UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the quarterly period ended April 4, 1998, or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from ___________ to _________
Commission file number: 0-13459
Axiohm Transaction Solutions, Inc.
(Exact name of registrant as specified in its charter)
California 94-2917470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15070 Avenue of Science, San Diego, California 92128
(Address of principal executive office)
Registrant's telephone number, including area code: (619) 451-3485
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 XXX No____
As of April 4, 1998, there were 6,517,426 shares of the registrant's Common
Stock outstanding.
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements
Condensed Consolidated Balance Sheets 1
April 4, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
Quarters Ended
April 4, 1998 and March 31, 1997 2
Condensed Consolidated Statements of Cash Flows
Quarters Ended April 4, 1998 and
March 31, 1997 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBITS INDEX 22
<PAGE>
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<S> <C> <C>
April 4, December 31,
----------------- -------------------
1998 1997
----------------- -------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,158 $ 3,877
Restricted cash - 8,594
Accounts receivable, net 34,825 30,515
Inventories 33,904 30,103
Prepaid expenses and other current assets 10,429 11,015
----------------- -------------------
Total current assets 82,316 84,104
Fixed assets, net of accumulated depreciation 21,161 21,535
Intangible assets 86,848 92,371
Other assets 5,826 6,034
================= ===================
Total assets $ 196,151 $ 204,044
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 19,181 $ 17,351
Current portion of long-term debt 5,487 5,948
Current portion of government grant obligations 700 649
Accrued payroll, payroll taxes and benefits 5,314 6,194
Accrued expenses 3,527 4,645
Income taxes payable - 1,937
Deferred revenue 1,952 2,056
Rabbi Trust - 8,594
Other current liabilities 1,448 4,481
----------------- -------------------
Total current liabilities 37,609 51,855
Non-current liabilities:
Long-term debt 178,486 165,564
Government grant obligations 1,462 1,569
Other long-term liabilities 3,120 3,137
----------------- -------------------
Total liabilities $ 220,677 $ 222,125
----------------- -------------------
Shareholders' equity (deficit):
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued $ - $ -
Common shares:
Common stock, authorized: 28,500,000
shares; issued and outstanding: 6,517,426
in 1998 and 6,512,926 shares in 1997 23,898 23,852
Foreign currency translation adjustment (413) (658)
Retained earnings (accumluated deficit) (48,011) (41,275)
----------------- -------------------
Total shareholders' equity (deficit) (24,526) (18,081)
----------------- -------------------
Total liabilities and shareholders' equity $ 196,151 $ 204,044
================= ===================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<S> <C> <C>
Period Ended
April 4, March 31,
----------------- -----------------
1998 1997
----------------- -----------------
(Unaudited) (Unaudited)
Net sales $ 57,069 $ 24,891
Cost of net sales 36,995 17,324
----------------- -----------------
Gross margin 20,074 7,567
Operating expenses:
Selling, general and administrative 8,804 2,926
Research and development 4,090 1,740
Acquisition related amortization 8,462 51
----------------- -----------------
Total operating expenses 21,356 4,717
----------------- -----------------
Income (loss) from operations (1,282) 2,850
Interest and other income 88 49
Interest and other expense 4,367 175
----------------- -----------------
Income (loss) before income taxes (5,561) 2,724
Income taxes 1,175 1,099
----------------- -----------------
Net income (loss) $ (6,736) $ 1,625
================= =================
Basic:
Net income (loss) per share $ (1.03) $ 0.25
Shares used in per share calculation 6,517 6,513
Diluted:
Net income (loss) per share $ (1.03) $ 0.25
Shares used in per share calculation 6,517 6,513
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<S> <C> <C>
Period Ended
April 4, March 31,
------------------ ------------------
1998 1997
------------------ ------------------
(Unaudited) (Unaudited)
Cashflows from operating activities:
Net income (loss) $ (6,736) $ 1,625
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization 10,209 779
Other (1,961) 1,055
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable (4,310) (2,762)
Inventories (3,801) (1,668)
Accounts payable and accrued expenses (272) 569
Other current assets 586 (338)
Other current liabilities (3,033) (1,205)
------------------ ------------------
Net cash used in operating activities $ (9,318) $ (1,945)
Cashflows from investing activities:
Payment for acquisition of business and other intangibles $ (3,207) $ -
Capital expenditures and other (890) (1,680)
------------------ ------------------
Net cash used in investing activities $ (4,097) $ (1,680)
Cashflows from financing activities:
Net borrowings under line of credit $ 13,205 $ 1,543
Principal repayments under long term debt (800) (33)
Payments of dividends - (98)
Exercise of stock options 46 -
Net loans to related parties - 1,608
------------------ ------------------
Net cash provided by financing activities $ 12,451 $ 3,020
Effect of exchange rate changes on cash 245 (393)
------------------ ------------------
Net increase in cash and cash equivalents $ (719) $ (998)
Cash and cash equivalents at beginning of period 3,877 1,839
------------------ ------------------
Cash and cash equivalents at end of period $ 3,158 $ 841
================== ==================
Supplemental Cashflow Disclosures:
Cash paid during the year for:
Interest $ 7,252 $ 203
Income taxes 3,112 64
Other transactions:
Capital lease obligation $ - $ 20
Payment of restricted cash to former officers (8,594) -
Reduction of liability to former officers $ 8,594 $ -
================== ==================
The accompanying notes are an integral part of these
condensed consolidated financial statements
</TABLE>
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(April 4, 1998 - Unaudited)
Note 1: Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the quarter ended April 4, 1998 are
not necessarily indicative of the results which may be expected for the year
ended December 31, 1998 or any other period. Reference is made to the
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report on Form 10-K filed on March 31, 1998 as amended on April 15, 1998.
