HYPERCOM CORP, S-1/A, 1997-10-31

HYPERCOM CORP
S-1/A, 1997-10-31

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997

REGISTRATION NO. 333-35461
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

HYPERCOM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3578 86-0828608
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

------------------------
2851 WEST KATHLEEN ROAD
PHOENIX, ARIZONA 85023
(602) 504-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ALBERT A. IRATO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HYPERCOM CORPORATION
2851 WEST KATHLEEN ROAD
PHOENIX, ARIZONA 85023
(602) 504-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

------------------------

COPIES TO:

<TABLE>
<S> <C>
STEVEN D. PIDGEON, ESQ. IRA A. GREENSTEIN, ESQ.
CHRISTOPHER J. LITTLEFIELD, ESQ. KRISTINA M. JODIS, ESQ.
MICHAEL B. MALEDON, ESQ. MORRISON & FOERSTER LLP
SNELL & WILMER L.L.P. 1290 AVENUE OF THE AMERICAS
ONE ARIZONA CENTER NEW YORK, NEW YORK 10104-0012
PHOENIX, ARIZONA 85004-0001 (212) 468-8000
(602) 382-6000
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 20, 1997
PROSPECTUS

11,250,000 SHARES

[HYPERCOM CORPORATION LOGO]
[HYPERCOM COLOR LOGO]
HYPERCOM CORPORATION

COMMON STOCK
---------------------------
Of the 11,250,000 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of Hypercom Corporation ("Hypercom" or the "Company") offered
hereby, 8,500,000 shares are being issued and sold by the Company and 2,750,000
shares are being sold by the Selling Stockholders (collectively, the
"Offering"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the shares being sold by the Selling
Stockholders.

Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $16.00 and $18.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the symbol "HYC," subject to notice of issuance.
---------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Share............................ $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $ $
=========================================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offering of $1,300,000 payable by
the Company.

(3) The Company and a Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to 1,687,500 additional shares of Common Stock
on the same terms and conditions as the securities offered hereby solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting"
and "Principal and Selling Stockholders."

---------------------------

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York, on or
about , 1997.
---------------------------
LEHMAN BROTHERS
SALOMON BROTHERS INC
COWEN & COMPANY
, 1997
<PAGE> 3

The Company has registered its "Hypercom" trademark in the U.S. and several
foreign countries, and maintains a number of other trademarks. This Prospectus
may contain the trademarks of other companies. See "Business -- Proprietary
Rights."

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto. Unless otherwise
indicated, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option or currently outstanding stock options
granted by the Company and (ii) gives effect to a 5-for-4 Common Stock split
which was effected on September 10, 1997. The Company's fiscal year ends June
30. Certain technical terms used herein are defined in the Glossary included at
the back of this Prospectus.

THE COMPANY

Hypercom is a leading worldwide developer, manufacturer and supplier of
high performance, comprehensive point-of-sale ("POS") payment systems and
sophisticated enterprise networking products. The Company's end-to-end POS
payment system solutions, comprised of terminals, peripherals, POS network
products and software, enable merchants to automate credit, charge, debit and
other electronic payment transactions, all with seamless integration and
interoperability and at a lower total cost of ownership. The Company has the
second largest installed base of POS terminals in the U.S. and worldwide, and
the largest installed base in Latin America and Asia/Pacific. Leveraging nearly
20 years of expertise with POS networks, the Company has developed a family of
multi-service switch/routers that enable the integration of business-critical
legacy data, local area network ("LAN"), voice, fax and video traffic
transmitted among central and remote locations. The Company's networking
products allow its customers to eliminate duplicate networks and facilitate
migration to cost-effective switched services.

The Company's products currently are sold in more than 50 countries through
its direct sales force and a variety of third-party distribution channels. In
fiscal 1997, international sales accounted for 55.8% of the Company's net
revenue. Representative customers include Alamo Rent A Car, Inc., American
Express Company, AT&T Corp., Banamex, BA Merchant Services, Inc., CrediCard
Brazil, First Data Merchant Services, General Electric Capital Corporation, The
Home Depot, Inc., The Hong Kong and Shanghai Banking Corporation Group, Lucent
Technologies, Inc., National Bank of Australia and Wells Fargo Bank, N.A.

POS Systems. In recent years, consumers demanding fast, convenient and
secure methods of payment have increasingly switched to card-based payments,
such as debit, credit and charge cards, from traditional forms of payment, such
as checks and cash. According to The Nilson Report, a payment systems industry
newsletter, retail consumer payments using credit, debit, electronic benefits
transfer ("EBT") and prepaid cards increased from approximately 15% in 1990 to
approximately 21% of retail payment transactions in the U.S. in 1995, and are
projected to grow at a five-year compounded annual growth rate ("CAGR") of
approximately 16% to 26.3 billion through 2000 and by approximately 13% to 47.9
billion from 2000 to 2005. The increasing use of credit and debit cards and the
proliferation of new electronic payment technologies and programs, such as chip
cards and customer loyalty, are driving the need for new, cost-effective, fast
and secure POS payment systems that can handle the increased complexity and the
projected volumes of POS transactions. According to Frost & Sullivan, a market
research firm, the sale of POS terminals in the U.S. is projected to grow at a
five-year CAGR of 24.6% to approximately 2.4 million terminals by 2000 and
revenues from POS terminal sales in the U.S. are projected to grow at a
five-year CAGR of 21.7% for the same period. Approximately 53% of the worldwide
installed base of POS terminals is outside the U.S. The infrastructure
development of emerging markets, such as Eastern Europe, Russia and China, is
expected to contribute to the increasing demand for electronic payment products
internationally.

3
<PAGE> 5

single source provider of complete, end-to-end POS payment system solutions that
are interoperable not only with other Hypercom products, but also with
competitors' products. In addition, due to the technologically-advanced
features, speed, reliability, functionality and upgradeability of its products,
the Company believes that the total cost of ownership of Hypercom products
generally is less than its competitors' products, enabling Hypercom products to
command premium pricing.

The Company has established itself as a leading innovator in the electronic
payments industry through the introduction of numerous state-of-the-art POS
terminals and peripheral products, transaction networking products and
transaction processing software. Since the introduction of POS terminals in the
early 1980s, Hypercom has delivered a series of innovations, such as fast-dial
techniques, Synchronous Data Link Control ("SDLC") terminals, bit-map message
formats, dual-track card readers and on-line terminal management, which have
resulted in reduced transaction costs, improved reliability and flexibility. The
Company also introduced technology that reduces transaction response times from
20 seconds to less than 10 seconds, which has resulted in substantial savings
for Hypercom customers and better service to consumers.

Network Systems. There is a rapidly increasing need for enterprise
networking solutions that support a comprehensive range of legacy protocols and
are able to consolidate legacy data, LAN, voice, fax and video applications over
frame relay and other switched network services. These solutions need to
accommodate the continued reliance of many financial institutions and other
large branch-oriented enterprises on existing legacy mainframe systems for their
mission-critical applications, and the desire of such organizations to add
networked client/server computing without creating duplicate networks, thereby
reducing telecommunications costs.

Hypercom Network Systems, which accounted for approximately 12% of
Hypercom's net revenue in fiscal 1997, develops, manufactures, markets and
supports enterprise networking systems through its Integrated Enterprise Network
("IEN") family of flexible, stackable, multi-service switch/routers. IEN
products have established Hypercom as a leading integrator for enterprise branch
networking systems of legacy data, LAN, voice, fax and video traffic, allowing
for migration from expensive leased lines to cost-effective frame relay and
other switched network services. IEN products provide Hypercom customers with
reduced telecommunications, network administration and maintenance costs.

Business Strategy. The Company's primary objective is to become the
leading worldwide provider and innovator of POS payment system solutions. In
addition, the Company intends to leverage the unique technical capabilities of
its networking and software products to become a leading supplier of networking
products to enterprises that have substantial branch networking needs. To
achieve these objectives, the Company is seeking to (i) extend its technology
leadership, (ii) exploit its international expertise, (iii) capitalize on the
retooling of the POS payments infrastructure, (iv) provide complete, end-to-end
POS payment systems, (v) leverage its POS network expertise into the enterprise
branch networking market and (vi) enhance brand awareness through increased
marketing and distribution.

The Company was formed in Australia in 1978 and was reincorporated in
Delaware in 1996. See "Background of the Company." Unless the context otherwise
requires, references in this Prospectus to "Hypercom" and the "Company" refer to
Hypercom Corporation and its operating divisions, subsidiaries and the
predecessors thereto. The Company's principal executive offices are located at
2851 West Kathleen Road, Phoenix, Arizona 85023, and its telephone number is
(602) 504-5000. The Company maintains a World Wide Web site at
http://www.hypercom.com. The information contained in the Company's World Wide
Web site is not, and shall not be deemed to be, a part of this Prospectus.

4
<PAGE> 6

THE OFFERING

Common Stock offered by the Company.... 8,500,000 shares

Common Stock offered by the Selling
Stockholders........................... 2,750,000 shares

Common Stock to be outstanding after
the Offering........................... 33,510,000 shares(1)

Use of proceeds........................ For repayment of indebtedness,
expansion of manufacturing,
warehouse and corporate facilities
and general corporate purposes,
including working capital, capital
expenditures and possible
acquisitions. See "Use of Proceeds."

New York Stock Exchange symbol......... HYC
- ---------------
(1) Includes 10,000 shares issued by the Company on October 1, 1997 in
connection with the Company's acquisition of the remaining 70.0% of the
outstanding common stock of Hypercom Design Services, Inc. and excludes
3,783,750 shares of Common Stock issuable upon exercise of stock options
outstanding at October 20, 1997, with a weighted average exercise price of
$5.82 per share, of which 1,708,750 shares were exercisable at such date.
See Note 18 to the Consolidated Financial Statements, "Capitalization" and
"Management."

SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Net revenue.................. $56,771 $91,183 $146,168 $163,556 $196,742 $47,690 $78,937
Cost and expenses:
Cost of revenue............ 30,817 57,301 83,016 89,710 103,227 25,359 39,370
Research and development... 2,337 4,429 5,422 8,509 12,926 3,160 4,519
Selling, general and
administrative........... 12,192 14,929 27,687 44,741 52,530 10,975 18,919
Non-cash compensation
expense(1)............... -- -- 698 2,061 4,784 1,430 1,770
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses.......... 45,346 76,659 116,823 145,021 173,467 40,924 64,578
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations....... $11,425 $14,524 $ 29,345 $ 18,535 $ 23,275 $ 6,766 $14,359
========== ========== ========== ========== ========== ========== ==========
Net income................... $ 8,764 $ 9,149 $ 19,556 $ 12,289 $ 15,562 $ 4,499 $ 9,110
========== ========== ========== ========== ========== ========== ==========
Net income per share......... $ 0.23 $ 0.24 $ 0.51 $ 0.32 $ 0.57 $ 0.17 $ 0.33
========== ========== ========== ========== ========== ========== ==========
Number of shares used in per
share calculations(2)...... 37,885,529 38,049,062 38,169,563 38,674,048 27,261,683 27,058,396 27,387,161
========== ========== ========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 12,479 $124,961
Working capital............................................................. 71,633 198,066
Total assets................................................................ 156,990 269,472
Short-term debt............................................................. 14,137 186
Long-term debt, less current portion........................................ 10,413 96
Redeemable common stock(1).................................................. 9,313 --
Total stockholders' equity.................................................. 70,004 216,067
</TABLE>

- ---------------
(1) Relates to stock underlying options granted to an executive officer which
the Company is obligated to purchase under certain conditions at a price
determined pursuant to a formula based upon the Company's net income. It is
anticipated that the Company will incur a substantial non-cash charge ($10.5
million at an assumed initial public offering price of $17.00 per share) in
the quarter in which the Company's initial public offering is completed, but
will incur no future charges under this arrangement since the repurchase
obligation will terminate upon closing of the Offering. Upon termination of
this arrangement, the redeemable common stock will convert to additional
paid-in capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."

(2) Fiscal 1997 share amount gives effect to a repurchase of 11,650,000 shares
of Common Stock.

(3) As adjusted to give effect to (i) the sale by the Company of 8,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $17.00 per share, less underwriting discounts and commissions and
estimated offering expenses, and the anticipated application of a portion of
the net proceeds to repay indebtedness, (ii) conversion of redeemable common
stock to additional paid-in capital and (iii) receipt of payment upon
closing of the Offering of all stockholder receivables aggregating $2.4
million as of September 30, 1997. See "Use of Proceeds," "Capitalization,"
and "Certain Relationships and Related Transactions."

5
<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements as a result of certain factors, including those discussed in "Risk
Factors" below, in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in "Business," as well as factors discussed
elsewhere in this Prospectus.

DIFFICULTY IN FORECASTING NET REVENUE; SIGNIFICANT FLUCTUATIONS IN QUARTERLY
RESULTS; SEASONALITY

The Company's net revenue in a given period is difficult to forecast as a
result of a variety of factors, including the timing of product purchases by the
Company's customers, the length of the sales cycle for the Company's products
and quarterly fluctuations. Hypercom POS Systems and its customers enter into
purchase agreements, which generally have a one-year term and minimum purchase
commitments. However, under the terms of these agreements, the Company's
customers are not required to make purchases at any particular times during the
term of the agreement or to purchase products exclusively from the Company.
Because the timing of product purchases in any given period is solely within the
customers' discretion and control, net revenue attributable to POS payment
systems products is difficult to forecast in any given period. This difficulty
in forecasting net revenue is compounded in certain international markets in
which large orders for complete systems sales occur more frequently than in the
U.S. Due to the significant commitment of capital associated with complete
systems sales, the sales cycle for such systems is generally lengthy and
difficult to predict. With respect to Hypercom Network Systems, the Company
generally operates with little backlog and, as a result, net revenue
attributable to enterprise networking products in any quarter is substantially
dependent on the orders booked and shipped in that quarter. Further, the highly
technical nature of these sales generally results in a sales cycle that ranges
from 12 to 18 months.

The Company's operating results also are subject to other uncertainties,
including risks and uncertainties related to general industry and economic
conditions, competitive pressures, the composition, timing and size of orders
from and shipments to major customers, variations in product mix and product
cost, overhead costs, obsolescence of inventory, manufacturing or production
difficulties, certain nonrecurring charges and other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview" and "-- Quarterly Operating Results." Accordingly, the Company's
operating results vary materially from quarter to quarter. Because a high
percentage of the Company's operating expenses are relatively fixed, if
anticipated sales and shipments in any quarter do not occur as expected, the
Company's operating results may be adversely affected and fall significantly
short of expectations. Any unanticipated decline in the growth of the Company's
net revenue, without a corresponding and timely reduction in the growth of
operating expenses, could have a material adverse effect on the Company's
business, operating results and financial condition. There is no assurance that,
in the event of any shortfall of sales or reduction in gross margin in a
quarter, the Company will be able to control expenses sufficiently or promptly
to meet profitability objectives for that quarter.

Historically, the Company's business has experienced, and is expected to
continue to experience some degree of seasonality. In this regard, the Company's
net revenue and results of operations have been stronger in the first half of
the fiscal year reflecting (i) increased purchases of POS payment systems to
satisfy increased retail demand during the holiday season, (ii) incentive
programs offered by VISA and MasterCard from July to December of each year that
encourage merchants to offer card-based payment systems and (iii) allocation of
customers' capital budgets which typically occurs by the end of March with
volume shipments commencing in July. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality."

6
<PAGE> 8

continued infrastructure development at Hypercom Network Systems and increases
in research and development expense attributable to continued development of the
Company's Pinnacle Server Environment and Network Systems products.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS

For the fiscal years 1997, 1996 and 1995, net revenue from international
sales comprised approximately 55.8%, 58.1% and 60.4%, respectively, of the
Company's net revenues. The Company expects that international sales will
continue to account for a significant percentage of the Company's net revenue in
the foreseeable future. Accordingly, the Company is subject to risks associated
with international operations, including management of a multinational
organization, fluctuations in currency exchange rates, compliance with local
laws and other regulatory and product certification requirements and changes in
such laws and requirements, tariffs and other trade barriers, import and export
controls, restrictions on the repatriation of funds, inflationary conditions,
staffing, employment and severance issues, political and economic instability,
war or other hostilities, expropriation or nationalization of assets, overlap of
tax structures, renegotiation or nullification of contracts and longer payment
cycles in certain countries. The Company's manufacturing facilities in Australia
and Brazil and its subcontracted manufacturing facilities in China are subject
to particular risks relating to political developments, tariffs, duties, taxes,
local content requirements, embargoes, boycotts and other trade barriers in or
directed at those countries. The inability to effectively manage these and other
risks could adversely affect the Company's business, operating results and
financial condition.

The Company's international sales are denominated primarily in U.S.
dollars, but some sales are denominated in the currency of the country in which
the sale occurs. A decrease in the value of such foreign currencies relative to
the U.S. dollar could make the price of the Company's products sold
internationally less competitive or result in losses from currency exchange rate
fluctuations. The Company has sales offices and manufacturing facilities in a
number of foreign countries, the operating expenses of which are also subject to
the effects of fluctuations in currency exchange rates. The Company generally
does not engage in hedging transactions which could partially offset the effects
of fluctuations in currency exchange rates. However, as the Company continues to
expand its international operations, exposure to gains and losses on foreign
currency transactions may increase. The Company may choose to limit such
exposure by entering into forward foreign exchange contracts or engaging in
similar hedging strategies. There can be no assurance that any currency exchange
strategy would be successful in avoiding exchange-related losses or that the
failure to manage currency risks will not have a material adverse effect on the
Company's business, operating results or financial condition. See
"Business -- Sales, Marketing and Distribution" and "-- Manufacturing."

INDUSTRY AND TECHNOLOGICAL CHANGES; DEPENDENCE ON DEVELOPMENT AND MARKET
ACCEPTANCE OF NEW PRODUCTS

The market for POS payment systems products in the electronic payments
industry is driven by consumers who want to use a variety of payment options and
the merchant's need to offer new payment options as required to remain
competitive. Although the technologies and payment options used in the
electronic payment industry have not changed substantially in recent years, the
Company believes that demand for lower cost products that feature greater
functionality at the point of sale, more rapid and accurate processing of
transactions and improvements in security features, as well as emerging
technologies and payment programs, will result in significant changes in the
electronic payments industry over the next few years. In addition, the
enterprise networking industry has been, and continues to be, characterized by
rapidly changing technologies and new product introductions. The Company's
success, particularly in the enterprise networking industry, will depend to a
substantial degree upon its continued ability to develop and introduce, in a
timely fashion, enhancements to its existing products and new products that meet
changing market and industry requirements.

The development of new products and technologies is a complex and uncertain
process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will be able to identify, develop, manufacture, market or support
new products and technologies successfully, that such new products and
technologies will gain market acceptance and be successful or that the Company
will be able to respond effectively to technological changes, emerging industry
standards or product announcements by competitors. In addition, the Company
occasionally has experienced

7
<PAGE> 9

delays in the introduction of product enhancements and new products. There can
be no assurance that the Company will be able to introduce product enhancements
or new products on a timely basis in the future. Further, from time to time, the
Company may announce new products, capabilities or technologies that have the
potential to replace or shorten the life cycle of the Company's existing product
offerings. There can be no assurance that announcements of product enhancements
or new product offerings will not cause customers to defer purchasing existing
Company products or cause distributors or other resellers to return products to
the Company. Failure to introduce new products or product enhancements
effectively and on a timely basis, customer delays in purchasing products in
anticipation of new product introductions and any inability of the Company to
respond effectively to technological changes, emerging industry standards or
product announcements by competitors could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Industry Overview," "-- Products and Services," "-- Products Under
Development," "-- Research and Product Development" and "-- Competition."

DEPENDENCE ON CURRENT MANAGEMENT AND KEY PERSONNEL

George Wallner, Albert A. Irato, Paul Wallner and Jairo Gonzalez have been,
and will continue to be, instrumental in the development, growth and operations
of the Company. The Company has employment agreements with Messrs. Irato and
Gonzalez, but does not have employment agreements with George Wallner and Paul
Wallner or any other member of senior management. Although the Company has no
current plans to enter into employment agreements with any other executive
officers or key employees, the Company intends to review the desirability of
such employment agreements from time to time in the future. The Company
maintains and is the beneficiary of key man life insurance of $1.0 million on
each of George Wallner and Paul Wallner. See "Management -- Employment
Agreements." The loss of any of Messrs. Wallner, Irato, Wallner or Gonzalez
could have a material adverse effect on the Company's business, operating
results and financial condition.

The Company's continued growth and operations also depend to a significant
extent on the continued service of other key employees and the hiring of new
qualified employees. Competition for highly skilled business, technical,
marketing and other personnel is intense, particularly in the strong economic
cycle currently prevailing for high technology companies. The loss of one or
more key employees or the Company's inability to attract additional qualified
employees or retain other employees could have an adverse effect on the
Company's business, operating results and financial condition. In addition, the
Company may experience increased compensation costs in order to compete for
skilled employees. See "Business -- Employees."

EXCESS OR OBSOLETE INVENTORY

Managing the Company's inventory of components and finished products is a
complex task. A number of factors, including the need to maintain a significant
inventory of certain components which are in short supply or which must be
purchased in bulk to obtain favorable pricing, the general unpredictability of
demand for specific products and customer requests for quick delivery schedules,
may result in the Company maintaining excess inventory. Other factors, including
changes in market demand and technology, and new product introductions that may
replace or shorten the life cycle of the Company's existing product offerings,
may cause the Company's inventory to become obsolete. Any excess or obsolete
inventory could result in price reductions and inventory write-downs, which in
turn could adversely affect the Company's business, operating results and
financial condition. See "Business -- Manufacturing."

IMPLEMENTATION OF INFORMATION SYSTEMS; MANAGEMENT OF QUARTERLY FINANCIAL
REPORTING

The Company's predecessor was started in Australia in 1978, and expanded
into other international markets and the U.S. through a number of affiliated or
subsidiary companies or divisions that operated as autonomous business units.
These business units were responsible for their own financial reporting and cash
management and, in some cases, manufacturing. Typically, detailed financial
statements were prepared only on an annual basis. In 1996, the Company was
formed as a U.S. holding company for these various business operations, which
were restructured into new operating units. In addition, the Company centralized
certain functions such as purchasing and manufacturing, implemented an
Oracle-based management information system to improve financial reporting and
budgeting and began to manage its business toward quarterly reporting. There can
be no assurance that these efforts will result in improved quarterly reporting,
more

8
<PAGE> 10

consistent operating results or that they will not adversely affect the
Company's business, operating results and financial condition.

COMPETITION

The markets in which the Company operates are highly competitive and are
becoming increasingly competitive. Principal competitive factors include product
quality, reliability, performance, functionality, pricing, certification, and
upgradeability. In the electronic payment industry the Company competes
primarily against VeriFone, Inc., which was recently acquired by Hewlett-Packard
Company, and in the enterprise networking market competes with Cisco Systems,
Inc., 3Com Corporation, Bay Networks, Inc., Motorola Information Systems Group,
and other providers. Certain of the Company's competitors have significantly
greater financial and technical resources than the Company, as well as better
name recognition and a larger customer base than the Company. The Company faces
additional competitive factors in foreign countries, including preferences for
national vendors, and difficulties in obtaining necessary certifications and in
meeting the requirements of government policies. Competitive factors may result
in, among other things, price discounts or other concessions by the Company and
sales lost by the Company to competitors, which could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company will be able to compete successfully
in the future. See "Business -- Competition."

LIMITED HISTORY OF PROFITABILITY OF HYPERCOM NETWORK SYSTEMS

The Company established Hypercom Network Systems in 1994 to continue to
develop enterprise networking products and technologies for the electronic
payments industry and to leverage these technologies to address other enterprise
networking opportunities. Since its formation, Hypercom Network Systems has
expended substantial sums on research and development and on establishing
distinct manufacturing operations and distribution channels. Until recently, the
majority of Hypercom Network Systems' sales were to Hypercom POS Systems. The
Company believes that Hypercom Network Systems has only recently achieved
profitability as a standalone business, and there can be no assurance that it
will continue to remain profitable as a separate business, particularly in light
of the competitive nature of the industry in which it operates. See
"Business -- Competition."

DEPENDENCE ON CERTAIN SUPPLIERS AND THIRD-PARTY DISTRIBUTORS

The Company utilizes a contract manufacturer to build networking products
and is dependent on sole-source suppliers for certain product components,
including microprocessors, certain integrated circuits and other electronic
components, while certain other components are available from only a limited
number of sources. Although to date the Company generally has been able to
obtain adequate supplies of products and components, the Company's inability to
obtain sufficient products or components or to develop alternative sources could
result in delays in product introductions or shipments, which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Manufacturing."

The Company uses various channels to market and distribute its products,
including sales to end-users via third-party distributors. Third-party
distributors are a substantial channel for distribution in some international
markets and increasingly are becoming a substantial channel for distribution in
the U.S., particularly with respect to the Company's enterprise networking
products. Accordingly, the Company's ability to market and distribute its
products depends significantly on its relationship with third-party
distributors, as well as the performance and financial condition of these
distributors. In the event that the Company's relationship with its distributors
deteriorates, or the performance or financial condition of the distributors
affects their performance or ability to pay the Company, the Company's business,
operating results and financial condition could be materially adversely
affected. Further, the Company's ability to terminate poorly performing
distributors in certain markets or countries could be restricted under local
laws. See "Business -- Sales, Marketing and Distribution."

RELIANCE ON CERTAIN HYPERCOM POS SYSTEMS CUSTOMERS

A significant portion of Hypercom POS Systems sales has resulted, and is
expected to continue to result, from substantial purchases made by a limited
number of large organizations. Although no one customer

9
<PAGE> 11

accounted for more than 10% of the Company's net revenue in 1997, the Company
derived 19.5% of its net revenue from sales to its two largest customers and
33.6% of its net revenue from sales to its five largest customers. The Company
typically enters into purchase agreements with its larger customers which
generally have a one-year term and provide for minimum purchase commitments.
However, these agreements do not require such customers to purchase POS payment
system products exclusively from the Company. The failure of any of the
Company's larger POS payment system customers to continue to purchase such
products from the Company, or any significant delay in purchases by such
customers, could have a material adverse effect on the Company's business,
operating results and financial condition. The Company expects that in the
future it will continue to rely on a limited number of customers in any given
period for a significant portion of its net revenue. Further, customer demand
can be adversely affected by numerous variables, including budgetary
constraints, changes in the customers' competitive environment, mergers or other
strategic alignments involving customers, pricing policies by the Company or its
competitors, personnel changes, the number, timing and significance of new
product and product enhancement announcements by the Company and its
competitors, the ability of the Company to develop, introduce and market new and
enhanced products on a timely basis and general economic factors. There can be
no assurance that the Company's significant customers will continue to purchase
products from the Company at historical or any particular levels. See
"Business -- Customers."

IMPACT OF INDUSTRY REGULATION AND STANDARDS

The Company's products must meet industry standards, such as those imposed
by VISA and MasterCard, and receive certification for connection to certain
public telecommunications networks prior to their sale. In the U.S., the
Company's products must comply with various regulations defined by the Federal
Communications Commission (the "FCC") and Underwriters Laboratories.
Internationally, the Company's products must comply with standards established
by telecommunications authorities in various countries, as well as with
recommendations of quasi-regulatory authorities and standards-setting
committees. In addition, public carriers require that equipment connected to
their networks comply with their own standards, which in part reflect their
currently installed equipment. Some public carriers have installed equipment
that does not fully comply with current industry standards, and this
noncompliance must be addressed in the design of the Company's enterprise
networking products. Although the Company believes that its products currently
comply with all applicable industry standards in the markets in which the
Company competes, there can be no assurance that the Company's products will
comply with any future changes in such industry standards or with standards in
markets in which the Company may seek to compete in the future. Any future
inability to obtain on a timely basis or retain domestic or foreign regulatory
approvals or certifications or to comply with industry standards could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, rates for public telecommunications services,
including features and capacity of such services, are governed by tariffs
determined by carriers and subject to regulatory approval. Changes in these
tariffs could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Government
Regulation."

