##### Table of Contents



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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, 2002.

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 [  ]

Number of shares of the registrants common stock, $.001 par value per share,
outstanding as of November 11, 2002, was 48,014,351.





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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                    
|CERTIFICATION                 
|CERTIFICATION                 
|EXHIBIT INDEX                 
|EX-3.2                        
|EX-99.1                       
|EX-99.2                       
|EX-99.3                       



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##### Table of Contents



INDEX

|        |  |                                                                                       |  |     
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                 |  | Page
|       
|       
|       
|       
|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 |  | 15  
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market
Risk                            |  | 20  
|       
|       
|       
|       
|Item 4. |  | Controls and Procedures                                                               |  | 21  
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                     |  | 21  
|       
|       
|       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 21  
|       
|       
|       
|       
|        |  | SIGNATURES                                                                            |  | 22  
|       
|       
|       
|       
|        |  | CERTIFICATION  Chief Executive Officer                                               |  | 23  
|       
|       
|       
|       
|        |  | CERTIFICATION  Chief Financial Officer                                               |  | 24  
|       
|       
|       
|       
|        |  | EXHIBIT INDEX                                                                         |  | 25  

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, |         |              |   |        
|                                                                                                   |                                                                                                                                                                                 |   | 2002          |         | December 31,
|                                                                                                   |                                                                                                                                                                                 |   | (unaudited)   |         | 2001        
|                                                                                                   |                                                                                                                                                                                 |   |               |         |             
|ASSETS                                                                                             |                                                                                                                                                                                 |   |               |         |              |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Current assets:                                                                                    |                                                                                                                                                                                 |   |               |         |              |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Cash and cash equivalents                                                                                                                                                       |   | $             | 19,351  |              |   | $       | 13,402  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Restricted cash                                                                                                                                                                 |   |               | 6,485   |              |   |         | 6,367   |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Accounts receivable, net of allowance for
doubtful accounts of $3,737 and $4,029                                                                                                |   |               | 61,411  |              |   |         | 70,860  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Current portion of net investment in direct financing leases                                                                                                                    |   |               | 26,625  |              |   |         | 16,242  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Inventories, net                                                                                                                                                                |   |               | 51,048  |              |   |         | 62,411  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Deferred income taxes                                                                                                                                                           |   |               |        |              |   |         | 16,090  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Prepaid taxes                                                                                                                                                                   |   |               | 302     |              |   |         | 762     |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Refundable
income taxes                                                                                                                                                         |   |               | 9,000   |              |   |         |        |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Prepaid expenses and other current assets                                                                                                                                       |   |               | 17,604  |              |   |         | 26,568  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Long-lived assets held for sale                                                                                                                                                 |   |               | 776     |              |   |         |        |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Net assets of discontinued operations held for sale                                                                                                                             |   |               | 10,935  |              |   |         |        |  
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|Total current assets                                                                               |                                                                                                                                                                                 |   | 203,537       |         |              |   | 212,702 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Property, plant and equipment, net                                                                                                                                              |   |               | 31,295  |              |   |         | 37,964  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Long-term marketable securities, at market                                                                                                                                      |   |               | 152     |              |   |         | 155     |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Long-term portion of net investment in direct financing leases                                                                                                                  |   |               | 25,594  |              |   |         | 24,761  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Deferred income taxes                                                                                                                                                           |   |               |        |              |   |         | 10,003  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Goodwill, net of amortization of $3,293                                                                                                                                         |   |               |        |              |   |         | 21,706  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Intangible assets, net of amortization of $6,699 and $9,873                                                                                                                     |   |               | 5,333   |              |   |         | 13,597  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Other assets                                                                                                                                                                    |   |               | 4,856   |              |   |         | 16,806  |  
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|Total assets                                                                                       |                                                                                                                                                                                 | $ | 270,767       |         |              | $ | 337,694 |        
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                               |                                                                                                                                                                                 |   |               |         |              |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Current liabilities:                                                                               |                                                                                                                                                                                 |   |               |         |              |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Revolving line of credit                                                                                                                                                        |   | $             | 2,824   |              |   | $       | 6,891   |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Accounts payable                                                                                                                                                                |   |               | 23,991  |              |   |         | 31,761  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Accrued liabilities                                                                                                                                                             |   |               | 21,570  |              |   |         | 22,744  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Deferred revenue                                                                                                                                                                |   |               | 2,956   |              |   |         | 2,180   |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Income taxes payable                                                                                                                                                            |   |               | 2,099   |              |   |         | 1,495   |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Current portion of long-term debt                                                                                                                                               |   |               | 15,797  |              |   |         | 20,716  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Liabilities of discontinued operations held for sale                                                                                                                            |   |               | 584     |              |   |         |        |  
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|Total current liabilities                                                                          |                                                                                                                                                                                 |   | 69,821        |         |              |   | 85,787  |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Long-term debt                                                                                                                                                                  |   |               | 12,823  |              |   |         | 40,281  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Other non-current liabilities                                                                                                                                                   |   |               | 259     |              |   |         | 257     |  
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|Total liabilities                                                                                  |                                                                                                                                                                                 |   | 82,903        |         |              |   | 126,325 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Stockholders equity:                                                                              |                                                                                                                                                                                 |   |               |         |              |   |         |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Common stock, $.001 par value; 100,000,000 shares authorized;
47,985,696 and 39,795,554 shares issued and outstanding at
September 30, 2002 and December 31, 2001, respectively |   |               | 27      |              |   |         | 19      |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Additional paid-in capital                                                                                                                                                      |   |               | 213,978 |              |   |         | 175,628 |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Receivables from stockholders                                                                                                                                                   |   |               | (1,056  | )            |   |         | (1,498  | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Retained
earnings (deficit)                                                                                                                                                     |   |               | (22,583 | )            |   |         | 39,722  |  
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|                                                                                                   |                                                                                                                                                                                 |   | 190,366       |         |              |   | 213,871 |        
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Treasury stock, 230,088 shares (at cost) at September 30, 2002
and December 31, 2001, respectively |                                                                                                                                                                                 |   | (2,502        | )       |              |   | (2,502  | )      
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|Total stockholders equity                                                                         |                                                                                                                                                                                 |   | 187,864       |         |              |   | 211,369 |        
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  
|Total liabilities and stockholders equity                                                         |                                                                                                                                                                                 | $ | 270,767       |         |              | $ | 337,694 |        
|                                                                                                   |                                                                                                                                                                                 |   |               |         |              |   |         |         |  

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 amounts)