In May, 1998, Axiohm Transaction Solutions, Inc. (the "Company") changed its
fiscal year from the twelve month period ended December 31 to the 52 or 53-week
period that ends on the Saturday nearest December 31, effective for fiscal year
1998. As a result, the Company's first quarter of 1998 represents the
thirteen-week period ended on April 4, 1998, and the Company's 1998 fiscal year
will end on January 2, 1999. Fiscal year 1998 will have fifty-three weeks. The
quarter ended March 31, 1997, contained 12 weeks and six days and the difference
between the two comparable periods is immaterial in terms of sales and net
income.
Note 2: Basis of Presentation
The financial statements of Axiohm include the accounts of its wholly owned
subsidiaries in the United States, France, Mexico, the United Kingdom,
Australia, Hong Kong and Japan. All intercompany accounts and transactions have
been eliminated.
On August 21, 1997, pursuant to an Agreement and Plan of Merger dated as of July
14, 1997 (the "Agreement of Merger"), AX Acquisition Corporation ("AX" or the
"Purchaser"), an indirect wholly-owned subsidiary of Axiohm S.A., acquired
approximately 88%, or 7,000,000 shares, of the outstanding Common Stock of DH
Technology, Inc. ("DH") through a public tender offer to the shareholders of DH
at a price of $25 per share (the "Tender Offer").
<PAGE>
On October 2, 1997, pursuant to the Agreement of Merger, AX acquired, directly
or indirectly, 100% of the outstanding Common Stock of Axiohm S.A. in exchange
for 5,518,524 shares of DH Common Stock and $12.2 million in cash (the "Share
Exchange Offer"). Simultaneously with the Share Exchange Offer, DH purchased all
of the outstanding shares of AX in exchange for the assumption of approximately
$190 million of debt (the "Acquisition Financing") incurred by AX to finance the
Tender Offer. As part of the Acquisition Financing the Company completed a
private placement (the "Senior Notes Offering") of $120 million of its 9.75%
Senior Subordinated Notes due 2007 (the "Notes"). The Notes were exchanged in
March 1998 for new, substantially identical Notes which have been registered
under the Securities Act of 1933, as amended. The Company's payment obligation
under the Senior Notes is jointly and severally fully and unconditionally
guaranteed on a senior subordinated basis by certain of the Company's
subsidiaries (the "Guarantor Subsidiaries"), all of which are directly or
indirectly wholly owned by the Company. Immediately after the Share Exchange
Offer, AX was merged with and into DH (the "Merger"), the surviving legal
entity, and the company changed its name from "DH Technology, Inc." to "Axiohm
Transaction Solutions, Inc." (the "Company"). In connection with the Merger,
Axiohm S.A. changed its tax filing status and was renamed Axiohm S.A.R.L.
Immediately after the Merger, approximately 85% of DH's outstanding Common Stock
was held by the former shareholders of Axiohm S.A.R.L. and 15% was held by the
former public shareholders of DH.
The Tender Offer, the Share Exchange Offer and the Merger (collectively the
"Acquisition") have been accounted for in a manner similar to a reverse
acquisition, in which Axiohm S.A.R.L. was treated as the acquiror for accounting
purposes. Accordingly, the historical financial information for periods prior to
August 31, 1997 is that of Axiohm S.A.R.L. The effective date of the Acquisition
and Merger of DH for accounting purposes was August 31, 1997, and, accordingly,
the capital structure of the Company has been retroactively restated to reflect
the number of shares and options outstanding as a result of the Acquisition.
<PAGE>
Note 3: Inventories
The composition of inventories at April 4, 1998 and December 31, 1997 was as
follows:
April 4, 1998 December 31, 1997
Raw materials $24,929,000 $20,014,000
Work in process $2,733,000 2,328,000
Finished goods $6,242,000 7,761,000
----------- -----------
Totals $33,904,000 $30,103,000
=========== ===========
Note 4: Guarantors and Financial Information
The following consolidating financial information is presented for purposes of
complying with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures with respect to the
Guarantor Subsidiaries are not presented because the Company believes that such
financial statements and other information would not provide additional
information that is material to investors.
There are no contractual restrictions, under the Notes or otherwise, upon the
ability of the Guarantor Subsidiaries to make distributions or pay dividends to
their respective equityholders. Directly or indirectly, the Company is the sole
equityholder of all of the Guarantor Subsidiaries.
The condensed consolidating financial information presents condensed financial
statements as of April 4, 1998 and December 31, 1997 and for the quarter ended
April 4, 1998 of:
a) the Company on a parent company only basis ("Parent") (carrying
its investments in the subsidiaries under the equity method),
b) the Guarantor Subsidiaries separated as to French Guarantors
(Axiohm S.A.R.L., Dardel Technologies E.U.R.L., Axiohm
Investissements S.A.R.L.), and U.S. Guarantors (Axiohm IPB, Inc.,
Cognitive L.L.C., Cognitive Solutions, Inc., and Stadia Colorado
Corp.),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty, DH Technologia, Axiohm Ltd. (Hong Kong), and Axiohm Japan
Inc.),
d) elimination entries necessary to consolidate the Parent Company
and its subsidiaries, and
e) the Company on a consolidated basis.
<PAGE>
The condensed consolidating financial information also presents condensed
financial statements for the quarter ended March 31, 1997 of:
a) the Guarantor Subsidiaries which were in existence and were
within the Company's consolidated structure during the quarter
ended March 31, 1997 separated as to French Guarantors (Axiohm
S.A.R.L., but excluding Dardel Technologies E.U.R.L.), and U.S.
