Cautionary Statements Regarding Forward-looking Statements

This report, including this "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", includes statements that may constitute forward-looking statements (including financial projections) that we believe are subject to the safe harbor provisions of Section 27A of the Securities Act of 1933 as amended, and Section 21G of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The words "believe," "expect," "anticipate," "estimate," "will," "project," and other similar expressions identify forward-looking statements pertaining to, among other things, the state of the electronic payment industry and competition within the industry; projections regarding specific demand for our products and services; the timeliness of introduction, commercial feasibility and acceptance of new products and product families, services and market development initiatives; our ability to successfully penetrate the vertical and horizontal markets that we have targeted; our ability to expand our business and increase our market share in the markets in which we compete; our ability to improve our cost structure, including reducing our product and operating costs; our ability to successfully manage our contract manufacturing model and the impact on inventories; the timing and success of integration activities related to the TeT acquisition and the expected results and benefits of such transaction; our ability to allocate research and development resources to new product and service offerings; our future financial performance and financial condition; the adequacy of our current facilities and management systems infrastructure to meet our operational needs; the status and condition of our relationship with third parties upon whom we rely in the conduct of our business; the sufficiency of reserves for assets and obligations exposed to revaluation; our ability to effectively manage our exposure to foreign currency rate fluctuations (including through the use of hedging transactions in periods prior to March 2009); our ability to sustain our current income tax structure; the impact of current litigation matters on our business; our ability to fund our projected liquidity needs from cash flow from operations and our current cash reserves; our future access to capital on terms that are acceptable to us; and all assumptions related to the foregoing.

Our actual results may differ materially from those set forth in our forward-looking statements. We refer you to documents filed by us with the SEC, specifically our most recent Annual Report on Form 10-K, as well as our subsequent reports on Forms 10-Q and 8-K, as may be amended from time to time, which identify important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements. Other factors could also materially affect our actual results.

Without limiting the foregoing, the existence or occurrence of any of the following factors or risks could cause our actual results to differ from those contained in our forward-looking statements:

• with regard to our recent acquisition and ongoing integration of TeT:
(i) the inability to assimilate the technologies, operations and personnel of TeT; (ii) the disruption of our existing business, including the diversion of management attention and the redeployment of resources; (iii) the loss of customers; (iv) the possibility of our entering markets in which we have limited prior experience; (v) the loss of key employees of TeT; and (vi) the inability to obtain the desired strategic and financial benefits from the acquisition;

• the volatility of our financial results and our stock price;

• the loss of a key customer;

• defects in our products;

• product warranty expenses;

• the accumulation of excess and obsolete inventory;

• breaches in the security of transactions involving our products;

• our inability to adequately protect our proprietary technology;

• our technology infringing the proprietary rights of third parties;

• a disruption in our manufacturing capabilities or those of our third-party manufacturers or suppliers;

• risks associated with our dependence on single-source suppliers;

• our ability to timely and successfully introduce new products and product families on which our future sales will be substantially dependent, and to transition legacy products through end-of-life;

• our transition to a contract manufacturing model;

• the challenges posed by conducting business in international markets;

• fluctuations in currency exchange rates;

• the loss of a member of our senior management team or other key employees;

• risks associated with acquisitions and other strategic investments;

• force majeure events;

• uncertainties related to country-specific legal and regulatory requirements, including product-related regulations, requirements and certifications, and tax assessments and interpretations;

• our ability to maintain the quality of our internal control over financial reporting;

• our ability to assimilate and integrate technologies or businesses we may acquire in the future;

• the highly-competitive nature of the markets in which we compete;

• industry and technological developments in the markets in which we sell our products and services;

• the impact of industry standards, certifications and government regulations to which our products are subject;

• the impact of SEC regulations and SEC review of our periodic filings;

• the anti-takeover effects of certain provisions in our charter, bylaws and Delaware law;

• the dilution of our stock price caused by the exercise of outstanding warrants and options;

• our lack of a plan to pay dividends on our common stock in the foreseeable future;

• the negative impact on our business due to the current global economic crisis and general lack of available credit, which could impair our ability to obtain sufficient capital to support our operations;

• the impairment of goodwill and intangibles; and

• the incurrence of debt to meet the future capital requirements of our business.

