##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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

For the quarterly period ended: June 30, 2003.

OR

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

For the transition period from
___________ to __________ .

Commission file number: 1-13521

HYPERCOM CORPORATION

(Exact name of registrant as specified in its charter)


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

2851 West Kathleen Road
Phoenix, Arizona 85053
(Address of principal executive offices) (Zip Code)

(602) 504-5000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [   ]

Number of shares of the registrants common stock, $.001 par value per share,
outstanding as of August 7, 2003,

was 49,820,281.






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TABLE OF CONTENTS



|                               |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I - FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                               | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EXHIBIT INDEX                 
|EX-10.1                       
|EX-31.1                       
|EX-31.2                       
|EX-32.1                       
|EX-32.2                       
|EX-99.1                       



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##### Table of Contents



INDEX

|         |  |                                                                                       |  |  |    |      |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |  |                                                                                       |  |  |    | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |  |    |     
|Item 1.  |  | Financial Statements                                                                  |  |  | 3  |     
|         |  | Notes to Consolidated Financial Statements                                            |  |  | 6  |     
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 11 |     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 14 |     
|Item 4.  |  | Controls and Procedures                                                               |  |  | 15 |     
|PART II. |  | OTHER INFORMATION                                                                     |  |  | 15 |     
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 15 |     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |  | 15 |     
|         |  | SIGNATURES                                                                            |  |  | 17 |     
|         |  | EXHIBIT INDEX                                                                         |  |  | 18 |     

2



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##### Table of Contents






PART I - FINANCIAL INFORMATION




Item 1. Financial Statements

HYPERCOM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ------- | ----------------- | - | ------- | ------- | -
|                                           |                                                                                                                                                                 |   | June 30, 2003 |         |                   |   |        
|                                           |                                                                                                                                                                 |   | (unaudited)   |         | December 31, 2002
|                                           |                                                                                                                                                                 |   |               |         |                  
|ASSETS                                     |                                                                                                                                                                 |   |               |         |                   |   |         |        
|Current assets:                            |                                                                                                                                                                 |   |               |         |                   |   |         |        
|                                           | Cash and cash equivalents                                                                                                                                       |   | $             | 47,146  |                   |   | $       | 23,069  |  
|                                           | Restricted cash                                                                                                                                                 |   |               | 4,474   |                   |   |         | 6,777   |  
|                                           | Accounts receivable, net of allowance for
doubtful accounts of $3,354 and $3,282, respectively                                                                  |   |               | 57,917  |                   |   |         | 54,320  |  
|                                           | Current portion of net investment in direct financing leases                                                                                                    |   |               | 8,980   |                   |   |         | 11,812  |  
|                                           | Current portion of net investment in sales-type leases                                                                                                          |   |               | 11,110  |                   |   |         | 9,774   |  
|                                           | Inventories, net                                                                                                                                                |   |               | 43,562  |                   |   |         | 46,406  |  
|                                           | Income tax receivable                                                                                                                                           |   |               |        |                   |   |         | 9,118   |  
|                                           | Prepaid taxes                                                                                                                                                   |   |               | 468     |                   |   |         | 425     |  
|                                           | Prepaid expenses and other current assets                                                                                                                       |   |               | 20,033  |                   |   |         | 16,544  |  
|                                           | Long lived assets held for sale                                                                                                                                 |   |               | 870     |                   |   |         | 660     |  
|                                           | Assets of discontinued operations held for sale                                                                                                                 |   |               |        |                   |   |         | 8,834   |  
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|Total current assets                       |                                                                                                                                                                 |   | 194,560       |         |                   |   | 187,739 |        
|                                           | Property, plant and equipment, net                                                                                                                              |   |               | 31,554  |                   |   |         | 30,214  |  
|                                           | Long-term marketable securities, at market                                                                                                                      |   |               | 153     |                   |   |         | 152     |  
|                                           | Net investment in direct financing leases                                                                                                                       |   |               | 11,693  |                   |   |         | 15,392  |  
|                                           | Net investment in sales-type leases                                                                                                                             |   |               | 12,056  |                   |   |         | 11,213  |  
|                                           | Intangible assets, net                                                                                                                                          |   |               | 3,893   |                   |   |         | 4,633   |  
|                                           | Other long-term assets                                                                                                                                          |   |               | 9,092   |                   |   |         | 10,660  |  
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|Total assets                               |                                                                                                                                                                 | $ | 263,001       |         |                   | $ | 260,003 |        
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                                 |   |               |         |                   |   |         |        
|Current liabilities:                       |                                                                                                                                                                 |   |               |         |                   |   |         |        
|                                           | Accounts payable                                                                                                                                                |   | $             | 27,537  |                   |   | $       | 20,553  |  
|                                           | Accrued payroll and related expenses                                                                                                                            |   |               | 6,826   |                   |   |         | 6,419   |  
|                                           | Accrued sales and other taxes                                                                                                                                   |   |               | 6,172   |                   |   |         | 7,187   |  
|                                           | Accrued liabilities                                                                                                                                             |   |               | 7,070   |                   |   |         | 6,572   |  
|                                           | Deferred revenue                                                                                                                                                |   |               | 2,248   |                   |   |         | 1,999   |  
|                                           | Income taxes payable                                                                                                                                            |   |               | 1,968   |                   |   |         | 1,707   |  
|                                           | Current portion of long-term debt                                                                                                                               |   |               | 6,454   |                   |   |         | 13,331  |  
|                                           | Liabilities of discontinued operations held for sale                                                                                                            |   |               |        |                   |   |         | 649     |  
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|Total current liabilities                  |                                                                                                                                                                 |   | 58,275        |         |                   |   | 58,417  |        
|                                           | Long-term debt                                                                                                                                                  |   |               | 10,200  |                   |   |         | 11,694  |  
|                                           | Other non-current liabilities                                                                                                                                   |   |               | 1,920   |                   |   |         | 777     |  
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|Total liabilities                          |                                                                                                                                                                 |   | 70,395        |         |                   |   | 70,888  |        
|Stockholders equity:                      |                                                                                                                                                                 |   |               |         |                   |   |         |        
|                                           | Common stock, $.001 par value; 100,000,000 shares authorized;
49,753,009 and 48,014,350 shares outstanding at June 30,
2003 and December 31, 2002, respectively |   |               | 29      |                   |   |         | 27      |  
|                                           | Additional paid-in capital                                                                                                                                      |   |               | 219,035 |                   |   |         | 214,008 |  
|                                           | Receivables from stockholders                                                                                                                                   |   |               | (1,056  | )                 |   |         | (1,056  | )
|                                           | Accumulated deficit                                                                                                                                             |   |               | (22,900 | )                 |   |         | (21,362 | )
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|                                           |                                                                                                                                                                 |   | 195,108       |         |                   |   | 191,617 |        
|                                           | Treasury stock, 230,088 shares (at cost)                                                                                                                        |   |               | (2,502  | )                 |   |         | (2,502  | )
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  
|Total stockholders equity                 |                                                                                                                                                                 |   | 192,606       |         |                   |   | 189,115 |        
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |        
|Total liabilities and stockholders equity |                                                                                                                                                                 | $ | 263,001       |         |                   | $ | 260,003 |        
|                                           |                                                                                                                                                                 |   |               |         |                   |   |         |         |  

