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 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 impact of our transition to a joint development model for certain products; 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 exchange 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 ability to generate the cash required to repay our debt to FP II when due or our ability to refinance all or a portion of such debt at or prior to maturity; 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 events and 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 limitation of 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; and (vii) the ultimate outcome of the negotiations regarding the closing net debt true up and the final working capital adjustment, which could result in a payment by us to Thales SA that differs materially from the $2.0 million we have currently accrued for this amount;

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

• the loss of key customers;

• defects in our products;

• 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 manufacturing of our third-party manufacturers or suppliers;

• a disruption, including those caused by changes in component lead-times, obsolescence or bankruptcy, in the supply of components to our third-party manufacturers by their 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;

• 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, including any such events that may cause interruptions or delays in service from our data center hosting facilities or those of third parties we contract with for such facilities, which could impair the delivery of our services and harm our business;

• 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;

• the risks associated with moving to a joint development model in the design and manufacture of certain product hardware;

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

• the impact of the current global economic downturn on our ability to acquire sufficient capital to support our operations;

• our ability to repay outstanding debt, including amounts owed to FP II; and

• our ability to obtain additional financing, if needed, to meet future capital and working capital requirements of our business on satisfactory terms.

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 GAAP. 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 we believe 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 Annual Report on Form 10-K depend most heavily on these judgments and estimates. As of September 30, 2009, there have been no material changes to any of the critical accounting policies contained therein.

2009 Overview

Operations. Hypercom 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, together with 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 nine months ended September 30, 2009 was $292.9 million, a 7.3% decrease over the nine months ended September 30, 2008. The primary reasons for the decrease were the following: (i) reduced demand; (ii) lower foreign currency exchange rates on foreign denominated revenue in Europe; (iii) component shortages that impacted our ability to fully meet our third quarter demand, which we estimate would have contributed up to approximately $5.0 million in additional third quarter revenue; and (iv) our exit of a marginally profitable service contract with a large customer in Brazil, which reduced service revenue in the nine month period by approximately $6.5 million. These factors were offset by incremental revenue from the acquisition of TeT, which was not included in our results for the first quarter of 2008.

Gross profit for the nine months ended September 30, 2009 was $92.2 million or 31.5% of revenue, compared to $92.0 million or 29.1% of revenue for the nine months ended September 30, 2008. Gross margin, net of amortization of purchased intangible assets, for the nine months ended September 30, 2009 includes a 35.3% product gross margin and a 23.9% service gross margin, compared to product and service gross margins of 32.7% and 22.3%, respectively, for the same period in 2008. The increase in product gross margin was due to improved contract manufacturing pricing, a favorable product mix selling higher margin networking and unattended products, as well as the lack of transition costs for our move to third party manufacturing during the nine months ended September 30, 2009, compared to the same period in 2008. The increase in service gross margin results primarily from higher margin service revenue in Europe from the TeT acquisition and the exit of a marginally profitable $18.0 to $20.0 million annual-revenue service contract in Brazil during the third quarter of 2009.

Operating expenses, net of amortization of purchased intangible assets, for the nine months ended September 30, 2009 were $92.5 million or 31.6% of revenue, compared to $98.9 million or 31.3% of revenue for the same period in 2008. The decrease relates to reduced R&D costs, variable selling and marketing expenses, as well as lower general and administrative costs due to the exclusion of TeT from our first quarter results in 2008, along with cost saving synergies associated with the restructuring of the TeT operations after the acquisition.

While we believe our results for the nine months ended September 30, 2009 are the product of challenging global economic conditions, our results for the past six months show that we have expanded our customer base, improved margins and profitability, and generated significant free cash flow that has strengthened our balance sheet. We are seeing improvements in some areas of the global economy, although this quarter's increased number of sales wins were partially offset by the inability of some our suppliers to meet our forecasted demands, which resulted in less revenue for the third quarter than anticipated. Although we see competitive pressures on a global basis, as we and our major competitors try to maintain and expand our respective market shares, we expect to continue to gain market share with our Optimum product line. These pressures will generally serve to decrease average prices for certain products within certain geographies for the foreseeable future. We are tightly controlling operating expenses and continuing to improve our supply chain, while remaining focused on delivering the highest security and first class quality solutions to our customers. As part of our effort to improve gross margin, we intend to move to a joint development manufacturing model where we will provide hardware specifications to a third party to design, develop and manufacture certain hardware. We will continue to develop our software to the highest level of security and compliance. We will also continue to effectively 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.

Restructuring

During the second and third quarter of 2009, we incurred in employee severance and benefits-related charges as a result of the following initiatives:

· Reorganization of our service business in Brazil;

· Consolidation of our U.K. operations in our Salisbury facility, which will result in the closing of the Woking facility;

· Reorganization of our operations in Asia-Pacific;

· Reorganization of our management team in our offices in Arizona, Mexico and the Caribbean; and

· Reorganization of our research and development team in Spain.

