##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2005.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number: 1-13521
 HYPERCOM CORPORATION
 (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)
  þ o
  þ o




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Table of Contents
 PagePART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated Balance Sheets  June 30, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations  Three and six months ended June 30,
2005 and 2004, as restated
    
    
    4Consolidated Statements of Cash Flow  Six months ended June 30, 2005 and 2004,
as restated
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 6. Exhibits and Reports on Form 8-K
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    26EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32EXHIBIT 99.1EX-10.1EX-31.1EX-31.2Exhibit 32EX-99.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 HYPERCOM CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
  June 30, 2005(unaudited)
    
    December 31, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    32,887
    
    
    $
    23,445Marketable securities
    
    
    60,466
    
    
    
    69,962Accounts receivable, net of allowance for doubtful
accounts of $2,601 and $2,390, respectively
    
    
    46,115
    
    
    
    59,776Current portion of net investment in sales-type leases
    
    
    8,070
    
    
    
    9,441Inventories
    
    
    39,919
    
    
    
    44,455Prepaid expenses and other current assets
    
    
    8,940
    
    
    
    12,955Total current assets
    
    
    196,397
    
    
    
    220,034Property, plant and equipment, net
    
    
    29,419
    
    
    
    29,920Net investment in sales-type leases
    
    
    15,848
    
    
    
    17,668Intangible assets, net
    
    
    4,251
    
    
    
    4,475Other long-term assets
    
    
    4,557
    
    
    
    5,163Total assets
    
    $
    250,472
    
    
    $
    277,260LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    21,228
    
    
    $
    27,817Accrued payroll and related expenses
    
    
    11,179
    
    
    
    8,679Accrued sales and other taxes
    
    
    8,806
    
    
    
    8,792Accrued liabilities
    
    
    12,158
    
    
    
    8,308Deferred revenue
    
    
    2,679
    
    
    
    2,768Income taxes payable
    
    
    1,919
    
    
    
    3,411Current portion of long-term debt
    
    
    8,534
    
    
    
    470Total current liabilities
    
    
    66,503
    
    
    
    60,245Long-term debt
    
    
    24
    
    
    
    8,359Other long-term liabilities
    
    
    4,323
    
    
    
    3,284Total liabilities
    
    
    70,850
    
    
    
    71,888Stockholders equity:Common stock, $.001 par value; 100,000,000 shares authorized;
52,643,822 and 52,254,935 shares outstanding at June 30,
2005 and December 31, 2004, respectively
    
    
    53
    
    
    
    52Additional paid-in capital
    
    
    231,579
    
    
    
    228,567Accumulated deficit
    
    
    (46,265
    )
    
    
    (19,969
    )Unearned deferred compensation
    
    
    (498
    )
    
    
    (505
    )Treasury stock, 689,111 and 290,211 shares (at cost)
at June 30, 2005 and December 31, 2004, respectively
    
    
    (5,247
    )
    
    
    (2,773
    )Total stockholders equity
    
    
    179,622
    
    
    
    205,372Total liabilities and stockholders equity
    
    $
    250,472
    
    
    $
    277,260
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##### Table of Contents



HYPERCOM CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended June 30,
    
    Six Months Ended June 30,(Amounts in thousands, except share data)
    
    2005
    
    2004
    
    2005
    
    2004(restated)
    
    
    
    
    
    (restated)Net revenue:Product and other
    
    $
    56,713
    
    
    $
    55,564
    
    
    $
    104,465
    
    
    $
    99,095Services
    
    
    7,302
    
    
    
    7,495
    
    
    
    14,081
    
    
    
    13,606Total net revenue
    
    
    64,015
    
    
    
    63,059
    
    
    
    118,546
    
    
    
    112,701Costs of revenue:Product and other
    
    
    47,661
    
    
    
    30,830
    
    
    
    78,346
    
    
    
    55,431Services
    
    
    6,516
    
    
    
    5,375
    
    
    
    11,803
    
    
    
    9,918Write-off of deferred contract costs
    
    
    
    
    
    
    11,305
    
    
    
    
    
    
    
    11,305Total costs of revenue
    
    
    54,177
    
    
    
    47,510
    
    
    
    90,149
    
    
    
    76,654Gross profit
    
    
    9,838
    
    
    
