##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-Q

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

For the quarterly period ended: September 30, 2003.

OR

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

For the transition period from ____ to ____.

Commission file number: 1-13521

HYPERCOM CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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

Yes [X] No [  ]

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

Yes [X] No [  ]

Number of shares of the registrants common stock, $.001 par value per share,
outstanding as of November 11, 2003, was 49,853,702.





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TABLE OF CONTENTS



|                               |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I - FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                               | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EXHIBIT INDEX                 
|EX-10.1                       
|EX-10.2                       
|EX-10.3                       
|EX-10.4                       
|Ex-11.1                       
|EX-31.1                       
|EX-31.2                       
|EX-32.1                       
|EX-32.2                       
|EX-99.1                       



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##### Table of Contents



INDEX

|         |  |                                                                                       |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                       |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |      |    | 
|Item 1.  |  | Financial Statements                                                                  |  |      | 3  | 
|         |  | Notes to Consolidated Financial Statements                                            |  |      | 6  | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 12 | 
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |      | 15 | 
|Item 4.  |  | Controls and Procedures                                                               |  |      | 17 | 
|PART II. |  | OTHER INFORMATION                                                                     |  |      |    | 
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |      | 17 | 
|         |  | SIGNATURES                                                                            |  |      | 19 | 
|         |  | EXHIBIT INDEX                                                                         |  |      | 20 | 

2



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##### Table of Contents






PART I - FINANCIAL INFORMATION




Item 1. Financial Statements

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

|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |         |  
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------- | ------- | ----------------- | - | ------- | ------- | -
|                                           |                                                                                                                                                                      |   | September 30,2003 |         | December 31, 2002
|                                           |                                                                                                                                                                      |   | (unaudited)       |         | (restated)       
|                                           |                                                                                                                                                                      |   |                   |         |                  
|ASSETS                                     |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Current assets:                            |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|                                           | Cash and cash equivalents                                                                                                                                            |   | $                 | 41,089  |                   |   | $       | 23,069  |  
|                                           | Restricted cash                                                                                                                                                      |   |                   |        |                   |   |         | 6,777   |  
|                                           | Current marketable securities, at market                                                                                                                             |   |                   | 10,000  |                   |   |         |        |  
|                                           | Accounts receivable, net of allowance for doubtful
accounts of $3,162 and $3,282, respectively                                                                       |   |                   | 58,341  |                   |   |         | 54,320  |  
|                                           | Current portion of net investment in direct financing leases                                                                                                         |   |                   |        |                   |   |         | 11,812  |  
|                                           | Current portion of net investment in sales-type leases                                                                                                               |   |                   | 11,918  |                   |   |         | 9,774   |  
|                                           | Inventories, net                                                                                                                                                     |   |                   | 43,920  |                   |   |         | 46,406  |  
|                                           | Income tax receivable                                                                                                                                                |   |                   |        |                   |   |         | 9,118   |  
|                                           | Prepaid taxes                                                                                                                                                        |   |                   | 566     |                   |   |         | 425     |  
|                                           | Prepaid expenses and other current assets                                                                                                                            |   |                   | 13,934  |                   |   |         | 15,401  |  
|                                           | Long-lived assets held for sale                                                                                                                                      |   |                   | 850     |                   |   |         | 660     |  
|                                           | Assets of discontinued operations held for sale                                                                                                                      |   |                   | 21,816  |                   |   |         | 8,834   |  
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Total current assets                       |                                                                                                                                                                      |   | 202,434           |         |                   |   | 186,596 |        
|                                           | Property, plant and equipment, net                                                                                                                                   |   |                   | 28,740  |                   |   |         | 30,214  |  
|                                           | Long-term marketable securities, at market                                                                                                                           |   |                   | 153     |                   |   |         | 152     |  
|                                           | Net investment in direct financing leases                                                                                                                            |   |                   |        |                   |   |         | 15,392  |  
|                                           | Net investment in sales-type leases                                                                                                                                  |   |                   | 14,606  |                   |   |         | 11,213  |  
|                                           | Intangible assets, net                                                                                                                                               |   |                   | 3,724   |                   |   |         | 4,633   |  
|                                           | Other long-term assets                                                                                                                                               |   |                   | 8,671   |                   |   |         | 10,660  |  
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |         |  
|Total assets                               |                                                                                                                                                                      | $ | 258,328           |         |                   | $ | 258,860 |        
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Current liabilities:                       |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|                                           | Accounts payable                                                                                                                                                     |   | $                 | 23,359  |                   |   | $       | 20,553  |  
|                                           | Accrued payroll and related expenses                                                                                                                                 |   |                   | 6,679   |                   |   |         | 6,419   |  
|                                           | Accrued sales and other taxes                                                                                                                                        |   |                   | 5,356   |                   |   |         | 7,187   |  
|                                           | Accrued liabilities                                                                                                                                                  |   |                   | 9,206   |                   |   |         | 6,572   |  
|                                           | Deferred revenue                                                                                                                                                     |   |                   | 1,782   |                   |   |         | 1,999   |  
|                                           | Income taxes payable                                                                                                                                                 |   |                   | 2,127   |                   |   |         | 1,707   |  
|                                           | Current portion of long-term debt                                                                                                                                    |   |                   | 1,396   |                   |   |         | 13,331  |  
|                                           | Liabilities of discontinued operations held for sale                                                                                                                 |   |                   | 555     |                   |   |         | 649     |  
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Total current liabilities                  |                                                                                                                                                                      |   | 50,460            |         |                   |   | 58,417  |        
|                                           | Long-term debt                                                                                                                                                       |   |                   | 9,740   |                   |   |         | 11,694  |  
|                                           | Other non-current liabilities                                                                                                                                        |   |                   | 2,460   |                   |   |         | 777     |  
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Total liabilities                          |                                                                                                                                                                      |   | 62,660            |         |                   |   | 70,888  |        
|Stockholders equity:                      |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|                                           | Common stock, $.001 par value; 100,000,000 shares authorized;
49,822,048 and 48,014,350 shares outstanding at September 30,
2003 and December 31, 2002, respectively |   |                   | 29      |                   |   |         | 27      |  
|                                           | Additional paid-in capital                                                                                                                                           |   |                   | 219,246 |                   |   |         | 214,008 |  
|                                           | Receivables from stockholders                                                                                                                                        |   |                   | (1,056  | )                 |   |         | (1,056  | )
|                                           | Accumulated deficit                                                                                                                                                  |   |                   | (20,049 | )                 |   |         | (22,505 | )
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|                                           |                                                                                                                                                                      |   | 198,170           |         |                   |   | 190,474 |        
|                                           | Treasury stock, 230,088 shares (at cost)                                                                                                                             |   |                   | (2,502  | )                 |   |         | (2,502  | )
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Total stockholders equity                 |                                                                                                                                                                      |   | 195,668           |         |                   |   | 187,972 |        
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        
|Total liabilities and stockholders equity |                                                                                                                                                                      | $ | 258,328           |         |                   | $ | 258,860 |        
|                                           |                                                                                                                                                                      |   |                   |         |                   |   |         |        