Information included in this report is made as of the date hereof. We undertake no obligation, and specifically disclaim any duty, to update our forward-looking statements, including any financial projections we may make. We do not endorse any projections regarding future performance that may be made by third parties.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis we evaluate past judgments and our estimates, including those related to bad debts, product returns, long-term contracts, inventories, goodwill and other intangible assets, income taxes, financing operations, foreign currency, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities

that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies and related risks described in our latest Annual Report on Form 10-K as filed with the SEC are those that depend most heavily on these judgments and estimates. As of March 31, 2009, there have been no material changes to any of the critical accounting policies contained therein.

2009 Overview

Operations. Hypercom Corporation is one of the largest global providers of complete electronic payment solutions and value-added services at the point of transaction. Our vision is to be the world's most recognized and trusted brand for electronic transaction solutions through a suite of secure and certified, end-to-end electronic payment products and software, as well as through a wide range of support and maintenance services. Our customers include domestic and international financial institutions, electronic payment processors, retailers, independent sales organizations ("ISOs") and distributors. We also sell our products to companies in the hospitality, transportation, healthcare, prepaid card and restaurant industries. Customers around the globe select us because of our proven leadership and expertise in the global electronic payments industry, commitment to our customers' success, continued support of past and future technologies and the quality and reliability of our products and services. We deliver convenience and value to businesses that require reliable, secure, high-speed and high-volume information/data transfers.

Net revenue for the three months ended March 31, 2009 was $83.6 million, an increase of $13.1 million or 18.6% over first quarter 2008 revenue of $70.5 million. Net revenues from SEMEA and NEMEA increased $13.0 million and $18.6 million, respectively, over the prior year period, primarily as a result of $34.4 million of incremental revenue from the acquisition of TeT. Net revenue from the Americas and Asia-Pacific decreased $17.3 million and $1.3 million, respectively, as a result of weak economic conditions and demand.

Gross profit for the three months ended March 31, 2009 was $24.3 million or 29.1% of revenue, compared to $19.6 million or 27.7% of revenue in the first quarter of 2008. Gross margin for the three months ended March 31, 2008 includes a 32.8% product gross margin and a 23.3% service gross margin, compared to product and service gross margins of 32.9% and 15.8%, respectively, for the same period in 2008. The increase in service gross margin is primarily a result of the addition of higher margin service revenue in NEMEA and SEMEA from the TeT acquisition

Operating expenses for the three months ended March 31, 2009 were $30.8 million or 36.9% of revenue, compared to $21.8 million or 30.9% of revenue for the same period in 2008. The prior year figure did not include TeT operating expense. Sequentially, excluding the $67.8 million impairment of goodwill and intangibles charge in the prior period, operating expenses were down $4.0 million, compared to fourth quarter 2008 expenses of $34.8 million or 28.7% of revenue. The decrease relates to reduced research and development costs, variable selling and marketing expenses, as well as lower general and administrative costs.

We believe our results for the quarter ended March 31, 2009 reflect the continued global economic downturn and the corresponding decrease in available credit to both businesses and consumers, as well as the general retail slowdown in areas such as North America. Regardless of these challenges, we will continue to focus on initiatives to drive toward profitability and to integrate the TeT acquisition to a common product platform. From a competitive landscape, we will continue to see competitive pressures on a global basis as we and our major competitors try to maintain and expand our respective market shares. These pressures will generally serve to decrease average selling prices for certain products within certain geographies. We intend to continue to offset declines in selling prices with further cost reductions in our products and to continue to differentiate our product and total electronic payment solution offerings from that of our competitors. We will continue to manage our balance sheet and leverage our working capital to help meet the objectives of our key initiatives in light of the current global economic environment.