|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |         |         |  
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------- | -------------------------------- | ------- | ------------------------------- | ------ | ------ | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                   |                                                                                                                         |                                          |         | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                   |                                                                                                                         |                                          |         |                                  |         |                                
|                                   |                                                                                                                         |                                          |         | 2002                             |         | 2001                            |        | 2002   |        | 2001
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |     
|Net revenue                        |                                                                                                                         | $                                        | 64,050  |                                  |         | $                               | 64,714 |        |        | $    | 202,670 |         |         | $ | 197,276 |        
|                                  
|                                  
|                                  
|                                  
|Costs and expenses:                |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                  
|                                  
|                                  
|                                  
|                                   | Costs of revenue                                                                                                        |                                          |         | 41,834                           |         |                                 |        | 38,759 |        |      |         | 126,271 |         |   |         | 129,539 |        
|                                  
|                                  
|                                  
|                                  
|                                   | Research and development                                                                                                |                                          |         | 6,415                            |         |                                 |        | 6,755  |        |      |         | 18,758  |         |   |         | 21,549  |        
|                                  
|                                  
|                                  
|                                  
|                                   | Selling, general and administrative                                                                                     |                                          |         | 17,464                           |         |                                 |        | 17,738 |        |      |         | 50,365  |         |   |         | 57,372  |        
|                                  
|                                  
|                                  
|                                  
|                                   | Restructuring charges                                                                                                   |                                          |         | 4,434                            |         |                                 |        |       |        |      |         | 4,434   |         |   |         |        |        
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   |                                                                                                                         | Total costs and expenses                 |         |                                  | 70,147  |                                 |        |        | 63,252 |      |         |         | 199,828 |   |         |         | 208,460 |  
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   |                                                                                                                         | Income (loss) from continuing operations |         |                                  | (6,097  | )                               |        |        | 1,462  |      |         |         | 2,842   |   |         |         | (11,184 | )
|                                  
|                                  
|                                  
|                                  
|Interest income                    |                                                                                                                         |                                          | 171     |                                  |         |                                 | 52     |        |        |      | 210     |         |         |   | 489     |        
|                                  
|                                  
|                                  
|                                  
|Interest expense                   |                                                                                                                         |                                          | (757    | )                                |         |                                 | (2,867 | )      |        |      | (3,485  | )       |         |   | (7,176  | )      
|                                  
|                                  
|                                  
|                                  
|Other income (expense)             |                                                                                                                         |                                          | 116     |                                  |         |                                 | (286   | )      |        |      | 495     |         |         |   | (1,639  | )      
|                                  
|                                  
|                                  
|                                  
|Foreign currency loss (gain)       |                                                                                                                         |                                          | (1,934  | )                                |         |                                 | 43     |        |        |      | (5,713  | )       |         |   | (4,192  | )      
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   | Loss before taxes, discontinued
operations, extraordinary item, and
cumulative effect of change in accounting
principle |                                          |         | (8,501                           | )       |                                 |        | (1,596 | )      |      |         | (5,651  | )       |   |         | (23,702 | )      
|                                  
|                                  
|                                  
|                                  
|Income tax (expense) benefit       |                                                                                                                         |                                          | (19,100 | )                                |         |                                 | 288    |        |        |      | (19,761 | )       |         |   | 4,625   |        
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   | Loss before discontinued operations,
extraordinary item, and cumulative effect of
change in accounting principle        |                                          |         | (27,601                          | )       |                                 |        | (1,308 | )      |      |         | (25,412 | )       |   |         | (19,077 | )      
|                                  
|                                  
|                                  
|                                  
|                                   | Loss from discontinued operations (including $8.0
million in initial write-downs of assets to fair
value)               |                                          |         | (9,888                           | )       |                                 |        | (1,077 | )      |      |         | (12,510 | )       |   |         | (2,319  | )      
|                                  
|                                  
|                                  
|                                  
|                                   | Extraordinary item                                                                                                      |                                          |         | (785                             | )       |                                 |        |       |        |      |         | (2,618  | )       |   |         |        |        
|                                  
|                                  
|                                  
|                                  
|                                   | Cumulative effect of change in accounting
principle                                                                     |                                          |         |                                 |         |                                 |        |       |        |      |         | (21,766 | )       |   |         |        |        
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   |                                                                                                                         | Net loss                                 |         | $                                | (38,274 | )                               |        | $      | (2,385 | )    |         | $       | (62,306 | ) |         | $       | (21,396 | )
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|Basic and diluted loss per share*: |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                  
|                                  
|                                  
|                                  
|                                   | Loss before discontinued operations,
extraordinary item, and cumulative
effect of change in accounting principle        |                                          | $       | (0.58                            | )       |                                 | $      | (0.03  | )      |      | $       | (0.56   | )       |   | $       | (0.54   | )      
|                                  
|                                  
|                                  
|                                  
|                                   | Loss from discontinued operations                                                                                       |                                          |         | (0.21                            | )       |                                 |        | (0.03  | )      |      |         | (0.27   | )       |   |         | (0.07   | )      
|                                  
|                                  
|                                  
|                                  
|                                   | Extraordinary item                                                                                                      |                                          |         | (0.02                            | )       |                                 |        |       |        |      |         | (0.06   | )       |   |         |        |        
|                                  
|                                  
|                                  
|                                  
|                                   | Cumulative effect of change in accounting principle                                                                     |                                          |         |                                 |         |                                 |        |       |        |      |         | (0.48   | )       |   |         |        |        
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   | Net loss                                                                                                                |                                          | $       | (0.80                            | )       |                                 | $      | (0.06  | )      |      | $       | (1.37   | )       |   | $       | (0.60   | )      
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        
|                                   | Weighted average basic and diluted common shares:                                                                       |                                          |         | 47,982                           |         |                                 |        | 37,992 |        |      |         | 45,512  |         |   |         | 35,583  |        
|                                   |                                                                                                                         |                                          |         |                                  |         |                                 |        |        |        |      |         |         |         |   |         |        



|* |  | Certain amounts do not sum to total due to rounding.
|- |  | ----------------------------------------------------

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

4



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##### Table of Contents



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

|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |        |  
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ------ | ----------------- | ------ | -------------- | ------ | ------- | ------ | -
|                                                                                                                                 |                                                              |                                           |        | Nine Months Ended
|                                                                                                                                 |                                                              |                                           |        |                  
|                                                                                                                                 |                                                              |                                           |        | Sept. 30, 2002    |        | Sept. 30, 2001
|                                                                                                                                 |                                                              |                                           |        |                   |        |               
|Cash flows from continuing operations:                                                                                           |                                                              |                                           |        |                   |        |                |        |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Net loss, excluding discontinued operations                  |                                           | $      | (49,796           | )      |                | $      | (19,077 | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Adjustments to reconcile net loss to net cash provided by operating activities:                                                  |                                                              |                                           |        |                   |        |                |        |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Amortization of discount on notes payable                    |                                           |        | 83                |        |                |        | 2,078   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Amortization of deferred financing costs                     |                                           |        | 1,469             |        |                |        | 503     |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Amortization of beneficial notes payable conversion feature  |                                           |        |                  |        |                |        | 667     |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Depreciation/amortization                                    |                                           |        | 8,377             |        |                |        | 9,460   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Bad debt expense                                             |                                           |        | 2,079             |        |                |        | 786     |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Deferred components of direct financing leases               |                                           |        | (141              | )      |                |        | (469    | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Provision for losses on direct financing leases              |                                           |        | 6,574             |        |                |        | 15,377  |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Provision for excess and obsolete inventory                  |                                           |        | 3,752             |        |                |        | 2,124   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Non-cash restructuring charges                               |                                           |        | 3,572             |        |                |        |        |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Deferred income taxes                                        |                                           |        | 20,000            |        |                |        | (14     | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Cumulative effect of change in accounting principle          |                                           |        | 21,766            |        |                |        |        |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Extraordinary loss on early retirement of debt               |                                           |        | 2,618             |        |                |        |        |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Foreign currency loss                                        |                                           |        | 5,100             |        |                |        | 4,192   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Other                                                        |                                           |        | 399               |        |                |        | 64      |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Net
increase in accounts receivable, inventories, prepaid income taxes,
prepaid expenses and other current assets & other assets |                                                              |                                           | (2,485 | )                 |        |                | (7,870 | )      
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Net
(decrease) in accounts payable, accrued liabilities, deferred revenue
& income taxes payable                                 |                                                              |                                           | (9,435 | )                 |        |                | (2,513 | )      
|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |       
|                                                                                                                                 |                                                              | Net cash provided by operating activities |        |                   | 13,932 |                |        |         | 5,308  |  
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Cash flows from investing activities:                                                                                            |                                                              |                                           |        |                   |        |                |        |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Payments received on notes receivable                        |                                           |        | 350               |        |                |        | 880     |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Principal payments received on direct financing leases       |                                           |        | 9,698             |        |                |        | 9,437   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Funding of direct financing leases                           |                                           |        | (6,406            | )      |                |        | (15,733 | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Increase in restricted cash                                  |                                           |        | (118              | )      |                |        | (1,380  | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Acquisition of other assets                                  |                                           |        | (1,952            | )      |                |        | (732    | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Proceeds from disposal of property, plant, and equipment     |                                           |        | 328               |        |                |        | 213     |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Purchase of property, plant & equipment                      |                                           |        | (5,233            | )      |                |        | (1,570  | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Proceeds from maturity of marketable securities              |                                           |        |                  |        |                |        | 2,776   |       
|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |       
|                                                                                                                                 |                                                              | Net cash used in investing activities     |        |                   | (3,333 | )              |        |         | (6,109 | )
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Cash flows from financing activities:                                                                                            |                                                              |                                           |        |                   |        |                |        |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Repayments on revolving line of credit                       |                                           |        | (140,272          | )      |                |        | (33,663 | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Borrowings on revolving line of credit                       |                                           |        | 136,205           |        |                |        | 41,824  |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Proceeds from long-term debt, net of restricted cash in 2001 |                                           |        |                  |        |                |        | 50,452  |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Repayment of long-term debt                                  |                                           |        | (32,664           | )      |                |        | (89,585 | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Proceeds from issuance of common stock                       |                                           |        | 37,525            |        |                |        | 7,827   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Advances (to) from discontinued operations                   |                                           |        | (5,216            | )      |                |        | 1,744   |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Proceeds from notes payable                                  |                                           |        |                  |        |                |        | 18,400  |       
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Repayment of notes payable                                   |                                           |        |                  |        |                |        | (7,500  | )     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Proceeds from sale of lease receivables                      |                                           |        |                  |        |                |        | 7,977   |       
|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |       
|                                                                                                                                 |                                                              | Net cash used in financing activities     |        |                   | (4,422 | )              |        |         | (2,524 | )
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Effect of exchange rate changes on cash                                                                                          |                                                              |                                           | (276   | )                 |        |                | (368   | )      
|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |       
|Net increase (decrease) in cash                                                                                                  |                                                              |                                           | 5,901  |                   |        |                | (3,693 | )      
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Net increase (decrease) in cash flow from discontinued operations                                                                |                                                              |                                           | 48     |                   |        |                | (478   | )      
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Cash & cash equivalents, beginning of period                                                                                     |                                                              |                                           | 13,402 |                   |        |                | 13,008 |        
|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |       
|Cash & cash equivalents, end of period                                                                                           |                                                              | $                                         | 19,351 |                   |        | $              | 8,837  |        
|                                                                                                                                 |                                                              |                                           |        |                   |        |                |        |         |       