The Company's operations are subject to various state, federal and
international laws governing, among other things, occupational health and
safety, minimum wages, overtime, retirement and profit-sharing plans and
severance payments, and the use, storage, handling and disposal of certain
chemicals used in the Company's production processes. Any failure to comply with
applicable requirements, or the adoption of new regulations or changes in
existing regulations, could impose additional compliance costs on the Company,
require a cessation of certain activities or otherwise have a material adverse
effect on the Company's business, operating results and financial condition.

PRODUCT DEFECTS

Products as complex as those offered by the Company may contain undetected
design defects of software or hardware errors that could be difficult to detect
and correct when first introduced or as new versions are released. Such errors
have occurred in the past, and there can be no assurance that, despite testing
by the Company and customers, errors will not be found in new or enhanced
products after commencement of commercial shipments. Moreover, there can be no
assurance that once detected, such errors can be corrected in a timely manner,
if at all. Software errors may take several months to correct, if they can be
corrected at all,

10
<PAGE> 12

and hardware errors may take even longer to rectify. The occurrence of any such
software or hardware errors, as well as any delay in correcting them, could
result in delays in shipment of products, loss of market acceptance of the
Company's products, additional warranty expense, diversion of engineering and
other resources from the Company's product development efforts or the loss of
credibility with the Company's distributors and customers, any of which could
have a material adverse effect on the Company's business, operating results and
financial condition.

The Company's POS payment systems products are used to process payment
transactions and, as a result, the security features of the such products are
important. In general, the Company's POS payment systems products are designed
to comply with industry practices relating to security in payment transactions.
Any failure of the security features of the Company's products could adversely
affect the marketing of its products and any violation of its product warranties
resulting from security breaches could result in claims against the Company.

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company seeks to establish and protect the proprietary aspects of its
products by relying on applicable patent, copyright, trademark and trade secret
laws and on confidentiality, licensing and other contractual arrangements, all
of which may afford only limited protection. Notwithstanding the Company's
efforts to protect its proprietary rights, it may be possible for unauthorized
third parties to copy certain portions of the Company's products or to reverse
engineer or obtain and use technology that the Company regards as proprietary.
In addition, the laws of certain countries do not protect the Company's
proprietary rights to the same extent as do the laws of the U.S. Accordingly,
there can be no assurance that the Company will be able to protect its
proprietary technology against unauthorized copying or use, which could
adversely affect the Company's competitive position. The Company has
applications for certain patents and trademarks pending. There can be no
assurance that any patents or trademarks will be granted or, if granted, that
any patents will cover all claims sought to be protected. Further, there can be
no assurance that any patent or trademark held by or granted to the Company, if
challenged, will be found valid or enforceable.

The Company's products and technologies incorporate subject matter that the
Company believes is in the public domain or are otherwise within the rights of
the Company to use, such as products and technologies designed and provided by
third parties. There can be no assurance, however, that third parties will not
assert patent or other intellectual property infringement claims against the
Company with respect to its products and technologies. From time to time, the
Company receives notices from third parties claiming that the Company's products
infringe such parties' proprietary rights, and the Company may receive such
notices in the future. Regardless of its merit, any such claim can be
time-consuming, result in costly litigation and require the Company to enter
into royalty and licensing agreements. Such royalty or licensing agreements may
not be offered or be available on terms acceptable to the Company. If a
successful claim is made against the Company and the Company fails to timely
develop or license a substitute technology, the Company's business, operating
results and financial condition could be materially adversely affected. See
"Business -- Proprietary Rights."

RISKS OF POTENTIAL ACQUISITIONS

The Company may acquire or make substantial investments in complementary
businesses, technologies or products in the future. Any such acquisition or
investment would entail various risks, including the difficulty of assimilating
the technologies, operations and personnel of the acquired business, technology
or product, the potential disruption of the Company's ongoing business and,
generally, the potential inability of the Company to obtain the desired
financial and strategic benefits from the acquisition or investment. These
factors could have a material adverse effect on the Company's business,
operating results and financial condition. Future acquisitions and investments
by the Company also could result in substantial cash expenditures, potentially
dilutive issuances of equity securities, the incurrence of additional debt and
contingent liabilities, and amortization expenses related to goodwill and other
intangible assets, which could adversely affect the Company's business,
operating results and financial condition. Although the Company engages from
time to time in discussions with respect to potential acquisitions, the Company
has no current plans, commitments or agreements with respect to any potential
acquisitions.

11
<PAGE> 13

VOTING CONTROL BY EXISTING STOCKHOLDERS

George Wallner and Paul Wallner will, in the aggregate, beneficially own
63.4% of the Company's outstanding Common Stock following the completion of the
Offering, assuming no exercise of the underwriters' over-allotment option.
Accordingly, George Wallner and Paul Wallner, acting together, will have the
ability to control the affairs of the Company, including the election of all of
the directors to the Company's Board of Directors and, except as otherwise
provided by law, approving or disapproving other matters submitted to a vote of
the Company's stockholders, including a merger, consolidation or sale of assets.
This voting control also may have the effect of delaying or preventing a change
in control of the Company and may affect the price that investors might be
willing to pay in the future for shares of the Company's Common Stock. See
"Principal and Selling Stockholders."

NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; IMMEDIATE AND
SUBSTANTIAL DILUTION

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price will be determined through negotiations among the Company, the Selling
Stockholders and the Underwriters and may bear no relationship to the price at
which the Common Stock will trade upon completion of the Offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.

In recent years, the stock market in general, and the market for technology
stocks in particular, have experienced extreme price fluctuations. The market
price of the Company's Common Stock may be significantly affected by various
factors such as quarterly variations in the Company's operating results, changes
in revenue growth rates for the Company as a whole or for specific geographic
areas, business units or products, earnings estimates or changes in estimates by
market analysts, speculation in the press or analyst community, the announcement
of new products or product enhancements by the Company or its competitors and
general market conditions or market conditions specific to particular
industries. There can be no assurance that the market price of the Company's
Common Stock will not experience significant fluctuations in the future.

All of the currently outstanding shares of Common Stock were issued at
prices substantially lower than the price of the shares of Common Stock offered
hereby. Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value with respect to
their shares of Common Stock and may incur additional dilution upon the exercise
of outstanding stock options. See "Dilution."

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public
market following the Offering could have an adverse effect on the price of the
Common Stock. Upon completion of the Offering, the Company will have 33,510,000
shares of Common Stock outstanding (35,197,500 if the Underwriters' over-
allotment option is exercised in full). Of these shares, the 11,250,000 shares
sold in the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 22,260,000 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144 under the Securities Act, and
were issued and sold by the Company in reliance on exemptions from registration
under the Securities Act. These restricted shares may not be sold in the public
market unless they are registered under the Securities Act or are sold pursuant
to an exemption from registration, such as Rules 144 or 701. All officers,
directors and existing stockholders, who collectively hold all of such
restricted shares, have agreed, pursuant to certain lock-up agreements, that
they will not offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of such shares for a period of 180 days from the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. In
addition, upon expiration of the lock-up agreements, approximately 1,955,750
shares of Common Stock issuable upon the exercise of certain options will be
eligible for sale in the public market, in reliance on Rules 144 and 701 under
the Securities Act.

12
<PAGE> 14

LACK OF CURRENT SPECIFIC PLANS FOR UNALLOCATED OFFERING PROCEEDS

The principal purposes of the Offering are to increase the Company's
capitalization and financial flexibility and expand the Company's current
manufacturing, warehouse and corporate facilities. The Company currently has no
specific plans for approximately $90 million of the net proceeds from the
Offering. The Company currently expects to use such proceeds for general
corporate purposes, including working capital, product development, capital
expenditures and possible acquisitions. Although the Company engages from time
to time in discussions with respect to potential acquisitions, the Company has
no current plans, commitments or agreements with respect to any potential
acquisitions. The amounts expended for each purpose and the timing of such
expenditures may vary depending upon numerous factors. Consequently, the Company
will have broad discretion in determining the amount and timing of expenditures
and in using the unallocated proceeds of the Offering, and there can be no
assurance that the Company will use such discretion effectively or in a manner
that will not materially adversely affect the Company's business, operating
results or financial condition. See "Use of Proceeds."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could limit
the price that certain investors may be willing to pay in the future for shares
of the Company's Common Stock. Certain of these provisions allow the Company to
issue Preferred Stock without any vote or further action by the stockholders,
provide for a classified Board of Directors and regulate nominations for the
Board of Directors. These provisions may make it more difficult for stockholders
to take certain corporate actions and could have the effect of delaying or
preventing a change in control of the Company. In addition, certain provisions
of Delaware law applicable to the Company also could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. See
"Management" and "Description of Capital Stock."

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains forward-looking statements including statements
regarding, among other items, the Company's growth strategy and anticipated
trends in the Company's business. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission (the "Commission") or otherwise. The words
"believe," "expect," "anticipate" and "project" and similar expressions identify
forward-looking statements, which speak only as of the date the statement is
made. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, some of
which cannot be predicted or quantified and are beyond the Company's control.
Future events and actual results could differ materially from those set forth
in, contemplated by or underlying the forward-looking statements. Statements in
this Prospectus, including those set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," describe factors, among others, that could contribute to or cause
such differences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.

13
<PAGE> 15

BACKGROUND OF THE COMPANY

Hypercom Corporation is the successor to an Australian company founded by
George Wallner, the Company's Chairman of the Board, in 1978. The Company's
operations were primarily focused on international markets until 1987, when the
Australian company expanded its operations into the U.S. On June 5, 1996, the
Company was reincorporated in Delaware, and shortly thereafter, through a series
of corporate restructurings, became a U.S. holding company for the operations of
the Australian company and its subsidiaries and affiliates. These restructurings
were completed in July 1997.

The Company now operates through numerous operating divisions and
subsidiaries, including (i) Hypercom POS Systems, an operating group responsible
for POS payment systems operations worldwide and which is comprised of Hypercom
POS USA/Canada, an operating division responsible for POS payment system
operations in the U.S. and Canada and Hypercom International, an operating
division responsible for international marketing, sales and distribution of POS
payment systems, (ii) Hypercom Network Systems, an operating division
responsible for enterprise networking operations worldwide and (iii) Hypercom
Manufacturing Resources, Inc., a wholly-owned subsidiary responsible for all
manufacturing operations of the Company. In addition, the Company operates
various subsidiaries or business units in Australia, Hong Kong, China,
Singapore, the United Kingdom, Russia, Mexico, Brazil and Chile to support
Hypercom's international operations.

USE OF PROCEEDS

The net proceeds to the Company from the sale of 8,500,000 shares of Common
Stock offered hereby, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $134.3 million
($161.3 million if the Underwriters' over-allotment option is exercised in full)
based upon an assumed initial public offering price of $17.00 per share. The
Company anticipates that such net proceeds will be used as follows: (i)
approximately $24.3 million to repay indebtedness, (ii) approximately $20.0
million to expand the Company's manufacturing, warehouse and corporate
facilities (see "Business -- Properties") and (iii) approximately $90.0 million,
for general corporate purposes, including working capital, product development,
capital expenditures and possible acquisitions. While the Company engages from
time to time in discussions with respect to potential acquisitions, the Company
has no current plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus. The debt to be repaid consists
of (i) borrowings under the Company's revolving line of credit which were
incurred to fund operations, bear interest at a weighted average rate of 8.25%
and mature in December 1997 ($10.7 million outstanding as of September 30,
1997), (ii) a $5.3 million note payable to a financial institution, due July
2002, that bears interest at 0.375% over the prime rate of the institution and
was used to finance the repurchase of common stock from a stockholder, (iii) a
$3.7 million note payable to a financial institution, due March 2001, that bears
interest at 0.375% over the prime rate of the institution and was used to repay
an industrial development bond, (iv) a $1.0 million note payable to a financial
institution, due January 2001, that bears interest at 8.92% and was used to
finance the purchase of property; and (v) a $3.6 million non-interest bearing
note due June 1999 and payable to an existing stockholder which was issued by
the Company as partial consideration for the repurchase of certain of such
stockholder's shares. The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders.

Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds from the Offering in short-term, investment
grade, interest bearing securities. Investment of the net proceeds in short-term
investments rather than operations could adversely affect the Company's overall
return on its capital. The foregoing represents the Company's present intentions
with respect to the allocation of proceeds of the Offering based upon its
present plans and business conditions. The occurrence of certain unforeseen
events or changed business conditions, however, could result in the application
of the proceeds of the Offering in a manner other than as described in this
Prospectus. See "Risk Factors -- Lack of Current Specific Plans for Unallocated
Offering Proceeds."

DIVIDEND POLICY

The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all earnings to finance the operations and
expansion of the Company's business and therefore does not anticipate paying
cash dividends in the foreseeable future.

14
<PAGE> 16

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of September 30, 1997, and as adjusted to give effect to (i) the sale by the
Company of 8,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $17.00 per share, less underwriting discounts and
commissions and estimated offering expenses, and the anticipated application of
a portion of the net proceeds to repay indebtedness, (ii) conversion of
redeemable common stock to additional paid-in capital and (iii) receipt of
payment upon the closing of the Offering of all stockholder receivables
aggregating $2.4 million as of September 30, 1997. This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt................................................ $ 14,137 $ 186
======== ========
Long-term debt, less current portion........................... 10,413 96
-------- --------
Redeemable common stock(1)..................................... 9,313 0
-------- --------
Stockholders' equity:
Common stock, $.001 par value; 100,000,000 shares authorized;
25,000,000 shares issued and outstanding, actual;
33,500,000 shares issued and outstanding, as
adjusted(2)............................................... 4 13
Additional paid-in capital................................... 965 144,619
Receivables from stockholders................................ (2,401) 0
Retained earnings............................................ 71,436 71,436
-------- --------
Total stockholders' equity........................... 70,004 216,067
-------- --------
Total capitalization............................... $ 89,730 $216,163
======== ========
</TABLE>

- ---------------
(1) Relates to certain stock options granted to an executive officer which the
Company is obligated to purchase under certain conditions at a price
determined pursuant to a formula based upon the Company's net income. This
obligation will terminate upon completion of the Offering and the redeemable
common stock will convert into additional paid-in capital. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

(2) Excludes 8,081,250 shares of Common Stock reserved for issuance and
available for grant or sale under the Company's Long-Term Incentive Plan,
1997 Employee Stock Purchase Plan and Nonemployee Directors' Stock Option
Plan and certain nonstatutory stock option agreements, under which there
were options outstanding to purchase an aggregate of 3,783,750 shares of
Common Stock as of September 30, 1997. See "Management."

15
<PAGE> 17

DILUTION

The net tangible book value of the Company's Common Stock as of September
30, 1997, was $85,331,600, or $3.20 per share of Common Stock. Net tangible book
value per common share represents the Company's tangible assets less total
liabilities, plus an aggregate exercise price of $6,014,600 relating to the
purchase of 1,708,750 shares of Common Stock under currently exercisable
options, divided by the number of shares of Common Stock outstanding. Without
taking into account any changes in such net tangible book value subsequent to
September 30, 1997, other than to give effect to (i) the sale by the Company of
8,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $17.00 per share (after deducting the underwriting discounts
and commissions and estimated offering expenses) and the anticipated application
of a portion of the estimated proceeds to repay indebtedness and (ii) receipt of
payment upon the closing of the Offering of stockholder receivables aggregating
$2.4 million as of September 30, 1997, the pro forma net tangible book value of
the Company as of September 30, 1997 would have been $222,081,975, or $6.31 per
share. This amount represents an immediate increase in net tangible book value
of $3.11 per share to existing stockholders and the immediate dilution of $10.69
per share to new investors purchasing Common Stock in the Offering. Dilution per
share to new investors represents the difference between the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering and the amount per share paid by purchasers of Common Stock of the
Company in the Offering. The following table illustrates the per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 17.00
Net tangible book value per share as of September 30, 1997................ $ 3.20
Increase per share attributable to new investors.......................... 3.11
------
Pro forma net tangible book value per common share after the Offering....... 6.31
-------
Dilution per share to new investors......................................... $ 10.69
=======
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1997, the differences between the existing stockholders (after giving effect to
the purchase of 1,708,750 shares of Common Stock under currently exercisable
options with an aggregate exercise price of $6,014,600) and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid, at
the assumed initial public offering price of $17.00 per share, before deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 26,708,750 75.9% $ 6,983,600 4.6% $ 0.26
New investors(1)................ 8,500,000 24.1 144,500,000 95.4 17.00
---------- ----- ------------- -----
Total......................... 35,208,750 100.0% $ 151,483,600 100.0%
========== ===== ============= =====
</TABLE>

- ---------------
(1) Sales by Selling Stockholders of 2,750,000 shares of Common Stock will
reduce the number of shares held by existing shareholders to 23,958,750 or
68.0% of the total number of shares of Common Stock to be outstanding after
the Offering and will increase the number of shares to be purchased by new
investors to 11,250,000 or 32.0% of the total number of shares of Common
Stock to be outstanding after the Offering. See "Principal and Selling
Stockholders."

The foregoing computations exclude 2,075,000 shares of Common Stock
reserved for issuance upon exercise of options that were outstanding but not
exercisable as of September 30, 1997. For information relating to outstanding
option grants and shares reserved for issuance upon future stock awards, see the
description of the Company's Long-Term Incentive Plan, 1997 Employee Stock
Purchase Plan and Nonemployee Directors' Stock Option Plan and certain
nonstatutory stock option agreements in "Management."

16
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected consolidated financial data for each of the years in the
three-year period ended June 30, 1997 and as of June 30, 1996 and 1997 have been
derived from the Company's financial statements included elsewhere in this
Prospectus which have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report thereon is also included elsewhere in this Prospectus.
The selected consolidated financial data as of June 30, 1995 have been derived
from audited financial statements of the Company which are not included in this
Prospectus. The selected consolidated financial data for the years ended June
30, 1993 and 1994 and as of June 30, 1993 and 1994 have been derived from
unaudited financial statements of the Company which are not included in this
Prospectus. The selected consolidated financial data as of September 30, 1996
and 1997 and for the three-month periods then ended have been derived from the
Company's unaudited interim financial statements included elsewhere in this
Prospectus. In management's opinion, the unaudited financial information has
been prepared on the same basis as the audited consolidated financial statements
and includes all necessary adjustments, consisting only of normal recurring
adjustments, that management considers necessary for a fair presentation of the
unaudited financial information when read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The selected consolidated financial data set forth below are qualified in their
entirety by, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------------------------- ---------------------------
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Net revenue............... $56,771 $91,183 $146,168 $163,556 $196,742 $47,690 $78,937
Costs and expenses:
Cost of revenue......... 30,817 57,301 83,016 89,710 103,227 25,359 39,370
Research and
development........... 2,337 4,429 5,422 8,509 12,926 3,160 4,519
Selling, general and
administrative........ 12,192 14,929 27,687 44,741 52,530 10,975 18,919
Non-cash compensation
expense(1)............ -- -- 698 2,061 4,784 1,430 1,770
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses........ 45,346 76,659 116,823 145,021 173,467 40,924 64,578
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.... $11,425 $14,524 $ 29,345 $ 18,535 $ 23,275 $ 6,766 $14,359
========== ========== ========== ========== ========== ========== ==========
Net income................ $ 8,764 $ 9,149 $ 19,556 $ 12,289 $ 15,562 $ 4,499 $ 9,110
========== ========== ========== ========== ========== ========== ==========
Net income per share...... $ 0.23 $ 0.24 $ 0.51 $ 0.32 $ 0.57 $ 0.17 $ 0.33
========== ========== ========== ========== ========== ========== ==========
Number of shares used in
per share
calculations(2)......... 37,885,529 38,049,062 38,169,563 38,674,048 27,261,683 27,058,396 27,387,161
========== ========== ========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------------------------------------------------- -------------
1993 1994 1995 1996 1997 1997
------- ------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 3,334 $ 3,876 $ 8,018 $ 16,113 $ 16,318 $ 12,479
Working capital......................................... 9,652 14,440 33,148 48,693 62,949 71,633
Total assets............................................ 29,087 57,234 80,414 101,829 138,741 156,990
Short-term debt......................................... 247 2,358 5,043 6,055 14,064 14,137
Long-term debt, less current portion.................... 769 2,424 2,155 14,307 10,506 10,413
Redeemable common stock(1).............................. -- -- 698 2,759 7,543 9,313
Total stockholders' equity.............................. 16,902 25,641 44,836 45,232 60,894 70,004
</TABLE>

(2) Fiscal 1997 share amount gives effect to a repurchase of 11,650,000 shares
of Common Stock.

17
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus. This Prospectus, including the following discussion, contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
in the discussion below and elsewhere in this Prospectus.

OVERVIEW

The Company's net revenue is derived from its POS Systems and Network
Systems businesses. Historically, the Company derived substantially all of its
net revenue from its POS Systems business. In fiscal 1997, Hypercom POS Systems
and Hypercom Network Systems accounted for approximately 88% and 12%,
respectively, of the Company's net revenue. The Company anticipates that it will
continue to derive a substantial portion of its net revenue from Hypercom POS
Systems in the foreseeable future, but that net revenue from Hypercom Network
Systems will increase as a percentage of net revenue.

POS Systems products generally are sold under annual volume contracts with
resellers and financial institutions and revenue generally is recognized upon
shipment of products. Network Systems sales are made to financial institutions
and other large retail and service organizations with geographically dispersed
branches. Revenue on network product contracts typically is recognized upon
shipment, although on certain sales it is recognized upon customer acceptance.
Revenue from service obligations related to the Company's products is recognized
over the lives of the service contracts. The Company anticipates that the
introduction of new services and products, such as Pinnacle Server Environment
software products, will increase the Company's recurring revenue stream from
software licenses or service contracts.

The Company derives a significant portion of its net revenue from
international sales. In fiscal 1997, international revenue accounted for 55.8%
of total net revenue. The Company's international sales are denominated
primarily in U.S. dollars, although a portion is denominated in foreign
currencies. The Company expects that in the future it will continue to
denominate most of its international sales in U.S. dollars. The Company has not
experienced any significant foreign exchange gains or losses, and the Company
does not expect that foreign currency fluctuations will have a significant
effect on either its net revenue or costs in the near future.

The Company's results of operations over the past three years have been
affected by certain restructuring events and non-cash compensation charges. In
1992, pursuant to an employment agreement with the Company's President and Chief
Executive Officer, the Company granted this officer a right, upon certain
events, including the officer's death or disability or a sale of the Company, to
require that the Company repurchase stock underlying options granted to him at a
price determined by a prescribed formula based upon the net income of the
Company. For accounting purposes, the stock subject to the options is considered
redeemable and the Company records periodic compensation charges based upon
increases in the difference between the exercise price of the options and the
market value of the stock as determined pursuant to the net income formula set
forth in the officer's employment agreement. During fiscal 1997, 1996 and 1995,
the Company recorded non-cash compensation charges in the amounts of $4.8
million, $2.1 million and $0.7

18
<PAGE> 20

million, respectively, pursuant to this arrangement. It is anticipated that the
Company will incur a substantial non-cash charge (estimated to be $10.5 million,
assuming an initial public offering price of $17.00 per share) in the quarter in
which the Offering is completed, but will incur no further charges under this
arrangement since the repurchase obligation will terminate upon the closing of
the Offering.

In fiscal 1996, the Company restructured its organization and moved its
legal domicile from Australia to the U.S. In addition, the Company combined
substantial manufacturing facilities previously located in Australia with its
Phoenix, Arizona operations. In connection with these events, the Company
incurred approximately $3 million of expenditures relating primarily to the
closure of its Australian manufacturing operation.

In fiscal 1997, the Company continued to incur restructuring charges
related to the Company's move to the U.S. In addition, the Company incurred
significant expenses in implementing an Oracle management information platform
for its worldwide manufacturing, sales and finance functions and the related
expansion of its management information systems staff. These reorganization and
other expenses totaled $3.8 million in fiscal 1997. Selling, general and
administrative expenses in fiscal 1997 also reflect the significant expansion of
Hypercom Network Systems sales and services organization and establishment of
Hypercom International, an operating division which manages all international
sales and distribution activities. The Company believes that these additional
infrastructure-related expenses have better positioned the Company for future
growth.

Although the Company anticipates that net revenue will be higher for the
three months ending December 31, 1997 than for the three months ended December
31, 1996, it expects that pro forma net income (giving effect to the exclusion
of non-cash compensation expense) will be lower for the three months ending
December 31, 1997 than for the three months ended December 31, 1996 due to
increases in selling, general and administrative expense attributable primarily
to expansion of POS international sales and marketing and continued
infrastructure development at Hypercom Network Systems and increases in research
and development expense attributable to continued development of the Company's
Pinnacle Server Environment and Network Systems products.

RESULTS OF OPERATIONS

The following table sets forth certain selected financial information as a
percentage of net revenue for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------- ---------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue.................................. 56.8 54.8 52.5 53.2 49.9
Research and development......................... 3.7 5.2 6.6 6.6 5.7
Selling, general and administrative.............. 18.9 27.4 26.7 23.0 24.0
Non-cash compensation expense.................... 0.5 1.3 2.4 3.0 2.2
----- ----- ----- ----- -----
Total costs and expenses................. 79.9 88.7 88.2 85.8 81.8
----- ----- ----- ----- -----
Income from operations............................. 20.1 11.3 11.8 14.2 18.2
Interest and other income.......................... 1.3 0.4 1.2 0.7 0.3
Interest expense................................... (0.5) (0.4) (1.1) (0.7) (0.7)
----- ----- ----- ----- -----
Income before income taxes......................... 20.9 11.3 11.9 14.2 17.8
Income taxes....................................... (7.5) (3.8) (4.0) (4.7) (6.2)
----- ----- ----- ----- -----
Net income......................................... 13.4% 7.5% 7.9% 9.5% 11.6%
===== ===== ===== ===== =====
</TABLE>

19
<PAGE> 21

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996

Net Revenue. Net revenue in the three months ended September 30, 1997 (the
"1998 Period") increased $31.2 million, or 65.4%, to $78.9 million from $47.7
million in the three months ended September 30, 1996 (the "1997 Period"), due
primarily to increased POS Systems sales of $26.8 million and increased Network
Systems sales of $4.4 million. The increase in POS Systems sales was due
primarily to a greater number of POS terminals and peripherals sold coupled with
relatively stable prices of the Company's POS payment system products,
reflecting increased consumer use of card-based payment methods. Net revenue for
the 1998 Period includes $6.0 million of product which the Company expected to
ship in the fourth quarter of fiscal 1997, but which was delayed at the
customer's request until the first quarter of fiscal 1998. The increase in
Network Systems sales was a function of continuing market acceptance of the
Company's enterprise networking products. International sales accounted for
62.4% and 52.8% of the Company's net revenue in the 1998 Period and the 1997
Period, respectively.