As a result of these actions, we incurred charges of $0.4 million and $2.3 million during the three and nine months ended September 30, 2009. The $0.4 million in the third quarter of 2009 was recorded in operating expenses and included in SEMEA, while, of the $2.3 million year-to-date in 2009, $0.8 million was recorded in costs of revenue and $1.5 million was recorded in operating expenses. Of the $2.3 million, $0.9 million was recorded in the Americas, $0.7 million in SEMEA, $0.4 million in NEMEA, and $0.3 million in Shared Cost Centers.

The following table summarizes these charges and activities during the three months ended September 30, 2009 (amounts in thousands):

                                    Severance
Balance at December 31, 2008      $         -
Additions                               2,282
Cash payments                          (1,442 )
Currency translation adjustment            55
Balance at September 30, 2009     $       895

We expect to pay the amounts accrued in 2009. We expect to incur additional restructuring charges of approximately $0.6 million. The amounts recorded and expected additional restructuring charges are subject to change based on the negotiation of severance with employees and related work groups.

Results 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 September 30,
(Amounts in thousands)              2009        % of Revenue        2008        % of Revenue       Dollar Change
Net revenue:
  Product                         $  76,558              74.8 %   $  86,992              71.9 %   $       (10,434 )
  Service                            25,857              25.2 %      34,068              28.1 %            (8,211 )
  Total net revenue                 102,415             100.0 %     121,060             100.0 %           (18,645 )
Costs of revenue:
  Product                            49,370              64.5 %      56,495              64.9 %            (7,125 )
  Service                            18,499              71.5 %      24,652              72.4 %            (6,153 )
  Amortization of purchased
intangible assets                       760               0.7 %       1,025               0.8 %              (265 )
  Total costs of revenue             68,629              67.0 %      82,172              67.9 %           (13,543 )
Gross profit:
  Product                            27,188              35.5 %      30,497              35.1 %            (3,309 )
  Service                             7,358              28.5 %       9,416              27.6 %            (2,058 )
  Amortization of purchased
intangible assets                         -               0.0 %           -               0.0 %                 -
  Total gross profit                 33,786              33.0 %      38,888              32.1 %            (5,102 )
Operating expenses:
  Research and development           10,853              10.6 %      13,637              11.3 %            (2,784 )
  Selling, general and
administrative                       18,254              17.8 %      19,967              16.5 %            (1,713 )
  Amortization of purchased
intangible assets                     1,580               1.5 %       1,898               1.6 %              (318 )
  Total operating expenses           30,687              30.0 %      35,502              29.3 %            (4,815 )
Operating income                      3,099               3.0 %       3,386               2.8 %              (287 )
Interest income                          61               0.1 %         248               0.2 %              (187 )
Interest expense                     (2,643 )            -2.6 %      (1,951 )            -1.6 %              (692 )
Foreign currency loss                  (128 )            -0.1 %         (45 )             0.0 %               (83 )
Other income                             35               0.0 %           6               0.0 %                29
Non-operating expense, net           (2,675 )            -2.6 %      (1,742 )            -1.4 %              (933 )
Income before income taxes and
  discontinued operations               424               0.4 %       1,644               1.4 %            (1,220 )
Income tax benefit (provision)          728               0.7 %        (749 )            -0.6 %             1,477
Income before discontinued
operations                            1,152               1.1 %         895               0.7 %               257
Income (loss) from discontinued
operations                               26               0.0 %        (270 )            -0.2 %               296
Net income                        $   1,178               1.2 %   $     625               0.5 %   $           553

Basic and diluted income per
share                             $    0.02                       $    0.01