Guarantors (Axiohm IPB, Inc.),
b) The Non-Guarantor Subsidiaries which were in existence and were
within the Company's consolidated structure during the quarter
ended March 31, 1997 (Axiohm Ltd. (Hong Kong) and Axiohm Japan
Inc.),
c) elimination entries necessary to consolidate such Guarantor and
Non-Guarantor Subsidiaries, and
d) such Guarantor and Non-Guarantor Subsidiaries on a consolidated
basis.
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
April 4, 1998 (Unaudited)
----------------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
-------------------------
Parent French US Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 15,506 $ 333 $ (13,627) $ 946 $ - $ 3,158
Restricted cash - - - - - -
Accounts receivable, net 10,433 3,264 18,231 2,897 - 34,825
Inventories 5,498 7,875 17,390 4,575 (1,434) 33,904
Prepaid expenses and other current assets 7,256 1,817 644 181 531 10,429
Intercompany (16,578) 827 11,790 (3,240) 7,201 -
----------------------------------------------------------------------------
Total current assets 22,115 14,116 34,428 5,359 6,298 82,316
Fixed assets, net of accumulated depreciation 3,775 3,838 11,863 1,685 - 21,161
Intangible assets 83,307 93 3,440 8 - 86,848
Other assets 5,491 8,948 76 51 (8,740) 5,826
Investment in Subsidiaries 45,030 (45,030) -
============================================================================
Total assets $ 159,718 $ 26,995 $ 49,807 $ 7,103 $ (47,472) $ 196,151
============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities : -
Accounts payable $ 4,990 $ 5,887 $ 6,809 $ 1,495 $ - $ 19,181
Current portion of long-term debt 4,824 575 32 56 - 5,487
Current portion of government grant obligations - 700 - - - 700
Accrued payroll, payroll taxes and benefits 2,041 1,856 1,362 55 - 5,314
Accrued expenses 2,381 256 824 66 - 3,527
Income taxes payable (4,608) 3,053 476 73 1,006 -
Deferred revenue 324 1,061 567 - - 1,952
Rabbi Trust - - - - - -
Other current liabilities (832) 2,713 790 69 (1,292) 1,448
----------------------------------------------------------------------------
Total current liabilities 9,120 16,101 10,860 1,814 (286) 37,609
Non-current liabilities:
Long-term debt 176,860 1,548 40 38 - 178,486
Government grant obligations - 912 550 - - 1,462
Other long-term liabilities (2,168) 3,391 1,897 - - 3,120
----------------------------------------------------------------------------
Total liabilities 183,812 21,952 13,347 1,852 (286) 220,677
----------------------------------------------------------------------------
Shareholders equity
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued
Common shares:
Common stock, authorized: 25,500,000
shares; issued and outstanding:
6,517,426 in 1998 and 6,512,926 in 1997 23,852 4,167 - 360 (4,481) 23,898
Capital in excess of par value - - - - - -
Foreign currency translation adjustment 65 (494) - 129 (113) (413)
Retained earnings (accumluated deficit) (48,011) 1,370 36,460 4,762 (42,592) (48,011)
----------------------------------------------------------------------------
Total shareholders' equity (deficit) (24,094) 5,043 36,460 5,251 (47,186) (24,526)
----------------------------------------------------------------------------
============================================================================
Total liabilities and shareholders' equity $ 159,718 $ 26,995 $ 49,807 $ 7,103 $ (47,472) $ 196,151
============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Period Ending April 4, 1998 (Unaudited)
-----------------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
-------------------------
Parent French US Subsidiaries Eliminations Consolidated
Cashflows from operating activities:
Net cash provided by (used in) operating
activities $ (7,715) $ 9,479 $ (1,551) $ (1,021) $ (8,510) $ (9,318)
-----------------------------------------------------------------------------
Cashflows from investing activities:
Payment for acquisition of business and other $ (3,207) $ - $ - $ - $ - $ (3,207)
intangibles
Capital expenditures and other (549) (8,623) (398) 248 8,432 (890)
-----------------------------------------------------------------------------
Net cash provided by (used in) investing
activities $ (3,756) $ (8,623) $ (398) $ 248 $ 8,432 $ (4,097)
-----------------------------------------------------------------------------
Cashflows from financing activities:
Net borrowings under line of credit $ 13,892 $ (724) $ (10) $ 47 $ - $ 13,205
Principal repayments under long term debt (800) - - - - (800)
Payments of dividends - - - - - -
Exercise of stock options - - - - 46 46
Net loans to related parties - - - - - -
-----------------------------------------------------------------------------
Net cash provided by (used in)
financing activities $ 13,092 $ (724) $ (10) $ 47 $ 46 $ 12,451
Effect of exchange rate changes on cash 25 63 - 127 30 245
-----------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 1,646 $ 195 $ (1,959) $ (599) $ (2) $ (719)
-----------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 13,860 138 (11,666) 1,545 - 3,877
-----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 15,506 $ 333 $ (13,625) $ 946 $ (2) $ 3,158
=============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
----------------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
-------------------------
Parent French US Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 13,860 $ 138 $ (11,666) $ 1,545 $ - $ 3,877
Restricted cash 8,594 - - - - 8,594
Accounts receivable, net 10,388 3,760 15,209 3,099 (1,941) 30,515
Inventories 3,611 4,995 17,140 4,600 (243) 30,103
Prepaid expenses and other current assets 4,235 9,759 437 (3,316) (100) 11,015
Intercompany (14,259) 2,612 11,514 (1,761) 1,894 -
----------------------------------------------------------------------------
Total current assets 26,429 21,264 32,634 4,167 (390) 84,104
Fixed assets, net of accumulated depreciation 3,847 4,052 11,679 1,957 - 21,535