Cost of Revenue. The Company's cost of revenue includes raw material
costs, manufacturing labor and overhead and subcontract manufacturing costs. The
Company's cost of revenue increased $14.0 million, or 55.3%, to $39.4 million in
the 1998 Period from $25.4 million in the 1997 Period. As a percentage of net
revenue, cost of revenue declined to 49.9% in the 1998 Period from 53.2% in the
1997 Period, due to lower costs realized from the centralization of
manufacturing operations in Phoenix, Arizona and the increased use of
subcontractors for certain operations that were previously performed internally.
The cost of revenue as a percentage of net revenue with respect to POS Systems
and Network Systems was approximately 50% and 45%, respectively, in the 1998
Period, as compared to approximately 54% and 48%, respectively, in the 1997
Period.

Research and Development Expense. Research and development expense
consists primarily of software and hardware engineering costs and development
personnel expenses. Research and development expense increased $1.3 million, or
43.0%, to $4.5 million in the 1998 Period from $3.2 million in the 1997 Period,
as a result of development efforts relating to the Company's growing Network
Systems business, as well as the development of new POS payment system products,
including the Company's Pinnacle Server Environment. The significant increase in
net revenue caused research and development expense to decrease, as a percentage
of net revenue, to 5.7% in the 1998 Period from 6.6% in the 1997 Period.

To date, all of the Company's software development costs have been expensed
as incurred and included in research and development. The Company's product
development process is such that technological feasibility is established upon
completion of a working model. Costs incurred between completion of the working
model and the point at which the product is ready for initial shipment have not
been significant.

Selling, General and Administrative Expense. Selling, general and
administrative expense is comprised largely of sales and marketing expenses,
administrative personnel costs and facilities costs. Selling, general and
administrative expense increased $7.9 million, or 72.4%, to $18.9 million in the
1998 Period from $11.0 million in the 1997 Period. As a percentage of net
revenue, these expenses increased to 24.0% in the 1998 Period from 23.0% in the
1997 Period. The increase in the 1998 Period reflects higher sales and marketing
expense in the POS international operations by $3.8 million and in the Network
Systems business by $2.6 million.

Non-Cash Compensation Expense. In connection with the grant of certain
stock options to the Company's President and Chief Executive Officer, which
includes a stock repurchase arrangement, the Company recorded a non-cash
compensation charge of $1.8 million and $1.4 million in the 1998 Period and 1997
Period, respectively. The repurchase arrangement will terminate upon the closing
of the Offering and, except for the charge to be recorded at such time, no
further charges will be recorded.

Income from Operations. Income from operations increased $7.6 million, or
112.2%, to $14.4 million in the 1998 Period from $6.8 million in the 1997
Period, and increased as a percentage of net revenue to 18.2% in the 1998 Period
from 14.2% in the 1997 Period. This increase in the 1998 Period resulted
primarily from higher net revenue coupled with lower costs realized from the
centralization of manufacturing operations in Phoenix, Arizona and the increased
use of subcontractors for certain operations which were previously performed
internally.

20
<PAGE> 22

Net Interest and Other Income. Interest and other income, consisting
primarily of interest income on short-term investments and cash balances, offset
interest expense on borrowings in the 1997 Period. As a result of higher
borrowings, interest expense exceeded interest and other income by $344,000 in
the 1998 Period.

Income Taxes. The provisions for federal, state and foreign taxes were
$4.9 million and $2.3 million in the 1998 Period and 1997 Period, respectively.
The effective tax rates were 35.0% and 33.4% in the 1998 Period and 1997 Period,
respectively. The effective tax rate for the 1998 Period increased as a result
of increased income in jurisdictions that have higher tax rates. The Company's
effective tax rate typically is lower than the U.S. federal statutory tax rate
due to the (i) use of certain tax credits, such as research and experimentation
tax credits in the U.S. and Australia, (ii) sales attributable to certain
foreign jurisdictions that impose lower tax rates and (iii) use of a foreign
sales corporation which affords the Company lower tax rates on certain
international sales.

FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996

Net Revenue. Net revenue in fiscal 1997 increased $33.1 million, or 20.3%,
to $196.7 million from $163.6 million in fiscal 1996 due primarily to increased
POS Systems sales of $17.6 million and increased Network Systems sales of $15.6
million. The increase in POS Systems sales reflected continued growth and price
stability in the market and the increase in Network Systems sales was a function
of continuing market acceptance of the Company's enterprise networking products.
International sales accounted for 55.8% and 58.1% of the Company's net revenue
in fiscal 1997 and 1996, respectively.

Cost of Revenue. The Company's cost of revenue increased $13.5 million, or
15.1%, to $103.2 million in fiscal 1997 from $89.7 million in fiscal 1996. As a
percentage of net revenue, cost of revenue declined to 52.5% in fiscal 1997 from
54.8% in fiscal 1996, due to reduced costs realized from the centralization of
manufacturing operations in Phoenix, Arizona and the increased use of
subcontractors for certain operations that were previously performed internally.
The cost of revenue as a percentage of net revenue with respect to POS Systems
and Network Systems was approximately 52% and 51%, respectively, in fiscal 1997.
Network Systems sales were not material prior to fiscal 1997.

Research and Development Expense. Research and development expense
increased $4.4 million, or 51.9%, to $12.9 million in fiscal 1997 from $8.5
million in fiscal 1996, as a result of development efforts relating to the
Company's growing Network Systems business, as well as the development of new
POS payment system products, including the Company's Pinnacle Server
Environment. Increased development efforts caused research and development
expense to increase, as a percentage of net revenue, to 6.6% in fiscal 1997 from
5.2% in fiscal 1996.

Selling, General and Administrative Expense. Selling, general and
administrative expense increased $7.8 million, or 17.4%, to $52.5 million in
fiscal 1997 from $44.7 million in fiscal 1996. The increase in 1997 reflects
ongoing restructuring costs of $0.8 million relating to the consolidation of
principal manufacturing operations in Phoenix, Arizona begun in 1996 and $3.0
million relating to the implementation of an Oracle management information
platform for the Company's worldwide manufacturing, sales and finance functions
and the related expansion of its management information systems staff. In
addition, selling, general and administrative expense in fiscal 1997 reflected
an increase of $2.0 million attributable to the Company's significant expansion
of its Network Systems sales and services organization and an additional $2.0
million related to the establishment of Hypercom International, which manages
all POS international sales and distribution activities. As a percentage of net
revenue, selling, general and administrative expense decreased slightly to 26.7%
in fiscal 1997 from 27.4% in fiscal 1996.

Non-Cash Compensation Expense. In connection with the grant of certain
stock options to the Company's President and Chief Executive Officer, which
includes a stock repurchase arrangement, the Company recorded a non-cash
compensation charge of $4.8 million and $2.1 million in fiscal 1997 and fiscal
1996, respectively. The repurchase arrangement will terminate upon the closing
of the Offering and, except for the charge to be recorded at such time, no
further charges will be recorded.

21
<PAGE> 23

Income from Operations. Income from operations increased $4.8 million, or
25.6%, to $23.3 million in fiscal 1997 from $18.5 million in fiscal 1996, and
increased as a percentage of net revenue to 11.8% in fiscal 1997 from 11.3% in
fiscal 1996. This increase in fiscal 1997 resulted primarily from lower costs
realized from the centralization of manufacturing operations in Phoenix, Arizona
and the increased use of subcontractors for certain operations which were
previously performed internally.

Income Taxes. The provisions for federal, state and foreign taxes were
$7.8 million and $6.2 million for fiscal years 1997 and 1996, respectively. The
effective tax rates were 33.4% and 33.5% in fiscal 1997 and 1996, respectively,
reflecting the use of certain tax credits, increased income from certain foreign
jurisdictions that impose lower tax rates than the U.S. federal statutory tax
rate and use of a foreign sales corporation.

FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995

Net Revenue. Net revenue in fiscal 1996 increased $17.4 million, or 11.9%,
to $163.6 million from $146.2 million in fiscal 1995, due primarily to increased
domestic and international POS payment system sales. The increase in net revenue
reflects, in part, the acquisition and consolidation of Hypercom Asia Limited
("Hypercom Asia"), the Company's largest distributor, which allowed the Company
to sell products directly to end users at higher prices than such products were
sold to Hypercom Asia. International sales accounted for 58.1% and 60.4% of the
Company's net revenue in fiscal 1996 and 1995, respectively.

Cost of Revenue. The Company's cost of revenue increased $6.7 million, or
8.1%, to $89.7 million in fiscal 1996 from $83.0 million in fiscal 1995,
primarily as a result of increased sales. As a percentage of net revenue, cost
of revenue declined to 54.8% in fiscal 1996 from 56.8% in fiscal 1995, primarily
due to an increase in direct sales to end users, resulting from the acquisition
of Hypercom Asia, which allowed the Company to achieve higher gross margins on
the sale of such products.

Research and Development Expense. Research and development expense
increased $3.1 million, or 56.9%, to $8.5 million in fiscal 1996 from $5.4
million in fiscal 1995. The increase in research and development expense is a
result of increased development activities at Hypercom Network Systems. This
increase caused research and development expense to increase as a percentage of
net revenue to 5.2% in fiscal 1996 from 3.7% in fiscal 1995.

Selling, General and Administrative Expense. Selling, general and
administrative expense increased $17.1 million, or 61.6%, to $44.7 million in
fiscal 1996 from $27.7 million in fiscal 1995. As a percentage of net revenue,
these expenses increased to 27.4% in fiscal 1996 from 18.9% in fiscal 1995.
Approximately $7 million of the increase reflects selling, general and
administrative expense of Hypercom Asia, which was acquired in fiscal 1996. In
addition, selling, general and administrative expense in fiscal 1996 includes
restructuring charges of approximately $3 million related to the Company's
consolidation of manufacturing operations in the U.S. and $4.3 million
attributable to bonuses paid to certain officers.

Non-Cash Compensation Expense. In connection with the grant of certain
stock options to the Company's President and Chief Executive Officer, which
includes a stock repurchase agreement, the Company recorded a non-cash
compensation charge of $2.1 million in fiscal 1996 and $0.7 million in fiscal
1995. The repurchase agreement will terminate upon the completion of the
Offering and, except for the charge to be recorded at such time, no further
charges will be recorded.

Income from Operations. Income from operations decreased $10.8 million, or
36.8%, to $18.5 million in fiscal 1996 from $29.3 million in fiscal 1995. This
decrease is primarily due to (i) restructuring charges of approximately $3
million related to the Company's consolidation of Australian manufacturing
operations with U.S. operations, (ii) bonuses of $4.3 million paid to certain
officers and (iii) a $3.1 million increase in research and development expense
related to the expansion of Hypercom Network Systems.

Net Interest and Other Income. Interest and other income in 1995 included
approximately $0.6 million attributable to the Company's 30% interest in
Hypercom Asia, which is included in other income under the

22
<PAGE> 24

equity method. As a result of the acquisition of Hypercom Asia in 1996, the
Company did not record similar income in fiscal 1996. The Company also recorded
greater interest income in fiscal 1995 as a result of higher cash balances and
returns on short-term investments.

Income Taxes. The provisions for federal, state and foreign taxes were
$6.2 million and $11.0 million for fiscal years 1996 and 1995, respectively. The
effective tax rates were 33.5% and 36.0% in fiscal 1996 and 1995, respectively.
The decrease in effective tax rates reflects increased income from certain
foreign jurisdictions that impose lower tax rates than the U.S. federal
statutory tax rate and use of the Company's foreign sales corporation.

QUARTERLY OPERATING RESULTS

The following tables set forth certain unaudited consolidated financial
information for each of the four quarters in fiscal 1997 and the first quarter
of fiscal 1998. In management's opinion, this unaudited quarterly information
has been prepared on the same basis as the audited consolidated financial
statements and includes all necessary adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a fair
presentation of the unaudited quarterly results when read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus. The Company believes that quarter-to-quarter comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.

<TABLE>
<CAPTION>
THREE MONTHS ENDED,
-----------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Net revenue........................ $47,690 $ 57,742 $45,912 $ 45,398 $78,937
Costs and expenses:
Cost of revenue.................. 25,359 28,555 25,712 23,601 39,370
Research and development......... 3,160 2,688 3,018 4,060 4,519
Selling, general and
administrative................ 10,975 13,819 13,027 14,709 18,919
Non-cash compensation expense.... 1,430 2,409 529 416 1,770
------------- ------------ -------- -------- -------------
Total costs and expenses...... 40,924 47,471 42,286 42,786 64,578
------- ------- ------- ------- --------
Income from operations............. 6,766 10,271 3,626 2,612 14,359
Interest and other income.......... 315 770 381 782 229
Interest expense................... (322) (478) (752) (588) (573)
------------- ------------ -------- -------- -------------
Income before income taxes......... 6,759 10,563 3,255 2,806 14,015
Income taxes....................... (2,260) (3,533) (1,089) (939) (4,905)
------------- ------------ -------- -------- -------------
Net income......................... $ 4,499 $ 7,030 $ 2,166 $ 1,867 $ 9,110
============= ============ ======== ======== =============
PERCENT OF NET REVENUE:
Net revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue.................. 53.2 49.5 56.0 52.0 49.9
Research and development......... 6.6 4.7 6.6 8.9 5.7
Selling, general and
administrative................ 23.0 23.9 28.4 32.4 24.0
Non-cash compensation expense.... 3.0 4.2 1.2 0.9 2.2
------------- ------------ -------- -------- -------------
Total costs and expenses...... 85.8 82.2 92.1 94.2 81.8
------- ------- ------- ------- --------
Income from operations............. 14.2 17.8 7.9 5.8 18.2
Interest and other income.......... 0.7 1.3 0.8 1.7 0.3
Interest expense................... (0.7) (0.8) (1.6) (1.3) (0.7)
------------- ------------ -------- -------- -------------
Income before income taxes......... 14.2 18.3 7.1 6.2 17.8
Income taxes....................... (4.7) (6.1) (2.4) (2.1) (6.2)
------------- ------------ -------- -------- -------------
Net income......................... 9.5% 12.2% 4.7% 4.1% 11.6%
============= ============ ======== ======== =============
</TABLE>

23
<PAGE> 25

The Company's operating results are subject to various risks and
uncertainties, including risks and uncertainties related to economic conditions,
competitive pressures, the composition, timing and size of orders from and
shipments to major customers, variations in product mix and product cost,
overhead costs, obsolescence of inventory, manufacturing or production
difficulties, certain nonrecurring charges and other factors. Accordingly, the
Company's operating results may vary materially from quarter to quarter. Because
a high percentage of the Company's operating expenses are relatively fixed, if
anticipated sales and shipments in any quarter do not occur as expected, the
Company's operating results may be adversely affected and fall significantly
short of expectations. Any unanticipated decline in the growth of the Company's
net revenue, without a corresponding and timely reduction in the growth of
operating expenses, could have an adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that, in
the event of any shortfall of sales or reduction in gross margin in a quarter,
the Company will be able to control expenses sufficiently or promptly to meet
profitability objectives for that quarter. See "Risk Factors" for a discussion
of other factors that may adversely affect the Company's operating results in
any given quarter.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires working capital to support inventory and accounts
receivables, and to fund capital expenditures necessary to support its growth.
As of September 30, 1997, the Company's working capital was $71.6 million, which
included cash and cash equivalents of $12.5 million. The Company funds working
capital requirements with cash from operations and borrowings, principally a
line of credit. Net cash provided by operating activities in fiscal 1997, 1996
and 1995 was $3.2 million, $11.0 million and $5.7 million, respectively. Net
cash used in operating activities in the three months ended September 30, 1997
and 1996 was $0.4 million and $3.8 million, respectively.

The Company's capital commitments consist primarily of the purchase or
lease of facilities and equipment. The Company used $6.9 million, $8.0 million
and $1.9 million in fiscal 1997, 1996 and 1995, respectively, to purchase
property, plant and equipment, primarily manufacturing equipment, facilities and
computer hardware and software to support the Company's growth. The Company
anticipates that it will spend approximately $25.0 million to fund capital
improvements during fiscal 1998, including $20.0 million relating to the
expansion of its manufacturing, warehouse and corporate facilities in Phoenix,
Arizona. See "Use of Proceeds" and "Business -- Properties." For information
relating to the Company's lease commitments, see Note 13 to the Consolidated
Financial Statements included elsewhere in this Prospectus.

The Company maintains a $20.0 million revolving line of credit which
expires in December 1997. The line of credit is secured by the Company's
accounts receivable and inventory. Under the terms of the agreement, the Company
may borrow up to an amount equal to 80.0% of its accounts receivable under 90
days past due and 35.0% of its raw material and finished goods inventory. The
outstanding balance as of September 30, 1997 was $10.7 million. The credit
agreement limits the incurrence of additional debt and the granting of liens or
encumbrances on assets and restricts the use of borrowed funds to working
capital needs. The Company currently is in the process of renegotiating its
credit facilities and, pending completion of negotiations, all covenants have
been waived. Additionally, in August 1997, the Company borrowed under separate
arrangements an additional $9.3 million, of which $5.5 million matures on July
15, 2002, and $3.8 million matures on March 15, 2001. The Company also had notes
payable to a stockholder in the aggregate amount of $3.6 million at September
30, 1997. The Company anticipates repaying all of the foregoing indebtedness
with the proceeds of the Offering. See "Use of Proceeds."

The Company believes that the net proceeds from the Offering together with
cash generated by operations and available borrowings will be sufficient to fund
the Company's operations for the foreseeable future.

BACKLOG

As of June 30, 1996 and 1997 and September 30, 1997, the Company had a
backlog of $78.0 million, $111.0 million and $99.0 million, respectively. 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

24
<PAGE> 26

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.

IMPACT OF INFLATION

In recent years, inflation has not had a significant impact on the
Company's historical operations. There can be no assurance that inflation will
not adversely affect the Company's operations in the future, particularly in
emerging markets where inflationary conditions tend to be more prevalent.

SEASONALITY

Historically, the Company's net revenue and results of operations have been
stronger in the first half of the fiscal year reflecting (i) increased purchases
of POS payment systems to satisfy increased retail demand during the holiday
season, (ii) incentive programs offered by VISA and MasterCard from July to
December of each year that encourage merchants to offer card-based payment
systems and (iii) allocation of customers' capital budgets which typically
occurs by the end of March with volume shipments commencing in July.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS
No. 128, which requires presentation of "basic" and "diluted" earnings per
share, as defined, on the face of the income statement for all entities with
complex capital structures. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997 and requires restatement of
all prior period earnings per share amounts.

In June 1997, the FASB issued SFAS No. 130, Comprehensive Income. SFAS No.
130, which requires that changes in the amounts of certain items, including
foreign currency translation adjustments, which are currently direct adjustments
to equity, be shown in a statement of comprehensive income. The statement of
comprehensive income may be included at the bottom of the statement of
operations or as a separate financial statement. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997 and requires the reclassification
of earlier financial statements for comparative purposes.

The Company is currently studying the impact of these pronouncements.

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<PAGE> 27

BUSINESS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

Hypercom is a leading worldwide developer, manufacturer and supplier of
high performance, comprehensive POS payment systems and sophisticated enterprise
networking products. The Company's end-to-end POS payment system solutions,
comprised of terminals, peripherals, POS network products and software, enable
merchants to automate credit, charge, debit and other electronic payment
transactions, all with seamless integration and interoperability and at a lower
total cost of ownership. The Company has the second largest installed base of
POS terminals in the U.S. and worldwide, and the largest installed base in Latin
America and Asia/Pacific. Leveraging nearly 20 years of expertise with POS
networks, the Company has developed a family of multi-service switch/routers
that enable the integration of business-critical legacy data, LAN, voice, fax,
and video traffic transmitted among central and remote locations. The Company's
networking products allow its customers to eliminate duplicate networks and
facilitate migration to cost-effective switched services. The Company's products
currently are sold in more than 50 countries through its direct sales force and
a variety of third-party distribution channels.

Hypercom POS Systems, which accounted for approximately 88% of Hypercom's
net revenue in fiscal 1997, develops, manufactures, markets and supports a
comprehensive range of technologically-advanced (i) POS terminals and
peripherals, which process transactions at the point of sale, (ii) POS network
products, which provide efficient, accurate and fast transaction transport and
(iii) software products, including terminal application software and terminal
management software, that enable remote and automated terminal management and
the downloading of terminal application software. Hypercom believes that it is
the only single source provider of complete, end-to-end POS payment system
solutions that are interoperable not only with other Hypercom products, but also
with competitors' products. In addition, due to the technologically-advanced
features, speed, reliability, functionality and upgradeability of its products,
the Company believes that the total cost of ownership of Hypercom products
generally is less than its competitors' products, enabling Hypercom products to
command premium pricing.

INDUSTRY BACKGROUND

POS PAYMENT SYSTEMS. In recent years, consumers demanding fast, convenient
and secure methods of payment have increasingly substituted card-based payments,
such as debit, credit and charge cards, for traditional forms of payments, such
as checks and cash. According to The Nilson Report, a payment systems industry
newsletter, retail consumer payments using credit, debit, electronic benefits
transfer and prepaid cards increased from approximately 15% in 1990 to
approximately 21% of transactions (measured in dollars) in the U.S. in 1995, and
are projected to account for approximately 33% and 43% of transactions by 2000
and 2005, respectively. The Nilson Report estimates that POS card transactions
in the U.S. will grow at a five-year CAGR of approximately 16% to 26.3 billion
through 2000 and by approximately 13% to 47.9 billion from 2000 to 2005. The
Company believes that the growth rate for POS transactions worldwide over the
same periods could exceed projected U.S. growth rates. It is anticipated that
convenience, security and financial incentives, such as loyalty programs, will
continue to encourage increased use of card-based payment methods.

26
<PAGE> 28

RETAIL CONSUMER PAYMENT METHODS IN THE U.S.(1)(2)
(DOLLARS IN TRILLIONS)

<TABLE>
<CAPTION>
MEASUREMENT PERIOD RETAIL CONSUMER PAYMENT
(FISCAL YEAR COVERED) METHODS IN THE U.S.
<S> <C>
1990 3.0
1995 3.8
2000 5.1
2005 6.9
</TABLE>

- ---------------
(1) Source: The Nilson Report.
(2) Cards include credit, debit, prepaid and EBT cards.

To accommodate consumer preferences for card-based payments and to
facilitate the electronic delivery of such payments, automated POS systems were
introduced in the early 1980s. Prior to that time, most POS credit and debit
card transactions were processed manually, using paper-based systems. As the
volume of credit card transactions increased, card issuing banks, through their
associations with VISA and MasterCard, offered financial incentives to encourage
the deployment of new POS technologies to improve accuracy, reduce costs,
enhance efficiency, improve settlement procedures and reduce credit abuse and
fraud. These new capabilities included electronic authorization, data capture,
transaction transmission and settlement. These functions require the use of a
POS terminal capable of reading a cardholder's account information from the
card's magnetic stripe and combining this information with the amount of the
sale entered via a POS terminal keypad. The terminal electronically transmits
this transaction information over a communications network to an authorized
computer data center and then displays the returned authorization or
verification response on the POS terminal. According to The Nilson Report, the
1996 year-end installed base of POS payment terminals worldwide was 13.2
million, of which approximately 47%, 27% and 13% were located in the U.S.,
Europe and Asia/Pacific, respectively. According to Frost & Sullivan, a market
research firm, the sale of POS terminals in the U.S. is projected to grow at a
five-year CAGR of 24.6% to approximately 2.4 million terminals by 2000 and
revenues from POS terminal sales in the U.S. are projected to grow at a
five-year CAGR of 21.7% for the same period.

New electronic payment technologies are expected to facilitate the
introduction of additional electronic payment applications, such as
sophisticated customer loyalty programs and stored value cards, and the use of
POS systems in new vertical industries, such as health care and the electronic
payment of government benefits, which is already available in several states and
required to be available for federal programs by 1999. In addition, the
infrastructure development of emerging markets, such as those in Eastern Europe,
Russia and China, is expected to contribute to the increasing demand for
electronic payment products.

The increasing use of debit, credit and charge cards and the proliferation
of new electronic payment methods and programs are driving the need for POS
payment systems which (i) support a wide array of payment and program options,
(ii) are scalable, flexible and cost-effective, (iii) provide fast, secure data
transmission and (iv) can work with existing legacy systems, which form the
backbone of the electronic payments industry. Many of today's installed base of
POS terminals are relatively old and in need of

27
<PAGE> 29

replacement to handle the increased volumes projected for POS transactions, new
payment programs that may be offered in the future, new technologies such as
chip cards and new modems and other interfaces to faster telecommunications
facilities. In addition, the components of current POS payment systems typically
are supplied by numerous vendors which may impair interoperability, scalability
and upgradeability.

ENTERPRISE NETWORKING MARKET. As requirements for the transmission of
data, voice, fax and video have become more complex, many enterprises have
developed multiple networks which carry different types of traffic (data, voice,
fax and video) using a range of protocols (SNA and TCP/IP) and networking
technologies (X.25, frame relay, asynchronous transfer mode ("ATM")).
Historically, large organizations have performed business-critical data
processing predominantly on hierarchical, centralized computer systems, mainly
IBM mainframe (legacy) systems. Wide area networks ("WANs") have been built to
provide access to these systems and databases from geographically-dispersed
branch offices. The CIMI Corporation, a market research firm, estimates that in
1996 legacy SNA traffic accounted for approximately 59% of total network traffic
and will continue to account for approximately 54% of total network traffic in
1998 and 1999. More recently, intranets, LANs, internet access, video
conferencing and other data applications have created a surging demand for
increased network capacity. Companies are searching for methods to integrate
traffic from legacy systems, LANs and single-point remote sites, as well as
video and voice traffic, so that they can eliminate duplicate networks and
reduce communication costs.

Frame relay, an efficient, low-latency, packet switching technology, is
enjoying rapid growth as a carrier-offered service due to its speed and economy,
deployment flexibility and ability to combine incompatible protocols, such as
SNA and TCP/IP, onto a single line resulting in reduced connectivity costs and
network operational complexity. An additional benefit of frame relay is that it
provides a smooth migration to ATM and other broadband switching services.
According to Vertical Systems Group, a market research firm, worldwide revenues
from new frame relay equipment sales were approximately $217 million in 1995 and
are projected to grow at a five-year CAGR of 39.4% to approximately $1.1 billion
by 2000.

There is a rapidly increasing need for enterprise networking solutions that
support a comprehensive range of legacy protocols and are able to consolidate
legacy data, LAN, voice, fax and video applications over frame relay and other
switching services. These solutions need to accommodate the continued reliance
of financial institutions and other large branch networking organizations on
existing legacy mainframe systems for mission-critical applications and the
desire of such organizations to add network client/server computing without
creating duplicate networks, thereby reducing telecommunications costs.

THE HYPERCOM SYSTEMS SOLUTION

Hypercom has successfully deployed its core competencies in hardware
engineering and manufacturing, software development and international operations
to deliver comprehensive, end-to-end POS payment system solutions that maximize
performance and minimize costs. As a result, Hypercom has emerged as a leading
worldwide developer, manufacturer and supplier of high performance,
comprehensive POS payment systems and sophisticated enterprise networking
products.

POS SYSTEMS

The Company believes that its POS Systems business has the following key
competitive advantages:

TECHNOLOGY LEADER AND INNOVATOR. The Company has established itself as a
technology leader and innovator in the electronic payments industry by
developing a number of state-of-the-art POS payment terminals and peripheral
products, transaction networking products and transaction processing software.
Since the introduction of POS payment terminals in the early 1980s, Hypercom has
delivered a series of innovations, such as fast-dial techniques, SDLC terminals,
bit-map message formats, dual-track card readers and on-line terminal
management. The Company also introduced technology that reduced transaction
response times from 20 seconds to less than 10 seconds, which has resulted in
substantial savings for Hypercom customers and better service to consumers.
Hypercom has developed a comprehensive base of terminal and networking
technologies that will enable it to remain a leading innovator in the POS
payment systems market.