    15,549
    
    
    
    28,397
    
    
    
    36,047Operating expenses:Research and development
    
    
    7,592
    
    
    
    6,444
    
    
    
    14,850
    
    
    
    13,269Selling, general and administrative
    
    
    17,950
    
    
    
    16,962
    
    
    
    38,553
    
    
    
    31,847Total operating expenses
    
    
    25,542
    
    
    
    23,406
    
    
    
    53,403
    
    
    
    45,116Loss from continuing operations
    
    
    (15,704
    )
    
    
    (7,857
    )
    
    
    (25,006
    )
    
    
    (9,069
    )Interest income
    
    
    637
    
    
    
    221
    
    
    
    1,194
    
    
    
    494Interest expense
    
    
    (209
    )
    
    
    (445
    )
    
    
    (383
    )
    
    
    (936
    )Other income (expense)
    
    
    (14
    )
    
    
    2
    
    
    
    (59
    )
    
    
    20Foreign currency loss
    
    
    (740
    )
    
    
    (907
    )
    
    
    (1,010
    )
    
    
    (1,639
    )Loss before income taxes and
discontinued
operations
    
    
    (16,030
    )
    
    
    (8,986
    )
    
    
    (25,264
    )
    
    
    (11,130
    )Provision for income taxes
    
    
    (626
    )
    
    
    (1,540
    )
    
    
    (1,431
    )
    
    
    (2,369
    )Loss before discontinued operations
    
    
    (16,656
    )
    
    
    (10,526
    )
    
    
    (26,695
    )
    
    
    (13,499
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    399
    
    
    
    Net loss
    
    $
    (16,656
    )
    
    $
    (10,526
    )
    
    $
    (26,296
    )
    
    $
    (13,499
    )Basic and diluted loss per share:Loss before discontinued operations
    
    $
    (0.32
    )
    
    $
    (0.20
    )
    
    $
    (0.51
    )
    
    $
    (0.27
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Basic and diluted loss per share
    
    $
    (0.32
    )
    
    $
    (0.20
    )
    
    $
    (0.50
    )
    
    $
    (0.27
    )Weighted average common shares:Basic and diluted
    
    
    52,478,165
    
    
    
    51,411,926
    
    
    
    52,434,880
    
    
    
    50,812,675
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HYPERCOM CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months Ended June 30,(Amounts in thousands)
    
    2005
    
    2004(Restated)Cash flows from continuing operations:Net loss from continuing operations
    
    $
    (26,695
    )
    
    $
    (13,499
    )Adjustments to reconcile net loss from continuing operations
to net cash provided by operating activities:Depreciation/amortization
    
    
    4,195
    
    
    
    4,426Amortization of deferred financing costs
    
    
    7
    
    
    
    448Net amortization of discount on marketable securities
    
    
    (476
    )
    
    
    Provision for bad debts
    
    
    1,329
    
    
    
    661Provision for long-term contract accounts receivable
    
    
    
    
    
    
    1,635Provision for losses on sales-type leases
    
    
    1,616
    
    
    
    130Write-down of excess and obsolete inventory
    
    
    10,888
    
    
    
    3,462Provision for warranty and other product charges
    
    
    7,093
    
    
    
    149Noncash stock compensation
    
    
    273
    
    
    
    227Foreign currency loss

    
    
    721
    
    
    
    1,167Write-off of capitalized software and other assets
    
    
    480
    
    
    
    Write-off of deferred contract costs
    
    
    
    
    
    
    11,305Changes in operating assets and liabilities, net
    
    
    3,316
    
    
    
    (3,315
    )Net cash provided by operating activities
    
    
    2,747
    
    
    
    6,796Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (2,565
    )
    
    
    (3,469
    )Acquisition of other assets
    
    
    
    
    
    
    (1,480
    )Software development costs capitalized
    
    
    (558
    )
    
    
    (1,268
    )Purchase of marketable securities
    
    
    (84,021
    )
    
    
    (22,000
    )Proceeds from the sale or maturity of marketable securities
    
    
    93,993
    
    
    
    7,500Net cash provided by (used in) investing activities
    
    
    6,849
    
    
    
    (20,717
    )Cash flows from financing activities:Repayments of bank notes payable and other debt instruments
    
    
    (247
    )
    