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

3



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##### Table of Contents



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

|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |   |         |         | 
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | - | -------------------------------- | ------ | ------------------------------- | - | ------- | ------ | ------- | - | ------ | ------- | ------- | - | ------- | ------- | 
|                                                                                                                    |  |                                                                                                                                                              |                          |   | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                
|                                                                                                                    |  |                                                                                                                                                              |                          |   | 2003                             |        | 2002                            |   | 2003    |        | 2002   
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |        
|Net revenue                                                                                                         |  | $                                                                                                                                                            | 59,405                   |   |                                  | $      | 57,988                          |   |         | $      | 168,101 |   |        | $       | 183,017 |  
|Costs and expenses:                                                                                                 |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|                                                                                                                    |  | Costs of revenue                                                                                                                                             |                          |   | 34,101                           |        |                                 |   | 38,325  |        |         |   | 98,956 |         |         |   | 113,413 |        
|                                                                                                                    |  | Research and development                                                                                                                                     |                          |   | 5,684                            |        |                                 |   | 6,415   |        |         |   | 17,919 |         |         |   | 18,758  |        
|                                                                                                                    |  | Selling, general and administrative                                                                                                                          |                          |   | 14,347                           |        |                                 |   | 15,744  |        |         |   | 44,111 |         |         |   | 44,803  |        
|                                                                                                                    |  | Restructuring charges                                                                                                                                        |                          |   |                                 |        |                                 |   | 4,434   |        |         |   |       |         |         |   | 4,434   |        
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|                                                                                                                    |  |                                                                                                                                                              | Total costs and expenses |   |                                  | 54,132 |                                 |   |         | 64,918 |         |   |        | 160,986 |         |   |         | 181,408 | 
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Income (loss) from continuing operations                                                                            |  |                                                                                                                                                              | 5,273                    |   |                                  |        | (6,930                          | ) |         |        | 7,115   |   |        |         | 1,609   |  
|                                                                                                                    |  | Interest income                                                                                                                                              |                          |   | 64                               |        |                                 |   | 171     |        |         |   | 211    |         |         |   | 210     |        
|                                                                                                                    |  | Interest expense                                                                                                                                             |                          |   | (647                             | )      |                                 |   | (757    | )      |         |   | (1,782 | )       |         |   | (3,485  | )      
|                                                                                                                    |  | Loss on early extinguishment of debt                                                                                                                         |                          |   |                                 |        |                                 |   |        |        |         |   |       |         |         |   | (2,618  | )      
|                                                                                                                    |  | Other income (expense)                                                                                                                                       |                          |   | (1                               | )      |                                 |   | 116     |        |         |   | (90    | )       |         |   | 495     |        
|                                                                                                                    |  | Foreign currency loss                                                                                                                                        |                          |   | (914                             | )      |                                 |   | (1,934  | )      |         |   | (1,860 | )       |         |   | (5,713  | )      
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Income (loss) before income taxes, discontinued
operations, and cumulative effect of change
in accounting principle |  |                                                                                                                                                              | 3,775                    |   |                                  |        | (9,334                          | ) |         |        | 3,594   |   |        |         | (9,502  | )
|                                                                                                                    |  | Provision for income taxes                                                                                                                                   |                          |   | (738                             | )      |                                 |   | (15,935 | )      |         |   | (2,376 | )       |         |   | (15,811 | )      
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Income (loss) before discontinued operations
and cumulative effect of change in accounting
principle                |  |                                                                                                                                                              | 3,037                    |   |                                  |        | (25,269                         | ) |         |        | 1,218   |   |        |         | (25,313 | )
|                                                                                                                    |  | Income
(loss) from discontinued operations, including $4.7 and $4.0 million tax expense for the
three and nine months ended September 30,
2002, respectively |                          |   | 956                              |        |                                 |   | (13,005 | )      |         |   | 1,239  |         |         |   | (15,227 | )      
|                                                                                                                    |  | Cumulative effect of change in accounting principle                                                                                                          |                          |   |                                 |        |                                 |   |        |        |         |   |       |         |         |   | (21,766 | )      
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Net income (loss)                                                                                                   |  | $                                                                                                                                                            | 3,993                    |   |                                  | $      | (38,274                         | ) |         | $      | 2,457   |   |        | $       | (62,306 | )
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Basic and diluted income (loss) per share:                                                                          |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Income (loss) before discontinued operations and
cumulative effect of change in accounting principle                |  | $                                                                                                                                                            | 0.06                     |   |                                  | $      | (0.53                           | ) |         | $      | 0.03    |   |        | $       | (0.56   | )
|                                                                                                                    |  | Income (loss) from discontinued operations                                                                                                                   |                          |   | 0.02                             |        |                                 |   | (0.27   | )      |         |   | 0.02   |         |         |   | (0.33   | )      
|                                                                                                                    |  | Cumulative effect of change in accounting principle                                                                                                          |                          |   |                                 |        |                                 |   |        |        |         |   |       |         |         |   | (0.48   | )      
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|                                                                                                                    |  | Basic and diluted income (loss) per share                                                                                                                    |                          | $ | 0.08                             |        |                                 | $ | (0.80   | )      |         | $ | 0.05   |         |         | $ | (1.37   | )      
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|Weighted
average shares used in computation:                                                                        |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|                                                                                                                    |  | Basic:                                                                                                                                                       | 49,811                   |   |                                  |        | 47,982                          |   |         |        | 48,901  |   |        |         | 45,512  |   |         |        
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  
|                                                                                                                    |  | Diluted:                                                                                                                                                     | 51,243                   |   |                                  |        | 47,982                          |   |         |        | 49,757  |   |        |         | 45,512  |   |         |        
|                                                                                                                    |  |                                                                                                                                                              |                          |   |                                  |        |                                 |   |         |        |         |   |        |         |         |  

