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UNITED STATES

FORM 10-K

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

OR

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

For the six month period from July 1, 1999 to December 31, 1999.

Commission file number: 1-13521

HYPERCOM CORPORATION

2851 West Kathleen Road

(602) 504-5000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]  No  [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K.  [   ]

      The aggregate market value of the voting stock held by non-affiliates of the registrant was $212,151,888 as of March 14, 2000 (based on the closing price of the common stock on the New York Stock Exchange on that date).

      Number of shares of the registrant’s common stock, $.001 par value per share, outstanding as of March 14, 2000, was 34,509,593.

Documents Incorporated By Reference

      Material from the Company’s Proxy Statement relating to its 2000 Annual Meeting of Stockholders has been incorporated by reference into Part III, Items 10, 11, 12, and 13.

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PART I

Item 1.  Business

      Unless otherwise indicated, references to fiscal 1999 means Hypercom Corporation’s year ended June 30, 1999. References to six-month period 1999 means the 6-month period from July 1, 1999 to December 31, 1999. Hypercom is transitioning from a June 30 fiscal year end to a December 31 fiscal year end.

The Company

      Hypercom Corporation (“Hypercom” or the “Company”) is a single-source global provider of end-to-end electronic payment solutions, including card payment systems, peripherals, network products, software and e-commerce payment solutions that add value at the point-of-sale for consumers, merchants and acquirers.

      With worldwide headquarters in Phoenix, Arizona, Hypercom markets its products in more than 70 countries through a global network of affiliates and offices in Argentina, Australia, Brazil, Chile, China, Germany, Hong Kong, Hungary, Japan, Mexico, Russia, Singapore, Sweden, the United Kingdom and Venezuela.

      Hypercom Corporation is the successor to an Australian company founded in 1978 by George Wallner, the Company’s President and Chief Executive Officer. The company’s operations were primarily focused on Asian markets until 1987 when the Australian company expanded its operations into the United States. 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 restructuring activities were completed in July 1997.

      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’s total card payment systems provide a fast, flexible and secure global transaction environment. Card-based payment systems enable users to engage in payment and non-payment activities such as credit, debit and charge payments, electronic benefit transfers (“EBT”), loyalty systems, coupon programs and medical claims and payments.

      Hypercom’s current products can be categorized as (i) point-of-sale (“POS”) products and services and (ii) networking products.

      The Company’s POS products, which include terminals and peripherals, network solutions, Ascendent transaction software, and services (deployment, help desk, PIN pad loading, repair and telecommunications), accounted for 92.9% of Hypercom’s net revenues in the six-month period ended December 31, 1999. Hypercom’s Network Systems division accounted for approximately 7.1% of Hypercom’s net revenues in the six-month period 1999. This unit develops, manufactures, markets and supports both standard and customized networking solutions to support POS systems.

      Hypercom Network Systems also designed carrier class gateway products for the VoIP (Voice over Internet Protocol) market. In December 1999, Hypercom Network Systems transferred its VoIP assets, technology and 46 staff resources to Cirilium Corporation. Jointly owned by Hypercom and Inter-Tel, Incorporated, Cirilium is expected to target the worldwide VoIP telephony system and equipment market. Its products will combine Inter-Tel’s telephony core competencies (PBX call processing, IP telephony products, computer telephone integration applications, voice processing software and long-distance calling services) with Hypercom’s carrier class VoIP gateways and electronic payment technology. Management believes that transferring the VoIP technology to Cirilium will create an opportunity for Cirilium to focus solely on providing turnkey IP solutions to gateway and carrier class markets.

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Industry Background

Point-of-Sale

      Stand-alone payment terminals were introduced 18 years ago to provide the simple tasks of authorizing a credit card payment. Over the years, they have evolved from authorization-only devices into small computers capable of performing numerous applications, such as debit and loyalty programs.

      In recent years, consumers demanding fast, convenient and secure methods of payment have increasingly preferred card-based payments. 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:

	•	support a wide array of payment and program options,
	•	are scalable, flexible and cost-effective,
	•	provide fast, secure data transmission and
	•	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 need to be replaced to handle the increased volume and data-intensive applications which are projected for the POS market. In addition, the components of current POS payment systems typically are supplied by multiple vendors, which may affect interoperability, scalability and upgradeability.

      New electronic payment technologies are expected to facilitate the introduction of additional electronic payment applications. These include sophisticated customer loyalty programs and stored value (“smart”) 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 is required to be available for federal programs.

      In addition, merchants and banks are working together to eliminate processes which are costly and time consuming by combining legacy and new POS systems, including the use of the POS terminal for processing checks (check truncation) and retrieval of electronic signatures or receipts. In addition, the developing infrastructures of emerging markets, such as those in Eastern Europe, Russia and China, are expected to contribute to the increasing demand for electronic payment products.

      Today, the emerging trend in payment processing is toward customer-activated transaction terminals. As a result, the personal identification number entry device or “PIN pad” is being replaced by a touch-screen terminal that faces the customer. In addition to traditional financial transactions, the touch-screen terminal supports many new customer-activated applications such as loyalty programs, utilizing the touch-screen terminal. Management believes that this trend will initiate and sustain a replacement cycle, as merchants will be motivated to upgrade their existing terminals.

