    140
    
    
    
    (39
    )
    
    
    285
    
    
    
    651Net loss
    
    $
    (10,895
    )
    
    $
    (5,743
    )
    
    $
    (11,227
    )
    
    $
    (8,268
    )Basic and diluted loss per share:Loss before discontinued operations
    
    $
    (0.21
    )
    
    $
    (0.11
    )
    
    $
    (0.22
    )
    
    $
    (0.17
    )Income from discontinued operations
    
    
    0.01
    
    
    
    
    
    
    
    0.01
    
    
    
    0.01Basic and diluted loss per share
    
    $
    (0.20
    )
    
    $
    (0.11
    )
    
    $
    (0.21
    )
    
    $
    (0.16
    )Basic and diluted weighted average common shares
    
    
    53,342,947
    
    
    
    53,167,875
    
    
    
    53,283,760
    
    
    
    53,172,190
  4




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##### Table of Contents



HYPERCOM CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,(Amounts in thousands)
    
    2008
    
    
    2007Cash flows from continuing operations:Net loss from continuing operations
    
    $
    (11,512
    )
    
    $
    (8,919
    )Adjustments to reconcile net loss
from continuing operations to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    4,917
    
    
    
    3,918Amortization of purchased intangibles
    
    
    3,307
    
    
    
    450Interest conversion to debt
    
    
    1,500
    
    
    
    Amortization of debt issuance costs
    
    
    32
    
    
    
    Amortization of discount on notes payable
    
    
    915
    
    
    
    Amortization of discounts on short-term
investments
    
    
    (58
    )
    
    
    (553
    )Provision (reversal) for doubtful accounts
    
    
    (1,000
    )
    
    
    577Provision for excess and obsolete inventory
    
    
    1,289
    
    
    
    6,632Provision for warranty and other product charges
    
    
    1,840
    
    
    
    1,893Deferred income tax benefit (provision)
    
    
    4,007
    
    
    
    (2
    )Non-cash share-based compensation
    
    
    1,753
    
    
    
    1,045Foreign currency gains (losses)
    
    
    4
    
    
    
    (876
    )Gain on sale of real property
    
    
    
    
    
    
    (3,774
    )Non-cash write-off of intangibles and other assets
    
    
    451
    
    
    
    427Changes in operating assets and
liabilities, net of effects from business aquisitions
    
    
    10,600
    
    
    
    (981
    )Net cash provided by (used in) operating activities
    
    
    18,045
    
    
    
    (163
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,042
    )
    
    
    (3,812
    )Proceeds from the sale of real property
    
    
    
    
    
    
    16,250Cash paid for acquisitions including acquisition costs deferred, net of cash acquired
    
    
    (114,898
    )
    
    
    (12,707
    )Software development costs capitalized
    
    
    (57
    )
    
    
    (902
    )Purchase of short-term investments
    
    
    (31,051
    )
    
    
    (97,722
    )Proceeds from the sale or maturity of
short-term investments
    
    
    32,075
    
    
    
    104,835Net cash used in investing activities
    
    
    (116,973
    )
    
    
    5,942Cash flows from financing activities:Repayments of bank notes payable and other
debt instruments
    
    
    (434
    )
    
    
    (5
    )Debt issuance cost
    
    
    (687
    )
    
    
    Proceeds from issuance of common stock
    
    
    602
    
    
    
    271Proceeds from long term debt
    
    
    60,000
    
    
    
    Net cash provided by financing activities
    
    
    59,481
    
    
    
    266Effect of exchange rate changes on cash
    
    
    397
    
    
    
    295Net increase
(decrease) in cash flows from continuing operations
    
    
    (39,050
    )
    
    
    6,340Cash and cash equivalents, beginning of period
    
    
    76,925
    
    
    
    34,190Cash and cash equivalents, end of period
    
    $
    37,875
    
    
    $
    40,530
  5




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##### Table of Contents



HYPERCOM CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2008
(Unaudited)
 1. Basis of Presentation
    Recent Accounting Pronouncements
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51
 Fair Value Measurements
 6




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##### Table of Contents



Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 2. Business Combination
 Thales e-Transactions
    Cash paid
to purchase TeT shares
    
    $
    120,000Cash paid for
working capital and net debt
    
    
    23,611Transaction costs and expenses
    
    
    3,827Total purchase price
    
    $
    147,438
 
  Balance Accruedas of June, 30Total
    
    2008
    
    2008
    
    2007Cash paid for
TeT shares and working capital
    
    $
    133,611
    
    
    $
    
    
    
