UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





ý
            
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended March 31, 2009ORo
            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      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.
      Employerincorporation
      or organization)
            
            Identification
      No.)8888
      East Raintree Drive, Suite 300
              Scottsdale,
      Arizona
            
            85260(Address
      of principal executive offices)
            
            (Zip
      Code)




(480)
642-5000


(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 [ √
]                                           No  [   ]





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).




Yes
[   ]                                           No  [   ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large
accelerated filer
[   ]                                                                                                           Accelerated
filer [ √ ]




Non-accelerated
filer  [   ]                                                                                                           Smaller
reporting company  [   ]


(Do not
check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes
[   ]   No  [ √ ]





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class
            
            Outstanding
      at May 8, 2009Common
      Stock, $.001 par value per share
            
            53,854,419
      shares









TABLE OF CONTENTS





PART
      I.
            FINANCIAL
      INFORMATION
            PageItem 1.
            Financial Statements
            1Consolidated Balance Sheets – March 31, 2009 (unaudited) and
      December 31, 2008
            1Consolidated Statements of Operations – Three months ended
      March 31, 2009 and 2008 (unaudited)
            2Consolidated Statements of Cash Flows – Three months
      ended March 31, 2009 and 2008 (unaudited)
            3Notes to Consolidated Financial
    Statements
            4Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            15Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            22Item 4.
            Controls and Procedures
            23PART
      II.
            OTHER
      INFORMATIONItem 1.
            Legal Proceedings
            23Item 1A.
            Risk Factors
            24Item 5.
            Other Information
            25Item 6.
            Exhibits
            25Signatures
            26









PART
I — FINANCIAL INFORMATION





Item 1.  Financial Statements.





HYPERCOM CORPORATIONCONSOLIDATED
      BALANCE SHEETSMarch
      31,
                        
                        
                        December
      31,Amounts
      in thousands, except share data
                        
                        2009
                        
                        
                        2008(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        31,095
                        
                        
                        $
                        35,978Short-term
      investments
                        
                        
                        -
                        
                        
                        
                        499Accounts
      receivable, net of allowance for doubtfulaccounts
      of $5,525 and $4,799, respectively
                        
                        
                        81,035
                        
                        
                        
                        96,986Current
      portion of net investment in sales-type leases
                        
                        
                        7,837
                        
                        
                        
                        9,915Inventories
                        
                        
                        36,569
                        
                        
                        
                        31,681Prepaid
      expenses and other current assets
                        
                        
                        8,991
                        
                        
                        
                        7,106Deferred
      income taxes
                        
                        
                        1,225
                        
                        
                        
                        1,320Total
      current assets
                        
                        
                        166,752
                        
                        
                        
                        183,485Property,
      plant and equipment, net
                        
                        
                        26,438
                        
                        
                        
                        26,870Net
      investment in sales-type leases
                        
                        
                        5,823
                        
                        
                        
                        4,869Intangible
      assets, net
                        
                        
                        52,364
                        
                        
                        
                        57,311Goodwill
                        
                        
                        25,999
                        
                        
                        
                        26,715Other
      long-term assets
                        
                        
                        7,010
                        
                        
                        
                        7,050Total
      assets
                        
                        $
                        284,386
                        
                        
                        $
                        306,300LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                        
                        $
                        40,492
                        
                        
                        $
                        52,929Accrued
      payroll and related expenses
                        
                        
                        13,325
                        
                        
                        
                        16,619Accrued
      sales and other taxes
                        
                        
                        6,357
                        
                        
                        
                        7,709Product
      warranty liabilities
                        
                        
                        6,445
                        
                        
                        
                        6,597Restructuring
      liabilities
                        
                        
                        7,389
                        
                        
                        
                        7,724Accrued
      other liabilities
                        
                        
                        23,153
                        
                        
                        
                        22,866Deferred
      revenue
                        
                        
                        17,673
                        
                        
                        
                        12,177Deferred
      tax liabilities
                        
                        
                        4,754
                        
                        
                        
                        4,828Income
      taxes payable
                        
                        
                        6,133
                        
                        
                        
                        5,201Total
      current liabilities
                        
                        
                        125,721
                        
                        
                        
                        136,650Long-term
      debt
                        
                        
                        50,899
                        
                        
                        
                        48,769Deferred
      tax liabilities
                        
                        
                        15,976
                        
                        
                        
                        15,999Other
      liabilities
                        
                        
                        10,473
                        
                        
                        
                        11,094Total
      liabilities
                        
                        
                        203,069
                        
                        
                        
                        212,512Commitments
      and contingenciesStockholders'
      equity:Common
      stock, $.001 par value; 100,000,000 sharesauthorized;
      53,533,419 and 53,442,799 shares outstandingat
      March 31, 2009 and December 31 2008, respectively
                        
                        
                        57
                        
                        
                        
                        57Additional
      paid-in capital
                        
                        
                        273,607
                        
                        
                        
                        272,869Accumulated
      deficit
                        
                        
                        (149,170
                        )
                        
                        
                        (139,245
                        )Treasury
      stock, 3,162,248 shares (at cost) atMarch
      31, 2009 and December 31, 2008
                        
                        
                        (22,749
                        )
                        
                        
                        (22,749
                        )Accumulated
      other comprehensive loss
                        
                        
                        (20,428
                        )
                        
                        
                        (17,144
                        )Total
      stockholders' equity
                        
                        
                        81,317
                        
                        
                        
                        93,788Total
      liabilities and stockholders' equity
                        
                        $
                        284,386
                        
                        
                        $
                        306,300The
      accompanying notes are an integral part of these consolidated financial
      statements.




- 1
-
 Table of Contents




HYPERCOM CORPORATIONCONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)Three
      Months Ended 31,2009
                            
                            
                            2008(Amounts
      in thousands, except per share data)Net
      revenue:Product
                            
                            $
                            57,905
                            
                            
                            $
                            49,584Service
                            
                            
                            25,710
                            
                            
                            
                            20,921Total
      net revenue
                            
                            
                            83,615
                            
                            
                            
                            70,505Costs
      of revenue:Product
                            
                            
                            38,910
                            
                            
                            
                            33,250Service
                            
                            
                            19,711
                            
                            
                            
                            17,612Amortization
      of purchased intangible assets
                            
                            
                            675
                            
                            
                            
                            83Total
      costs of revenue
                            
                            
                            59,296
                            
                            
                            
                            50,945Gross
      profit
                            
                            
                            24,319
                            
                            
                            
                            19,560Operating
      expenses:Research
      and development
                            
                            
                            10,806
                            
                            
                            
                            6,112Selling,
      general and administrative
                            
                            
                            18,579
                            
                            
                            
                            15,511Amortization
      of purchased intangible assets
                            
                            
                            1,429
                            
                            
                            
                            132Total
      operating expenses
                            
                            
                            30,814
                            
                            
                            
                            21,755Loss
      from continuing operations
                            
                            
                            (6,495
                            )
                            
                            
                            (2,195
                            )Interest
      income
                            
                            
                            77
                            
                            
                            
                            797Interest
      expense
                            
                            
                            (2,450
                            )
                            
                            
                            -Foreign
      currency gain (loss)
                            
                            
                            (697
                            )
                            
                            
                            49Other
      income
                            
                            
                            12
                            
                            
                            
                            79Loss
      before income taxes and discontinuedoperations
                            
                            
                            (9,553
                            )
                            
                            
                            (1,270
                            )Income
      tax benefit (provision)
                            
                            
                            (441
                            )
                            
                            
                            663Loss
      before discontinued operations
                            
                            
                            (9,994
                            )
                            
                            
                            (607
                            )Income
      from discontinued operations
                            
                            
                            69
                            
                            
                            
                            275Net
      loss
                            
                            $
                            (9,925
                            )
                            
                            $
                            (332
                            )Basic
      and diluted loss per share:Loss
      before discontinued operations
                            
                            $
                            (0.19
                            )
                            
                            $
                            (0.01
                            )Income
      (loss) from discontinued operations
                            
                            
                            -
                            
                            
                            
                            -Basic
      and diluted loss per share
                            
                            $
                            (0.19
                            )
                            
                            $
                            (0.01
                            )Shares
      used in computing net loss percommon
      share:Basic
                            
                            
                            53,402,973
                            
                            
                            
                            53,224,574Diluted
                            
                            
                            53,402,973
                            
                            
                            
                            53,224,574The
      accompanying notes are an integral part of these consolidated financial
      statements.





- 2
-
 Table of Contents




HYPERCOM CORPORATIONCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Three
      Months Ended March 31,(Amounts
      in thousands)
                            
                            2009
                            
                            
                            2008Cash
      flows from continuing operations:Net
      loss from continuing operations
                            
                            $
                            (9,994
                            )
                            
                            $
                            (607
                            )Adjustments
      to reconcile net lossfrom
      continuing operations to net cash provided by(used
      in) operating activities:Depreciation
      and amortization
                            
                            
                            2,485
                            
                            
                            
                            2,312Amortization
      of purchased intangibles
                            
                            
                            2,104
                            
                            
                            
                            215Interest
      conversion to debt
                            
                            
                            1,615
                            
                            
                            
                            -Amortization
      of debt issuance costs
                            
                            
                            32
                            
                            
                            
                            -Amortization
      of warrant discount
                            
                            
                            703
                            
                            
                            
                            -Amortization
      of discount on short-term investments
                            
                            
                            -
                            
                            
                            
                            (38
                            )Provision
      (reversal) for doubtful accounts
                            
                            
                            1,363
                            
                            
                            
                            (1,143
                            )Provision
      for excess and obsolete inventory
                            
                            
                            375
                            
                            
                            
                            665Provision
      for warranty and other product charges
                            
                            
                            1,138
                            
                            
                            
                            495Foreign
      currency losses
                            
                            
                            (538
                            )
                            
                            
                            (165
                            )Non-cash
      stock-based compensation
                            
                            
                            674
                            
                            
                            
                            918Non-cash
      write-off of intangibles and other assets
                            
                            
                            345
                            
                            
                            
                            42Deferred
      income tax provision (benefit)
                            
                            
                            (4
                            )
                            
                            
                            1,592Changes
      in operating assets and liabilities, net
                            
                            
                            (3,607
                            )
                            
                            
                            14,664Net
      cash provided by (used in) operating activities
                            
                            
                            (3,309
                            )
                            
                            
                            18,950Cash
      flows from investing activities:Purchase
      of property, plant and equipment
                            
                            
                            (1,257
                            )
                            
                            
                            (1,265
                            )Cash
      paid for acquisitions, net of cash acquired
                            
                            
                            (37
                            )
                            
                            
                            (2,073
                            )Software
      development costs capitalized
                            
                            
                            -
                            
                            
                            
                            (29
                            )Purchase
      of short-term investments
                            
                            
                            (1,376
                            )
                            
                            
                            (14,969
                            )Proceeds
      from the sale or maturity of short-term investments
                            
                            
                            1,875
                            
                            
                            
                            16,376Net
      cash used in investing activities
                            
                            
                            (795
                            )
                            
                            
                            (1,960
                            )Cash
      flows from financing activities:Borrowings
      on revolving line of credit
                            
                            
                            7,800
                            
                            
                            
                            -Repayment
      of bank notes payable and other debt instruments
                            
                            
                            (7,985
                            )
                            
                            
                            (1
                            )Debt
      issuance costs
                            
                            
                            -
                            
                            
                            
                            (125
                            )Proceeds
      from issuance of common stock
                            
                            
                            54
                            
                            
                            
                            566Net
      cash provided by (used in) financing activities
                            
                            
                            (131
                            )
                            
                            
                            440Effect
      of exchange rate changes on cash and cash equivalents
                            
                            
                            (694
                            )
                            
                            
                            573Net
      (decrease) increase in cash flow from continuingoperations
                            
                            
                            (4,929
                            )
                            
                            
                            18,003Net
      cash provided by operating activities fromdiscontinued
      operations
                            
                            
                            46
                            
                            
                            
                            167Cash
      and cash equivalents, beginning of year
                            
                            
                            35,978
                            
                            
                            
                            76,925Cash
      and cash equivalents, end of year
                            
                            $
                            31,095
                            
                            
                            $
                            95,095The
      accompanying notes are an integral part of these consolidated financial
      statements.