      According to the Nilson Report newsletter, based in Oxnard, CA; “four card-based systems — credit, debit, stored value and electronic benefits transfer — accounted for 25.6% of total consumer payments in 1998 up from 24.0% in 1997. By 2010, their share will increase to 47.1%. The biggest gain in market share of card payments will come from debit cards whose steadily increasing usage has the biggest effect on the declining use of checks and cash at the point of sale. Between 1998 and 2010 debit card volume will grow by 780%, credit card volume will increase by 163%, EBT card volumes will increase by 444% (as these cards replace paper food stamps), and stored-value cards (prepaid) card volume will increase by 481%. By 2005, stored-value and EBT cards will become larger payment systems than traveler’s checks and official checks are now.”

      Card payments through transaction terminals remain a critical application and they require specialized and secure payment devices that will continue to occupy a place on the merchant countertop. But the trend is toward cardholder-activated transactions. There is also an increased demand for electronic receipt capture. Additionally, the Internet has generated more e-commerce opportunities for merchant websites, advertising and loyalty programs. The combination of these demands has created the need for POS terminals to do more

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Products and Services

      Hypercom provides “system-level” products and services to its electronic transaction customers, including POS terminals and peripherals, PINpads, network access controllers and Internet-enabled, value-added applications. Hypercom offers its customers a full range of functionality, from the basic to advanced, and can also provide networking functionality. In addition, Hypercom provides POS support services. See Footnote 15 to the Consolidated Financial Statements for information on the Company’s business segments.

      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, time and attendance data collection reporting and Internet access through the terminal. These products feature a modular design to allow for easy upgrades as new technologies become available.

      The principal peripheral products that interface with Hypercom terminals include printers, PINpads, signature capture devices and communications products. Printers enable printing of customer receipts. PINpads 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. Hypercom offers a Signature Capture PINpad, which enables cost-effective digital capture and storage of signature information for credit card transactions.

      Point-of-Sale. During fiscal 1999, Hypercom introduced a new generation of POS payment systems with its Interactive Consumer Environment (“ICE”) product line. It also introduced new modem technology called FastPOS, operating at 9600 bits per second (“bps”). This technology facilitates transactions in approximately 6 seconds or less, and accommodates new, data-intensive applications such as electronic receipt capture. The Company also introduced the Ascendent transaction software, which, among other features, includes functionality for secure Internet payments.

      ePic™. In the six-month period 1999, the Company introduced its comprehensive Internet-based retail countertop commerce and information system, called ePOS-infocommerce™, or ePic. The industry’s first Internet-enabled POS payment terminal and server system, ePic lets merchants support a range of Internet-based functions via the Hypercom ICE™ series of touch-screen terminals. In addition to traditional secure payment processing functions, when used in conjunction with Hypercom’s e-commerce web merchant-hosting software, ePic enables merchants to set up centrally hosted web stores which can be operated via the terminal. ePic supports e-mail, on-screen advertising, interactive electronic coupons, interactive loyalty programs, electronic receipt capture, branding programs and e-commerce.

      Hypercom ICE™ Products. Hypercom’s ICE™ family of products consist of powerful, multi-function touch-screen terminals incorporating a high-speed thermal printer, paper cutter, and Hypercom FastPOS™ modem technology. Hypercom’s ICE terminal provides financial transaction technology incorporated with Internet-enabled functions and a highly interactive and intuitive user interface to support complex transactions with minimal user training.

      In addition to traditional credit and debit functions, the ICE terminal is designed to support payment options such as smart cards, and develop new business opportunities through customer loyalty management systems. Products in this family include the ICE 5000, ICE 5500, ICE 6000, ICE 6500 and the mobile SmartICE for wireless transaction environments. The ICE 5000 is currently shipping, the remaining products are expected to begin shipping during calendar 2000.

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      FastPOS™. FastPOS moves digitized data at 9600 bps, which is four to eight times faster than the 1200/2400 bps industry standard, thus providing a competitive advantage.

      Ascendent™ Transaction Software. ICE terminals and Ascendent™, a comprehensive family of front-end client/server payment and data transaction processing software, supports electronic receipt capture, advertising at the point of sale and customer loyalty programs.

      With Hypercom’s Ascendent Electronic Receipt Capture (“ERC”) software, the receipt and signature are captured at the point of sale and stored electronically. This creates a completely paperless environment, which improves merchant efficiency and service and reduces charge-backs. Charge-back handling is completely automated as receipts are accessed electronically for satisfactory settlement. Merchants can view and retrieve receipts through the Internet with a standard browser, print the data, or send it electronically to the appropriate destination.

      To support advertising at the point of sale, the touch-screen on the ICE terminals can display the merchant logo, promotions, or other advertising. Onscreen messages can inform, cross-sell, motivate and build the brand image. Customized receipts with the merchant logo or advertising message may offer discounts for future purchases, extend advertising impact and encourage repeat business.

      Loyalty programs keep merchants in touch with their customers and inform them of new rewards, alert them to special offers or simply remind them to use their credit or debit cards. Data secured with loyalty cards can be used to make personalized customer service improvements.

      Ascendent™ RealPay™ is e-commerce payment processing software that enables Internet acquirers to cost effectively engage in secure online payment and transaction processing. RealPay helps Internet acquirers deploy and manage complex electronic and advanced financial applications. By using an advanced, modular design, RealPay provides a comprehensive set of financial interfaces that can be integrated into the existing technical infrastructure of a legacy system.

Services and Other Software

      The Company provides a broad range of services related to its POS payment systems and networking products. The Company provides consulting services:

	•	to assist with strategies and alternatives for POS payment systems,
	•	to assist in the design, installation, integration and management of POS  payment systems, and
	•	to design customized software applications.

      The Company also provides deployment, training, technical assistance, help desk and maintenance services for its products.

      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 Hypercom’s 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.

