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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended: March 31, 2003.

OR

For the transition period from         to         .

Commission file number: 1-13521

HYPERCOM CORPORATION

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

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

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

Yes [X]  No  [   ]

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

Number of shares of the registrant’s common stock, $.001 par value per share,outstanding as of May 13, 2003,
was 48,258,759.

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INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

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

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

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

NOTE 2 – NEW AND PROPOSED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003 the Company adopted SFAS 145, Rescission of FASB Statements No.4, 44 and 64, amendment of FASB Statement No.13, and Technical Corrections, which among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary to only those transactions that are unusual and infrequent in nature as defined by APB Opinion No. 30. Upon adoption, gains and losses on certain future debt extinguishment, if any, will be recorded in pre-tax income. In accordance with the provisions of SFAS 145, the Company reclassified its $2.6 million extraordinary loss from early extinguishment of debt for the three months ended March 31, 2002 to pre-tax loss (see Note 8).

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

NOTE 3 – STOCK-BASED COMPENSATION

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

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

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

NOTE 4 – INVENTORIES

Inventories consist of the following (dollars in thousands):

NOTE 5 – SEGMENT INFORMATION

As of March 31, 2003, the Company had two segments: Point-of-Sale (POS)/Network Systems and Direct-Finance Leasing. POS Systems develops, manufactures, markets, and supports products that automate electronic payment transactions at the point of sale in merchant establishments as well as supporting non-payment applications and new markets, including government, education and healthcare. Network Systems develops, manufactures, markets, and supports enterprise-networking systems. Direct-finance leasing includes the activities of our direct finance lease subsidiary, Golden Eagle.

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

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As of and for the three months ended March 31, 2003:

As of and for the three months ended March 31, 2002:

NOTE 6 – RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS

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

Restructuring Charges

The downsizing activities principally focused on the Company’s POS/Network Systems segment, including our manufacturing operations in Brazil. Such activities entailed moving to a contract manufacturer, reducing the number of personnel and holding for sale certain long-lived assets such as buildings and production equipment. Inventories were also written down to support a more streamlined product offering. In addition, the Company identified certain sales offices around the world to close in favor of a more cost-effective distributor arrangement in those locations. Costs associated with closing these sales offices principally included employee severance, inventory write-downs and costs associated with exiting office space and disposing of office fixed assets. The Company is actively marketing the assets held for sale. All other restructuring activities were completed during the fourth quarter of 2002. Remaining unpaid balances relating to restructuring charges were immaterial at December 31, 2002.

Discontinued Operations

In connection with the profit improvement plan, the Company identified and decided to hold for sale certain under-performing operating units whose activities were not closely aligned with the Company’s core business. The results of operations for these operating units held for sale have been classified as discontinued operations and all periods prior to September 2002 have been restated to present these operating units as discontinued operations. At the time the Company determined to hold these operations for sale, the carrying amounts of their assets were written down to fair value less an estimate of 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 completed by September 30, 2003 and include the sales of the operating units’ shares of stock or sales of assets plus the transfer of liabilities.

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Net revenues and pretax losses of the operating units classified as discontinued operations for the three months ended March 31, 2003 and 2002 were $2.4 and $0.9 million, and $6.3 and $2.1 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 by September 30, 2003. The assets and liabilities of discontinued operations held for sale consist of the following (dollars in thousands):

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 – GOODWILL

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

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

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

NOTE 8 – DEBT AND EQUITY TRANSACTIONS

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

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Exchange Commission effective May 2, 2002.

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

In connection with the early retirement of the term loans, the Company recorded an extraordinary loss on retirement of debt of $2.6 million during the three months ended March 31, 2002. In accordance with SFAS 145, Rescission of FASB Statements No.4, 44 and 64, amendment of FASB Statement No.13, and Technical Corrections, the Company has reclassified its $2.6 million extraordinary loss from early extinguishment of debt for the three months ended March 31, 2002 to pre-tax loss.

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

NOTE 9 – INCOME TAXES

Income tax (expense) benefit before discontinued operations and cumulative effect of change in accounting principle for federal, state and foreign taxes was ($0.7) million and $0.6 million for the three months ended March 31, 2003 and 2002, respectively. The income tax provision for the first quarter of 2003 is primarily comprised of income taxes associated with the Company’s profitable foreign locations.

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

The effective income tax benefit rate for the first quarter of 2002 was 40%, which differed from the U.S. statutory rate principally due to foreign taxes attributable to foreign operations that differed from the U.S. statutory rate.