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

5



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##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AND IN THOUSANDS, EXCEPT SHARE DATA)


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 unless otherwise disclosed. Operating results for the
nine months ended September 30, 2002, are not necessarily indicative of the
results to be expected for the year ending December 31, 2002.

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

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, 2001.

NOTE 2  ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

Effective January 1, 2002, the Company adopted Financial Accounting Standards
Board Statement of Accounting Standards (SFAS) 141, Business Combinations, SFAS
142, Goodwill and Intangible Assetsand SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 141 eliminated the pooling-of-interests
method of accounting for business combinations and changed the criteria to
recognize intangible assets apart from goodwill. Implementation of SFAS 141
did not have an effect on the Companys financial statements. SFAS 142 sets
forth the accounting for goodwill and intangible assets already recorded. The
impact of adopting SFAS 142 is discussed further in Note 5. SFAS 144 addresses
the accounting and reporting for the impairment or disposal of long lived
assets. The initial adoption of SFAS 144 as of January 1, 2002 did not have an
effect on the Companys financial statements, however during the three months
ended September 30, 2002 the Company has applied the principles set forth in
SFAS 144 as discussed in Note 6.

Recently issued accounting pronouncements

In April 2002, the FASB issued 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. SFAS 145 is
effective January 1, 2003. Upon adoption, gains and losses on certain future
debt extinguishment, if any, will be recorded in pre-tax income. In addition,
the $2.6 million extraordinary loss from early extinguishment of
debt for the nine months ended September 30, 2002 will be
reclassified to income before extraordinary loss to conform to the requirements
under SFAS 145 upon adoption in 2003.

6



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##### Table of Contents



In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities,which addresses financial accounting and reporting
for costs associated with exit or disposal activities. SFAS 146 also nullifies
Emerging Issues Task Force (EITF) No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring).The principal difference between
SFAS 146 and EITF No. 94-3 relates to the requirement in SFAS 146 to recognize
a liability for a cost associated with an exit or disposal when the liability
is incurred versus at the date of an entitys commitment to an exit plan. SFAS
146 is effective for exit or disposal activities initiated after December 31,
2002, with early application encouraged. As discussed in Note 6, the Company
has applied the principles set forth in SFAS 146 relative to the exit and disposal plans
consummated during the three months ended September 30, 2002.

NOTE 3  INVENTORIES

Inventories consist of the following:

|                 |  |               |        |              |  |   |        | 
|---------------- |  | ------------- | ------ | ------------ |  | - | ------ | 
|                 |  | September 30, |        | December 31,
|                 |  | 2002          |        | 2001        
|                 |  |               |        |             
|Purchased parts  |  | $             | 19,468 |              |  | $ | 21,502 | 
|                
|                
|                
|                
|Work in progress |  |               | 4,758  |              |  |   | 8,560  | 
|                
|                
|                
|                
|Finished goods   |  |               | 26,822 |              |  |   | 32,349 | 
|                 |  |               |        |              |  |   |        | 
|                 |  | $             | 51,048 |              |  | $ | 62,411 | 
|                 |  |               |        |              |  |   |        | 

NOTE 4  SEGMENT INFORMATION

As of December 31, 2001, Hypercom
had two segments: Point-of-Sale (POS) and
Network Systems, and Equipment Leasing.

Hypercoms reportable segments are strategic business units that market
distinctly different products and services to a respectively different group of
customers. Their business models vary and each is separately managed given
their unique marketing, operations and financing strategies.

The POS and Network Systems segment
information excludes the results of the operating units that have
been discontinued as more fully described in Note 6. The following table presents certain segment financial information for the three and nine month periods ended September 30, 2002
and 2001, respectively:

7



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##### Table of Contents



As of and For the Three Months Ended September 30, 2002:

|                        |  |                 |         |           |  |           |        |       |  |   |        |   |  |   |         |  
|----------------------- |  | --------------- | ------- | --------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                        |  | POS and Network |         | Equipment |  |           |        |       |  |   |        |  
|                        |  | Systems         |         | Leasing   |  | Corporate |        | Total
|                        |  |                 |         |           |  |           |        |      
|Net revenue             |  | $               | 57,988  |           |  | $         | 6,062  |       |  | $ | 0      |   |  | $ | 64,050  |  
|                       
|                       
|                       
|                       
|Operating income (loss) |  | $               | (2,467  | )         |  | $         | 833    |       |  | $ | (4,463 | ) |  | $ | (6,097  | )
|                       
|                       
|                       
|                       
|Segment Assets          |  | $               | 190,555 |           |  | $         | 44,271 |       |  | $ | 35,941 |   |  | $ | 270,767 |  

As of and For the Three Months Ended September 30, 2001:

|                        |  |                 |         |           |  |           |        |       |  |   |        |   |  |   |         | 
|----------------------- |  | --------------- | ------- | --------- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------- | 
|                        |  | POS and Network |         | Equipment |  |           |        |       |  |   |        |  
|                        |  | Systems         |         | Leasing   |  | Corporate |        | Total
|                        |  |                 |         |           |  |           |        |      
|Net revenue             |  | $               | 57,875  |           |  | $         | 6,839  |       |  | $ | 0      |   |  | $ | 64,714  | 
|                       
|                       
|                       
|                       
|Operating income (loss) |  | $               | 5,708   |           |  | $         | 113    |       |  | $ | (4,359 | ) |  | $ | 1,462   | 
|                       
|                       
|                       
|                       
|Segment Assets          |  | $               | 217,070 |           |  | $         | 76,376 |       |  | $ | 48,310 |   |  | $ | 341,756 | 

As of a For the Nine Months Ended September 30, 2002:

|                        |  |                 |         |           |  |           |        |       |  |   |         |   |  |   |         | 
|----------------------- |  | --------------- | ------- | --------- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                        |  | POS and Network |         | Equipment |  |           |        |       |  |   |         |  
|                        |  | Systems         |         | Leasing   |  | Corporate |        | Total
|                        |  |                 |         |           |  |           |        |      
|Net revenue             |  | $               | 183,017 |           |  | $         | 19,653 |       |  | $ | 0       |   |  | $ | 202,670 | 
|                       
|                       
|                       
|                       
|Operating income (loss) |  | $               | 15,057  |           |  | $         | 1,233  |       |  | $ | (13,448 | ) |  | $ | 2,842   | 
|                       
|                       
|                       
|                       
|Segment Assets          |  | $               | 190,555 |           |  | $         | 44,271 |       |  | $ | 35,941  |   |  | $ | 270,767 | 