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Networking and Connectivity

      Hypercom’s Integrated Enterprise Networking™ (“IEN”) family of products are Network Access Controllers (“NAC”) that provide the networking hardware technology and communications infrastructure necessary to achieve connectivity in the POS environment. NACs are intelligent communications devices that 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’s IENs greatly reduce operating costs, protect investments in current legacy networks and offer a wide range of network technologies, such as X.25, frame relay, asynchronous transfer mode (“ATM”), and Integrated Services Digital Network (“ISDN”) and protocol interfaces, including SNA and TCP/ IP. Hypercom delivers networking solutions for POS systems as well as designs and delivers custom networks. The NAC product line also includes the MiniNAC2, which connects automated teller machines, POS terminals and PC or in-store controllers to existing hosts utilizing standard dial-up access.

Competitive Advantages

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

      Technology Leader and Innovator. Since the introduction of POS payment terminals in the early 1980s, the Company has established itself as a technology leader and innovator in the electronic payments market. In the six-month period 1999, Hypercom’s technology leadership continued as it introduced its comprehensive Internet-based retail countertop commerce and information system, called ePOS-infocommerce™, or ePic, with the high-performance ICE terminal as its central POS hardware component. In fiscal 1999, the Company introduced Hypercom® ICE™ terminals, its Interactive Consumer Environment product line of touch-screen based terminals; FastPOS, new modem technology which operates at 9600 bits per second (“bps”), which not only allows faster transactions but new data-intensive applications such as electronic receipt capture; and Ascendent transaction software, which includes functionality for secure Internet payments.

      Comprehensive POS Payment Systems Provider. With its POS payment terminal technology, networking hardware and software and transaction processing software, 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, scalability 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. Hypercom was founded in Australia 22 years ago. It became the largest supplier of POS systems in the Asia/ Pacific region prior to its move to the United States. The Company currently sells its products in more than 70 countries. According to the May 1999 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

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      Technologically Advanced, Multi-service Architecture. Hypercom has leveraged its extensive 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 (“IEN”). The Company believes that its IEN networking products give it a competitive advantage in that they 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, protocol converter, dial back-up unit and Channel Service Unit/ Data Service Unit, 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.

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, Bank of America Merchant Services, Banamex, CrediCard Brazil, First Data Merchant Services, TASQ Technologies, National Bank of Australia and Concord Equipment Sales. In any given year, select customers may account for a significant percentage of net revenue. Although no one customer accounted for more than 5.0% of the Company’s net revenue in six-month period 1999, the two largest customers accounted for 7.4% of the Company’s net revenue and the five largest customers accounted for 15.8% 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, American Express Company, AT&T Corp., First Data Merchant Services, The Home Depot, Inc., and The Hong Kong and Shanghai Banking Corporation Group.

      The Company places special emphasis on offering high-performance, technologically-advanced POS payment system solutions and networking products to enable its customers to gain market share in their respective industries.

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. In fiscal 1999, the Company merged its domestic and international sales, marketing and operations personnel, which are now managed from its Phoenix, AZ, headquarters.

      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 marketing and technical publications group.

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Financial Information about Industry and Geographic Segments

      For detailed financial information concerning the Company’s industry segments and foreign and domestic operations and export sales, reference is made to Note 15 of the Consolidated Financial Statements included in Part II of this Form 10-K.

Leasing Company

      On January 10, 2000, Hypercom’s wholly-owned subsidiary Hypercom Financial, Inc. completed the purchase of substantially all of the assets and business and the assumption of certain liabilities of Golden Eagle LLC, a micro-ticket leasing organization for point-of-sale terminals (“Golden Eagle”). The purchase price paid at closing was $18.5 million in cash and $4.0 million in Hypercom’s common stock. Golden Eagle could earn an amount up to $32.5 million in Hypercom’s common stock over the next three years if certain financial objectives are met. Management believes that Golden Eagle’s equipment acquisition and deployment program, which includes purchase, rental or lease options, will allow Hypercom to more fully leverage the implementation of ePic, as traditional card payment terminals are replaced with Hypercom’s Internet-enabled, touch-screen ICE terminals.

Backlog

      As of December 31, 1999, the Company had a backlog of $89 million. Backlog was $118 million at December 31, 1998. The Company has taken steps to reduce terminal manufacturing lead-time, which reduces the customers’ required lead-time. These shorter lead times eliminate the prior requirements for customers to book orders covering longer periods.

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

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, deployment and customer support in addition to comprehensive repair facilities for its products in St. Louis, Missouri.

      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 expenses 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 primary manufacturing facility is in China, where the Company manufactures POS payment systems. The Company also manufactures POS products at its facilities in Arizona and Brazil. The Company also relies on third-party suppliers for certain components of its POS payment system products.

      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 strives to maintain 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 that quality components are used in its products. However, increased competition and

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      For information relating to the Company’s dependence on suppliers, see “Dependence On Certain Suppliers And Third-Party Distributors” in Exhibit 99.1 which is attached hereto and incorporated by reference into this Transition Report on Form 10-K.

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, including both hardware and software, that support new technologies and payment products emerging in the electronic payments industry. The Company works closely with its customers to define new product concepts and identify emerging applications for both its hardware and software 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, staff resources 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 are principally headquartered in Phoenix, Arizona. Development staffs also are located in Australia, Dallas, TX, Rochester, NY, Hong Kong, Singapore, Sweden, Brazil, Russia and the United Kingdom. The Company maintained a separate development group dedicated to electronic commerce transaction software, which had been located in Australia, but in 1999 relocated this group to Atlanta, GA, to enhance the ability to hire additional software developers and to benefit 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 develop new products. The Company is dedicated to complying with industry standards and supporting important new standards as they emerge.