Intangible assets 88,555 93 3,521 202 - 92,371
Other assets 5,428 413 418 83 (308) 6,034
Investment in Subsidiaries 45,030 - - - (45,030) -
============================================================================
Total assets $ 169,289 $ 25,822 $ 48,252 $ 6,409 $ (45,728) $ 204,044
============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities :
Accounts payable $ 2,510 $ 6,570 $ 6,767 $ 1,504 $ - $ 17,351
Current portion of long-term debt 5,689 227 32 - - 5,948
Current portion of government grant obligations - 649 - - - 649
Accrued payroll, payroll taxes and benefits 690 3,557 1,947 - - 6,194
Accrued expenses 1,620 1,196 2,113 (284) - 4,645
Income taxes payable 1,937 174 (174) - - 1,937
Deferred revenue 416 1,121 519 - - 2,056
Rabbi Trust 8,594 - - - - 8,594
Other current liabilities 4,481 - - - - 4,481
----------------------------------------------------------------------------
Total current liabilities 25,937 13,494 11,204 1,220 - 51,855
Non-current liabilities:
Long-term debt 162,903 2,014 600 47 - 165,564
Government grant obligations - 1,569 - - - 1,569
Other long-term liabilities (2,168) 3,455 1,850 - - 3,137
----------------------------------------------------------------------------
Total liabilities 186,672 20,532 13,654 1,267 - 222,125
----------------------------------------------------------------------------
Shareholders equity
Common stock, authorized: 25,500,000
shares; issued and outstanding:
6,512,926 shares in 1998 and 1997 23,852 4,167 - 360 (4,527) 23,852
Capital in excess of par value - - - - - -
Foreign currency translation adjustment 40 (557) - 2 (143) (658)
Retained earnings (accumluated deficit) (41,275) 1,680 34,598 4,780 (41,058) (41,275)
----------------------------------------------------------------------------
Total shareholders' equity (deficit) (17,383) 5,290 34,598 5,142 (45,728) (18,081)
----------------------------------------------------------------------------
============================================================================
Total liabilities and shareholders' equity $ 169,289 $ 25,822 $ 48,252 $ 6,409 $ (45,728) $ 204,044
============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
(In thousands)
<S> <C> <C> <C> <C> <C>
March 31, 1997 (Unaudited)
-------------------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
-----------------------------
French US Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
Net Sales $ 30,133 $ 455 $ (5,697) $ (5,697) $ 24,891
Cost of net sales 22,311 401 (5,701) (5,388) 17,324
-------------------------------------------------------------------------------
Gross margin 7,822 54 4 (309) 7,567
Operating expenses
Selling, general, and administrative 2,787 191 (1) (1) 2,977
Research & development 1,735 - 5 5 1,740
Acquisition related amortization - - - -
-------------------------------------------------------------------------------
Total operating expenses 4,522 191 4 4 4,717
-------------------------------------------------------------------------------
Income (loss) from operations 3,300 (137) - (313) 2,850
Interest and other income 49 - - 49
Interest and other expense 174 1 - 175
-------------------------------------------------------------------------------
Income (loss) before income taxes 3,175 (138) - (313) 2,724
-------------------------------------------------------------------------------
Income taxes 1,214 - (115) 1,099
-------------------------------------------------------------------------------
Net income (loss) $ 1,961 $ (138) $ - $ (198) $ 1,625
===============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
---------------------------
French US Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------
Cashflows from operating activities:
Net income (loss) $ 1,961 $ (138) $ - $ (198) $ 1,625
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization 306 473 - - 779
Other non-cash charges 357 783 17 (102) 1,055
Changes in assets and liabilities, net of
effects of acquisition of business:
Accounts receivable (958) (3,103) 19 1,280 (2,762)
Inventories 251 (2,232) - 313 (1,668)
Accounts payable and accrued expenses (823) 2,735 (50) (1,293) 569
Other current assets (184) (173) 19 - (338)
Other current liabilities (528) (671) (6) - (1,205)
--------------------------------------------------------------------
Net cash provided by (used in) operating
activities $ 382 $ (2,326) $ (1) $ - $ (1,945)
--------------------------------------------------------------------
Cashflows from investing activities:
Payment for acquisition of business and other
intangibles $ - $ - $ - $ - $ -
Capital expenditures and other (471) (1,193) (16) - (1,680)
--------------------------------------------------------------------
Net cash used in investing activities $ (471) $ (1,193) $ (16) $ - $ (1,680)
--------------------------------------------------------------------
Cashflows from financing activities:
Net borrowings under line of credit $ - $ 1,552 $ (9) $ - $ 1,543
Principal repayments under long term debt (25) (8) - - (33)
Payments of dividends (52) (46) - - (98)
Exercise of stock options - - - - -
Net loans to related parties 1,180 300 128 - 1,608
--------------------------------------------------------------------
Net cash provided by (used in)
financing activities $ 1,103 $ 1,798 $ 119 $ - $ 3,020
Effect of exchange rate changes on cash (419) 26 - - (393)
--------------------------------------------------------------------
Net increase in cash and cash equivalents $ 595 $ (1,695) $ 102 $ - $ (998)
--------------------------------------------------------------------
Cash and cash equivalents at beginning of period 1,494 230 115 1,839
--------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,089 $ (1,465) $ 217 $ - $ 841
===================================================================
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included herein.