- 3
-
 Table of Contents




HYPERCOM CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(Unaudited)




1.
            Basis
      of Presentation





The
consolidated financial statements include the accounts of Hypercom Corporation
and its wholly-owned subsidiaries (“Hypercom” or the “Company”). The Company
owns 100% of the outstanding stock of all of its subsidiaries with the exception
of one subsidiary in Thailand. For this subsidiary, the Company owns a
controlling interest and certain nominee shareholders own the remaining shares.
The Company is in the process of acquiring the remaining shares from the nominee
shareholders. All of the Company’s subsidiaries are included in the consolidated
financial statements and all significant intercompany accounts and transactions
have been eliminated in consolidation.





These
accompanying interim consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles (“GAAP”),
consistent in all material respects with those applied in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2008. The
financial information is unaudited but reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of the Company’s
management, necessary to a fair statement of the results for the interim periods
presented. Interim results are not necessarily indicative of results for a full
year. The information included in this Quarterly Report on Form 10-Q should be
read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.





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





Impact
of Recently Issued Accounting Pronouncements





On
January 1 2009 the Company adopted FSP 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS 142,
“Goodwill and Other Intangible
Assets”.The implementation of this standard did not have a material
impact on our consolidated financial position, results of operations or cash
flows.





On
January 1, 2009 the Company adopted FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities” (“FSP 140-4 and 46(R)-8”). FSP 140-4 and 46(R)-8
requires additional disclosures about transfers of financial assets and
involvement with variable interest entities. The implementation of this standard
did not have a material impact on our consolidated financial position, results
of operations or cash flows.





In
December 2008, the FASB issued FSP 132R-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” (“FSP 132R-1”). FSP 132R-1 provides
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan. FSP 132R-1 is effective for fiscal years
ending after December 15, 2009. The Company is currently assessing the impact of
this FSP on its consolidated financial position, results of operations and cash
flows.





On
January 1, 2009 the Company adopted SFAS No. 141R, Business Combinations(“SFAS
141R”), which replaces SFAS No. 141, Business Combinations(“SFAS
141”). SFAS 141R applies to all transactions and other events in which one
entity obtains control over one or more other businesses. The standard requires
the fair value of the purchase price, including the issuance of equity
securities, to be determined on the acquisition date. SFAS 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interests in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
statement. SFAS 141R requires acquisition costs to be expensed as incurred and
restructuring costs to be expensed in periods after the acquisition date.
Earn-outs and other forms of contingent consideration are to be recorded at fair
value on the acquisition date. Changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period will be recognized in earnings rather than as an adjustment to the cost
of the acquisition. SFAS 141R generally applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. The
implementation of this standard did not have a material impact on our
consolidated financial position, results of operations or cash
flows.





On
January 1, 2009, the Company adopted SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS
160”). SFAS 160 requires non-controlling interests or minority interests to be
treated as a separate component of equity, not as a liability or other item
outside of permanent equity. Upon a loss of




- 4
-
 Table of Contents




control,
the interest sold, as well as any interest retained, is required to be measured
at fair value, with any gain or loss recognized in earnings. Based on SFAS 160,
assets and liabilities will not change for subsequent purchase or sale
transactions with non-controlling interests as long as control is maintained.
Differences between the fair value of consideration paid or received and the
carrying value of non-controlling interests are to be recognized as an
adjustment to the parent interest’s equity. The implementation of this standard
did not have a material impact on our consolidated financial position, results
of operations or cash flows.





In
September 2006, FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in GAAP and expands disclosures about fair value measurements. SFAS
157 is generally effective for years beginning after December 15, 2007.
SFAS 157 was effective for the Company on January 1, 2008; however, in
February 2008, the FASB issued FSP No. SFAS 157-2 (FSP 157-2), which
delayed the effective date of SFAS 157 for non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis, for one year. The
adoption of SFAS 157 on January 1, 2008 with respect to the Company’s
financial assets and liabilities did not have a material impact on its
consolidated financial position, results of operations or cash flows. The
Company adopted the provisions of SFAS 157 with respect to its non-financial
assets and non-financial effective January 1, 2009 pursuant to the
requirements of FSP 157-2. The implementation of this standard did not have a
material impact on our consolidated financial position, results of operations or
cash flows.





2.  Business
Acquisitions





Thales
e-Transactions





On
April 1, 2008, the Company acquired all of the outstanding shares of Thales
e-Transactions companies (“TeT”). The Company acquired the TeT business line to
expand the Company’s geographic reach in Europe and increase the Company’s size
and scale, with the expectation of accelerating product cost reductions in
connection with the convergence towards a single, combined product
family.





The
consideration paid to acquire TeT was $149.4 million in cash. To fund a
portion of the acquisition price, the Company entered into a credit agreement
(the “Credit Agreement”) with Francisco Partners II, L.P. (“FP II”), which
provided funding of $60.0 million. See Note 9 for additional information
related to the Credit Agreement.





Cash
reconciliation of total purchase price (amounts in
thousands):





Cash
      paid
                
                
                Balance
      Accrued
                
                
                Cash
      paid
                
                
                Cash
      paid
                
                
                Cash
      paidTotal
                
                
                as
      of March 31, 2009
                
                
                2009
                
                
                2008
                
                
                2007Cash
      paid to purchase TeT shares, working capital and assumed
    debt
                
                $
                133,611
                
                
                $
                -
                
                
                $
                -
                
                
                $
                133,611
                
                
                $
                -Cash
      paid for transaction costs
                
                
                3,827
                
                
                
                -
                
                
                
                37
                
                
                
                3,422
                
                
                
                368Cash
      deposit
                
                
                10,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,000Preliminary
      working capital adjustment
                
                
                2,000
                
                
                
                2,000
                
                
                
                -
                
                
                
                -
                
                
                
                -Subtotal
                
                
                149,438
                
                
                
                2,000
                
                
                
                37
                
                
                
                137,033
                
                
                
                10,368Cash
      acquired from TeT
                
                
                (21,865
                )
                
                
                -
                
                
                
                -
                
                
                
                (21,865
                )
                
                
                -Total
      cash paid, net of cash acquired
                
                $
                127,573
                
                
                $
                2,000
                
                
                $
                37
                
                
                $
                115,168
                
                
                $
                10,368





As of March 31, 2009, the
Company has recorded a preliminary amount of $2.0 million for the working
capital adjustment that is expected to be paid this year, but is subject to
negotiation that could result in further changes. None of the goodwill is
expected to be deductible for tax purposes.





During
the quarter ended March 31, 2009, the Company accrued an additional $212,000 as
the total cost of its TeT restructuring plan was finalized. See Note 4 for
additional information related to the TeT restructuring plan.





The
following represents the results of operations for the three months ended
March 31, 2009 and pro forma results for the three months ended March 31,
2008 and gives effect to the TeT acquisition as if the transaction was
consummated at the beginning of fiscal year 2008. The unaudited pro forma
results of operations are not necessarily indicative of what would have occurred
had the acquisition been made as of the beginning of the period or of the
results that may occur in the future.





Net loss
includes additional interest expense of $2.4 million and amortization of
intangible assets related to the acquisition of $2.8 million for the first
quarter of 2008. The unaudited pro forma information is as follows:




- 5
-
 Table of Contents




Three
      Months Ended March 31,2009
                
                
                2008Total
      net revenue
                
                $
                83,615
                
                
                $
                113,649Net
      loss
                
                $
                (9,925
                )
                
                $
                (8,992
                )Net
      loss per share - basic and diluted
                
                $
                (0.19
                )
                
                $
                (0.17
                )





3.  Intangible
Assets and
Goodwill





Intangible
assets consist of the following at March 31, 2009 and December 31, 2008 (amounts
in thousands):





Gross
      Carrying Amount
                
                
                Accumulated
      Amortization
                
                
                NetMarch
      31,
                
                
                December
      31,
                
                
                March
      31,
                
                
                December
      31,
                
                
                March
      31,
                
                
                December
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Capitalized
      software
                
                $
                4,699
                
                
                $
                4,699
                
                
                $
                (3,749
                )
                
                $
                (3,597
                )
                
                $
                950
                
                
                $
                1,102Customer
      and supplier relationships
                
                
                52,551
                
                
                
                55,517
                
                
                
                (5,159
                )
                
                
                (4,266
                )
                
                
                47,392
                
                
                
                51,251Unpatented
      technology
                
                
                2,908
                
                
                
                3,039
                
                
                
                (2,392
                )
                
                
                (1,851
                )
                
                
                516
                
                
                
                1,188Trademarks,
      trade names
                
                
                3,506
                
                
                
                3,562
                
                
                
                (1,097
                )
                
                
                (930
                )
                
                
                2,409
                
                
                
                2,632Service
      know-how
                
                
                1,330
                
                
                
                1,330
                
                
                
                (288
                )
                
                
                (255
                )
                
                
                1,042
                
                
                
                1,075Other
                
                
                149
                
                
                
                149
                
                
                
                (94
                )
                
                
                (86
                )
                
                
                55
                
                
                
                63$
                65,143
                
                
                $
                68,296
                
                
                $
                (12,779
                )
                
                $
                (10,985
                )
                
                $
                52,364
                
                
                $
                57,311





Amortization
of these intangibles is provided on straight-line method based on their
estimated useful lives:





Capitalized
      software
                3
      yearsCustomer
      and supplier relationships
                4 -
      10 yearsUnpatented
      technology
                2 -
      10 yearsTrademarks,
      trade names
                2 -
      10 yearsService
      know-how
                10
      yearsOther
                2-5
      years





Amortization
expense related to intangible assets used in continuing operations was
$2.3 million and $0.6 million for the three months ended March 31,
2009 and 2008, respectively. Based on the intangible assets recorded at
March 31, 2009, and assuming no subsequent impairment of the underlying
assets, the annual amortization expense for each period, is expected to be as
follows: $7.0 million for the remainder of 2009, $6.8 million for 2010,
$6.3 million for 2011, $6.3 million for 2012 and $5.4 million for
2013.





Activity
related to goodwill consisted of the following for the quarter ended March 31,
2009 was as follows (amounts in thousands):


- 6
-
 Table of Contents


March
      31, 2009Balance,
      beginning of year
                  
                  $
                  26,715Additions
      related to acquisitions
                  
                  
                  219Currency
      translation adjustment
                  
                  
                  (935
                  )Balance,
      end of year
                  
                  $
                  25,999





4.  Restructuring
and Other Charges





Thales
e-Transactions Restructuring





On
April 1, 2008, the Company completed the acquisition of TeT and began
formulating a restructuring plan. At the acquisition date, the Company accrued
into the purchase price allocation restructuring costs related to reduction in
workforce and future facilities lease obligations of approximately $9.2 million.
The balance at March 31, 2009 is $7.4 million.