      At December 31, 1999, 423 employees of the Company were engaged in research and product development, including 350 in POS payment systems development, 42 in Ascendent development and 31 in networking systems. In the six-month periods ended December 31, 1999 and 1998, the Company’s research and development expenditures were $19.6 million and $15.8 million respectively. To date, a substantial majority of the Company’s research and development costs have been expensed as incurred. Beginning in the third quarter of fiscal 1999, the Company began capitalizing costs in relation to the development of specific software enhancements related to its Ascendent software products. In fiscal 1999 and in the six-month period ended December 31, 1999 the Company capitalized approximately $2.0 million and $0.7 million respectively related to Ascendent software products. Additionally, during the six months ended December 31, 1999, the Company capitalized $0.8 million of development costs related to the development of its Windows CE and multi-lane products. Amortized software development costs amounted to $0 and $0.4 million for the fiscal year ended June 30, 1999 and the six months ended December 31, 1999 respectively. The Company expects that it will continue to expend substantial resources on research and product development.

Seasonality

      Hypercom continues to experience some degree of seasonality. For this reason, net revenue and results of operations are stronger from July to December reflecting:

	•	Increased POS purchases to satisfy increased retail demand during the holiday season,
	•	Incentive programs VISA and MasterCard offer from July to December to encourage merchants to offer card-based payment systems, and
	•	Allocation of customers’ capital budgets by the end of March with volume shipments beginning in July.

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Competition

      The markets in which the Company operates are highly competitive and are becoming increasingly more 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 the 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 satisfy the diverse certification standards of these processors.

      Hypercom competes with companies such as IBM, Siemens, NCR, ICL and Micros in the overall POS marketplace. In the POS terminal portion of the marketplace the Company’s primary competitor is VeriFone, Inc., which was acquired by Hewlett-Packard Company in 1997.

      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 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 holds patents issued in the U.S. (and several other countries) relating to a POS terminal configured with a substantial portion of its functionality at a remote processor, and a POS terminal with replaceable printer cartridge, and has several patents pending. Foreign patents have also been issued on several other patent applications, including the replaceable printer mechanism, which has been instituted by Hypercom in its integrated POS terminals containing a printer. Hypercom has pending a number of U.S. and foreign patent applications relating to both the POS terminal products as well as the IEN product family.

      The Company has U.S. federal registration for its “Hypercom” trademark. In addition, the Hypercom trademark is registered in 34 countries and has registration pending in 5 countries. In addition to the registered trademark of the Hypercom® name and logo, the Company has U.S. federal registrations for the following trademarks: MEGANAC®, MININAC®, MINIROUTER®, TERM-MASTER®, VIRTUAL MAPPED SNA®, PAYSEC®, CHIPSTRIPE® and VIRTUAL POS®.

      The Company’s trademark applications for U.S. registrations include: ASCENDENT™, HYPERCOM FASTPOS™, HYPERWARE™, ICE™, ICEPAC™, IEN 2000™, REALPAY™, TOKEN TRACKING SYSTEM™, EPOSINFOCOMMERCE™, HYPERCOM.COM™, HYPER-FORMANCE™, HYPER-FORMANCE GATEWAY™, IENVIEW™, and SMARTICE™.

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      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.

      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 plans and profit-sharing and severance payments, and the use, storage, handling and disposal of certain chemicals used in the 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 December 31, 1999, the Company employed 1176 persons, including 154 in manufacturing, 231 in service and support, 71 in sales and marketing, 423 in research and development and 297 in finance and administration. Approximately 436 of the 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.

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Executive Officers of the Registrant

      The following are the executive officers of the Company as of February 9, 2000:

      George R. Wallner, 48: President and Chief Executive Officer since July 1, 1999; Chief Technologist since he founded the Company in 1978; and Chairman of the Board of Directors from 1978 until June 30, 1999.

      Jonathon E. Killmer, 58: Executive Vice President, Chief Financial Officer and Chief Administrative Officer of Hypercom Corporation since January, 1999; Senior Vice President, Chief Financial Officer and Treasurer of Digi International Inc. from October 1996 to October 1998; Managing Partner of the Minneapolis/ St. Paul Coopers & Lybrand L.L.P. office from October 1990 to September 1996.

      Christopher S. Alexander, 51: President of Hypercom Transaction Systems Group since July 1, 1999; Chief Operating Officer of Hypercom Corporation from October 1, 1998 to June 30, 1999; and Chief Operating Officer of Hypercom International from 1993 to September 30, 1998.

      Peter J. Stutsman, 47: General Counsel, Corporate Secretary, Senior Vice President, Legal and Contract Affairs since September 1998, Secretary and Vice President, Legal and Contract Affairs since September 1997, and Corporate Secretary since October 1995.

Item 2.  Properties

      The Company’s principal administrative, assembly and warehouse facilities are located in Phoenix, AZ, where it owns an approximate 142,000 square foot building. The Company leases an adjacent 23,800 square foot building for Hypercom Network Systems. The lease expires August 31, 2011.

      The Company leases an approximate 15,000 square foot facility in Sydney, Australia, and owns an approximate 17,000 square foot facility in Brazil. The latter is utilized for additional POS manufacturing capacity.

      The Company also leases office space in Arizona, Florida, Georgia, Maryland, Missouri and New York. Facilities in Texas, Hong Kong, China, Singapore, Sweden, Japan, Chile, Argentina, Venezuela, Mexico, Russia, Hungary and the United Kingdom, all are dedicated primarily to POS sales and support with the exception of China, which contains the Company’s primary manufacturing facility. The Company believes that its facilities are adequate for its operations and will be sufficient for the foreseeable future. Reference is hereby made to Note 13 of the Consolidated Financial Statements on page 45 for detailed information relating to the Company’s lease commitments.