Background
The Company was formed from the combination of Axiohm S.A.R.L. a French
corporation ("Axiohm") and DH Technology, Inc. ("DH"). On August 21, 1997, AX
Acquisition Corporation, an indirect wholly-owned subsidiary of Axiohm
("Purchaser"), acquired 7,000,000 shares of the Common Stock of DH
(approximately 88%) through a tender offer to the shareholders of DH ("the
Tender Offer"), resulting in a change in control of DH. On October 2, 1997, the
Purchaser exchanged 5,518,524 shares of the Common Stock it had acquired in the
Tender Offer and approximately $12.2 million in cash for certain of the
outstanding shares of capital stock of Axiohm and all of the outstanding shares
of capital stock of Dardel Technologies S.A. ("Dardel"), which held the
remaining shares of capital stock of Axiohm. Immediately after this exchange, DH
purchased from Axiohm IPB all of Purchaser's outstanding capital stock in
exchange for the assumption by DH of the obligations incurred in financing the
Tender Offer. Purchaser was then merged with and into DH (the "Merger"), and the
remaining 1,481,476 shares of DH's Common Stock acquired in the Tender Offer and
held by Purchaser at the time of the Merger were canceled in the Merger.
Simultaneously, DH changed its name to Axiohm Transaction Solutions, Inc. The
aggregate initial purchase price of $209.1 million consisted of cash for DH
shares and stock options, transaction costs and the fair value of DH shares not
tendered. The above transactions were financed with (i) borrowings of
approximately $57.0 million, under a new $85 million credit facility that
provides term loans in the aggregate principal amount of $50.0 million (the
"Term Loan Facility), and revolving loans and letters of credit of up to $35.0
million (the "Revolving Credit Facility", and together with the Term Loan
Facility, the "New Credit Facility") (ii) the proceeds of the Offering of
$120,000,000 of its 9 3/4% Senior Subordinated Notes due in 2007, which were
exchanged in March 1998 for equivalent notes which have been registered under
the Securities Act (the "Notes").
<PAGE>
Although DH was the surviving legal entity, the transaction was accounted for as
a purchase of DH by Axiohm. For the first quarter of 1997, the following
discussion includes the results of operations of Axiohm only. While the
effective date of the Merger was October 2, 1997 for legal purposes, the
effective date of the acquisition of DH for accounting purposes was August 31,
1997.
In connection with the foregoing transactions, the Company recorded
approximately $105 million of goodwill and other intangibles which is being
amortized over three years using the straight line method, which is the period
estimated to be benefited.
Results Of Operations
First Quarter Ended April 4, 1998 Compared To First Quarter Ended March 31, 1997
Net Sales. Net sales of $57.1 million for the first quarter of 1998 increased
129.3%, or $32.2 million, compared to net sales of $24.9 million for the same
period last year. Approximately 80% of the increase was the result of the
inclusion of sales of DH; the balance was due to growth in the existing business
which reflects increased unit volume of transaction printers and printer
mechanisms partially offset by a decline in average selling prices.
Cost of Net Sales. Cost of net sales of $37.0 million decreased to 64.8% of net
sales for the first quarter of 1998 from 69.6% of net sales for the same period
of 1997, due primarily to the following four factors: a favorable impact of the
exchange rate between the U.S. dollar and the French franc for products
manufactured in France and sold in the U.S.; lower purchase prices of components
and parts; continuing technology improvements; and higher absorption of
relatively fixed overhead costs partially offset by a decrease in average
selling prices.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses of $8.8 million increased to 15.4% of net sales in the
first quarter of 1998 from 12.0% in the same period in 1997. Approximately 90%
of the increase was due to the inclusion of expenses of DH, the balance was
primarily the result higher staffing levels and expenses needed to support
higher sales, offset, in part, by the favorable impact of the fluctuations in
the U.S. dollar compared to the French franc.
<PAGE>
Research and Development Expenses. Research and development expenses as a
percentage of net sales decreased to 7.2% in the first quarter of 1998 compared
to 7.0% in the first quarter of 1997. Total dollars expended for research and
development increased $2.4 million to $4.1 million in the first quarter of 1998
compared to $1.7 million in the first quarter of 1997 partially due to the
inclusion of expenses of DH. In addition, the Company believes that continued
timely development of new products and enhancements to existing products are
essential to maintaining the Company's competitive position. Accordingly, the
Company anticipates that such expenses will increase in absolute dollar terms
for the foreseeable future.
Acquisition Related Amortization. The Company anticipates that, on a quarterly
basis through the third quarter of 2000, operating expenses will include
approximately $8.5 million in non-cash acquisition related charges which
principally includes non-cash goodwill amortization.
Income (Loss) from Operations. Loss from operations for the first quarter of
1998 was $1.3 million, compared to income from operations of $2.9 million in the
same period for 1997. The loss from operations in the first quarter of 1998 was
due to the acquisition related amortization charges discussed above.
Interest and Other Income. Interest income as a percentage of net sales remained
relatively unchanged at 0.2% for the first quarter of both 1998 and 1997.
Interest and Other Expense. Interest expense increased to $4.4 million in the
first quarter of 1998 from $0.2 million for the same period in 1997 due to
interest payments on the New Credit Facility and Notes.
Income Taxes. Provision for income taxes of $1.2 million in the first quarter of
1998 increased $0.1 million from $1.1 million in 1996. A provision for income
taxes tax was recorded due to the non-deductibility of goodwill amortization for
federal income tax purposes. Income taxes as a percentage of income before
taxes, excluding the effect of acquisition related charges, was approximately
40.5% compared to 40.3%.
Certain Factors That May Affect Future Results
The risk factors set forth below are important factors that may affect future
results and that could cause actual results to differ materially from those
projected in forward-looking statements that may be made by the Company from
time to time, including the forward-looking statements included in this report.
Substantial Leverage and Debt Service. On April 4, 1998, the Company's total
debt was $186.1 million and the Company had a shareholders' deficit of $24.5
million. Required principal payments under the New Credit Facility and Notes are
as follows: $2.4 million remaining in 1998; $7.8 million in 1999; $7.8 million
in 2000; $9.1 million in 2001; $5.6 million in 2002; $12.25 million in 2003; and
$120.0 million in 2007. In 1998, it is anticipated that capital expenditures
will not exceed the limit of $10.5 million permitted under the New Credit
Facility.