    $
    133,611
    
    
    $
    Cash paid for transaction costs
    
    
    3,827
    
    
    
    307
    
    
    
    3,152
    
    
    
    368Cash deposit
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000Subtotal
    
    
    147,438
    
    
    
    307
    
    
    
    136,763
    
    
    
    10,368Cash acquired from TeT
    
    
    (21,865
    )
    
    
    
    
    
    
    (21,865
    )
    
    $
    Total cash paid, net of cash acquired
    
    $
    125,573
    
    
    $
    307
    
    
    $
    114,898
    
    
    $
    10,368
   7




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##### Table of Contents



Cash
    
    $
    21,865Accounts receivable
    
    
    38,900Inventory
    
    
    9,426Property, plant and equipment
    
    
    5,757Other assets
    
    
    11,276Amortizable intangible assets:Customer and supplier relationships
    
    
    66,350Unpatented technology
    
    
    5,688Trademarks, trade names
    
    
    2,127Total assets
    
    
    161,389Deferred revenue
    
    
    (6,904
    )Other current liabilities
    
    
    (62,017
    )Net deferred tax liabilities
    
    
    (22,117
    )Non curent liabilities
    
    
    (6,615
    )Total liabilities
    
    
    (97,653
    )Fair value
of tangible and intangible assets acquired, net of liabilities assumed
    
    
    63,736Goodwill
    
    
    83,702Total preliminary estimated purchase price allocation
    
    $
    147,438
 Net Tangible and Intangible Assets.
 Recognition of Liabilities in
Connection with a Purchase Business Combination
      8




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##### Table of Contents



Goodwill.
   Total net revenue
    
    $
    240,264Net loss
    
    $
    (19,887
    )Net loss per share  basic and diluted
    
    $
    (0.37
    )
 ACG Group
     9




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##### Table of Contents



Goodwill and Other Intangible Assets
 TPI Software
    3. Restructuring and Other Charges
 Restructuring
  Thales e-Transactions
   Short TermFacilities
    
    
    Severance
    
    
    Total
    
    
    PortionBalance at March 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Additions
    
    
    750
    
    
    
    5,400
    
    
    
    6,150
    
    
    
    6,150Cash payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2008
    
    $
    750
    
    
    $
    5,400
    
    
    $
    6,150
    
    
    $
    6,150
 4. Leases
 Sales-Type Leases
  10




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##### Table of Contents



2008
    
    
    2007Lease contracts receivable
    
    $
    18,106
    
    
    $
    6,495Unearned revenue
    
    
    (3,174
    )
    
    
    (524
    )Net investment in sales-type leases
    
    $
    14,932
    
    
    $
    5,971
  5. Inventories
  2008
    
    
    2007Purchased parts
    
    $
    5,506
    
    
    $
    8,676Work in progress
    
    
    1,849
    
    
    
    4,566Finished goods
    
    
    33,981
    
    
    
    9,101$
    41,336
    
    
    $
    22,343
 6. Property, Plant and Equipment
  2008
    
    
    2007Buildings
    
    $
    2,524
    
    
    $
    2,524Computer equipment and software
    
    
    29,194
    
    
    
    24,955Machinery and equipment
    
    
    31,812
    
    
    
    25,793Equipment leased to customers
    
    
    4,325
    
    
    
    4,350Furniture and fixtures
    
    
    5,725
    
    
    
    4,944Leasehold improvements
    
    
    4,616
    
    
    
    3,809Construction in process
    
    
    2,277
    
    
    
    3,83280,473
    
    
    
    70,207Less accumulated depreciation
    
    
    (56,468
    )
    
    
    (52,513
    )$
    24,005
    
    
    $
    17,694
  7. Intangible Assets, Net, and Goodwill
  11




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##### Table of Contents



Gross Carrying Amount
    
    
    Accumulated Amortization
    
    
    NetJune 30, 2008
    
    
    December 31, 
2007
    
    
    June 30, 2008
    
    
    December 31, 
2007
    
    
    June 30, 2008
    
    
    December 31, 
2007Capitalized software
    
    $
    4,936
    
    
    $
    6,159
    
    
    $
    (3,387
    )
    
    $
    (3,949
    )
    
    $
    1,549
    
    
    $
    2,210Customer and supplier relationships
    
    
    69,794
    
    
    
    2,830
    
    
    
    (2,238
    )
    
    
    (263
    )
    
    
    67,556
    
    
    
    2,567Unpatented technology
    
    
    8,035
    
    
    
    2,300
    
    
    
    (1,055
    )
    
    
    (240
    )
    