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

3



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##### Table of Contents



HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share data)

|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |         |         | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | ------ | ------------------ | ------ | ---------------- | ------ | ------------- | ------ | ------------- | ------- | ------ | ------- | - | ------- | ------- | ------- | 
|                                                                                                             |                                                                                                                                                                                      |                          |        | Three Months Ended |        | Six Months Ended
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                 
|                                                                                                             |                                                                                                                                                                                      |                          |        | June 30, 2003      |        | June 30, 2002    |        | June 30, 2003 |        | June 30, 2002
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |              
|Net revenue                                                                                                  |                                                                                                                                                                                      | $                        | 64,397 |                    |        | $                | 67,848 |               |        | $             | 120,098 |        |         | $ | 138,621 |        
|Costs and expenses:                                                                                          |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|                                                                                                             | Costs of revenue                                                                                                                                                                     |                          |        | 36,640             |        |                  |        | 41,184        |        |               |         | 68,961 |         |   |         | 84,437  |        
|                                                                                                             | Research and development                                                                                                                                                             |                          |        | 6,422              |        |                  |        | 6,213         |        |               |         | 12,235 |         |   |         | 12,342  |        
|                                                                                                             | Selling, general and administrative                                                                                                                                                  |                          |        | 16,546             |        |                  |        | 15,922        |        |               |         | 33,374 |         |   |         | 32,900  |        
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|                                                                                                             |                                                                                                                                                                                      | Total costs and expenses |        |                    | 59,608 |                  |        |               | 63,319 |               |         |        | 114,570 |   |         |         | 129,679 | 
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Income from continuing operations                                                                            |                                                                                                                                                                                      |                          | 4,789  |                    |        |                  | 4,529  |               |        |               | 5,528   |        |         |   | 8,942   |        
|                                                                                                             | Interest income                                                                                                                                                                      |                          |        | 126                |        |                  |        | 23            |        |               |         | 204    |         |   |         | 39      |        
|                                                                                                             | Interest expense                                                                                                                                                                     |                          |        | (552               | )      |                  |        | (749          | )      |               |         | (1,153 | )       |   |         | (2,727  | )      
|                                                                                                             | Loss on early extinguishment of debt                                                                                                                                                 |                          |        |                   |        |                  |        |              |        |               |         |       |         |   |         | (2,618  | )      
|                                                                                                             | Other income (expense)                                                                                                                                                               |                          |        | 68                 |        |                  |        | 159           |        |               |         | (89    | )       |   |         | 378     |        
|                                                                                                             | Foreign currency loss                                                                                                                                                                |                          |        | (483               | )      |                  |        | (2,187        | )      |               |         | (946   | )       |   |         | (3,779  | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Income before income taxes, discontinued operations,
and cumulative effect of change in accounting principle |                                                                                                                                                                                      |                          | 3,948  |                    |        |                  | 1,775  |               |        |               | 3,544   |        |         |   | 235     |        
|                                                                                                             | (Provision) benefit for income taxes                                                                                                                                                 |                          |        | (952               | )      |                  |        | (509          | )      |               |         | (1,641 | )       |   |         | 125     |        
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Income before discontinued operations and cumulative effect of
change in accounting principle                |                                                                                                                                                                                      |                          | 2,996  |                    |        |                  | 1,266  |               |        |               | 1,903   |        |         |   | 360     |        
|                                                                                                             | Loss from discontinued operations (including $1.6 million
loss on disposal in 2003), net of $389 and $743 tax benefit
for the three and six months ended June 30, 2002,
respectively |                          |        | (2,504             | )      |                  |        | (886          | )      |               |         | (3,441 | )       |   |         | (2,622  | )      
|                                                                                                             | Cumulative effect of change in accounting principle                                                                                                                                  |                          |        |                   |        |                  |        |              |        |               |         |       |         |   |         | (21,766 | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Net income (loss)                                                                                            |                                                                                                                                                                                      | $                        | 492    |                    |        | $                | 380    |               |        | $             | (1,538  | )      |         | $ | (24,028 | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Basic income per share:                                                                                      |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|                                                                                                             | Income before discontinued operations and cumulative effect of
change in accounting principle                                                                                        |                          | $      | 0.06               |        |                  | $      | 0.03          |        |               | $       | 0.04   |         |   | $       | 0.01    |        
|                                                                                                             | Loss from discontinued operations                                                                                                                                                    |                          |        | (0.05              | )      |                  |        | (0.02         | )      |               |         | (0.07  | )       |   |         | (0.06   | )      
|                                                                                                             | Cumulative effect of change in accounting principle                                                                                                                                  |                          |        |                   |        |                  |        |              |        |               |         |       |         |   |         | (0.49   | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Basic
income (loss) per share                                                                                |                                                                                                                                                                                      | $                        | 0.01   |                    |        | $                | 0.01   |               |        | $             | (0.03   | )      |         | $ | (0.54   | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Diluted income per share:                                                                                    |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|                                                                                                             | Income before discontinued operations and cumulative effect of
change in accounting principle                                                                                        |                          | $      | 0.06               |        |                  | $      | 0.02          |        |               | $       | 0.04   |         |   | $       | 0.01    |        
|                                                                                                             | Loss from discontinued operations                                                                                                                                                    |                          |        | (0.05              | )      |                  |        | (0.01         | )      |               |         | (0.07  | )       |   |         | (0.05   | )      
|                                                                                                             | Cumulative effect of change in accounting principle                                                                                                                                  |                          |        |                   |        |                  |        |              |        |               |         |       |         |   |         | (0.46   | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|Diluted
income (loss) per share                                                                              |                                                                                                                                                                                      | $                        | 0.01   |                    |        | $                | 0.01   |               |        | $             | (0.03   | )      |         | $ | (0.50   | )      
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|                                                                                                             | Weighted average basic common shares                                                                                                                                                 |                          |        | 48,829             |        |                  |        | 47,834        |        |               |         | 48,438 |         |   |         | 44,256  |        
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        
|                                                                                                             | Weighted average diluted common shares                                                                                                                                               |                          |        | 49,966             |        |                  |        | 51,212        |        |               |         | 49,347 |         |   |         | 47,786  |        
|                                                                                                             |                                                                                                                                                                                      |                          |        |                    |        |                  |        |               |        |               |         |        |         |   |         |        