<PAGE>
The Company's ability to make scheduled payments of principal of, or to pay the
premium, if any, interest or liquidated damages, if any, thereon, or to
refinance its indebtedness, or to fund planned capital expenditures, will depend
upon its future performance, which, in turn, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. There can be no assurance that the Company's business will
generate cash flow at or above anticipated levels or that the Company will be
able to borrow funds under the New Credit Facility in an amount sufficient to
enable the Company to service its indebtedness, including the Notes, or make
anticipated capital expenditures. If the Company is unable to generate
sufficient cash flow from operations or to borrow sufficient funds in the future
to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing indebtedness (including
the Notes) or obtain additional financing. There can be no assurance that any
such refinancing would be available on commercially reasonable terms, or at all,
or that any additional financing could be obtained, particularly in view of the
Company's high level of indebtedness, the restrictions on the Company's ability
to incur additional indebtedness under the New Credit Facility and the indenture
under which the Notes were issued (the "Indenture"), and the fact that
substantially all of the Company's and its subsidiaries' assets have been
pledged to secure obligations under the New Credit Facility.
In addition, the Indenture and the New Credit Facility contain financial and
other restrictive covenants that limit, among other things, the ability of the
Company to borrow additional funds. Failure by the Company to comply with such
covenants could result in events of default under the Indenture and the New
Credit Facility which, if not cured or waived, could permit the indebtedness
thereunder to be accelerated which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Future Operating Results Subject to Fluctuation. The Company's operating results
may fluctuate in the future as a result of a number of factors, including the
timing of customer orders, timing of completion of existing customer contracts,
variations in the Company's sales channels or the mix of products it sells,
changes in pricing policies by the Company's suppliers, fluctuations in
manufacturing yields, market acceptance of new and enhanced versions of the
Company's products and the timing of acquisitions of other businesses, products
and technologies and any associated charges to earnings.
In addition, the Company periodically evaluates the possible impairment of
goodwill to determine whether events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable.
Further, the Company's expense levels are based in part on expectations of
future revenues. If anticipated sales and shipments in any quarter do not occur
when expected, operating expenses and inventory levels could be
disproportionately high and the Company's operating results for that quarter,
and potentially for future quarters, would be adversely affected. The Company's
operating results could also be affected by general economic conditions.
Fluctuations in operating results are likely to cause volatility in the price of
the Company's Common Stock.
Axiohm has historically experienced, and the Company expects to continue to
experience, relatively lower levels of sales of existing transaction printers
during the period from mid-November to the end of December primarily in the
United States. The Company believes that this seasonality has been caused by the
fact that some of its POS customers do not install new systems in their
facilities between Thanksgiving and Christmas, so as not to disturb their sales
flow during this heavy selling period.
The Company's customers encounter uncertain and changing demand for their
products. They typically order products from the Company based on their
forecasts. If demand falls below customers' forecasts, or if customers do not
control their inventories effectively, they may cancel or reschedule shipments
previously ordered from the Company. The Company has in the past experienced,
and may at any time and with minimal notice in the future experience,
cancellations and postponements of orders.
<PAGE>
Dependence on Principal Customer. Sales to NCR Corporation ("NCR"), the
Company's largest customer, represented 52% and 35%, respectively, of net sales
for the years ended December 31, 1996 and December 31, 1997. No other customer
accounted for more than 10% of net sales for the year ended December 31, 1996 or
December 31, 1997. On September 2, 1997, Axiohm IPB entered into a three-year
contract with NCR (the "NCR Contract"). The NCR Contract provides that NCR and
Axiohm IPB intend and expect that NCR will purchase from Axiohm IPB
substantially all of its requirements for transaction printers of the type
manufactured by Axiohm IPB (the "Covered Products"). In case there is reason to
believe that NCR is purchasing less than 75% of its requirements for Covered
Products from Axiohm IPB at any time during the term of the agreement, there is
an obligation for both parties to work together in good faith to eliminate such
deficiency. The NCR Contract provides that NCR's purchase commitment is subject
to Axiohm IPB's ability to meet NCR's specifications and requirements for price,
performance, quality, service and delivery with respect to such Covered
Products. Any failure by NCR to continue purchasing products from the Company at
historical levels or the termination of the NCR Contract would have a material
adverse effect on the Company's business, financial condition and operating
results.
Competition. The Company has a number of significant domestic and foreign
competitors for its transaction printer, bar code printer and card reader
products. Many of the Company's competitors have significantly greater
financial, technical and marketing resources than does the Company. To remain
competitive, the Company believes that it will be required to maintain a high
level of technological expertise and deliver reliable cost-effective products on
a timely basis. There can be no assurance that the Company will have sufficient
resources to continue to make the investments necessary to maintain its
competitive position or that other competitors with substantially greater
financial resources, including other manufacturers of non-transaction printers,
will not attempt to enter the market. A failure to remain competitive would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Integration of Operations. The integration of the administrative, finance and
manufacturing operations of Axiohm and DH, the coordination of their respective
sales and marketing staffs and the implementation of appropriate operational,
financial and management systems and controls will require significant financial
resources and substantial attention from management. As part of the plan to
achieve purchasing, manufacturing and other synergies, the Company has
identified certain potential cost savings related to the business combination
effected by the business combination. The Company expects to incur significant
integration costs through 1999 related to the Merger and the aforementioned
potential cost savings. Any inability of the Company to integrate these
operations successfully in a timely and efficient manner could have a material
adverse effect on the Company's business, financial condition and results of
operations and would adversely affect its ability to realize its planned cost
savings or would require additional expenditures to realize such cost savings.