    
    (621
    )Proceeds from issuance of common stock
    
    
    2,747
    
    
    
    5,553Purchase of treasury stock
    
    
    (2,474
    )
    
    
    Payments received on advances to stockholders
    
    
    
    
    
    
    1,056Net cash provided by financing activities
    
    
    26
    
    
    
    5,988Effect of exchange rate changes on cash
    
    
    (148
    )
    
    
    (110
    )Net increase (decrease) in cash flows from continuing operations
    
    
    9,474
    
    
    
    (8,043
    )Net decrease in cash flows from discontinued operations
    
    
    (32
    )
    
    
    (478
    )Cash and cash equivalents, beginning of period
    
    
    23,445
    
    
    
    65,415Cash and cash equivalents, end of period
    
    $
    32,887
    
    
    $
    56,894
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HYPERCOM CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Reclassification and Restatement
    Three Months Ended
    
    Six Months EndedAs previously
    
    
    
    
    
    As previouslySelected Statement of Operations Data:
    
    reported
    
    As Restated
    
    reported
    
    As RestatedNet revenue
    
    $
    64,691
    
    
    $
    63,059
    
    
    $
    115,454
    
    
    $
    112,701Cost of revenue
    
    
    48,048
    
    
    
    47,510
    
    
    
    77,565
    
    
    
    76,654Gross profit
    
    
    16,643
    
    
    
    15,549
    
    
    
    37,889
    
    
    
    36,047Foreign currency loss
    
    
    (911
    )
    
    
    (907
    )
    
    
    (1,639
    )
    
    
    (1,639
    )Basic and diluted loss per share
    
    
    (0.18
    )
    
    
    (0.20
    )
    
    
    (0.23
    )
    
    
    (0.27
    )Selected Statement of Cash Flows Data:Net loss from continuing operations
    
    
    
    
    
    
    
    
    
    $
    (11,657
    )
    
    $
    (13,499
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    4,246
    
    
    
    4,426Foreign currency loss
    
    
    
    
    
    
    
    
    
    
    1,639
    
    
    
    1,167Changes in operating asset and
liabilities, net
    
    
    
    
    
    
    
    
    
    
    (6,337
    )
    
    
    (3,315
    )Net cash provided by operating activities
    
    
    
    
    
    
    
    
    
    
    6,272
    
    
    
    6,796Purchase of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    (2,925
    )
    
    
    (3,469
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    (20,193
    )
    
    
    (20,717
    )
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
    
    Implementing an end-of-product-life cycle strategy, including identifying products with
near term end-of-life requirements;
    
    More aggressively addressing and correcting product performance issues, including
negotiated warranty and product trade-in / trade-out programs required for the
end-of-product-life cycle strategies;
    
    Implementing certain workforce reductions and compensation plan changes;
    
    Addressing individual country / regional sales and profitability performance;
    
    Reallocating resources based upon market share growth objectives by country in each sales region;
    
    Investing in the implementation of a comprehensive product marketing function within the
Companys organization;
    
    Evaluation of opportunities for short-, medium- and long-term improvements in cost of revenues; and
    
    Many other actions and elements with less material implications.
  AccruedCosts Expected
    
    Costs Incurred
    
    Liabilityto be
    
    Prior to
    
    Balance atIncurred
    
    June 30, 2005
    

June
30, 2005(a)Revenues and cost of revenues:Warranty charges and product replacement
accruals
    
    $
    6,782
    
    
    $
    126
    
    
    $
    6,656Inventory write-downs, primarily for
product end-of-life decisions
    
    
    9,222
    
    
    
    9,222
    
    
    
    One-time termination benefits and
related employment costs
    
    
    177
    
    
    
    
    
    
    
    177Total charges in revenues and cost of revenues
    
    
    16,181
    
    
    
    9,348
    
    
    
    6,833Charges in operating expenses:One-time termination benefits and
related employment costs
    
    
    2,021
    
    
    
    652
    
    
    
    1,369Total charges
    
    $
    18,202
    
    
    $
    10,000
    
    
    $
    8,202
 (a)
    
    
    All accrued liability balances associated with the 2005
Business Review are classified as current liabilities as these
amounts are expected to be paid primarily during the 2005 third and fourth
quarters with some costs trailing into the first half of 2006.
  