Activities
related to the TeT acquisition restructuring plan are as follows (amounts in
thousands):




Facilities
                            
                            
                            Severance
                            
                            
                            TotalBalance
      at December 31, 2008
                            
                            $
                            -
                            
                            
                            $
                            7,724
                            
                            
                            $
                            7,724Additions
                            
                            
                            -
                            
                            
                            
                            124
                            
                            
                            
                            124Cash
      payments
                            
                            
                            -
                            
                            
                            
                            (127
                            )
                            
                            
                            (127
                            )Currency
      translation adjustment
                            
                            
                            -
                            
                            
                            
                            (356
                            )
                            
                            
                            (356
                            )Balance
      at March 31, 2009
                            
                            $
                            -
                            
                            
                            $
                            7,365
                            
                            
                            $
                            7,365





The
Company expects the remaining amounts accrued to be paid in 2009. The
restructuring plan and the amounts recorded are subject to change based on the
negotiation of severance and other workforce reduction negotiations with
employees and other work groups. Accordingly, additional restructuring amounts
may need to be recorded as an expense.





5.  Discontinued
Operations





Australian
Courier Business





During
the fourth quarter of 2008, the Company decided to sell the Australian courier
business of its ACG Group division (“Australian Courier Business”). As of
December 31, 2008, the Australian Courier Business qualified as discontinued
operations under SFAS 144. Accordingly, the income from discontinued
operations for the three months ended March 31, 2009 and 2008 include direct
revenue and direct expenses of this discontinued courier operation within our
Asia-Pacific segment. General corporate overhead costs have not been allocated
to discontinued operations. A summary of the operating results included in
discontinued operations in the accompanying consolidated statements of
operations is as follows (amounts in thousands):





Three
      Months Ended March 31,2009
                      
                      
                      2008Net
      revenue
                      
                      $
                      502
                      
                      
                      $
                      1,191Costs
      of revenue
                      
                      
                      432
                      
                      
                      
                      987Gross
      profit
                      
                      
                      70
                      
                      
                      
                      204Selling,
      general and administrative expenses
                      
                      
                      (14
                      )
                      
                      
                      (74
                      )Income
      from discontinued operations
                      
                      $
                      56
                      
                      
                      $
                      130





On March
1, 2009, the Company sold the Australian Currier Business for $0.3 million. The
sale agreement includes all related rights and obligations of the Australian
Courier Business. The sale agreement contains general warranty and
indemnification provisions, which could result in additional liabilities to the
Company if certain events occur or fail to occur in the future.





There are
no assets or liabilities held for sale at March 31, 2009. Assets and liabilities
held for sale included in accounts receivable and accrued other liabilities
amounted to $0.4 million and $0.1 million, respectively in the Company’s
consolidated balance sheet at December 31, 2008.





6.  Leases





Sales-Type
Leases





The
Company’s net investments in sales-type leases consist of the following at March
31, 2009 and December 31, 2008 (amounts in thousands):




March
      31,
                      
                      
                      December
      31,2009
                      
                      
                      2008Lease
      contracts receivable
                      
                      $
                      17,158
                      
                      
                      $
                      18,919Unearned
      revenue
                      
                      
                      (2,376
                      )
                      
                      
                      (2,899
                      )Allowance
      for bad debt
                      
                      
                      (1,122
                      )
                      
                      
                      (1,236
                      )Net
      investment in sales-type leases
                      
                      $
                      13,660
                      
                      
                      $
                      14,784





7.
Inventories





Inventories
consist of the following at March 31, 2009 and December 31, 2008 (amounts in
thousands):




- 7
-
 Table of Contents




March
      31,
                
                
                December
      31,2009
                
                
                2008Purchased
      parts
                
                $
                8,650
                
                
                $
                4,039Work
      in progress
                
                
                336
                
                
                
                353Finished
      goods
                
                
                27,583
                
                
                
                27,289$
                36,569
                
                
                $
                31,681





8.  Product
Warranty Liability





The
following table reconciles the changes to the product warranty liability for the
three months ended March 31, 2009 and 2008 (amounts in thousands):





Three
      Months Ended March 31,2009
                    
                    
                    2008Balance
      at beginning of period
                    
                    $
                    6,597
                    
                    
                    $
                    1,754Warranty
      chargesfrom
      normal operations
                    
                    
                    1,138
                    
                    
                    
                    495Utilization
      of warranty liability
                    
                    
                    (1,119
                    )
                    
                    
                    (545
                    )Currency
      translation adjustment
                    
                    
                    (171
                    )
                    
                    
                    -Balance
      at end of period
                    
                    $
                    6,445
                    
                    
                    $
                    1,704





Deferred
revenue associated with the Company’s extended warranty programs was
$3.7 million and $2.0 million for the three months ended
March 31, 2009 and 2008, respectively.





9.  Long-term
Debt





Revolving
Credit Facilities





On
March 31, 2006, the Company entered into a line of credit agreement with a
bank pursuant to which the Company had access to a $5.0 million line of
credit. Borrowings under the credit agreement were fully collateralized by
short-term investments held in the Company’s investment accounts with the bank.
Any borrowings bore interest at a rate set forth in each promissory note issued
at the time of the advance. The credit agreement contained customary default
provisions and expired as planned on March 31, 2009 with no amounts
outstanding.





On January 15, 2008, the Company and certain of its
subsidiaries (the “Borrowers”) entered into a Loan and Security Agreement (the
“Loan Agreement”) with a bank and other financial institutions party to the Loan
Agreement. The bank also serves as agent for the lenders under the Loan
Agreement (the “Agent”). The Loan Agreement provides for a revolving credit
facility of up to $25.0 million. Under the Loan Agreement, if certain
conditions are met, the Company may request an increase in the credit facility
to an aggregate total of up to $40.0 million. Amounts borrowed under the
Loan Agreement and repaid or prepaid during the term may be reborrowed.
Outstanding amounts under the Loan Agreement will bear interest, at the
Company’s option, at either (i) LIBOR plus 175 basis points, or
(ii) the bank’s prime rate. All amounts outstanding under the Loan
Agreement are due on January 15, 2011.





No
amounts were borrowed against the line of credit as of March 31, 2009. The
Company had availability of $7.3 million as of March 31, 2009, which is
decreased by outstanding letters of credit totaling $3.1 million as of
March 31, 2009.





Availability
of borrowings and the issuance of letters of credit under the Loan Agreement are
subject to a borrowing base calculation based upon a valuation of the Company’s
eligible inventories (including raw materials, finished and semi-finished goods,
and certain in-transit inventory) and eligible accounts receivable, each
multiplied by an applicable advance rate.





In
addition to representations and warranties, covenants, conditions and other
terms customary for instruments of this type, the Loan Agreement includes
negative covenants that prohibit the Company from, among other things, incurring
certain types of indebtedness (excluding indebtedness secured by certain assets
of the Company and its subsidiaries in an aggregate amount not to exceed
$50.0 million for working capital purposes), making annual capital
expenditures in excess of proscribed amounts, or disposing of certain assets.
The Loan Agreement provides for customary events of default, including failure
to pay any principal or interest when due, failure to comply with covenants, any
representation made by the Company that is incorrect in any material respect,
certain defaults relating to other material indebtedness, certain insolvency and
receivership events affecting the Company, judgments in excess of
$2.5 million in the aggregate being rendered against the




- 8
-
 Table of Contents




Company,
and the incurrence of certain liabilities under the Employee Retirement Income
Security Act (“ERISA”) in excess of $1.0 million in the
aggregate.





In the
event of a default by the Borrowers, the Agent may, at the direction of the
lenders, terminate the lenders’ commitments to make loans under the Loan
Agreement, declare the obligations under the Loan Agreement immediately due and
payable and enforce any and all rights of the lenders or Agent under the Loan
Agreement and related documents. For certain events of default related to
insolvency and receivership, the commitments of the lenders are automatically
terminated and all outstanding obligations become immediately due and payable.
The obligations of the Company under the Loan Agreement are secured by inventory
and accounts receivable of certain of the Company’s subsidiaries in the U.S. and
the U.K. The remaining balance of the Company’s consolidated assets, including
the subsidiaries acquired in connection with the TeT acquisition, is
unencumbered under the Loan Agreement and, if needed, may be used as collateral
for additional debt. The Company’s obligations as guarantor under the Loan
Agreement are unsecured.





Acquisition
Financing





In
February 2008, in connection with the acquisition of TeT, the Company
entered into the Credit Agreement with FP II pursuant to a commitment letter
dated December 20, 2007 between the Company and FP II. See Note 2 for
additional information related to the TeT acquisition. The Credit Agreement
provided for a loan of up to $60.0 million to partially fund the
acquisition at closing. The loan under the Credit Agreement bears interest at
10% per annum, provided that, at the election of the Company, interest may be
capitalized and added to the principal of the loan to be repaid at maturity. The
loan was funded on April 1, 2008 by an affiliate of FP II, FP Hypercom
Holdco, LLC. All amounts outstanding under the Credit Agreement are due four
years from the funding date. On funding of the loan under the Credit Agreement
and the closing of the acquisition, FP II was granted a five-year warrant to
purchase approximately 10.5 million shares (the “Warrant”) of the Company’s
common stock at $5.00 per share. The Warrant contains a cashless exercise
provision that can be utilized by FP II at its sole option. The cashless
exercise provision permits FP II, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon exercise of the Warrant in whole or
in part, to receive upon such exercise the “net number” of shares of the
Company’s common stock determined according to the agreement. In the event FP II
elects a cashless exercise of the Warrant, the Company will not receive any cash
payment for the shares delivered to FP II pursuant to such cashless
exercise.





The
estimated fair value of the Warrant at the date issued was $1.68 per share using
a Black-Scholes option pricing model. The valuation date for the Warrant was
February 14, 2008, when all relevant terms and conditions of the debt
agreement had been reached in accordance with Accounting Principles Board
No. 14, Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants.The total
fair value of the Warrant of $17.8 million wasrecorded
as a discount to the acquisition financing and has been recognized in equity as
additional paid in capital. The loan discount is being amortized as interest
expense over the life of the loan and amounted to $0.7 million and zero for
the quarters ended March 31, 2009 and March 31, 2008
respectively.





In
accordance with the Credit Agreement, $1.6 million of interest accrued during
the quarter ended March 31, 2009 was added to the loan balance.





In
addition to representations and warranties, covenants, conditions and other
terms customary for instruments of this type, the Credit Agreement includes
negative covenants that prohibit the Company from, among other things, incurring
certain types of indebtedness, granting liens on assets, engaging in
transactions with affiliates and disposing of certain assets. The Credit
Agreement provides for customary events of default, including failure to pay any
principal or interest when due, failure to comply with covenants, any
representation made by the Company that is incorrect in any material respect,
certain defaults relating to other material indebtedness, certain insolvency and
receivership events affecting the Company, judgments in excess of $3.0 million
in the aggregate being rendered against the Company, and the incurrence of
certain ERISA liabilities in excess of $5.0 million in the
aggregate.





In the
event of a default by the Company, FP II may declare the obligations under the
Credit Agreement immediately due and payable and enforce any and all of its
rights under the Credit Agreement and related documents.





Long-term
debt consists of the following at March 31, 2009 and December 31, 2008 (amounts
in thousands):




- 9
-
 Table of Contents




March
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Credit
      Agreement
                    
                    $
                    60,000
                    
                    
                    $
                    60,000Interest
      conversion to debt
                    
                    
                    6,228
                    
                    
                    
                    4,613Discount
      on warrants issued to FP II
                    
                    
                    (17,758
                    )
                    
                    
                    (17,758
                    )Amortization
      of warrant discount
                    
                    
                    2,429
                    
                    
                    
                    1,726Debt
      assumed on acquisitions
                    
                    
                    -
                    
                    
                    
                    185Other
                    
                    
                    -
                    
                    
                    
                    3$
                    50,899
                    
                    
                    $
                    48,769





10.  Share
Based Compensation




The
following table summarizes share-based compensation expense included in the
consolidated statements of operations for the three months ended March 31, 2009
and 2008 (amounts in thousands):





Three
      Months Ended March 31,2009
                    
                    
                    2008Costs
      of revenue
                    
                    $
                    69
                    
                    
                    $
                    (36
                    )Research
      and development
                    
                    
                    18
                    
                    
                    
                    75Selling,
      general and administrative
                    
                    
                    587
                    
                    
                    
                    879Total
                    
                    $
                    674
                    
                    
                    $
                    918





As of
March 31, 2009, total unrecognized compensation cost, net of forfeiture,
related to stock-based options and awards was $2.2 million and the related
weighted-average period over which it is expected to be recognized is
approximately one year.