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<PAGE> 30

COMPREHENSIVE POS PAYMENT SYSTEMS PROVIDER. The Company differentiates
itself from its competitors by developing, manufacturing and providing complete,
end-to-end POS payment system solutions. With its POS payment terminal
technology, networking hardware and software, client/server software and
low-cost chip card, the Company is a systems-level supplier. Most competitors
offer only certain components of a POS payment system. In contrast, Hypercom
products offer comprehensive payment systems, enabling seamless integration and
interoperability with other Hypercom or competitors' products.

LOWER TOTAL COST OF OWNERSHIP. The Company designs its products to provide
customers with a lower total cost of ownership, enabling Hypercom products to
command premium pricing. The Company's core products typically feature
multi-functionality, robust construction, scalabilty to facilitate system growth
and ready upgradeability to accommodate new technological developments that can
extend product life. The Company's technologically advanced, easy-to-use
products also provide faster transaction processing times, reduce the time and
costs needed to train merchant personnel who operate Hypercom products and
ensure the secure transmission of financial transactions.

INTERNATIONAL EXPERIENCE AND GLOBAL PRESENCE. The Company has been selling
its products in international markets for nearly 20 years and currently sells
its products in more than 50 countries. According to The Nilson Report, the
Company has the second largest installed base of POS terminals in the U.S. and
worldwide, and the largest installed base in Latin America and Asia/Pacific. The
Company has gained significant expertise in adapting to local customs,
addressing local regulatory, certification and telecommunications requirements
and establishing key partnering arrangements with local distributors and
resellers. Further, because the Company's products incorporate advanced
communications technology, the Company believes that its POS payment systems
perform better than its competitors' products in less developed
telecommunications environments, most of which support only earlier generations
of communications protocols.

INTEGRATED DESIGN AND PRODUCTION. The Company designs, develops and
manufactures substantially all of its products in-house, enabling it to control
the product development process at all levels. In addition, the Company works
closely with its customers, distribution channels and related industry
participants to identify products that respond to market needs. Company
officials actively engage in standards-setting efforts and participate in a wide
variety of user groups and industry forums to facilitate product identification
and development efforts. The Company believes that its integrated approach to
product identification, development and manufacturing will continue to reduce
research and development costs and time to market and facilitate its manufacture
of high quality products at low cost.

NETWORK SYSTEMS

Hypercom Network Systems has leveraged its extensive branch networking
expertise in POS payment systems to develop, manufacture, market and support a
family of flexible, stackable, multi-service switch/routers under the trade name
Integrated Enterprise Network. The Company believes that its Network Systems
business has the following key competitive advantages:

TECHNOLOGICALLY ADVANCED, MULTI-SERVICE ARCHITECTURE. Hypercom's IEN
products feature a modular and distributed processing architecture, which
supports legacy and client/server environments and multiple traffic types. Each
IEN device incorporates a switch, router, Frame Relay Assembler/Disassembler
("FRAD"), protocol converter, dial back-up unit and Channel Service Unit/Data
Service Unit ("CSU/DSU"), and performs data compression and encryption. These
products support all WAN services critical for global networking, including
frame relay, X.25 and ISDN, enabling networks to capitalize on the lowest
available telecommunications tariffs. IEN products integrate legacy data, LAN,
voice, fax and video applications over a single network. The benefits of IEN
products include reduced telecommunications costs through the elimination of
duplicate networks, consolidation of customer premises equipment, common
management interface, optimized network performance, added reliability and
system integrity for mission-critical applications.

EXTENSIVE LEGACY EXPERTISE. Due to the pervasiveness of legacy systems
throughout enterprise networks, Hypercom's support of legacy systems provides a
distinct advantage over router vendors whose products are

29
<PAGE> 31

based on IP technology. As additional types of traffic are added to the network,
voice and video in particular, Hypercom's expertise and range of options for
legacy protocols will be increasingly valuable to users in preserving their
financial investments, and ensuring data security and reliability associated
with legacy systems. The comprehensive range of legacy protocols supported by
Hypercom's IEN products include SNA/SDLC, 3270 Bisync, 2780/3780 Bisync,
Burroughs Poll Select, X.25 and asynchronous protocols.

BUSINESS STRATEGY

The Company's objective is to become the leading worldwide provider and
innovator of POS payment system solutions. In addition, the Company is
leveraging the extensive technical capabilities of its networking and software
products to become a leading supplier in the enterprise networking market,
particularly for branch networking applications. To achieve these objectives,
the Company is pursuing the following key strategies:

EXTEND TECHNOLOGY LEADERSHIP. The Company historically has dedicated
substantial resources to maintaining technological superiority over its
competitors and intends to continue its leadership in technology by introducing
cost-effective, innovative products that will facilitate the continued
acceptance of electronic payment media, including new programs and services as
they are developed. For example, the Company currently is developing
next-generation, multi-functional, portable POS payment terminals which will
incorporate improved user interface functionality with enhanced graphic displays
and improved security features. By continuing its technology leadership in the
electronic payments industry, the Company believes it can increase its market
share as emerging technology trends, such as EBT, smart cards, stored value
cards and others, create new opportunities in the POS payment systems market.

EXPLOIT INTERNATIONAL EXPERTISE. A number of international markets present
substantial growth opportunities, such as those in Eastern Europe, China and
Russia. Many of these markets are only beginning to build their electronic
transaction infrastructure, while others, such as those in Western Europe, have
a well-developed infrastructure and are beginning to take advantage of reduced
costs afforded by Hypercom products. In addition, the Company believes that its
POS payment systems, which have advanced telecommunications technology, perform
better in less developed telecommunications environments than competitors'
products. The Company believes there is a substantial opportunity to exploit its
international expertise to sell its products in emerging markets, and intends to
aggressively target these new markets and other markets which it has only
recently begun to serve, such as Europe.

CAPITALIZE ON RETOOLING OF POS PAYMENTS INFRASTRUCTURE. The Company
intends to capitalize on and influence emerging electronic payment technologies
through recently introduced products and products under current development.
These products include (i) the Pinnacle Server Environment, client/server
software applications that provide front-end adaptation capability to host
systems, (ii) Network Terminals, a range of innovative client/server terminal
products that can accommodate greater functionality at low cost, (iii)
ChipStripe, a new low-cost chip card that supports credit, debit and loyalty
applications with improved security, (iv) Interactive Customer Equipment, a
family of easy-to-operate, touch-screen terminals that allows
cardholder-activated magnetic stripe and chip card transactions in a variety of
stationary and mobile venues and (v) faster modem speed capability in POS
payment terminals to reduce telecommunications costs. The Company also is
developing a range of network-based transaction software that will process
Internet transactions, as well as transactions over private networks. The
Company believes that the changes necessitating the anticipated retooling of the
installed POS terminal base and the products it has developed or has under
development to address these changes present a substantial opportunity for
Hypercom to increase sales and market share.

PROVIDE COMPLETE, END-TO-END POS PAYMENT SYSTEMS. The Company believes
that it is the only single source provider of complete, end-to-end POS payment
system solutions. The Company also believes that customers prefer to purchase
from a single supplier that can support a complete system to ensure seamless
interoperability among key components, particularly in a rapidly changing
environment in which new functionality often is added. The Company's ability to
provide end-to-end solutions is a particularly strong competitive advantage in
international markets in which network infrastructures are typically less well-

30
<PAGE> 32

developed and complete system sales occur more frequently. The Company's
products under development, which cover a broad range of compatible POS system
components, reflect its continuing commitment to providing comprehensive systems
solutions.

LEVERAGE POS NETWORK EXPERTISE INTO ENTERPRISE BRANCH NETWORKING
MARKET. In recent years, the Company has leveraged its POS network expertise to
develop enterprise networking products that address the needs of electronic
payment processors and other enterprises that have substantial branch networking
requirements, such as financial institutions and retailers. The Company
continues to differentiate its enterprise networking products through superior
functionality and versatility, and the integration of legacy data, LAN, voice,
fax and video traffic over a single line. The Company intends to increase the
marketing of these technological advantages through its growing direct and
indirect networking products sales force to achieve a leadership position in the
enterprise branch networking market.

ENHANCE BRAND AWARENESS THROUGH INCREASED MARKETING AND DISTRIBUTION. The
Company intends to enhance brand awareness by (i) enlarging its direct sales
staff, (ii) securing additional distributors in emerging markets, such as
Eastern Europe, China and Russia, and in markets the Company currently serves,
(iii) enhancing training programs for resellers and assisting them in
identifying sales opportunities, (iv) expanding its participation in industry
forums and conferences, (v) increasing print advertising in industry
publications and (vi) continuing to develop product and sales training
literature. Training programs, marketing materials and print advertising will
emphasize the Company's competitive advantages, particularly its technology
leadership and unique ability to provide end-to-end POS payment system
solutions.

PRODUCTS AND SERVICES

POS PAYMENT SYSTEMS

The Company's POS payment systems are comprised of a comprehensive range of
(i) POS terminals and peripherals, (ii) POS network products, which provide
efficient, accurate and fast transaction transport and (iii) software products,
including terminal application software and terminal management software, that
enable remote and automated downloading of terminal application software. This
comprehensive range of products provides Hypercom customers with turn-key
capability to supply high performance, end-to-end POS payment system solutions
to merchants and consumers.

TERMINALS AND PERIPHERALS. The Company's terminal products include
stand-alone terminals, compact terminals that have integrated printers and
wireless terminals for specific industry applications, such as automobile
rental, restaurants and temporary merchant locations. The Company's terminal
products are designed for use with magnetic-stripe cards, such as typical
credit, debit or charge cards, as well as with smart or chip cards. Terminal
functionality ranges from routine tasks, such as credit or debit authorization,
electronic draft capture and electronic batch submission and settlement, to high
level functions, such as customer loyalty programs, eligibility checking for
health insurance or government benefits and time and attendance data collection
reporting. These products feature a modular design to allow for easy upgrading
as new technologies become available.

The principal peripheral products that interface with Hypercom terminals
include printers, personal identification number entry devices (known as PIN
pads), signature capture devices and communications products. Printers enable
printing of customer receipts. PIN pads allow acceptance of magnetic-stripe and
chip card-based debit cards and other forms of payment requiring a personal
identification number, and allow for support of customer-activated stored value.
The Company's S7 PIN Pad can be connected to any Hypercom T Series terminal,
turning it into a full-feature debit or combined debit and data capture
terminal. Hypercom's S7 and S8 line of PIN pads provide a range of hardware and
software features that ensure encryption-key and PIN security. In addition,
Hypercom offers the CS7GC Signature Capture PIN Pad, which enables
cost-effective digital capture and storage of signature information for credit
card transactions.

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<PAGE> 33

The following table describes some of the Company's POS terminal and
peripheral products:

TERMINAL AND PERIPHERAL PRODUCTS

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION
- -------------------------------------------------------------------------------------------
<S> <C> <C>
T7P Point-of-Sale Terminal Full-function, low-cost terminal with replaceable
integrated printer; supports retail, restaurant,
lodging, and auto rental industries
- -------------------------------------------------------------------------------------------
T77x Integrated Printer
Terminal Terminal family with integrated high performance
printer
- -------------------------------------------------------------------------------------------
T7E Terminal Stand alone, high performance terminal compatible
with P8 Printer
- -------------------------------------------------------------------------------------------
T7Q Qwerty Keyboard Terminal Enhanced graphic display allows for more complex,
transaction-based point of sale; supports medical
and banking industries
- -------------------------------------------------------------------------------------------
T7GQ Qwerty Keyboard Terminal Allows simple entry of alpha data and is
especially suited for medical eligibility
verification and claims processing
- -------------------------------------------------------------------------------------------
T7PRA Wireless Terminal Fully-integrated terminal using AMPS cellular
communications
- -------------------------------------------------------------------------------------------
T7PRC Wireless Terminal Convenience of integrated printer and wireless
operation capability; supports temporary location
merchants, such as special events and kiosks, and
mobile services, such as delivery vans and taxis
- -------------------------------------------------------------------------------------------
T7GE Graphic Display Terminal Uses familiar and intuitive ATM format designed to
support hotel/motel and oil/gas industries
- -------------------------------------------------------------------------------------------
S7 PIN Pad High performance, secure PIN pad with optional
magnetic-stripe and chip-card reader
- -------------------------------------------------------------------------------------------
S8 PIN Pad Low-cost, secure PIN pad
- -------------------------------------------------------------------------------------------
P8 Printer High-speed, bi-directional printer with sprocket
or friction feed
- -------------------------------------------------------------------------------------------
</TABLE>

POS NETWORK PRODUCTS. The Company's POS network products consist of a
family of Network Access Controller ("NAC") products, which facilitate
transaction delivery from the point of sale to processors of electronic
payments. NACs are intelligent communications products which provide a wide
range of digital and analog interfaces, line concentration, protocol conversion,
data concentration, transaction routing, backup transmission paths and multiple
device interface capabilities that allow access to high-performance data
communications networks. Hypercom recently introduced the MiniNAC2, which
connects automated teller machines, POS terminals and peripherals and PCs or
in-store controllers to existing hosts utilizing standard dial access services.

32
<PAGE> 34

The following table provides a description of the Company's NAC products:

NETWORK ACCESS CONTROLLERS

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PRODUCT FEATURES INDUSTRIES SERVED
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MiniNAC Low-cost, compact network access Retail
controller, performs protocol conversion Lodging
for dial networking or ATM dial operations; Multi-lane retail
has internal 28.8 kbps modem; applications Restaurant
include store LAN controller, protocol
converter, retail concentrator and ATM dial
adapter
- --------------------------------------------------------------------------------------------
Stack-M High performance, stackable network access Retail
controller, performs protocol conversion Multi-lane retail
for dial networking or ATM dial operations; Casino
has internal 28.8 kbps modem; applications
include store LAN controller, protocol
converter, retail concentrator and ATM dial
adapter; has ISDN capability
- --------------------------------------------------------------------------------------------
NAC-1 Single-slot network access controller which Retail
supports a broad range of data Lodging
concentration interfacing, protocol Multi-lane retail
conversion and transaction routing Restaurant
functions through a combination of plug-in
cards
- --------------------------------------------------------------------------------------------
NAC-6 Six-slot network access controller which Retail
supports a broad range of data Lodging
concentration interfacing, protocol Multi-lane retail
conversion and transaction routing Restaurant
functions through a combination of plug-in Electronic transaction
cards processing
- --------------------------------------------------------------------------------------------
NAC-16 Sixteen-slot network access controller Retail
which supports a broad range of data Lodging
concentration interfacing, protocol Multi-lane retail
conversion and transaction routing Restaurant
functions through a combination of plug-in Electronic transaction
cards processing
- --------------------------------------------------------------------------------------------
MegaNAC Sixteen-slot, high performance, digital Retail
(T1/E1) network access controller which Lodging
supports a broad range of data Multi-lane retail
concentration interfacing, protocol Restaurant
conversion and transaction routing Electronic transaction
functions through a combination of plug-in processing
cards
- --------------------------------------------------------------------------------------------
</TABLE>

SOFTWARE PRODUCTS. The three principal categories of the Company's
software products are terminal application software, terminal management
software and transaction processing software.

Terminal Application Software. The Company works closely with its clients
to develop standard and customized applications that operate on Hypercom
terminals. To date, the Company has developed over 80 terminal software
applications, ranging from entry-level credit and debit solutions to complex
systems that support a comprehensive range of electronic payment and medical
transaction functions. Among these software applications are specialized
applications for specific markets such as lodging, restaurants, multi-lane
retail and health care.

Terminal Management Software. Every terminal application software program
produced by the Company has a management and control module that interacts with
the Company's Term-Master Terminal Network Management System. Term-Master is
designed to provide mission-critical functionality to users of

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<PAGE> 35

Hypercom's T Series terminals. Term-Master is the basis for an integrated
terminal management approach that supports multiple merchant locations, remote
and automated downloading of terminal application software, multiple application
software management, merchant terminal set-ups, performance monitoring and
on-line diagnostics.

Transaction Processing Software. The Company's EFT-Master family of
software products automates payment and other transactions. EFT-Master includes
a range of applications which provide low volume financial transaction
processing on PC and client/server platforms. EFT-Master supports electronic
transaction processing, chip-card based loyalty applications, transaction
message formatting, transaction routing, electronic data capture and settlement
and card database authorization.

ENTERPRISE NETWORKING PRODUCTS

The Company's IEN products consist of a modular family of multi-service
switch/routers that enable the integration of business-critical legacy data,
LAN, voice, fax and video traffic transmitted among central and remote
locations, allowing enterprises to eliminate duplicate networks and facilitate
migration to cost-effective switched services. Each IEN device incorporates a
switch, router, FRAD, protocol converter, dial back-up unit and CSU/DSU, and
performs data compression and encryption.

IEN is a modular system consisting of base chassis with plug-in cards.
Plug-in cards support a range of functions, including ISDN BRI, V.32 bis/V.34
dial backup, DSU 56/64 kbps, data compression and encryption, dual V.35 uplink,
T1/E1 interface, 4-port voice card, 2 channel serial user or WAN interface card
and single RS232C/V.24 serial I/O.

The following table describes the Company's plug-in cards:

PLUG-IN CARDS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CARDS DESCRIPTION
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CID15 Low-cost single RS232, V.35 port
- ------------------------------------------------------------------------------------------
CIM15 Low-cost dial back-up V.22 bis/V.32/V.34 modem
- ------------------------------------------------------------------------------------------
CID61 High performance serial card w/RS232, V.35 modem with ISDN-PRI
- ------------------------------------------------------------------------------------------
CID63 Dual port multi-function card which supports the following plug in
modules:
RS 232; V.35; V.32 bis/V.34 modem; 56/64 kbps DSU; ISDN-BRI; Ethernet
LAN interface; PCM V.22 bis modem; Data compression; DES encryption
- ------------------------------------------------------------------------------------------
LET61 High performance Ethernet router card
- ------------------------------------------------------------------------------------------
LTR61 High performance token ring router card
- ------------------------------------------------------------------------------------------
DTC11 Digital TI/EI digital interface; TDM MUX/switch CSU
- ------------------------------------------------------------------------------------------
DLA14 Analog voice interface with four port voice/fax card
- ------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 36

Chassis are available in various sizes as described in the following table:

CHASSIS FOR PLUG-IN CARDS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
NUMBER
OF
MODEL SLOTS DESCRIPTION
------------------------------------------------------------------------------------------
<C> <C> <S>
IEN2000 2 Small branch/remote locations; ATM expansion capability
------------------------------------------------------------------------------------------
IEN3000 6 Regional and remote locations
------------------------------------------------------------------------------------------
IEN4000 8 Regional and large remote locations
------------------------------------------------------------------------------------------
IEN5000 16 Data center/regional locations
------------------------------------------------------------------------------------------
IEN6000 16 Data center/regional locations; ATM expansion capability
------------------------------------------------------------------------------------------
</TABLE>

The Company also offers the IEN500, a single-slot chassis which supports
two configurations: 2 WAN and 1 serial port and 1 WAN and 2 serial ports. IEN
products work with all WAN services critical for global networking, including
X.25, ISDN, frame relay and others, using them cost-effectively to capitalize on
the lowest available telecommunications tariffs. These products also support a
comprehensive range of legacy protocols, including SNA/SDLC, 3270 Bisync,
2780/3780 Bisync, Burroughs Poll Select, X.25 and asynchronous protocols.

The Company also provides software applications that centralize management,
automate routine tasks and integrate with clients' existing network management
environments. Hypercom's IENView software is a suite of standards-based
applications that allow users to manage their networks from a single integrated
console. IENView software provides applications for enterprise and switched
internetwork management, remote monitoring, device management, simulation-based
planning and problem-solving and performance analysis.

SERVICES

The Company provides a broad range of services related to its POS payment
systems and enterprise networking products. The Company provides consulting
services (i) to assist with strategies and alternatives for POS payment systems,
(ii) to assist in the design, installation, integration and management of POS
payment systems and (iii) to design customized software applications, and
deployment, training, technical assistance and maintenance services for its
products.

PRODUCTS UNDER DEVELOPMENT

The Company currently is developing a number of significant new products
that are anticipated to be introduced in fiscal 1998. These new products include
the following:

NEW TERMINAL SYSTEMS. The Company plans to introduce its Interactive
Customer Equipment ("ICE") terminal system beginning in the second fiscal
quarter of 1998. Designed to meet evolving merchant and consumer preferences,
ICE employs user-friendly, touch-screen technology which facilitates the
implementation of new customer loyalty programs, marketing communications and
other POS services. ICE will enable delivery of video messages from service
providers to cardholders at the point of sale, similar to messages displayed on
today's bank automated teller machines. ICE will support chip cards, PIN pad
functions, complex transaction selection and electronic signature capture, and
can be equipped with battery and internal wireless capability to provide a
portable terminal solution for use in automobile rental company parking lots,
restaurants and numerous other business locations where portability is
essential. In addition, the Company is developing the Network Terminal, which
utilizes the client/server computing model, and moves intelligence away from the
retail counter and onto centralized servers that can be more easily maintained
and upgraded at lower costs, and the Q7 POS Terminal, which is a multi-lane
terminal that connects to electronic cash registers and existing POS payment
systems. The Company is developing peripheral products for use with this

35
<PAGE> 37

new generation of terminals, including printers, modems and secure access module
expansion, and external wireless and connectivity modules.

PINNACLE SERVER ENVIRONMENT. The Company's Pinnacle Server Environment
("Pinnacle") will consist of a family of client/server applications that support
a wide range of front-end functions for electronic payment processors. Initial
installations of certain Pinnacle applications are in process in certain
international markets. The Company believes that traditional static host systems
are well-suited for processing the relatively simple core financial transaction,
which debits the "from account" and credits the "to account" by the transaction
amount, but are ill-suited for processing value-added applications, such as
customer loyalty programs, stored value and other functions. Pinnacle will serve
as an adaptation layer between a changing POS environment and the rigid
mainframe host. Pinnacle permits customers to readily upgrade their POS payment
systems to support new functions and payment modes without the need to change or
replace their expensive mainframe host system. Because Pinnacle is
client/server-based, these upgrades are seamless and less expensive than
modifying the mainframe host system to support new functions and payment modes.

Pinnacle will be initially comprised of the following servers: (i) Pinnacle
Financial Server, which will perform transaction data capture reformatting and
routing, (ii) Pinnacle Token Tracking Server, which will service merchant
loyalty programs, (iii) Pinnacle Network Terminal Server, which will service
Hypercom's Network Terminals, (iv) Pinnacle Signature Server, which will perform
electronic signature capture and retrieval functions, (v) Pinnacle Chip Server,
which will perform customized chip card applications and provide chip-based
security and authentication and (vi) Pinnacle Communications Server, which will
enhance networking and routing.

CHIPSTRIPE. The Company has developed a low-cost chip card, marketed under
the name ChipStripe, which provides a cost-effective and secure alternative to
today's magnetic stripe-based debit and credit cards. Chip cards, such as
ChipStripe, enhance security because they are harder to counterfeit and embed
user identification information. Fully-embedded ChipStripe cards will cost
approximately $1 per card, substantially lower than the current cost of other
chip cards. The Company believes that ChipStripe's low cost will encourage
financial institutions to use chip cards for fraud detection and customer
loyalty programs.

INTERNET COMMERCE. In response to the growing interest in Internet
commerce, the Company is developing a family of network-based software that will
operate over the Internet, as well as over private networks, whether legacy or
IP-based, including low-speed, packet networks that still dominate the banking
industry. This software is expected to enable Internet-based information,
banking and electronic commerce functions to be accessed via any standard
browser, as well as certain legacy software architectures.

CUSTOMERS

Hypercom POS Systems' customers are predominantly large domestic and
international financial institutions, electronic payment processors, independent
service organizations ("ISOs") and resellers. These customers generally have
substantial POS payment system requirements. Representative direct and indirect
POS customers include American Express Company, BA Merchant Services, Inc.,
Banamex, CrediCard Brazil, First Data Merchant Services, General Electric
Capital Corporation, National Bank of Australia and Wells Fargo Bank, N.A. In
any given year, select customers may account for a significant percentage of net
revenue. Although no one customer accounted for more than 10% of the Company's
net revenue in fiscal 1997, the two largest customers accounted for 19.5% of the
Company's net revenue in fiscal 1997 and the five largest customers accounted
for 33.6% of the Company's net revenue.

Hypercom Network Systems' customers generally consist of large financial
institutions, retailers, electronic payment processors, resellers and other
enterprises that have substantial branch networking requirements spanning an
average of 200 sites. Representative direct and indirect network customers
include Alamo Rent A Car, Inc., American Express Company, AT&T Corp., First Data
Merchant Services, The Home Depot, Inc., The Hong Kong and Shanghai Banking
Corporation Group and Lucent Technologies, Inc.

The Company places special emphasis on offering high-performance,
technologically-advanced POS payment system solutions and enterprise branch
networking products to enable its customers to gain market

36
<PAGE> 38

share in their respective industries. The following summarizes the end-to-end
solutions the Company has provided to two of its significant customers.

American Express. The Company's relationship with American Express began
in 1983 in Australia, and the Company has been supplying American Express with
POS terminals, peripherals and POS network products worldwide since that time.
In 1987, the Company was awarded contracts to supply American Express with
high-performance, custom-designed terminals and a U.S.-wide dial access network.
The new terminals and the network represented a significantly advanced
technology, manifested in reduced response times (from 20 seconds to 6 seconds)
and increased reliability, resulting in substantially reduced operating costs.
Subsequent network technology upgrades and the addition of new terminals ensured
that the American Express terminal program remained one of the most advanced
systems in the world. The Company's network technology also was adopted by AT&T
Transaction Services and Transaction Network Services, Inc. for use in their
third-party transaction delivery networks. These networks today handle a
substantial portion of the dial POS transactions in the U.S. In June 1997, the
Company signed a three-year, $25 million contract with American Express to
supply POS terminals and printers to American Express customers worldwide. This
contract consolidated American Express' POS equipment purchasing and was awarded
after American Express evaluated numerous responses to a request for proposal
issued in 1996. In addition, the Company was selected to provide service and
support functions for American Express POS networks outside the U.S.

HSBC Group. HSBC Group, whose founding member is The Hong Kong and
Shanghai Banking Corporation Group, is one of the world's leading international
banking and financial services organizations with over 3,000 offices in 71
countries. Major members of the HSBC Group include the Midland Bank of the
United Kingdom, the Marine Midland Bank and the HSBC Banco Bamerindus of Brazil,
as well as The Hong Kong and Shanghai Bank's extensive operations in Hong Kong,
Asia, Canada, Australia and the Middle East. In April 1996, the Company was
selected by the HSBC Group to supply a global frame relay network to support the
HSBC Group's operations in 42 countries. Hypercom's IEN technology was chosen to
provide both the frame relay backbone and the branch office access equipment
solution. The HSBC Group's network supports a wide range of applications and
technologies, including bank branch teller terminals and controllers, a global
automated teller machine service, POS and card products terminals and
client/server-based customer electronic banking service. Hypercom's IEN products
were chosen because of the Company's demonstrated capability to support the wide
range of protocols, access methods and applications required by such a diverse
and widely distributed financial institution.

SALES, MARKETING AND DISTRIBUTION

The Company sells its POS payment system solutions through its direct sales
force and through independent third-party resellers, including financial
institutions, electronic payment processors and service providers. The Company's
domestic sales and marketing personnel, which consists of 24 persons located
throughout the country, are managed from its Phoenix, Arizona headquarters. To
support its international operations, which also are headquartered in Phoenix,
the Company has sales and support facilities in Miami (serving Latin America),
Hong Kong, China, Singapore, Japan, Australia, Brazil, Chile, Argentina, Mexico,
Hungary, Russia, the United Kingdom and France.