    
    $4.8 million of replacement cost provisions recorded in the second quarter related to
certain POS equipment that the Company has elected to provide to certain customers to
reduce future warranty costs, increase customer satisfaction, drive future revenue
opportunities, and protect the Companys competitive positioning;
    
    $2.0 million ($0.7 million in the first quarter and $1.3 million in the second quarter)
of charges related to additional negotiated warranty work and replacement cost provisions
for customer owned product as a result of higher than expected repair costs;
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
    
    $9.2 million ($2.1 million in the first quarter and $7.1 million in the second quarter)
of write-downs for inventory primarily related to products at or near end-of-life; and
    
    $2.2 million of severance and related provisions in the second quarter related to recent
termination and severance of certain executives and employees, and the elimination of
certain executive benefits.
   Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(Restated)
    
    
    
    (Restated)Net loss, as reported
    
    $
    (16,656
    )
    
    $
    (10,526
    )
    
    $
    (26,296
    )
    
    $
    (13,499
    )Add: Stock-based employee compensation
expense included in reported net loss
    
    
    58
    
    
    
    127
    
    
    
    273
    
    
    
    227Deduct: Stock-based employee compensation expense
determined under fair value methods
for all awards
    
    
    (342
    )
    
    
    (713
    )
    
    
    (856
    )
    
    
    (1,529
    )Add: Reversal of stock-based compensation expense
for options forfeited prior to vesting
    
    
    588
    
    
    
    5
    
    
    
    2,086
    
    
    
    95Pro forma net loss
    
    $
    (16,352
    )
    
    $
    (11,107
    )
    
    $
    (24,793
    )
    
    $
    (14,706
    )Net loss per share:Basic and diluted, as reported
    
    $
    (0.32
    )
    
    $
    (0.20
    )
    
    $
    (0.50
    )
    
    $
    (0.27
    )Basic and diluted, pro forma
    
    $
    (0.31
    )
    
    $
    (0.22
    )
    
    $
    (0.47
    )
    
    $
    (0.29
    )Weighted average shares used in pro forma
computation:Basic and diluted
    
    
    52,478,165
    
    
    
    51,411,926
    
    
    
    52,434,880
    
    
    
    50,812,675
  Share-Based Payment
 8




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June 30, 2005
    
    December 31, 2004Marketable
securities:Municipal
debt securities
    
    $
    7,500
    
    
    $
    14,900U.S.
government and agency debt securities
    
    
    38,466
    
    
    
    35,962Preferred
equity securities
    
    
    14,500
    
    
    
    19,100$
    60,466
    
    
    $
    69,962
    June 30, 2005
    
    December 31, 2004Purchased parts
    
    $
    22,181
    
    
    $
    21,083Work in progress
    
    
    3,887
    
    
    
    5,134Finished goods
    
    
    13,851
    
    
    
    18,238$
    39,919
    
    
    $
    44,455
   Three
Months Ended June 30,
    

Six
Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Balance at
beginning of period
    
    $
    1,444
    
    
    $
    1,147
    
    
    $
    1,434
    
    
    $
    879Warranty
charged to costs of revenue
    
    
    215
    
    
    
    394
    
    
    
    769
    
    
    
    962Utilization
of warranty
    
    
    (497
    )
    
    
    (714
    )
    
    
    (1,041
    )
    
    
    (1,014
    )Balance at
end of period
    
    $
    1,162
    
    
    $
    827
    
    
    $
    1,162
    
    
    $
    827
      9




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Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.
    10




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11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  12




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RESULTS OF OPERATIONS  Second Quarter
 Three Months Ended June 30,% of
    
    
    
    
    
    % of
    
    Increase2005
    
    Revenue
    
    2004 (a)
    
    Revenue
    
    (Decrease)(Restated)Net revenue:Product and other
    
    $
    56,713
    
    
    
    88.6
    %
    
    $
    55,564
    
    
    
    88.1
    %
    
    $
    1,149Services
    
    
    7,302
    
    
    
    11.4
    %
    
    
    7,495
    
    
    
    11.9
    %
    
    
    (193
    )Total net revenue
    
    
    64,015
    
    
    
    100.0
    %
    
    
    63,059
    
    
    
    100.0
    %
    
    
    956Costs of revenue:Product and other
    
    
    47,661
    
    
    