    
    6,980
    
    
    
    2,060Trademarks, trade names
    
    
    4,365
    
    
    
    2,220
    
    
    
    (570
    )
    
    
    (204
    )
    
    
    3,795
    
    
    
    2,016Service know-how
    
    
    1,330
    
    
    
    1,330
    
    
    
    (188
    )
    
    
    (122
    )
    
    
    1,142
    
    
    
    1,208Other
    
    
    609
    
    
    
    609
    
    
    
    (236
    )
    
    
    (168
    )
    
    
    373
    
    
    
    441$
    89,069
    
    
    $
    15,448
    
    
    $
    (7,674
    )
    
    $
    (4,946
    )
    
    $
    81,395
    
    
    $
    10,502
  Capitalized software
    
    3 yearsCustomer and supplier relationships
    
    4-10 yearsUnpatented technology
    
    2-10 yearsTrademarks, trade names
    
    2-10 yearsService know-how
    
    10 yearsOther
    
    2-5 years
  Goodwill
  June 30,
    
    
    December 31,2008
    
    
    2007Balance, beginning of year
    
    $
    10,224
    
    
    $
    2,691Additions related to acquisitions
    
    
    83,702
    
    
    
    6,820Resolution of tax contingencies and adjustments to
tax reserves, valuation allowances and performance holdback
established in purchase accounting
    
    
    2,184
    
    
    
    713Currency translation adjustment
    
    
    764
    
    
    
    Balance, end of period
    
    $
    96,874
    
    
    $
    10,224
 8. Long-term Debt
 Revolving Credit Facilities
   12




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##### Table of Contents



Acquisition Financing
  Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants.
  13




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##### Table of Contents



2008
    
    
    2007Francisco Partners Credit Agreement
    
    $
    61,500
    
    
    $
    Discount on warrants issued to Francisco Partners
    
    
    (16,844
    )
    
    $
    Debt assumed on acquisitions
    
    
    242
    
    
    
    Long-term debt
    
    $
    44,898
    
    
    $
    
  9. Other Comprehensive Income (loss)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Loss
    
    $
    (10,895
    )
    
    $
    (5,743
    )
    
    $
    (11,227
    )
    
    $
    (8,268
    )Foreign currency translation adjustment
    
    
    1,499
    
    
    
    
    
    
    
    1,499
    
    
    
    Other comprehensive loss
    
    $
    (9,396
    )
    
    $
    (5,743
    )
    
    $
    (9,728
    )
    
    $
    (8,268
    )
 10. Share Based Plan Compensation
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Costs of revenue
    
    $
    38
    
    
    $
    33
    
    
    $
    2
    
    
    $
    83Research and development
    
    
    51
    
    
    
    (176
    )
    
    
    126
    
    
    
    (25
    )Selling, general and administrative
    
    
    746
    
    
    
    (550
    )
    
    
    1,625
    
    
    
    987Total
    
    $
    835
    
    
    $
    (693
    )
    
    $
    1,753
    
    
    $
    1,045
    14




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##### Table of Contents



Stock Options
 Accounting for Stock Appreciation
Rights and other Variable Stock Option Award Plans
  WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    Value (InOptions
    
    
    Price
    
    
    Term
    
    
    Thousands)Outstanding at June 30, 2008
    
    
    4,379,618
    
    
    $
    5.91
    
    
    
    7.78
    
    
    $
    640,659Vested and expected to vest at June 30, 2008
    
    
    4,089,308
    
    
    $
    5.99
    
    
    
    7.66
    
    
    $
    583,563Exercisable at June 30, 2008
    
    
    2,000,031
    
    
    $
    7.31
    
    
    
    5.73
    
    
    $
    172,659
   Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Weighted average risk free interest rate
    
    
    3.04
    %
    
    
    4.53
    %
    
    
    2.88
    %
    
    
    4.82
    %Expected life of the options (in years)
    
    
    5.31
    
    
    
    5.51
    
    
    
    4.71
    
    
    
    5.48Expected stock price volatility
    
    
    47.6
    %
    
    
    59.6
    %
    
    
    47.8
    %
    
    
    67
    %
  Restricted Stock Awards
  15




---



##### Table of Contents



WeightedNonvested
    
    
    Average GrantShares
    
    
    Date Fair ValueOutstanding
    
    
    per ShareBalance at December 31, 2007
    
    
    75,000
    
    
    $
    6.24Shares granted in 2008
    
    
    75,000
    
    
    
    3.99Shares vested in 2008
    
    
    (100,000
    )
    