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

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

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

RESULTS OF CONTINUING OPERATIONS

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

NET REVENUE

Net revenue for the three months ended March 31, 2003, decreased $15.1 million or 21% to $55.7 million from $70.8 million in the three months ended March 31, 2002. This decrease 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 three months ended March 31, 2002, versus $0.8 million in revenue recognized under the same contract in the three months ended March 31, 2003. Performance milestones under this contract were substantially less than the milestone achieved in the first quarter of 2002, as we have now entered the maintenance phase of this contract. The additional decrease in net revenue reflects a soft global economy, uncertainty relating to the conflict in Iraq and the maturing of our direct finance lease portfolio.

Net revenues from services activities, principally derived from POS support services, comprised less than 10% of total net revenue in both the three months ended March 31, 2003 and 2002. Our only revenues from long-term contracts in these periods were derived from our contract with the Brazilian Health Ministry as discussed previously.

COST OF REVENUE

Cost of revenue includes the cost of raw materials, manufacturing labor, overhead and subcontracted manufacturing costs, as well as interest expense and loan loss provisions with respect to direct financing and sales-type leases. For the three months ended March 31, 2003, costs of revenue decreased $11 million or 25% to $32.3 million from $43.3 million for the three months ended March 31, 2002. This decrease is a result of the decline in revenues year over year offset in part by an increase in gross margin as a percentage of revenue.

Gross margin for the three months ended March 31, 2003 was 42.0% compared to 38.9% in the same period in the prior year. The increase in the gross margin percentage is principally attributed to our direct finance leasing segment (Golden Eagle Leasing) whose margin was 29.7% in the first quarter of 2002 compared to a gross margin of 58.6% in the first quarter of 2003. The improvement in Golden Eagle’s gross margin is a result of decreases in direct finance lease defaults and incremental income from lease renewals as the lease portfolio matures.

RESEARCH AND DEVELOPMENT

Research and development expenses consist mainly of software and hardware engineering costs and the cost of development personnel. Research and development expenses for the three months ended March 31, 2003 decreased $0.3 million or 5% to $5.8 million from $6.1 million for the three months ended March 31, 2002. This decrease is directly attributable to our

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continued cost cutting efforts of reducing personnel and curtailing spending for research and development materials to better meet the core needs of the Company. Present development activities are primarily focusing on the continued reduction in the component costs of existing products and production enhancements that support current market requirements.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Sales and marketing expenses, administrative personnel costs, and facilities operations make up the selling, general and administrative expenses. These expenses totaled $16.8 million for the three months ended March 31, 2003, compared to $17.0 million for the three months in the prior year. This $0.2 million or 1% decrease reflects our continued focus on worldwide cost containment measures as well as general stabilization of resource requirements.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for the quarter ended March 31, 2003 decreased $3.7 million to income of $0.7 million compared to income of $4.4 million for the same quarter in the prior year, as higher current year gross margins and lower operating expenses were insufficient to fully offset the decline in revenues. They also reflect a soft global economy and the effects of the conflict in Iraq.

NET INTEREST, FOREIGN CURRENCY LOSSES AND OTHER ITEMS

The Company incurred interest expense of $0.6 million for the three months ended March 31, 2003 compared to $2.0 million for the three months ended March 31, 2002. Interest expense consists primarily of interest on borrowings for long-term debt and amortization of debt issuance costs. The reduction in interest expense year over year was principally the result of repaying $21.7 million of debt in March 2002. Other expenses in the amount of $0.2 million for the three months ended March 31, 2003 compares to other income of $0.2 million in the same period in the prior year. These amounts reflect various activities such as gains or losses on asset dispositions, certain non-operating finance costs, and other non-operating activity. Foreign currency loss for the first quarter of 2003 was $0.5 million and significantly less than the loss of $1.6 million in the first quarter of 2002. The reduced loss is a result of a hedging program the Company has since undertaken to mitigate foreign currency exposures.

INCOME TAXES

Income tax (expense) benefit before discontinued operations and cumulative effect of change in accounting principle for federal, state and foreign taxes was ($0.7) million and $0.6 million for the three months ended March 31, 2003 and 2002, respectively. The income tax provision for the first quarter of 2003 is primarily comprised of income taxes associated with the Company’s profitable foreign locations.

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

The effective income tax benefit rate for the first quarter of 2002 was 40%, which differed from the U.S. statutory rate principally due to foreign taxes attributable to foreign operations that differed from the U.S. statutory rate.