In addition, even if the businesses of Axiohm and DH are successfully
integrated, no assurance can be given that future expenses can be reduced by the
expected cost savings. The Company's prospects should be considered in light of
the numerous risks commonly encountered in business combinations. In addition,
the historical financial statements presented in this Report may not necessarily
be indicative of the results that would have been attained had the Company
actually operated on a combined basis.
<PAGE>
Technological Change; Competition; Dependence on New Products. The markets for
some of the Company's products are characterized by frequent new product
introductions and declining average selling prices over product life cycles. The
Company's future success is highly dependent upon the timely completion and
introduction of new products at competitive price/performance levels. In
addition, the Company must respond to current competitors, who may choose to
increase their presence in the Company's markets, and to new competitors, who
may choose to enter those markets. If the Company is unable to make timely
introduction of new products or respond to competitive threats, its business and
operating results could be materially adversely affected.
International Sales and Operations. The Company expects that international sales
will continue to represent a significant portion of its net sales. Although the
Company's net sales are denominated in U.S. dollars, its international business
may be affected by changes in demand resulting from fluctuations in exchange
rates as well as by risks such as tariff regulations and difficulties in
obtaining export licenses. In addition, historically the French operations of
Axiohm S.A. have incurred a majority of Axiohm S.A.'s expenses in French francs,
while a substantial majority of Axiohm S.A.'s revenues have been in U.S.
dollars. Any material appreciation in the French franc relative to the U.S.
dollar would, absent any effects associated with hedging or currency trading
transactions, detrimentally affect the financial performance of the Company's
French operations. The Company attempts to limit its exposure to French franc
currency fluctuation compared to the U.S. dollar by entering into various
financial instruments, including forward exchange contracts, to offset its
French franc denominated expenses with associated U.S. dollar denominated
revenue, if, in the opinion of the Company, to do so would mitigate foreign
exchange losses. The forward exchange contracts the Company has entered into are
marked to market, with any exchange gains or losses and associated costs
recognized in the income statement. The Company cannot predict the effect of
exchange rate fluctuations upon future operating results.
Intellectual Property Rights. The Company holds various U.S. and foreign patents
on impact printheads, transaction printers, magnetic card readers and bar code
products and has applied for additional domestic and foreign patents. The basic
technology for many of the Company's products is based upon these patents and on
manufacturing expertise. There can be no assurance that any issued patents will
provide the Company with competitive advantages or will not be challenged by
third parties, or that the patents of others will not have a material adverse
effect on the Company's ability to do business, or that others will not
independently develop similar products, duplicate the Company's products, or
design around the patents issued to the Company.
The Company has in the past been, and may in the future be, notified that it may
be infringing intellectual property rights possessed by third parties. In
addition, the Company has in the past commenced, and may in the future, commence
litigation against third parties for infringement of the Company's intellectual
property rights. Any such litigation initiated by the Company or by others is,
at a minimum, costly, and can divert the efforts and attention of the Company's
management and technical personnel, which can have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that other infringement claims by third
parties or other claims for indemnification by customers or end-users of the
Company's products resulting from infringement claims will not be asserted in
the future or that such assertions, if proven to be true, will not have a
material adverse effect on the Company's business, financial condition and
results of operations. If any such claims are asserted against the Company, the
Company may seek to obtain a license under the third party's intellectual
property rights. There can be no assurance, however, that a license will be
available on commercially reasonable terms, if at all. The Company could decide,
in the alternative, to resort to litigation to challenge such claims or to
design around the patented technology. Such actions could be costly and would
divert the efforts and attention of the Company's management and technical
personnel, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE>
Management of Future Acquisitions. Historically, the Company has achieved a
portion of its growth through acquisitions of other businesses, and the Company
intends to pursue additional acquisitions as part of its growth strategy. There
are a number of risks associated with any acquisition, including the substantial
time and attention required from management of the Company in connection with
such transactions, the difficulty of predicting whether the operations will
perform as expected and other problems inherent with any transition of one
business organization into another. There can be no assurance that the Company
will be able to consummate any beneficial acquisitions in the future or that the
anticipated benefits of any acquisition will be realized. If any such
acquisitions are consummated, a failure by the Company to manage any such
acquisitions successfully could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, there may
be future acquisitions that could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets associated
with the acquisitions of other businesses, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Future Sale of Axiohm Exchange Shares. In May 1998, the Company registered an
aggregate of 5,515,858 shares of Common Stock held by the former shareholders of
Axiohm S.A.R.L. and Dardel. As a result, the shares are available for sale by
such holders on the open market. Although the Company has no knowledge related
to the sale of a substantial number of shares in the public market, such sales,
or the potential for such sales, could have a material adverse effect on the
market price for the Company's Common Stock.
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company has purchased the necessary hardware and software, and is currently
in the process of implementing firmwide, Oracle enterprise resource planning
system ("ERP") Version 10.6. To date, Version 10.6 has been implemented in
several locations and is expected to be implemented in other locations. Although
Version 10.6 does not fully address Year 2000 requirements, the Company believes
that Oracle ERP Version 10.7 does. Such Version 10.7 has already been released
by Oracle, and the Company anticipates implementing such Version 10.7 prior to
the beginning of the year 2000. The total cost to the Company of converting to
Oracle ERP firmwide, is estimated to be approximately $1.0 million.
Failure to implement Oracle ERP Version 10.7 or some other form of enterprise
software that addresses Year 2000 requirements prior to the year 2000 might
result in significant difficulties in the Company's administration of invoicing
and payables and other processes. Such difficulties could have a material
adverse effect on the Company's business, financial condition and results of
operations.