Stock
Options





At March
31, 2009, the Company had four active share-based employee compensation plans.
Stock option awards granted from these plans are granted at the fair market
value on the date of grant, and vest over a period determined at the time the
options are granted, generally ranging from one to five years, and generally
have a maximum term of ten years. For stock options with graded vesting terms,
the Company recognizes compensation cost over the requisite service period on
the accelerated method in accordance with FASB Interpretation No. 28, Accounting for Stock Appreciation
Rights and other Variable Stock Option Award Plans, rather than the
straight-line method.





A summary
of stock option activity within the plans Company’s share-based compensation and
changes for the three months ended March 31, 2009 is as
follows:





Number
      of Options
                
                
                Weighted
      Average Exercise Price
                
                
                Weighted
      Average Remaining Contractual Term
                
                
                Aggregate
      Intrinsic Value (In Thousands)Outstanding
      at March 31, 2009
                
                
                4,638,828
                
                
                $
                5.34
                
                
                
                7.32
                
                
                $
                1Vested
      and expected to vest at March 31, 2009
                
                
                4,379,981
                
                
                $
                5.42
                
                
                
                7.24
                
                
                $
                1Exercisable
      at March 31, 2009
                
                
                2,517,130
                
                
                $
                6.49
                
                
                
                6.09
                
                
                $
                1





The
aggregate intrinsic value of options exercised during the three months ended
March 31, 2009 and 2008 was $0.0 million and $0.2 million,
respectively.





The key
assumptions used in the Black-Scholes valuation model to calculate the fair
value are as follows:
  - 10
-
 Table of Contents


Three
      Months Ended March 31,2009
                
                
                2008Weighted
      average risk free interest rate
                
                
                1.7
                %
                
                
                2.8
                %Expected
      life of the options (in years)
                
                
                5.37
                
                
                
                4.28Expected
      stock price volatility
                
                
                70
                %
                
                
                48
                %Expected
      dividend yield
                
                
                -
                
                
                
                -





The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management’s opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. The risk-free interest rate is based on the U.S. treasury security
rate in effect as of the date of grant. The expected lives of options and stock
price volatility are based on historical data of the Company. The weighted
average fair value of options granted in the three months ended March 31,
2009 and 2008 was $0.64 and $1.67, respectively.




Restricted
Stock Awards





The
Company grants restricted stock awards to certain employees. Restricted stock
awards are valued at the closing market value of the Company’s common stock on
the date of grant, and the total value of the award is expensed ratably over the
service period of the employees receiving the grants. Share-based compensation
expense related to all restricted stock awards outstanding at March 31, 2009 and
2008 was approximately $0.1 million and $0.1 million, respectively. As
of March 31, 2009, the total amount of unrecognized compensation cost
related to nonvested restricted stock awards was less than $0.1 million,
which is expected to be recognized over a weighted-average period of one year.
Compensation expense with respect to the grants could be reduced or reversed to
the extent employees receiving the grants leave the Company prior to vesting in
the award.





A summary
of nonvested restricted stock activity for the three months ended March 31, 2009
is as follows:





Nonvested
      Shares Outstanding
                    
                    
                    Weighted
      Average Grant Date Fair Value per ShareBalance
      at December 31, 2008
                    
                    
                    50,000
                    
                    
                    
                    4.94Shares
      granted in 2009
                    
                    
                    25,000
                    
                    
                    
                    1.00Shares
      vested in 2009
                    
                    
                    (50,000
                    )
                    
                    
                    4.94Balance
      at March 31, 2009
                    
                    
                    25,000
                    
                    
                    
                    1.00





The total
fair value of restricted shares vested during the three months ended March 31,
2009 and 2008 was $0.2 million and $0.5 million,
respectively.





11.
Income Taxes





Income
tax expense (benefit) before discontinued operations for federal, state and
foreign taxes was $0.4 million and $(0.7) million for the three month periods
ended March 31, 2009 and 2008, respectively. The Company’s consolidated
effective tax rates for the three month periods ended March 31, 2009 and 2008
were (4.6%) and (58.1%), respectively. The Company’s effective tax rate is
determined by the level and composition of pre-tax income subject to varying
foreign, state and local taxes and other items. The Company’s consolidated
effective tax rate for the three month period ended March 31, 2009 and 2008 is
not meaningful due to the Company’s cumulative net operating loss position and
its provision for a full valuation reserve against the deferred tax assets. The
Company continues to provide a full valuation reserve against substantially all
of its deferred tax asset balances as of March 31, 2009. The valuation reserve
is subject to reversal in future years at such time that the benefits are
actually utilized or the operating profits in the United States become
sustainable at a level that meets the recoverability criteria under SFAS
No. 109, Accounting for
Income Taxes(“SFAS 109”).





The total
amount of unrecognized tax benefits at March 31, 2009 is $38.9 million, of
which $3.5 million would impact the Company’s effective tax rate if it were
to be recognized.




- 11
-
 Table of Contents




The
Company and its subsidiaries file income tax returns in the United States
federal jurisdiction, and various state and foreign jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal, state and local,
or non-U.S. income tax examinations for years prior to 2000. The Company’s
policy is to recognize interest related to unrecognized tax benefits as interest
expense and penalties as operating expenses. Accrued interest is insignificant
and $2,400 of penalties were accrued at March 31, 2009. The Company believes
that it has appropriate support for the income tax positions taken and to be
taken on its tax returns and that its accruals for tax liabilities are adequate
for all open years based on an assessment of many factors including past
experience and interpretations of tax law applied to the facts of each
matter.





12.
Commitments and Contingencies





Litigation





The
Company is currently a party to various legal proceedings, including those noted
below. While the Company presently believes that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a material adverse
affect on the Company’s financial position, results of operations or cash flows,
litigation is subject to inherent uncertainties, and unfavorable rulings could
occur. An unfavorable ruling could include monetary damages or, in cases where
injunctive relief is sought, an injunction. Were an unfavorable ruling to occur,
it is possible such a ruling could have a material adverse impact on the
Company’s consolidated results of operations or financial position in the period
in which the ruling occurs or in future periods.





SPA
Syspatronic AG v. Hypercom Corporation, et al.(United States District Court for
the Eastern District of Texas, Marshall Division, Civil Action No. 2:07-CV-416
(LED), filed on September 18, 2007).  SPA Syspatronic AG (“SPA”)
commenced this action in the United States District Court for the Eastern
District of Texas (the “Court”) against the Company and others, alleging that
certain of the Company’s products infringe U.S. Patent No. 5,093,862 entitled
“Data Carrier – Controlled Terminal in a Data Exchange System” issued on March
3, 1992 (the “‘862 Patent”) allegedly owned by SPA. SPA is seeking a judgment of
infringement, an injunction against further infringement, damages, interest and
attorneys’ fees. The Company has filed an answer denying liability on the basis
of a lack of infringement, invalidity of the ‘862 Patent, laches, waiver,
equitable estoppel and unclean hands, lack of damages, failure to state a claim,
and inequitable conduct during the prosecution of the ‘862 Patent. The Company
has also counterclaimed seeking a declaratory judgment of non-infringement and
invalidity of the ‘862 Patent, and seeking attorneys’ fees and costs as an
exceptional case due to the plaintiff’s inequitable conduct during the
prosecution of the ‘862 Patent. On April 4, 2008, the U.S. Patent and Trademark
Office (the “Patent Office”) granted the defendants’ request for re-examination
of the ‘862 Patent. On April 24, 2008, the Court granted the defendants’ motion
to stay proceedings in this case until the Patent Office completed its
re-examination of the ‘862 Patent. On December 22, 2008, the Patent Office filed
an office action rejecting all ten claims of the ‘862 Patent as invalid because
they were anticipated by prior art references.On March 19, 2009, SPA
filed a response to the office action. The Patent Office has not yet issued a
final ruling on the office action.





CardSoft,
Inc., et al. v. Hypercom Corporation, et al.(United States District Court for
the Eastern District of Texas, Marshall Division, Civil Action No.
2:08-CV-00098, filed on March 6, 2008).  CardSoft, Inc. (“CardSoft”)
filed this action on March 6, 2008 in the United States District Court for the
Eastern District of Texas against the Company and others, alleging that certain
of the Company’s terminal products infringe two patents allegedly owned by
CardSoft: U.S. Patent No. 6,934,945 (the “‘945 Patent”), entitled “Method and
Apparatus for Controlling Communications,” issued on August 23, 2005, and U.S.
Patent No. 7,302,683 (the “‘683 Patent”), also entitled “Method and Apparatus
for Controlling Communications”, issued on November 27, 2007, which is a
continuation of the ‘945 Patent. CardSoft is seeking a judgment of infringement,
an injunction against further infringement, damages, interest and attorneys’
fees. In June 2008, the Company filed its answer to the complaint in this
action, denying liability on the basis of a lack of infringement, invalidity of
the ‘945 Patent and the ‘683 Patent, laches, waiver, equitable estoppel and
unclean hands, lack of damages and failure to state a claim. The Company has
also counterclaimed seeking a declaratory judgment of non-infringement and
invalidity of the ‘945 Patent and the ‘683 Patent. On February 27, 2009, the
Court issued an order requiring the plaintiffs to disclose their infringement
contentions and produce related documents by June 15, 2009, and requiring the
defendants to disclose their invalidity contentions and produce related
documents by September 14, 2009. A Markman claim construction hearing is
scheduled for July 11, 2011, with trial scheduled to commence on November 7,
2011.





Lisa
Shipley v. Hypercom Corporation(United States District Court for
the Northern District of Georgia, Civil Action No. 1:09-CV-0265, filed on
January 30, 2009).  Lisa Shipley, a former employee, filed this
action against the Company in the United States District Court for the Northern
District of Georgia on January 30, 2009, alleging that the Company violated
Title VII of the Civil Rights Act by discriminating against her on the basis of
her gender, violated the Georgia Wage Payment laws by failing to pay certain
sales commissions, and violated the Equal Pay Act and Georgia law by paying her
lower compensation than the Company paid males who performed the same work. Ms.
Shipley is seeking compensatory damages




- 12
-
 Table of Contents




for
emotional distress, damage to reputation, embarrassment, lost wages, back pay,
accrued interest, punitive damages, attorney’s fees and expenses, and interest.
The Company intends to deny the allegations and vigorously defend this
litigation. On February 23, 2009, the Company filed a motion to dismiss based on
improper venue or, in the alternative, to transfer venue to the United States
District Court for the District of Arizona.