Result of Operations

In addition to the general information set forth in the following table, tabular
and narrative segment specific information is presented under the heading
"Segment Information" below.


                                                           Three Months Ended March 31,
                                    2009        % of Revenue        2008        % of Revenue       Dollar Change
(Amounts in thousands)
Net revenue:
Product                           $  57,905              69.3 %   $  49,584              70.3 %   $         8,321
Service                              25,710              30.7 %      20,921              29.7 %             4,789
Total net revenue                    83,615             100.0 %      70,505             100.0 %            13,110
Costs of revenue:
Product                              38,910              67.2 %      33,250              67.1 %             5,660
Service                              19,711              76.7 %      17,612              84.2 %             2,099
Amortization of purchased
intangible assets                       675               0.8 %          83               0.1 %               592
Total costs of revenue               59,296              70.9 %      50,945              72.3 %             8,351
Gross profit:
Product                              18,995              32.8 %      16,334              32.9 %             2,661
Service                               5,999              23.3 %       3,309              15.8 %             2,690
Amortization of purchased
intangible assets                      (675 )            -0.8 %         (83 )            -0.1 %              (592 )
Total gross profit                   24,319              29.1 %      19,560              27.7 %             4,759
Operating expenses:
Research and development             10,806              12.9 %       6,112               8.7 %             4,694
Selling, general and
administrative                       18,579              22.2 %      15,511              22.0 %             3,068
Amortization of purchased
intangible assets                     1,429               1.7 %         132               0.2 %             1,297
Total operating expenses             30,814              36.9 %      21,755              30.9 %             9,059
Loss from continuing operations      (6,495 )            -7.8 %      (2,195 )            -3.1 %            (4,300 )
Interest income                          77               0.1 %         797               1.1 %              (720 )
Interest expense                     (2,450 )            -2.9 %           -               0.0 %            (2,450 )
Foreign currency gain (loss)           (697 )            -0.8 %          49               0.1 %              (746 )
Other income                             12               0.0 %          79               0.1 %               (67 )
Non-operating income (expense)       (3,058 )            -3.7 %         925               1.3 %            (3,983 )
Loss before income taxes and
discontinued operations              (9,553 )           -11.4 %      (1,270 )            -1.8 %            (8,283 )
Income tax benefit (provision)         (441 )            -0.5 %         663               0.9 %            (1,104 )
Loss before discontinued
operations                           (9,994 )           -12.0 %        (607 )            -0.9 %            (9,387 )
Income from discontinued
operations                               69               0.1 %         275               0.4 %              (206 )
Net loss                          $  (9,925 )           -11.9 %   $    (332 )            -0.5 %   $        (9,593 )

Basic and diluted loss per
share                             $   (0.19 )                     $   (0.01 )

Net Revenue. Net revenue for the three months ended March 31, 2009 was $83.6 million, a $13.1 million or 18.6% increase over net revenue of $70.5 million for the three months ended March 31, 2008. This increase was comprised of an increase of $8.3 million or 16.8% in product revenue and an increase of $4.8 million or 22.9% in service revenue.

Product Revenue. Product revenue increased by $8.3 million to $57.9 million for the three months ended March 31, 2009, compared to $49.6 million for the three months ended March 31, 2008. Included in the $8.3 million increase is $25.2 million attributable to the TeT acquisition. Excluding the additional TeT product revenue, product revenues decreased by $16.9 million as a result of a $13.8 million decline in countertop sales as well smaller declines in pinpads and unattended sales of $0.9 million. This decrease was principally due to the retail slowdown in the U.S. and a decline in the global economic conditions compared to the first quarter of 2008. In addition, we experienced a decline in networking sales of approximately $1.2 million for the three months ended March 31, 2009 as compared to the first quarter of 2008, due to the timing of orders placed in China.

Service Revenue. Service revenue increased by $4.8 million to $25.7 million for the three months ended March 31, 2009, compared to $20.9 million for the three months ended March 31, 2008. Included in the $4.8 million increase is $9.2 million attributable to the TeT acquisition. Excluding the additional TeT service revenue, service revenue decreased by $4.4 million due to lower service volumes in Brazil and Mexico as well a lower foreign currency rate.