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

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

|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |         |          |  
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ---------------------------------------------------------- | ------- | ------------------------------- | ------- | ---- | ------ | ------- | -------- | -
|                                                                                                                |                                             |                                                            |         | Nine Months Ended September 30,
|                                                                                                                |                                             |                                                            |         |                                
|                                                                                                                |                                             |                                                            |         | 2003                            |         | 2002
|                                                                                                                |                                             |                                                            |         |                                 |         |     
|Cash flows from continuing operations:                                                                          |                                             |                                                            |         |                                 |         |      |        |        
|                                                                                                                |                                             | Income (loss) from continuing operations                   |         | $                               | 1,218   |      |        | $       | (47,079  | )
|Adjustments to reconcile income (loss) from continuing operations to net
cash provided by operating activities: |                                             |                                                            |         |                                 |         |      |        |        
|                                                                                                                |                                             | Amortization of discount on notes payable                  |         |                                 |        |      |        |         | 83       |  
|                                                                                                                |                                             | Amortization of deferred financing costs                   |         |                                 | 673     |      |        |         | 941      |  
|                                                                                                                |                                             | Depreciation/amortization                                  |         |                                 | 6,761   |      |        |         | 7,908    |  
|                                                                                                                |                                             | Bad debt expense                                           |         |                                 | 1,249   |      |        |         | 985      |  
|                                                                                                                |                                             | Provision for losses on sales-type leases                  |         |                                 | 705     |      |        |         | 758      |  
|                                                                                                                |                                             | Provision for excess and obsolete inventory                |         |                                 | 3,081   |      |        |         | 3,752    |  
|                                                                                                                |                                             | Foreign currency loss                                      |         |                                 | 1,860   |      |        |         | 5,100    |  
|                                                                                                                |                                             | Deferred income taxes                                      |         |                                 |        |      |        |         | 22,143   |  
|                                                                                                                |                                             | Non-cash restructuring charges                             |         |                                 |        |      |        |         | 3,572    |  
|                                                                                                                |                                             | Loss on early extinguishment of debt                       |         |                                 |        |      |        |         | 2,618    |  
|                                                                                                                |                                             | Cumulative effect of change in accounting principle        |         |                                 |        |      |        |         | 21,766   |  
|                                                                                                                |                                             | Other                                                      |         |                                 | (14     | )    |        |         | (98      | )
|                                                                                                                | Changes in operating assets and liabilities |                                                            |         | 1,046                           |         |      |        | (17,453 | )       
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |         |          |  
|Net cash provided by operating activities                                                                       |                                             |                                                            | 16,579  |                                 |         |      | 4,996  |        
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |        
|Cash
flows from investing activities:                                                                           |                                             |                                                            |         |                                 |         |      |        |        
|                                                                                                                |                                             | Proceeds from the sale of Horizon                          |         |                                 | 4,039   |      |        |         |         |  
|                                                                                                                |                                             | Purchases of marketable securities                         |         |                                 | (10,000 | )    |        |         |         |  
|                                                                                                                |                                             | Acquisition of other assets                                |         |                                 | (1,035  | )    |        |         | (1,951   | )
|                                                                                                                |                                             | Purchase of property, plant, & equipment                   |         |                                 | (3,316  | )    |        |         | (5,214   | )
|                                                                                                                |                                             | Payments received on notes receivables                     |         |                                 |        |      |        |         | 350      |  
|                                                                                                                |                                             | Other investing                                            |         |                                 |        |      |        |         | 328      |  
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |         |          |  
|Net cash used in investing activities                                                                           |                                             |                                                            | (10,312 | )                               |         |      | (6,487 | )      
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |        
|Cash flows from financing activities:                                                                           |                                             |                                                            |         |                                 |         |      |        |        
|                                                                                                                |                                             | Borrowings on revolving line of credit                     |         |                                 |        |      |        |         | 121,564  |  
|                                                                                                                |                                             | Repayments on revolving line of credit                     |         |                                 |        |      |        |         | (125,630 | )
|                                                                                                                |                                             | Repayment of bank notes payable and other debt instruments |         |                                 | (1,089  | )    |        |         | (22,973  | )
|                                                                                                                |                                             | Advances to discontinued operations                        |         |                                 | (1,000  | )    |        |         | (3,374   | )
|                                                                                                                |                                             | Proceeds from issuance of common stock                     |         |                                 | 5,240   |      |        |         | 37,525   |  
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |         |          |  
|Net cash provided by financing activities                                                                       |                                             |                                                            | 3,151   |                                 |         |      | 7,112  |        
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |        
|                                                                                                                |                                             | Effect of exchange rate changes on cash                    |         |                                 | 466     |      |        |         | (274     | )
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |        
|                                                                                                                |                                             | Net increase in cash flows from continuing operations      |         |                                 | 9,884   |      |        |         | 5,347    |  
|                                                                                                                |                                             | Net increase in cash flows from discontinued operations    |         |                                 | 8,136   |      |        |         | 602      |  
|                                                                                                                |                                             | Cash
and cash equivalents, beginning of period             |         |                                 | 23,069  |      |        |         | 13,402   |  
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |         |          |  
|Cash
and cash equivalents, end of period                                                                        |                                             | $                                                          | 41,089  |                                 |         | $    | 19,351 |        
|                                                                                                                |                                             |                                                            |         |                                 |         |      |        |        

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1  BASIS OF PRESENTATION

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

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

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

NOTE 2  NEW AND PROPOSED ACCOUNTING PRONOUNCEMENTS

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

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

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

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This Statement
requires that certain instruments that were previously classified as equity on
a companys statement of financial position now be classified as liabilities.
The Statement is effective for financial instruments entered into or modified
after May 31, 2003, and to all other instruments that exist as of the beginning
of the first interim period beginning after June 15, 2003. On October 29, 2003,
the FASB voted to defer for an indefinite period the application of the
guidance in SFAS 150 to noncontrolling interests that are classified as equity
in the financial statements of the subsidiary but would be

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classified as a liability in the parents financial statements under Statement
150. The FASB decided to defer the application of Statement 150 to these
noncontrolling interests until it could consider some of the resulting
implementation issues associated with the measurement and recognition guidance
for these noncontrolling interests. The Company currently has no instruments
impacted by the adoption of this statement and therefore the adoption did not
have an effect on the Companys consolidated financial position, results of
operations or cash flows.