    84.0
    %
    
    
    30,830
    
    
    
    55.5
    %
    
    
    16,831Services
    
    
    6,516
    
    
    
    89.2
    %
    
    
    5,375
    
    
    
    71.7
    %
    
    
    1,141Write-off of deferred contract costs
    
    
    
    
    
    
    0.0
    %
    
    
    11,305
    
    
    
    20.3
    %
    
    
    (11,305
    )Total costs of revenue
    
    
    54,177
    
    
    
    84.6
    %
    
    
    47,510
    
    
    
    75.3
    %
    
    
    6,667Gross profit
    
    
    9,838
    
    
    
    15.4
    %
    
    
    15,549
    
    
    
    24.7
    %
    
    
    (5,711
    )Operating expenses:Research and development
    
    
    7,592
    
    
    
    11.9
    %
    
    
    6,444
    
    
    
    10.2
    %
    
    
    1,148Selling, general and administrative
    
    
    17,950
    
    
    
    28.0
    %
    
    
    16,962
    
    
    
    26.9
    %
    
    
    988Total operating expenses
    
    
    25,542
    
    
    
    39.9
    %
    
    
    23,406
    
    
    
    37.1
    %
    
    
    2,136Loss from continuing operations
    
    
    (15,704
    )
    
    
    -24.5
    %
    
    
    (7,857
    )
    
    
    -12.5
    %
    
    
    (7,847
    )Non-operating expenses
    
    
    (326
    )
    
    
    -0.5
    %
    
    
    (1,129
    )
    
    
    -1.8
    %
    
    
    803Loss before income taxes and discontinued
operations
    
    
    (16,030
    )
    
    
    -25.0
    %
    
    
    (8,986
    )
    
    
    -14.3
    %
    
    
    (7,044
    )Provision for income taxes
    
    
    (626
    )
    
    
    -1.0
    %
    
    
    (1,540
    )
    
    
    -2.4
    %
    
    
    914Net loss
    
    $
    (16,656
    )
    
    
    -26.0
    %
    
    $
    (10,526
    )
    
    
    -16.7
    %
    
    $
    (6,130
    )Loss per basic and diluted share
    
    $
    (0.32
    )
    
    
    
    
    
    $
    (0.20
    )
    
    
    
    
    
    $
    (0.12
    )
 13




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##### Table of Contents



RESULTS OF OPERATIONS Year-to-date
 Six Months Ended June 30,% of
    
    
    
    
    
    % of
    
    Increase2005
    
    Revenue
    
    2004(a)
    
    Revenue
    
    (Decrease)(Restated)Net revenue:Product and other
    
    $
    104,465
    
    
    
    88.1
    %
    
    $
    99,095
    
    
    
    87.9
    %
    
    $
    5,370Services
    
    
    14,081
    
    
    
    11.9
    %
    
    
    13,606
    
    
    
    12.1
    %
    
    
    475Total net revenue
    
    
    118,546
    
    
    
    100.0
    %
    
    
    112,701
    
    
    
    100.0
    %
    
    
    5,845Costs of revenue:Product and other
    
    
    78,346
    
    
    
    75.0
    %
    
    
    55,431
    
    
    
    55.9
    %
    
    
    22,915Services
    
    
    11,803
    
    
    
    83.8
    %
    
    
    9,918
    
    
    
    72.9
    %
    
    
    1,885Write-off of deferred contract costs
    
    
    
    
    
    
    0.0
    %
    
    
    11,305
    
    
    
    11.4
    %
    
    
    (11,305
    )Total costs of revenue
    
    
    90,149
    
    
    
    76.0
    %
    
    
    76,654
    
    
    
    68.0
    %
    
    
    13,495Gross profit
    
    
    28,397
    
    
    
    24.0
    %
    
    
    36,047
    
    
    
    32.0
    %
    
    
    (7,650
    )Operating expenses:Research and development
    
    
    14,850
    
    
    
    12.5
    %
    
    
    13,269
    
    
    
    11.8
    %
    
    
    1,581Selling, general and administrative
    
    
    38,553
    
    
    
    32.5
    %
    
    
    31,847
    
    
    
    28.3
    %
    
    
    6,706Total operating expenses
    
    
    53,403
    
    
    