    
    5.21Balance at June 30, 2008
    
    
    50,000
    
    
    $
    4.94
  Employee Stock Purchase Plan
  11. Earnings per Share
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Shares used in basic income (loss) per
share calculation (weighted average
common shares outstanding)
    
    
    53,342,947
    
    
    
    53,167,875
    
    
    
    53,283,760
    
    
    
    53,172,190Dilutive effect of stock options and
warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares used in diluted income per
share calculation
    
    
    53,342,947
    
    
    
    53,167,875
    
    
    
    53,283,760
    
    
    
    53,172,190Options and warrants that could potentially
dilute income per share in the future
that were not included in the computation
of diluted income per share (a)
    
    
    14,905,022
    
    
    
    3,580,709
    
    
    
    14,905,300
    
    
    
    3,572,954
 
 (a)
    
    These options and warrants were not included in the computation of
diluted income (loss) per share because they were not dilutive. 16




---



##### Table of Contents



12. Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in
Income Taxes
   13. Commitments and Contingencies
 Litigation
  CardSoft, Inc., et al. v. Hypercom Corporation, et al. (United States District Court for the
Eastern District of Texas, Civil Action No. 2:08-CV-00098, filed on March 6, 2008).
 17




---



##### Table of Contents



EEOC
Charge.
 Sichuan (China) Intermediate Court Actions No. 867 of 2005 and No. 145 of 2007.
 14. Segment and Geographic Information
 Disclosures about Segments of an Enterprise and
Related Information
    18




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net RevenueAmericas
    
    $
    37,604
    
    
    $
    34,535
    
    
    $
    79,806
    
    
    $
    68,803EMEA
    
    
    72,545
    
    
    
    20,440
    
    
    
    89,679
    
    
    
    39,381Asia Pacific
    
    
    15,275
    
    
    
    12,502
    
    
    
    27,635
    
    
    
    24,120Shared cost centers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    125,424
    
    
    $
    67,477
    
    
    $
    197,120
    
    
    $
    132,304
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating IncomeAmericas
    
    $
    1,772
    
    
    $
    (2,631
    )
    
    $
    7,087
    
    
    $
    369EMEA
    
    
    5,419
    
    
    
    51
    
    
    
    8,133
    
    
    
    5,122Asia Pacific
    
    
    1,597
    
    
    
    1,334
    
    
    
    3,364
    
    
    
    3,723Shared cost centers
    
    
    (16,776
    )
    
    
    (5,729
    )
    
    
    (28,637
    )
    
    
    (18,962
    )Total segment loss
    
    $
    (7,988
    )
    
    $
    (6,975
    )
    
    $
    (10,053
    )
    
    $
    (9,748
    )Interest income
    
    
    322
    
    
    
    842
    
    
    
    1,119
    
    
    
    1,726Interest expense
    
    
    (2,512
    )
    
    
    (58
    )
    
    
    (2,512
    )
    
    
    (103
    )Foreign currency loss
    
    
    (254
    )
    
    
    (411
    )
    
    
    (205
    )
    
    
    (1,029
    )Other expense
    
    
    70
    
    
    
    2
    
    
    
    149
    
    
    
    6Loss before income taxes
and discontinued operations
    
    $
    (10,362
    )
    
    $
    (6,600
    )
    
    $
    (11,502
    )
    
    $
    (9,148
    )
 June 30,
    
    
    December 31,2008
    
    
    2007Total AssetsAmericas
    
    $
    74,756
    
    
    $
    79,210EMEA
    
    
    275,773
    
    
    
    29,482Asia Pacific
    
    
    52,859
    
    
    
    55,004Shared cost centers
    
    
    19,703
    
    
    
    86,548$
    423,091
    
    
    $
    250,244
 15. Product Warranty
   19




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    1,704
    
    
    $
    2,486
    
    
    $
    1,754
    
    
    $
    2,636Warranty assumed on acquisitions
    
    
    5,344
    
    
    
    
    
    
    
    5,344
    
    
    
    Warranty charges
from normal operations
    
    
    1,345
    
    
    
    1,597
    
    
    
    1,840
    
    
    
    1,893Warranty reversals related to
the 2005 Business Review
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Utilization of warranty liability
    
    
    (1,453
    )
    
    
    (317
    )
    
    
    (1,998
    )
    