13.
Segment, Geographic, and Customer Information





Our Chief
Operating Decision Maker (“CODM”), as defined in SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information (“SFAS 131”), has been identified as
the CEO of the Company. For each of the segments described below, the CODM
has access to discrete financial information regarding the revenues, gross
margins (using fully burdened manufacturing costs), direct local service costs,
direct operating expenses consisting of expenses directly associated with the
business segment and indirect operating expenses consisting of global shared
cost centers such as global R&D, marketing, corporate general and
administrative expenses, and stock-based compensation. The Company’s operations
are managed by Managing Directors for each region that report directly to the
CEO. These Managing Directors have responsibility for all business activities
and combined operating results of their regions and these individuals are
compensated and evaluated based on the performance (Direct Trading Profit) of
their overall region (Americas, NEMEA, SEMEA, and
Asia-Pacific)





During
the fourth quarter of 2008, the Company initiated new organizational changes and
made enhancements to the Company’s internal management reporting and began to
report information pertaining to four business segments as follows:
(i) Americas, (ii) NEMEA, (iii) SEMEA and (iv) Asia-Pacific.
The Americas segment consists of the U.S., Canada, Mexico, the Caribbean,
Central America, and South America. The NEMEA segment consists of Belgium,
Sweden, Austria and Germany. The SEMEA segment consists of France, Spain, the
U.K., Western and Central Eastern Europe, Russia, Hungary, and Middle East, and
Africa. The Asia-Pacific segment consists of China, Hong Kong, Singapore,
Thailand, Australia and New Zealand. As required in SFAS 131, prior year segment
data has been restated below for comparative purposes (amounts in
thousands):
  - 13
-
 Table of Contents


Three
      Months Ended March 31,2009
                              
                              
                              2008Net RevenueAmericas
                              
                              $
                              25,013
                              
                              
                              $
                              42,203NEMEA
                              
                              
                              20,955
                              
                              
                              
                              2,352SEMEA
                              
                              
                              27,756
                              
                              
                              
                              14,782Asia-Pacific
                              
                              
                              9,891
                              
                              
                              
                              11,168$
                              83,615
                              
                              
                              $
                              70,505Three
      Months Ended March 31,2009
                              
                              
                              2008Operating Income (Loss)Americas
                              
                              $
                              2,302
                              
                              
                              $
                              7,791NEMEA
                              
                              
                              2,903
                              
                              
                              
                              965SEMEA
                              
                              
                              5,254
                              
                              
                              
                              3,154Asia-Pacific
                              
                              
                              1,488
                              
                              
                              
                              2,263Shared
      cost centers
                              
                              
                              (18,442
                              )
                              
                              
                              (16,368
                              )Total
      segment loss
                              
                              $
                              (6,495
                              )
                              
                              $
                              (2,195
                              )Interest
      income
                              
                              
                              77
                              
                              
                              
                              797Interest
      expense
                              
                              
                              (2,450
                              )
                              
                              
                              -Foreign
      currency gain (loss)
                              
                              
                              (697
                              )
                              
                              
                              49Other
      expense
                              
                              
                              12
                              
                              
                              
                              79Loss
      before income taxesand
      discontinued operations
                              
                              $
                              (9,553
                              )
                              
                              $
                              (1,270
                              )March
      31,
                              
                              
                              December
      31,2009
                              
                              
                              2008Total AssetsAmericas
                              
                              $
                              60,511
                              
                              
                              $
                              61,813NEMEA
                              
                              
                              88,305
                              
                              
                              
                              99,909SEMEA
                              
                              
                              78,544
                              
                              
                              
                              79,132Asia-Pacific
                              
                              
                              29,345
                              
                              
                              
                              35,840Shared
      cost centers
                              
                              
                              27,681
                              
                              
                              
                              29,606$
                              284,386
                              
                              
                              $
                              306,300





14.
Other Comprehensive Income (loss)





Other
comprehensive income for the three months ended March 31, 2009 and 2008 consists
of the following (amounts in thousands):





Three
      Months Ended March 31,2009
                    
                    
                    2008Net
      loss
                    
                    $
                    (9,925
                    )
                    
                    $
                    (332
                    )Foreign
      currency translation adjustment
                    
                    
                    (3,284
                    )
                    
                    
                    -Total
      comprehensive loss
                    
                    $
                    (13,209
                    )
                    
                    $
                    (332
                    )




- 14
-
 Table of Contents




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





Cautionary
Statements Regarding Forward-looking Statements





This
report, including this “Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, includes statements that may
constitute forward-looking statements (including financial projections) that we
believe are subject to the safe harbor provisions of Section 27A of the
Securities Act of 1933 as amended, and Section 21G of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,”
“expect,” “anticipate,” “estimate,” “will,” “project,” and other similar
expressions identify forward-looking statements pertaining to, among other
things, the state of the electronic payment industry and competition within the
industry; projections regarding specific demand for our products and services;
the timeliness of introduction, commercial feasibility and acceptance of new
products and product families, services and market development initiatives; our
ability to successfully penetrate the vertical and horizontal markets that we
have targeted; our ability to expand our business and increase our market share
in the markets in which we compete; our ability to improve our cost structure,
including reducing our product and operating costs; our ability to successfully
manage our contract manufacturing model and the impact on inventories; the
timing and success of integration activities related to the TeT acquisition and
the expected results and benefits of such transaction; our ability to allocate
research and development resources to new product and service offerings; our
future financial performance and financial condition; the adequacy of our
current facilities and management systems infrastructure to meet our operational
needs; the status and condition of our relationship with third parties upon whom
we rely in the conduct of our business; the sufficiency of reserves for assets
and obligations exposed to revaluation; our ability to effectively manage our
exposure to foreign currency rate fluctuations (including through the use of
hedging transactions in periods prior to March 2009); our ability to sustain our
current income tax structure; the impact of current litigation matters on our
business; our ability to fund our projected liquidity needs from cash flow from
operations and our current cash reserves; our future access to capital on terms
that are acceptable to us; and all assumptions related to the
foregoing.





Our
actual results may differ materially from those set forth in our forward-looking
statements. We refer you to documents filed by us with the SEC, specifically our
most recent Annual Report on Form 10-K, as well as our subsequent reports on
Forms 10-Q and 8-K, as may be amended from time to time, which identify
important risk factors that could cause actual results to differ materially from
those contained in our forward-looking statements. Other factors could also
materially affect our actual results.





Without
limiting the foregoing, the existence or occurrence of any of the following
factors or risks could cause our actual results to differ from those contained
in our forward-looking statements:





•
            
            with
      regard to our recent acquisition and ongoing integration of TeT:
      (i) the inability to assimilate the technologies, operations and
      personnel of TeT; (ii) the disruption of our existing business,
      including the diversion of management attention and the redeployment of
      resources; (iii) the loss of customers; (iv) the possibility of
      our entering markets in which we have limited prior experience;
      (v) the loss of key employees of TeT; and (vi) the inability to
      obtain the desired strategic and financial benefits from the
      acquisition;•
            
            the
      volatility of our financial results and our stock
price;•
            
            the
      loss of a key customer;•
            
            defects
      in our products;•
            
            product
      warranty expenses;•
            
            the
      accumulation of excess and obsolete inventory;•
            
            breaches
      in the security of transactions involving our products;•
            
            our
      inability to adequately protect our proprietary
  technology;•
            
            our
      technology infringing the proprietary rights of third
    parties;•
            
            a
      disruption in our manufacturing capabilities or those of our third-party
      manufacturers or suppliers;                       - 15
-
 Table of Contents
  •
              
              risks
      associated with our dependence on single-source
  suppliers;•
              
              our
      ability to timely and successfully introduce new products and product
      families on which our future sales will be substantially dependent, and to
      transition legacy products through end-of-life;•
              
              our
      transition to a contract manufacturing model;•
              
              the
      challenges posed by conducting business in international
      markets;•
              
              fluctuations
      in currency exchange rates;•
              
              the
      loss of a member of our senior management team or other key
      employees;•
              
              risks
      associated with acquisitions and other strategic
    investments;•
              
              force
      majeure events;•
              
              uncertainties
      related to country-specific legal and regulatory requirements, including
      product-related regulations, requirements and certifications, and tax
      assessments and interpretations;•
              
              our
      ability to maintain the quality of our internal control over financial
      reporting;•
              
              our
      ability to assimilate and integrate technologies or businesses we may
      acquire in the future;•
              
              the
      highly-competitive nature of the markets in which we
    compete;•
              
              industry
      and technological developments in the markets in which we sell our
      products and services;•
              
              the
      impact of industry standards, certifications and government regulations to
      which our products are subject;•
              
              the
      impact of SEC regulations and SEC review of our periodic
      filings;•
              
              the
      anti-takeover effects of certain provisions in our charter, bylaws and
      Delaware law;•
              
              the
      dilution of our stock price caused by the exercise of outstanding warrants
      and options;•
              
              our
      lack of a plan to pay dividends on our common stock in the foreseeable
      future;•
              
              the
      negative impact on our business due to the current global economic crisis
      and general lack of available credit,which
      could impair our ability to obtain sufficient capital to support our
      operations;•
              
              the
      impairment of goodwill and intangibles; and•
              
              the
      incurrence of debt to meet the future capital requirements of our
      business.


Information
included in this report is made as of the date hereof. We undertake no
obligation, and specifically disclaim any duty, to update our forward-looking
statements, including any financial projections we may make. We do not endorse
any projections regarding future performance that may be made by third
parties.




Critical
Accounting Policies and Estimates





Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. On an on-going basis
we evaluate past judgments and our estimates, including those related to bad
debts, product returns, long-term contracts, inventories, goodwill and other
intangible assets, income taxes, financing operations, foreign currency, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities
  - 16
-
 Table of Contents


that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The accounting policies and
related risks described in our latest Annual Report on Form 10-K as filed with
the SEC are those that depend most heavily on these judgments and estimates. As
of March 31, 2009, there have been no material changes to any of the
critical accounting policies contained therein.





2009 Overview





Operations.  Hypercom
Corporation is one of the largest global providers of complete electronic
payment solutions and value-added services at the point of transaction. Our
vision is to be the world’s most recognized and trusted brand for electronic
transaction solutions through a suite of secure and certified, end-to-end
electronic payment products and software, as well as through a wide range of
support and maintenance services. Our customers include domestic and
international financial institutions, electronic payment processors, retailers,
independent sales organizations (“ISOs”) and distributors. We also sell our
products to companies in the hospitality, transportation, healthcare, prepaid
card and restaurant industries. Customers around the globe select us because of
our proven leadership and expertise in the global electronic payments industry,
commitment to our customers’ success, continued support of past and future
technologies and the quality and reliability of our products and services. We
deliver convenience and value to businesses that require reliable, secure,
high-speed and high-volume information/data transfers.





Net revenue for the three
months ended March 31, 2009 was $83.6 million, an increase of $13.1 million or
18.6% over first quarter 2008 revenue of $70.5 million. Net revenues from SEMEA
and NEMEA increased $13.0 million and $18.6 million, respectively, over the
prior year period, primarily as a result of $34.4 million of incremental revenue
from the acquisition of TeT. Net revenue from the Americas and Asia-Pacific
decreased $17.3 million and $1.3 million, respectively, as a result of weak
economic conditions and demand.





Gross
profit for the three months ended March 31, 2009 was $24.3 million or 29.1% of
revenue, compared to $19.6 million or 27.7% of revenue in the first quarter of
2008. Gross margin for the three months ended March 31, 2008 includes a 32.8%
product gross margin and a 23.3% service gross margin, compared to product and
service gross margins of 32.9% and 15.8%, respectively, for the same period in
2008. The increase in service gross margin is primarily a result of the addition
of higher margin service revenue in NEMEA and SEMEA from the TeT
acquisition





Operating
expenses for the three months ended March 31, 2009 were $30.8 million or 36.9%
of revenue, compared to $21.8 million or 30.9% of revenue for the same period in
2008. The prior year figure did not include TeT operating expense. Sequentially,
excluding the $67.8 million impairment of goodwill and intangibles charge in the
prior period, operating expenses were down $4.0 million, compared to fourth
quarter 2008 expenses of $34.8 million or 28.7% of revenue. The decrease relates
to reduced research and development costs, variable selling and marketing
expenses, as well as lower general and administrative costs.