NOTE 3  STOCK-BASED COMPENSATION

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

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

|                                                       |                                                                                                            |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |        |       |  
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ----------------- | ----- | -------------------------------- | ---- | ------------------------------- | ------- | ------ | ----- | ---- | ----- | ------ | ----- | - | ------- | ------ | ----- | -
|                                                       |                                                                                                            |                   |       | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                                                       |                                                                                                            |                   |       |                                  |      |                                
|                                                       |                                                                                                            |                   |       | 2003                             |      | 2002                            |         | 2003   |       | 2002
|                                                       |                                                                                                            |                   |       |                                  |      |                                 |         |        |       |     
|Net income (loss), as reported                         |                                                                                                            | $                 | 3,993 |                                  |      | $                               | (38,274 | )      |       | $    | 2,457 |        |       | $ | (62,306 | )     
|                                                       | Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards |                   |       | (394                             | )    |                                 |         | (1,706 | )     |      |       | (3,043 | )     |   |         | (7,107 | )    
|                                                       |                                                                                                            |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |       
|Pro forma net income (loss)                            |                                                                                                            | $                 | 3,599 |                                  |      | $                               | (39,980 | )      |       | $    | (586  | )      |       | $ | (69,413 | )     
|                                                       |                                                                                                            |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |       
|Net income (loss) per share:                           |                                                                                                            |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |       
|                                                       | As reported:                                                                                               |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |        |      
|                                                       |                                                                                                            | Basic and diluted |       | $                                | 0.08 |                                 |         | $      | (0.80 | )    |       | $      | 0.05  |   |         | $      | (1.37 | )
|                                                       | Pro forma                                                                                                  |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |        |      
|                                                       |                                                                                                            | Basic
and diluted |       | $                                | 0.07 |                                 |         | $      | (0.83 | )    |       | $      | (0.01 | ) |         | $      | (1.53 | )
|Weighted
average shares used in pro forma computation: |                                                                                                            |                   |       |                                  |      |                                 |         |        |       |      |       |        |       |   |         |       
|                                                       | Basic                                                                                                      |                   |       | 49,811                           |      |                                 |         | 47,982 |       |      |       | 48,901 |       |   |         | 45,512 |      
|                                                       | Diluted                                                                                                    |                   |       | 51,243                           |      |                                 |         | 47,982 |       |      |       | 48,901 |       |   |         | 45,512 |      

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

NOTE 4  INVENTORIES

Inventories consist of the following (amounts in thousands):

|                 |  |                    |        |                   |  |   |        | 
|---------------- |  | ------------------ | ------ | ----------------- |  | - | ------ | 
|                 |  | September 30, 2003 |        | December 31, 2002
|                 |  |                    |        |                  
|Purchased parts  |  | $                  | 18,645 |                   |  | $ | 16,918 | 
|Work in progress |  |                    | 5,491  |                   |  |   | 4,986  | 
|Finished goods   |  |                    | 19,784 |                   |  |   | 24,502 | 
|                 |  |                    |        |                   |  |   |        | 
|                 |  | $                  | 43,920 |                   |  | $ | 46,406 | 
|                 |  |                    |        |                   |  |   |        | 

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NOTE 5  SEGMENT INFORMATION

As a result of the sale of Golden Eagle Leasing effective October 1, 2003, our
direct-financing lease segment, the Companys continuing operations consist
solely of one segment: Point-of-Sale (POS)/Network Systems. The results of
operations of Golden Eagle have been classified in the results of discontinued
operations for all periods presented and its net assets have been classified as
held for sale at September 30, 2003 (see Note 6).

POS Systems develops, manufactures, markets, and supports products that
automate electronic payment transactions at the point of sale in merchant
establishments as well as supporting non-payment applications and new markets,
including government, education and healthcare. Network Systems develops,
manufactures, markets, and supports enterprise-networking systems.

NOTE 6  RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS

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

Restructuring Charges

The downsizing activities principally focused on the Companys POS/Network
Systems segment, including the Companys manufacturing operations in Brazil.
Such activities entailed moving to a contract manufacturer, reducing the number
of personnel and holding for sale certain long-lived assets such as buildings
and production equipment. Inventories were also written down to support a more
streamlined product offering. In addition, the Company identified certain
sales offices around the world to close in favor of a more cost-effective
distributor arrangement in those locations. Costs associated with closing these
sales offices principally included employee severance, inventory write-downs
and costs associated with exiting office space and disposing of office fixed
assets. The Company substantially completed all restructuring activities
relative to its profit improvement plan as of September 30, 2003. The Company
is actively marketing the long-lived assets held for sale comprised
of a building in Brazil.

Costs incurred during the three months ended September 30, 2002 were as follows
(amounts in thousands):

|                                       |                                             |                                              |   |       |       | 
|-------------------------------------- | ------------------------------------------- | -------------------------------------------- | - | ----- | ----- | 
|Restructuring charges in Cost of Sales |                                             |                                              |   |      
|                                       | Write down of inventories and related costs |                                              | $ | 2,033 |      
|                                       |                                             |                                              |   |       |      
|                                       |                                             | Total restructuring charges in cost of sales |   | $     | 2,033 | 
|                                       |                                             |                                              |   |      
|Restructuring charges                  |                                             |                                              |   |      
|                                       | Write down of building to fair value        |                                              | $ | 2,184 |      
|                                       | Write down of fixed assets to fair value    |                                              |   | 1,388 |      
|                                       | Write down of other assets to fair value    |                                              |   | 233   |      
|                                       | One-time termination benefits               |                                              |   | 482   |      
|                                       | Miscellaneous operating accruals            |                                              |   | 147   |      
|                                       |                                             |                                              |   |       |      
|                                       |                                             | Total restructuring charges                  |   | $     | 4,434 | 
|                                       |                                             |                                              |   |      

Discontinued Operations

In connection with the profit improvement plan, the Company identified and
decided to hold for sale certain under-performing operating units whose
activities were not closely aligned with the Companys core business. The
results of operations for these operating units held for sale have been
classified as discontinued operations and all periods prior to September 2002
have been

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restated to present these operating units as discontinued operations.
At the time the Company determined to hold these operations for sale, the
carrying amounts of their assets were written down to their estimated fair
value less an estimate of costs to sell. Assets written down consisted
principally of accounts receivable, inventories, intangible assets and fixed
assets. In accordance with SFAS 144, the operating results of the discontinued
operating units, prior to sale, were classified in discontinued operations as
incurred.