As of a For the Nine Months Ended September 30, 2001:

|                        |  |                 |         |           |  |           |        |       |  |   |         |   |  |   |         |  
|----------------------- |  | --------------- | ------- | --------- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                        |  | POS and Network |         | Equipment |  |           |        |       |  |   |         |  
|                        |  | Systems         |         | Leasing   |  | Corporate |        | Total
|                        |  |                 |         |           |  |           |        |      
|Net revenue             |  | $               | 175,904 |           |  | $         | 21,372 |       |  | $ | 0       |   |  | $ | 197,276 |  
|                       
|                       
|                       
|                       
|Operating income (loss) |  | $               | 9,619   |           |  | $         | (7,465 | )     |  | $ | (13,338 | ) |  | $ | (11,184 | )
|                       
|                       
|                       
|                       
|Segment Assets          |  | $               | 217,070 |           |  | $         | 76,376 |       |  | $ | 48,310  |   |  | $ | 341,756 |  

NOTE 5  GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill upon the adoption of SFAS 142 was $21.7 million
at January 1, 2002, of which $20.3 million was attributed
to Golden Eagle, which comprises all of the equipment leasing segment, with
the remaining amount of $1.4 million attributed to the POS and Network Systems
segment. Under the transitional provisions of SFAS 142, the Company evaluated
its reporting units for impairment of goodwill as of January 1, 2002,
completing the evaluations by June 30, 2002. The impairment test relative to
Golden Eagles goodwill was performed by an independent third party valuation
firm using market multiple, comparable transaction and discounted net earnings
methodologies, with the remaining amount of goodwill evaluated internally using
similar valuation methodologies.

The results of the impairment tests resulted in a full write-off of the
carrying value of goodwill of $21.7 million. In accordance with the transition
provisions of SFAS 142, the write-off is reported as a cumulative effect of a
change in accounting principle impacting the first quarter of 2002. The
following table reflects the impact of the cumulative effect of a change in
accounting principle on the reported results for the Companys first quarter
ended March 31, 2002:

8



---



##### Table of Contents



|                                                    |         |   |         |       |   |  |  |  |  |  |  |  |  |  |  |  | 
|--------------------------------------------------- | ------- | - | ------- | ----- | - |  |  |  |  |  |  |  |  |  |  |  | 
|Net loss, as reported                               |         | $ | (2,642  | )    
|                                                   
|                                                   
|                                                   
|                                                   
|Cumulative effect of change in accounting principle |         |   | (21,766 | )    
|                                                    |         |   |         |      
|Adjusted net loss                                   |         | $ | (24,408 | )    
|                                                    |         |   |         |      
|Net loss per share, as reported:                    |         |   |         |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic   |   | $       | (0.07 | )
|                                                    |         |   |         |      
|                                                    | Diluted |   | $       | (0.07 | )
|                                                    |         |   |         |      
|Adjusted net loss per share                         |         |   |         |      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic   |   | $       | (0.60 | )
|                                                    |         |   |         |      
|                                                    | Diluted |   | $       | (0.60 | )
|                                                    |         |   |         |      

The Company provided a full valuation reserve against the deferred tax benefit
attributed to the write-off of the goodwill that has tax basis, and accordingly
has not reported the cumulative effect of a change in accounting principle net
of tax. Due to the goodwill balances that have 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 has not provided 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.

Additionally, with the adoption of SFAS 142, the Company reassessed the useful
lives and residual values of all acquired intangible assets to make any
necessary amortization adjustments. No amortization adjustments were
necessary.

The following table reflects the
reconciliation of reported net loss and
loss per share to adjust for the exclusion of goodwill amortization in
prior year periods.

9



---



##### Table of Contents



|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------ | ------- | ----------------- | ---- | ------ | ------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                        |                                                                                                                           |      | Three Months Ended |         | Nine Months Ended
|                                                                                                                        |                                                                                                                           |      | September 30,      |         | September 30,    
|                                                                                                                        |                                                                                                                           |      |                    |         |                  
|(in thousands except per share data)                                                                                    |                                                                                                                           | 2002 |                    | 2001    |                   | 2002 |        | 2001  
|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |       
|Net loss                                                                                                                |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Reported loss before discontinued operations
extraordinary item and cumulative effect of change in
accounting principle |                                                                                                                           | $    | (27,601            | )       |                   | $    | (1,308 | )      |   | $ | (25,412 | )       |   | $ | (19,077 | )      
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Add back: Goodwill amortization, net of tax                                                                             |                                                                                                                           |      |                   |         |                   |      | 329    |        |   |   |        |         |   |   | 986     |        
|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|Adjusted loss before discontinued operations,
extraordinary item, cumulative effect of change in
accounting principle   |                                                                                                                           |      | (27,601            | )       |                   |      | (979   | )      |   |   | (25,412 | )       |   |   | (18,091 | )      
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Loss from discontinued operations                                                                                       |                                                                                                                           |      | (9,888             | )       |                   |      | (1,077 | )      |   |   | (12,510 | )       |   |   | (2,319  | )      
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Extraordinary item, net of tax                                                                                          |                                                                                                                           |      | (785               | )       |                   |      |       |        |   |   | (2,618  | )       |   |   |        |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Cumulative effect of change in accounting principle                                                                     |                                                                                                                           |      |                   |         |                   |      |       |        |   |   | (21,766 | )       |   |   |        |        
|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|                                                                                                                        | Adjusted net loss                                                                                                         |      | $                  | (38,274 | )                 |      | $      | (2,056 | ) |   | $       | (62,306 | ) |   | $       | (20,410 | )
|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|Per share of common stock                                                                                               |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Basic and diluted*:                                                                                                     |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Reported loss before discontinued operations,
extraordinary item, and cumulative effect of change in accounting principle |      | $                  | (0.58   | )                 |      | $      | (0.03  | ) |   | $       | (0.56   | ) |   | $       | (0.54   | )
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Add back: Goodwill amortization, net of tax                                                                               |      |                    |        |                   |      |        | 0.01   |   |   |         |        |   |   |         | 0.03    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Loss from discontinued operations                                                                                         |      |                    | (0.21   | )                 |      |        | (0.03  | ) |   |         | (0.27   | ) |   |         | (0.07   | )
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Extraordinary item, net of tax                                                                                            |      |                    | (0.02   | )                 |      |        |       |   |   |         | (0.06   | ) |   |         |        |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Cumulative effect of change in accounting principle                                                                       |      |                    |        |                   |      |        |       |   |   |         | (0.48   | ) |   |         |        |  
|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        
|                                                                                                                        | Adjusted loss per share                                                                                                   |      | $                  | (0.80   | )                 |      | $      | (0.05  | ) |   | $       | (1.37   | ) |   | $       | (0.57   | )
|                                                                                                                        |                                                                                                                           |      |                    |         |                   |      |        |        |   |   |         |         |   |   |         |        



|* |  | Certain amounts do not sum to total due to rounding.
|- |  | ----------------------------------------------------

NOTE 6  RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS

In September 2002, the Company committed to a plan to improve profits in its
POS and 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 146, as well as discontinued operations to be accounted and reported
under SFAS 144.

The downsizing activities principally focused on 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 which supported
the manufacturing operations. Inventories were also written down to support a
more streamlined product offering. These activities were substantially
complete as of September 30, 2002, with final completion expected during the
fourth quarter of 2002. The Company anticipates selling the assets held for
sale within one year.

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,

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inventory write downs and costs associated with
exiting office space and disposing of office fixed assets. These activities
were substantially complete as of September 30, 2002, with final completion
expected during the fourth quarter of 2002.

The Company also identified certain under-performing operating units around the
world whose activities were not closely aligned with the core business and made
a decision to hold these operations for sale. The results of operations for
these operating units held for sale have been classified as discontinued
operations and prior periods have been restated to present these operating
units as discontinued operations. At the time the Company determined to hold
these operations for sale the carrying amounts of their assets were written
down to fair value less costs to sell. Assets written down consisted
principally of accounts receivable, inventories, intangible assets and fixed
assets. The operations held for sale are being actively marketed to certain
potential buyers. The sales transactions are expected to be sales of the
operating units shares of stock and sales of assets plus the transfer of
liabilities and completed within one year of September 30, 2002.