We
believe our results for the quarter ended March 31, 2009 reflect the continued
global economic downturn and the corresponding decrease in available credit to
both businesses and consumers, as well as the general retail slowdown in areas
such as North America. Regardless of these challenges, we will continue to focus
on initiatives to drive toward profitability and to integrate the TeT
acquisition to a common product platform. From a competitive landscape, we will
continue to see competitive pressures on a global basis as we and our major
competitors try to maintain and expand our respective market shares. These
pressures will generally serve to decrease average selling prices for certain
products within certain geographies. We intend to continue to offset declines in
selling prices with further cost reductions in our products and to continue to
differentiate our product and total electronic payment solution offerings from
that of our competitors. We will continue to manage our balance sheet and
leverage our working capital to help meet the objectives of our key initiatives
in light of the current global economic environment.




- 17
-
 Table of Contents




Result of Operations





In addition to the general
information set forth in the following table, tabular and narrative segment
specific information is presented under the heading “Segment Information”
below.







Three
      Months Ended March 31,2009
                                            
                                            
                                            %
      of Revenue
                                            
                                            
                                            2008
                                            
                                            
                                            %
      of Revenue
                                            
                                            
                                            Dollar
      Change(Amounts
      in thousands)Net
      revenue:Product
                                            
                                            $
                                            57,905
                                            
                                            
                                            
                                            69.3
                                            %
                                            
                                            $
                                            49,584
                                            
                                            
                                            
                                            70.3
                                            %
                                            
                                            $
                                            8,321Service
                                            
                                            
                                            25,710
                                            
                                            
                                            
                                            30.7
                                            %
                                            
                                            
                                            20,921
                                            
                                            
                                            
                                            29.7
                                            %
                                            
                                            
                                            4,789Total
      net revenue
                                            
                                            
                                            83,615
                                            
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            70,505
                                            
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            13,110Costs
      of revenue:Product
                                            
                                            
                                            38,910
                                            
                                            
                                            
                                            67.2
                                            %
                                            
                                            
                                            33,250
                                            
                                            
                                            
                                            67.1
                                            %
                                            
                                            
                                            5,660Service
                                            
                                            
                                            19,711
                                            
                                            
                                            
                                            76.7
                                            %
                                            
                                            
                                            17,612
                                            
                                            
                                            
                                            84.2
                                            %
                                            
                                            
                                            2,099Amortization
      of purchased intangible assets
                                            
                                            
                                            675
                                            
                                            
                                            
                                            0.8
                                            %
                                            
                                            
                                            83
                                            
                                            
                                            
                                            0.1
                                            %
                                            
                                            
                                            592Total
      costs of revenue
                                            
                                            
                                            59,296
                                            
                                            
                                            
                                            70.9
                                            %
                                            
                                            
                                            50,945
                                            
                                            
                                            
                                            72.3
                                            %
                                            
                                            
                                            8,351Gross
      profit:Product
                                            
                                            
                                            18,995
                                            
                                            
                                            
                                            32.8
                                            %
                                            
                                            
                                            16,334
                                            
                                            
                                            
                                            32.9
                                            %
                                            
                                            
                                            2,661Service
                                            
                                            
                                            5,999
                                            
                                            
                                            
                                            23.3
                                            %
                                            
                                            
                                            3,309
                                            
                                            
                                            
                                            15.8
                                            %
                                            
                                            
                                            2,690Amortization
      of purchased intangible assets
                                            
                                            
                                            (675
                                            )
                                            
                                            
                                            -0.8
                                            %
                                            
                                            
                                            (83
                                            )
                                            
                                            
                                            -0.1
                                            %
                                            
                                            
                                            (592
                                            )Total
      gross profit
                                            
                                            
                                            24,319
                                            
                                            
                                            
                                            29.1
                                            %
                                            
                                            
                                            19,560
                                            
                                            
                                            
                                            27.7
                                            %
                                            
                                            
                                            4,759Operating
      expenses:Research
      and development
                                            
                                            
                                            10,806
                                            
                                            
                                            
                                            12.9
                                            %
                                            
                                            
                                            6,112
                                            
                                            
                                            
                                            8.7
                                            %
                                            
                                            
                                            4,694Selling,
      general and administrative
                                            
                                            
                                            18,579
                                            
                                            
                                            
                                            22.2
                                            %
                                            
                                            
                                            15,511
                                            
                                            
                                            
                                            22.0
                                            %
                                            
                                            
                                            3,068Amortization
      of purchased intangible assets
                                            
                                            
                                            1,429
                                            
                                            
                                            
                                            1.7
                                            %
                                            
                                            
                                            132
                                            
                                            
                                            
                                            0.2
                                            %
                                            
                                            
                                            1,297Total
      operating expenses
                                            
                                            
                                            30,814
                                            
                                            
                                            
                                            36.9
                                            %
                                            
                                            
                                            21,755
                                            
                                            
                                            
                                            30.9
                                            %
                                            
                                            
                                            9,059Loss
      from continuing operations
                                            
                                            
                                            (6,495
                                            )
                                            
                                            
                                            -7.8
                                            %
                                            
                                            
                                            (2,195
                                            )
                                            
                                            
                                            -3.1
                                            %
                                            
                                            
                                            (4,300
                                            )Interest
      income
                                            
                                            
                                            77
                                            
                                            
                                            
                                            0.1
                                            %
                                            
                                            
                                            797
                                            
                                            
                                            
                                            1.1
                                            %
                                            
                                            
                                            (720
                                            )Interest
      expense
                                            
                                            
                                            (2,450
                                            )
                                            
                                            
                                            -2.9
                                            %
                                            
                                            
                                            -
                                            
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (2,450
                                            )Foreign
      currency gain (loss)
                                            
                                            
                                            (697
                                            )
                                            
                                            
                                            -0.8
                                            %
                                            
                                            
                                            49
                                            
                                            
                                            
                                            0.1
                                            %
                                            
                                            
                                            (746
                                            )Other
      income
                                            
                                            
                                            12
                                            
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            79
                                            
                                            
                                            
                                            0.1
                                            %
                                            
                                            
                                            (67
                                            )Non-operating
      income (expense)
                                            
                                            
                                            (3,058
                                            )
                                            
                                            
                                            -3.7
                                            %
                                            
                                            
                                            925
                                            
                                            
                                            
                                            1.3
                                            %
                                            
                                            
                                            (3,983
                                            )Loss
      before income taxes anddiscontinued
      operations
                                            
                                            
                                            (9,553
                                            )
                                            
                                            
                                            -11.4
                                            %
                                            
                                            
                                            (1,270
                                            )
                                            
                                            
                                            -1.8
                                            %
                                            
                                            
                                            (8,283
                                            )Income
      tax benefit (provision)
                                            
                                            
                                            (441
                                            )
                                            
                                            
                                            -0.5
                                            %
                                            
                                            
                                            663
                                            
                                            
                                            
                                            0.9
                                            %
                                            
                                            
                                            (1,104
                                            )Loss
      before discontinued operations
                                            
                                            
                                            (9,994
                                            )
                                            
                                            
                                            -12.0
                                            %
                                            
                                            
                                            (607
                                            )
                                            
                                            
                                            -0.9
                                            %
                                            
                                            
                                            (9,387
                                            )Income
      from discontinued operations
                                            
                                            
                                            69
                                            
                                            
                                            
                                            0.1
                                            %
                                            
                                            
                                            275
                                            
                                            
                                            
                                            0.4
                                            %
                                            
                                            
                                            (206
                                            )Net
      loss
                                            
                                            $
                                            (9,925
                                            )
                                            
                                            
                                            -11.9
                                            %
                                            
                                            $
                                            (332
                                            )
                                            
                                            
                                            -0.5
                                            %
                                            
                                            $
                                            (9,593
                                            )Basic
      and diluted loss per share
                                            
                                            $
                                            (0.19
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (0.01
                                            )




- 18
-
 Table of Contents




Net Revenue.  Net
revenue for the three months ended March 31, 2009 was $83.6 million, a
$13.1 million or 18.6% increase over net revenue of $70.5 million for the
three months ended March 31, 2008. This increase was comprised of an
increase of $8.3 million or 16.8% in product revenue and an increase of
$4.8 million or 22.9% in service revenue.





Product
Revenue.  Product revenue increased by $8.3 million to $57.9
million for the three months ended March 31, 2009, compared to $49.6 million for
the three months ended March 31, 2008. Included in the $8.3 million increase is
$25.2 million attributable to the TeT acquisition. Excluding the additional TeT
product revenue, product revenues decreased by $16.9 million as a result of a
$13.8 million decline in countertop sales as well smaller declines in pinpads
and unattended sales of $0.9 million. This decrease was principally due to the
retail slowdown in the U.S. and a decline in the global economic conditions
compared to the first quarter of 2008. In addition, we experienced a decline in
networking sales of approximately $1.2 million for the three months ended March
31, 2009 as compared to the first quarter of 2008, due to the timing of orders
placed in China.





Service
Revenue.  Service revenue increased by $4.8 million to $25.7
million for the three months ended March 31, 2009, compared to $20.9 million for
the three months ended March 31, 2008. Included in the $4.8 million increase is
$9.2 million attributable to the TeT acquisition. Excluding the additional TeT
service revenue, service revenue decreased by $4.4 million due to lower service
volumes in Brazil and Mexico as well a lower foreign currency
rate.





Due to
the global economic uncertainties, challenges in the banking industry and
foreign currency fluctuations, we have limited visibility to project our revenue
going forward and we could continue to see sequential declines in
quarter-over-quarter and year-over-year product and service revenue
comparisons.





Costs of Revenue and Gross
Profit.  Our costs of revenue include the cost of raw
materials, manufacturing and service labor, overhead and subcontracted
manufacturing costs, telecommunications costs, inventory valuation provisions
and loan loss provisions with respect to sales-type leases included in
continuing operations. Total gross profit as a percent of revenue increased to
29.1% for the three months ended March 31, 2009 from 27.7% for the three
months ended March 31, 2008, primarily due to TeT service margins that are
higher than for comparable service margins in the three months ended March 31,
2008.





Product Gross
Profit.  Product gross margin was 32.8% for the three months
ended March 31, 2009, compared to 32.9% for the three months ended
March 31, 2008. The product gross margin is reflective of declines in
average selling prices, offset by cost reductions in the direct cost of the
product, factory shut down costs included during the three months ended March
31, 2008 and other efficiencies related to the TeT
acquisition.





Service Gross
Profit.  Service gross margin was 23.3% for the three months
ended March 31, 2009, compared to 15.8% for the three months ended
March 31, 2008. This increase in service gross margin is principally due to
the higher margin revenue from the acquired TeT entities. Excluding the service
revenue related to TeT, the service margin was 14.8%, primarily due to volume
decreases in Brazil.





Operating
Expenses.  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 increased $4.7 million or 76.8% for the three months
ended March 31, 2009 as compared to the three months ended March 31, 2008.
Excluding TeT, research and development expenses would have decreased by $0.9
million due primarily to lower labor expenses of $0.5 million and lower
consulting and certification costs of $0.1 million. We expect research and
development expenses to increase over the next several quarters as we continue
to certify and launch our new product family in markets where the legacy TeT
products were previously sold.





Selling, general and
administrative—Selling, general and administrative (“SG&A”) expenses
consist primarily of sales and marketing expenses, administrative personnel
costs, and facilities operations. SG&A expenses increased $3.1 million or
19.8% for the three months ended March 31, 2009 when compared to the three
months ended March 31, 2008. Excluding TeT, SG&A expense would have
decreased by $2.0 million. This decline represents a decrease in general and
administrative costs of $3.3 million due to lower TeT integration costs of $1.4
million, lower bonus and stock based compensation of approximately $1.0 million
and lower labor contingency costs in Brazil of $0.3 million. In addition,
general and
  - 19
-
 Table of Contents


administrative
costs were $0.5 million lower during the three months ended March 31, 2008
resulting from the separation agreement with our former Chief Financial Officer
during such period. Marketing expenses were $0.6 million lower due to lower
labor costs and trade show expenses. This decrease was offset by an increase of
$1.9 million in selling expenses, which was due to an increase of $2.6 million
of bad debt expense relating to significant reversals of pre-existing bad debt
provisions, offset by a reduction of $0.5 million in commissions in North
America and lower travel and expenses of $0.2 million in the three months ended
March 31, 2008, and additional provisions needed for delinquent accounts as of
March 31, 2009.