During the third quarter of 2003, the Company completed the sale of the fourth
and final operating unit identified and held for
sale initially in September 2002. In connection with this final sale the
Company recorded a loss on sale of $0.3 million in the quarter ended September
30, 2003 comprised principally of the write-off of a final cash infusion made
by the Company in accordance with the terms of the sale. The Company has
recognized $1.9 million in losses from sales of discontinued operations for the
nine months ended September 30, 2003. The loss on sale of discontinued
operations for the nine months ended September 30, 2003 is comprised of the
loss from the final operating unit discussed above, together with a loss on
sale of Hypercom Horizon, Inc (Horizon) completed during the quarter ended June 30, 2003.

Consistent with the Companys strategy of disposing of operating units not
aligned with its core business, the Company sold its direct finance lease
subsidiary, Golden Eagle, effective October 1, 2003. As a result of the
disposition, the net operating results of Golden Eagle have been reported
within discontinued operations for the three and nine months ended September
30, 2003 and 2002. Net revenues and operating income reported in discontinued
operations for Golden Eagle were $5.4 and $1.9 million and, $16.8 and $5.6
million, for the three and nine months ended September 30, 2003, respectively,
and $6.1 and $0.8 million, and $19.7 and $1.2 million, for the three and nine
months ended September 30, 2002, respectively.

The Company estimates that it will record a gain against the net assets held
for sale at October 1, 2003, net of severance and other exit costs, of
approximately $7.0 million during the fourth quarter of 2003, in association
with the sale of Golden Eagle. The assets and liabilities of Golden Eagle have
been separately reported in the balance sheet under the captions Assets of
discontinued operations held for sale and Liabilities of discontinued
operations held for sale and comprise the Companys entire remaining balances
at September 30, 2003.

Assets and liabilities of the Companys discontinued operations held for sale
consisted of the following at September 30, 2003 and December 31, 2002 (amounts
in thousands):

|                                   |                   |   |                    |        |                   |   |       |       | 
|---------------------------------- | ----------------- | - | ------------------ | ------ | ----------------- | - | ----- | ----- | 
|                                   |                   |   | September 30, 2003 |        | December 31, 2002
|                                   |                   |   |                    |        |                  
|Accounts receivable                |                   | $ |                   |        |                   | $ | 3,097 |      
|Direct finance lease receivables   |                   |   | 18,518             |        |                   |   |      |      
|Inventory                          |                   |   |                   |        |                   |   | 5,270 |      
|Property, plant and equipment, net |                   |   | 2,205              |        |                   |   |      |      
|Other assets                       |                   |   | 1,093              |        |                   |   | 467   |      
|                                   |                   |   |                    |        |                   |   |       |      
|                                   | Total assets      |   | $                  | 21,816 |                   |   | $     | 8,834 | 
|                                   |                   |   |                    |        |                   |   |       |      
|Accounts payable                   |                   | $ | 10                 |        |                   | $ | 342   |      
|Other liabilities                  |                   |   | 545                |        |                   |   | 307   |      
|                                   |                   |   |                    |        |                   |   |       |      
|                                   | Total liabilities |   | $                  | 555    |                   |   | $     | 649   | 
|                                   |                   |   |                    |        |                   |   |       |      

Net revenues of the operating units classified as discontinued operations for
the three and nine months ended September 30, 2003 and 2002 were $5.9 and $22.6
million, and $11.1 and $38.3 million, respectively. Pretax income (loss) of
the operating units classified as discontinued operations for the three and
nine months ended September 30, 2003 and 2002 were $1.0 and $1.2 million, and
($8.3) and ($11.3) million, respectively. Pretax income for the three and nine
months ended September 30, 2002 includes $8.0 million in initial write-downs of
assets to fair market value.

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NOTE 7  GOODWILL

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

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

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

NOTE 8 DEBT AND EQUITY TRANSACTIONS

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

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

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

During March 2003, the Company amended its revolving credit facility to reduce
the available credit limit from $25 million to $15 million. This reduction
better matches the Companys current liquidity needs and provides further cost
savings. During the third quarter of 2003, the revolving credit facility was
further amended to allow the Company to execute a share repurchase program not
to exceed $10 million.

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

NOTE 9 INCOME TAXES

Income tax expense before discontinued operations and cumulative effect of
change in accounting principle for federal, state and foreign taxes was $0.7
and $2.4 million for the three and nine months ended September 30, 2003, and
$15.9 and $15.8 million for the three and nine months ended September 30, 2002.
The income tax provision for 2003 is comprised of income

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taxes associated with the Companys profitable foreign locations.

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

There was no income tax expense recorded in discontinued operations for the
three and nine months ended September 30, 2003, as the income tax was offset by
the reversal of valuation allowances previously placed against deferred tax
assets allocated to discontinued operations during 2002. Income tax expense
recorded in discontinued operations for the three and nine months ended
September 30, 2002, was $4.7 and $4.0 million, respectively, and was primarily
attributable to valuation allowances placed against Golden Eagles deferred tax
assets.