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

4



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##### Table of Contents



HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |         |   |        |  
|---------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------- | ------ | --------------------------------------------------- | ------ | ------------------------- | ------ | ------- | ------- | - | ------ | -
|                                                                                         |                                              |                                                            |        |                                                     |        | Six Months Ended June 30,
|                                                                                         |                                              |                                                            |        |                                                     |        |                          
|                                                                                         |                                              |                                                            |        |                                                     |        | 2003                      |        | 2002   
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |        
|Cash flows from continuing operations:                                                   |                                              |                                                            |        |                                                     |        |                           |        |        
|                                                                                         | Net
income (loss) from continuing operations |                                                            | $      | 1,903                                               |        |                           | $      | (21,406 | )      
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                              |                                                            |        |                                                     |        |                           |        |        
|                                                                                         |                                              | Depreciation/amortization                                  |        |                                                     | 5,218  |                           |        |         | 5,878   |  
|                                                                                         |                                              | Amortization of deferred financing costs                   |        |                                                     | 731    |                           |        |         | 1,073   |  
|                                                                                         |                                              | Amortization of discount on note payable                   |        |                                                     |       |                           |        |         | 83      |  
|                                                                                         |                                              | Bad debt expense                                           |        |                                                     | 686    |                           |        |         | 226     |  
|                                                                                         |                                              | Deferred components of direct financing leases             |        |                                                     | (183   | )                         |        |         | (248    | )
|                                                                                         |                                              | Provision for losses on direct financing leases            |        |                                                     | 3,013  |                           |        |         | 4,766   |  
|                                                                                         |                                              | Provision for losses on sales-type leases                  |        |                                                     | 314    |                           |        |         |        |  
|                                                                                         |                                              | Provision for excess and obsolete inventory                |        |                                                     | 2,014  |                           |        |         | 2,502   |  
|                                                                                         |                                              | Loss on early extinguishment of debt                       |        |                                                     |       |                           |        |         | 2,618   |  
|                                                                                         |                                              | Cumulative effect of change in accounting principle        |        |                                                     |       |                           |        |         | 21,766  |  
|                                                                                         |                                              | Foreign currency loss                                      |        |                                                     | 946    |                           |        |         | 3,779   |  
|                                                                                         |                                              | Other                                                      |        |                                                     |       |                           |        |         | 197     |  
|                                                                                         | Changes in operating assets and liabilities  |                                                            |        | 10,701                                              |        |                           |        | (15,538 | )      
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |        
|                                                                                         |                                              |                                                            |        | Net cash provided by operating activities           |        |                           | 25,343 |         |         |   | 5,696  |  
|Cash flows from investing activities:                                                    |                                              |                                                            |        |                                                     |        |                           |        |        
|                                                                                         |                                              | Principal payments received on direct financing leases     |        |                                                     | 6,024  |                           |        |         | 6,425   |  
|                                                                                         |                                              | Funding of direct financing leases                         |        |                                                     | (3,596 | )                         |        |         | (4,196  | )
|                                                                                         |                                              | Decrease (increase) in restricted cash                     |        |                                                     | 2,303  |                           |        |         | (518    | )
|                                                                                         |                                              | Acquisition of other assets                                |        |                                                     | (697   | )                         |        |         | (846    | )
|                                                                                         |                                              | Proceeds from the disposal of property, plant & equipment  |        |                                                     |       |                           |        |         | 139     |  
|                                                                                         |                                              | Purchase of property, plant & equipment                    |        |                                                     | (3,155 | )                         |        |         | (4,442  | )
|                                                                                         |                                              | Payments received on notes receivable                      |        |                                                     |       |                           |        |         | 349     |  
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |        
|                                                                                         |                                              |                                                            |        | Net cash provided by (used in) investing activities |        |                           | 879    |         |         |   | (3,089 | )
|Cash flows from financing activities:                                                    |                                              |                                                            |        |                                                     |        |                           |        |        
|                                                                                         |                                              | Borrowings on revolving line of credit                     |        |                                                     |       |                           |        |         | 78,563  |  
|                                                                                         |                                              | Repayments on revolving line of credit                     |        |                                                     |       |                           |        |         | (85,453 | )
|                                                                                         |                                              | Repayment of bank notes payable and other debt instruments |        |                                                     | (8,442 | )                         |        |         | (29,433 | )
|                                                                                         |                                              | Advances from/(to) discontinued operations                 |        |                                                     | 826    |                           |        |         | (2,913  | )
|                                                                                         |                                              | Proceeds from issuance of common stock                     |        |                                                     | 5,029  |                           |        |         | 37,238  |  
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |        
|                                                                                         |                                              |                                                            |        | Net cash used in financing activities               |        |                           | (2,587 | )       |         |   | (1,998 | )
|Effect of exchange rate on cash                                                          |                                              |                                                            | 412    |                                                     |        |                           | (194   | )      
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |        
|Net increase in cash flows from continuing operations                                    |                                              |                                                            | 24,047 |                                                     |        |                           | 415    |        
|Net increase in cash flows from discontinued operations                                  |                                              |                                                            | 30     |                                                     |        |                           | 91     |        
|Cash and cash equivalents, beginning of period                                           |                                              |                                                            | 23,069 |                                                     |        |                           | 13,402 |        
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |        
|Cash and cash equivalents, end of period                                                 |                                              | $                                                          | 47,146 |                                                     |        | $                         | 13,908 |        
|                                                                                         |                                              |                                                            |        |                                                     |        |                           |        |         |        

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements do not include all
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
statement of results for the periods have been included and are considered of a
normal recurring nature. The Companys 2002 results of
operations and balance sheets also reflect the loss on early extinguishment of debt (Note
8) and the cumulative effect of change in accounting principle (Note 7).
Operating results for the six months ended June 30, 2003, are not necessarily
indicative of the results to be expected for the year ending December 31, 2003.

Certain prior year amounts have been reclassified to conform to the current
period presentation, including the results of operations and cash flows of the
Companys discontinued operations.

This financial information is intended to be read in conjunction with
Hypercoms audited financial statements and footnotes thereto included in
Hypercoms Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE 2  NEW AND PROPOSED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003 the Company adopted SFAS 145, Rescission of FASB
Statements No.4, 44 and 64, amendment of FASB Statement No.13, and Technical
Corrections, which among other things, restricts the classification of gains
and losses from extinguishment of debt as extraordinary to only those
transactions that are unusual and infrequent in nature as defined by APB
Opinion No. 30. Upon adoption, gains and losses on certain future debt
extinguishment, if any, will be recorded in pre-tax income. In accordance with
the provisions of SFAS 145, the Company reclassified its $2.6 million
extraordinary loss from early extinguishment of debt for the six months ended
June 30, 2002 to pre-tax loss (see Note 8).

In January 2003, the FASB issued FIN
No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin
No. 51.
FIN No. 46 requires certain variable interest entities, or VIEs, to be
consolidated by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN No. 46 is effective for all VIEs created or acquired after January
31, 2003. For VIEs created or acquired prior to February 1, 2003, the
provisions of FIN No. 46 must be applied for the first interim or annual period
beginning after June 15, 2003. The Company currently has no contractual
relationship or other business relationship with a variable interest entity and
therefore the adoption of FIN No. 46 is not expected to have a material effect
on the Companys consolidated financial position, results of operations or cash
flows.