Item 3.  Legal Proceedings

      From time to time, the Company is subject to claims and litigation incident to its business. On September 23, 1998, an employee of the Company filed a lawsuit in the Maricopa County Superior Court against two senior executives of the Company and the Company alleging sexual misconduct by the executives and seeking damages, including punitive damages. On November 22, 1999, the court issued a ruling, that effectively dismissed all causes of action against Hypercom and the two named defendants, leaving one issue to be resolved at a later date. Since the court ruling, there has been no action on this matter from either party. The Company believes that the one remaining issue in the lawsuit will not have a material adverse effect on its financial condition.

Item 4.  Submission of Matters to a Vote of Security Holders

      The Company held its Annual Meeting on Tuesday, November 16, 1999, at which time board members Jock Patton and Peter J. Hart were each elected to serve a two-year term until the 2001 Annual Meeting of Stockholders, receiving a majority of the votes cast. Continuing directors are Albert A. Irato, George R. Wallner and William E. Fisher.

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      In addition, stockholders approved amendments to the Hypercom Corporation 1997 Employee Stock Purchase Plan, with the following vote: for — 30,526,032; against — 88,355; and abstained — 5,551. Such amendments increased the number of offering periods in a calendar year from two to four and increased the discount on the purchase price from ten percent to fifteen percent.

PART II

Item 5.  Market for Registrant’s Common Equity and Related Shareholder Matters

      The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “HYC.” The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for the common stock as reported on the NYSE.

      The Company has not paid any cash dividends on its Common Stock. The Company currently intends to retain its earnings for its business and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company’s ability to pay cash dividends on its common stock is also limited by certain covenants contained in a loan agreement to which the Company is a party. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” on page 18.

      The approximate number of shareholders of record as of March 2000 was 3,200.

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Item 6.  Selected Financial Data

      The following table presents selected historical financial data of Hypercom at the dates and for each of the periods indicated. The selected financial data should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included elsewhere herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Historical consolidated financial data may not be indicative of the Company’s future performance.

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Results of Operations

      The following table sets forth the operating results expressed as a percentage of net revenue for the periods indicated and the percentage change in such operating results between periods. Results for any one or more periods are not necessarily indicative of future results:

Percentage of Net Revenue

      Net revenue by geographic region are presented in the following table as a percentage of net revenues for the periods indicated:

  Explanatory Note

      On April 20, 1999, Hypercom changed its fiscal year end from June 30 to December 31. As a result, pursuant to the rules of the Securities and Exchange Commission, this Transition Report on Form 10-K presents financial information for the six-month period ending December 31, 1999. The results of operations and cash flows of the Company for the six months ended December 31, 1999 contained 184 days compared to 365 days for the twelve months ended June 30, 1999, 1998 and 1997.

  Comparison of Six Months ended December 31, 1999 and 1998.

      For the six months ended December 31, 1999 and 1998, net revenues increased 9.3% or $12.7 million from $136.6 million to $149.3 million, principally due to growth in Europe ($11.8 million), Asia ($3.2 million) and Latin America ($4.1 million). The significant increase in European sales was due to a rapid expansion of the customer base in an emerging market for the Company as well as the acquisition of ICL

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      For the six months ended December 31, 1999 and 1998, Network Systems revenue decreased $5.3 million or 33.3% from $15.9 million to $10.6 million. The decrease was primarily due to the transfer of this unit’s VoIP technology to a new joint venture, Cirilium Corporation, with Inter-Tel, Incorporated, a provider of telephony products. Revenue from “Voice over Internet Protocol” (VoIP) customers declined in anticipation of the formation of the new joint venture. In addition, Network Systems personnel spent significant time planning the reorganization of the business unit and refocusing the sales and development efforts which contributed to the reduced revenue from Network Systems for the six-month period.

      Gross profit as a percentage of net revenue decreased from 49.6% to 45.6% for the six months ended December 31, 1999 compared to the six months ended December 31, 1998. The decrease was related to the impact of the acquisition of substantially all the assets of the Horizon Group Inc. (Horizon). Horizon typically operates on a much lower gross margin percentage than historical Hypercom gross margin percentages and, as a result, has a dilutive effect on overall gross margin. Horizon was acquired on October 1, 1998 and thus the Company only included three months of Horizon financial results in the six-month period ended December 31, 1998. As a result, Horizon’s dilutive impact on the Company’s gross margin (1.8%) for the six months ended December 31, 1998 was less than for the six months ended December 31, 1999. Horizon’s financial results for the six-months ended December 31, 1999 included net revenue of $14.9 million resulting in a gross margin of $1.4 million or 9.3%. These results had a much more significant effect (4.0%) on the Company’s overall gross margin for the six months ended December 31, 1999. Additionally, increased competition and pricing pressure, as well as rising manufacturing costs related to some electronic component supply shortages have affected, and may continue to affect, margins.

      Selling, general and administrative expense increased 23.4% or $8.2 million to $43.5 million for the six months ended December 31, 1999 compared to $35.3 million for the comparable six-month period ended December 31, 1998. These increases were primarily due to additional basic corporate infrastructure in Phoenix related to accounting, legal and human resources and information systems. Additionally, the Company incurred significant increases in US, Asian, and Australian selling expenses, as well as additional overhead related to the acquisitions of Horizon and ICL Financial Terminals and the establishment of the Company’s internet division, Hypercom Net Commerce.