The Company sells its enterprise networking products primarily through an
11-person direct sales force, distributors, value-added resellers and system
integrators, who resell the Company's networking products along with other
computer and communications equipment. Because the sale of networking products
is highly technical, the sales cycle can be as long as 18 months. The technical
nature of the sale also results in increased reliance on resellers who work
closely with the Company's customers to identify the benefits that Hypercom
enterprise networking products can provide to their businesses and support the
Company's products locally.

The Company's marketing programs include trade shows, press releases, press
interviews, speaker engagements, training and technology seminars, sales
collateral and white papers, print advertising, articles and newsletters
supported by Hypercom's technical publications group.

For a description of operating profit or loss attributable to each of the
Company's industry segments and information relating to geographic areas and
export sales, see the Consolidated Financial Statements and

37
<PAGE> 39

Notes thereto included elsewhere in this Prospectus. For information relating to
the Company's backlog, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Backlog."

CUSTOMER SERVICE AND SUPPORT

The Company believes that it has established a reputation for manufacturing
high quality, reliable products and for providing excellent service and support
for its products. Through its facilities in Phoenix, Arizona, the Company
provides pre- and post-sales consulting, application software development and
support, installation services, customer support and comprehensive repair
facilities for its products. The Company also supports its enterprise networking
products through remote access to customer installations. Remote access is
accomplished either through a dial-up network connection directly to a
customer's installation or through a modem connection to the central part of the
customer's system. This connection allows Company support personnel to analyze
and correct installation and configuration problems remotely. Field support
engineers are available to assist with customer emergencies, and third-party
field personnel provide additional support for the Company's products.

The Company provides a five-year warranty on its POS terminal products and
one to five-year warranties on other products. The Company has not incurred
significant warranty expense to date. The Company believes that its five-year
warranty on POS terminal products has contributed significantly to its
reputation for manufacturing high quality, reliable products, and that this
warranty results in a lower total cost of ownership than competitors' products.

MANUFACTURING

The Company's principal manufacturing facility is located in Phoenix,
Arizona, where the Company manufactures both POS payment systems and enterprise
networking products. The Company also manufactures POS products at its
facilities in Brazil, and certain POS payment systems are manufactured by a
contract manufacturer in China. The Company also relies on certain third-party
suppliers for certain components of its POS payment system products.

The Company's enterprise networking products are manufactured and assembled
at its Phoenix facility, as well as by a contract manufacturer. The Company also
manufactures certain networking product components in Australia and other
components are manufactured by various third parties, including its contract
manufacturer.

To control product costs, the Company centrally manages its material
requirements planning and bills of material from its Phoenix facility on an
integrated computer system, which is networked to all Hypercom manufacturing
centers. By managing its purchasing centrally, the Company is able to obtain
discounts on volume purchases. The Company also maintains sufficient flexibility
in its purchasing to allow it to take advantage of favorable pricing in regional
markets. Central management of purchases also assists the Company in ensuring
quality control of components used in its products.

RESEARCH AND PRODUCT DEVELOPMENT

Since its inception, the Company has made substantial investments in
research and development. With respect to its POS payment system products, the
Company's development efforts are focused on products that support new
technologies and payment products emerging in the electronic payments industry.
With respect to enterprise networking products, the Company's efforts are
focused on developing new capabilities to support real-time integrated data,
voice and multimedia communications. The Company works closely with its
customers to define new product concepts and identify emerging applications for
its products. Development projects are evaluated through a management review
process and assigned to the Company's development centers based upon the
potential value of the target markets, as well as the technology, manpower and
engineering expertise requirements.

The Company designs and develops all of its products and incorporates,
where appropriate, technologies from third parties and those available in the
public domain. The Company's product development units for

38
<PAGE> 40

both POS payment system products and enterprise networking products are
headquartered in Phoenix, Arizona. Development staffs also are located in
Australia, Hong Kong, Singapore, Brazil, Russia and the United Kingdom. The
Company maintains a separate development group dedicated to electronic commerce
transaction software which is located in Australia, where it benefits from
certain research and experimentation tax credits.

The markets for the Company's products are characterized by changing
technology, evolving industry standards and frequent product introductions.
Management believes that the Company's future success depends in large part upon
its ability to continue to enhance its existing products and to develop new
products. The Company is dedicated to complying with industry standards and
supporting important new standards as they emerge.

At September 30, 1997, 290 employees of the Company were engaged in
research and product development, including 257 in POS payment systems
development and 33 in enterprise networking systems development. In 1997, 1996
and 1995, the Company's research and development expenditures were $12.9
million, $8.5 million and $5.4 million, respectively. To date, all of the
Company's research and development costs have been expensed as incurred. The
Company expects that it will continue to expend substantial resources on
research and product development.

COMPETITION

The markets in which the Company operates are highly competitive and are
becoming increasingly competitive. With respect to its POS payment system
products, the Company competes primarily on the basis of ease-of-use, product
performance, price, features, quality, the availability of application software
programs, the number of third-party network host and telephone system
certifications it has obtained for its products and application programs, rapid
development, release and delivery of software products and customer support and
responsiveness. Software products compete on the basis of functionality,
scalability, quality and support.

Although the market for the Company's POS payment system products is
competitive, the need for highly reliable and fully-certified software creates a
barrier to entry by new competitors. For example, electronic payment processors
have specific requirements that POS payment systems software must meet,
including requirements relating to security, host communications and message
format. Accordingly, POS terminal devices must accurately capture information
required to process the transaction, package this information, transmit it to
the processor's host system in the specified format and receive the host
system's response. Each processor has its own unique requirements that require
the development of different software applications and the successful completion
of a lengthy certification process. As a result, to compete effectively,
competitors must be able to develop software applications compatible with the
diverse requirements of numerous processors of electronic transactions and that
satisfy the diverse certification standards of these processors. The Company's
primary competitor in the POS payment systems market is VeriFone, Inc., which
was recently acquired by Hewlett-Packard Company.

With respect to its enterprise networking products, the Company competes
primarily on the basis of product features, quality, flexibility, reliability,
scalability and interoperability. The market for the Company's enterprise
networking products is intensely competitive and is characterized by rapid
technological development. The Company's competitors with respect to networking
products include (i) internetworking companies, such as Cisco Systems, Inc.,
3Com Corporation and Bay Networks, Inc., (ii) FRAD providers, such as Sync
Research, Inc., Motorola Information Systems Group, and Netlink, Inc. and (iii)
circuit management providers, such as Visual Networks, Inc. and NetScout
Systems, Inc. The Company expects that the number of competitors in both the POS
payment systems and enterprise networking systems markets will grow due to the
growth opportunities in both markets.

Many of the Company's current and potential competitors have significantly
greater financial, technical and marketing resources than the Company, as well
as better name recognition and a larger customer base than the Company. As a
result, they may be able to devote greater resources to the development,
promotion, sale and support of their products than the Company. The Company
often faces additional competitive factors

39
<PAGE> 41

in foreign countries, including preferences for national vendors and
difficulties in obtaining necessary certifications and in meeting the
requirements of government policies.

PROPRIETARY RIGHTS

The Company's success is dependent upon its proprietary technology. The
Company relies upon copyrights, trademark and trade secret laws and more
recently upon patent law protection, to establish and maintain its proprietary
rights in its technology and products.

The Company currently does not hold any issued patents in the U.S., but
does have three patent applications pending. The Company has received a notice
of allowance and anticipates that it will obtain a patent in early 1998 for its
pending patent application relating to a POS terminal configured with a
substantial portion of its functionality at a remote processor. The Company's
second pending patent application relates to the Company's replaceable printer
mechanism which has been instituted by Hypercom in its integrated POS terminals
containing a printer. The third patent application relates to the use of a smart
card in conjunction with a personal computer which uses the floppy drive as an
interface device. The Company has taken steps necessary to pursue patent
protection for these three patent applications in a number of foreign countries.

The Company has U.S. federal registration for its "Hypercom" trademark. In
addition, the "Hypercom" trademark is registered in 17 foreign countries with
registration pending in 11 additional countries. In addition to the registered
trademark of the Hypercom(R) name and logo, the Company has obtained U.S.
federal registrations for the following trademarks: MEGANAC(R), MININAC(R),
MINIROUTER(R), TERM-MASTER(R), VIRTUAL MAPPED SNA(R) and VIRTUAL POS(R). The
Company's trademark applications for U.S. registration include: QUIX(TM), TOKEN
TRACKING SYSTEM(TM), VIRTUAL TERMINAL(TM), CHIPSTRIPE(TM) and INTEGRATED
ENTERPRISE NETWORK(TM).

The Company embeds copyright notices in its software products advising all
users that the software is owned by Hypercom. The Company also places copyright
notices on documentation related to these products. The Company routinely relies
on contractual arrangements to protect its proprietary software programs,
including written contracts prior to product distribution or through the use of
shrink wrap license agreements. The Company typically does not obtain federal
copyright registrations for its software.

There can be no assurance that others will not develop products or
technologies that are equivalent or superior to those of the Company, or that
any patents, copyrights, confidentiality agreements and internal safeguards upon
which the Company relies will be adequate to protect its interests.

GOVERNMENT REGULATION

The Company's products must meet industry standards, such as those imposed
by VISA and MasterCard, and receive certification for connection to certain
public telecommunications networks prior to their sale. In the U.S., the
Company's products must comply with various regulations defined by the FCC and
Underwriters Laboratories. Internationally, the Company's products must comply
with standards established by telecommunications authorities in various
countries, as well as with recommendations of quasi-regulatory authorities and
standards-setting committees. In addition, public carriers require that
equipment connected to their networks comply with their own standards, which in
part reflect their currently installed equipment. Some public carriers have
installed equipment that does not fully comply with current industry standards,
and this noncompliance must be addressed in the design of the Company's
enterprise networking products. Any future inability to obtain on a timely basis
or retain domestic or foreign regulatory approvals or certifications or to
comply with existing or evolving industry standards could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, rates for public telecommunications services, including
features and capacity of such services, are governed by tariffs determined by
carriers and subject to regulatory approval. Changes in these tariffs could have
a material adverse effect on the Company's business, operating results and
financial condition.

40
<PAGE> 42

Company's production processes. Although the Company believes that its
operations comply in all material respects with such regulatory requirements,
any failure to comply with applicable requirements, or the adoption of new
regulations or changes in existing regulations, could impose additional
compliance costs on the Company, require a cessation of certain activities or
otherwise have a material adverse effect on the Company's business, operating
results and financial condition.

EMPLOYEES

At September 30, 1997, the Company employed 976 persons, including 414 in
manufacturing, service and support, 143 in sales and marketing, 290 in
engineering and 129 in finance and administration. Approximately 375 employees
were in international locations.

None of the Company's employees is represented by a labor union, and the
Company considers its relations with its employees to be positive. The Company
has experienced no work stoppages.

Competition for technical personnel in the Company's industry is intense.
To date, the Company has been successful in recruiting and retaining qualified
employees, but there is no assurance that it will continue to be successful in
doing so in the future. The Company's future success depends in part on its
continued ability to hire, assimilate and retain qualified personnel.

PROPERTIES

The Company's principal administrative, assembly and warehouse facilities
are located in Phoenix, Arizona, where it owns an approximate 84,000 square foot
building and leases an adjacent 23,800 square foot building. The lease expires
on August 31, 2011. In addition, the Company recently purchased a 10.4 acre lot
adjacent to this facility. The Company expects that a portion of the proceeds of
the Offering will be used to expand the Company's manufacturing, warehouse and
corporate facilities. The Company intends to expand the Company's manufacturing
facility to increase manufacturing and warehouse space and construct a new
building that will house Hypercom Network Systems and the Company's corporate
headquarters. See "Use of Proceeds."

The Company leases an approximate 20,000 square foot facility in Sydney,
Australia, and an approximate 17,000 square foot facility in Brazil. In
addition, the Company maintains an approximate 12,400 square foot warehouse
facility in Phoenix under a lease that expires on December 31, 2002. The Company
also leases office space in Arizona, Florida, Georgia, Maryland, Hong Kong,
China, Singapore, Japan, Chile, Argentina, Mexico, Russia, Hungary and the
United Kingdom, all of which are dedicated primarily to sales and support. The
Company believes that its facilities are adequate for its operations as now
conducted and, upon completion of the expansion of its Phoenix, Arizona
corporate and manufacturing facilities, will be sufficient for the foreseeable
future.

LEGAL PROCEEDINGS

From time to time, the Company is subject to claims and litigation incident
to its business. As of the date of this Prospectus, there is no material legal
proceeding to which the Company is a party.

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<PAGE> 43

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the Company's
current directors, persons nominated to become directors immediately following
the Offering, and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------- ---- -----------------------------------------------
<S> <C> <C>
George Wallner....................... 46 Chairman of the Board of Directors
Albert A. Irato...................... 59 Vice Chairman of the Board of Directors, Chief
Executive Officer and President of the Company
and Chief Executive Officer and President of
Hypercom U.S.A., Inc.
Paul Wallner......................... 43 Vice Chairman of the Board of Directors of the
Company and President of Hypercom Network
Systems
Jairo Gonzalez....................... 35 Vice Chairman of the Board of Directors of the
Company and President of Hypercom International
Thomas E. Linnen..................... 51 Chief Financial Officer of the Company
William E. Fisher(1)(2).............. 51 Director Nominee
Peter J. Hart(1)..................... 57 Director Nominee
</TABLE>

- ---------------
(1) It is anticipated that Messrs. Hart and Fisher will serve as the initial
members of the Compensation Committee of the Board of Directors upon their
election as directors immediately following the Offering.

(2) It is anticipated that Mr. Fisher will serve as the initial member of the
Audit Committee of the Board of Directors upon his election as a director
immediately following the Offering.

The business experience of each of the directors, director nominees and
executive officers is set forth below.

George Wallner has served as the Chairman of the Board of Directors since
he founded the Company in 1978. Mr. Wallner also serves as the Company's Chief
Technologist. Mr. Wallner received a degree in electrical and communications
engineering from the Kando Kalmau Technical College of Budapest, Hungary. George
Wallner is the brother of Paul Wallner.

Albert A. Irato has served as Vice Chairman of the Board of Directors,
Chief Executive Officer and President since October 1992. In addition, since
October 1992, Mr. Irato has served as President and Chief Executive Officer of
Hypercom U.S.A., Inc., a wholly-owned subsidiary of the Company responsible for
POS operations in the U.S. and Canada. From 1985 until 1992, Mr. Irato served in
various management capacities at American Express Corp. TRS, the travel related
services division of American Express, most recently as Senior Vice President
responsible for the merchant operations and POS and ATM networks and services.
Mr. Irato also served as Chairman of the Board of the Electronic Funds Transfer
Association headquartered in Washington, D.C. Mr. Irato currently serves on the
Board of Directors of Continental Circuits Corp., a manufacturer of circuit
boards. Mr. Irato holds a B.S. from Spring Hill College and an advanced
management degree from the Darden School of the University of Virginia. Mr.
Irato and Mr. Hart are brothers-in-law.

Paul Wallner has served as a Vice Chairman of the Board of Directors since
the Company was founded in 1978, and has served since 1995 as President of
Hypercom Network Systems, the Company's operating division responsible for
designing and manufacturing networking products. Mr. Wallner obtained his B.S.
in business from a Hungarian state college and has over 20 years of experience
in WAN/LAN system development and software integration for telecommunication
applications. Paul Wallner is the brother of George Wallner.

Jairo Gonzalez has served as Vice Chairman of the Board of Directors since
July 1997, and has served since 1990 as President of Hypercom International, the
Company's operating division responsible for international marketing, sales and
distribution of POS payment systems. Mr. Gonzalez holds a B.A. in political
science from the University of Oregon.

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<PAGE> 44

Thomas E. Linnen has served as Chief Financial Officer since October 1996.
Prior to joining the Company, Mr. Linnen was Vice President of Finance,
Secretary, Treasurer and a Director of Continental Circuits Corp., a
manufacturer of circuit boards. Mr. Linnen currently serves as a Director of
Go-Video, Inc., a manufacturer of consumer electronic video products. Mr. Linnen
received a B.S. in business administration from the University of Wisconsin and
is a Certified Public Accountant.

William E. Fisher has been nominated and has agreed to serve as a Director
of the Company immediately following the Offering. Since its inception in 1993,
Mr. Fisher has served as Director, Chairman of the Board, President and Chief
Executive Officer of Transaction System Architects, Inc. ("TSA"), a developer of
software products and services primarily focused on the electronic funds
transfer market. From 1987 to 1993, Mr. Fisher served in various capacities at
Applied Communications, Inc., a subsidiary of TSA, most recently as Chief
Executive Officer. In addition, Mr. Fisher currently serves as a Director for BA
Merchant Services, Inc., a provider of payment processing and related
information products and services, and West Teleservices Corp., a provider of
telecommunications services and products.

Peter J. Hart has been nominated and has agreed to serve as a Director of
the Company immediately following the Offering. Since 1996, Mr. Hart has served
as a Director and Vice President of Express Card Systems, Inc., a sales company.
From 1973 to 1996, Mr. Hart served in various capacities at Price Waterhouse
LLP, most recently as Senior Tax Partner. Mr. Hart and Mr. Irato are
brothers-in-law.

KEY EMPLOYEES

The business experience of each of the Company's key employees is set forth
below.

Chris Alexander has served as Chief Operating Officer of Hypercom
International since 1993. Prior to joining the Company, Mr. Alexander served as
Vice President, Treasurer and Chief Financial Officer for the Lawrin Company, a
manufacturer of lighting and lighting accessories, from 1992 to 1993. From 1988
to 1992, Mr. Alexander served as President and Chief Executive Officer of the
Washington Manufacturing Company, a textile manufacturer. From 1982 to 1988, Mr.
Alexander served as Administrative Vice President and Treasurer for Dataplex
Corporation, a microfiche processing company. Mr. Alexander received his B.S.
degree in industrial management from the Georgia Institute of Technology and his
M.B.A. in Finance from Georgia State University.

William A. Dowlin has served since July 1997 as President of Hypercom
Manufacturing Resources, Inc., the Company's wholly-owned subsidiary responsible
for all manufacturing operations. From 1991 to 1997, Mr. Dowlin served as Vice
President of Manufacturing at Symbol Technologies, Inc., a manufacturer of bar
code data transaction systems. From 1986 to 1991, Mr. Dowlin served as Vice
President of Operations at National Computer Systems, a global information
services company.

Peter J. Stutsman has served as Secretary and General Counsel for the
Company since 1995. Prior to joining the Company in 1994, Mr. Stutsman served
from 1993 to 1994 as Manager of Contract Administration for Syntellect, Inc., a
manufacturer of automated voice attendant equipment. From 1988 to 1993, Mr.
Stutsman served as Senior Contract Administrator for McDATA Corporation, a
manufacturer of computer-related products. Mr. Stutsman holds a B.S. degree in
Accounting and a M.B.A. from Arizona State University, and received his law
degree from Southwestern University School of Law. Mr. Stutsman is a member of
the Arizona, California and Texas Bar Associations.

Scott Tsujita has served as the Company's Treasurer and Vice President of
Finance since 1993. From 1990 to 1993, Mr. Tsujita served as Senior
Manager-Audit for Zolondek, Blumenthal, Greene, Freed & Strassels. From 1986 to
1990, Mr. Tsujita served as an Audit Manager for KPMG Peat Marwick LLP. Mr.
Tsujita received his B.S. in accounting from the University of British Columbia
and is a member of the American Institute of Certified Public Accountants and
the State of Arizona State Board of Accounting.

43
<PAGE> 45

SUMMARY OF EXECUTIVE COMPENSATION

The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during
fiscal 1997 of those persons who were, at September 30, 1997, (i) the Chief
Executive Officer of the Company and (ii) the other four most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers"):

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ------------------- OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- --------------------------------- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
George Wallner................... $494,411 $156,500 $ -- -- $11,711
Chairman of the Board of
Directors
Albert A. Irato.................. 306,260 14,500 -- 257,500 --
Chief Executive Officer and
President
Paul Wallner..................... 368,697 156,500 -- -- 17,680
President of Hypercom Network
Systems
Jairo Gonzalez................... 228,181 -- -- 1,075,000 --
President of Hypercom
International
Thomas E. Linnen................. 104,461 -- -- 81,250 --
Chief Financial Officer
</TABLE>

- ---------------
(1) The cost of certain perquisites and other personal benefits are not included
because they did not exceed the lesser of either $50,000 or 10% of the total
of the annual salary and bonus reported for the Named Executive Officer. See
"Certain Relationships and Related Transactions" for information relating to
advances made by the Company to certain of the Named Executive Officers.
(2) Amounts reflect contributions made by the Company's Australian subsidiary to
a superannuation fund. This superannuation fund was dissolved by the Company
in fiscal 1998 and the funds were distributed to the participants.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding stock options granted
during fiscal 1997 to the Named Executive Officers:

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
- ----------------------------- ---------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
George Wallner............... -- -- $ -- -- $ -- $ --
Paul Wallner................. -- -- -- -- -- --
Albert A. Irato.............. 257,500 13.5% 6.40 12/31/06 1,036,438 2,626,500
Jairo Gonzalez............... 1,075,000 56.2 6.40 12/31/06 4,326,875 10,965,000
Thomas E. Linnen............. 81,250 4.2 6.40 11/25/06 327,031 828,750
</TABLE>

- ---------------
(1) Of Mr. Linnen's options, 12,500 vest upon completion of the Offering, and
the remaining 68,750 options become exercisable over five years at the rate
of 20% on each successive anniversary of the date of grant. One-half of each
of Mr. Irato's and Mr. Gonzalez's options vested immediately with the
remaining one-half becoming exercisable over five years at the rate of 20%
on each successive anniversary of the date of grant.

(2) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions, as well as the option holder's continued employment with the
Company throughout the vesting period. The amounts reflected in this table
will not necessarily be achieved.

44
<PAGE> 46

FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning the value of
unexercised options held by the Named Executive Officers as of September 30,
1997. No Named Executive Officer exercised any options in fiscal 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George Wallner........................................... -- -- $ -- $ --
Paul Wallner............................................. -- -- -- --
Albert A. Irato.......................................... 1,158,750 128,750 17,196,400 1,364,750
Jairo Gonzalez........................................... 537,500 537,500 5,697,500 5,697,500
Thomas E. Linnen......................................... -- 81,250 -- 861,250
</TABLE>

- ---------------
(1) Assumes a market price for the Common Stock at September 30, 1997, equal to
the assumed initial public offering price of $17.00 per share less the
exercise price thereof.

EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

Albert A. Irato, the Company's President and Chief Executive Officer, is
employed under an agreement that expires January 1, 2002. The agreement
currently provides for an annual base salary of $322,000, with annual
adjustments beginning October 1, 1997 up to a maximum of $422,000. The agreement
also provides for an automobile allowance, participation in the Company's
benefit plans and certain other fringe benefits. In addition, pursuant to the
agreement Mr. Irato was granted options to purchase 257,500 shares of Common
Stock at an exercise price of $6.40 per share. One-half of the options vested
immediately and the remaining one-half become exercisable over five years at the
rate of 20% per year beginning January 1, 1998. In the event that Mr. Irato's
employment is terminated by the Company without cause or by reason of death or
disability, or in the event of a change of control of the Company, all options
will vest immediately. In the event that Mr. Irato's employment is terminated
without cause, Mr. Irato will receive for a period of one year following
termination an amount equal to his annual base salary on the date of
termination. The agreement also contains a non-compete provision whereby Mr.
Irato has agreed that he will not, during his employment and for one year after
any termination of employment, participate or assist in the ownership or
operation of any business similar to or competitive with the Company. Mr. Irato
may terminate his employment with the Company at any time during the term.

Jairo Gonzalez, President of Hypercom International, is employed under an
agreement that expires January 1, 2002. The agreement currently provides for an
annual base salary of $250,000, with annual adjustments beginning October 1,
1997 up to a maximum of $300,000. The agreement also provides for an automobile
allowance, participation in the Company's benefit plans and certain other fringe
benefits. In addition, pursuant to the agreement Mr. Gonzalez was granted
options to purchase 1,075,000 shares of Common Stock at an exercise price of
$6.40 per share. One-half of the options vested immediately and the remaining
one-half become exercisable over five years at the rate of 20% per year
beginning January 1, 1998. In the event that Mr. Gonzalez's employment is
terminated by the Company without cause or by reason of death or disability, or
in the event of a change of control of the Company, all options will vest
immediately. In the event that Mr. Gonzalez's employment is terminated without
cause, Mr. Gonzalez will receive for a period of one year following termination
an amount equal to his annual base salary on the date of termination. The
agreement also contains a non-compete provision whereby Mr. Gonzalez has agreed
that he will not, during his employment and for one year after any termination
of employment, participate or assist in the ownership or operation of any
business similar to or competitive with the Company. Mr. Gonzalez may terminate
his employment with the Company at any time during the term.

Although the Company has no current plans to enter into employment
agreements with any other executive officer or key employee, the Company intends
to review the desirability of such employment agreements from time to time in
the future.

45
<PAGE> 47

LONG-TERM INCENTIVE PLAN

In November 1996, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation Long-Term
Incentive Plan (the "LTIP"). Under the LTIP, the Company may grant incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares, restricted stock, dividend equivalents, and other Common
Stock-based awards to employees, consultants, and advisors of the Company. The
Company believes that the LTIP promotes the success and enhances the value of
the Company by linking the personal interests of participants to those of the
Company's stockholders and providing participants with an incentive for
outstanding performance. The total number of shares of Common Stock available
for awards under the LTIP is 5,000,000, subject to a proportionate increase or
decrease in the event of a stock split, reverse stock split, stock dividend, or
other adjustment to the Company's total number of issued and outstanding shares
of Common Stock. No single participant may receive awards covering in the
aggregate more than 1,875,000 shares of stock.

Following the Offering, the LTIP will be administered by the Board of
Directors or a committee that is appointed by, and serves at the discretion of,
the Board of Directors and consists of at least two nonemployee directors. The
Board of Directors or the committee, as the case may be, will have the exclusive
authority to administer the LTIP, including the power to determine eligibility,
the type and number of awards to be granted and the terms and conditions of any
award granted, including the price and timing of awards. The Company currently
intends to have the Compensation Committee of the Board of Directors administer
the LTIP and only Compensation Committee members who qualify as Nonemployee
Directors as defined under Rule 16b-3 of the Securities Exchange Act of 1934
("Exchange Act") will participate in decisions to grant awards under the LTIP.
Upon a change of control in the Company, in the sole discretion of the Board of
Directors or the committee, as the case may be, every award outstanding under
the LTIP may become fully exercisable. Awards granted under the LTIP may not be
transferred, pledged, assigned, encumbered or hypothecated, other than by will
or by the laws of descent and distribution.

1997 EMPLOYEE STOCK PURCHASE PLAN

In September 1997, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation 1997 Employee
Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan allows eligible
employees of the Company to purchase shares of the Common Stock through periodic
payroll deductions. The initial offering period commences upon the Offering and
extends through June 30, 1998, with subsequent offering periods every six months
thereafter. At the end of each offering period, payroll deductions for the
offering period will be used to purchase shares of Common Stock for each
participant's account at a price equal to 90% of the fair market value of the
Common Stock on either the first day of or the fifth business day after the end
of the offering period, whichever is less. Payroll deductions under the Purchase
Plan are limited to 10% of each eligible employee's earnings during the offering
period, and no single participant will be granted an option to purchase shares
with a value in excess of $25,000 for each calendar year. The Board has reserved
625,000 shares of Common Stock for issuance under the Purchase Plan, subject to
adjustment in the event of a stock split, reverse stock split, stock dividend or
similar event.