In April 2003, the FASB issued SFAS
149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which is generally effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. SFAS 149 clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative as discussed in SFAS 133, clarifies when a
derivative contains a financing component, amends the definition of an
underlying to conform it to the language used in FASB Interpretation No. 45,
Guarantor Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others and amends certain other
existing pronouncements. The Company has only limited involvement with
derivative financial instruments, does not use them for trading purposes and is
not a party to any leveraged derivatives. However, the Company periodically
enters into forward exchange contracts to hedge some of its foreign currency
exposure. The Company does not anticipate that the adoption of SFAS 149 to have
a material effect on its consolidated financial position, results of
operations, or cash flows.

In May 2003, the FASB issued SFAS 150,
Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This
Statement requires that certain instruments that were previously classified as
equity on a companys statement of financial position now be classified as
liabilities. The Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The Company currently
has no instruments impacted by the adoption of this statement and therefore the
adoption did not have an effect on the Companys consolidated financial
position, results of operations or cash flows.

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NOTE 3  STOCK-BASED COMPENSATION

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

The Company has elected to continue to measure compensation expense related to
employee stock purchase options using APB 25 and related interpretations. The
following table represents the effect on net income (loss) and
income (loss) per share as if the
Company had applied the fair value method and recognition provisions of SFAS
123 to stock based employee compensation (amounts in thousands,
except per share
data):

|                                             |                                                                                                                                                         |                              |      |                          |       |                        |        |        |       |      |        |        |       |   |         |        |       |  
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---- | ------------------------ | ----- | ---------------------- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | - | ------- | ------ | ----- | -
|                                             |                                                                                                                                                         |                              |      | Three Months Ended June, |       | Six Months Ended June,
|                                             |                                                                                                                                                         |                              |      |                          |       |                       
|                                             |                                                                                                                                                         |                              |      | 2003                     |       | 2002                   |        | 2003   |       | 2002
|                                             |                                                                                                                                                         |                              |      |                          |       |                        |        |        |       |     
|Net income (loss), as reported               |                                                                                                                                                         | $                            | 492  |                          |       | $                      | 380    |        |       | $    | (1,538 | )      |       | $ | (24,028 | )     
|                                             | Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards, net of tax in
2002 (no tax benefit in 2003) |                              |      | (1,221                   | )     |                        |        | (1,665 | )     |      |        | (2,650 | )     |   |         | (3,241 | )    
|                                             |                                                                                                                                                         |                              |      |                          |       |                        |        |        |       |      |        |        |       |   |         |       
|Pro forma net loss                           |                                                                                                                                                         | $                            | (729 | )                        |       | $                      | (1,285 | )      |       | $    | (4,188 | )      |       | $ | (27,269 | )     
|                                             |                                                                                                                                                         |                              |      |                          |       |                        |        |        |       |      |        |        |       |   |         |       
|Net income (loss) per share:                 |                                                                                                                                                         |                              |      |                          |       |                        |        |        |       |      |        |        |       |   |         |       
|                                             |                                                                                                                                                         | Basic, as reported           |      | $                        | 0.01  |                        |        | $      | 0.01  |      |        | $      | (0.03 | ) |         | $      | (0.54 | )
|                                             |                                                                                                                                                         | Diluted, as reported         |      | $                        | 0.01  |                        |        | $      | 0.01  |      |        | $      | (0.03 | ) |         | $      | (0.50 | )
|                                             |                                                                                                                                                         | Basic and diluted, pro forma |      | $                        | (0.01 | )                      |        | $      | (0.03 | )    |        | $      | (0.09 | ) |         | $      | (0.62 | )
|Weighted average shares used in computation: |                                                                                                                                                         |                              |      |                          |       |                        |        |        |       |      |        |        |       |   |         |       
|                                             | Basic                                                                                                                                                   |                              |      | 48,829                   |       |                        |        | 47,834 |       |      |        | 48,438 |       |   |         | 44,256 |      
|                                             | Diluted                                                                                                                                                 |                              |      | 49,966                   |       |                        |        | 51,212 |       |      |        | 49,347 |       |   |         | 47,786 |      

As required, the pro forma disclosures above include options granted since
January 1, 1995. Consequently, the effects of applying SFAS 123 for providing
pro forma disclosures may not be representative of the effects on reported net
income for future years until all options outstanding are included in the pro
forma disclosures. For purposes of pro forma disclosures, the estimated fair
value of stock-based compensation plans and other options is amortized to
expense primarily over the vesting period. See Note 16 of the Companys Annual
Report on Form 10-K for the year ended December 31, 2002 for further discussion
of the Companys stock-based employee compensation.

NOTE 4  INVENTORIES

Inventories consist of the following (dollars in thousands):

|                 |  |               |        |                   |  |   |        | 
|---------------- |  | ------------- | ------ | ----------------- |  | - | ------ | 
|                 |  | June 30, 2003 |        | December 31, 2002
|                 |  |               |        |                  
|Purchased parts  |  | $             | 14,077 |                   |  | $ | 15,715 | 
|Work in progress |  |               | 5,671  |                   |  |   | 4,986  | 
|Finished goods   |  |               | 23,814 |                   |  |   | 25,705 | 
|                 |  |               |        |                   |  |   |        | 
|                 |  | $             | 43,562 |                   |  | $ | 46,406 | 
|                 |  |               |        |                   |  |   |        | 

NOTE 5  SEGMENT INFORMATION

As of June 30, 2003, the Company had two segments: Point-of-Sale (POS)/Network
Systems and Direct-Finance Leasing. POS Systems develops, manufactures,
markets, and supports products that automate electronic payment transactions at
the point of sale in merchant establishments as well as supporting non-payment
applications and new markets, including government, education and healthcare.
Network Systems develops, manufactures, markets, and supports
enterprise-networking systems. Direct-finance leasing includes the activities
of our direct finance lease subsidiary, Golden Eagle.

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The Companys reportable segments are strategic business units that market
distinctly different products and services to a respectively different group of
customers. Their business models vary and each is separately managed given
their unique marketing, operations and financing strategies. The POS/Network
Systems segment information excludes the results of the operating units that
have been discontinued as more fully described in Note 6. The following table
presents certain segment financial information (dollars in thousands):

As of and for the three months ended June 30, 2003:

|                                         |  |             |         |                |  |           |        |       |  |   |        |   |  |   |         | 
|---------------------------------------- |  | ----------- | ------- | -------------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | 
|                                         |  | POS/Network |         | Direct-Finance |  |           |        |       |  |   |        |  
|                                         |  | Systems     |         | Leasing        |  | Corporate |        | Total
|                                         |  |             |         |                |  |           |        |      
|Revenue from external customers          |  | $           | 58,899  |                |  | $         | 5,498  |       |  | $ |       |   |  | $ | 64,397  | 
|Income (loss) from continuing operations |  |             | 7,505   |                |  |           | 1,999  |       |  |   | (4,715 | ) |  |   | 4,789   | 
|Segment assets                           |  |             | 179,621 |                |  |           | 38,300 |       |  |   | 45,080 |   |  |   | 263,001 | 