NOTE 10  RESTATEMENTS AND
ADJUSTMENT

Subsequent to the release of its operating results for the third quarter ended
September 30, 2003, and prior to the filing of its Form 10-Q for the period,
the Company identified $1.1 million of prepaid taxes at a foreign subsidiary that
are not expected to be recoverable. Upon review of the transactions that gave
rise to the amounts, the Company determined that these prepaid amounts related
to transactions which had occurred in 1999 and 2000, and were not correctly
interpreted by the personnel responsible for financial reporting and, as a
result, were not correctly recorded in light of information that was available
at that time. The Company has determined that this is an accounting error and
should be corrected by restating the amounts previously reflected in the 1999
and 2000 financial statements. Accordingly, the December 31, 2002 balance
sheet included in this Form 10-Q has been restated to reduce prepaid expenses
and other current assets and increase accumulated deficit by
$1.1 million,
respectively. In the Form 10-K to be filed for the year ending December 31,
2003, the Company will reflect the results of this restatement to the extent
that the 1999 and 2000 information presented is affected. The correction will
result in the reduction of six months ended December 31, 1999 sales and net income by
$1.1 million, respectively, and reduce earnings per share by $0.03. The year
ended 2000 sales will be reduced by $0.6 million, the net loss will be increased by
$0.6 million, and net loss per share will be increased by $0.02.

Subsequent to the release of its operating results for the third quarter ended
September 30, 2003, and prior to the filing of its Form 10-Q for the period,
the Company determined that a sale to one of its customers did not meet the
collectibility measure under SAB 101 with respect to $0.8 million of sales. As a
result, this filing reflects the reversal of that sale, which had no impact on
earnings per share but did reduce sales by $0.8 million, operating income by
$0.2 million, and net income by $0.2 million.

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

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

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

RESULTS OF CONTINUING OPERATIONS

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

NET REVENUE

Net revenue for the three and nine months ended September 30, 2003, increased
$1.4 million and decreased $14.9 million or 2% and (8%),
respectively, to $59.4
million and $168.1 million from $168.1 million and $183.0 million in the three
and nine months ended September 30, 2002. The increase in net revenue for the
third quarter of 2003 compared to the same period in 2002, is due to a
transaction involving the sale of terminals that the Company had previously
leased to a third party to derive rental income under an operating
lease. The sale of these terminals was accounted for under a sales-type lease arrangement and contributed $2.4 million
in revenues. The decrease for the nine month period
was principally due to the attainment of a performance milestone under our
Brazilian Health Ministry contract resulting in revenue of $8.6 million during
the nine months ended September 30, 2002, versus $0.8 million in revenue
recognized under the same contract in the nine months ended September 30, 2003.
Performance milestones under this contract were substantially less than the
milestone achieved in the first quarter of 2002, as we have now entered the
maintenance phase of this contract. The additional decrease in net revenue for
the nine months ended September 30, 2003, compared to the same period in the
prior year reflects a soft global economy and former uncertainty relating to
the conflict in Iraq during the first half of the year.

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

COST OF REVENUE

Cost of revenue includes the cost of raw materials, manufacturing labor,
overhead and subcontracted manufacturing costs, as well as loan loss provisions
with respect to sales-type leases. For the three and nine months ended
September 30, 2003, costs of revenue decreased $4.2 and
$14.4 million or 11% and
13%, respectively, to $34.1 and $99.0 million from $38.3 and $113.4 million for
the three and nine months ended September 30, 2002. The decrease for the three
months ended September 30, 2003, compared to the same
period in 2002, is primarily attributable to $2.0 million in restructuring
charges recorded during the third quarter of 2002 related to the write-down of
inventory to fair market value and other incremental charges relative to
assessments of net realizable value amounting to $0.7 million in 2002. Such
charges did not exist in the quarter ended September 30, 2003. The decrease in
cost of revenues for the nine months ended September 30, 2003 is due to the
restructuring charges mentioned previously coupled with a decline in revenues
year over year partially offset by an increase in gross margin as a percentage
of revenue.

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Gross margin for the three and nine
months ended September 30, 2003 was 42.6%
and 41.1% compared to 33.9% and 38.0% in the same period in the prior year.
The current year margin benefited from the sale of fully depreciated terminals
the Company had previously leased to a third party, contributing $2.4 million
to the Companys gross margin during the third quarter of 2003. As discussed
previously, the Companys 2002 third quarter gross margin was negatively
impacted by $2.0 million in restructuring charges and other assessments of net
realizable value amounting to $0.7 million. Lastly, the Companys overall
gross margin for the nine months ended September 30, 2002 included $8.6 million
in revenue from the Brazilian Health Ministry contract versus $0.8 million in
2003. This contract carries a fully absorbed operating margin estimated at
9.1% which impacts the margin between periods when the revenues are
inconsistent.

RESEARCH AND DEVELOPMENT

Research and development expenses consist mainly of software and hardware
engineering costs and the cost of development personnel. Research and
development expenses for the three months ended September 30, 2003 decreased
$0.7 million or 10.9% to $5.7 million from $6.4 for the three months ended
September 30, 2002. Research and development expenses for the nine months ended
September 30, 2003 decreased $0.9 million or 4.8% to $17.9 million from $18.8
for the same period a year ago. The decline reflects the Companys continual
focus on cost containment efforts. Present development activities are
primarily focusing on the continued reduction in the component costs of
existing products and production enhancements, including certain new product
development, that support current market requirements.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Sales and marketing expenses, administrative personnel costs, and facilities
operations make up the selling, general and administrative expenses. These
expenses totaled $14.3 and $44.1 million for the three and nine months ended
September 30, 2003, compared to $15.7 and $44.8 million for the three and nine
months in the prior year. This $1.4 and $0.7 million or 8.9% and 1.6% decrease
for the three and nine months ended September 30, 2003 principally relates to
the positive impact of the Companys cost containment measures addressed during
2002.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for the quarter ended September 30, 2003
increased $12.2 million to income of $5.3 million compared to a loss of $6.9
million for the same quarter in the prior year. Income from continuing
operations for the nine months ended September 30, 2003
increased $5.5 million
to $7.1 million from $1.6 million for the same period last year. The increase
in net income year over year is primarily due to the Companys profit
improvement plan implemented during the third quarter of 2002.