    45.0
    %
    
    
    45,116
    
    
    
    40.0
    %
    
    
    8,287Loss from continuing operations
    
    
    (25,006
    )
    
    
    -21.1
    %
    
    
    (9,069
    )
    
    
    -8.0
    %
    
    
    (15,937
    )Non-operating expenses
    
    
    (258
    )
    
    
    -0.2
    %
    
    
    (2,061
    )
    
    
    -1.8
    %
    
    
    1,803Loss before income taxes and discontinued
operations
    
    
    (25,264
    )
    
    
    -21.3
    %
    
    
    (11,130
    )
    
    
    -9.9
    %
    
    
    (14,134
    )Provision for income taxes
    
    
    (1,431
    )
    
    
    -1.2
    %
    
    
    (2,369
    )
    
    
    -2.1
    %
    
    
    938Loss before discontinued operations
    
    
    (26,695
    )
    
    
    -22.5
    %
    
    
    (13,499
    )
    
    
    -12.0
    %
    
    
    (13,196
    )Income from discontinued operations
    
    
    399
    
    
    
    0.3
    %
    
    
    
    
    
    
    0.0
    %
    
    
    399Net loss
    
    $
    (26,296
    )
    
    
    -22.2
    %
    
    $
    (13,499
    )
    
    
    -12.0
    %
    
    $
    (12,797
    )Loss per basic and diluted share
    
    $
    (0.50
    )
    
    
    
    
    
    $
    (0.27
    )
    
    
    
    
    
    $
    (0.23
    )
    BUSINESS REVIEW, RESTRUCTURING AND RELATED CHARGES
  
    
    Implementing an end-of-product-life cycle strategy, including identifying products with
near term end-of-life requirements;
    
    More aggressively addressing and correcting product performance issues, including
negotiated warranty and product trade-in / trade-out programs required for the
end-of-product-life cycle strategies;
    
    Implementing certain workforce reductions and compensation plan changes;
    
    Addressing individual country / regional sales and profitability performance;
    
    Reallocating resources based upon market share growth objectives by country in each sales region;
 14




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##### Table of Contents




    
    Investing in the implementation of a comprehensive product marketing function within the
Companys organization;
    
    Evaluation of opportunities for short-, medium- and long-term improvements in cost of revenues; and
    
    Many other actions and elements with less material implications.
  Charges
    
    Charges
    
    Total ChargesRecorded
    
    Recorded
    
    Recordedin the 2005
    
    in the 2005
    
    in the First SixFirst Quarter
    
    Second Quarter
    
    Months of 2005Revenue and cost of revenues:Warranty charges and product replacement
accruals
    
    $
    706
    
    
    $
    6,076
    
    
    $
    6,782Inventory write-downs, primarily for
product end-of-life decisions
    
    
    2,132
    
    
    
    7,090
    
    
    
    9,222One-time termination benefits and
related employment costs
    
    
    
    
    
    
    177
    
    
    
    177UK lease portfolio charges
    
    
    749
    
    
    
    140
    
    
    
    889Other
    
    
    148
    
    
    
    161
    
    
    
    309Revenue and cost of revenues total
    
    
    3,735
    
    
    
    13,644
    
    
    
    17,379Operating expenses and income taxes:One-time termination benefits and
related employment costs
    
    
    1,543
    
    
    
    2,021
    
    
    
    3,564Other
    
    
    525
    
    
    
    524
    
    
    
    1,049Operating expenses and income taxes total
    
    
    2,068
    
    
    
    2,545
    
    
    
    4,613$
    5,803
    
    
    $
    16,189
    
    
    $
    21,992
   
    
    $0.7 million of charges related to negotiated warranty work for customer owned product
as a result of higher than expected repair costs;
    
    $2.1 million of write-downs for inventory primarily related to products at or near end-of-life;
    
    $0.8 million of incremental charges and reserves related to realizability of lease
receivables and residual values related to the UK lease portfolio;
    
    $1.5 million of severance and related provisions in the first quarter related to
terminations and severance of certain executives and employees; and
    
    $0.7 million of other individually immaterial charges and provisions.
  