      Research and development expense increased 23.9% or $3.8 million to $19.6 million for the six months ended December 31, 1999 compared to $15.8 million for the six months ended December 31, 1998. This increase is consistent with the Company’s planned investment in new product development to maintain its competitive edge.

      Income from operations decreased 70.1% or $11.6 million from $16.6 million for the six months ended December 31, 1998 to $5.0 million for the six months ended December 31, 1999. The decrease is directly related to the aforementioned reduced gross margins, higher selling, general and administrative expenses, and increased research and development activities.

      Net interest income decreased 47.8% or $1.1 million from $2.3 million for the six months ended December 31, 1998 to $1.2 million for the six months ended December 31, 1999. The decrease is due to declining cash and short term investment balances. Interest income consisted primarily of returns on short and long-term investments net of interest expense incurred related to short term bank borrowings.

      Foreign currency losses result from operating in volatile markets, principally Brazil. During the six months ended December 31, 1999, the Company recorded a $0.4 million loss compared to $1.0 million for the six months ended December 31, 1998. The Company has entered into hedging strategies to mitigate the impact of foreign currency fluctuations, which resulted in the significant decrease in the loss for the six months ended December 31, 1999.

      The provisions for federal, state and foreign income taxes were $0.4 million and $5.6 million for the six-month periods ended December 31, 1999 and 1998, respectively. The Company’s effective tax rate was

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	•	Sales in foreign jurisdictions with lower rates (particularly in the six months ended December 31, 1999);
	•	Research and experimentation credits in Australia and the US; and
	•	The use of foreign sales corporations offering lower taxes on certain international sales.

  Comparison of Fiscal Years Ended June 30, 1999 and 1998

      Net revenue in fiscal 1999 increased $4.3 million or 1.7% primarily due to the acquisition of the Horizon Group, Inc. (“Horizon”) in fiscal 1999. The increase in revenue reflected growth in the United States and Europe where the Company has been establishing new sales and service operations. Revenues in Asia and Latin America have slowed due to regional economic conditions and currency devaluation.

      Gross profit as a percentage of net revenue decreased from 49.3% in fiscal 1998 to 45.8% in fiscal 1999. This decrease was due in part to the impact of Horizon which is a national distributor of equipment for Hypercom and other POS manufacturers. Horizon historically operates at margins significantly less (12%-15%) than the Company’s historical gross profit margin. In addition, gross profit also declined due to reduced selling prices as a result of increased worldwide competitive factors as well as declining economic conditions in some foreign countries.

      Selling, general and administrative expense increased $2.3 million, or 3.1%, to $74.8 million in fiscal 1999 as the Company continued to invest in its worldwide operations, including expanding its headquarter facilities in Phoenix, Arizona as well as a new distribution center, opening new international sales and support offices, and expanding and improving its worldwide administrative, financial, and information technology related infrastructure.

      Research and development expense increased $6.7 million, or 28.7%, to $30.2 million in fiscal 1999. The increase was primarily for POS product development as the Company prepared to introduce in fiscal 1999 its new ICE terminal products; its FastPOS 9600 bps terminals; and Ascendent client/server software. Beginning in the third quarter of fiscal 1999, the Company began capitalizing costs in relation to the development of specific software enhancements related to its Ascendent software products. The amount capitalized in fiscal 1999 was approximately $2.0 million.

      Non-cash compensation was previously charged in connection with a grant of stock options which included a stock repurchase arrangement. The Company recorded a non-cash compensation charge of $11.0 million in the first half of fiscal 1998 and incurred no further charge during the year as the repurchase arrangement terminated upon the closing of the Company’s initial public offering in November, 1997. There was no non-cash compensation charge for fiscal 1999.

      Income from operations decreased $5.1 million, or 25.9%, to $14.7 million in fiscal 1999 due primarily to reduced gross margins, higher selling, general and administrative expenses and higher research and development expense.

      Net interest income for fiscal 1999 increased $2.8 million to $4.6 million from $1.8 million in fiscal 1998. Interest income consisted primarily of returns on short and long-term investments net of interest expense incurred related to short term bank borrowings.

      Foreign currency losses resulted from operating in volatile markets, principally Brazil. During fiscal 1999 the Company recorded a $4.4 million loss related to the net monetary asset exposure in Brazil. The Company has entered into hedging strategies to mitigate the impact of future foreign currency fluctuations.

      The provisions for federal, state, and foreign income taxes were $3.4 million and $5.9 million for the fiscal years ended June 30, 1999 and 1998, respectively. The Company’s effective rate of tax was 27% and 30% for

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	•	Research and experimentation credits in Australia and the US.
	•	Sales in foreign jurisdictions with lower tax rates.
	•	The use of foreign sales corporations offering lower taxes on certain international sales.

  Comparison of Fiscal Years Ended June 30, 1998 and 1997

      Net revenue in fiscal 1998 increased $60.5 million or 30.7% due to increased POS Systems revenue of $58.1 million. The increase in POS Systems revenue reflected strong growth in Europe where the Company established new sales and service operations. Latin America also experienced strong growth and benefited from a new manufacturing facility in Sao Paulo, Brazil. Growth in Asia slowed due to local currency devaluation. Network Systems revenue growth was also slowed due to economic uncertainties in Asia and increased competition in its branch access networking equipment markets.

      Gross profit as a percentage of net revenue increased to 49.3% in fiscal 1998 from 47.3% in fiscal 1997. This increase was due to lower costs realized from a transfer of the Australian manufacturing operations to manufacturing in China and to the Company’s facilities in Phoenix, Arizona.