The purchase right of a participant will terminate automatically in the
event the participant ceases to be an employee of the Company or any subsidiary
of the Company and any payroll deductions collected from such individual during
the offering period in which such termination occurs will be refunded.

401(K) RETIREMENT SAVINGS PLAN

Under the Company's 401(k) retirement savings plan, adopted in January
1993, eligible employees may direct that an amount up to the lesser of 15% of
their compensation or a statutory maximum be withheld by the Company and
contributed to their account. All 401(k) plan contributions are placed in a
trust fund to be invested by the 401(k) plan's trustee, except that the 401(k)
plan may permit participants to direct the investment of their account balances
among mutual or investment funds available under the plan. The Company may, at
management's discretion, make matching contributions under the 401(k) plan.
Matching contributions become vested at a rate of 20% per year beginning after a
participant's second full year of service. All matching contributions are fully
vested following a participant's sixth year of service.

46
<PAGE> 48

Amounts contributed to participant accounts under the 401(k) plan and any
earnings or interest accrued on the participant accounts are generally not
subject to federal income tax until distributed to the participant and may not
be withdrawn until death, retirement or termination of employment.

COMMITTEES OF THE BOARD OF DIRECTORS

Immediately following the Offering, the Company's Board of Directors will
establish a Compensation Committee and an Audit Committee. The Compensation
Committee, a majority of which will be comprised of independent directors, will
review executive salaries and administer any bonus, incentive compensation and
stock option plans of the Company. It is currently anticipated that only
Compensation Committee members who constitute Nonemployee Directors as defined
under Rule 16b-3 of the Exchange Act will participate in decisions to grant
stock options and other stock-based awards. In addition, the Compensation
Committee will consult with management of the Company regarding compensation
policies and practices of the Company. The Audit Committee, which will be
comprised solely of independent directors, will review the professional services
provided by the Company's independent auditors, the annual financial statements
of the Company and the Company's internal controls Upon their election to the
Company's Board of Directors immediately following the Offering, it is
anticipated that William E. Fisher and Peter J. Hart will serve as the initial
members of the Compensation Committee and that William E. Fisher will serve as
the initial member of the Audit Committee. As a condition to the listing of the
Company's Common Stock on the NYSE, the Company has agreed to appoint one
additional independent director before June 30, 1998.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

For the year ended June 30, 1997, the Company's Board of Directors
established levels of compensation for certain of the Company's executive
officers without the involvement of the Compensation Committee, which had not
yet been formed. The Company's entire Board of Directors made all decisions
regarding executive compensation that occurred during 1997. For information
relating to certain transactions in which members of the Board of Directors have
a direct or indirect material interest, see "Certain Relationships and Related
Transactions."

DIRECTOR COMPENSATION

FEES. The Company's independent directors will be paid $5,000 annually for
their services as directors and their participation in meetings of the Board of
Directors and meetings of committees of the Board of Directors of which they are
members, and will be reimbursed for reasonable travel expenses incurred in
connection with attendance at each Board and Committee meeting. Directors who
also are officers of the Company will not be compensated for their services as
directors.

NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN. In September 1997, the Company's
Board of Directors adopted and the stockholders of the Company approved the
Hypercom Corporation Nonemployee Directors' Stock Plan (the "Director Plan") to
attract and retain independent directors. The Director Plan is administered by a
committee appointed by the Board and provides for an initial grant immediately
following the Offering to each nonemployee director of an option to purchase
6,250 shares of Common Stock at the initial public offering price. In addition,
each individual who first becomes a nonemployee director after the date of the
initial grant of options will be granted an option to purchase 6,250 shares of
Common Stock, and will receive an annual grant of options to purchase 6,250
shares of Common Stock. The aggregate number of shares of Common Stock subject
to the Director Plan may not exceed 93,750, subject to adjustment in the event
of a stock split, reverse stock split, stock dividend or similar event. Options
granted under the Director Plan become fully vested and fully exercisable on the
first anniversary of the date of grant and have a term of ten years. The
exercise price per share under the Director Plan is equal to the fair market
value of such shares upon the date of grant. In general, options may be
exercised by payment in cash or a cash equivalent, previously acquired shares
having a fair market value at the time of exercise equal to the total option
exercise price or a combination thereof.

47
<PAGE> 49

Options exercisable upon the date of death or disability of any nonemployee
director remain exercisable for one year after the date of death or disability
of such nonemployee director. If a nonemployee director's service on the Board
of Directors of the Company is terminated for any reason other than for death or
disability, all options which are exercisable remain exercisable for 90 days
after the date of termination. Upon a change of control of the Company, every
option shall become fully exercisable. Options granted under the Director Plan
may not be sold, transferred, pledged, assigned or otherwise alienated, other
than by will or by the laws of descent and distribution.

48
<PAGE> 50

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, and
as adjusted to reflect the sale by the Company and the Selling Stockholders of
the shares offered hereby by (i) each director and director-nominee of the
Company, (ii) each of the Named Executive Officers of the Company, (iii) all
directors, director-nominees, and executive officers of the Company as a group,
(iv) each beneficial owner of more than 5% of the outstanding Common Stock and
(v) all Selling Stockholders. To the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to their shares,
except to the extent that authority is shared by their respective spouses under
applicable law.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING(1) SHARES OFFERING(1)
-------------------- BEING --------------------
NAME OF BENEFICIAL OWNER(2) NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
George Wallner............................... 12,650,000 50.6% 1,200,000 11,450,000 34.2%
Paul Wallner................................. 11,000,000 44.0 1,200,000 9,800,000 29.2
Albert A. Irato(3)........................... 1,380,000 5.3 350,000 1,030,000 3.0
Jairo Gonzalez(4)............................ 645,000 2.5 -- 645,000 1.9
Thomas E. Linnen(5).......................... 26,250 * -- 26,250 *
William E. Fisher............................ -- * -- -- *
Peter J. Hart................................ -- * -- -- *
Capucine Irrevocable 1997 Trust(6)........... 154,500 * -- 154,500 *
All directors, director-nominees and
executive officers as a group.............. 25,701,250 96.3% 2,750,000 22,951,250 65.2%
</TABLE>

- ---------------
* Represents less than 1% of total shares outstanding.

(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date of this Prospectus through the
exercise of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage of the
person holding such options, warrants or rights, but are not deemed
outstanding for computing the percentage of any other person. The amounts
and percentages are based upon 25,010,000 shares of Common Stock outstanding
as of the date of this Prospectus, and 33,510,000 shares of Common Stock
outstanding as of the close of the Offering, respectively.

(2) Unless otherwise noted, the address of each of the persons listed is 2851
West Kathleen Road, Phoenix, Arizona 85023.

(3) Includes 1,030,000 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering, and 200,000 shares of Common
Stock held by the Al A. and Sarah D. Irato Charitable Remainder Unitrust,
dated October 1, 1997, for which Mr. Irato serves as co-trustee.

(4) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.

(5) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.

(6) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering. In the event the Underwriters
exercise the over-allotment option the Capucine Irrevocable 1997 Trust will
sell up to 60,000 shares in the Offering.

49
<PAGE> 51

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On November 17, 1994, the Company's predecessor, Hypercom Pty. Ltd.
("HPL"), an Australian corporation, issued 350,000 shares of Common Stock to
Albert A. Irato for $441,477.

Pursuant to a promissory note dated December 31, 1994, Albert A. Irato, the
Company's President and Chief Executive Officer, owed principal balances of
$220,305, $212,130 and $252,130 to the Company as of June 30, 1997, 1996, and
1995, respectively, and $220,305 as of September 30, 1997. Mr. Irato is current
in his payments under the note. Under the note, interest is payable quarterly at
a rate equal to the most favorable interest rate charged by the Company's
lenders. The note matures on December 31, 2004.

In October 1994, the Company made a loan to George Wallner, the Company's
Chairman, to help finance the purchase of Mr. Wallner's residence. The loan,
which bore interest at 8%, was collateralized by the property and became payable
in full six months after the close of the purchase of the property. As of June
30, 1996 and 1995, amounts outstanding under the loan were $1,624,102 and
$888,874, respectively. In 1997, the loan was paid in full. The largest
aggregate amount outstanding under the loan in fiscal 1997 was $2,982,521.

In fiscal 1997, the Company made a loan to George Wallner, the Company's
Chairman, in the principal amount of $750,000 and to Paul Wallner, the President
of Hypercom Network Systems, in the principal amount of $750,000. The loans are
non-interest bearing and are due in full in March 2004. In addition, in fiscal
1997, George Wallner provided an advance of $356,136 to the Company. As of June
30, 1997, George Wallner's net amount outstanding to the Company was $393,864.

During fiscal 1997, 1996 and 1995, the Company paid approximately $580,000,
$0 and $240,000, respectively, for research and development services to Digitech
Research, Inc., an entity owned by George Wallner. In addition, during fiscal
1997, 1996 and 1995, the Company provided non-interest bearing advances to
Digitech of $32,812, $107,188, and $60,000, respectively. The Company has
terminated its arrangements with Digitech.

The Company leases an approximately 20,000 square foot facility from
Hypercom Unit Trust, the beneficiaries of which are George Wallner and Paul
Wallner. During fiscal 1997, 1996 and 1995, the Company paid $108,619, $252,800
and $213,300, respectively, in rent and associated administrative fees to this
trust. It is anticipated that the Company will pay approximately $106,500 in
rent and associated administrative fees to this trust in fiscal 1998.

Peter J. Hart, a director-nominee of the Company, is a director and Vice
President of Express Card Systems, Inc. ("ECS"), a sales company, which derives
a significant portion of its revenues from products sold to the Company. Mr.
Hart's wife is the Chairman, President and sole stockholder of ECS. The wife of
Albert A. Irato, the Company's President and Chief Executive Officer, is a Vice
President of ECS. The wives of Messrs. Hart and Irato are sisters. During fiscal
1997, 1996 and 1995, ECS was paid $340,400, $248,700 and $192,500, respectively,
with respect to sales of products to the Company, and it is anticipated that ECS
will be paid approximately $350,000 in fiscal 1998 with respect to such sales.

Except for the non-interest bearing loans described above, which will be
repaid upon the closing of the Offering, the Company believes that the terms of
the foregoing transactions are at least as favorable as would be available from
unaffiliated parties through arm's-length negotiations. Following the Offering,
any transactions between the Company and its affiliated entities, executive
officers, directors or significant stockholders will require the approval of a
majority of the independent directors of the Company and will be on terms that
will be no less favorable to the Company than the Company could obtain from
non-affiliated parties.

50
<PAGE> 52

DESCRIPTION OF CAPITAL STOCK

The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.001 per share, and 10,000,000 shares of Preferred
Stock, par value $.001 per share. Immediately following the Offering, 33,510,000
shares of Common Stock will be issued and outstanding (assuming no exercise of
outstanding options), and no shares of Preferred Stock will be issued and
outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
Common Stock do not have cumulative voting rights, and therefore holders of a
majority of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.

Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying cash dividends in the
foreseeable future. In the event of liquidation, dissolution, or winding up of
the Company, the holders of Common Stock are entitled to share ratably in any
corporate assets remaining after payment of all debts, subject to any
preferential rights of any outstanding Preferred Stock. See "Dividend Policy."

Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by the Company. All
of the outstanding shares of Common Stock are, and the shares offered by the
Company hereby will be, if issued, validly issued, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors of the Company has the authority, without further
action by the Company's stockholders, to issue from time to time up to
10,000,000 shares of Preferred Stock in one or more series and to fix the number
of shares, designations, voting powers, preferences, optional and other special
rights, and the restrictions or qualifications thereof. The rights, preferences,
privileges and restrictions or qualifications of different series of Preferred
Stock may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. The issuance of Preferred Stock could (i) decrease the amount
of earnings and assets available for distribution to holders of Common Stock,
(ii) adversely affect the rights and powers, including voting rights, of holders
of Common Stock and (iii) have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plans to issue any
shares of Preferred Stock.

ANTI-TAKEOVER LAW AND CERTAIN BYLAW PROVISIONS

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which restricts certain transactions and business
combinations between a corporation and an "Interested Stockholder" owning 15% or
more of the corporation's outstanding voting stock, for a period of three years
from the date the stockholder becomes an Interested Stockholder. Subject to
certain exceptions, unless the transaction is approved by the board of directors
and the holders of at least two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the Interested Stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to, or receipt of disproportionate financial benefits by the
Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans).

51
<PAGE> 53

In addition, the Company's Amended and Restated Bylaws provide that the
Board of Directors is divided into two classes of directors with each class
serving a staggered two-year term. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as it generally makes it more difficult
for stockholders to replace a majority of the directors.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended and Restated Certificate of Incorporation provides
that, to the fullest extent permitted by Delaware law, a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of such director's fiduciary duty, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and (iv)
for any transaction from which the director derives an improper benefit. The
effect of the provision of the Company's Amended and Restated Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior), except in the situations described in clauses (i) through (iv) above.
In the opinion of the Securities and Exchange Commission (the "Commission"),
indemnification for liabilities arising under the federal securities laws is
unenforceable. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
recision in the event of a breach of a director's duty of care. In addition, the
Company's Amended and Restated Certificate of Incorporation provides that the
Company shall indemnify any person who is or was a director, officer, employee,
or agent of the Company, or who is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation or entity,
against expenses, liabilities and losses incurred by any such person by reason
of the fact that such person is or was acting in such capacity. The Company's
Amended and Restated Certificate of Incorporation also permits it to secure
insurance on behalf of any director, officer, employee or agent of the Company
for any liability arising out of such person's actions in such capacity.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock of the Company is
Harris Trust Company of California.

52
<PAGE> 54

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock, making it more difficult for the Company to sell equity securities
in the future at a time and price which it deems appropriate.

Upon the completion of the Offering, the Company will have 33,510,000
shares of Common Stock outstanding (35,197,500 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the shares sold in
the Offering will be freely tradeable without restriction or further
registration under the Securities Act. The remaining 22,260,000 shares of Common
Stock outstanding as of the date of this Prospectus are "restricted securities"
as that term is defined by Rule 144 of the Securities Act, and were issued and
sold by the Company in reliance on exemptions from registration under the
Securities Act. These restricted securities will be eligible for sale in
accordance with the provisions of Rule 144 beginning 180 days after the date of
this Prospectus, or earlier to the extent that Lehman Brothers Inc. consents to
such sale as described below.

In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of Common Stock (approximately 335,000 shares after the completion of the
Offering) or the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale, subject to certain requirements
concerning availability of public information, manner and notice of sale.

In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirements, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing requirements.

The Company, its officers and directors and existing stockholders have
agreed, pursuant to certain lock-up agreements, that, for a period of 180 days
after the date of this Prospectus, they will not, without the prior written
consent of Lehman Brothers Inc., offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for any shares of Common Stock except in certain
limited circumstances. In addition, upon the expiration of the lock-up
agreements, approximately 1,955,750 shares of Common Stock issuable upon the
exercise of certain options, will be eligible for sale in the public market, in
reliance on Rules 144 and 701 under the Securities Act.

After the effective date of the Offering, the Company intends to register a
total of approximately 8,081,250 shares of Common Stock reserved for issuance
under its Long-Term Incentive Plan, 1997 Employee Stock Purchase Plan and
Nonemployee Directors' Stock Option Plan and under certain nonstatutory stock
option grants. The shares registered under such registration statements will be
available for resale in the open market upon the exercise of vested options,
subject to Rule 144 volume limitations applicable to affiliates.

53
<PAGE> 55

UNDERWRITING

Under the terms of, and subject to the conditions contained in, the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which the Prospectus forms a part, each of the
underwriters named below, for whom Lehman Brothers Inc., Salomon Brothers Inc
and Cowen & Company are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company and the Selling Stockholders, and
the Company and the Selling Stockholders have agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
the name of each such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------ ------------
<S> <C>
Lehman Brothers Inc. ...................................................
Salomon Brothers Inc....................................................
Cowen & Company.........................................................
-----------

Total......................................................... 11,250,000
===========
</TABLE>

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain selected dealers (who may
include the Underwriters) at such initial public offering price less a
concession not in excess of $ per share. The selected dealers may
reallow a concession not in excess of $ per share to certain other
brokers and dealers. After commencement of the initial public offering, the
offering price and other selling terms may be changed by the Representatives.

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, including the conditions that no stop
order suspending the effectiveness of the Registration Statement is in effect
and no proceedings for such purpose are pending before or threatened by the
Commission, and that there has been no material adverse change in the condition
of the Company. The Underwriters will be obligated to purchase all of the shares
of Common Stock if any are purchased.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments that may be required to be made in
respect thereof.

The Company and a Selling Stockholder have granted the Underwriters an
option to purchase up to an aggregate of 1,687,500 additional shares of Common
Stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase a number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table. The
Company will be obligated,

54
<PAGE> 56

pursuant to such option, to sell such shares to the Underwriters to the extent
such option is exercised. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of Common Stock offered
hereby.

Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated between the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the shares of Common Stock, in
addition to prevailing market conditions, are the Company's historical
performance and capital structure, estimates of business potential and earnings
prospects of the Company, an overall assessment of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to the market valuation of companies in related businesses.

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

In addition, if the Representatives over-allot (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this Prospectus)
and thereby create a short position in the Common Stock in connection with the
Offering, the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "HYC," subject to notice of issuance.

The Company, its officers and directors and all of its existing
stockholders have agreed that they will not, subject to certain exceptions, for
a period of 180 days from the date of this Prospectus, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for any such shares of Common
Stock, without the prior written consent of Lehman Brothers Inc.

The Representatives have informed the Company that the Underwriters do not
intend to sell to, and therefore will not confirm the sales of shares of Common
Stock offered hereby to, any accounts over which they exercise discretionary
authority.

55
<PAGE> 57

LEGAL MATTERS

The validity of the shares offered hereby is being passed upon for the
Company by Snell & Wilmer L.L.P., Phoenix, Arizona. Certain legal matters will
be passed upon for the Underwriters by Morrison & Foerster LLP, New York, New
York.

EXPERTS

The consolidated balance sheets as of June 30, 1997 and 1996 and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1997, included in this
Prospectus have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth therein and in the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and exhibits. Statements contained in this Prospectus as
to the contents of any document are not necessarily complete and in each
instance are qualified in their entirety by reference to the copy of the
appropriate document filed with the Commission. The Registration Statement,
including the exhibits thereto, may be examined without charge at the
Commission's public reference facility at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, copies of all or any part of
the Registration Statement, including such exhibits thereto, may be obtained
from the Commission at its principal office in Washington, D.C., upon payment of
the fees prescribed by the Commission. The Registration Statement is also
available through the Commission's Website on the World Wide Web located at
http://www.sec.gov.

The Registration Statement and the reports and other information to be
filed by the Company following the Offering in accordance with the Exchange Act
can be inspected and copied at the principal office of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, and at the
following regional offices of the Commission: 7 World Trade Center, New York, NY
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60601. Copies of such material may be obtained from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Washington D.C. 20549, upon payment of the fees prescribed by the
Commission. Copies of such material are also available through the Commission's
Website on the World Wide Web located at http://www.sec.gov.

56
<PAGE> 58

HYPERCOM CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and September 30, 1997....... F-3
Consolidated Statements of Income for the years ended June 30, 1995, 1996 and 1997 and
for the three months ended September 30, 1996 and 1997.............................. F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1995,
1996 and 1997 and for the three months ended September 30, 1997..................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and 1997
and for the three months ended September 30, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>

F-1
<PAGE> 59

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Hypercom Corporation

We have audited the accompanying consolidated balance sheets of Hypercom
Corporation as of June 30, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hypercom
Corporation as of June 30, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Phoenix, Arizona
September 10, 1997, except for
Note 18 for which
the date is
October 1, 1997

F-2
<PAGE> 60

HYPERCOM CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, (NOTE 17)
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1997
-------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 16,113 $ 16,318 $ 12,479
Accounts receivable (net of allowance for
doubtful accounts of $761, $779, $2,279 for
June 30, 1996 and 1997 and September 30,
1997, respectively)........................ 24,575 31,074 42,784
Inventories.................................. 40,905 55,921 59,995
Deferred income taxes........................ 2,568 5,580 6,388
Prepaid income taxes......................... -- 6,127 6,247
Prepaid expenses and other current assets.... 2,272 5,942 9,190
-------- -------- ---------
Total current assets.................. 86,433 120,962 137,083
Property, plant and equipment, net............. 13,240 16,424 18,009
Investments in affiliated companies............ 76 115 115
Advances to related parties.................... 402 279 532
Other assets................................... 1,678 961 1,251
-------- -------- ---------
Total assets.......................... $101,829 $138,741 $ 156,990
======== ======== =========
LIABILITIES, REDEEMABLE COMMON STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank notes payable........................... $ 3,392 $ 9,900 $ 10,658
Accounts payable............................. 19,729 21,963 26,427
Accrued liabilities.......................... 5,907 11,646 14,680
Deferred revenue............................. 1,825 8,279 2,432
Income taxes payable......................... 4,224 2,061 7,774
Current portion of long-term obligations..... 663 2,164 1,479
Current portion of long-term obligation,
related party.............................. 2,000 2,000 2,000
-------- -------- ---------
Total current liabilities............. 37,740 58,013 65,450
Long-term obligations.......................... 11,175 8,952 8,859
Long-term obligation, related party............ 3,132 1,554 1,554
Deferred income taxes.......................... 538 602 602
Other long-term liabilities.................... 1,253 1,183 1,208
-------- -------- ---------
Total liabilities..................... 53,838 70,304 77,673
-------- -------- ---------
Commitments and contingencies (Note 13)
Redeemable common stock........................ 2,759 7,543 9,313 $ --
-------- -------- ---------
Stockholders' equity:
Common stock -- $.001 par value; 100,000,000
shares authorized; 25,000,000 shares issued
and outstanding at June 30, 1996 and 1997
and September 30, 1997, respectively....... 4 4 4 4
Additional paid-in capital................... 425 965 965 10,278
Receivables from stockholders................ (1,961) (2,401) (2,401) (2,401)
Retained earnings............................ 46,764 62,326 71,436 71,436
-------- -------- --------- ---------
Total stockholders' equity............ 45,232 60,894 70,004 $ 79,317
-------- -------- ---------
=========
Total liabilities, redeemable common
stock and stockholders' equity...... $101,829 $138,741 $ 156,990
======== ======== =========
</TABLE>

The accompanying Notes are an integral part of these Consolidated Financial
Statements.

F-3
<PAGE> 61

HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
----------------------------------------- --------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue..................... $ 146,168 $ 163,556 $ 196,742 $ 47,690 $ 78,937
Costs and expenses:
Cost of revenue............... 83,016 89,710 103,227 25,359 39,370
Research and development...... 5,422 8,509 12,926 3,160 4,519
Selling, general and
administrative............. 27,687 44,741 52,530 10,975 18,919
Non-cash compensation
expense.................... 698 2,061 4,784 1,430 1,770
---------- ---------- ---------- ---------- ----------
Total costs and
expenses............ 116,823 145,021 173,467 40,924 64,578
---------- ---------- ---------- ---------- ----------
Income from operations.......... 29,345 18,535 23,275 6,766 14,359
Interest and other income....... 1,382 827 2,209 315 229
Equity in income of investee.... 571 37 39 -- --
Interest expense................ (757) (667) (1,718) (217) (500)
Interest expense, related
party......................... -- -- (422) (105) (73)
---------- ---------- ---------- ---------- ----------
Income before income taxes and
minority interest............. 30,541 18,732 23,383 6,759 14,015
Income taxes.................... (10,985) (6,197) (7,821) (2,260) (4,905)
Minority interest in earnings of
subsidiary, net of tax........ -- (246) -- -- --
---------- ---------- ---------- ---------- ----------
Net income...................... $ 19,556 $ 12,289 $ 15,562 $ 4,499 $ 9,110
========== ========== ========== ========== ==========
Net income per share............ $ 0.51 $ 0.32 $ 0.57 $ 0.17 $ 0.33
========== ========== ========== ========== ==========
Number of shares used in per
share calculations............ 38,169,563 38,674,048 27,261,683 27,058,396 27,387,161
========== ========== ========== ========== ==========
</TABLE>

The accompanying Notes are an integral part of these Consolidated Financial
Statements.

F-4
<PAGE> 62

HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLES TOTAL
--------------------- PAID-IN FROM RETAINED STOCKHOLDERS'
SHARES BALANCE CAPITAL STOCKHOLDERS EARNINGS EQUITY
----------- ------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1994..... 36,300,000 $ -- $ -- $ (410) $ 26,051 $25,641
Issuance of common stock...... 350,000 4 425 -- -- 429
Advances to stockholders...... -- -- -- (790) -- (790)
Net income.................... -- -- -- -- 19,556 19,556
---------- ----- ------ -------- -------- -------
Balance as of June 30, 1995..... 36,650,000 4 425 (1,200) 45,607 44,836
Repurchase of common stock.... (11,650,000) -- -- -- (11,132) (11,132)
Advances to stockholders...... -- -- -- (761) -- (761)
Net income.................... -- -- -- -- 12,289 12,289
---------- ----- ------ -------- -------- -------
Balance as of June 30, 1996..... 25,000,000 4 425 (1,961) 46,764 45,232
Contributions from
stockholders............... -- -- 540 -- -- 540
Advances to stockholders...... -- -- -- (440) -- (440)
Net income.................... -- -- -- -- 15,562 15,562
---------- ----- ------ -------- -------- -------
Balance as of June 30, 1997..... 25,000,000 4 965 (2,401) 62,326 60,894
---------- ----- ------ -------- -------- -------
Net income.................... -- -- -- -- 9,110 9,110
---------- ----- ------ -------- -------- -------
Balance as of September 30, 1997
(unaudited)................... 25,000,000 $ 4 $ 965 $ (2,401) $ 71,436 $70,004
========== ===== ====== ======== ======== =======
</TABLE>

The accompanying Notes are an integral part of these Consolidated Financial
Statements.

F-5
<PAGE> 63

HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------ -------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............. $145,197 $155,563 $190,955 $ 40,694 $ 59,836
Interest received......................... 316 919 1,327 294 99
Other income received..................... 837 (121) 438 (40) 115
Cash paid to suppliers and consultants.... (130,385) (133,229) (171,398) (42,849) (59,796)
Interest paid............................. (714) (702) (2,247) (308) (573)
Income taxes paid......................... (9,524) (11,356) (15,880) (1,566) (87)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............ 5,727 11,074 3,195 (3,775) (406)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Advances to related parties............... (3,585) (369) (518) -- (253)
Repayments from related parties........... 89 2,091 641 216 --
Acquisition of controlling interest in
subsidiary (net of cash received)...... -- 302 -- -- --
Notes receivable.......................... 1,993 1,180 -- -- --
Acquisition of other assets............... (37) (44) -- -- 13
Proceeds from disposal of property, plant
and equipment.......................... 109 667 1,260 1,184 118
Purchase of property, plant and
equipment.............................. (1,947) (8,011) (6,930) (1,310) (2,522)
Purchase of investment.................... -- -- (546) -- --
Proceeds from sale of investment.......... -- -- 61 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities............ (3,378) (4,184) (6,032) 90 (2,644)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from bank notes payable and other
debt instruments....................... 18,229 40,375 76,746 16,025 34,906
Repayment of bank notes payable and other
debt instruments....................... (15,938) (33,229) (72,761) (10,951) (34,927)
Receivables from stockholders............. (790) (761) (530) (1,075) --
Proceeds from sale of common stock........ 429 -- -- -- --
Repurchase of common stock................ -- (6,000) -- -- --
Contributions from stockholders........... -- -- 540 -- --
Stock offering costs...................... -- -- -- -- (480)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities............ 1,930 385 3,995 3,999 (501)
-------- -------- -------- -------- --------
Effect of exchange rate changes............. (138) 820 (953) 65 (288)
-------- -------- -------- -------- --------
Net increase (decrease) in cash............. 4,141 8,095 205 379 (3,839)
Cash and cash equivalents, beginning of
year...................................... 3,877 8,018 16,113 16,113 16,318
-------- -------- -------- -------- --------
Cash and cash equivalents, end of year...... $ 8,018 $ 16,113 $ 16,318 $ 16,492 $ 12,479
======== ======== ======== ======== ========
</TABLE>

The accompanying Notes are an integral part of these Consolidated Financial
Statements.