NET INTEREST, FOREIGN CURRENCY LOSSES AND OTHER ITEMS

The Company incurred interest expense of $0.6 and $1.8 million for the three
and nine months ended September 30, 2003 compared to $0.8 and $3.5 million for
the three and nine months ended September 30, 2002. Interest expense consists
primarily of interest on borrowings for long-term debt and amortization of debt
issuance costs. The reduction in interest expense year over year was
principally the result of repaying $21.7 million of debt in March 2002. Other
income (expense) reflects various activities such as gains or losses on asset
dispositions, certain non-operating finance costs, and other non-operating
activity and was nominal for the three and nine months ended September 30, 2003
and 2002. Foreign currency loss for the three and nine months ended September
30, 2003 was $0.9 and $1.9 million and significantly less than the
loss of $1.9 and $5.7 million in the three and nine months ended September 30,
2002. The reduced loss is a result of a hedging program the Company has since
undertaken to mitigate foreign currency exposures.

INCOME TAXES

Income tax expense before discontinued operations and cumulative effect of
change in accounting principle for federal, state and foreign taxes was $0.7
and $2.4 million for the three and nine months ended September 30, 2003 and
$15.9 and $15.8 million for the three and nine months ended September 30, 2002.
The income tax provision for 2003 is comprised of income taxes associated with
the Companys profitable foreign locations.

As discussed in the Companys 2002 Annual Report on Form 10-K, the Company
recorded full valuation reserves against the Companys unreserved deferred tax
asset balance existing at September 30, 2002. Consistent with the facts and
circumstances leading to our conclusion to provide a full valuation reserve
against our deferred tax assets in 2002, we have provided a further

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valuation allowance against any net increases in deferred tax assets which in 2003
consisted principally of net operating loss carryforwards for U.S. operating
losses generated during the nine months ended September 30, 2003. Accordingly,
the valuation allowances render the effective tax rates for 2003 and 2002 not
meaningful. These valuation allowances are subject to reversal in future years
at such time that the benefits are actually utilized or, the operating profits
in the U.S. become sustainable at a level that meets the recoverability
criteria under SFAS 109.

There was no income tax expense recorded in discontinued operations for the
three and nine months ended September 30, 2003, as the income tax was offset by
the reversal of valuation allowances previously placed against deferred tax
assets allocated to discontinued operations during 2002. Income tax expense
recorded in discontinued operations for the three and nine months ended
September 30, 2002, was $4.7 and $4.0 million, respectively, and was primarily
attributable to valuation allowances placed against Golden Eagles deferred tax
assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations primarily through cash
generated from operations and from borrowings under a line of credit. The
Company has also used borrowings under notes payable to fund working capital
requirements and reduce its bank debt.

Cash provided by continuing operations for the nine months ended September 30,
2003 was $16.6 million compared to $5.0 million for the nine months ended
September 30, 2002. The increase in operating cash flow between 2003 and 2002
is principally due to the Companys continued focus on decreasing working
capital requirements as well as the receipt of a $9.1 million income tax refund
related to a U.S. net operating loss carryback claim filed during the first
quarter 2003. The decrease in working capital requirements principally relates
to net changes in accounts receivable, inventory and accounts payable during
the first three quarters of 2003, which favorably impacted operating cash
compared to net changes in those same working capital items during the first
three quarters of 2002. The change in inventory and its favorable impact on
operating cash flow reflects a decline in inventory levels due to manufacturing
efficiencies and maintaining inventory levels to support our core products.
Accounts receivable and accounts payable changes during the nine-month period
ending September 30, 2003 compared to 2002 reflect normal variations in the
customer collection and vendor payment process. Offsetting those events and
factors increasing operating cash flows, the Company continues to experience
growth in its sales-type lease portfolio requiring the use of operating cash
flow. The Company is currently evaluating financing or outside funding source
alternatives to augment the use of operating cash flows to fund the sales-type
lease activity.

Cash used in investing activities increased $3.8 million from $6.5 million for
the nine months ended September 30, 2002 to $10.3 million for the nine months
ended September 30, 2002. The increase in cash used in investing activities is
primarily related to $10.0 million in cash used to invest in marketable
securities with the Companys surplus cash balance offset by the receipt of
$4.0 million in proceeds from the sale of Horizon. Capital expenditures
decreased $1.9 million from $5.2 million for the nine months ended September
30, 2002 to $3.3 million for the nine months ended September 30, 2003. Capital
expenditures were higher in 2002 due to leasehold improvements incurred as a
result of the relocation of the Companys Brazilian manufacturing facility.
Capital expenditures in 2003 were principally for upgrades to computer software
and equipment purchases.

Cash provided by financing activities was $3.2 and $7.1 million for the nine
months ended September 30, 2003 and 2002, respectively. The decrease in cash
provided by financing activities of $3.9 million is the result of the Companys
reduction in overall debt balances and a decrease in advances to the Companys
discontinued operations. Long-term debt decreased $13.9 million to $11.1
million at September 30, 2003, from $25.0 million at December 31, 2002,
principally as a result of repayments on debt related to the Companys
securitized lease portfolio which was repaid in full during the third quarter
of 2003. At September 30, 2003, working capital and cash was
$152.0 million
and $41.1 million, respectively, compared to $128.2 and $23.1 million,
respectively, at December 31, 2002.

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

The net proceeds of the private offering amounted to $36.5 million and were
used to repay two term loans under the Companys credit facility with principal
balances of $15.3 million and $3.3 million, to repay $3.1 million in
outstanding loans

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from a former director and current stockholder, and to reduce
the outstanding borrowings under the Companys revolving credit facility. The
remaining proceeds were used for general corporate purposes.

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

During March 2003, the Company amended its revolving credit facility to reduce
the available credit limit from $25.0 million to $15.0 million. This reduction
better matches the Companys current liquidity needs and provides further cost
savings. During the third quarter of 2003, the revolving credit facility was
further amended to allow the Company to execute a share repurchase program not
to exceed $10.0 million.

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

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

BACKLOG

As of September 30, 2003, the Company had backlog of $69.9 million, compared to
$91.8 million at September 30, 2002. The decrease in backlog is primarily
related to the fulfillment of orders for major customers within the United
States that are subject to a customer approved delivery schedule.