As of and for the three months ended June 30, 2002:

|                                         |  |             |         |                |  |           |        |       |  |   |        |   |  |   |         | 
|---------------------------------------- |  | ----------- | ------- | -------------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | 
|                                         |  | POS/Network |         | Direct-Finance |  |           |        |       |  |   |        |  
|                                         |  | Systems     |         | Leasing        |  | Corporate |        | Total
|                                         |  |             |         |                |  |           |        |      
|Revenue from external customers          |  | $           | 61,131  |                |  | $         | 6,717  |       |  | $ |       |   |  | $ | 67,848  | 
|Income (loss) from continuing operations |  |             | 8,857   |                |  |           | 236    |       |  |   | (4,564 | ) |  |   | 4,529   | 
|Segment assets                           |  |             | 215,552 |                |  |           | 47,174 |       |  |   | 53,453 |   |  |   | 316,179 | 

As of and for the six months ended June 30, 2003:

|                                         |  |             |         |                |  |           |        |       |  |   |        |   |  |   |         | 
|---------------------------------------- |  | ----------- | ------- | -------------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | 
|                                         |  | POS/Network |         | Direct-Finance |  |           |        |       |  |   |        |  
|                                         |  | Systems     |         | Leasing        |  | Corporate |        | Total
|                                         |  |             |         |                |  |           |        |      
|Revenue from external customers          |  | $           | 108,695 |                |  | $         | 11,403 |       |  | $ |       |   |  | $ | 120,098 | 
|Income (loss) from continuing operations |  |             | 11,650  |                |  |           | 3,689  |       |  |   | (9,811 | ) |  |   | 5,528   | 
|Segment assets                           |  |             | 179,621 |                |  |           | 38,300 |       |  |   | 45,080 |   |  |   | 263,001 | 

As of and for the six months ended June 30, 2002:

|                                         |  |             |         |                |  |           |        |       |  |   |        |   |  |   |         | 
|---------------------------------------- |  | ----------- | ------- | -------------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | 
|                                         |  | POS/Network |         | Direct-Finance |  |           |        |       |  |   |        |  
|                                         |  | Systems     |         | Leasing        |  | Corporate |        | Total
|                                         |  |             |         |                |  |           |        |      
|Revenue from external customers          |  | $           | 125,029 |                |  | $         | 13,592 |       |  | $ |       |   |  | $ | 138,621 | 
|Income (loss) from continuing operations |  |             | 17,526  |                |  |           | 401    |       |  |   | (8,985 | ) |  |   | 8,942   | 
|Segment assets                           |  |             | 215,552 |                |  |           | 47,174 |       |  |   | 53,453 |   |  |   | 316,179 | 

NOTE 6  RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS

In September 2002, the Company committed to a plan to improve profits in its
POS/Network Systems segment. The plan
entailed downsizing certain operations and streamlining their product
offerings, changing to a distributor sales model versus a direct sales model in
certain international locations and disposing of unprofitable operations around
the world. The profit improvement plan encompasses both restructuring
activities to be accounted and reported under SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, as well as discontinued
operations to be accounted and reported under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

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Restructuring Charges

The downsizing activities principally focused on the Companys POS/Network
Systems segment, including our manufacturing operations in Brazil. Such
activities entailed moving to a contract manufacturer, reducing the number of
personnel and holding for sale certain long-lived assets such as buildings and
production equipment. Inventories were also written down to support a more
streamlined product offering. In addition, the Company identified certain
sales offices around the world to close in favor of a more cost-effective
distributor arrangement in those locations. Costs associated with closing these
sales offices principally included employee severance, inventory write-downs
and costs associated with exiting office space and disposing of office fixed
assets. The Company is actively marketing the assets held for sale. All other
restructuring activities were completed during the fourth quarter of 2002.

Discontinued Operations

In connection with the profit improvement plan, the Company identified and
decided to hold for sale certain under-performing operating units whose
activities were not closely aligned with the Companys core business. The
results of operations for these operating units held for sale have been
classified as discontinued operations and all periods prior to September 2002
have been restated to present these operating units as discontinued operations.
At the time the Company determined to hold these operations for sale, the
carrying amounts of their assets were written down to their estimated fair value less an
estimate of costs to sell. Assets written down consisted principally of
accounts receivable, inventories, intangible assets and fixed assets. In
accordance with SFAS 144, the operating results of the discontinued operating
units will be classified as discontinued operations as they are incurred.

Net revenues of the operating units classified as discontinued operations for
the three and six months ended June 30, 2003 and 2002 were $2.9 and $5.3
million, and $7.3 and $13.6 million, respectively. Pretax losses of the
operating units classified as discontinued operations for the three and six
months ended June 30, 2003 and 2002 were $2.5 and $3.4 million, and $1.3 and
$3.4 million, respectively.

During the second quarter of 2003, the Company disposed of substantially all
the assets held for sale of Hypercom Horizon Inc., for $4.0 million in cash. In connection with the disposal, the Company recognized a
$1.6 million loss comprised of non-cash fixed asset and inventory write-downs
of $1.1 million, one-time severance costs of $0.4 million, and remaining
facility lease costs of $0.1 million.

As of June 30, 2003, the Company has one remaining discontinued operating unit
held for sale. A disposition of this unit is expected to be completed by September 30, 2003.

NOTE 7  GOODWILL

During 2002 the Company implemented SFAS No. 142, Goodwill and Other Intangible
Assets. Upon adoption of SFAS 142 on January 1, 2002, the carrying amount of
goodwill was $21.8 million, of which $20.3 million was attributed to Golden
Eagle, which comprises all of the Direct-Finance Leasing segment, with the
remaining amount of $1.5 million attributed to the POS/Network Systems segment.
Under the transitional provisions of SFAS 142, the Company evaluated its
reporting units for impairment of goodwill as of January 1, 2002, completing
the evaluations by June 30, 2002. The impairment test relative to Golden
Eagles goodwill was performed by an independent third party valuation firm
using market multiple, comparable transaction and discounted net earnings
methodologies, with the remaining amount of goodwill evaluated internally using
similar valuation methodologies.

The results of the impairment tests resulted in a full write-off of the
carrying value of goodwill of $21.8 million. In accordance with the transition
provisions of SFAS 142, the write-off was reported as a cumulative effect of a
change in accounting principle impacting the first quarter of 2002.

The Company provided a full valuation reserve against the deferred tax benefit
attributed to the write-off of the goodwill that had tax basis, and accordingly
did not report the cumulative effect of a change in accounting principle net of
tax. Due to the goodwill balances that had tax basis with amortizable lives
extending up to 13 years, the Company was uncertain as to whether the tax
benefits would be realized over such an extended time period. Although the
Company did not provide a tax benefit

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attributed to the write off of goodwill, the tax benefit would be available to
the Company in the future to the extent sufficient taxable income is recognized
in the United States.