F-6
<PAGE> 64

HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------- -------------------
1995 1996 1997 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income................................... $19,556 $12,289 $15,562 $ 4,499 $ 9,110
Adjustments to reconcile net income to net
cash provided by operating activities:
Non-cash compensation expense............. 698 2,061 4,784 1,430 1,770
Depreciation.............................. 1,901 2,375 2,888 683 838
Bad debt expense.......................... 167 494 1,427 261 1,500
Provision for excess and obsolete
inventory............................... -- 2,133 994 184 --
Exchange (gain) loss...................... 842 (2,639) (445) (68) 339
Equity in investee income................. (571) (37) (39) -- --
Deferred income taxes..................... (182) (1,386) (2,948) (817) (808)
Minority interest in subsidiary........... -- 246 -- -- --
(Gain) loss on disposal of fixed assets... (134) 162 (130) (22) (20)
Loss on sale of investments............... -- -- 58 -- --
(Increase) decrease in:
Accounts receivable..................... (1,327) (4,481) (7,316) (6,995) (13,329)
Inventories............................. (9,388) (1,302) (15,290) (13,541) (4,121)
Prepaid income taxes.................... -- -- (6,127) -- --
Prepaid expenses and other current
assets............................... (1,689) (157) (2,715) 1,771 (3,113)
Increase (decrease) in:
Accounts payable........................ (5,678) 6,498 2,208 3,647 3,587
Accrued liabilities..................... 190 250 5,810 5,352 3,995
Deferred revenue........................ (1,035) (1,335) 6,707 (1,277) (5,805)
Income taxes payable.................... 2,377 (4,097) (2,163) 1,511 5,625
Other liabilities....................... -- -- (70) (393) 26
------- ------- ------- -------- --------
Net cash provided by operating activities...... $ 5,727 $11,074 $ 3,195 $ (3,775) $ (406)
======= ======= ======= ======== ========
Cash and non-cash investing and financing
activities:
Acquisition of plant and equipment through
capital leases............................ $ 276 $ 181 $ 133 $ 49 --
Changes in accounts payable related to the
purchase of property, plant and
equipment................................. -- $ 587 $ 36 -- --
Repurchase of common stock for note payable,
net of debt discount...................... -- $ 5,132 -- -- --
Acquisition of controlling interest in
subsidiary:
Assets acquired (net of seller
financing).............................. $ 6,224
Liabilities assumed....................... (4,505)
Previous ownership interest............... (903)
Remaining minority interest............... (316)
-------
Net cash paid........................ $ 500
=======
</TABLE>

The accompanying Notes are an integral part of these Consolidated Financial
Statements.

F-7
<PAGE> 65

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS:

Hypercom Corporation, a Delaware corporation, was formed on June 5, 1996
for the purposes of acquiring all of the outstanding stock of Hypercom Pty.,
Ltd. ("HPL"), an Australian corporation, and its subsidiaries in connection with
the domestication of HPL. There was no change in control in connection with this
transaction and, accordingly, no change in the accounting basis has been made in
the accompanying consolidated financial statements.

Hypercom Corporation (with its subsidiaries, the "Company") is a worldwide
developer, manufacturer, and supplier of point-of-sale ("POS") payment systems
and enterprise networking products.

The U.S. operations primarily consist of product development,
manufacturing, sales and marketing, distribution and customer service. The
European operations consist of product distribution through the Company's sales
and support offices located in the United Kingdom, Russia, France and Hungary.
Latin American operations engage primarily in product distribution through the
Company's subsidiaries in Mexico, Brazil, Chile and Argentina; however, certain
manufacturing operations exist in Brazil. The Asia/Pacific operations are
engaged primarily in product development and manufacturing through the Company's
subsidiary in Australia (with certain contract manufacturing in China) and
product distribution through the Company's subsidiaries or business units in
Singapore, Hong Kong, Japan and Australia.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements are comprised of the accounts of
Hypercom Corporation and all subsidiaries in which a controlling interest is
held. All significant intercompany balances and transactions have been
eliminated.

The Company carries its investments in subsidiaries, less than 50% owned,
under the equity method of accounting.

Unaudited Interim Financial Information

The consolidated financial statements and disclosures included herein for
the three months ended September 30, 1997, are unaudited, but include all
adjustments (consisting of normal recurring entries) which the Company considers
necessary for a fair presentation. Operating results for the three months ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the entire year.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Foreign Currency

The foreign subsidiaries use the U.S. dollar as the functional currency.
Their local currency financial statements are remeasured as follows; monetary
assets and liabilities at year-end exchange rates, and inventories, property and
nonmonetary assets and liabilities at historical rates. During the years ended
June 30, 1995, 1996 and 1997, the Company recorded net gains (losses) on
remeasurement of approximately ($530,000), $2,520,000, and $630,000,
respectively. For the same periods, the Company recognized net gains (losses) on
transactions denominated in foreign currencies of approximately ($312,000),
$119,000, and ($185,000), respectively. These amounts are included in the
consolidated results of operations.

F-8
<PAGE> 66

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents

The Company considers all investment instruments purchased with an original
maturity of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of standard cost or market. Standard
costs approximate first-in, first-out ("FIFO") costs.

Capitalized Software

Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. The Company's product development
process is such that technological feasibility is established upon completion of
a working model. Costs incurred between completion of the working model and the
point at which the product is ready for initial shipment have not been
significant. To date, all software development costs have been expensed as
incurred and included in research and development expense.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and
amortization are provided on straight-line and accelerated methods over the
following useful lives:

<TABLE>
<S> <C>
Building....................................................... 31.5 years
Equipment...................................................... 2.5-7 years
Furniture and fixtures......................................... 5-7 years
Vehicles....................................................... 4.5-5 years
Leasehold improvements......................................... 2.5-10 years
</TABLE>

For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income for the period.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax laws (including rates) is recognized
in income in the period that includes the enactment date.

The Company does not provide for federal income taxes on the undistributed
earnings of its international subsidiaries because earnings are reinvested and,
in the opinion of management, will continue to be reinvested indefinitely.

Revenue Recognition

The Company generally recognizes product revenue upon shipment of product;
however, revenue on certain network contracts is recognized upon customer
acceptance. Revenue from service obligations is recognized over the lives of the
contracts. The Company accrues for warranty costs, sales returns and other
allowances at the time of shipment.

F-9
<PAGE> 67

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, which 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"), provided pro forma disclosures of
net income are made as if the fair value based method of accounting, defined by
SFAS No. 123, had been applied. The Company has elected to continue to measure
compensation expense related to employee stock purchase options using APB 25,
and has provided the required pro forma disclosures.

Net Income Per Share

Primary earnings per share is computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the year.

The Company has computed common and common equivalent shares in determining
the number of shares used in calculating net income per share for all periods
presented pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 83. SAB No. 83 requires the Company to include all common
shares and all common share equivalents issued during the 12 month period
preceding the filing date of an initial public offering in its calculation of
the number of shares used to determine net income per share as if the shares had
been outstanding for all periods presented.

Self-Insurance

The Company self-insures, with certain stop loss insurance coverages, for
short-term disability, life and employee health care. Claims expense is recorded
in the year of occurrence through the accrual of claim reserves based on
estimates of ultimate claims costs. Claims incurred but not yet reported are
estimated and reserved for based on historical claims data.

Operating Segments

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information ("SFAS No. 131"), superseding SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise ("SFAS No. 14"). SFAS
No. 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial statements. It also requires disclosures about products and
services, geographic areas and major customers. The Company adopted SFAS No. 131
for the fiscal year ended June 30, 1997, and has provided the required
disclosures.

The accounting policies of the reportable segments are the same as those
used for the consolidated entity. Performance is evaluated based on profit or
loss from operations. Intersegment sales and transfers are accounted for based
on defined transfer prices.

Reclassifications

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

Recently Issued Accounting Standards

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS
No. 128 requires presentation of "basic" and "diluted" earnings per share, as
defined, on the face of the income statement for all entities with complex
capital structures. SFAS No. 128 is effective for financial statements issued
for

F-10
<PAGE> 68

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

periods ending after December 15, 1997 and requires restatement of all prior
period earnings per share amounts. The Company is currently studying the impact
of this pronouncement.

In June 1997, the FASB issued SFAS No. 130, Comprehensive Income. SFAS No.
130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments, which are currently direct adjustments to
equity, be shown in a statement of comprehensive income. The statement of
comprehensive income may be included at the bottom of the statement of
operations or as a separate financial statement. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997 and requires the reclassification
of earlier financial statements for comparative purposes. The Company is
currently studying the impact of this pronouncement.

3. CONCENTRATIONS OF CREDIT AND OTHER RISKS:

Financial Instruments

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents and accounts receivable.

The Company's cash equivalents are in high quality securities placed with
major international banks and financial institutions. The Company, in the normal
course of business, maintains balances in excess of the Federal Deposit
Insurance Corporation's insurance limit. The balance in excess of the insurance
limit at June 30, 1996 and 1997 was $2,800,695 and $2,315,036, respectively. The
Company also maintains balances in foreign banks which are used for current
operations of subsidiaries located abroad. Foreign deposits which are uninsured
amounted to $13,994,606 and $13,587,260 as of June 30, 1996 and 1997,
respectively.

The Company's accounts receivable result primarily from credit sales to a
broad customer base, both nationally and internationally. The Company routinely
assesses the financial strength of its customers, requiring letters of credit
from certain foreign customers, and provides an allowance for doubtful accounts
as necessary.

Inventories

Most components used in the Company's systems are purchased from outside
sources. Certain components are purchased from single suppliers.

The failure of any such supplier to meet its commitment on schedule could
have a material adverse effect on the Company's business, operating results and
financial condition.

If a sole-source supplier were to go out of business or otherwise become
unable to meet its supply commitments, the process of locating and qualifying
alternate sources could require up to several months, during which time the
Company's production could be delayed. Such delays could have a material adverse
effect on the Company's business, operating results and financial condition.

The Company makes inventory provisions for potentially excess and obsolete
inventory based on forecasted demand. Actual demand may differ from such
anticipated demand and may have a material adverse effect on inventories
valuation.

International Operations

The Company's international business is an important contributor to the
Company's net revenue and profits. However, the majority of the Company's
international sales are denominated in the U.S. dollar, and an increase in the
value of the U.S. dollar relative to foreign currencies could make products sold
internationally less competitive. The operating expenses of the Company's
overseas offices are paid in local currencies and are subject to the effects of
fluctuations in foreign currency exchange rates.

F-11
<PAGE> 69

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company conducts manufacturing operations in Brazil and Australia with
certain contract manufacturing in China. Foreign manufacturing is subject to
certain risks, including the imposition of tariffs and import and export
controls, together with changes in governmental policies. The occurrence of any
of these events could have a material adverse effect on the Company's business,
operating results and financial condition.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company values financial instruments as required by SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The carrying amounts of
cash and cash equivalents and bank notes payable approximate fair value due to
the short maturity of those instruments. The fair value of long-term obligations
is estimated by discounting the future cash flows required under the terms of
each respective debt agreement by current market rates for the same or similar
issues of debt with similar remaining maturities. A summary of carrying amounts
and fair values as of June 30, 1996 and 1997, are as follows (dollars in
thousands):

<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------
1996 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................. $ 16,113 $16,113 $ 16,318 $16,318
Financial liabilities:
Bank notes payable........................ 3,392 3,392 9,900 9,900
Long-term obligations..................... 16,970 15,807 14,670 13,980
</TABLE>

5. INVENTORIES:

Inventories consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------- -------------
1996 1997 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Purchased parts............................ $17,338 $24,765 $ 31,261
Work-in-process............................ 11,589 9,604 7,419
Finished goods............................. 11,978 21,552 21,315
------- ------- -------
$40,905 $55,921 $ 59,995
======= ======= =======
</TABLE>

F-12
<PAGE> 70

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT:

As of June 30, 1996 and 1997, property, plant and equipment consist of the
following (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Land..................................................... $ 1,194 $ 1,194
Building................................................. 5,349 5,349
Equipment................................................ 8,986 11,730
Furniture and fixtures................................... 888 1,236
Vehicles................................................. 757 1,010
Leasehold improvements................................... 433 1,402
------- -------
17,607 21,921
Less accumulated depreciation and amortization........... (4,367) (5,497)
------- -------
$13,240 $16,424
======= =======
</TABLE>

During 1997, the Company sold certain equipment and leased it back under
two leases of 54 and 60 months, respectively. The transaction resulted in a gain
of $505,109. The leases are classified as operating, and the gain will be
recognized pro rata over their terms. During 1997, the Company recognized
$120,228 of the gain which was included in interest and other income in the
accompanying consolidated statements of income. Under the leases, the Company is
obligated to pay $270,972, $270,972, $270,972 and $201,552 for the years ending
June 30, 1998, 1999, 2000 and 2001, respectively.

7. EQUITY INVESTMENTS:

Hypercom Design Services, Inc.

The Company owns 30% of the outstanding common stock of Hypercom Design
Services, Inc. ("HDS") and accounts for HDS under the equity method of
accounting. Investments in affiliated companies and advances to related parties
in the accompanying consolidated balance sheets include equity in HDS of $75,670
and $114,887 and net advances of $196,266 and $63,290 to HDS as of June 30, 1996
and 1997, respectively. Repayment terms for the advances are unspecified.

Other income for the years ended June 30, 1995, 1996 and 1997 included
HPI's proportionate share of HDS' net income of $10,357, $36,682 and $39,217,
respectively.

Hypercom Asia Limited

As of June 30, 1995, the Company owned 30% of the outstanding common stock
of Hypercom Asia Limited, a Hong Kong corporation, and its subsidiaries
(collectively, "Hypercom Asia"). This investment was accounted for under the
equity method of accounting. Other income for the year ended June 30, 1995
includes equity in earnings of Hypercom Asia of $560,607.

In July 1995, the Company purchased an additional 59.5% of the outstanding
common stock of Hypercom Asia for $1,250,000. This transaction was accounted for
by the purchase method and the accounts of Hypercom Asia have been included in
the consolidation of the Company as of and for the years ended June 30, 1996 and
June 30, 1997.

F-13
<PAGE> 71

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The purchase price was allocated as follows (dollars in thousands):

<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 3,529
Fair value of liabilities acquired................................. (2,279)
-------
Net assets acquired at fair value.................................. $ 1,250
=======
</TABLE>

During fiscal year 1997, the Company acquired the remaining 10.5% of the
outstanding common stock of Hypercom Asia for $265,000.

8. BANK NOTES PAYABLE:

The Company has a $20.0 million revolving line of credit agreement with
Bank One, Arizona which expires in December 1997. Under the terms of the
agreement, the Company may borrow up to an amount equal to 80% of its accounts
receivable under 90 days past due and 35% of its raw material (purchased parts)
and finished goods inventory. Interest is charged at the bank's prime rate. The
weighted average interest rate for the year was 8.25%. The loan is
collateralized by accounts receivable and inventory. The agreement contains
certain covenants which include limitations on the incurrence of additional
debt, liens or encumbrances on assets and restrictions on the use of funds
solely to fund working capital needs. The outstanding balances as of June 30,
1996 and 1997 were $3.3 million and $9.9 million, respectively.

During fiscal 1996, the Company had a $400,000 line of credit with Northern
Trust Bank of Arizona collateralized by the Company's equipment. Interest was
charged at 1.0% over the bank's prime rate. The weighted average interest rate
for the year was 9.25%. The outstanding principal balance was $92,380 as of June
30, 1996. The outstanding principal was repaid in fiscal 1997 and the line of
credit expired.

F-14
<PAGE> 72

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LONG-TERM OBLIGATIONS:

Long-term obligations consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Note payable to Bank One, Arizona; payable on July 15, 1997,
interest at 8.46% is due monthly; collateralized by inventory,
receivables and equipment...................................... $ 6,000 $ 6,000
Industrial development bonds; principal payable in annual
installments based on stated maturities; interest payable at a
variable rate, approximately 3.75% as of June 30, 1997; subject
to mandatory sinking fund requirements of $33 monthly; due June
2006; collateralized by letter of credit; amounts held in trust
and sinking fund requirements of $628 and $128 as of June 30,
1996 and 1997, respectively, are included in long-term other
assets......................................................... 4,000 3,700
Note payable to Bank One, Arizona; payable in monthly
installments of $5, plus interest at 8.92%; due January 2001;
collateralized by deed of trust on land and building........... 1,089 1,031
Note payable to Northern Trust Bank of Arizona; payable in
monthly installments of $3, plus interest at 8.9%; due July
1998; collateralized by equipment.............................. 66 33
Capital leases................................................... 683 352
------- -------
11,838 11,116
Less current portion............................................. (663) (2,164)
------- -------
$11,175 $ 8,952
======= =======
</TABLE>

Long-term obligation, related party consists of the following (dollars in
thousands):

<TABLE>
<S> <C> <C>
Note payable to stockholder; payable in three annual installments
of $2,000 starting June 30, 1997; effective interest of 8.25%;
net of debt discount of $868 and $446 for 1996 and 1997,
respectively................................................... 5,132 3,554
Less current portion............................................. (2,000) (2,000)
------- -------
$ 3,132 $ 1,554
======= =======
</TABLE>

The loan agreements relating to the notes payable and line of credit (Note
8) with Bank One, Arizona, NA contain various covenants pertaining to
maintenance of working capital, minimum stockholder's equity, capital
expenditures and restricting transactions outside of normal business activities
with related parties. Due to the Company's reincorporation in Delaware, the bank
waived all covenants until such time as new covenants pertaining to the
reincorporated entity are negotiated.

During August 1997, the Company entered into a $5.5 million note payable
with Bank One, Arizona. Proceeds from the note were used to payoff the $6.0
million note which was due July 15, 1997. The note is collateralized by
inventory, receivables and equipment, and interest is charged at 0.375% over the
bank's prime rate. Principal payments are due in monthly installments of
$91,667, plus interest, with the final payment due July 15, 2002.

During August 1997, the Company entered into a $3.8 million note payable
with Bank One, Arizona. Proceeds from the note were used to payoff the
industrial development bonds. The loan is collateralized by

F-15
<PAGE> 73

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

buildings and equipment, and interest is charged at 0.375% over the bank's prime
rate. Principal payments are due in monthly installments of $28,788, plus
interest, with the final payment due March 15, 2001.

The aggregate principal payments due on long-term obligations and the
mandatory sinking fund requirements after giving effect to the August 1997
refinancings are as follows (dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
-----------------------------------------------------------
<S> <C>
1998....................................................... $ 4,164
1999....................................................... 3,567
2000....................................................... 1,500
2001....................................................... 3,913
2002....................................................... 1,163
Thereafter................................................. 809
-------
$15,116
=======
</TABLE>

10. INCOME TAXES:

Income before income taxes consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Income before income taxes:
United States....................................... $11,981 $ 8,919 $13,621
Foreign............................................. 18,560 9,813 9,762
------- ------- -------
$30,541 $18,732 $23,383
======= ======= =======
</TABLE>

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of June 30,
1996 and 1997 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory valuation and reserves................................. $ 988 $2,406
Compensation accruals............................................ 1,291 2,927
Allowance for doubtful accounts.................................. 241 247
Other............................................................ 48 --
------ ------
Total deferred tax assets, current....................... $2,568 $5,580
====== ======
Deferred tax assets:
Other............................................................ $ 46 $ (94)
Deferred tax liabilities:
Property, plant and equipment.................................... (584) (508)
------ ------
Net deferred tax liabilities, noncurrent................. $ (538) $ (602)
====== ======
</TABLE>

F-16
<PAGE> 74

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of income tax expense (benefits) are as follows (dollars in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $ 3,605 $ 3,638 $ 6,904
State............................................... 1,327 862 1,227
Foreign............................................. 6,235 3,083 2,638
------- ------- -------
11,167 7,583 10,769
------- ------- -------
Deferred:
Federal............................................. (155) (1,128) (2,601)
State............................................... (27) (212) (446)
Foreign............................................. -- (46) 99
------- ------- -------
(182) (1,386) (2,948)
------- ------- -------
$10,985 $ 6,197 $ 7,821
======= ======= =======
</TABLE>

Consolidated income tax expense differed from the amount computed by
applying the U.S. federal income tax rate to income before income taxes for the
years ended June 30, 1995, 1996 and 1997 as shown below:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Tax expense at the federal statutory rate............. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit............................................. 2.8 3.0 3.4
Foreign taxes attributable to foreign operations less
than federal statutory.............................. (0.9) (1.4) (3.3)
Research and experimentation credit................... -- -- (2.1)
Other................................................. (0.9) (3.1) 0.4
---- ---- -----
Effective tax rate.................................... 36.0% 33.5% 33.4%
==== ==== =====
</TABLE>

As of June 30, 1995, 1996 and 1997, the Company had not provided federal
income tax benefits on cumulative losses of individual international
subsidiaries of $263,000, $881,000 and $2,109,000, respectively. Upon
distribution of earnings in the form of dividends or otherwise, the Company may
be subject to both U.S. income taxes and withholding taxes in the various
international jurisdictions.

11. PROFIT SHARING PLANS:

The Company has a 401(k) profit sharing plan covering all eligible
full-time employees of the Company. Contributions to the 401(k) plan are made by
the participants to their individual accounts through payroll withholding.
Additionally, the plan provides for the Company to make profit sharing
contributions to the plan in amounts at the discretion of management. There were
no employer contributions for the years ended June 30, 1995 or 1996. The
employer contribution for the year ended June 30, 1997 was $21,000.

12. STOCKHOLDERS' EQUITY:

Stock Splits

On November 25, 1996, the Company declared a 10,000-for-1 stock split,
effected in the form of a stock dividend. On September 10, 1997, the Company
declared a 5-for-4 stock split, effected in the form of a stock

F-17
<PAGE> 75

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

dividend. All references to the number of common shares outstanding, common
shares reserved for issuance under the Plan, and per share information have been
adjusted to reflect the stock splits on a retroactive basis.

Stock Options

In connection with an officer's employment agreement (the "Agreement"), as
amended, the Company provided for stock options to be granted to an officer
equal to 1.0% of the outstanding common shares of the Company as of June 30,
1992, 1993 and 1994 with exercise prices equal to the fair market values defined
by a net income formula in the Agreement ("Defined Fair Market Value") at the
respective dates. The options are exercisable as of July 1, 1995, 1996 and 1997,
respectively, and remain exercisable for 10 years from these dates. The
Agreement also provides for additional stock options immediately exercisable to
purchase 1.0% of the outstanding common stock of the Company on January 1, 1994
and 1995 with an exercise price equal to the Defined Fair Market Value as of the
respective dates; the options remain exercisable for 10 years.

The Agreement requires the Company to purchase all or part of any shares
acquired under the Agreement by the officer, if (i) the majority stockholders
sell all of their voting stock of the Company, (ii) the officer terminates his
employment, (iii) the officer becomes disabled or (iv) the officer dies. The
Company's obligation to purchase the shares will terminate upon completion of an
initial public offering. The Company is obligated to purchase the shares for the
greater of the price received by the majority stockholders or the Defined Fair
Market Value.

In accordance with variable plan accounting, compensation expense has been
recognized annually for the increase in the Defined Fair Market Value.
Compensation expense was $698,000, $2,061,000 and $4,784,000, for the years
ended June 30, 1995, 1996 and 1997, respectively. The Company's cumulative
repurchase obligation is included as redeemable common stock in the consolidated
balance sheet.

During fiscal 1997, the Company's Board of Directors approved the Hypercom
Corporation Long-Term Incentive Plan (the "Plan") which allocates 5,000,000
shares of common stock for issuance at the Company's discretion. The Plan
authorizes issuance of "incentive stock options" (as defined by the Internal
Revenue Code of 1986), non-qualified stock options, stock appreciation rights,
restricted stock awards, performance share awards, dividend equivalent awards
and other stock-based awards. Stock options issued under the Plan become
exercisable over a period determined by the Board of Directors (generally over
five years) and expire ten years after the date of grant.

A summary of the Company's stock option activity and related information
for the years ended June 30, 1995, 1996 and 1997 and the three months ended
September 30, 1997 follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED
------------------------------------------------------------------
SEPTEMBER 30,
1995 1996 1997 1997
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE OPTION PRICE
--------- -------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance outstanding..... 1,025,000 $ 1.37 1,030,000 $ 1.62 1,030,000 $ 1.62 2,943,750 $ 4.75
Granted......................... 262,500 2.66 -- -- 1,913,750 6.43 840,000 9.60
Exercised....................... (257,500) 1.66 -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ --------- ------
Ending balance outstanding........ 1,030,000 $ 1.62 1,030,000 $ 1.62 2,943,750 $ 4.75 3,783,750 $ 5.82
========= ====== ========= ====== ========= ====== ========= ======
Exercisable at end of year........ 262,500 $ 2.66 515,000 $ 1.68 1,436,250 $ 3.77 1,708,750 $ 3.52
========= ====== ========= ====== ========= ====== ========= ======
</TABLE>

F-18
<PAGE> 76

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes additional information about the Company's
stock options outstanding as of June 30, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------
AVERAGE WEIGHTED WEIGHTED
SHARES REMAINING AVERAGE SHARES AVERAGE
RANGE OF UNDER CONTRACTUAL EXERCISE UNDER EXERCISE
EXERCISE PRICES OPTION LIFE PRICE OPTION PRICE
- ------------------------------------------ --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.66 - $2.66............................. 1,030,000 8.6 years $ 1.62 770,000 $ 1.49
$6.40 - $8.00............................. 1,913,750 9.5 years 6.43 666,250 6.40
</TABLE>

Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for awards under its stock option plans using the fair value based
method of that Statement. No awards were made during fiscal 1996.

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions: risk free interest
rates from 6.50% to 6.76%; an average expected time to exercise of five years;
and no dividends.

For purposes of pro forma disclosures, the estimated fair value of the
fiscal 1997 option awards is amortized to expense over the options' vesting
period. The pro forma information for the year ended June 30, 1997 follows
(dollars in thousands except for net income per share information):

<TABLE>
<CAPTION>
1997
-------
<S> <C>
Pro forma net income....................................... $14,834
Pro forma net income per share............................. 0.54
</TABLE>

The above pro forma disclosure are not necessarily representative of the
effects on reported net income for future years.