    
    (663
    )Balance at end of period
    
    $
    6,940
    
    
    $
    3,766
    
    
    $
    6,940
    
    
    $
    3,766
   20




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Cautionary Statements Regarding Forward-looking Statements
    
    
    with regard to our recent acquisition and ongoing integration of TeT: (i) the inability to assimilate the technologies,
operations and personnel of TeT; (ii) the potential disruption of our existing business, including the diversion of
management attention and the redeployment of resources; (iii) the loss of customers; (iv) the possibility of our
entering markets in which we have limited prior experience; (v) the loss of key employees of TeT; and (vi) the
inability to obtain the desired strategic and financial benefits from the acquisition;
    
    the volatility of our financial results and our stock price;
    
    the loss of a key customer;
    
    defects in our products;
    
    the accumulation of obsolete inventory;
    
    breaches in the security of transactions involving our products;
    
    our inability to adequately protect our proprietary technology;
    
    our technology infringing the proprietary rights of third parties;
    
    a disruption in our manufacturing capabilities or those of our third-party manufacturers or suppliers;
    
    risks associated with our dependence on single-source suppliers;
    
    our ability to timely and successfully introduce new products and product families on which our future sales will be
substantially dependent, and to transition legacy products through end-of-life;
 21




---



##### Table of Contents




    
    our expected transition to a contract manufacturing model;
    
    risks associated with the transfer of our data and systems to our new headquarters facility;
    
    the challenges posed by conducting business in international markets;
    
    fluctuations in currency exchange rates;
    
    the loss of a member of our senior management team or other key employees;
    
    risks associated with acquisitions and other strategic investments;
    
    force majeure events;
    
    country-specific changing economic or political environment;
    
    uncertainties related to country-specific legal and regulatory requirements, including product-related regulations,
requirements and certifications, and tax assessments and interpretations;
    
    our ability to maintain the quality of our internal control over financial reporting;
    
    our ability to assimilate and integrate technologies or businesses we may acquire in the future;
    
    the highly-competitive nature of the markets in which we compete;
    
    industry and technological developments in the markets in which we sell our products and services;
    
    the impact of industry standards, certifications and government regulations to which our products are subject;
    
    the impact of SEC regulations and SEC review of our periodic filings;
    
    the anti-takeover effects of certain provisions in our charter, bylaws and Delaware law;
    
    dilution of our stock price caused by the exercise of outstanding warrants and options;
    
    lack of a plan to pay dividends on our common stock in the foreseeable future; and
    
    incurring debt to meet the future capital requirements of our business.
  Critical Accounting Policies and Estimates
 .
 22




---



##### Table of Contents



2008 Overview
 Operations
     Acquisition of Thales e-Transactions Business Line
   23




---



##### Table of Contents



Results of Operations
   Three Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Dollar(Dollars in thousands, except per share data)
    
    2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    ChangeNet revenue:Product and other
    
    $
    92,774
    
    
    
    74.0
    %
    
    $
    47,865
    
    
    
    70.9
    %
    
    $
    44,909Services
    
    
    32,650
    
    
    
    26.0
    %
    
    
    19,612
    
    
    
    29.1
    %
    
    
    13,038Total net revenue
    
    
    125,424
    
    
    
    100.0
    %
    
    
    67,477
    
    
    
    100.0
    %
    
    
    57,947Costs of revenue:Product and other
    
    
    64,484
    
    
    
    69.5
    %
    
    
    41,296
    
    
    
    86.3
    %
    
    
    23,188Services
    
    
    26,103
    
    
    
    79.9
    %
    
    
    17,373
    
    
    
    88.6
    %
    
    
    8,730Amortization of purchased intangible assets
    
    
    1,066
    
    
    
    0.8
    %
    
    
    94
    
    
    
    0.1
    %
    
    
    972Total costs of revenue
    
    
    91,653
    
    
    
    73.1
    %
    
    
    58,763
    
    
    
    87.1
    %
    
    
    32,890Gross profit:Product and other
    
    
    28,290
    
    
    
    30.5
    %
    
    
    6,569
    
    
    
    13.7
    %
    
    
    21,721Services
    
    
    6,547
    
    
    
    20.1
    %
    
    
    2,239
    
    
    
    11.4
    %
    
    
    4,308Amortization of purchased intangible assets
    
    
    (1,066
    )
    
    
    (0.8
    )%
    
    
    (94
    )
    
    
    (0.1
    )%
    
    
    (972
    )Total gross profit
    
    
    33,771
    
    
    
    26.9
    %
    
    
    8,714
    
    
    
    12.9
    %
    
    
    25,057Operating expenses:Research and development
    
    
    14,892
    
    
    
    11.9
    %
    
    
    8,108
    
    
    
    12.0
    %
    
    
    6,784Selling, general and administrative
    
    
    24,878
    
    
    