NOTE 8 DEBT AND EQUITY TRANSACTIONS

On March 22, 2002, the Company completed the issuance and sale of 7,870,000
shares of its common stock, par value $0.001 per share (the Shares), at a
price of $5.00 per Share. The Shares were sold in a private transaction exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended.
The shares were subsequently registered with the Securities and Exchange
Commission effective May 2, 2002.

The net proceeds of the private offering amounted to $36.5 million and were
used to repay two term loans under the Companys credit facility with principal
balances of $15.3 million and $3.3 million, to repay $3.1 million in
outstanding loans from a director and principal stockholder, and to reduce the
outstanding borrowings under the Companys revolving credit facility. The
remaining proceeds were used for general corporate purposes.

In connection with the early retirement of the term loans, the Company recorded
an extraordinary loss on retirement of debt of $2.6 million during the six
months ended June 30, 2002. In accordance with SFAS 145, Rescission of FASB
Statements No.4, 44 and 64, amendment of FASB Statement No.13, and Technical
Corrections, the Company has reclassified its $2.6 million extraordinary loss
from early extinguishment of debt for the six months ended June 30, 2002 to
pre-tax loss.

During March 2003, the Company amended its revolving credit facility to reduce
the available credit limit from $25 million to $15 million. This reduction
better matches the Companys current liquidity needs and provides further cost
savings.

During the second quarter of 2003, the Company issued 1,460,000 shares of its
common stock, par value $0.001 per share, upon the conversion of its Series A
(1.0 million shares at an exercise price of $3.19 per share) and Series B
(460,000 shares at an exercise price of $3.16 per share) Warrants. Proceeds
from the conversions amounted to $4.6 million. Additional equity activity
during the second quarter of 2003 related to issuances of common stock under
our Employee Stock Purchase Plan and stock option plans.

NOTE 9 INCOME TAXES

Income tax (expense) benefit before discontinued operations and cumulative
effect of change in accounting principle for federal, state and foreign taxes
was ($1.0) and ($1.6) million for the three and six months ended June 30, 2003
and ($0.5) and $0.1 million for the three and six months ended June 30, 2002.
The income tax provision for 2003 is primarily comprised of income taxes
associated with the Companys profitable foreign locations.

As discussed in the Companys 2002 Annual Report on Form 10K, the Company
recorded full valuation reserves against the Companys unreserved deferred tax
asset balance existing at September 30, 2002. Consistent with the facts and
circumstances leading to our conclusion to provide a full valuation reserve
against our deferred tax assets in 2002, we have provided a further valuation
allowance against any net increases in deferred tax assets which in 2003
consisted principally of net operating loss carryforwards for U.S. operating
losses generated during the six months ended June 30, 2003. Accordingly, the
effective tax rate for 2003 is not meaningful. These valuation allowances are
subject to reversal in future years at such time that the benefits are actually
utilized or, the operating profits in the U.S. become sustainable at a level
that meets the recoverability criteria under SFAS 109.

The effective income tax rate for the three and six months ended June 30, 2002
was 29% and 53%, respectively, which differed from the U.S. statutory rate
principally due to foreign taxes attributable to foreign operations that
differed from the U.S. statutory rate.

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

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of The Private Securities Litigation Reform Act of 1995. Words such
as believe, expect, intend, anticipate, estimate, project, and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. These forward-looking statements may include,
but not be limited to, projections of revenue or net income and issues that may
affect revenue or net income, projections of capital expenditures, plans for
future operations, products or services, financing needs of the Company, and
economic conditions, as well as assumptions relating to the foregoing.

Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this Quarterly Report,
including the Notes To The Consolidated Financial Statements and Managements
Discussion and Analysis of Financial Condition and Results of Operations
describe factors, among others, that could contribute to or cause such
differences. Additional risk factors that could cause actual results to differ
materially from those expressed in such forward-looking statements, and that
could affect the Companys results of operations and financial position
generally, are set forth in Exhibit 99.1, which is attached hereto and
incorporated by reference into this Quarterly Report on Form 10-Q. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.

RESULTS OF CONTINUING OPERATIONS

The results of continuing operations exclude the operations of the operating
units being reported as discontinued operations (see Note 6 to the financial
statements). Prior year results of continuing operations have been restated to
reflect the discontinued operations on a consistent basis with 2003.

NET REVENUE

Net revenue for the three and six months ended June 30, 2003, decreased $3.4
million and $18.5 million or 5% and 13%, respectively, to $64.4 million and
$120.1 million from $67.8 million and $138.6 million in the three and six
months ended June 30, 2002. The decrease in net revenue for the second quarter
of 2003 compared to the same period in 2002, principally reflects a soft global
economy and the maturing of our direct finance lease portfolio. The decrease
for the six month period was principally due to the attainment of a performance
milestone under our Brazilian Health Ministry contract resulting in revenue of
$8.6 million during the six months ended June 30, 2002, versus $0.8 million in
revenue recognized under the same contract in the six months ended June 30,
2003. Performance milestones under this contract were substantially less than
the milestone achieved in the first quarter of 2002, as we have now entered the
maintenance phase of this contract. The additional decrease in net revenue for
the six months ended June 30, 2003, compared to the same period in the prior
year also reflects a soft global economy and the maturing of our direct finance
lease portfolio, as well as uncertainty relating to the conflict in Iraq during
the first quarter of 2003.

Net revenues from services activities, principally derived from POS support
services, comprised less than 10% of total net revenue in both the three and
six months ended June 30, 2003 and 2002. Our only revenues from long-term
contracts in these periods were derived from our contract with the Brazilian
Health Ministry as discussed previously.

COST OF REVENUE

Cost of revenue includes the cost of raw materials, manufacturing labor,
overhead and subcontracted manufacturing costs, as well as interest expense and
loan loss provisions with respect to direct financing and sales-type leases.
For the three months and six months ended June 30, 2003, costs of revenue
decreased $4.6 and $15.4 million or 11% and 18%, respectively, to $36.6 and
$69.0 million from $41.2 and $84.4 million for the three and six months ended
June 30, 2002. This decrease is a result of the decline in revenues year over
year offset in part by an increase in gross margin as a percentage of revenue.

Gross margin for the three and six months ended June 30, 2003 was 43.1% and
42.6% compared to 39.3% and 39.1% in the same period in the prior year. The
increase in the gross margin percentage is principally attributed to our direct
finance leasing segment (Golden Eagle Leasing) whose margin was 32.7% and 31.2%
in the three and six months ended June 30, 2002 compared to a gross margin of
69.8% and 64.0% in the three and six months ended June 30, 2003. The
improvement in Golden Eagles gross margin is a result of decreases in direct
finance lease defaults and incremental income from lease renewals as the lease
portfolio matures.