Due to the global economic uncertainties, challenges in the banking industry and foreign currency fluctuations, we have limited visibility to project our revenue going forward and we could continue to see sequential declines in quarter-over-quarter and year-over-year product and service revenue comparisons.

Costs of Revenue and Gross Profit. Our costs of revenue include the cost of raw materials, manufacturing and service labor, overhead and subcontracted manufacturing costs, telecommunications costs, inventory valuation provisions and loan loss provisions with respect to sales-type leases included in continuing operations. Total gross profit as a percent of revenue increased to 29.1% for the three months ended March 31, 2009 from 27.7% for the three months ended March 31, 2008, primarily due to TeT service margins that are higher than for comparable service margins in the three months ended March 31, 2008.

Product Gross Profit. Product gross margin was 32.8% for the three months ended March 31, 2009, compared to 32.9% for the three months ended March 31, 2008. The product gross margin is reflective of declines in average selling prices, offset by cost reductions in the direct cost of the product, factory shut down costs included during the three months ended March 31, 2008 and other efficiencies related to the TeT acquisition.

Service Gross Profit. Service gross margin was 23.3% for the three months ended March 31, 2009, compared to 15.8% for the three months ended March 31, 2008. This increase in service gross margin is principally due to the higher margin revenue from the acquired TeT entities. Excluding the service revenue related to TeT, the service margin was 14.8%, primarily due to volume decreases in Brazil.

Operating Expenses. Research and development-Research and development expenses consist mainly of software and hardware engineering costs and the cost of development personnel. Research and development expenses increased $4.7 million or 76.8% for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. Excluding TeT, research and development expenses would have decreased by $0.9 million due primarily to lower labor expenses of $0.5 million and lower consulting and certification costs of $0.1 million. We expect research and development expenses to increase over the next several quarters as we continue to certify and launch our new product family in markets where the legacy TeT products were previously sold.

Selling, general and administrative-Selling, general and administrative ("SG&A") expenses consist primarily of sales and marketing expenses, administrative personnel costs, and facilities operations. SG&A expenses increased $3.1 million or 19.8% for the three months ended March 31, 2009 when compared to the three months ended March 31, 2008. Excluding TeT, SG&A expense would have decreased by $2.0 million. This decline represents a decrease in general and administrative costs of $3.3 million due to lower TeT integration costs of $1.4 million, lower bonus and stock based compensation of approximately $1.0 million and lower labor contingency costs in Brazil of $0.3 million. In addition, general and

administrative costs were $0.5 million lower during the three months ended March 31, 2008 resulting from the separation agreement with our former Chief Financial Officer during such period. Marketing expenses were $0.6 million lower due to lower labor costs and trade show expenses. This decrease was offset by an increase of $1.9 million in selling expenses, which was due to an increase of $2.6 million of bad debt expense relating to significant reversals of pre-existing bad debt provisions, offset by a reduction of $0.5 million in commissions in North America and lower travel and expenses of $0.2 million in the three months ended March 31, 2008, and additional provisions needed for delinquent accounts as of March 31, 2009.

Non-Operating Income. Non-operating income consists of net interest income, foreign currency gains and losses, and other income and losses. For the three months ended March 31, 2009, our interest expense was $2.5 million due to the TeT acquisition as compared to $0.0 million in the same period of 2008. Interest income decreased by $0.7 million for the three month period ended March 31, 2009 as compared to the same period in 2008, due to lower average cash and investment balances resulting from the TeT acquisition. The increase in foreign currency losses is primarily due to the decision to indefinitely suspend hedging activities related to translational and transactional currencies during the three months ended March 31, 2009. The suspension is due to the cost of entering into forward contracts, the possible short term cash requirements for forward contract payables and the inability to repatriate cash from foreign countries on a short term basis to offset any hedge forward contract payable.