    19.8
    %
    
    
    11,193
    
    
    
    16.6
    %
    
    
    13,685Amortization of purchased intangible assets
    
    
    1,989
    
    
    
    1.6
    %
    
    
    162
    
    
    
    0.2
    %
    
    
    1,827Gain on sale of real property
    
    
    0
    
    
    
    0.0
    %
    
    
    (3,774
    )
    
    
    (5.6
    )%
    
    
    3,774Total operating expenses
    
    
    41,759
    
    
    
    33.3
    %
    
    
    15,689
    
    
    
    23.3
    %
    
    
    26,070Income (loss) from continuing operations
    
    
    (7,988
    )
    
    
    (6.4
    )%
    
    
    (6,975
    )
    
    
    (10.3)
    %
    
    
    (1,013
    )Non-operating income
    
    
    (2,374
    )
    
    
    (1.9
    )%
    
    
    375
    
    
    
    0.6
    %
    
    
    (2,749
    )Income (loss) before income taxes and
discontinued operations
    
    
    (10,362
    )
    
    
    (8.3
    )%
    
    
    (6,600
    )
    
    
    (9.8
    )%
    
    
    (3,762
    )(Provision) Benefit for income taxes
    
    
    (673
    )
    
    
    (0.5
    )%
    
    
    896
    
    
    
    1.3
    %
    
    
    (1,569
    )Income (loss) before discontinued operations
    
    
    (11,035
    )
    
    
    (8.8)
    %
    
    
    (5,704
    )
    
    
    (8.5
    )%
    
    
    (5,331
    )Income (loss) from discontinued operations
    
    
    140
    
    
    
    0.1
    %
    
    
    (39
    )
    
    
    (0.1
    )%
    
    
    179Net income (loss)
    
    $
    (10,895
    )
    
    
    (8.7)
    %
    
    $
    (5,743
    )
    
    
    (8.5
    )%
    
    $
    (5,152
    )Diluted income (loss) per share
    
    $
    (0.20
    )
    
    
    
    
    
    $
    (0.11
    )
    
    
    
    
    
    $
    (0.09
    )
 24




---



##### Table of Contents



Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Dollar(Dollars in thousands, except per share data)
    
    2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    ChangeNet revenue:Product and other
    
    $
    142,358
    
    
    
    72.2
    %
    
    $
    96,033
    
    
    
    72.6
    %
    
    $
    46,325Services
    
    
    54,762
    
    
    
    27.8
    %
    
    
    36,271
    
    
    
    27.4
    %
    
    
    18,491Total net revenue
    
    
    197,120
    
    
    
    100.0
    %
    
    
    132,304
    
    
    
    100.0
    %
    
    
    64,816Costs of revenue:Product and other
    
    
    97,538
    
    
    
    68.5
    %
    
    
    71,042
    
    
    
    74.0
    %
    
    
    26,496Services
    
    
    44,890
    
    
    
    82.0
    %
    
    
    31,650
    
    
    
    87.3
    %
    
    
    13,240Amortization of purchased intangible assets
    
    
    1,157
    
    
    
    0.6
    %
    
    
    170
    
    
    
    0.1
    %
    
    
    987Total costs of revenue
    
    
    143,585
    
    
    
    72.8
    %
    
    
    102,862
    
    
    
    77.7
    %
    
    
    40,723Gross profit:Product and other
    
    
    44,820
    
    
    
    31.5
    %
    
    
    24,991
    
    
    
    26.0
    %
    
    
    19,829Services
    
    
    9,872
    
    
    
    18.0
    %
    
    
    4,621
    
    
    
    12.7
    %
    
    
    5,251Amortization of purchased intangible assets
    
    
    (1,157
    )
    
    
    (0.6
    )%
    
    
    (170
    )
    
    
    (0.1
    )%
    
    
    (987
    )Total gross profit
    
    
    53,535
    
    
    
    27.2
    %
    
    
    29,442
    
    
    
    22.3
    %
    
    
    24,093Operating expenses:Research and development
    
    
    21,004
    
    
    
    10.7
    %
    
    
    15,437
    
    
    
    11.7
    %
    
    
    5,567Selling, general and administrative
    
    
    40,434
    
    
    
    20.5
    %
    
    
    27,247
    
    
    
    20.6
    %
    
    
    13,187Amortization of purchased intangible assets
    
    
    2,150
    
    
    
    1.1
    %
    
    
    280
    
    
    
    0.2
    %
    
    
    1,870Gain on sale of real property
    
    
    0
    
    
    
    0.0
    %
    
    
    (3,774
    )
    