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RESEARCH AND DEVELOPMENT

Research and development expenses consist mainly of software and hardware
engineering costs and the cost of development personnel. Research and
development expenses for the three months ended June 30, 2003 increased $0.2
million or 3% to $6.4 million from $6.2 for the three months ended June 30,
2002. The slight increase during the second quarter of 2003 compared to 2002
is attributable to the acceleration of certain development costs in 2003
associated with new product development. Research and development expenses for
the six months ended June 30, 2003 decreased $0.1 million or less than 1% to
$12.2 million from $12.3 for the same period a year ago. This change reflects
the general stabilization of our cost containment efforts. Present development
activities are primarily focusing on the continued reduction in the component
costs of existing products and production enhancements, including certain new
product development, that support current market requirements.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Sales and marketing expenses, administrative personnel costs, and facilities
operations make up the selling, general and administrative expenses. These
expenses totaled $16.5 and $33.4 million for the three and six months ended
June 30, 2003, compared to $16.0 and $32.9 million for the three and six months
in the prior year. This $0.5 million or 3% and 2% increase for the three and
six months ended June 30, 2003 relates principally to the Companys increased
marketing efforts in the U.S. and Europe.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for the quarter ended June 30, 2003 increased
$0.3 million to $4.8 million compared to income of $4.5 million for the same
quarter in the prior year primarily due to the improvement in Golden Eagle
Leasings gross margin. Income from continuing operations for the six months
ended June 30, 2003 decreased $3.4 million to $5.5 million from $8.9 million
for the same period last year, as higher gross margins and lower operating
expenses were insufficient to fully offset the decline in revenues. The
year-to-date decline in income from continuing operations is also reflective of
a soft global economy and the effects of the conflict in Iraq.

NET INTEREST, FOREIGN CURRENCY LOSSES AND OTHER ITEMS

The Company incurred interest expense of $0.6 and $1.2 million for the three
and six months ended June 30, 2003 compared to $0.7 and $2.7 million for the
three and six months ended June 30, 2002. Interest expense consists primarily
of interest on borrowings for long-term debt and amortization of debt issuance
costs. The reduction in interest expense year over year was principally the
result of repaying $21.7 million of debt in March 2002. Other income (expense)
in the amount of $0.1 and ($0.1) million for the three and six months ended
June 30, 2003 compares to other income of $0.2 million and $0.4 million in the
same period in the prior year. These amounts reflect various activities such
as gains or losses on asset dispositions, certain non-operating finance costs,
and other non-operating activity. Foreign currency loss for the three and six
months ended June 30, 2003 was $0.5 and $0.9 million and significantly less
than the loss of $2.2 and $3.8 million in the three and six months ended June
30, 2002. The reduced loss is a result of a hedging program the Company has
since undertaken to mitigate foreign currency exposures.

INCOME TAXES

Income tax (expense) benefit before discontinued operations and cumulative
effect of change in accounting principle for federal, state and foreign taxes
was ($1.0) and ($1.6) million for the three and six months ended June 30, 2003
and ($0.5) and $0.1 million for the three and six months ended June 30, 2002.
The income tax provision for 2003 is primarily comprised of income taxes
associated with the Companys profitable foreign locations.

As discussed in the Companys 2002 Annual Report on Form 10K, the Company
recorded full valuation reserves against the Companys unreserved deferred tax
asset balance existing at September 30, 2002. Consistent with the facts and
circumstances leading to our conclusion to provide a full valuation reserve
against our deferred tax assets in 2002, we have provided a further valuation
allowance against any net increases in deferred tax assets which in 2003
consisted principally of net operating loss carryforwards for U.S. operating
losses generated during the six months ended June 30, 2003. Accordingly, the
effective tax rate for 2003 is not meaningful. These valuation allowances are
subject to reversal in future years at such time that the benefits are actually
utilized or, the operating profits in the U.S. become sustainable at a level
that meets the recoverability criteria under SFAS 109.

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The effective income tax rate for the three and six months ended June 30, 2002
was 29% and 53%, respectively, which differed from the U.S. statutory rate
principally due to foreign taxes attributable to foreign operations that
differed from the U.S. statutory rate.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations primarily through cash
generated from operations and from borrowings under a line of credit. The
Company has also used securitization conduits to finance lease receivables
generated by its subsidiary Golden Eagle Leasing, as well as borrowings under
notes payable to fund working capital requirements and reduce its bank debt.

Cash provided by continuing operations for the six months ended June 30, 2003
was $25.3 million compared to $5.7 million for the six months ended June 30,
2002. The increase in operating cash flow between 2003 and 2002 is principally
due to the Companys continued focus on decreasing working capital requirements
as well as the receipt of an $9.1 million income tax refund related to a U.S.
net operating loss carryback claim filed during the first quarter 2003. The
decrease in working capital requirements principally relates to changes in
accounts receivable, inventory and accounts payable during the first half of
2003 which favorably impacted operating cash compared to changes in those same
working capital items during the first half of 2002. The change in accounts
receivable and its favorable impact on operating cash flow reflects an improved
number of days sales outstanding. The change in inventory and its favorable
impact on operating cash flow reflects a decline in inventory levels due to
manufacturing efficiencies and maintaining inventory levels to support our core
products. Accounts payable changes during the six-month period 2003 compared
to 2002 reflect normal variations in vendor activity.

Cash provided by investing activities was $0.9 million for the six months ended
June 30, 2003 compared to cash used by investing activities of
$3.1 million for
the six months ended June 30, 2002. The decrease in cash used by investing
activities is primarily related to a decrease in the Companys restricted cash
balances attributable to reductions in collateral requirements due to
significant debt repayments on debt securitized by the Companys lease
portfolio. The Company will continue to experience a decline in restricted
cash balances up to November 2003 when this debt is repaid. Capital
expenditures decreased $1.2 million from $4.4 million for the six months ended
June 30, 2002 to $3.2 million for the six months ended June 30, 2003. Capital
expenditures in 2003 were principally for upgrades to computer software and
equipment purchases.

Cash used in financing activities was $2.6 and $2.0 million for the six months
ended June 30, 2003 and 2002, respectively. The increase in cash used in
financing activities of $0.6 million is the result of the Companys reduction
in overall debt balances and a decrease in advances to the Companys
discontinued operations. Long-term debt decreased $8.3 million to $16.7
million at June 30, 2003, from $25.0 million at December 31, 2002, principally
as a result of repayments on debt related to the Companys securitized lease
portfolio. At June 30, 2003, working capital and cash was $136.3 million and
$47.1 million, respectively, compared to $129.3 and $23.1 million,
respectively, at December 31, 2002.

On March 22, 2002, the Company completed the issuance and sale of 7,870,000
shares of its common stock, par value $0.001 per share (the Shares), at a
price of $5.00 per Share. The Shares were sold in a private transaction exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended.
The shares were subsequently registered with the Securities and Exchange
Commission effective May 2, 2002.

The net proceeds of the private offering amounted to $36.5 million and were
used to repay two term loans under the Companys credit facility with principal
balances of $15.3 million and $3.3 million, to repay $3.1 million in
outstanding loans from a director and principal stockholder, and to reduce the
outstanding borrowings under the Companys revolving credit facility. The
remaining proceeds were used for general corporate purposes.