Non-Operating
Income.  Non-operating income consists of net interest income,
foreign currency gains and losses, and other income and losses. For the three
months ended March 31, 2009, our interest expense was $2.5 million due to
the TeT acquisition as compared to $0.0 million in the same period of 2008.
Interest income decreased by $0.7 million for the three month period ended March
31, 2009 as compared to the same period in 2008, due to lower average cash and
investment balances resulting from the TeT acquisition. The increase in foreign
currency losses is primarily due to the decision to indefinitely suspend hedging
activities related to translational and transactional currencies during the
three months ended March 31, 2009. The suspension is due to the cost of entering
into forward contracts, the possible short term cash requirements for forward
contract payables and the inability to repatriate cash from foreign countries on
a short term basis to offset any hedge forward contract
payable.





Provision for Income
Taxes.  Income tax expense before discontinued operations for
federal, state and foreign taxes was $0.4 million for the three months ended
March 31, 2009, compared to a benefit of $0.7 million for the three
months ended March 31, 2008.





Our
effective tax rate is determined by the level and composition of pre-tax income
subject to varying foreign, state and local taxes and other items. We do not
believe the consolidated effective tax rate for the three months ended
March 31, 2009 is a meaningful measure of our effective tax rate due to the
loss before income taxes recorded, our cumulative net operating loss position
and the provision for a full valuation reserve against our deferred tax
assets.





As of
March 31, 2009, we continue to provide a valuation reserve against substantially
all deferred tax asset balances. The valuation reserve is subject to reversal in
future years at such time that the benefits are actually utilized or, the
operating profits in the U.S. and other jurisdictions become sustainable at a
level that meets the recoverability criteria under SFAS 109.





Income from Discontinued
Operations.  During the three months ended March 31, 2009
and 2008, we recorded income from discontinued operations of $0.1 million and
$0.3 million, respectively, related to our UK leasing operations and our
discontinuance of the Australian Courier Business.




Segment
Information





During
the fourth quarter of 2008, we initiated organizational changes, which included
enhancements to our internal management reporting. As a result, we began
reporting information pertaining to the following four business segments:
(i) Americas, (ii) NEMEA, (iii) SEMEA and (iv) Asia-Pacific.
The Americas segment consists of the U.S., Canada, Mexico, the Caribbean,
Central America, and South America. The NEMEA segment consists of Belgium,
Sweden, Austria and Germany. The SEMEA segment consists of France, Spain, the
U.K., Western and Central Eastern Europe, Russia, Hungary, and Middle East, and
Africa. The Asia-Pacific segment consists of China, Hong Kong, Singapore,
Thailand, Australia and New Zealand. As required by SFAS 131, prior year segment
data has been restated for comparative purposes.





The
following table sets forth the revenues and operating results by business
segment for the three months ended March 31, 2009 and 2008 (amounts in
thousands):




- 20
-
 Table of Contents




Three
      Months Ended March 31,%
      of
                          
                          
                          
                          
                          
                          %
      of
                          
                          
                          Dollar2009
                          
                          
                          Revenue
                          
                          
                          2008
                          
                          
                          Revenue
                          
                          
                          ChangeNet
      revenue:Americas
                          
                          $
                          25,013
                          
                          
                          
                          29.9
                          %
                          
                          $
                          42,203
                          
                          
                          
                          59.9
                          %
                          
                          $
                          (17,190
                          )NEMEA
                          
                          
                          20,955
                          
                          
                          
                          25.1
                          %
                          
                          
                          2,352
                          
                          
                          
                          3.3
                          %
                          
                          $
                          18,603SEMEA
                          
                          
                          27,756
                          
                          
                          
                          33.2
                          %
                          
                          
                          14,782
                          
                          
                          
                          21.0
                          %
                          
                          $
                          12,974Asia-Pacific
                          
                          
                          9,891
                          
                          
                          
                          11.8
                          %
                          
                          
                          11,168
                          
                          
                          
                          15.8
                          %
                          
                          $
                          (1,277
                          )Total
      net revenue
                          
                          $
                          83,615
                          
                          
                          
                          100.0
                          %
                          
                          $
                          70,505
                          
                          
                          
                          100.0
                          %
                          
                          $
                          13,110Operating
      income (loss):Americas
                          
                          $
                          2,302
                          
                          
                          
                          2.8
                          %
                          
                          $
                          7,791
                          
                          
                          
                          11.1
                          %
                          
                          
                          (5,489
                          )NEMEA
                          
                          
                          2,903
                          
                          
                          
                          3.5
                          %
                          
                          
                          965
                          
                          
                          
                          1.4
                          %
                          
                          
                          1,938SEMEA
                          
                          
                          5,254
                          
                          
                          
                          6.3
                          %
                          
                          
                          3,154
                          
                          
                          
                          4.5
                          %
                          
                          
                          2,100Asia-Pacific
                          
                          
                          1,488
                          
                          
                          
                          1.8
                          %
                          
                          
                          2,263
                          
                          
                          
                          3.2
                          %
                          
                          
                          (775
                          )Shared
      Cost Centers
                          
                          
                          (18,442
                          )
                          
                          
                          -22.1
                          %
                          
                          
                          (16,368
                          )
                          
                          
                          -23.2
                          %
                          
                          
                          (2,074
                          )Total
      operating loss
                          
                          $
                          (6,495
                          )
                          
                          
                          -7.8
                          %
                          
                          $
                          (2,195
                          )
                          
                          
                          -3.1
                          %
                          
                          $
                          (4,300
                          )





Net Revenue.  Net
revenue for the Americas segment decreased 30.0% for the period ended March 31,
2009 from the same period in 2008, principally as a result of an $11.2 million
decrease in countertop sales. The decrease in countertop sales in the Americas
segment was primarily caused by a $9.4 million decrease in North America. Other
factors contributing to the decrease in net revenue in the Americas segment
included a $1.6 million decrease of mobile products sales in Mexico, primarily
due to decreased customer demand in the region, a $3.8 million overall decrease
in net revenue in Brazil and Mexico, due to lower volumes of service revenue,
and lower foreign currency exchange rates. Net revenues in the Asia-Pacific
segment also decreased due to lower networking sales in China. NEMEA and SEMEA
net revenue increased as a result of the TeT acquisition.





Operating
Income.  Operating income for the Americas segment decreased
8.3% for the period ended March 31, 2009 from the same period in 2008,
principally as a result of the decrease in net revenues and bad debt expense,
primarily in North America. NEMEA and SEMEA operating income increased due to
the TeT acquisition. Asia-Pacific operating income declined, principally as a
result of a decline in net revenues and a change in the mix of countertop,
mobile and networking products.





Shared
cost centers expenses increased, principally as a result of an increase in
global research and development expenses of $1.9 million and an increase in
global supply chain expenses of $2.5 million as a result of the TeT acquisition,
offset by a reduction of general and administrative expenses of $2.4 million due
to a decreases in bonus and stock based compensation expense of $1.0 million, a
reduction in TeT acquisition-related costs of $0.7 million and a reduction in
severance costs incurred related to the departure of a former Chief Financial
Officer of $0.5 million.





Cash
Flows, Liquidity and Capital Resources




We have
historically financed our operations primarily through cash generated from
operations and from borrowings under a line of credit or other debt
facilities.




Cash Flows.  Cash
provided by or used in operating activities includes net income
(loss) adjusted for non-cash items and changes in operating assets and
liabilities. Cash used in operating activities for the three months ended
March 31, 2009 was $3.3 million, compared to cash provided by
operations of $19.0 million for the three months ended March 31, 2008.
The principal reason for the decline in cash provided by operations from the
three months ended March 31, 2009, compared to the three months ended
March 31, 2008 is the net loss from continuing operations in 2009, and an
increase in inventory, offset partially by a decrease in operating assets and
liabilities caused by a reduction declines in accounts receivable. Accounts
receivable payment terms for most of our customers are generally between 30 and
60 days.




- 21
-
 Table of Contents




Cash used
in investing activities was $0.7 million for the three months ended
March 31, 2009, compared to $2.0 million for the three months ended
March 31, 2008. Cash used in investing for the three months ended
March 31, 2009 consisted principally of purchases of property, plant and
equipment of $1.3 million, as well cash provided by proceeds from sale of
short-term investments. Cash used in investing for the three months ended
March 31, 2008 consisted principally of purchases of property and equipment
of $1.3 million, as well as contingent TeT acquisition payments made based
on the attainment of performance requirements and the expiration of a holdback
time period.




Financing
cash flows consist principally of cash received from borrowings and repayment of
our revolving line of credit, the issuance of common stock due to the exercise
of employee stock options, and by cash used to repay debt.




We
believe that our cash reserves and short-term investments, combined with our
Loan Agreement and our ability to influence operating cash flows, as well as
certain investing and financing cash outlays, will be sufficient to fund our
projected liquidity and capital resource requirements through 2009. However,
should operating results continue to be unfavorable, we may need to obtain
additional capital sources to meet our short-term liquidity and capital resource
requirements.




Liquidity and Capital
Resources.  At March 31, 2009, cash and cash equivalents
and short-term investments were $31.1 million and $0.0 million,
respectively, compared to $36.0 million and $0.5 million,
respectively, at December 31, 2008. Working capital decreased
$5.8 million from $46.8 million at December 31, 2008 to
$41.0 million at March 31, 2009.




Contractual
Obligations




Other
than changes in the ordinary course of business, our estimates as to future
contractual obligations have not materially changed from the disclosure included
under the subheading “Contractual Obligations” in Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.




Effect of
Inflation




Inflation
has not had a significant effect on our operations for any period presented
above.





Item 3.  Quantitative and Qualitative Disclosures about
Market Risk.





At March
31, 2009, our cash equivalent investments were primarily in money market
accounts and certificates of deposit and were reflected as cash equivalents
because all maturities were within 90 days from date of purchase. Our interest
rate risk with respect to existing investments was limited due to the short-term
duration of these arrangements and the yields earned, which approximate current
interest rates for similar investments. We had no short-term investments at
March 31, 2009.





We are
exposed to financial market risks, including changes in interest rates and
foreign currency exchange rates in connection with our foreign operations and
markets. Nevertheless, the fair value of our investment portfolio or related
income would not be significantly impacted by a 100 basis point increase or
decrease in interest rates, due primarily to the short-term nature of the major
portion of our investment portfolio.





A
substantial portion of our revenue and capital spending is transacted in either
U.S. dollars or Euros. However, we do at times enter into transactions in other
currencies, such as the Hong Kong Dollar, Australian Dollar, Brazilian Real,
British Pound and other Central and South American, Asian and European
currencies. In March 2009, we suspended hedging activities due to the cost of
entering into forward contracts, the possible short term cash requirements for
forward contract payables, along with the inability to repatriate cash from
foreign countries on a short term basis to offset any hedge forward contract
payable. We do not expect to have any more forward contract receivable or
payable balances for the remainder of 2009. However, at March 31, 2009, we still
had forward contracts with our banks or other financials institutions for the
hedges put in place prior to March 2009. In addition, prior to our decision to
suspend hedging in March 2009, we hedged the translation of our net investment
in foreign subsidiaries in an attempt to neutralize the effect of translation
gains or losses in the statement of operations. We also entered into hedge
contracts to mitigate certain significant transactional exposures. Financial
hedging instruments were limited by our previous policy regarding
foreign-currency forward or option contracts and foreign-currency debt. We
entered into forward or option contracts with our bank or other financial
institutions to accomplish our hedging strategy. At March 31, 2009, we had
foreign currency forward contracts payable in the amount of $0.2 million,
denominated principally in the Brazilian Real, British Pound, Thai Baht, Mexican
Peso and Australian Dollar, with smaller contracts for the Chilean Peso. Gains
and losses on these contracts principally consist of mark-to-market adjustments,
which are recorded in earnings as foreign currency gains or losses.