    
    -2.9
    %
    
    
    3,774Total operating expenses
    
    
    63,588
    
    
    
    32.3
    %
    
    
    39,190
    
    
    
    29.6
    %
    
    
    24,398Income (loss) from continuing operations
    
    
    (10,053
    )
    
    
    (5.1
    )%
    
    
    (9,748
    )
    
    
    (7.4
    )%
    
    
    (305
    )Non-operating income
    
    
    (1,449
    )
    
    
    (0.6
    )%
    
    
    600
    
    
    
    0.5
    %
    
    
    (2,049
    )Income (loss) before income taxes and
discontinued operations
    
    
    (11,502
    )
    
    
    (5.8
    )%
    
    
    (9,148
    )
    
    
    (6.9
    )%
    
    
    (2,354
    )(Provision) Benefit for income taxes
    
    
    (10
    )
    
    
    0.0
    %
    
    
    229
    
    
    
    0.2
    %
    
    
    (239
    )Income (loss) before discontinued operations
    
    
    (11,512
    )
    
    
    (5.8
    )%
    
    
    (8,919
    )
    
    
    (6.7
    )%
    
    
    (2,593
    )Income from discontinued operations
    
    
    285
    
    
    
    0.1
    %
    
    
    651
    
    
    
    0.5
    %
    
    
    (366
    )Net income (loss)
    
    $
    (11,227
    )
    
    
    (5.7
    )%
    
    $
    (8,268
    )
    
    
    (6.2
    )%
    
    $
    (2,959
    )Diluted income (loss) per share
    
    $
    (0.21
    )
    
    
    
    
    
    $
    (0.16
    )
    
    
    
    
    
    $
    (0.05
    )
 Net Revenue
  25




---



##### Table of Contents



Product and Other Revenue
   Services Revenue
   Costs of Revenue and Gross Profit
  Product Gross Margin
  26




---



##### Table of Contents



Service Gross Margin
    Operating Expenses
     27




---



##### Table of Contents



Non-Operating Income
  Provision for Income Taxes
    Income from Discontinued Operations
  Segment Information
   28




---



##### Table of Contents



Three Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Dollar2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    ChangeNet revenues:Americas
    
    $
    37,604
    
    
    
    30.0
    %
    
    $
    34,535
    
    
    
    51.2
    %
    
    $
    3,069EMEA
    
    
    72,545
    
    
    
    57.8
    %
    
    
    20,440
    
    
    
    30.3
    %
    
    
    52,105Asia-Pacific
    
    
    15,275
    
    
    
    12.2
    %
    
    
    12,502
    
    
    
    18.5
    %
    
    
    2,773Total net revenues
    
    $
    125,424
    
    
    
    100.0
    %
    
    $
    67,477
    
    
    
    100.0
    %
    
    $
    57,947Operating income:Americas
    
    $
    1,772
    
    
    
    1.4
    %
    
    $
    (2,631
    )
    
    
    -3.9
    %
    
    $
    4,403EMEA
    
    
    5,419
    
    
    
    4.3
    %
    
    
    51
    
    
    
    0.1
    %
    
    
    5,368Asia-Pacific
    
    
    1,597
    
    
    
    1.3
    %
    
    
    1,334
    
    
    
    2.0
    %
    
    
    263Shared Cost Centers
    
    
    (16,776
    )
    
    
    -13.4
    %
    
    
    (5,729
    )
    
    
    -8.5
    %
    
    
    (11,047
    )Total operating income
    
    $
    (7,988
    )
    
    
    -6.4
    %
    
    $
    (6,975
    )
    
    
    -10.3
    %
    
    $
    (1,013
    )
 Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    Dollar2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    ChangeNet revenues:Americas
    
    $
    79,807
    
    
    
    40.5
    %
    
    $
    68,803
    
    
    
    52.0
    %
    
    $
    11,004EMEA
    
    
    89,680
    
    
    
    45.5
    %
    
    
    39,381
    
    
    
    29.8
    %
    
    
    50,299Asia-Pacific
    
    
    27,634
    
    
    
    14.0
    %
    
    
    24,120
    
    
    
    18.2
    %
    
    
    3,514Total net revenues
    
    $
    197,121
    
    
    
    100.0
    %
    
    $
    132,304
    
    
    
    100.0
    %
    
    $
    64,817Operating income:Americas
    
    $
    7,087
    
    
    
    3.6
    %
    
    $
    369
    
    
    
    0.3
    %
    
    $
    6,718EMEA
    
    
    8,133
    
    
    