LIQUIDITY AND CAPITAL RESOURCES

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

Cash provided by continuing operations for the three months ended March 31, 2003 was $17.5 million compared to $1.7 million for the three months ended March 31, 2002. The increase in operating cash flow between 2003 and 2002 is principally

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due to the Company’s continued focus on decreasing working capital requirements as well as the receipt of an $8.3 million income tax refund related to a U.S. net operating loss carryback claim filed during the quarter. The decrease in working capital requirements during the first quarter of 2003 is principally due to a $6.1 million reduction in inventory related to the need for fewer inventories during our seasonally lower volume first quarter, increased manufacturing efficiencies and the effects of focusing on production requirements of core products.

Cash provided by investing activities was $0.2 million for the three months ended March 31, 2003 compared to cash used by investing activities of $0.9 million for the three months ended March 31, 2002. The decrease in cash used by investing activities is primarily related to a decrease in the Company’s restricted cash balances attributable to reductions in collateral requirements due to significant debt repayments on debt securitized by the Company’s lease portfolio. The Company will continue to experience a decline in restricted cash balances up to November 2003 when this debt is repaid. Capital expenditures increased $0.5 million from $1.5 million for the three months ended March 31, 2002 to $2.0 million for the three months ended March 31, 2003. Capital expenditures in 2003 were principally for upgrades to computer software and equipment

Cash used in financing activities was $3.5 million for the three months ended March 31, 2003, compared to cash provided by financing activities of $2.0 million for the three months ended March 31, 2002. The increase in cash used in financing activities of $5.5 million is the result of the Company’s reduction in overall debt balances and a decrease in advances to the Company’s discontinued operations. Long-term debt decreased $3.8 million to $21.2 million at March 31, 2003, from $25.0 million at December 31, 2002, principally as a result of repayments on debt related to the Company’s securitized lease portfolio. At March 31, 2003, working capital and cash was $129.3 million and $37.3 million, respectively, compared to $129.3 and $23.1 million, respectively, at December 31, 2002.

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

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

In connection with the early retirement of the term loans, the Company recorded an extraordinary loss on retirement of debt of $2.6 million during the three months ended March 31, 2002. In accordance with SFAS 145, Rescission of FASB Statements No.4, 44 and 64, amendment of FASB Statement No.13, and Technical Corrections, the Company has reclassified its $2.6 million extraordinary loss from early extinguishment of debt for the three months ended March 31, 2002 to pre-tax income (see Note 8).

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

The Company continues to accelerate cash generation through aggressively pursuing collection of trade receivables, reducing inventories and controlling expenses. We believe that our cash flow from operations, and the net cash provided by our direct-financing leases, together with our current cash reserves, will be sufficient to fund our projected liquidity and capital resource requirements through 2003. If operating results are unfavorable or our direct-financing lease fundings exceed direct-financing lease receipts, we may need to use additional capital sources to meet our short-term liquidity and capital resource requirements. These additional sources would include our existing credit facility, including our $15 million revolving line of credit, which is available based on certain accounts receivable and inventory balances, or our direct-financing lease credit facilities with approximately $29.3 million of credit available at March 31, 2003.

BACKLOG

As of March 31, 2003, Hypercom had backlog of $83.7 million, compared to $61.0 million at March 31, 2002. The increase in backlog is primarily related to an increase in sales orders in the United States that are subject to a customer approved delivery schedule.

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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. Beginning in June 2002, the Company resumed its foreign currency risk management strategy, which had been suspended starting in the fourth quarter of 2000 due to credit limitations imposed by the Company’s banks. As a policy, the Company hedges the translation of its net investment in foreign subsidiaries in an attempt to neutralize the effect of translation gains or losses in the statement of operations. Financial hedging instruments are limited by Company policy to foreign-currency forward or option contracts and foreign-currency debt. The Company enters into forward or option contracts with its bank or other financial institutions to accomplish its hedging strategy. At March 31, 2003, the Company had foreign currency forward contracts outstanding in the amount of $28.4 million, denominated principally in the Brazilian real, British pound, Swedish krona, Chilean peso, and Australian dollar. Gains and losses on these contracts principally consist of mark-to-market adjustments, recorded in earnings as foreign currency gains or losses. See Net Interest, Foreign Currency Losses and Other Items section above.

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.

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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

(b)

Reports on Form 8-K.

     The Company filed the following reports on Form 8-K during the quarter ended March 31, 2003:

	a)		Form 8-K dated April 25, 2003; and
	b)		Form 8-K/A dated April 25, 2003.

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SIGNATURES

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

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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
		a) 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 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.

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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 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.

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