Restructuring Charges

The restructuring charges encompassed write downs of fixed assets and
inventory, one-time termination benefits and other miscellaneous accruals
incurred in connection with the Companys profit improvement plan as discussed
previously. The following table sets forth the expected costs to be incurred
with the activity, the amount incurred during the period and the ending
liability as of September 30, 2002:

|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |     | 
|-------------------------------------- | ------------------------------------------- | -------------------------------------------- | - | -------------------- | ----- | --------------------- | - | -------------- | ----- |  | - | ------- | --- | 
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   | Accrued
|                                       |                                             |                                              |   | Costs expected to be |       | Costs incurred during |   | liabilities at
|                                       |                                             |                                              |   | incurred with the    |       | three months ended    |   | September     
|                                       |                                             |                                              |   | activity             |       | September 30, 2002    |   | 30, 2002      
|                                       |                                             |                                              |   |                      |       |                       |   |               
|Restructuring charges in Cost of Sales |                                             |                                              |   |                      |       |                       |   |                |       |  |   |        
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of inventories and related costs |                                              | $ | 2,033                |       |                       | $ | 1,933          |       |  | $ | 100     |    
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    
|                                       |                                             | Total restructuring charges in cost of sales |   | $                    | 2,033 |                       |   | $              | 1,933 |  |   | $       | 100 | 
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    
|Restructuring charges                  |                                             |                                              |   |                      |       |                       |   |                |       |  |   |        
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of building to fair value        |                                              | $ | 2,184                |       |                       | $ | 2,184          |       |  | $ |        |    
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of fixed assets to fair value    |                                              |   | 1,388                |       |                       |   | 1,388          |       |  |   |        |    
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of other assets to fair value    |                                              |   | 233                  |       |                       |   | 233            |       |  |   |        |    
|                                      
|                                      
|                                      
|                                      
|                                       | One-time termination benefits               |                                              |   | 482                  |       |                       |   | 482            |       |  |   | 320     |    
|                                      
|                                      
|                                      
|                                      
|                                       | Miscellaneous operating accruals            |                                              |   | 147                  |       |                       |   | 147            |       |  |   | 147     |    
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    
|                                       |                                             | Total restructuring charges                  |   | $                    | 4,434 |                       |   | $              | 4,434 |  |   | $       | 467 | 
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    

The write down of the Brazil building was based on an independent third-party
appraisal. The write downs of fixed and other assets were based on
managements estimate of the recoverability of such assets upon sale or
disposal. The remaining net realizable value of long-lived assets held for
sale, principally represented by the Brazil building, in the amount of $0.8
million have been classified separately on the balance sheet as of September
30, 2002.

Discontinued Operations

In conjunction with the Companys decision to hold certain operations for sales
as discontinued operations the Company recognized a loss on the initial write
down of the assets to fair value as discussed above. The initial write off
amounted to $8.0 million and is included as part of the results of the
discontinued operations for the three months ended September 30, 2002. Net
revenue of the operating units classified as discontinued operations for the
three and nine months ended September 30, 2002 and 2001 were $5.1 and $6.3
million and $18.7 and $19.9 million, respectively. Pretax losses of the
operating units

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classified as discontinued operations, including initial write
downs of assets to fair value, for the three and nine months ended September
30, 2002 and 2001 were $9.1 and $1.4, million and $12.5 and $3.0 million,
respectively.

The assets and liabilities of the operating units classified as discontinued
operations are separately reported in the balance sheet under the captions Net
assets of discontinued operations held for sale and Liabilities of
discontinued operations held for sale. Both captions are classified as
current due to the expected sale of these operations within one year of
September 30, 2002. The assets and liabilities of discontinued operations held
for sale consist of the following:

|                    |                   |   |                    |        | 
|------------------- | ----------------- | - | ------------------ | ------ | 
|                    |                   |   | September 30, 2002
|                    |                   |   |                   
|Accounts receivable |                   | $ | 3,511              |       
|                   
|                   
|                   
|                   
|Inventory           |                   |   | 6,698              |       
|                   
|                   
|                   
|                   
|Other assets        |                   |   | 726                |       
|                    |                   |   |                    |       
|                    | Total assets      |   | $                  | 10,935 | 
|                    |                   |   |                    |       
|Accounts payable    |                   | $ | 367                |       
|                   
|                   
|                   
|                   
|Other liabilities   |                   |   | 217                |       
|                    |                   |   |                    |       
|                    | Total liabilities |   | $                  | 584    | 
|                    |                   |   |                    |       

In accordance with SFAS 144, the operating results of the discontinued
operating units will be classified as discontinued operations as they are
incurred.

NOTE 7  COST OF REVENUES

In the three month-period ended March 31, 2001, the Companys wholly-owned
subsidiary, Golden Eagle Leasing, Inc. (Golden Eagle) recorded, in cost of
revenues, an incremental charge of $7.2 million to strengthen credit reserves
for certain segments of its lease receivables. This charge represented
managements estimate of potential loan losses that exceed its historical rate
of loan losses based on analysis of results through March 31, 2001. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations for further discussion.

Golden Eagles micro-ticket leasing business is characterized by high
incidences of delinquencies, which in turn can lead to significant levels of
loan losses. However, based on historical default rates and our credit
assessments, we believe collectibility of the minimum lease payments is
reasonably predictable.

In addition, cost of revenues includes certain restructuring charges as
discussed further in Note 6 to the financial statements.

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 have
been used to repay two term loans under the Companys credit facility with
principal balances of $15.3 million and $3.3 million, to repay $3.1 million in
outstanding loans from a director and principal stockholder, and to reduce the
outstanding borrowings under the Companys $25 million revolving credit
facility. The remaining proceeds have been used for general corporate
purposes.

In connection with the early retirement of our term loans, we recorded an
extraordinary loss on retirement of debt of $1.8 million, net of tax benefit of
$0.8 million. During the three months ended September 30, 2002, the tax
benefit of $0.8 million

12



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was eliminated in connection with the increase in the
deferred tax asset valuation allowance discussed in Note 9. The extraordinary
loss resulted from the write-off of unamortized debt issuance costs and a loan
discount associated with the term loans.

In connection with the private offering, the Company entered into an agreement
with its principal lenders relating to its revolving credit facility which
waived any default or event of default with respect to the delivery of certain
collateral documents that the Company was obligated to deliver under the
facility and permitted the Company to repay the term loans. The effective date
of the Amendment was March 13, 2002.

NOTE 9  INCOME TAXES

During the three months ended September 30, 2002 the Company increased its
valuation allowance on deferred tax assets by $20.0 million, and reclassified
$9.0 million of deferred tax assets to refundable income taxes. As a result,
there are no remaining balances of deferred tax assets reported on the balance
sheet as of September 30, 2002.

The increase in the valuation allowance was based on the weight of all
available evidence, principally influenced by the continued U.S.
derived losses in the third quarter of 2002 coupled with a continuing
extension of the U.S. recession as well as cumulative U.S. derived
losses in recent years. The U.S. derived losses in the third quarter
of 2002 and cumulatively over recent years together with an uncertain
economic outlook for the U.S., were deemed to be significant negative
evidence. As a result, the Company determined it did not meet the more likely than not
recoverability criteria in SFAS 109 Accounting for Income
Tax, requiring positive evidence of sufficient
quality and quantity to overcome the negative evidence in order to support a
conclusion that a valuation allowance is not needed. The valuation allowance
is subject to reversal in future years at such time that the benefits
are actually utilized or, the operating profits
in the U.S. become sustainable at a level that meets the recoverability
criteria under SFAS 109.

The reclassification of
$9.0 million of deferred tax assets to refundable income taxes was based on a change in U.S. tax law during 2002 extending the U.S.
income tax loss carryback period back an additional three years to five years.
The Company reported taxable income in its carrying back period of five years
ago, and as such, anticipates a refund of $9.0 million associated with the
filing of its 2002 U.S. corporate income tax return.