                                                          Nine Months Ended September 30,
(Amounts in thousands)              2009        % of Revenue        2008        % of Revenue       Dollar Change
Net revenue:
  Product                         $ 214,135              73.1 %   $ 229,350              72.6 %   $       (15,215 )
  Service                            78,724              26.9 %      86,395              27.4 %            (7,671 )
  Total net revenue                 292,859             100.0 %     315,745             100.0 %           (22,886 )
Costs of revenue:
  Product                           138,571              64.7 %     154,398              67.3 %           (15,827 )
  Service                            59,913              76.1 %      67,150              77.7 %            (7,237 )
  Amortization of purchased
intangible assets                     2,141               0.7 %       2,166               0.7 %               (25 )
  Total costs of revenue            200,625              68.5 %     223,714              70.9 %           (23,089 )
Gross profit:
  Product                            75,564              35.3 %      74,952              32.7 %               612
  Service                            18,811              23.9 %      19,245              22.3 %              (434 )
  Amortization of purchased
intangible assets                    (2,141 )            -0.7 %      (2,166 )            -0.7 %                25
  Total gross profit                 92,234              31.5 %      92,031              29.1 %               203
Operating expenses:
  Research and development           32,240              11.0 %      34,641              11.0 %            (2,401 )
  Selling, general and
administrative                       55,774              19.0 %      60,281              19.1 %            (4,507 )
  Amortization of purchased
intangible assets                     4,509               1.5 %       3,990               1.3 %               519
  Total operating expenses           92,523              31.6 %      98,912              31.3 %            (6,389 )
Operating loss                         (289 )            -0.1 %      (6,881 )            -2.2 %             6,592
Interest income                         190               0.1 %       1,367               0.4 %            (1,177 )
Interest expense                     (7,619 )            -2.6 %      (4,463 )            -1.4 %            (3,156 )
Foreign currency loss                  (198 )            -0.1 %        (250 )            -0.1 %                52
Other income                            356               0.1 %         155               0.0 %               201
Non-operating expense, net           (7,271 )            -2.5 %      (3,191 )            -1.0 %            (4,080 )
Loss before income taxes and
  discontinued operations            (7,560 )            -2.6 %     (10,072 )            -3.2 %             2,512
Income tax provision                    (24 )             0.0 %        (759 )            -0.2 %               735
Loss before discontinued
operations                           (7,584 )            -2.6 %     (10,831 )            -3.4 %             3,247
Income from discontinued
operations                               92               0.0 %         229               0.1 %              (137 )
Net loss                          $  (7,492 )            -2.6 %   $ (10,602 )            -3.4 %   $         3,110

Basic and diluted loss per
share                             $   (0.14 )                     $   (0.20 )

Net Revenue. Net revenue for the three months ended September 30, 2009 was $102.4 million, an $18.6 million or 15.4% decrease, compared to net revenue of $121.1 million for the three months ended September 30, 2008. This decrease was comprised of a decrease of $10.4 million or 12.0% in product revenue and a decrease of $8.2 million or 24.1% in service revenue. Net revenue for the nine months ended September 30, 2009 was $292.9 million, a $22.9 million or 7.3% decrease, compared to net revenue for the nine months ended September 30, 2008 of $315.7 million. This decrease was comprised of a decrease of $15.2 million or 6.6% in product revenue and a decrease of $7.7 million or 8.9% in service revenue.

Product Revenue. Product revenue decreased by $10.4 million to $76.6 million for the three months ended September 30, 2009, compared to $87.0 million for the three months ended September 30, 2008. The decrease was primarily due to declines in North America and Europe of $5.7 million and $4.6 million, respectively. In addition, there was a decrease of revenue of $2.2 million in Asia-Pacific, which was offset by an increase in new product sales in Brazil of $2.9 million.

The decrease in revenue in North America for the three months ended September 30, 2009 was principally due to lower countertop revenue as a result of adverse economic conditions and component shortages impacting the fulfillment of demand, which resulted in less revenue for the quarter. The decrease in revenue in Europe was primarily driven by economic conditions, component shortages that resulted in less revenue for the quarter, and lower foreign currency exchange rates on foreign denominated revenue. The decrease in revenue in Asia-Pacific was primarily related to lower sales in countertop and networking equipment in Hong Kong and Thailand.

Product revenue decreased by $15.2 million to $214.1 million for the nine months ended September 30, 2009, compared to $229.4 million for the nine months ended September 30, 2008. The decrease was primarily due to declines in North America and Europe of $16.3 million and $8.0 million, respectively. In addition there was a decrease in revenue of $2.9 million in Asia-Pacific, which was offset by an increase in new product sales in Brazil of $5.7 million. This was offset by incremental revenue from the acquisition of TeT, which was not included in our results for the first quarter of 2008.

The decrease in revenue in North America for the three months ended September 30, 2009 was principally due to lower countertop revenue as result of the retail slowdown and also due to component shortages impacting the fulfillment of demand. The decrease in revenue in Europe was primarily due to lower pinpad sales as a result of the economic downturn, component shortages, and lower foreign currency exchange rates on foreign denominated revenue. The decrease in revenue in Asia-Pacific was primarily related to lower sales in countertop and networking equipment in China, Hong Kong and Thailand.

Service Revenue. Service revenue decreased by $8.2 million to $25.9 million for the three months ended September 30, 2009, compared to $34.1 million for the three months ended September 30, 2008. The decrease was due to lower sales in Brazil, primarily due to a reduction of approximately $4.8 million of service revenue from one large customer resulting from our exiting a marginally profitable service contract.

Service revenue decreased by $7.7 million to $78.7 million for the nine months ended September 30, 2009, compared to $86.4 million for the nine months ended September 30, 2008. The decrease was due to lower sales in Brazil, primarily due to a reduction of approximately $6.5 million of service revenue from a large customer resulting from our exiting a marginally profitable service contract, . . .