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




Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

A substantial portion of the Companys revenue and capital spending is
transacted in U.S. dollars. However, the Company does at times enter into
transactions in other currencies, such as the Hong Kong dollar, Australian
dollar, Brazilian Real and other Asian and European currencies. Beginning in
June 2002, the Company resumed its foreign currency risk management strategy,
which had been suspended starting in the fourth quarter of 2000 due to credit
limitations imposed by the Companys banks. As a policy, the Company hedges
the translation of its net investment in foreign subsidiaries in an attempt to
neutralize the effect of translation gains or losses in the statement of
operations. Financial hedging instruments are limited by Company policy to
foreign-currency forward or option contracts and foreign-currency debt. The
Company enters into forward or option contracts with its bank or other
financial institutions to accomplish its hedging strategy. At September 30,
2003, the Company had foreign currency forward contracts outstanding in the
amount of $31.8 million, denominated principally in the Brazilian real, British
pound, Swedish krona, Chilean peso, and Australian dollar. Gains and losses on
these contracts principally consist of mark-to-market adjustments, recorded in
earnings as foreign currency gains or losses. See Net Interest, Foreign
Currency Losses and Other Itemssection above.

The Company does not purchase or hold any derivative financial instruments for
the purpose of speculation or arbitrage. See

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information/discussion appearing in subcaption Risks Associated with International
Operations and Foreign Currency Fluctuations of CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS AND RISK FACTORS set forth in Exhibit 99.1, attached hereto.

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Item 4. Controls and Procedures

As of the end of the period covered by this report, Hypercom management
conducted an evaluation, under the supervision and with the participation of
the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective in alerting them in a timely manner to material
information required to be included in the Companys SEC reports. In addition,
Hypercom management, including the Companys Chief Executive Officer and Chief
Financial Officer, reviewed our internal controls, and there have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect those controls subsequent to the date of our last
evaluation. Subsequent to this assessment, management determined that
an accounting error had occurred in a prior year at one of its
foreign subsidiaries, and that prior period financial statements
needed to be restated, as described in Note 10 to financial
statements in this Form 10-Q. Management has commenced an
evaluation of this matter to determine if any
changes to its disclosure controls and procedures are required.




PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|               |  |                                                                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                               
|3.1            |  | Amended and Restated Certificate of Incorporation of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom Corporations
Registration Statement on Form S-1 (Registration No. 333-35641))
|               |  |                                                                                                                                                                                                               
|3.2            |  | Amended and Restated Bylaws of Hypercom Corporation (incorporated by
reference to Exhibit 3.2 to Hypercom Corporations Quarterly Report on Form
10-Q for the quarter ended September 30, 2002)               
|               |  |                                                                                                                                                                                                               
|4              |  | Amended and Restated Certificate of Incorporation of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom Corporations
Registration Statement on Form S-1 (Registration No. 333-35641))
|               |  |                                                                                                                                                                                                               
|10.1           |  | Amendment No. Ten dated August 14, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                    
|               |  |                                                                                                                                                                                                               
|10.2           |  | Amendment No. Eleven dated August 28, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                 
|               |  |                                                                                                                                                                                                               
|10.3           |  | Amendment No. Twelve dated October 1, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                 
|               |  |                                                                                                                                                                                                               
|10.4           |  | Amendment No. Thirteen dated October 31, 2003, to Loan and Security
Agreement dated July 31, 2001 by and among Hypercom Corporation, certain of
its subsidiaries and Wells Fargo Foothill, Inc.*              
|               |  |                                                                                                                                                                                                               
|11.1           |  | Statement re Computation of Earnings Per Share *                                                                                                                                                              
|               |  |                                                                                                                                                                                                               
|31.1           |  | Certification of Chief Executive Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *                                                                                              
|               |  |                                                                                                                                                                                                               
|31.2           |  | Certification of Chief Financial Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *                                                                                              
|               |  |                                                                                                                                                                                                               
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|99.1           |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors *                                                                                                                                  



---

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

(b) Reports on Form 8-K.

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



| | a) |  | Form 8-K dated July 25, 2003, furnishing under Item 9 and Item
12, the Companys press
release, dated July 25, 2003, announcing the Companys results of
operations for the quarter ended June 30, 2003; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | b) |  | Form 8-K dated August 15, 2003, furnishing under Item 5, the
Companys press release, dated August 15, 2003, announcing that the
Board of Directors approved a stock repurchase program of up to $10
million in common stock and that George Wallner and Paul Wallner, the
Companys founders, each sold 7 million shares of their personal
holdings in the Company to institutional investors.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

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

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

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EXHIBIT INDEX

|               |  |                                                                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                               
|3.1            |  | Amended and Restated Certificate of Incorporation of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom Corporations
Registration Statement on Form S-1 (Registration No. 333-35641))
|               |  |                                                                                                                                                                                                               
|3.2            |  | Amended and Restated Bylaws of Hypercom Corporation (incorporated by
reference to Exhibit 3.2 to Hypercom Corporations Quarterly Report on Form
10-Q for the quarter ended September 30, 2002)               
|               |  |                                                                                                                                                                                                               
|4              |  | Amended and Restated Certificate of Incorporation of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom Corporations
Registration Statement on Form S-1 (Registration No. 333-35641))
|               |  |                                                                                                                                                                                                               
|10.1           |  | Amendment No. Ten dated August 14, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                    
|               |  |                                                                                                                                                                                                               
|10.2           |  | Amendment No. Eleven dated August 28, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                 
|               |  |                                                                                                                                                                                                               
|10.3           |  | Amendment No. Twelve dated October 1, 2003, to Loan and Security Agreement
dated July 31, 2001 by and among Hypercom Corporation, certain of its
subsidiaries and Wells Fargo Foothill, Inc.*                 
|               |  |                                                                                                                                                                                                               
|10.4           |  | Amendment No. Thirteen dated October 31, 2003, to Loan and Security
Agreement dated July 31, 2001 by and among Hypercom Corporation, certain of
its subsidiaries and Wells Fargo Foothill, Inc.*              
|               |  |                                                                                                                                                                                                               
|11.1           |  | Statement re Computation of Earnings Per Share *                                                                                                                                                              
|               |  |                                                                                                                                                                                                               
|31.1           |  | Certification of Chief Executive Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *                                                                                              
|               |  |                                                                                                                                                                                                               
|31.2           |  | Certification of Chief Financial Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *                                                                                              
|               |  |                                                                                                                                                                                                               
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*                                                           
|               |  |                                                                                                                                                                                                               
|99.1           |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors *                                                                                                                                  



---

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

20