      Selling, general and administrative expense increased $20.0 million, or 38.0%, to $72.5 million in fiscal 1998. $6.6 million of this increase was the continued expansion of selling and administrative activities in Network Systems; $2.7 million of this increase was related to the introduction of the Company’s Ascendent POS client/server software products; and $2.5 million of the increase was for the establishment of a new POS sales and service infrastructure in Europe. The remaining increases related to normal growth caused by increased business with a $6.3 million increase- for ongoing expansion of sales operations in the United States, Latin America and Asia and $1.9 million increase in the Company’s corporate, general and administrative areas.

      Research and development expense increased $10.6 million, or 81.8%, to $23.5 million in fiscal 1998, of which $9.2 million of the increase was for POS product development as the Company prepared to introduce in fiscal 1999 its new ICE terminal products; its FastPOS 9600 bps terminals; and Ascendent client/server software.

      Non-cash compensation was charged in connection with a grant of stock options which included a stock repurchase arrangement. The Company recorded a non-cash compensation charge of $11.0 million in the first half of fiscal 1998 and incurred no further charge during the year as the repurchase arrangement terminated upon the closing of the Company’s initial public offering in November, 1997.

      Income from operations decreased $3.0 million to $19.8 million in fiscal 1998 due primarily to an increase of $6.2 million in non-cash compensation and higher selling, general and administrative expense and higher research and development expense.

  Liquidity and Capital Resources

      The Company has historically financed its operations primarily through cash generated from operations and from borrowings under a line of credit. Additionally, in November 1997, the Company completed its initial public offering which provided $125.7 million in cash. The Company’s principal uses of this cash has been to support working capital requirements such as inventory and accounts receivable growth, and to fund acquisitions and capital expenditures.

      The Company’s working capital was $158.4 million as of December 31, 1999 compared to $162.1 million at June 30, 1999. The decrease relates primarily to an increase in working capital requirements related to accounts receivable and inventory, as well as the acquisition of substantially all the assets of MicroTrax, Ltd., Inc., a leading provider of Windows NT electronic payment software systems. Additionally, the

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      Capital expenditures related to property, plant and equipment totaled $9.0 million for the six-month period ended December 31, 1999 with depreciation expense of $3.2 million. Capital expenditures for the fiscal years ended June 30, 1999 and 1998 totaled $12.8 million and $10.0 million respectively. Related depreciation was $5.5 million and $4.1 million in the twelve months ended June 30, 1999 and 1998 respectively.

      In February 2000, the Company increased its revolving line of credit to $20 million from $10 million with Bank One Arizona, N.A. The loan agreement contains various restrictions on the Company, including the prohibitions of declaring or paying dividends, limitations on the incurrence of additional debt, liens, or encumbrances and restricting the Company’s ability to consolidate or merge into any other entity. The loan agreement also contains certain financial covenants, including a minimum current ratio, minimum working capital, minimum tangible net worth, and minimum shareholder’s equity and debt coverage ratios.

      Concurrent with the closing of the Golden Eagle acquisition in January 2000, the Company entered into an additional $25 million revolving line of credit agreement with Bank One, to provide a temporary funding source for certain of Golden Eagle’s borrowings that were not assumed under the purchase transaction to facilitate the acquisition closing. The Company’s accounts receivables and inventory have been utilized as security interests in connection with the expanded line. The interest rate under the line was at prime rate.

      The Company believes that these financing facilities will be sufficient to fund operations for the foreseeable future.

  New Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. Changes in fair value of derivatives are recorded each period in current earnings or other comprehensive income (loss). Proper accounting for changes in fair value of derivatives held, is dependent on whether the derivative transaction qualifies as an accounting hedge and on the classification of the hedge transaction. The statement was originally required to be adopted and is effective for all fiscal years beginning after June 15, 2000. The Company is evaluating the effect Statement 133 will have on its financial reporting and disclosures as well as on its derivative and hedging activities.

      In December 1999, the Securities Exchange Commission issued Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. The effective date of SAB 101 for the Company is the second fiscal quarter of the year ending December 31, 2000. The Company is currently evaluating the effect of this SAB on its financial statements.

  Year 2000

      The Company has not experienced any significant Year 2000 disruptions, nor do we anticipate any significant problems in the future. The Company has not expended any significant amounts to address Year 2000 compliance, nor does it anticipate any significant future expenditures for Year 2000 compliance.

  Backlog

      As of December 31, 1999, the Company had a backlog of $89 million. Backlog was $118 million at December 31, 1998. The Company has taken steps to reduce terminal manufacturing lead time which reduces customers required lead time. These shorter lead times eliminate the prior requirements for customers to book orders covering longer periods.

      The Company includes in its backlog all revenue specified in signed contracts and purchase orders to the extent that the Company contemplates recognition of the related revenue within one year. There can be no

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  Special Note Concerning Forward Looking Statements

      This Transition Report on Form 10-K, including the Notes to the Consolidated Financial Statements and in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements. 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, in its press releases, or otherwise. The words “believe expect,” “anticipate intends forecast,” “project,” and similar expressions identify forward-looking statements. Such statements may include, but not be limited to, the anticipated outcome of contingent events, including litigation, projections of revenues, income or loss, capital expenditures, plans for future operations, growth and acquisitions, financing needs or plans and the availability of financing, and plans relating to services of the Company, as well as assumptions relating to the foregoing. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

      Forward-looking statements reflect the Company’s current views with respect to future events and financial performance and speak only as of the date the statements are made. Such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward looking statements. Statements in this Annual Report, including the Notes to the Consolidated Financial Statements and in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could contribute to or cause such differences. Additional factors that could cause actual results to differ materially from those expressed in such forward looking statements are set forth in Exhibit 99.1 which is attached hereto and incorporated by reference into this Transition Report on Form 10-K. In addition, new factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward-looking statements.