In addition to the increase in the valuation allowance of $20 million, the
income tax provision for the three and nine months ended September 30, 2002 is
comprised of income tax expenses from foreign locations with taxable income,
reduced by a refund received on a prior U.S. income tax return. The income tax
provision for the three and nine months ended September 30, 2002 is comprised
of and allocated among continuing operations, discontinued operations and the
extraordinary item as follows:

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|                                                                  |  |                    |        |                    |  |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | - | ------ | -
|                                                                  |  | Three Months Ended |        | Nine Months Ended 
|                                                                  |  | September 30, 2002 |        | September 30, 2002
|                                                                  |  |                    |        |                   
|Income tax expense on continuing operations:                      |  |                    |        |                    |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Foreign tax expense                                               |  | $                  | 1,215  |                    |  | $ | 3,079  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Federal income tax refund                                         |  |                    | (587   | )                  |  |   | (587   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income tax benefit generated from US net
operating losses in 2002 |  |                    |        |                    |  |   | (2,731 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Change in valuation allowance                                     |  |                    | 18,472 |                    |  |   | 20,000 |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Total income tax expense on continuing operations                 |  | $                  | 19,100 |                    |  | $ | 19,761 |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Income tax expense on discontinued operations:                    |  |                    |        |                    |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Change in valuation allowance                                     |  | $                  | 743    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Total income tax expense on discontinued operations               |  | $                  | 743    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Income tax expense on extraordinary item:                         |  |                    |        |                    |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Change in valuation allowance                                     |  | $                  | 785    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Total income tax expense on extraordinary item                    |  | $                  | 785    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  

The foreign tax expense for the three and nine months ended September 30, 2002
is based on the statutory tax rates applicable to the foreign tax jurisdiction
in which the income is earned. Foreign statutory tax rates range from 7.5% to
50%. The Companys effective rate of income tax benefit was 20% for the three
and nine months ended September 30, 2001. The income tax benefit rate in 2001
differed from the U.S. statutory rate principally due to foreign taxes
attributable to foreign operations that are less than the U.S. statutory rate,
research and experimentation credits, the non-recognition of tax benefit on
foreign currency translation losses, and valuation reserves. The
income tax expense in 2002 differed from the U.S. statutory rate principally due to the change in the valuation reserves recorded in 2002.

NOTE 10  FOREIGN CURRENCY RISK MANAGEMENT

During the second quarter of 2002, the Company resumed its foreign currency
risk management strategy. The primary objectives of the strategy are to
protect cash flows and net investments in foreign subsidiaries that are exposed
to volatility in foreign currency exchange rates. Financial hedging
instruments used in this strategy are limited by Company policy to
foreign-currency forward or option contracts and foreign-currency debt. The
Company does not acquire, hold or issue derivative financial instruments for
trading purposes.

As of September 30, 2002, the Company had two three-month foreign-currency
forward contracts in place to hedge its foreign currency denominated net
monetary assets in Brazil and the United Kingdom, plus a one-month
foreign-currency forward contract relative to Brazil. These net monetary
assets are translated at the exchange rates in effect on the balance sheet
date, with any changes in the net monetary assets resulting from changes in
exchange rates reported as foreign currency gains or losses in the statement of
operations. Changes in the fair value of foreign-currency forward contracts
are reported as foreign currency gains or losses in the statement of
operations. As such, the exchange loss of $1.9 and $5.7 million for the three
and nine months ended September 30, 2002, respectively, includes the change in
fair value in the foreign-currency forward contracts of a net gain of $1.0
million and $0.7 million, respectively, for the three and nine months ended
September 30, 2002. The Company did not hedge its foreign currency exposure
during 2001 due to liquidity and financing restrictions.

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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 2002.

NET REVENUE

Net revenue for the three-month period ended September 30, 2002 and 2001 were $
64.1 and $ 64.7 million respectively. Revenue by segment and product mix were
generally consistent on a year over year basis, with an increase in sales at
certain international operations, principally Sweden and our Asian region,
offset by a decrease in domestic POS and network sales. Revenues were flat
overall principally due to delays in new product introductions. The Company
expects the new products to be substantially available during the first quarter
of 2003.

Net revenue for the nine-month period ended September 30, 2002 increased $5.4
million or 2.7% to $202.7 million from $197.3 million in the nine-month period
ended September 30, 2001. This increase 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 $1.6 million in revenue recognized under the same contract during
the same period a year ago. Remaining milestones under this contract are
expected to be substantially less than the milestone achieved in the first
quarter of 2002, as the Company is now entering the maintenance phase of this
contract. Exclusive of the revenues for the Brazil Health Ministry contract,
net revenues declined during the nine months ended September 30, 2002 compared
to the same period in the prior year due principally to a decline in network
sales.

COST OF REVENUE

Hypercoms cost of revenue includes the cost of raw materials, manufacturing
labor, overhead and subcontracted manufacturing costs, as well as interest
expense and loan loss provisions with respect to direct financing leases. The
costs of revenue for the three-month period ended September 30, 2002 increased
$3.0 million or 7.7% to $41.8 million from $38.8 million in the three months
ended September 30, 2001.

Gross margin for the three months ended September 30, 2002 was 34.7% compared
to 40.1% in the same period in the prior year. The decline in gross margin for
the three months ended September 30, 2002 compared to the same period in 2001
is principally related to the restructuring activity discussed in Note 6 to the
financial statements. These activities included $2.0 million in write downs
and other costs reported in cost of revenue. Further, in connection with the
Companys transition of its manufacturing operations in Brazil over to a
contract manufacturer and due to timing constraints, the product for certain
sales orders in the Brazilian market were supplied from our factory in China
that decreased the margin by approximately $0.8 million. The Company also
wrote down inventory and incurred other incremental charges relative to some
assessments of net

15



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##### Table of Contents



realizable value amounting to $0.7 million during the third quarter of 2002.
Exclusive of these events in the third quarter of 2002, the gross margin is
comparable between 2002 and 2001 at 40.1% for both periods.

For the nine-month period ended September 30, 2002, costs of revenue decreased
$3.2 million or 2.5% to $126.3 million from $129.5 million in the nine-month
period ended September 30, 2001. Gross margin for the nine months ended
September 30, 2002 was 37.7% compared to 34.3% in the same period in the prior
year.

The reduction in costs on higher net revenues in the nine-months ended
September 30, 2002 reflects the effect of an incremental charge, in addition to
the normal loan loss provisions recorded in cost of revenues, of $7.2 million
in the three months ended March 31, 2001, to strengthen credit reserves for
certain segments of Golden Eagles direct finance lease receivables. This
incremental charge represented managements estimate of potential loan losses
that would exceed its historical rate of loan losses based on analysis of
results through March 31, 2001.

The factors that contributed to Golden Eagles decision in the first quarter of
2001 to strengthen credit reserves include the following:



| |  | We identified several new vendor programs established in 2000, that were
experiencing losses at higher than historic loss levels for other vendor
programs. These programs required that independent sales organizations
provide additional services to the merchants (lessees) as part of the
lease program. To the extent that service levels were not as the
merchants expected, the likelihood of their making required lease payments
was reduced. Losses for these programs began to exceed historical levels
as of the quarter ended March 31, 2001;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Leases funded for electronic payments software, such as payment software
loaded into a personal computer without the need for a terminal, were at
higher funding levels in 2000 than in previous years. Performance on
these leases worsened in the first quarter of 2001;                                                                                                                                                                                                                                                                                 
| 
| |  | The overall credit mix of the portfolio was slightly skewed (a few
percentage points) toward higher risk credits, commonly referred to as C
and D rated credits. C and D credit leases booked in the year 2000 were
performing significantly worse than C and D credits booked in previous
years; and                                                                                                                                                                                                                                                      
| 
| |  | The overall softening of the economy at the start of 2001, coupled with
the results of our analysis of collection status and default trends as of
March 31, 2001, also contributed to the conclusion that the increase in
reserves would be appropriate.                                                                                                                                                                                                                                                                                                   

Golden Eagles micro-ticket leasing business is characterized by high
incidences of delinquencies, which in turn can lead to significant levels of
loan losses. However, based on historical default rates and our credit
assessments, we believe collectibility of the minimum lease payments is
reasonably predictable.

Exclusive of the Golden Eagle incremental charge in 2001 and the restructuring
and other charges during the three months ended September 30, 2002 as discussed
above, the gross margin for the nine-months ended September 30, 2002 and 2001
of 39.4% and 38.0%, respectively, are comparable. The slight increase in 2002
is a result of our continued manufacturing and product cost reductions and
improved pricing in certain service operations

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 quarter ended September 30, 2002 decreased $0.3
million or 4.5% to $6.4 million from $6.8 million in the quarter ended
September 30, 2001, and for the nine-months ended September 30, 2002 decreased
$2.8 million or 12.6% to $18.8 million from $21.5 million in the nine-months
ended September 30, 2001.