- 22
-
 Table of Contents




All of
our long-term debt obligations are at a fixed interest rate over the term of the
agreement and there are no borrowings under our revolving credit facility at
March 31, 2009. However, as of March 31, 2009, we had $3.1 million outstanding
against the line of credit to cover various letters of credit guarantees at an
interest rate of 3.25%.





During
the normal course of business, we are routinely subjected to a variety of market
risks, examples of which include, but are not limited to, interest rate
movements and foreign currency fluctuations, as we discuss in this Item 3, and
collectability of accounts receivable. We continuously assess these risks and
have established policies and procedures to protect against the adverse effects
of these and other potential exposures. Although we do not anticipate any
material losses in these risk areas, no assurance can be made that material
losses will not be incurred in these areas in the future.





Item 4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures designed to ensure information
required to be disclosed in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and timely reported as specified in the SEC’s
rules and forms. They are also designed to ensure that such information is
accumulated and communicated to our management, including our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate,
to allow timely decisions regarding required disclosure.





Our
management, with the participation of our Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the
end of the period covered by this report. Based on such evaluation, our Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures were effectively designed to ensure that information we are required
to disclose in reports we file or submit under the Exchange Act is
(1) recorded, processed, summarized and reported timely as specified in SEC
rules and forms and (2) accumulated and communicated to our management,
including our certifying officers, as appropriate to allow timely decisions
regarding required disclosures.





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal control over financial reporting, as defined in
the Exchange Act Rules 13a-15(f) and 15d-15(f), that occurred during our most
recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.








PART
II — OTHER INFORMATION





Item 1.  Legal Proceedings.





We are
currently a party to various legal proceedings, including those noted below.
While we presently believe that the ultimate outcome of these proceedings,
individually and in the aggregate, will not have a material adverse affect on
our financial position, results of operations or cash flows, litigation is
subject to inherent uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include monetary damages or, in cases where injunctive
relief is sought, an injunction. Were an unfavorable ruling to occur, it is
possible such a ruling could have a material adverse impact on our financial
position, results of operations or cash flows in the period in which the ruling
occurs or in future periods.





SPA
Syspatronic AG v. Hypercom Corporation, et al. (United States District Court for
the Eastern District of Texas, Marshall Division, Civil Action No. 2:07-CV-416
(LED), filed on September 18, 2007)





SPA
Syspatronic AG (“SPA”) commenced this action in the United States District Court
for the Eastern District of Texas against us and others, alleging that certain
of our products infringe U.S. Patent No. 5,093,862 entitled “Data Carrier –
Controlled Terminal in a Data Exchange System” issued on March 3, 1992 (the
“‘862 Patent”) allegedly owned by SPA. SPA is seeking a judgment of
infringement, an injunction against further infringement, damages, interest and
attorneys’ fees. We have filed an answer denying liability on the basis of a
lack of infringement, invalidity of the ‘862 Patent, laches, waiver, equitable
estoppel and unclean hands, lack of damages, failure to state a claim, and
inequitable conduct during the prosecution of the ‘862 Patent. We have also
counterclaimed seeking a declaratory judgment of non-infringement and invalidity
of the ‘862 Patent, and seeking attorneys’ fees and costs as an exceptional case
due to the plaintiff’s inequitable




- 23
-
 Table of Contents




conduct
during the prosecution of the ‘862 Patent. On April 4, 2008, the U.S. Patent and
Trademark Office (the “Patent Office”) granted the defendants’ request for
re-examination of the ‘862 Patent. On April 24, 2008, the Court granted the
defendants’ motion to stay proceedings in this case until the Patent Office
completed its re-examination of the ‘862 Patent. On December 22, 2008, the
Patent Office filed an office action rejecting all ten claims of the ‘862 Patent
as invalid because they were anticipated by prior art references. On March 19,
2009, SPA filed a response to the office action. The Patent Office has not yet
issued a final ruling on the office action.





CardSoft,
Inc., et al. v. Hypercom Corporation, et al. (United States District Court for
the Eastern District of Texas, Marshall Division, Civil Action No.
2:08-CV-00098, filed on March 6, 2008)





CardSoft,
Inc. (“CardSoft”) filed this action on March 6, 2008 in the United States
District Court for the Eastern District of Texas against us and others, alleging
that certain of our terminal products infringe two patents allegedly owned by
CardSoft: U.S. Patent No. 6,934,945 (the “‘945 Patent”), entitled “Method and
Apparatus for Controlling Communications,” issued on August 23, 2005, and U.S.
Patent No. 7,302,683 (the “‘683 Patent”), also entitled “Method and Apparatus
for Controlling Communications”, issued on November 27, 2007, which is a
continuation of the ‘945 Patent. CardSoft is seeking a judgment of infringement,
an injunction against further infringement, damages, interest and attorneys’
fees. In June 2008, we filed its answer to the complaint in this action, denying
liability on the basis of a lack of infringement, invalidity of the ‘945 Patent
and the ‘683 Patent, laches, waiver, equitable estoppel and unclean hands, lack
of damages and failure to state a claim. We have also counterclaimed seeking a
declaratory judgment of non-infringement and invalidity of the ‘945 Patent and
the ‘683 Patent. On February 27, 2009, the Court issued an order requiring the
plaintiffs to disclose their infringement contentions and produce related
documents by June 15, 2009, and requiring the defendants to disclose their
invalidity contentions and produce related documents by September 14, 2009. A
Markman claim construction hearing is scheduled for July 11, 2011, with trial
scheduled to commence on November 7, 2011.





Lisa
Shipley v. Hypercom Corporation (United States District Court for the Northern
District of Georgia, Civil Action No. 1:09-CV-0265, filed on January 30,
2009)





Lisa
Shipley, a former employee, filed this action against us in the United States
District Court for the Northern District of Georgia on January 30, 2009,
alleging that we violated Title VII of the Civil Rights Act by discriminating
against her on the basis of her gender, violated the Georgia Wage Payment laws
by failing to pay certain sales commissions, and violated the Equal Pay Act and
Georgia law by paying her lower compensation than we paid males who performed
the same work. Ms. Shipley is seeking compensatory damages for emotional
distress, damage to reputation, embarrassment, lost wages, back pay, accrued
interest, punitive damages, attorney’s fees and expenses, and interest. We
intend to deny the allegations and vigorously defend this litigation. On
February 23, 2009, we filed a motion to dismiss based on improper venue or, in
the alternative, to transfer venue to the United States District Court for the
District of Arizona.





Item 1A.  Risk Factors.





We refer
you to documents filed by us with the SEC, specifically “Item 1A. Risk Factors”
in our most recent annual report on Form 10-K for the fiscal year ended December
31, 2008, which identifies important risk factors that could materially affect
our business, financial condition and future results. We also refer you to the
factors and cautionary language set forth in the section entitled “Cautionary
Statements Regarding Forward-looking Statements” of this quarterly report on
Form 10-Q. This quarterly report on Form 10Q, including the consolidated
financial statements and related notes should be read in conjunction with such
risks and other factors for a full understanding our operations and financial
condition. The risks described in our Form 10-K and herein are not the only
risks facing our company. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition or operating results. The risk factors
included in our annual report on Form 10-K for the fiscal year ended December
31, 2008, have not materially changedother than as set forth
below:





Fluctuations
in currency exchange rates may adversely affect our financial
results.





A
substantial part of our business consists of sales to international customers
and as a result the majority of our revenues and expenses related to our
international operations are denominated in Euros and other non-U.S. dollar
currencies. Adverse currency exchange rate fluctuations could have a material
impact on our financial results in the future. In addition, our balance sheet
reflects non-U.S. dollar denominated assets and liabilities, which can be
adversely affected by fluctuations in currency exchange rates. Accordingly, an
adverse movement in exchange rates could have a material adverse effect on our
financial results. In the year ended December 31, 2008, we incurred foreign
currency expense of approximately $1.8 million, net of foreign currency
transaction gains or losses.




- 24
-
 Table of Contents




Prior to
March 2009, we entered into foreign currency forward contracts intended to hedge
our exposure to adverse fluctuations in exchange rates. In March 2009, we
suspended hedging activities due to the cost of maintaining forward contracts,
the possible short term cash requirements for forward contract payables, along
with the inability to repatriate cash from foreign countries on a short term
basis to offset the hedge forward contract payable. We do not expect to have any
more forward contract receivable or payable balances for the remainder of
2009.





However,
at March 31, 2009, we still had forward contracts with our banks or other
financials institutions for the hedges put in place prior to March 2009. In
addition, prior to our decision to suspend hedging in March 2009, we hedged the
translation of our net investment in foreign subsidiaries in an attempt to
neutralize the effect of translation gains or losses in the statement of
operations. These hedging arrangements may not always be effective, particularly
in the event of imprecise forecasts of non-U.S. dollar denominated assets and
liabilities and attempts to mitigate these risks may be costly.





Item 5.  Other Information.





As
previously disclosed (in our Current Report on Form 8-K filed on March 30,
2009), effective April 20, 2009, and in conjunction with the appointment of
Thomas B. Sabol as our new Chief Financial Officer, Robert M. Vreeland
relinquished his role as Interim Chief Financial Officer and, subsequently, his
employment with our company ended effective May 5, 2009.





Item 6.  Exhibits.





Exhibit Number
                          Description of Exhibit3.1
                          Amended
      and Restated Certificate of Incorporation of Hypercom Corporation
      (incorporated by reference to Exhibit 3.1 to Hypercom Corporation’s
      Registration Statement on Form S-1 (Registration No.
      333-35641))3.2
                          Second
      Amended and Restated Bylaws of Hypercom Corporation (incorporated by
      reference to Exhibit 3.1 to Hypercom Corporation’s Current Report on Form
      8-K filed on November 6, 2006)4.1
                          Warrant
      to Purchase Common Stock dated April 1, 2008 (incorporated by
      reference to Exhibit 4.1 to Hypercom Corporation’s Current Report on Form
      8-K filed on April 2, 2008, as amended by the Current Report on Form 8-K/A
      filed on June 16, 2008)4.2
                          Registration
      Rights Agreement, dated as of April 1, 2008, by and between Hypercom
      Corporation and FP Hypercom Holdco, LLC (incorporated by reference to
      Exhibit 4.2 to Hypercom Corporation’s Current Report on Form 8-K filed on
      April 2, 2008, as amended by the Current Report on Form 8-K/A filed on
      June 16, 2008)10.1
                          Offer
      Letter dated March 24, 2009 by and between Hypercom Corporation and Thomas
      B. Sabol (incorporated by reference to Exhibit 10.1 to Hypercom
      Corporation’s Current Report on Form 8-K filed on March 30,
      2009)31.1
                          Certification
      of Chief Executive Officer, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 *31.2
                          Certification
      of Chief Financial Officer, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 *32
                          Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
**


*
Filed herewith.




**
Furnished herewith.




- 25
-
 Table of Contents




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:
      May 11, 2009
            By: /s/ Philippe
      Tartavull


Philippe
Tartavull


Chief
Executive Officer and President (duly authorized officer and principal executive
officer)








Date:
      May 11, 2009
            By: /s/ Thomas B.
      Sabol


Thomas B.
Sabol


Chief
Financial Officer (principal financial officer)








Date:
      May 11, 2009
            By: /s/ Shawn C.
      Rathje


Shawn C.
Rathje


Chief
Accounting Officer and Controller (principal accounting officer)




-
26 -