In connection with the early retirement of the term loans, the Company recorded
an extraordinary loss on retirement of debt of $2.6 million during the six
months ended June 30, 2002. In accordance with SFAS 145, Rescission of FASB
Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical
Corrections, the Company has reclassified its $2.6 million extraordinary loss
from early extinguishment of debt for the six months ended June 30, 2002 to
pre-tax income (see Note 8).

During March 2003, the Company amended its revolving credit facility to reduce
the available credit limit from $25.0 million to $15.0 million. This reduction
better matches the Companys current liquidity needs and provides further cost
savings.

During the second quarter of 2003, the Company issued 1,460,000 shares of its
common stock, par value $0.001 per share, upon the conversion of its Series A
(1.0 million shares at an exercise price of $3.19 per share) and Series B
(460,000 shares at

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an exercise price of $3.16 per share) Warrants. Proceeds from the conversions
amounted to $4.6 million. Additional equity activity during the second quarter
of 2003 related to issuances of common stock under our Employee Stock Purchase
Plan and stock option plans.

The Company continues to accelerate cash generation through aggressively
pursuing collection of trade receivables, reducing inventories and controlling
expenses. We believe that our cash flow from operations, and the net cash
provided by our direct-financing leases, together with our current cash
reserves, will be sufficient to fund our projected liquidity and capital
resource requirements through 2003. If operating results are unfavorable or
our direct-financing lease fundings exceed direct-financing lease receipts, we
may need to use additional capital sources to meet our short-term liquidity and
capital resource requirements. These additional sources would include our
$15.0 million revolving line of credit, which is available based on certain
accounts receivable and inventory balances, or our direct-financing lease
credit facilities with approximately $25.0 million of credit available at June
30, 2003.

BACKLOG

As of June 30, 2003, the Company had backlog of $83.3 million, compared to
$50.1 million at June 30, 2002. The increase in backlog is primarily related to
an increase in sales orders in the United States that are subject to a customer
approved delivery schedule.

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.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

A substantial portion of the Companys revenue and capital spending is
transacted in U.S. dollars. However, the Company does at times enter into
transactions in other currencies, such as the Hong Kong dollar, Australian
dollar, Brazilian Real and other Asian and European currencies. Beginning in
June 2002, the Company resumed its foreign currency risk management strategy,
which had been suspended starting in the fourth quarter of 2000 due to credit
limitations imposed by the Companys banks. As a policy, the Company hedges
the translation of its net investment in foreign subsidiaries in an attempt to
neutralize the effect of translation gains or losses in the statement of
operations. Financial hedging instruments are limited by Company policy to
foreign-currency forward or option contracts and foreign-currency debt. The
Company enters into forward or option contracts with its bank or other
financial institutions to accomplish its hedging strategy. At June 30, 2003,
the Company had foreign currency forward contracts outstanding in the amount of
$27.8 million, denominated principally in the Brazilian real, British pound,
Swedish krona, Chilean peso, and Australian dollar. Gains and losses on these
contracts principally consist of mark-to-market adjustments, recorded in
earnings as foreign currency gains or losses. See Net Interest, Foreign
Currency Losses and Other Itemssection above.

The Company does not purchase or hold any derivative financial instruments for
the purpose of speculation or arbitrage. See information/discussion appearing
in subcaption Risks Associated with International Operations and Foreign
Currency Fluctuations of CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS AND RISK FACTORS set forth in Exhibit 99.1, attached hereto.

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Item 4. Controls and Procedures

As of the end of the period covered by this report, Hypercom management
conducted an evaluation, under the supervision and with the participation of
the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective in alerting them in a timely manner to material
information required to be included in the Companys SEC reports. In addition,
Hypercom management, including the Companys Chief Executive Officer and Chief
Financial Officer, reviewed our internal controls, and there have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect those controls subsequent to the date of our last
evaluation.




PART II  OTHER INFORMATION




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

(a)  On May 21, 2003, the Company held its Annual Meeting of Stockholders at
which the following matters were voted upon:

(b)  Election of Directors. All three nominees for election as Class II
Directors were unopposed and elected as follows:

|                         |  |            |            |                 |  |  |         | 
|------------------------ |  | ---------- | ---------- | --------------- |  |  | ------- | 
|Director                 |  | Shares For |            | Shares Withheld
|Christopher S. Alexander |  |            | 42,191,942 |                 |  |  | 544,753 | 
|William Keiper           |  |            | 41,773,478 |                 |  |  | 963,217 | 
|Jock Patton              |  |            | 41,777,328 |                 |  |  | 959,367 | 

The terms of the Class I Directors (George R. Wallner, Albert A. Irato, Jane
Evans and Norman Stout) will expire in 2004.




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|               |  |                                                                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                               
|3.1            |  | 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            |  | Amended and Restated Bylaws of Hypercom Corporation (incorporated by
reference to Exhibit 3.2 to Hypercom Corporations Quarterly Report on Form
10-Q for the quarter ended September 30, 2002)               
|               |  |                                                                                                                                                                                                               
|4              |  | 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))
|               |  |                                                                                                                                                                                                               
|10.1           |  | Amendment No. Nine dated June 30, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                     
|               |  |                                                                                                                                                                                                               
|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 *                                                                                              
|               |  |                                                                                                                                                                                                               
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|99.1           |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors *                                                                                                                                  



| |                   | 
| | ----------------- | 
| | * Filed herewith. | 

(b)  Reports on Form 8-K.

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The Company filed the following reports on Form 8-K during the quarter
ended June 30, 2003:



| | a) |  | Form 8-K dated April 25, 2003, furnishing under Item 9 and Item
12, the Companys press release, dated April 25, 2003, announcing the
Companys results of operations for the quarter ended March 31, 2003;
and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Form 8-K/A dated April 25, 2003, furnishing under Item 9 and Item
12, the Companys press release, dated April 25, 2003, announcing the
Companys results of operations for the quarter ended March 31, 2003.  

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SIGNATURES

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

|                      |  |                                                                                                                               
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|                      |  | HYPERCOM CORPORATION                                                                                                          
|                      |  |                                                                                                                               
|Date: August 13, 2003 |  | By: /s/ John W. Smolak                                                                                                        
|                      |  |                                                                                                                               
|                      |  | John W. Smolak                                                                                                                
|                      |  |                                                                                                                               
|                      |  | Executive Vice President, Chief
Financial and Administrative Officer
(duly authorized officer and
Principal Financial Officer)

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EXHIBIT INDEX

|               |  |                                                                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                               
|3.1            |  | 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            |  | Amended and Restated Bylaws of Hypercom Corporation (incorporated by
reference to Exhibit 3.2 to Hypercom Corporations Quarterly Report on Form
10-Q for the quarter ended September 30, 2002)               
|               |  |                                                                                                                                                                                                               
|4              |  | 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))
|               |  |                                                                                                                                                                                                               
|10.1           |  | Amendment No. Nine dated June 30, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                     
|               |  |                                                                                                                                                                                                               
|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 *                                                                                              
|               |  |                                                                                                                                                                                                               
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|99.1           |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors *                                                                                                                                  



---

|* Filed herewith.
|-----------------

18