Provision for Income Taxes. Income tax expense before discontinued operations for federal, state and foreign taxes was $0.4 million for the three months ended March 31, 2009, compared to a benefit of $0.7 million for the three months ended March 31, 2008.

Our effective tax rate is determined by the level and composition of pre-tax income subject to varying foreign, state and local taxes and other items. We do not believe the consolidated effective tax rate for the three months ended March 31, 2009 is a meaningful measure of our effective tax rate due to the loss before income taxes recorded, our cumulative net operating loss position and the provision for a full valuation reserve against our deferred tax assets.

As of March 31, 2009, we continue to provide a valuation reserve against substantially all deferred tax asset balances. The valuation reserve is subject to reversal in future years at such time that the benefits are actually utilized or, the operating profits in the U.S. and other jurisdictions become sustainable at a level that meets the recoverability criteria under SFAS 109.

Income from Discontinued Operations. During the three months ended March 31, 2009 and 2008, we recorded income from discontinued operations of $0.1 million and $0.3 million, respectively, related to our UK leasing operations and our discontinuance of the Australian Courier Business.

Segment Information

During the fourth quarter of 2008, we initiated organizational changes, which included enhancements to our internal management reporting. As a result, we began reporting information pertaining to the following four business segments:
(i) Americas, (ii) NEMEA, (iii) SEMEA and (iv) Asia-Pacific. The Americas segment consists of the U.S., Canada, Mexico, the Caribbean, Central America, and South America. The NEMEA segment consists of Belgium, Sweden, Austria and Germany. The SEMEA segment consists of France, Spain, the U.K., Western and Central Eastern Europe, Russia, Hungary, and Middle East, and Africa. The Asia-Pacific segment consists of China, Hong Kong, Singapore, Thailand, Australia and New Zealand. As required by SFAS 131, prior year segment data has been restated for comparative purposes.

The following table sets forth the revenues and operating results by business segment for the three months ended March 31, 2009 and 2008 (amounts in thousands):

                                                Three Months Ended March 31,
                                               % of                       % of        Dollar
                                 2009        Revenue        2008        Revenue       Change
    Net revenue:
    Americas                   $  25,013         29.9 %   $  42,203         59.9 %   $ (17,190 )
    NEMEA                         20,955         25.1 %       2,352          3.3 %   $  18,603
    SEMEA                         27,756         33.2 %      14,782         21.0 %   $  12,974
    Asia-Pacific                   9,891         11.8 %      11,168         15.8 %   $  (1,277 )

    Total net revenue          $  83,615        100.0 %   $  70,505        100.0 %   $  13,110


    Operating income (loss):
    Americas                   $   2,302          2.8 %   $   7,791         11.1 %      (5,489 )
    NEMEA                          2,903          3.5 %         965          1.4 %       1,938
    SEMEA                          5,254          6.3 %       3,154          4.5 %       2,100
    Asia-Pacific                   1,488          1.8 %       2,263          3.2 %        (775 )
    Shared Cost Centers          (18,442 )      -22.1 %     (16,368 )      -23.2 %      (2,074 )

    Total operating loss       $  (6,495 )       -7.8 %   $  (2,195 )       -3.1 %   $  (4,300 )

Net Revenue. Net revenue for the Americas segment decreased 30.0% for the period ended March 31, 2009 from the same period in 2008, principally as a result of an $11.2 million decrease in countertop sales. The decrease in countertop sales in the Americas segment was primarily caused by a $9.4 million decrease in North America. Other factors contributing to the decrease in net revenue in the Americas segment included a $1.6 million decrease of mobile products sales in Mexico, primarily due to decreased customer demand in the region, a $3.8 million overall decrease in net revenue in Brazil and Mexico, due to lower volumes of service revenue, and lower foreign currency exchange rates. Net revenues in the Asia-Pacific segment also decreased due to lower networking sales in China. NEMEA and SEMEA net revenue increased as a result of the TeT acquisition.

Operating Income. Operating income for the Americas segment decreased 8.3% for the period ended March 31, 2009 from the same period in 2008, principally as a . . .