The decreases over prior year are directly attributable to our cost cutting
efforts of reducing personnel and curtailing spending for research and
development materials. Since substantially all development activities related
to the introduction of the ICE product family and the ePic initiative are
complete, the overall level of research and development activities has been
reduced. Present development activities are primarily focusing on reducing the
component costs of existing product and to select new product introductions.
The level of spending and available resources are deemed sufficient and
appropriate to meet our development requirements.

16



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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 $17.5 million for the quarter ended September 30, 2002,
compared to $17.7 for the comparative quarter in the prior year. This flat
trend reflects a relatively consistent organization structure year over year,
as substantially all selling, general and administrative costs containment
measures were in place beginning with the third quarter of 2001. The Company
anticipates further cost savings in selling, general and administrative
relative to its profit improvement plan discussed in Note 6 to the financial
statements.

Selling, general and administrative expenses for the nine-month period ended
September 30, 2002 decreased $7.0 million or 12.2% to $50.4 million from $57.4
million in the nine-month period ended September 30, 2001. This decrease was
the result of cost containment efforts and related cost savings materializing
in the second half of 2001 and thus are only impacting the third quarter of
2001.

RESTRUCTURING CHARGES

In September 2002, the Company committed to a plan to improve profits in its
POS and 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 146, as well as discontinued operations to be accounted and reported
under SFAS 144.

The restructuring charges encompassed write downs of fixed assets and
inventory, one-time termination benefits and other miscellaneous accruals
incurred in connection with the Companys profit improvement plan as discussed
previously. The following table sets forth the expected costs to be incurred
with the activity, the amount incurred during the period and the ending
liability as of September 30, 2002:

|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |     | 
|-------------------------------------- | ------------------------------------------- | -------------------------------------------- | - | -------------------- | ----- | --------------------- | - | -------------- | ----- |  | - | ------- | --- | 
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   | Accrued
|                                       |                                             |                                              |   | Costs expected to be |       | Costs incurred during |   | liabilities at
|                                       |                                             |                                              |   | incurred with the    |       | three months ended    |   | September     
|                                       |                                             |                                              |   | activity             |       | September 30, 2002    |   | 30, 2002      
|                                       |                                             |                                              |   |                      |       |                       |   |               
|Restructuring charges in Cost of Sales |                                             |                                              |   |                      |       |                       |   |                |       |  |   |        
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of inventories and related costs |                                              | $ | 2,033                |       |                       | $ | 1,933          |       |  | $ | 100     |    
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    
|                                       |                                             | Total restructuring charges in cost of sales |   | $                    | 2,033 |                       |   | $              | 1,933 |  |   | $       | 100 | 
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    
|Restructuring charges                  |                                             |                                              |   |                      |       |                       |   |                |       |  |   |        
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of building to fair value        |                                              | $ | 2,184                |       |                       | $ | 2,184          |       |  | $ |        |    
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of fixed assets to fair value    |                                              |   | 1,388                |       |                       |   | 1,388          |       |  |   |        |    
|                                      
|                                      
|                                      
|                                      
|                                       | Write down of other assets to fair value    |                                              |   | 233                  |       |                       |   | 233            |       |  |   |        |    
|                                      
|                                      
|                                      
|                                      
|                                       | One-time termination benefits               |                                              |   | 482                  |       |                       |   | 482            |       |  |   | 320     |    
|                                      
|                                      
|                                      
|                                      
|                                       | Miscellaneous operating accruals            |                                              |   | 147                  |       |                       |   | 147            |       |  |   | 147     |    
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    
|                                       |                                             | Total restructuring charges                  |   | $                    | 4,434 |                       |   | $              | 4,434 |  |   | $       | 467 | 
|                                       |                                             |                                              |   |                      |       |                       |   |                |       |  |   |         |    

There were no restructuring charges incurred in 2001.

17



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##### Table of Contents



INCOME (LOSS) FROM CONTINUING OPERATIONS

Income from continuing operations for the quarter ended September 30, 2002
decreased $7.6 million to a loss of $6.1 million compared to income of $1.5
million for the same quarter in the prior year. For the nine-months ended
September 30, 2002 income from continuing operations increased $14.0 million to
$2.8 million compared to a loss of $11.2 million for the same period in the
prior year. The improvement in operating results is principally from the
aforementioned improvement in gross margins excluding the restructuring and
other incremental charges coupled with cost containment measures throughout the
Company.

NET INTEREST, FOREIGN CURRENCY LOSSES AND OTHER ITEMS

The Company incurred $0.8 million and $3.5 million in interest expense for the
three and nine months ended September 30, 2002 compared to $2.9 million and
$7.2 million for the same periods in the prior year. The reduction in interest
expense is primarily related to the repayment of two term loans totaling $18.6
million, a reduction in the outstanding borrowings under the Companys $25
million revolving credit facility, and a repayment of a $3.1 million note from
a director and principal stockholder during the first quarter of 2002 (see
Liquidity and Capital Resourcessection below). Interest expense for 2002
consists primarily of interest expense on long-term borrowings, amortization of
loan discounts from warrants issued, and amortization of deferred financing
charges. Interest expense for 2001 includes the same items as well as
amortization relating to a beneficial notes payable conversion feature. Other
expenses in the amount of $0.3 million and $1.6 million for the three and nine
months ended September 30, 2001 consisted primarily of charges associated with
the requirements under the debt forbearance agreements and other related costs
associated with being in default with our lenders at that time. During the
first three quarters of 2002 the Company was not in default with its lenders and
accordingly did not incur similar default related charges.

Foreign currency losses totaling $1.9 million and $5.7 million for the three
and nine months ended September 30, 2002 were largely attributable to the
devaluation of the Brazilian real and Argentinean peso partially offset by
gains on European currencies. In comparison, foreign currency losses for the
three and nine months ended September 30, 2001 were breakeven and $4.2 million,
respectively, and were primarily due to the unfavorable translation of the
Companys net foreign investments in Brazil and the United Kingdom up through
June of 2001. Beginning in June of 2002 the Company resumed its foreign
currency risk management strategy, which had been suspended during 2000 due to
financial restrictions. At September 30, 2002, the Company had foreign
currency forward contracts outstanding in the amount of $36.0 million,
denominated principally in the British pound and Brazilian real. Gains and
losses on these contracts will be recorded in net earnings as foreign currency
gains or losses. See further discussion in Note 10 to the financial
statements.

INCOME TAXES

During the three months ended September 30, 2002 the Company increased its
valuation allowance on deferred tax assets by $20.0 million, and reclassified
$9.0 million of deferred tax assets to refundable income taxes. As a result,
there are no remaining balances of deferred tax assets reported on the balance
sheet as of September 30, 2002.

The increase in the valuation allowance was based on the weight of all
available evidence, principally influenced by the continued U.S.
derived losses in the third quarter of 2002 coupled with a continuing
extension of the U.S. recession as well as cumulative U.S. derived
losses in recent years. The U.S. derived losses in the third quarter
of 2002 and cumulatively over recent years together with an uncertain
economic outlook for the U.S., were deemed to be significant negative
evidence. As a result, the Company determined it did not meet the more likely than not
recoverability criteria in SFAS 109 Accounting for Income
Tax, requiring positive evidence of sufficient
quality and quantity to overcome the negative evidence in order to support a
conclusion that a valuation allowance is not needed. The valuation allowance
is subject to reversal in future years at such time that the benefits
are actually utilized or, the operating profits
in the U.S. become sustainable at a level that meets the recoverability
criteria under SFAS 109.

The reclassification of
$9.0 million of deferred tax assets to refundable income taxes was based on a change in U.S. tax law during 2002 extending the
income tax loss carryback period back an additional three years to five years.
The Company reported taxable U.S. income in its carrying back period of five
years ago, and as such, anticipates a refund of $9.0 million associated with
the filing of its 2002 U.S. corporate income tax return. During the nine
months ended September 30, 2002 approximately $2.7 million of U.S. loss was
recognized as an income tax benefit from net operating losses and is included
in the $9.0 million income tax receivable.