<PAGE>
Liquidity and Capital Resources
The Company's primary anticipated sources of capital are cash flow from
operations and borrowings under the New Credit Facility. For the first quarter
of 1998, operating income plus depreciation and amortization was $8.9 million.
Cash used by operating activities in the first quarter of 1998 was $9.3 million
which included depreciation and amortization expense of $10.2 million offset by
an increase in accounts receivable of $4.3 million, an increase in inventories
of $3.8 million, and a decrease in other current liabilities of $3.0 million.
The Company's primary capital requirements include debt service, capital
expenditures and working capital. The Company's ability to make scheduled
payments of principal and interest to refinance its indebtedness, or to fund
planned capital expenditures, will depend upon its future performance, which, in
turn, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. At the time
of the acquisition of DH, the Company implemented a plan to achieve purchasing,
manufacturing and other synergies. Costs related to such activities of DH could
result in additional cash costs that may be reflected as additional goodwill.
Required principal payments under the New Credit Facility and Notes are as
follows: $3.2 million in 1998; $7.8 million in 1999; $7.8 million in 2000; $9.1
million in 2001; $9.1 million in 2002; $8.8 million in 2003; and $120 million in
2007. It is anticipated that capital expenditures in 1998 will not exceed the
maximum permitted under the New Credit Facility of $10.5 million. There can be
no assurance, however, that the Company's business will generate cash flow at or
above anticipated levels or that the Company will be able to borrow funds under
the New Credit Facility in an amount sufficient to enable the Company to service
its indebtedness, or make anticipated capital expenditures. In particular, there
can be no assurance that anticipated revenue growth will be achieved at the
levels currently anticipated or at all. If the Company is unable to generate
sufficient cash flow from operations or to borrow sufficient funds in the future
to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing indebtedness, or obtain
additional financing. There can be no assurance that any such refinancing would
be available on commercially reasonable terms, or at all, or that any additional
financing could be obtained, particularly in view of the Company's high level of
debt.
At April 4, 1998, the Company's total debt including government grant
obligations was $186.1 million. At that date the Company also had borrowing
availability under the New Credit Facility of an additional $23.0 million for
capital expenditure requirements, subject to conditions contained therein. Debt
levels increased since December 31, 1997 due to borrowings against the line of
credit to fund payments made to former officers of $3.5 million and the payment
of $5.9 million of subordinated interest expense in the first quarter.
<PAGE>
The New Credit Facility and the Notes impose, and other debt instruments of the
Company may, impose various restrictions and covenants on the Company which
could potentially limit the Company's ability to respond to market conditions,
to provide for unanticipated capital investments, to raise additional debt or
equity capital, or to take advantage of business opportunities. The New Credit
Facility includes various financial covenants of the Company, including
covenants with respect to the maximum capital expenditures, a maximum ratio of
debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio. The New Credit Facility subjects the Company to certain negative
covenants, including without limitation covenants that restrict, subject to
specified exceptions: the incurrence of additional indebtedness and other
obligations and the granting of additional liens; mergers and acquisitions,
investments and acquisitions and dispositions of assets; the incurrence of
capitalized lease obligations; investments, loans and advances; dividends, stock
repurchases and redemptions; prepayment or repurchase of other indebtedness and
other provisions. The Company has entered into a $20 million interest rate swap
agreement with a major financial institution. This swap agreement has the effect
of converting certain variable rate debt to defined rate obligations and expires
in November, 1999. Net amounts paid or received are accrued on a settlement
basis as adjustments to interest expense.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Notes. The indebtedness evidenced by the Notes is subordinated
to the Company's obligations under the New Credit Facility. Interest is payable
semi-annually on the unpaid principal at 9.75% per annum. The first payment of
$5.8 million was paid April 1, 1998. The Indenture contains covenants regarding:
restricted payments, incurrence of indebtedness, liens, dividends, merger,
consolidation or sale of assets, and transactions with affiliates.
Restrictions on Distributions by Guarantors to the Company
There are no contractual restrictions, under the New Credit Facility or
otherwise, upon the ability of the Guarantor Subsidiaries to make distributions
or pay dividends to their respective equityholders. Directly or indirectly, the
Company is the sole equityholder of all of the Guarantor Subsidiaries.
<PAGE>
PART II. OTHER INFORMATION
Item 5 - Other Information
Effective May 1, 1998 Nicolas Dourassoff was appointed the Company's Chief
Executive Officer, replacing Patrick Dupuy and Gilles Gibier who had been
serving on an interim basis as Co-Chief Executive Officers. Messrs. Dupuy and
Gibier continue to serve as Co-Chairmen of the Company's Board of Directors and
Mr.
Dourassoff remains a director of the Company.
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits:
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
27.1 Financial Data Schedule.
----------------------------------- ---------------------------------------
(b) During the quarter ended April 4, 1998, the Company
filed the following reports on Form 8-K:
Amendment No. 2 to the Registrant's
Current Report on Form 8-K dated
October 2, 1997, originally filed with
the Securities and Exchange Commission
on October 17, 1997 and amended by
Amendment No. 1 thereto dated December
15, 1997 (collectively, the "Form
8-K"), filed solely for the purpose of
amending Item 7, Financial Statements
and Exhibits, to the Form 8-K on
February 13, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Axiohm Transaction Solutions, Inc. by:
May 19, 1998 /s/Janet W. Shanks
- - -------------------- -----------------------------------------
Date Janet W. Shanks, Chief Accounting Officer
(Chief Accounting Officer)
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 4, 1998
- - --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION
- - --------------------------------------------------------------------------------
---------------- ----------------------------------------------------
27.1 Financial Data Schedule.
---------------- ----------------------------------------------------
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
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