    
    $4.8 million of replacement cost provisions recorded in the second quarter related to
certain POS equipment that the Company has elected to provide to certain customers to reduce
future warranty costs, increase
customer satisfaction, drive future revenue opportunities, and protect the Companys
competitive positioning;
    
    $1.3 million of charges related to additional negotiated warranty work and replacement
cost provisions for customer owned product as a result of higher than expected repair
costs;
    
    $6.2 million of write-downs for product inventory primarily as a result of implementing an
end-of-product-life cycle strategy, including identifying products with near term
end-of-life requirements;
    
    $0.9 million for write-downs of inventory used in our
service businesses primarily as a result of the end-of-life strategy;
 15




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##### Table of Contents




    
    $2.2 million of severance and related provisions in the second quarter related to recent
termination and severance of certain executives and employees, and the elimination of
certain executive benefits;
    
    $0.8 million of other individually immaterial charges and provisions.
  NET REVENUE
   COSTS OF REVENUE
   WRITE-OFF OF DEFERRED CONTRACT COSTS
  16




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##### Table of Contents



GROSS PROFIT
   OPERATING EXPENSES
     17




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##### Table of Contents



OPERATING LOSS
   NON-OPERATING EXPENSES
   PROVISION FOR INCOME TAXES
    INCOME FROM DISCONTINUED OPERATIONS
  CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
  18




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##### Table of Contents



BACKLOG
   19




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
       
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
   Managements
Remediation Initiatives and Interim Measures.
   20




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##### Table of Contents




    
    an inappropriate level of review of certain significant financial statement accounts requiring a higher degree of
judgment and estimates;
 
    
    insufficient analysis, documentation, review, and oversight of the financial statements of certain foreign subsidiaries
during consolidation; and
 
    
    insufficient staffing of the accounting and financial reporting function.
    Internal
Control Over Financial Reporting.
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  Verve Matters
  21




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##### Table of Contents



Shareholder
Class Actions
 Shareholder
Derivative Actions
  22




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##### Table of Contents



Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number
    
    Approximateof Shares
    
    Dollar Value ofPurchased as
    
    Shares that mayPart of Publicly
    
    yet be RepurchasedTotal Number
    
    Average Price
    
    Announced Plans
    
    Under the PlanPeriod
    
    of Shares
    
    Paid Per Share
    
    or Programs
    
    or ProgramApril 1, 2005
to April 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,730,000May 1, 2005
to May 31, 2005
    
    
    398,900
    
    
    $
    6.16
    
    
    
    398,900
    
    
    
    7,272,776June 1, 2005
to June 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,272,776
  23




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Election of Directors
 Election of Directors
    
    For
    
    
    WithholdChristopher S. Alexander
    
    
    40,417,743
    
    
    
    4,198,042William C. Keiper
    
    
    42,067,248
    
    
    
    2,548,537Phillip J. Riese
    
    
    42,986,643
    
    
    
    1,629,142
  
 Item 6. Exhibits
 Exhibit Number
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom Corporations
Registration Statement on Form S-1 (Registration No. 333-35641))3.2
    
    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
    
    First Amendment dated February 15, 2005 to the Credit Agreement dated
January 31, 2005, by and between Hypercom Corporation and Wells Fargo Bank,
N.A.*31.1
    
    Certification of Chief Executive Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *31.2
    
    Certification of Chief Financial Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *32
    
    Certification of Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002**99.1
    
    Cautionary Statement Regarding Forward-Looking Statements and Risk Factors *
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 24




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##### Table of Contents



SIGNATURES
  HYPERCOM CORPORATIONDate: August 9, 2005
    
    By: /s/ William KeiperWilliam KeiperChairman and Interim Chief Executive
Officer and President (duly authorized
officer and principal executive officer)Date: August 9, 2005
    
    By: /s/ G. Grant LyonG. Grant LyonInterim Chief Financial Officer(principal financial and accounting officer)
 25




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom Corporations
Registration Statement on Form S-1 (Registration No. 333-35641))3.2
    
    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
    
    First Amendment dated February 15, 2005 to the Credit Agreement dated
January 31, 2005, by and between Hypercom Corporation and Wells Fargo Bank,
N.A.*31.1
    
    Certification of Chief Executive Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *31.2
    
    Certification of Chief Financial Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *32
    
    Certification of Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 **99.1
    
    Cautionary Statement Regarding Forward-Looking Statements and Risk Factors *
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 26