In addition to the increase in the valuation allowance of $20 million, the
income tax provision for the three and nine months ended September 30, 2002 is
comprised of income tax expenses from foreign locations with taxable income,
reduced by a refund received on a prior U.S. income tax return. The income tax
provision for the three and nine months ended September

18



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##### Table of Contents



30, 2002 is comprised of and allocated among continuing operations,
discontinued operations and the extraordinary item as follows:

|                                                                  |  |                    |        |                    |  |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | - | ------ | -
|                                                                  |  | Three Months Ended |        | Nine Months Ended 
|                                                                  |  | September 30, 2002 |        | September 30, 2002
|                                                                  |  |                    |        |                   
|Income tax expense on continuing operations:                      |  |                    |        |                    |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Foreign tax expense                                               |  | $                  | 1,215  |                    |  | $ | 3,079  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Federal income tax refund                                         |  |                    | (587   | )                  |  |   | (587   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income tax benefit generated from US net
operating losses in 2002 |  |                    |        |                    |  |   | (2,731 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Change in valuation allowance                                     |  |                    | 18,472 |                    |  |   | 20,000 |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Total income tax expense on continuing operations                 |  | $                  | 19,100 |                    |  | $ | 19,761 |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Income tax expense on discontinued operations:                    |  |                    |        |                    |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Change in valuation allowance                                     |  | $                  | 743    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Total income tax expense on discontinued operations               |  | $                  | 743    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Income tax expense on extraordinary item:                         |  |                    |        |                    |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Change in valuation allowance                                     |  | $                  | 785    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  
|Total income tax expense on extraordinary item                    |  | $                  | 785    |                    |  | $ |       |  
|                                                                  |  |                    |        |                    |  |   |        |  

The foreign tax expense for the three and nine months ended September 30, 2002
is based on the statutory tax rates applicable to the foreign tax jurisdiction
in which the income is earned. Foreign statutory tax rates range from 7.5% to
50%. The Companys effective rate of income tax benefit was 20% for the three
and nine months ended September 30, 2001. The income tax benefit rate in 2001
differed from the U.S. statutory rate principally due to foreign taxes
attributable to foreign operations that are less than the U.S. statutory rate,
research and experimentation credits, the non-recognition of tax benefit on
foreign currency translation losses, and valuation reserves. The
income tax expense in 2002 differed from the U.S. statutory rate principally due to the change in the valuation reserves recorded in 2002.

LIQUIDITY AND CAPITAL RESOURCES

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

Cash provided by continuing operations for the nine months ended September 30,
2002 was $13.9 million compared to $5.3 million for the nine months ended
September 30, 2001. The principal reason for the change in operating cash flow
between 2002 and 2001 was our improved operating results for the nine months
together with decreases in accounts receivable from increased collections when
compared to the same period in 2001.

Cash used in investing activities decreased $2.3 million to $3.9 million for
the nine months ended September 30, 2002 compared to cash used in investing
activities of $6.1 million in the same period a year ago. This decrease is
primarily related to a decrease in cash required to fund the Companys direct
financing leases in the amount of $9.3 million resulting from a

19



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continued focus on higher quality leases at less volume, offset by an increase
in purchases of property, plant and equipment of $3.8 million. Increases in
property, plant and equipment relate to leasehold improvements and various
software upgrades.

Cash used in financing activities was $3.9 million for the nine months ended
September 30, 2002, compared to cash used in financing activities of $2.5
million in the same period a year ago. This change is principally attributable
to the classification of net advances to the operating units in discontinued
operations. Excluding such advances financing activities have improved due to
the Companys ability to utilize its $25 million revolving credit facility,
which was significantly restricted in 2001 due to non-compliance with certain
financial covenants. Additionally, the Company was able to significantly
reduce its long-term debt to $31.4 million from $67.9 million at December 31,
2001, with proceeds from the private issuance and sale of stock in the first
quarter of 2002, as discussed below. At September 30, 2002, working capital
and cash was $133.7 and $19.4 million, respectively, compared to $126.9 and
$13.4 million at December 31, 2001, respectively.

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 have
been used to repay two term loans with principal balances of $15.3 million and
$3.3 million, respectively, under the Companys credit facility, to repay $3.1
million in outstanding loans from a director and principal stockholder, and to
reduce the outstanding borrowings under the Companys $25 million revolving
credit facility. The remaining proceeds will be used for general corporate
purposes.

In connection with the early retirement of our term loans, we recorded an
extraordinary loss on retirement of debt of $1.8 million, net of tax benefit of
$0.8 million. During the three months ended September 30, 2002 the tax benefit
of $0.8 million was eliminated in connection with the increase in the deferred
tax asset valuation allowance discussed in Note 9 to the financial statements.
The extraordinary loss resulted from the write-off of unamortized debt issuance
costs and a loan discount associated with the term loans during the second
quarter of 2002.

Further, in connection with the private offering, the Company entered into an
agreement with its principal lenders relating to its revolving credit facility
which waived any default or event of default with respect to the delivery of
certain collateral documents that the Company was obligated to deliver under
the facility and permitted the Company to repay the term loans. The effective
date of the Amendment was March 13, 2002.

The Company continues to accelerate cash generation through aggressively
pursuing collection of trade receivables, reducing inventories and reducing
costs.

BACKLOG

As of September 30, 2002, Hypercom had backlog of $91.8 million, compared to
$158.2 million at September 30, 2001. This decrease is due to deliveries under
prior sales orders, particularly, our Brazilian Heath Ministry contract.

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

Hypercom is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. Nevertheless, the fair value of
Hypercom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 Hypercoms revenue and capital spending is transacted
in U.S. dollars. However, Hypercom 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. Hypercom has, from time to time,
established revenue and balance sheet hedging programs to protect against
reductions in value and cash flow volatility caused by changes in foreign
exchange rates. Such programs are

20



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##### Table of Contents



intended to reduce market risks, but do not always eliminate the impact of
foreign currency exchange volatility. See Net Interest, Foreign Currency
Losses and Other Itemssection above and Note 10 to the financial statements.

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




Item 4. Controls and Procedures

Within 90 days prior to the filing date of this report, Hypercom management
conducted an evaluation, under the supervision and with the participation of
the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective in alerting them in a timely manner to material
information required to be included in the Companys SEC reports. In addition,
Hypercom management, including the Companys Chief Executive Officer and Chief
Financial Officer, reviewed our internal controls, and there have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect those controls subsequent to the date of our last
evaluation.




PART II  OTHER INFORMATION




Item 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.                                                                                                                                                          
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|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))
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|99.1           |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors.                                                                                                                                   
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|99.2           |  | 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.                                                            
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|99.3           |  | 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.                                                            

(b) Reports on Form 8-K.

The Company filed no Reports on Form 8-K during the quarter ended
September 30, 2002.

21



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##### Table of Contents






SIGNATURES

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

|                        |  |                                                                                                                                              
|----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|                        |  | HYPERCOM CORPORATION                                                                                                                         
|                       
|                       
|                       
|                       
|                        |  |                                                                                                                                              
|                       
|                       
|                       
|                       
|Date: November 13, 2002 |  | By: /s/ John W. Smolak
John W. Smolak                                                                                                        
|                       
|                       
|                       
|                       
|                        |  |                                                                                                                                              
|                       
|                       
|                       
|                       
|                        |  | Executive Vice President, Chief Financial Officer, and
Chief Administrative Officer (duly authorized officer
and Principal Financial Officer)

22



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##### Table of Contents






CERTIFICATION

I, Christopher S. Alexander, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Hypercom Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
| | b) Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                                                                  
|----------------------- |  | ---------------------------------------------------------------------------------
|Date: November 13, 2002 |  | By: /s/ Christopher S. Alexander
Christopher S. Alexander
Chief Executive Officer

23



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##### Table of Contents






CERTIFICATION

I, John W. Smolak, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Hypercom Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
| | b) Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |                                                              
|----------------------- |  | -------------------------------------------------------------
|Date: November 13, 2002 |  | By: /s/ John W. Smolak
John W. Smolak
Chief Financial Officer

24



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##### Table of Contents






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.*                                                                                                                                                         
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|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))
|              
|              
|              
|              
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|99.1           |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors.                                                                                                                                   
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|99.2           |  | 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.*                                                           
|              
|              
|              
|              
|               |  |                                                                                                                                                                                                               
|              
|              
|              
|              
|99.3           |  | 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.*                                                           



---

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

25