13. COMMITMENTS AND CONTINGENCIES:

Lease Commitments

The Company leases office and warehouse space, equipment and vehicles under
noncancelable operating leases. The office space leases provide for annual rent
payments plus a share of taxes, insurance and maintenance on the properties. The
Company also leases various equipment and vehicles under capital leases. Future
minimum payments under the operating and capital leases are as follows (dollars
in thousands):

<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
JUNE 30, LEASES LEASES
------------------------------------------------------------ --------- -------
<S> <C> <C>
1998........................................................ $ 1,679 $ 261
1999........................................................ 1,097 96
2000........................................................ 749 28
2001........................................................ 770 --
2002........................................................ 423 --
Thereafter.................................................. 2,176 --
------ ----
Total minimum lease payments................................ $ 6,894 385
======
Less imputed interest....................................... (33)
----
Present value of net minimum lease payments................. $ 352
====
</TABLE>

Rent expense charged to operations was $708,000, $2,220,000 and $1,929,000
for the years ended June 30, 1995, 1996 and 1997, respectively.

F-19
<PAGE> 77

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Litigation

In the ordinary course of business, various claims are filed against the
Company. Historically, costs associated with the resolution of such claims have
not been significant. The Company is not currently aware of any claims pending
against it that would have a material impact on the Company's business,
operating results or financial condition.

14. RELATED PARTY TRANSACTIONS:

Digitech Research, Inc.

The Company provided advances of $60,000, $107,188 and $32,812 as of June
30, 1995, 1996 and 1997, respectively, to Digitech Research, Inc. ("Digitech"),
an entity controlled by a stockholder of the Company. As of June 30, 1996 and
1997, amounts due from Digitech were $167,188 and $200,000, respectively. In
addition, during fiscal 1997 the Company paid Digitech $580,000 for research and
development services which were expensed as paid.

Repurchase of Common Stock

In June 1996, the Company purchased substantially all of the outstanding
shares of a minority stockholder of HPL for $12 million, $6 million in cash and
a $6 million non-interest bearing note payable, and, in exchange for this
minority stockholder's remaining 4% interest in HPL, the Company, upon
completion of the reorganization of HPL in November 1996, issued 1 million
shares of the Company's Common Stock to the minority stockholder (representing
4% of the then outstanding Common Stock of the Company). The note payable is due
in three equal installments on June 30, 1997, 1998 and 1999. The note payable
has been discounted at 8.25% and the discounted amounts of $1,706,767 and
$1,847,575 are included in long-term obligations, current and long-term,
respectively. The debt discount is being amortized using the effective interest
method. This repurchase was accounted for as a charge to retained earnings.

Hypercom Unit Trust

During fiscal 1995, 1996 and 1997, the Company paid $213,300, $252,800 and
$108,619 in rent to Hypercom Unit Trust, a trust fund controlled by certain
stockholders. It is anticipated that the Company will pay approximately $106,500
in rent and associated administrative fees to this trust in fiscal 1998.

Express Card Systems, Inc.

A relative of an officer of the Company is a Vice President of Express Card
Systems, Inc. ("ECS"), a sales company, which derives a significant portion of
its revenues from products sold to the Company. During fiscal 1997, 1996 and
1995, ECS was paid $340,400, $248,700 and $192,500, respectively, with respect
to sales of product to the Company, and it is anticipated that ECS will be paid
approximately $350,000 in fiscal 1998 with respect to such sales.

15. SEGMENT INFORMATION:

The Company has two reportable segments: POS Systems and Network Systems.
POS Systems develops, manufactures, markets and supports products that automate
electronic payment transactions at the point of sale in merchant establishments.
Network Systems develops, manufactures, markets and supports enterprise
networking systems that interconnect and consolidate through wide area networks,
geographically dispersed legacy data, local area network, voice, fax and video
traffic into a single networked system.

F-20
<PAGE> 78

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technologies and marketing strategies.

The following table presents certain segment financial information as of
and for the year ended June 30, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
POS NETWORK
SYSTEMS SYSTEMS TOTAL
-------- ------- --------
<S> <C> <C> <C>
Revenues from external customers........................ $172,682 $24,060 $196,742
Intersegment revenues................................... -- 10,468 10,468
-------- ------- --------
Total revenues........................................ $172,682 $34,528 $207,210
======== ======= ========
Depreciation expense.................................... $ 2,199 $ 435 $ 2,634
======== ======= ========
Segment income from operations.......................... $ 32,005 $ 3,933 $ 35,938
======== ======= ========
Segment assets.......................................... $186,863 $31,455 $218,318
======== ======= ========
</TABLE>

Prior to fiscal 1997, the Company's financial reporting system did not
provide separate information on Network Systems, and the Company has determined
that it would be impracticable to develop that information. Accordingly, no
segment information is provided for prior years.

The following table presents certain segment financial information as of
September 30, 1997 and for the three months ended September 30, 1997 (dollars in
thousands):

<TABLE>
<CAPTION>
POS NETWORK
(UNAUDITED) SYSTEMS SYSTEMS TOTAL
-------- ------- --------
<S> <C> <C> <C>
Revenues from external customers........................ $ 70,130 $ 8,807 $ 78,937
Intersegment revenues................................... -- 5,643 5,643
-------- ------- --------
Total revenues........................................ $ 70,130 $14,450 $ 84,580
======== ======= ========
Segment income from operations.......................... $ 15,689 $ 1,628 $ 17,317
======== ======= ========
Segment assets.......................................... $262,707 $42,113 $304,820
======== ======= ========
</TABLE>

F-21
<PAGE> 79

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliation of segment financial information to consolidated totals as
of and for the year ended June 30, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1997
----------
<S> <C>
NET REVENUES
Net revenues for reportable segments...................................... $207,210
Elimination of intersegment............................................... (10,468)
--------
Total consolidated net revenues................................. $196,742
========
DEPRECIATION
Depreciation expense from reportable segments............................. $ 2,634
Unallocated amounts:
Corporate depreciation.................................................. 254
--------
Consolidated depreciation expense.................................... $ 2,888
========
INCOME FROM OPERATIONS
Income from operations for reportable segments............................ $ 35,938
Elimination of intersegment profits....................................... (5,341)
Unallocated amounts:
Corporate expenses...................................................... (7,322)
--------
Consolidated income from operations.................................. $ 23,275
========

JUNE 30,
1997
--------
ASSETS
Segment assets............................................................ $218,318
Unallocated amounts:
Corporate assets........................................................ 17,851
Eliminations:
Intercompany receivables................................................ (45,435)
Investments in affiliated companies..................................... (28,045)
Advances to related parties............................................. (16,519)
Profit in ending inventory.............................................. (7,429)
--------
Consolidated assets.................................................. $138,741
========
</TABLE>

F-22
<PAGE> 80

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliation of segment financial information to consolidated totals as
of and for the three months ended September 30, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
Net revenues
Net revenues for reportable segments........................................ $ 84,580
Elimination of intersegment................................................. (5,643)
--------
Total consolidated net revenues................................... $ 78,937
========
Income from Operations
Income from operations for reportable segments.............................. $ 17,317
Elimination of intersegment profits......................................... (1,410)
Unallocated amounts:
Corporate expenses........................................................ (1,548)
--------
Consolidated income from operations............................... $ 14,359
========
Assets
Segment assets.............................................................. $304,820
Unallocated amounts:
Corporate assets.......................................................... 17,141
Eliminations:
Intercompany receivables.................................................. (83,093)
Investments in affiliated companies....................................... (28,045)
Advances to related parties............................................... (44,995)
Profit in ending inventory................................................ (8,838)
--------
Consolidated assets............................................... $156,990
========
</TABLE>

16. GEOGRAPHIC SEGMENT DATA:

Net revenues to external customers are based on the location of the
customer. Geographic information as of June 30, 1995, 1996 and 1997 and for each
of the three years ended June 30, 1997, is presented in the table below (dollars
in thousands):

<TABLE>
<CAPTION>
UNITED LATIN ASIA/
STATES AMERICA PACIFIC EUROPE TOTAL
------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
Net revenues............................ $57,827 $56,214 $32,127 $ -- $146,168
YEAR ENDED JUNE 30, 1996
Net revenues............................ $68,596 $43,582 $50,119 $1,259 $163,556
Long-lived assets....................... 12,218 539 2,547 92 15,396
YEAR ENDED JUNE 30, 1997
Net revenues............................ $86,904 $47,482 $58,233 $4,123 $196,742
Long-lived assets....................... 13,472 2,296 1,857 154 17,779
</TABLE>

F-23
<PAGE> 81

HYPERCOM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. UNAUDITED PRO FORMA INFORMATION:

As discussed in Note 12, the Company has recorded its cumulative obligation
to repurchase common shares from an officer as redeemable common stock. Upon the
closing of the offering, the Company's obligation terminates. As of September
30, 1997, the officer had not exercised any of the stock options which comprise
the redeemable common stock balance. The pro forma data shown on the
consolidated balance sheet gives effect to the termination of the obligation
upon the completion of the offering. At such time, the redeemable common stock
would be credited to additional paid-in capital.

18. SUBSEQUENT EVENTS:

On September 8, 1997, the Company's Board of Directors authorized
10,000,000 shares of $0.001 par value preferred stock. As of that date, no
shares were outstanding.

On September 8, 1997, the Board of Directors authorized management to file
a Registration Statement with the Securities and Exchange Commission relating to
the Company's Common Stock (the "Offering").

On September 8, 1997, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation 1997 Employee
Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan allows eligible
employees of the Company to purchase shares of the Common Stock through periodic
payroll deductions. The initial offering period commences upon the Offering and
extends through June 30, 1998, with subsequent offering periods every six months
thereafter. At the end of each offering period, payroll deductions for the
offering period will be used to purchase shares of Common Stock for each
participant's account at a price equal to 90% of the fair market value of the
Common Stock on either the first or the fifth business day after the end of the
offering period, whichever is less. Payroll deductions under the Purchase Plan
are limited to 10% of each eligible employee's earnings during the offering
period, and no single participant will be granted an option to purchase shares
with a value in excess of $25,000 for each calendar year. The Board has reserved
625,000 shares of Common Stock for issuance under the Purchase Plan, subject to
adjustment in the event of a stock split, reverse stock split, stock dividend or
similar event.

On September 8, 1997, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation Nonemployee
Directors' Stock Plan (the "Director Plan"). The Director Plan is administered
by a committee appointed by the Board and provides for an initial grant to each
nonemployee director of an option to purchase 6,250 shares of Common Stock
immediately following the Offering. In addition, each individual who first
becomes a nonemployee director after the date of the initial grant of options
will be granted an option to purchase 6,250 shares of Common Stock, and will
receive an annual grant of options to purchase 6,250 shares of Common Stock. The
aggregate number of shares of Common Stock subject to the Director Plan may not
exceed 93,750, subject to adjustment in the event of a stock split, reverse
stock split, stock dividend or similar event. Options granted under the Director
Plan become fully vested and fully exercisable on the first anniversary of the
date of grant and have a term of ten years. The exercise price per share under
the Director Plan is equal to the fair market value of such shares upon the date
of grant. In general, options may be exercised by payment in cash or a cash
equivalent, previously acquired shares having a fair market value at the time of
exercise equal to the total option exercise price or a combination thereof.

On October 1, 1997, the Company issued 10,000 shares of Common Stock in
connection with the acquisition of the remaining 70% of the outstanding common
stock of Hypercom Design Services, Inc.

F-24
<PAGE> 82

GLOSSARY

Analog -- Pertaining to data that is transmitted in its original physical
format, such as voice or video. Contrast with digital.

ATM (Asynchronous Transfer Mode) -- A high-speed cell-switching network
technology for LANs and WANs that handles data and real-time voice and video. It
combines the high efficiency of packet switching used in data networks, with the
guaranteed bandwidth of circuit switching used in voice networks.

Backbone -- A set of nodes and their interconnecting links that handles the
major traffic over a network.

Bisync (Binary Synchronous) -- A major category of synchronous
communications protocols used in mainframe networks. Bisync requires that both
sending and receiving devices are synchronized before transmission of data is
started.

Bitmap -- A binary representation in which a bit or set of bits corresponds
to some part of an object such as an image or font.

bps (bits per second) -- The measurement of the speed of data transfer in a
communications system.

BRI (Basic Rate Interface) -- An ISDN access interface type comprised of
two 64 bps digital voice/data transmission channels, a low speed packet channel
and one diagnostic channel.

Burroughs Poll Select -- A protocol used by Burroughs- and Unisys-based
mainframe computer systems.

Bus -- A common pathway, or channel, between multiple devices. A computer
configuration in which processors are interconnected via a common connection.

Channel -- A path along which signals can be sent, for example, a data
channel or output channel.

Circuit Switching -- A temporary connection of two or more communications
channels.

Client/server -- A computing model where one site sends a request to a
program at another site and awaits a response. The requesting program is called
a client; the answering program is called a server.

Compression -- The encoding of data to take up less space by eliminating
gaps, empty fields, redundancies and unnecessary data.

Dial Backup -- Redundant routing that introduces parallelism into a network
and thus improves its availability by utilizing the public switched telephone
network.

Digital -- The use of numbers. Pertaining to data, it implies that the
original data (images, sound, video, etc.) has been converted into a digital
format.

DSU (Data Service Unit) -- A device that provides a digital interface
directly to data terminal equipment.

DSU/CSU (Data Service Unit/Channel Service Unit) -- A pair of communication
devices that connect an in-house line to an external digital circuit. It is
similar to a modem, but connects a digital circuit rather than an analog
circuit. The CSU terminates the external line at the customer's premises. The
DSU does the actual transmission and receiving of the signal.

Dual-track -- The use of two credit card track readers, as opposed to one.
Allows the card to be inserted into the terminal from two directions, as opposed
to one direction.

Encryption -- The process of reformatting information in a secure format,
without a loss of data.

Ethernet -- A local area network technology that allows multiple stations
to access the transmission medium without prior coordination.

Fast-Dial Techniques -- Programming that enables terminals to reduce the
time period to receive authorization for card-based payments.

Frame Relay -- A high-speed packet switching protocol used in wide area
networks.

FRAD (Frame Relay Access Device) -- A communication device that converts
outgoing data into the format required by a frame relay network.

G-1
<PAGE> 83

Front-End Adaptation Server -- A server that works in tandem with and
emulates a mainframe computer to provide certain value added data processing.

Interoperability -- The capability of products to exchange information with
one another using a standards-based protocol.

IP (Internet Protocol) -- A protocol used to route data from its source to
its destination in a networked environment.

ISDN (Integrated Services Digital Network) -- A digital end-to-end
telecommunication network that supports multiple services including, but not
limited to, voice and data. ISDNs are used in public and private network
architectures.

LAN (Local Area Network) -- A computer network that serves users within a
limited geographical area. Local area networks can be connected to a larger
network, called a wide area network ("WAN").

Latency -- The time between initiating a request for data and the beginning
of the actual data transfer.

Leased Line -- A private communications channel leased from a common
carrier.

Message -- An ordered series of characters intended to convey information.
Associated with such terms as packet, frame and segment.

Modular -- Products using common subassemblies to facilitate system
expansion.

Multi-service -- The capability to provide voice, data and/or video
communications.

MUX (Multiplexer) -- A device that takes several input signals and combines
them into a single output signal in such a manner that each of the input signals
can be recovered.

Node -- A network junction or connection point. For example, a personal
computer on a LAN is a node.

Packet -- A block of data (a frame) used for transmission of data in LANs
and packet switching systems.

Packet Switching -- A network technology used in WANs that converts a
message into smaller packets for transmission and switches them to their
required destination. Thus all packets in a single message do not have to travel
the same path. The destination computer reassembles the packets into their
proper sequence.

Peripherals -- Any hardware device connected to a computer, such as a
printer, check reader, etc.

POS (Point of Sale) Terminal -- A device for recording sales data on
machine-readable media at the time a sale is made.

PRI (Primary Rate Interface) -- A protocol used in ISDN. PRI is one
diagnostic channel with 23-30 data channels.

Protocol -- A set of rules that determines how data is transmitted over a
communications link.

Router -- A device that connects two networks using the same networking
protocol.

Scalability -- The ability to expand. Implies minimal change in the current
systems environment in order to accommodate growth.

SDLC (Synchronous Data Link Control) -- The primary data link protocol used
in IBM's SNA networks.

SNA (Systems Network Architecture) -- IBM's mainframe network standards
introduced in 1974.

Stackable -- The ability to place physical units on top of each other,
minimizing floor space requirements.

Switched Network (Switched Network Service) -- The dial-up telephone
system.

TCP/IP (Transmission Control Protocol/Internet Protocol) -- A set of
communication protocols that support peer-to-peer connectivity functions for
both local and wide area networks.

TDM (Time Division Multiplexing) -- A technology that transmits multiple
signals simultaneously over a single transmission path.

WAN (Wide Area Network) -- A network that provides communication services
to a geographic area larger than that served by a local area network, and that
may use or provide public communication facilities.

G-2
<PAGE> 84

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Background of the Company............. 14
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 42
Principal and Selling Stockholders.... 49
Certain Relationships and Related
Transactions........................ 50
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 53
Underwriting.......................... 54
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 56
Index to Financial Statements......... F-1
Glossary.............................. G-1
</TABLE>

UNTIL , 1997 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================

11,250,000 SHARES

[HYPERCOM CORPORATION LOGO]
[HYPERCOM COLOR
LOGO]

HYPERCOM CORPORATION

COMMON STOCK

---------------------------
PROSPECTUS
, 1997

---------------------------
LEHMAN BROTHERS

SALOMON BROTHERS INC

COWEN & COMPANY

======================================================
<PAGE> 85

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
registrant, will be substantially as follows:

<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee............................................................. $ 71,213
NYSE Filing Fee.................................................................. $ 190,292
NASD Filing Fee.................................................................. $ 24,000
*Blue Sky Fees and Expenses (including legal fees)............................... $ 5,000
*Accounting Fees and Expenses.................................................... $ 350,000
*Legal Fees and Expenses......................................................... $ 350,000
*Consulting Fees................................................................. $ 50,000
*Printing and Engraving.......................................................... $ 200,000
*Registrar and Transfer Agent's Fees............................................. $ 5,000
*Miscellaneous Expenses.......................................................... $ 54,495
-------
Total.................................................................. $1,300,000
=======
</TABLE>

- ---------------
* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Amended and Restated Certificate of Incorporation provides
that a director of the Company shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for: (i) any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) liability for payments of dividends or stock purchases or redemptions in
violation of Section 174 of the Delaware General Corporation Law; or (iv) any
transaction from which the director derived an improper personal benefit. In
addition, the Company's Certificate of Incorporation provides that the Company
shall to the fullest extent authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than such law permitted the corporation
to provide prior to such amendment), indemnify and hold harmless any person who
was or is a party, or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that such person is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee") against expenses, liabilities and losses
(including attorneys' fees, judgments, fines, excise taxes or penalties paid in
connection with the Employee Retirement Income Security Act of 1974, as amended,
and amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith; provided, however, that except as otherwise
provided with respect to proceedings to enforce rights to indemnification, the
Company shall indemnify any such Indemnitee in connection with a proceeding (or
part thereof) initiated by such Indemnitee only if such proceeding or part
thereof was authorized by the board of directors of the Company.

The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an Indemnitee in his capacity as a director or officer (and
not in any other capacity in which

II-1
<PAGE> 86

service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Company of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is not further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred herewith are contract rights and continue as to an Indemnitee who has
ceased to be a director, officer, employee or agent and inures to the benefit of
the Indemnitee's heirs, executors and administrators.

The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
part of the Exhibits hereto.

For information regarding the Company's undertaking to submit to
adjudication of the issue of indemnification for violation of the securities
laws, see Item 17 hereof.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On November 17, 1994, the Company's predecessor, Hypercom Pty. Ltd.
("HPL"), an Australian corporation, issued 350,000 shares of Common Stock to
Albert A. Irato for $441,477.

On July 1, 1996, the Company issued 908,255 shares of Common Stock to
George Wallner, Paul Wallner and Albert A. Irato for an aggregate of $75 (and
their intention to contribute their stock in HPL at a later date) in connection
with the formation of the Company and proposed reorganization of HPL.

On October 25, 1996, the Company issued a total of 23,091,745 shares of
Common Stock to George Wallner, Paul Wallner and Albert A. Irato in
consideration for their contribution of all of the issued and outstanding shares
of Common Stock of HPL.

On November 27, 1996, the Company issued 1,000,000 shares of Common Stock
to a former stockholder of HPL as partial consideration for that stockholder's
sale to the Company of shares in HPL.

On October 1, 1997, the Company issued 10,000 shares of Common Stock to Roy
Thompson in exchange for his 70% equity interest in Hypercom Design Services,
Inc.

The above information reflects (i) the ratio used in exchanging shares of
Common Stock of HPL for shares of Common Stock of the Company, (ii) a
10,000-for-1 stock split effected by the Company on November 25, 1996 and (iii)
a 5-for-4 stock split effected by the Company on September 10, 1997.

Exemption from registration for each transaction described above was
claimed pursuant to Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering.

II-2
<PAGE> 87

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ --------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement by and among the Representatives, the Company and
the Selling Stockholders
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* Amended and Restated Bylaws of the Company
4.1* Amended and Restated Certificate of Incorporation of the Registrant filed as
Exhibit 3.1
5* Opinion of Snell & Wilmer L.L.P.
10.1* Revolving Line of Credit Loan Agreement, by and between Hypercom, Inc., and Bank
One, Arizona, NA, dated March 13, 1996, and amended, November 19, 1996
10.2* Lease, as amended, dated June 14, 1996, by and between Estes-Samuelson
Partnership and Hypercom, Inc.
10.3* Hypercom Corporation Long-Term Incentive Plan+
10.4* Hypercom Corporation 1997 Employee Stock Purchase Plan+
10.5* Promissory Note, dated October 17, 1994, by and between Hypercom, Inc., and
George Wallner+
10.6* Hypercom Corporation Nonemployee Directors' Stock Option Plan+
10.7* Employment Agreement with Jairo Gonzalez, dated January 1, 1997+
10.8* Employment Agreement with Albert A. Irato, dated January 1, 1997+
10.9* Loan Agreement, dated October 12, 1996, by and between Hypercom Pty. Ltd., and
George Wallner+
10.10* Loan Agreement, dated October 12, 1996, by and between Hypercom Pty. Ltd., and
Paul Wallner+
10.11* Promissory Note, dated December 31, 1994, by and between Hypercom, Inc., and
Albert Irato+
10.12* Description of lease by and between Hypercom Pty. Ltd., and Hypercom Unit Trust
11* Earnings per Share Computation
21* List of Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
23.2* Consent of Snell & Wilmer L.L.P. (included in Exhibit 5)
24* Power of Attorney (see signature page included in Registration Statement)
27* Financial Data Schedule
99.1* Director-Nominee Consent of Peter J. Hart
99.2* Director-Nominee Consent of William E. Fisher
</TABLE>

- ---------------
+ Management or compensatory plan or agreement.
* Previously filed.

(b) Statement Schedules.

<TABLE>
<CAPTION>
SEQUENTIALLY
SCHEDULE DESCRIPTION OF NUMBERED
NUMBER SCHEDULES PAGE
- -------- ------------------------------------------------------------- ------------
<C> <S> <C>
I. Report of Independent Accountants S-2
II. Valuation and Qualifying Accounts S-3
</TABLE>

II-3
<PAGE> 88

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(b) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 89

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Phoenix, State of Arizona, on October 30, 1997.

HYPERCOM CORPORATION

By: /s/
------------------------------------
George Wallner
Chairman of the Board of Directors

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------- -------------------
<S> <C> <C>

/s/ Chairman of the Board of October 30, 1997
- ------------------------------------- Directors (Principal Executive
George Wallner Officer)

/s/ Vice Chairman of the Board, Chief October 30, 1997
- ------------------------------------- Executive Officer and President
Albert A. Irato

* Vice Chairman of the Board of October 30, 1997
- ------------------------------------- Directors
Paul Wallner

* Vice Chairman of the Board of October 30, 1997
- ------------------------------------- Directors
Jairo Gonzalez

/s/ Chief Financial Officer October 30, 1997
- ------------------------------------- (Principal Financial and
Thomas E. Linnen Accounting Officer)

*By: /s/
- -------------------------------------
Albert A. Irato
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 90

INDEX TO FINANCIAL STATEMENT SCHEDULES*

- ---------------
* All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.

S-1
<PAGE> 91

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Hypercom Corporation

In connection with our audits of the consolidated financial statements of
Hypercom Corporation as of June 30, 1996 and 1997 and for each of the three
years in the period ended June 30, 1997, which financial statements are included
in the Prospectus, we have also audited the financial statement schedule listed
in Item 16 herein.

In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

COOPERS & LYBRAND L.L.P.

Phoenix, Arizona
September 10, 1997

S-2
<PAGE> 92

HYPERCOM CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
---------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts......... $ 100 $ 167 $ -- $ -- $ 267

YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts......... 267 494 -- -- 761
Inventory reserves...................... -- 2,133 -- -- 2,133

YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts......... 761 1,427 -- (1,409) 779
Inventory reserves...................... 2,133 994 -- (525) 2,602
</TABLE>

S-3
<PAGE> 93

APPENDIX A

Inside Front Cover: Representative pictures of Hypercom POS terminals
being used in typical environment.

Inside Front Cover Fold Out: Representation of a schematic of a point-of-sale
network which ties together to a complex network
comprising of LANs and WANs.

Back Inside Cover: Hypercom Logo.

<PAGE> 94

INDEX OF EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
1* Form of Underwriting Agreement by and among the Representatives, the
Company and the Selling Stockholders
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* Amended and Restated Bylaws of the Company
4.1* Amended and Restated Certificate of Incorporation of the Registrant
filed as Exhibit 3.1
5* Opinion of Snell & Wilmer L.L.P.
10.1* Revolving Line of Credit Loan Agreement, by and between Hypercom, Inc.,
and Bank One, Arizona, NA, dated March 13, 1996, and amended, November
19, 1996
10.2* Lease, as amended, dated June 14, 1996, by and between Estes-Samuelson
Partnership and Hypercom, Inc.
10.3* Hypercom Corporation Long-Term Incentive Plan+
10.4* Hypercom Corporation 1997 Employee Stock Purchase Plan+
10.5* Promissory Note, dated October 17, 1994, by and between Hypercom, Inc.,
and George Wallner+
10.6* Hypercom Corporation Nonemployee Directors' Stock Option Plan+
10.7* Employment Agreement with Jairo Gonzalez, dated January 1, 1997+
10.8* Employment Agreement with Albert A. Irato, dated January 1, 1997+
10.9* Loan Agreement, dated October 12, 1996, by and between Hypercom Pty.
Ltd., and George Wallner+
10.10* Loan Agreement, dated October 12, 1996, by and between Hypercom Pty.
Ltd., and Paul Wallner+
10.11* Promissory Note, dated December 31, 1994, by and between Hypercom, Inc.,
and Albert Irato+
10.12* Description of lease by and between Hypercom Pty. Ltd. and Hypercom Unit
Trust
11* Earnings per Share Computation
21* List of Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
23.2* Consent of Snell & Wilmer L.L.P. (included in Exhibit 5)
24* Power of Attorney (see signature page included in Registration
Statement)
27* Financial Data Schedule
99.1* Director-Nominee Consent of Peter J. Hart
99.2* Director-Nominee Consent of William E. Fisher
</TABLE>

- ---------------
+ Management or compensatory plan or agreement.

* Previously filed.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in Amendment No. 2 of this Registration Statement on
Form S-1 of our reports dated September 10, 1997, except for Note 18 for which
the date is October 1, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Hypercom Corporation. We also
consent to the references to our firm under the captions "Experts" and "Selected
Financial Data".

COOPERS & LYBRAND L.L.P.

Phoenix, Arizona

October 30, 1997