    4.1
    %
    
    
    5,122
    
    
    
    3.9
    %
    
    
    3,011Asia-Pacific
    
    
    3,364
    
    
    
    1.7
    %
    
    
    3,723
    
    
    
    2.8
    %
    
    
    (359
    )Shared Cost Centers
    
    
    (28,637
    )
    
    
    -14.5
    %
    
    
    (18,962
    )
    
    
    -14.3
    %
    
    
    (9,675
    )Total operating income
    
    $
    (10,053
    )
    
    
    -5.1
    %
    
    $
    (9,748
    )
    
    
    -7.4
    %
    
    $
    (305
    )
  29




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##### Table of Contents



Cash Flows, Liquidity and Capital Resources
  Cash Flows
      Liquidity and Capital Resources
   30




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##### Table of Contents



Contractual Obligations
  Effect of Inflation
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
       
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  31




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  CardSoft, Inc., et al. v. Hypercom Corporation, et al. (United States District Court for the
Eastern District of Texas, Civil Action No. 2:08-CV-00098, filed on March 6, 2008)
  32




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##### Table of Contents



EEOC Charge
  Sichuan (China) Intermediate Court Actions No. 867 of 2005 and No. 145 of 2007
  
 Item 1A. Risk Factors.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Election of Directors
 Broker Non-Nominee
    
    For
    
    
    Withheld
    
    
    Abstentions

    
    VotesDaniel D. Diethelm
    
    
    37,585,924
    
    
    
    5,881,108
    
    
    
    -0-
    
    
    
    -0-Norman Stout
    
    
    35,520,569
    
    
    
    7,946,473
    
    
    
    -0-
    
    
    
    -0-Philippe Tartavull
    
    
    37,640,943
    
    
    
    5,826,099
    
    
    
    -0-
    
    
    
    -0-
  33




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##### Table of Contents



Approval of 2008 Employee Stock Purchase Plan
 Broker Non-For
    
    Against
    

Abstentions
    
    Votes32,266,506
    
    2,220,206
    
    1,766,653
    
    17,140,503
 Ratification of Ernst & Young as independent auditor for 2008
 Broker Non-For
    
    Against
    
    Abstentions
    
    Votes43,310,378
    
    146,591
    
    10,073
    
    -0-
 
 Item 6. Exhibits.
 Exhibit Number
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of
Hypercom Corporation (incorporated by reference to Exhibit
3.1 to Hypercom Corporations Registration Statement on
Form S-1 (Registration No. 333-35641))3.2
    
    Second Amended and Restated Bylaws of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom
Corporations Current Report on Form 8-K filed on November
6, 2006)4.1
    
    Amended and Restated Certificate of Incorporation of
Hypercom Corporation (incorporated by reference to Exhibit
3.1 to Hypercom Corporations Registration Statement on
Form S-1 (Registration No. 333-35641))4.2
    
    Warrant to Purchase Common Stock dated April 1, 2008
(incorporated by reference to Exhibit 4.1 to Hypercom
Corporations Current Report on Form 8-K filed on April 2,
2008, as amended by the Current Report on Form 8-K/A filed
on June 16, 2008)4.3
    
    Registration Rights Agreement, dated as of April 1, 2008,
by and between Hypercom Corporation and FP Hypercom Holdco,
LLC (incorporated by reference to Exhibit 4.2 to Hypercom
Corporations Current Report on Form 8-K filed on April 2,
2008, as amended by the Current Report on Form 8-K/A filed
on June 16, 2008)10.1
    
    Amendment to the Share Purchase Agreement (Amendment No1),
dated as of April 1, 2008, by and between Thales SA, Thales
Holding GmbH, Thales UK Limited, and Hypercom Corporation
(incorporated by reference to Exhibit 10.1 to Hypercom
Corporations Current Report on Form 8-K filed on April 2,
2008, as amended by the Current Report on Form 8-K/A filed
on June 16, 2008)31.1
    
    Certification of Chief Executive Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2
    
    Certification of Chief Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *32
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 **
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 34




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##### Table of Contents



SIGNATURES
  HYPERCOM CORPORATIONDate: August 11, 2008
    By:
    /s/ Philippe TartavullPhilippe TartavullChief Executive Officer and President (duly
authorized
officer 
and principal executive
officer)Date: August 11, 2008
    By:
    /s/ Robert M. VreelandRobert M. VreelandInterim Chief Financial Officer (principal
financial officer)Date: August 11, 2008
    By:
    /s/ Shawn C. RathjeShawn C. RathjeChief Accounting Officer and Controller
(principal accounting officer) 35