      The Company undertakes no obligation to publicly update or review any forward looking statements, whether as a result of new information, future events, or otherwise.

  Quantitative and Qualitative Disclosures About Market Risk

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

      A substantial portion of the Company’s revenue and capital spending is transacted in U.S. dollars. However, the Company does at times enter into these transactions in other currencies, such as the Hong Kong dollar, Australian dollar, Brazilian Real and other Asian and European currencies. No hedging transactions were entered into during the fiscal year ended June 30, 1999. The Company has since established revenue and balance sheet hedging programs to protect against reductions in value and cash flow volatility caused by changes in foreign exchange rates. Such programs are intended to reduce market risks, but do not always eliminate the impact of foreign currency exchange volatility.

      The Company does not purchase or hold any such derivative financial instruments for the purpose of speculation or arbitrage. See information/discussion appearing in subcaption “Risks Associated with International Operations and Foreign Currency Fluctuations” of “Cautionary Statement Regarding Forward Looking Statements and Risk Factors” set forth in Exhibit 99.1 attached hereto.

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      The following summarizes outstanding foreign currency forward contracts and their fair value as of December 31, 1999. Such forward contracts will settle through September 2000.

Item 8.  Financial Statements and Supplementary Data

      The financial statements and supplementary data required by Regulation S-X are included in Part IV, Item 14 of this Transition Report on Form 10-K.

      Effective as of February 4, 2000, PricewaterhouseCoopers LLP (“PWC”) was dismissed as the independent accountants of the Company. On February 9, 2000, the Company engaged Ernst & Young LLP (“E&Y”) as its independent accountants to audit the Company’s consolidated financial statements for the fiscal six months ended December 31, 1999. The decision to change independent accountants was approved by the Audit Committee of the Company’s Board of Directors.

      PWC’s reports on the consolidated financial statements of the Company as of June 30, 1999 and 1998 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

      During the Company’s two most recent fiscal years ended June 30, 1999 and 1998, and for the period from July 1, 1999 through February 4, 2000, there were no disagreements with PWC on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of PWC, would have caused it to make reference to the subject matter of the disagreement in connection with its report. In addition, during the Company’s two most recent fiscal years ended June 30, 1999 and 1998, and for the period from July 1, 1999 through February 4, 2000, there did not occur any kind of event listed in paragraphs (a)(1)(v)(A) through (D) of Regulation S-K, Item 304.

      In connection with the Company’s engagement of E&Y as its independent accountants for the fiscal six months ended December 31, 1999, neither the Company nor any person acting on behalf of the Company, consulted E&Y regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1) (iv) of Regulation S-K, Item 304, and the related instructions) or a reportable event as described in paragraph (a)(1) (v) of Regulation S-K, Item 304.

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PART III

Item 10.  Directors and Executive Officers of the Registrant

      a.  Identification of Directors: The information set forth in the Company’s 2000 Proxy Statement under the caption “Board of Directors” is incorporated herein by reference.

      b.  Identification of Executive Officers: See Part I of this Form 10-K.

      c.  Compliance with Section 16(a) of the Securities Exchange Act of 1934: The information set forth in the Company’s 2000 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.

Item 11.  Executive Compensation

      The information set forth in the Company’s 2000 Proxy Statement under the caption “Executive Compensation” is incorporated herein by reference. The sections captioned “Report of the Compensation Committee on Executive Compensation” and “Stock Price Performance Graph” in the Company’s 2000 Proxy Statement are not incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      The information set forth in the Company’s 2000 Proxy Statement under the caption “Security Ownership of Principal Stockholders and Management” is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

      The information set forth in the Company’s 2000 Proxy Statement under the caption “Certain Transactions and Relationships” is incorporated herein by reference.

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PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

      a.  The following documents are filed as part of this report:

      b.  The Company filed Form 8-Ks as follows:

	•	April 27, 1999, regarding the change in the Company’s fiscal year end of June  30 to December 31.
	•	December 20, 1999, regarding the agreement to acquire substantially all the assets of Golden Eagle LLC.
	•	January 12, 2000, regarding the acquisition of Golden Eagle LLC.
	•	February 10, 2000, regarding the change of independent accountants from PricewaterhouseCoopers LLP to Ernst & Young LLP.

      c.  The Index to Exhibits and required Exhibits are included following the Financial Statement Schedule beginning on Page 54 of this report.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Hypercom Corporation

	By	/s/ GEORGE WALLNER

	George Wallner
	President and Chief Executive Officer

Date: March 29, 2000

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 29, 2000.

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and

      We have audited the accompanying consolidated balance sheet of Hypercom Corporation as of December 31, 1999, and the related consolidated statements of income, stockholders’ equity, and cash flows for the six-month period ended December 31, 1999. 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 audit.

      We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit 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 audit provides 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 December 31, 1999, and the consolidated results of its operations and its cash flows for the six month period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.

	Ernst & Young LLP

Phoenix, Arizona

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and

      In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders’ equity, and of cash flows present fairly, in all material respects, the financial position of Hypercom Corporation and its subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

	PricewaterhouseCoopers LLP

Phoenix, Arizona

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HYPERCOM CORPORATION

CONSOLIDATED BALANCE SHEETS

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

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HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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

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HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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HYPERCOM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS