<PAGE>
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 OCTOBER 2, 1999, 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.)
16 SENTRY PARK WEST, SUITE 450
1787 SENTRY PARKWAY WEST
BLUE BELL, PA 19422
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 591-0940
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 NOVEMBER 10, 1999, THERE WERE 6,519,301 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
------------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,378 $ 902
Accounts receivable, net 28,182 33,361
Inventories 31,967 33,210
Prepaid expenses and other current assets 13,500 11,476
------------------- -----------------
Total current assets 78,027 78,949
Fixed assets, net of accumulated depreciation 20,118 20,556
Intangible assets 34,242 63,411
Other assets 7,249 8,810
------------------- -----------------
Total assets $ 139,636 $171,726
=================== =================
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 17,384 $ 20,712
Current portion of long-term debt 61,630 9,085
Current portion of government grant obligations 779 813
Accrued payroll, payroll taxes and benefits 5,502 5,367
Accrued expenses 6,599 6,951
Income taxes payable 2,211 --
Deferred revenue 1,966 1,910
Other current liabilities 6,259 3,015
------------------- -----------------
Total current liabilities 102,330 47,853
Non-current liabilities:
Long-term debt 121,368 167,034
Government grant obligations 1,252 1,374
Other long-term liabilities 1,376 3,463
------------------- -----------------
Total liabilities 226,326 219,724
------------------- -----------------
Shareholders' (deficit):
Common shares:
Common stock, authorized: 28,500,000
shares; issued and outstanding:
6,519,301 shares in 1999 and 1998 respectively 24,699 24,367
Other comprehensive (loss) (1,600) (153)
Accumulated deficit (109,789) (72,212)
------------------- -----------------
Total shareholders' (deficit) (86,690) (47,998)
------------------- -----------------
Total liabilities and shareholders' (deficit) $ 139,636 $171,726
=================== =================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
1
<PAGE>
FINANCIAL STATEMENTS.
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
-------------------------- ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 47,393 $ 59,038 $159,382 $174,725
Cost of net sales 34,387 38,533 112,072 112,613
--------- --------- --------- ---------
Gross margin 13,006 20,505 47,310 62,112
Operating expenses:
Selling, general and administrative 10,215 10,024 29,825 28,306
Research and development 3,657 3,869 11,789 11,825
Plant closing expenses 338 799 2,032 799
Acquisition related intangible amortization 9,078 8,970 27,245 25,892
--------- --------- --------- ---------
Total operating expenses 23,288 23,662 70,891 66,822
--------- --------- --------- ---------
Loss from operations (10,282) (3,157) (23,581) (4,710)
Interest and other income 210 100 210 230
Interest and other expense 4,324 4,333 13,282 13,333
--------- --------- --------- ---------
Loss before income taxes (14,396) (7,390) (36,653) (17,813)
--------- --------- --------- ---------
Income taxes 78 1,060 926 3,661
--------- --------- --------- ---------
Net loss $ (14,474) $ (8,450) $(37,579) $(21,474)
========= ========= ========= =========
BASIC:
Net loss per share $ (2.22) $ (1.30) $ (5.76) $ (3.29)
Shares used in per share calculation 6,519 6,519 6,519 6,519
DILUTED:
Net loss per share $ (2.22) $ (1.30) $ (5.76) $ (3.29)
Shares used in per share calculation 6,519 6,519 6,519 6,519
========= ========= ========= =========
Foreign currency translation adjustment $ (117) (420) (1,447) 744
--------- --------- --------- ---------
Other comprehensive loss $ (14,591) $ (8,870) $(39,026) $(20,730)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
October 2, October 3,
1999 1998
--------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cashflows from operating activities:
Net loss $ (37,579) $ (21,474)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 34,732 30,978
Other non-cash items (1,418) 332
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable 3,893 (6,137)
Inventories 665 (1,894)
Other current assets (2,113) (162)
Accounts payable and accrued expenses (357) (1,503)
Other current liabilities 3,281 (4,183)
------------ ------------
Net cash provided (used in) operating activities 1,104 (4,043)
Cashflows from investing activities:
Payment for acquisition of business & other intangibles, net of cash acquired (416) (5,647)
Capital expenditures and other (3,964) (4,571)
------------ ------------
Net cash used in investing activities (4,380) (10,218)
Cashflows from financing activities:
Net borrowings under line of credit 12,500 14,029
Principal repayments under long term debt (5,849) (2,543)
Exercise of stock options -- 73
Debt issuance costs (328) --
------------ ------------
Net cash provided by financing activities 6,323 11,559
Effect of exchange rate changes on cash 429 744
------------ ------------
Net Increase (decrease) in cash and cash equivalents 3,476 (1,958)
Cash and cash equivalents at beginning of period 902 3,877
------------ ------------
Cash and cash equivalents at end of period $ 4,378 $ 1,919
============ ============
Supplemental Cashflow Disclosures:
Cash paid during the year for:
Interest $ 10,633 $ 15,489
Income taxes $ - $ 5,192
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
3
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(OCTOBER 2, 1999 - 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 October 2, 1999 are not necessarily indicative of the
results which may be expected for the year ending January 1, 2000 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 for the
fiscal year ended January 2, 1999 filed with the Securities and Exchange
Commission (the "SEC") on April 1, 1999.
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 third quarter of 1999 and 1998
represents the thirteen-week periods ended on October 2, 1999, and October 3,
1998. The Company's 1999 fiscal year will end on January 1, 2000.
The October 2, 1997 business combination between DH Technology and Axiohm
S.A. (described in Note 3 below) was financed with (i) borrowings of
approximately $57.0 million under a $85.0 million credit facility (the
"Credit Facility") that provides for term loans in the aggregate principal
amount of $50.0 million and revolving loans and letters of credit up to $35.0
million and (ii) the proceeds from the issuance of $120,000,000 of 9 3/4%
Senior Subordinated Notes due 2007 (the "Subordinated Notes"). The Credit
Facility and the Indenture under which the Subordinated Notes were issued
contain financial and other restrictive covenants that limit, among other
things, the ability of the Company to borrow additional funds. During the
quarters ended July 3, 1999 and October 2, 1999, the Company was not in
compliance with respect to the interest, debt leverage, fixed charge, and
certain other covenants associated with the Credit Facility. As a result, the
bank group for the Credit Facility had the right to accelerate all borrowings
under the facility. The bank group, by signature of a majority of the banks,
granted waiver of the non-compliance and granted an additional availability
in the line of credit of $5 million through October 31, 1999. Furthermore,
the bank group, by signature of a majority of the banks, waived through
October 31, 1999 any prospective nonpayment of the October 1, 1999 scheduled
interest payment on the Subordinated Notes. The Company did not make the
scheduled principal payments on its Credit Facility debt of $2.0 million and
an interest payment on the Subordinated Notes of $5.9 million, on September
30, 1999 and October 1, 1999, respectively. Accordingly, the Company
reclassified the appropriate long-term debt balance under its Credit Facility
to current liabilities within the balance sheet. The reclassification was
instituted on the basis that, although a waiver was granted through October
31, 1999, the Company did not meet the covenant requirements at the end of
the waiver period. In addition, there was no assurance that the Company would
be able to refinance the entire Credit Facility.
Reference is made to Note 2, below, for information concerning the filing by
the Company and its U.S. Subsidiaries of Chapter 11 bankruptcy petitions. The
accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization
of assets and the liquidation of liabilities in the normal course of business.
If the Plan described in Note 2 is confirmed by the Bankruptcy Court, the
Company will adopt, as of the effective date of the Plan, "fresh start"
reporting pursuant to Statement of Position 90-7 (SOP 90-7). Under fresh
start reporting, the reorganization fair value of the Company is allocated to
the entity's assets, the Company's retained deficit is eliminated, and the
equity in the new company is issued according to the Plan. As a result of
adopting fresh start reporting and emerging from Chapter 11 status, the
Company's financial statements would not be comparable with those prepared
before the Plan is confirmed, including the historical financial statements
included in this quarterly report.
4
<PAGE>
NOTE 2: RESTRUCTURING AND CHAPTER 11 PROCEEDINGS
On November 8, 1999 (the "Petition Date"), the Company and its U.S.
subsidiaries, Axiohm IPB, Inc., Cognitive Solutions, Inc., Cognitive L.L.C.
and Stadia Colorado Corp, (the "U.S. Subsidiaries", together with the
Company, the "Debtors") filed voluntary petitions for relief under Chapter 11
of Title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court") to
implement a capital restructuring agreed to by representatives of the
Company's primary creditor and shareholder constituencies (the
"Restructuring"). The Chapter 11 Cases have been administratively
consolidated under Case No. 99-4153PJW. The Debtors sought protection under
Chapter 11 of the Bankruptcy Code because the cash flow generated from
operations was insufficient (i) to support working capital requirements, and
(ii) to make the interest payments due under the Credit Facility.
Additionally, the Company continued to be in non-compliance with certain debt
covenant requirements under the Credit Facility, which would have permitted
the bank group for its Credit Facility to accelerate at any time the debt
outstanding thereunder.
Since the Petition Date, the Debtors have continued in possession of their
property and are operating and managing their businesses as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy
Code. As debtors-in-possession, the Debtors are authorized to operate their
businesses in the ordinary course, but may not engage in transactions outside
the ordinary course without the approval of the Bankruptcy Court.
Contemporaneously with the filing of the Chapter 11 bankruptcy petitions, the
Company sought and obtained Bankruptcy Court approval of debtor-in-possession
financing consisting of a $20.0 million revolving line of credit with a group
of lenders led by Lehman Brothers Commercial Paper Inc. The financing
facility is intended to provide the Debtors with liquidity sufficient to fund
operations throughout the Chapter 11 proceedings. Additionally, the
Bankruptcy Court authorized the Debtors to pay the pre-petition claims of
trade vendors continuing to do business with the Debtors in the ordinary
course of the Debtors' businesses.
As of the Petition Date, actions to collect pre-petition indebtedness of the
Debtors are stayed. Also, pursuant to the Bankruptcy Code the Debtors can
reject executory contracts and unexpired lease obligations that are
burdensome. To date, the Debtors have not rejected any executory contacts or
unexpired leases and are continuing to perform their obligations related
thereto.
The terms of the Restructuring are set forth in the Plan of Reorganization
(the "Plan") that was filed with the Bankruptcy Court on November 9, 1999.
Holders of at least two-thirds in principal amount of the Company's (i) $63
million of bank debt, and (ii) $120 million of Subordinated Notes, and
holders of in excess of fifty percent of Company's common stock, support the
Plan. The Plan provides for the restructuring of the Company's pre- and
post-petition bank debt, expected to total approximately $80 million on the
effective date of the Plan, the conversion of the Subordinated Notes and
certain other unsecured claims to equity, and the payment of trade claims in
full. The Plan also provides that the Company's existing common stock will be
cancelled and existing shareholders will receive Contingent Note Certificates
which will entitle their holders to receive in aggregate an amount equal to
at least 2.5% of the equity value of the reorganized company upon an initial
public offering or the sale of substantially all the assets of the
reorganized company, to the extent completed within five years of the
effective date of the Plan. The Company expects to proceed to confirmation of
the Plan during the first quarter of 2000. A copy of the Plan may be obtained
from the Bankruptcy Court
There can be no assurance that the Plan will be confirmed or that the Company
will be able to complete the Restructuring and return to profitability.
Accordingly, there is substantial doubt as to the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared on the basis that the Company is a going concern and do not include
any adjustments that might result from the outcome of this uncertainty.
NOTE 3: BASIS OF PRESENTATION
The financial statements of the Company 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., a
private French Corporation, acquired approximately 88%, or 7,000,000 shares,
of the outstanding Common
5
<PAGE>
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").
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 were exchanged in March 1998 for new, substantially identical
notes, which have been registered under the Securities Act of 1933, as
amended (the "Notes"). The Company's payment obligation under the 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.".
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 were held by the former shareholders of
Axiohm S.A.R.L. and approximately 15% were 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 acquirer 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.
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
OCTOBER 2, 1999 JANUARY 2, 1999
--------------- ---------------
<S> <C> <C>
Raw Materials $25,370,000 $24,632,000
Work in Process 1,257,000 2,027,000
Finished Goods 5,340,000 6,551,000
----------------- -----------------
Totals $31,967,000 $33,210,000
================= =================
</TABLE>
NOTE 5: OTHER COMPREHENSIVE INCOME
Comprehensive income for the nine months ended October 2, 1999 and October 3,
1998 presented below includes foreign currency translation items. There was
no tax expense or tax benefit associated with the foreign currency
translation items.
<TABLE>
<CAPTION>
OCTOBER 2, 1999 OCTOBER 3, 1998
--------------- ---------------
<S> <C> <C>
Net Loss $(37,579,000) $(21,474,000)
Foreign Currency Translation Adjustment (1,447,000) 744,000
---------------- ---------------
Other Comprehensive Loss $(39,026,000) $(20,730,000)
================ ===============
</TABLE>
NOTE 6: 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.
6
<PAGE>
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 equity-holders. Directly or indirectly, the Company is
the sole equity-holder of all of the Guarantor Subsidiaries.
The Company's payment obligation under the Notes is jointly and severally
fully and unconditionally guaranteed on a senior subordinated basis by the
Guarantor Subsidiaries, all of which are directly or indirectly wholly owned
by the Company.
The condensed consolidating financial information presents condensed
consolidating balance sheets as of October 2, 1999 and January 2, 1999 and
condensed consolidating statements of operations for the nine months ended
October 2, 1999 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), Axiohm Japan Inc.
and AP Print S.A.R.L),
d) elimination entries necessary to consolidate the Parent Company
and its subsidiaries, and
e) the Company on a consolidated basis.
The condensed consolidating financial information also presents condensed
consolidating balance sheets as of October 3, 1998 and condensed
consolidating statements of operations for the nine months ended October 3,
1998.
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), Axiohm Japan Inc.
and AP Print S.A.R.L.),
d) elimination entries necessary to consolidate the Parent Company
and its subsidiaries, and
e) the Company on a consolidated basis.
7
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 2, 1999 (Unaudited)
-------------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
----------------------
Parent French US Subsidiaries Eliminations Consolidated
---------- ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,791 $ (469) $ (120) $ 2,176 $ -- $ 4,378
Accounts receivable, net 7,539 3,591 12,545 4,507 -- 28,182
Inventories 6,036 7,257 16,158 3,794 (1,278) 31,967
Prepaid expenses and other current assets 10,351 1,182 1,187 344 436 13,500
Intercompany (12,264) 385 13,343 (3,651) 2,187 --
----------- ---------- ---------- ---------- ---------- ----------
Total current assets 14,453 11,946 43,113 7,170 1,345 78,027
Fixed assets, net of accumulated depreciation 4,378 3,410 10,841 1,489 -- 20,118
Intangible assets 32,664 286 1,319 (27) -- 34,242
Other assets 5,882 351 1,000 16 -- 7,249
Investment in Subsidiaries 45,029 8,756 -- -- (53,785) --
----------- ---------- ---------- ---------- ---------- ----------
Total assets $ 102,406 $ 24,749 $ 56,273 $ 8,648 $(52,440) $ 139,636
=========== ========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,505 $ 4,969 $ 6,710 $ 2,200 $ -- $ 17,384
Current portion of long-term debt 61,408 194 21 7 -- 61,630
Current portion of government grant obligations -- 697 64 18 -- 779
Accrued payroll, payroll taxes and benefits 1,645 1,674 1,895 288 -- 5,502
Accrued expenses 4,478 489 1,220 412 -- 6,599
Income taxes payable (913) (843) 3,562 405 -- 2,211
Deferred revenue 248 1,033 685 -- -- 1,966
Other current liabilities 5,850 409 -- -- -- 6,259
----------- ---------- ---------- ---------- ---------- ----------
Total current liabilities 76,221 8,622 14,157 3,330 -- 102,330
Non-current liabilities:
Long-term debt 120,000 1,281 4 83 -- 121,368
Government grant obligations -- 788 464 -- -- 1,252
Other long-term liabilities -- 1,212 69 -- -- 1,281
Deferred tax liability (2,042) 2,137 -- -- -- 95
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities 194,179 14,040 14,694 3,413 -- 226,326
----------- ---------- ---------- ---------- ---------- ----------
Shareholders' equity (deficit):
Common stock 17,897 11,009 -- 505 (4,712) 24,699
Other comprehensive income 119 (439) -- (345) (935) (1,600)
Retained earnings (deficit) (109,789) 139 41,579 5,075 (46,793) (109,789)
----------- ---------- ---------- ---------- ---------- ----------
Total shareholders' equity (deficit) (91,773) 10,709 41,579 5,235 (52,440) (86,690)
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities and shareholders' equity (deficit) $ 102,406 $ 24,749 $ 56,273 $ 8,648 $(52,440) $ 139,636
=========== ========== ========== ========== ========== ==========
</TABLE>
8
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended October 2, 1999 (Unaudited)
----------------------------------------------------------------------------------
Guarantor Subsidiaries Non-Guarantor
------------------------
Parent French US Subsidiaries Eliminations Consolidated
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 37,630 $ 29,808 $ 104,136 $ 23,458 $ (35,650) $159,382
Cost of net sales 25,409 20,354 83,551 17,877 (35,650) 112,072
----------- ----------- ----------- ------------ ------------ ------------
Gross margin 12,221 9,454 20,585 5,581 (531) 47,310
Operating expenses:
Selling, general and administrative 12,502 3,947 9,809 3,567 -- 29,825
Research and development 3,126 2,329 6,067 267 -- 11,789
Plant closing expenses 467 -- 1,565 -- -- 2,032
Acquisition related amortization 27,245 -- -- -- -- 27,245
----------- ----------- ----------- ------------ ----------- ------------
Total operating expenses 43,340 6,276 17,441 3,834 -- 70,891
----------- ----------- ----------- ------------ ----------- ------------
Income (loss) from operations (31,119) 3,178 3,144 1,747 (531) (23,581)
Interest and other income 2,649 -- 210 -- (2,649) 210
Interest and other expense 12,837 2,768 184 128 (2,635) 13,282
Equity earnings in subsidiaries 2,477 -- -- -- (2,477) --
----------- ----------- ----------- ------------ ----------- ------------
Income (loss) before income taxes (benefit) (38,830) 410 3,170 1,619 (3,022) (36,653)
Income taxes (benefit) (1,251) 171 1,601 632 (227) 926
----------- ----------- ----------- ------------ ----------- ------------
Net income (loss) $ (37,579) $ 239 $ 1,569 $ 987 $ (2,795) $ (37,579)
=========== =========== =========== ============ =========== ============
</TABLE>
9
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 2, 1999 (UNAUDITED)
------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
---------------------- NON-GUARANTOR
PARENT FRENCH US SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CASHFLOWS FROM OPERATING ACTIVITIES:
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (7,680) $ 483 $ 6,313 $ 1,301 $ 687 $ 1,104
CASHFLOWS FROM INVESTING ACTIVITIES:
PAYMENT FOR ACQUISITION OF BUSINESS AND OTHER
INTANGIBLES -- -- (416) -- -- (416)
CAPITAL EXPENDITURES AND OTHER (881) (451) (2,481) (151) -- (3,964)
NET CASH USED IN INVESTING ACTIVITIES --------- ---------- ---------- ---------- ---------- ------------
(881) (451) (2,897) (151) -- (4,380)
CASHFLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER LINE OF CREDIT 12,500 -- -- -- -- 12,500
PRINCIPAL REPAYMENTS UNDER LONG TERM DEBT (4,872) (748) (219) (10) -- (5,849)
DEBT ISSUANCE COSTS (328) -- -- -- -- (328)
--------- ---------- ---------- ---------- ---------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,300 (748) (219) (10) -- 6,323
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- 1,075 -- 41 (687) 429
--------- ---------- ---------- ---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,261) 359 3,197 1,181 -- 3,476
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,055 (831) (3,317) 995 -- 902
--------- ---------- ---------- ---------- ---------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,794 $ (472) $ (120) $ 2,176 $ -- $ 4,378
========= ========== ========== ========== ========== ============
</TABLE>
10
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 2, 1999
-----------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
---------------------- NON-GUARANTOR
PARENT FRENCH US SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,055 $ (831) $ (3,317) $ 995 $ -- $ 902
Accounts receivable, net 10,573 4,255 14,702 3,831 -- 33,361
Inventories 6,438 7,205 15,556 4,665 (654) 33,210
Prepaid expenses and other current assets 9,494 826 557 426 173 11,476
Intercompany (18,753) 2,889 15,538 (4,989) 5,315 --
----------- ---------- ---------- ---------- ----------- -----------
Total current assets 11,807 14,344 43,036 4,928 4,834 78,949
Fixed assets, net of accumulated depreciation 4,239 4,229 10,650 1,438 -- 20,556
Intangible assets 59,922 412 3,098 (21) -- 63,411
Other assets 6,163 366 2,253 28 -- 8,810
Investment in Subsidiaries 45,029 8,752 -- -- (53,781) --
----------- ---------- ---------- ---------- ----------- -----------
Total assets $ 127,160 $ 28,103 $ 59,037 $ 6,373 $ (48,947) $ 171,726
=========== ========== ========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,397 $ 6,847 $ 8,679 $ 1,789 $ -- $ 20,712
Current portion of long-term debt 8,839 214 21 11 -- 9,085
Current portion of government grant obligations -- 760 34 19 -- 813
Accrued payroll, payroll taxes and benefits 1,534 1,912 1,580 341 -- 5,367
Accrued expenses 4,578 994 1,199 180 -- 6,951
Income taxes payable (2,538) (1,462) 4,232 (232) -- --
Deferred revenue (39) 1,203 746 -- -- 1,910
Other current liabilities 3,015 -- -- -- -- 3,015
----------- ---------- ---------- ---------- ----------- -----------
Total current liabilities 18,786 10,468 16,491 2,108 -- 47,853
Non-current liabilities:
Long-term debt 165,376 1,552 18 88 -- 167,034
Government grant obligations -- 858 516 -- -- 1,374
Other long-term liabilities -- 1,609 1,687 -- -- 3,296
Deferred tax liability (2,475) 2,327 315 -- -- 167
----------- ---------- ---------- ---------- ----------- -----------
Total liabilities 181,687 16,814 19,027 2,196 -- 219,724
----------- ---------- ---------- ---------- ----------- -----------
Shareholders' equity (deficit):
Common stock 17,567 11,009 -- 505 (4,714) 24,367
Other comprehensive income 118 380 -- (416) (235) (153)
Retained earnings (accumulated deficit) (72,212) (100) 40,010 4,088 (43,998) (72,212)
----------- ---------- ---------- ---------- ----------- -----------
Total shareholders' equity (deficit) (54,527) 11,289 40,010 4,177 (48,947) (47,998)
----------- ---------- ---------- ---------- ----------- -----------
Total liabilities and shareholders' equity
(deficit) $ 127,160 $ 28,103 $ 59,037 $ 6,373 $ (48,947) $ 171,726
=========== ========== ========== ========== =========== ===========
</TABLE>
11
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 3, 1998 (UNAUDITED)
--------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
---------------------- NON-GUARANTOR
PARENT FRENCH US SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,321 $ (237) $ (3,235) $ 1,070 $ -- $ 1,919
Accounts receivable, net 9,717 3,823 19,156 3,956 -- 36,652
Inventories 7,446 6,675 14,581 3,978 (683) 31,997
Prepaid expenses and other current assets 9,975 1,412 436 496 199 12,518
Intercompany (7,910) (3,230) 11,832 (3,029) 2,337 --
---------- ---------- --------- --------- --------- ----------
Total current assets 23,549 8,443 42,770 6,471 1,853 83,086
Fixed assets, net of accumulated depreciation 4,073 4,368 11,767 1,552 -- 21,760
Intangible assets 69,119 459 2,955 (50) -- 72,483
Other assets 5,770 482 1,482 72 -- 7,806
Investment in subsidiaries 45,029 8,752 -- -- (53,781) --
--------- ---------- --------- --------- --------- ----------
Total assets $ 147,540 $ 22,504 $ 58,974 $ 8,045 $(51,928) $ 185,135
========= ========== ========= ========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,484 $ 4,974 $ 8,523 $ 1,911 $ - $ 18,892
Current portion of long-term debt 6,650 229 20 2 -- 6,901
Current portion of government grant obligations (1) 865 -- 20 -- 884
Accrued payroll, payroll taxes and benefits 2,783 1,821 1,931 395 -- 6,930
Accrued expenses 4,914 354 1,216 187 -- 6,671
Income taxes payable (3,704) 399 3,244 337 -- 276
Deferred revenue 192 1,232 697 -- -- 2,121
Other current liabilities 297 1 -- -- -- 298
---------- --------- --------- --------- --------- ----------
Total current liabilities 14,615 9,875 15,631 2,852 -- 42,973
Non-current liabilities:
Long-term debt 173,411 1,633 24 113 -- 175,181
Government grant obligations -- 784 550 -- -- 1,334
Other long-term liabilities -- 2,106 1,646 -- -- 3,752
Deferred Tax Liability (2,168) 2,154 315 -- -- 301
---------- --------- --------- --------- --------- ----------
Total liabilities 185,858 16,552 18,166 2,965 -- 223,541
---------- --------- --------- --------- --------- ----------
Shareholders' equity (deficit):
Common stock 24,257 4,167 -- 505 (4,672) 24,257
Other comprehensive income 174 580 -- (95) (573) 86
Retained earnings (accumulated deficit) (62,749) 1,205 40,808 4,670 (46,683) (62,749)
---------- --------- --------- --------- --------- ----------
Total shareholders' equity (deficit) (38,318) 5,952 40,808 5,080 (51,928) (38,406)
---------- --------- --------- --------- --------- ----------
Total liabilities and shareholders' equity (deficit) $ 147,540 $ 22,504 $ 58,974 $ 8,045 $(51,928) $ 185,135
========== ========= ========= ========= ========= ==========
</TABLE>
12
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 3, 1998 (UNAUDITED)
-----------------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
---------------------- NON-GUARANTOR
PARENT FRENCH US SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 46,575 $ 34,903 $100,368 $ 17,353 $ (24,474) $ 174,725
Cost of net sales 30,922 22,057 72,008 13,461 (25,835) 112,613
---------- ---------- ---------- ---------- ----------- -----------
Gross margin 15,653 12,846 28,360 3,892 1,361 62,112
Operating expenses:
Selling, general & administrative 8,708 4,108 12,134 3,356 -- 28,306
Research and development 3,236 2,629 5,538 422 -- 11,825
Plant closing expenses 799 -- -- -- -- 799
Acquisition related intangible amortization 25,892 -- -- -- -- 25,892
---------- ---------- ---------- ---------- ----------- -----------
Total operating expenses 38,635 6,737 17,672 3,778 -- 66,822
---------- ---------- ---------- ---------- ----------- -----------
Income (loss) from operations (22,982) 6,109 10,688 114 1,361 (4,710)
Interest and other income 3,980 51 12 105 (3,918) 230
Interest and other expense 12,975 4,043 208 18 (3,911) 13,333
Equity earnings in subsidiaries 6,541 -- -- -- (6,541) --
---------- ---------- ---------- ---------- ----------- ----------
Income (loss) before income taxes (benefit) (25,436) 2,117 10,492 201 (5,187) (17,813)
Income taxes (benefit) (3,962) 2,592 4,283 167 581 3,661
---------- ---------- ---------- ---------- ----------- ----------
Net income (loss) $(21,474) $ (475) $ 6,209 $ 34 $ (5,768) $ (21,474)
========== ========== ========== ========== =========== ===========
</TABLE>
13
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 3, 1998 (UNAUDITED)
-------------------------------------------------------------------------
GUARANTOR SUBSIDIARIES
----------------------NON-GUARANTOR
PARENT FRENCH US SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $(15,962) $ 678 $ 11,207 $ (356) $ 390 $ (4,043)
Cashflows from investing activities:
Payment for acquisition of business and other
intangibles (3,929) (733) (934) (51) -- (5,647)
Capital expenditures and other (1,443) (1,314) (1,842) 28 -- (4,571)
--------- -------- --------- -------- ------- ---------
Net cash used in investing activities (5,372) (2,047) (2,776) (23) -- (10,218)
Cashflows from financing activities:
Net borrowings under line of credit 14,029 -- -- -- -- 14,029
Principal repayments under long term debt (2,400) (143) -- -- -- (2,543)
Exercise of stock options 73 -- -- -- -- 73
--------- -------- --------- -------- ------- ---------
Net cash provided by (used in) financing activities 11,702 (143) -- -- -- 11,559
Effect of exchange rate changes on cash
93 1,137 -- (96) (390) 744
--------- -------- --------- -------- ------- ---------
Net increase (decrease) in cash and cash equivalents (9,539) (375) 8,431 (475) -- (1,958)
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 $ 4,321 $ (237) $ (3,235) $ 1,070 $ -- $ 1,919
========= ======== ========= ======== ======= =========
</TABLE>
14
<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
Condensed Consolidated Financial Statements and Notes thereto included herein.
With the exception of the reported actual results, the information presented
herein contains predictions, estimates and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including, without limitation, those
statements herein which are followed by an asterisk (*). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance, and achievements of the Company to differ
materially from those expressed or implied by such forward-looking statements.
Although the Company believes its plans, intentions and expectations reflected
in such forward-looking statements are based on reasonable assumptions, it can
give no assurance that such plans, intentions, expectations, objects or goals
will be achieved. Important factors that could cause actual results to differ
materially from those included in the forward-looking statements include but are
not limited to (i) those set forth in the Company's Form 10-K Annual Report for
the year ended January 2, 1999 and Form 10-Q Quarterly Reports for the first and
second fiscal quarters of 1999, in each case under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results," and (ii) the ability of the Company to complete
the Restructuring and return to profitability.
BACKGROUND
The Company was formed from the combination of Axiohm S.A. 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 Axiohm Technologies
EURL, formerly, 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 an $85 million credit facility (the "Credit Facility") that
provides term loans in the aggregate principal amount of $50.0 million and
revolving loans and letters of credit of up to $35.0 million, (ii) the proceeds
from the issuance of $120,000,000 of its 9 3/4% Senior Subordinated Notes due
2007 (the "Subordinated Notes").
In connection with the foregoing transactions, the Company recorded
approximately $102.1 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.
On July 28, 1998 the Company announced a major restructuring program designed to
streamline operations and improve manufacturing efficiencies by consolidating
its Paso Robles, California and Riverton, Wyoming manufacturing operations
principally into its Ithaca, New York manufacturing operation. The Company has
since completed the consolidation of the Paso Robles facility, and has delayed
the consolidation of the Riverton, Wyoming facility, pending the development of
a restructuring plan in conjunction with the Company's financing reorganization
and evaluation by the Bankruptcy Court.
15
<PAGE>
During the quarters ended July 3, 1999 and October 2, 1999, the Company was not
in compliance with respect to the interest, debt leverage, fixed charge, and
certain other covenants associated with its Credit Facility. As a result, the
bank group for the Credit Facility had the right to accelerate all borrowings
under the facility. The bank group, by signature of a majority of the banks,
granted waiver of the non-compliance and granted an additional availability in
the line of credit of $5 million through October 31, 1999. Furthermore, the bank
group, by signature of a majority of the banks, waived through October 31, 1999
any prospective nonpayment of the scheduled interest payment on the Subordinated
Notes due on October 1, 1999. The Company did not make the scheduled principal
payments on its senior debt of $2.0 million and an interest payment on the
Subordinated Notes of $5.9 million, on September 30, 1999 and October 1, 1999,
respectively. The Company reclassified the appropriate long-term debt balance
under its Credit Facility to current liabilities within the balance sheet. The
$120,000,000 associated with the Subordinated Notes is not included in the
default of the covenants. The reclassification was instituted on the basis that,
although a waiver was granted through October 31, 1999, the Company did not meet
the covenant requirements at the end of the waiver period. In addition, there
was no assurance that the Company would be able to refinance the entire Credit
Facility.
RESTRUCTURING AND CHAPTER 11 PROCEEDINGS
On November 8, 1999 (the "Petition Date"), the Company and its U.S.
subsidiaries, Axiohm IPB, Inc., Cognitive Solutions, Inc., Cognitive L.L.C.
and Stadia Colorado Corp, (the "U.S. Subsidiaries", together with the
Company, the "Debtors") filed voluntary petitions for relief under Chapter 11
of Title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court") to
implement a capital restructuring agreed to by representatives of the
Company's primary creditor and shareholder constituencies (the
"Restructuring"). The Chapter 11 Cases have been administratively
consolidated under Case No. 99-4153PJW. The Debtors sought protection under
Chapter 11 of the Bankruptcy Code because the cash flow generated from
operations was insufficient (i) to support working capital requirements, and
(ii) to make the interest payments due under the Credit Facility.
Additionally, the Company continued to be in non-compliance with certain debt
covenant requirements under the Credit Facility, which would have permitted
the bank group for its Credit Facility to accelerate the debt due at any time.
Since the Petition Date, the Debtors have continued in possession of their
property and are operating and managing their businesses as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
As debtors-in-possession, the Debtors are authorized to operate their businesses
in the ordinary course, but may not engage in transactions outside the ordinary
course without the approval of the Bankruptcy Court.
Contemporaneously with the filing of the Chapter 11 bankruptcy petitions, the
Company sought and obtained Bankruptcy Court approval of debtor-in-possession
financing consisting of a $20.0 million revolving line of credit with a group of
lenders led by Lehman Brothers Commercial Paper Inc. The financing facility is
intended to provide the Debtors with liquidity sufficient to fund operations
throughout the Chapter 11 proceedings. Additionally, the Bankruptcy Court
authorized the Debtors to pay the pre-petition claims of trade vendors
continuing to do business with the Debtors in the ordinary course of the
Debtors' businesses.
As of the Petition Date, actions to collect pre-petition indebtedness of the
Debtors are stayed. Also, pursuant to the Bankruptcy Code the Debtors can reject
executory contracts and unexpired lease obligations that are burdensome. To
date, the Debtors have not rejected any executory contacts or unexpired leases
and are continuing to perform their obligations related thereto.
The terms of the Restructuring are set forth in the Plan of Reorganization (the
"Plan") that was filed with the Bankruptcy Court on November 9, 1999. Holders of
at least two-thirds in principal amount of the Company's (i) $63 million of bank
debt and (ii) $120 million of Subordinated Notes, and holders of in excess of
fifty percent of Company's common stock, support the Plan. The Plan provides for
the restructuring of the Company's pre- and post-petition bank debt, expected to
total approximately $80 million on the effective date of the Plan, the
conversion of the Subordinated Notes and certain other unsecured claims to
equity, and the payment of trade claims in full. The Plan also provides that the
Company's existing common stock will be cancelled and existing shareholders will
receive Contingent Note Certificates which will entitle their holders to receive
in aggregate an amount equal to at least 2.5% of the equity value of the
reorganized company upon an initial public offering or the sale of substantially
all the assets of the reorganized company, to the extent completed within five
years of the effective date of the Plan. The Company expects to proceed to
confirmation of the Plan during the first quarter of 2000. A copy of the Plan
may be obtained from the Bankruptcy Court.
16
<PAGE>
There can be no assurance that the Plan will be confirmed or that the Company
will be able to complete the Restructuring and return to profitability.
Accordingly, there is substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements have been prepared on
the basis that the Company is a going concern and do not include any adjustments
that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 2, 1999 COMPARED TO THREE MONTHS ENDED OCTOBER 3,
1998
NET SALES
Net Sales of $47.4 million for the third quarter of 1999 decreased $11.6 million
or 19.7% from revenues of $59.0 million during the same period in 1998. The
decrease in sales is due generally to reduced volume. The Company continues to
develop and introduce new products to replace existing products as new
technology is developed. The Company has experienced a decrease in average
selling prices in transaction products worldwide due to tightening competition,
and the extension of older technology related product life cycles.
COST OF NET SALES
Cost of net sales for the third quarter of 1999 were $34.4 million or 72.6% of
net sales, compared to $38.5 million or 65.3% of net sales during the third
quarter of 1998. The decrease in absolute cost of sale dollars is a direct
correlation to the decrease in net sales. Increase in cost of net sales as a
percentage of net sales is due predominately to product mix, coupled with the
lower average sales prices. The newer products have higher costs associated with
them due to the initial status of production and better technology versus older
products nearing the end of their product life cycle. The current quarter
margins were negatively affected by additional inventory reserves taken for
excess and obsolete inventory relating to the build up of inventory for newer
products as sales decreased and an increase in warranty provision related to
initial inefficiencies of newer products introduced in the current period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (S,G&A)
S,G&A expenses for the third quarter 1999 totaled $10.2 million increasing to
21.5% of net sales from $10.0 million or 16.9.% of net sales during the same
period a year ago. The increase in dollars over the prior period relates to
increased professional fees associated with the bankruptcy and debt
restructuring, offset slightly by decreased compensation related expenses as
overall headcount decreased year to year on a consolidated basis. Additional
expense reductions were attributable to lower advertising and travel related
costs. The increase as a percentage of sales is directly related to the decrease
in sales.
RESEARCH AND DEVELOPMENT EXPENSES (R&D)
R&D expenses for the third quarter of 1999 totaled $3.7 million, down slightly
compared to $3.9 at the third quarter 1998.
PLANT CLOSING EXPENSES
The Company recorded $0.3 million in expenses in the third quarter of 1999,
relating to the relocation of operations from Paso Robles, California facility
to the company's Ithaca, New York and Golden, Colorado facilities, primarily for
the payment of bonuses to employees as incentives to remain with the Company
until the facilities are closed.
ACQUISITION RELATED INTANGIBLE AMORTIZATION
The Company estimates that on a quarterly basis through the third quarter of
2000, operating expenses will include approximately $9.0 million in non-cash
acquisition related charges which principally includes non-cash intangible
amortization.*
LOSS FROM OPERATIONS
Loss from operations for the third quarter of 1999 was $10.3 million compared to
a loss of $3.2 million for the same period a year ago. The loss is principally
due to decreases in gross margin due to the decrease in sales and changing
product mix.
INTEREST AND OTHER INCOME
During the current quarter a benefit of $0.2 million was recorded as other
income. This benefit was the result of a reversal of post-retirement benefits,
in conjunction with the purchase of NCR's printer business by Axiohm in 1994.
The above reversal was made based on the fact that the Company no longer employs
the employees entitled to post-retirement benefits.
17
<PAGE>
INTEREST AND OTHER EXPENSE
Interest expense for the third quarter remained relatively stable at $4.3
million compared to $4.3 million in the third quarter of 1998.
INCOME TAXES
The Company recorded a tax provision of $.1 million for the third quarter 1999
compared to a provision of $1.1 million in the third quarter 1998. Although the
Company reported a net loss before income taxes in both periods, goodwill
amortization is not deductible for income tax purposes. For the quarter ended
October 2, 1999, the Company completed a merger of two French divisions allowing
for a reversal of approximately $1.0 million in previously taken tax provisions
at the French subsidiary. Income tax as a percentage on income before taxes,
excluding the effect of acquisition related charges, was approximately 44.5% in
1998.
NINE MONTHS ENDED OCTOBER 2, 1999 COMPARED TO NINE MONTHS ENDED OCTOBER 3, 1998
NET SALES
Net Sales of $159.4 million for the first nine months of 1999 decreased $15.3
million or 8.8% from $174.7 million for the same period last year. The decrease
is primarily related to lower sales from customers and in average selling prices
of transaction products worldwide. Additionally, the current year reflects
approximately $1.5 million in additional accounts receivable reserve increases
to correctly reflect write-offs of extended accounts receivable balances.
COST OF NET SALES
Cost of Net Sales for the nine months ended October 2, 1999 totaled $112.1
million or 70.3% of total revenue compared to $129.5 million or 67.5% of total
revenue for the same period a year ago. The increase in cost of sales as a
percentage, for the nine months compared to the prior year is due principally to
product mix, and the decline in average selling prices, offset slightly with
reduced costs of sales. The newer products have higher initial costs due to a
production learning curve, and the cost of new technology. The current year is
negatively affected by additional inventory reserves taken for excess and
obsolete inventory relating to the build up of inventory for newer products as
sales decreased and an increase in warranty provision related to initial
inefficiencies of newer products introduced in the current period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (S,G&A)
S,G&A expenses for the nine months ended October 2, 1999 totaled $29.8 million
or 18.7% of total revenues compared to $28.3 million or 16.2 % of total revenues
for the same period a year ago. Increased expenses are primarily due to
severance payments to former employees, coupled with increased professional fees
associated with the bankruptcy filing and the restructuring plan, offset
slightly by decreases in compensation related expenses as well as advertising
costs.
RESEARCH AND DEVELOPMENT EXPENSES (R&D)
Research and Development expenses for the nine months ended October 2, 1999
remained consistent with the same period of a year ago at $11.8 million and
$11.8 million respectively.
PLANT CLOSING EXPENSES
The Company recorded $2.0 million in expenses for 1999, relating to the
relocation of operations from Paso Robles, California facility to the company's
Ithaca, New York and Golden, Colorado facilities, primarily for the payment of
bonuses to employees as an incentive to remain with the Company until the
facilities are closed. Current year expenses are for nine months whereas prior
year charges of $0.8 million reflect only three months of charges.
ACQUISITION RELATED INTANGIBLE AMORTIZATION
The Company recorded $27.2 million in acquisition related amortization for the
first nine months of 1999. The Company estimates that on a quarterly basis
through the third quarter of 2000, operating expenses will include approximately
$9.0 million in non-cash intangible acquisition related amortization charges.*
LOSS FROM OPERATIONS
Loss from operations for the nine months of 1999 was $23.6 million compared to a
loss of $4.7 million for the same period for 1998. The increase in losses from
the current period versus the prior is due to decreased margin dollars,
principally from lower sales and higher cost of sales. Additionally, operating
expenses contributed to the loss in the current period due to increased costs
associated with plant closings and severance and professional fees.
18
<PAGE>
INTEREST AND OTHER INCOME
During the current quarter a benefit of $0.2 million was recorded as other
income. This benefit was the result of a reversal of post-retirement benefits,
in conjunction with the purchase of NCR's printer business by Axiohm in 1994.
The above reversal was made based on the fact that the Company no longer employs
the employees entitled to post-retirement benefits.
INTEREST AND OTHER EXPENSE
Interest expense for the nine months ended October 2, 1999 totaled $13.3
million, and remained consistent with prior year amounts of $13.3 million.
INCOME TAXES
The Company recorded tax expense of $0.9 million for the period ended October 2,
1999 compared to $3.6 million in the same period 1998. Although the Company
reported a net loss before income taxes in both periods, goodwill amortization
is not deductible for income tax purposes. For the nine months ended October 2,
1999, the Company's consolidated results reflect a net loss position, however,
the tax provision for 1999 reflects recognition of income taxes payable in
foreign countries, principally France. Income tax as a percentage on income
before taxes, excluding the effect of acquisition related charges, was
approximately 41.2% in 1998.
DEPENDENCE ON PRINCIPAL CUSTOMER.
Sales to NCR Corporation ("NCR"), the Company's largest customer, for the three
months ended October 2, 1999 was 17% of total revenue. Net sales for the years
ended January 2, 1999 and December 31, 1997 were 25% and 35% respectively. No
other customer accounted for more than 10% of net sales at any time period. On
September 2, 1997, the Company entered into a three-year contract with NCR (the
"NCR Contract"). The NCR Contract provides that NCR and Axiohm intend and expect
that NCR will purchase from Axiohm substantially all of its requirements for
transaction printers of the type manufactured by the Company (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 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'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.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Reference is made to Note 2 of Notes to Condensed Consolidated Financial
Statements for information regarding the filing by the Company and its U.S.
Subsidiaries of voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code. Contemporaneously with the filing of the Chapter 11 bankruptcy
petitions, the Company sought and obtained Bankruptcy Court approval of
debtor-in-possession financing consisting of a $20.0 million revolving line of
credit with a group of lenders led by Lehman Brothers Commercial Paper Inc. The
financing facility is intended to provide the Debtors with liquidity sufficient
to fund operations throughout the Chapter 11 proceedings. Additionally, the
Bankruptcy Court authorized the Debtors to pay the pre-petition claims of trade
vendors continuing to do business with the Debtors in the ordinary course of the
Debtors' businesses.
The Company's primary sources of capital during the first nine months of fiscal
1999 were cash flow from operations and borrowings under the Credit Facility.
For the nine months ended October 2, 1999, cash provided by operating activities
was $1.1 million. Depreciation and amortization represented $34.7 million of
cash flows from operating activities. The semi-annual interest payment on
subordinated debt of $5.9 million was not made on October 1, 1999. Accounts
Receivable decreased by approximately $3.9 million offset by accounts payable
decreases of approximately $0.4 million. Other current liabilities increased by
approximately $3.3 million as a result of the non-payment of the subordinated
debt of $5.9 million, offset by an increase in other current assets of $2.1
million predominately due to increased prepaid professional fees associated with
the restructuring plan. Inventory decreased $0.7 million during the same period.
Cash used in investing activities was approximately $4.4 million in the nine
months ending October 2, 1999, and is comprised primarily of increased capital
expenditures of $4.0 million relating primarily to increases in tooling used to
support new products.
At October 2, 1999, the Company's total debt net of cash was $180.7 million.
Total debt excluding government grants totaled $183.0 million. Debt levels have
increased 1999 from the debt levels at January 2, 1999 due to the payment of
$5.9 million of subordinated interest on April 1, 1999 and working capital
requirements.
20
<PAGE>
In managing interest rate exposure, principally under the Company's floating
rate revolving credit facilities, the Company has entered into 3 interest rate
swap agreements during the period from December 1997 through October 2001. The
swap agreements are with major financial institutions and aggregate $35 million
in notional principal amount at October 2, 1999. The first swap agreement of $20
million notional principal amount requires fixed interest payments at a fixed
rate of 5.90% through November 1999. The second swap agreement of $10 million
notional principal amount requires fixed interest payments at a fixed rate of
4.76% through October 2001. The third swap agreement of $5 million in notional
principal amount requires fixed interest payments at a fixed interest rate of
4.365% through October 2001.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Subordinated Notes. The indebtedness evidenced by the Notes is
subordinated to the Company's obligations under the Credit Facility. Interest is
payable semi-annually on the unpaid principal at 9.75% per annum. The Company
made the first of two $5.9 million payments for 1999, on April 1, 1999. The
second payment, due October 1, 1999 was not made in conjunction with the
covenant waiver agreement dated August 19, 1999 in place through October 31,
1999. The Indenture contains covenants regarding restricted payments, incurrence
of indebtedness, liens, dividends, merger, consolidation or sale of assets, and
transactions with affiliates.
NEW ACCOUNTING STANDARDS
In February 1999, the Financial Accounting Standards board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 135 "Discussion of FASB
Statement No. 75 and Technical Corrections." This Statement amends existing
authoritative literature to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. The statement is
effective for fiscal year ending after February 15, 1999. Management has not yet
determined the impact that the inclusion of this statement may have on
consolidated results, financial condition or liquidity of the Company.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement standardizes
the accounting for derivative instruments, including derivative instruments
embedded in contracts, by requiring that the entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. The statement is scheduled to be effective for fiscal year beginning
after June 15, 1999. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging
Activities -Deferral of the Effective Date of FASB Statement No. 133 ("SFAS
137"). SFAS 137 delayed the effective date of SFAS 133 for one year, to fiscal
years beginning after June 15, 2000. The implementation of SFAS 133 is not
expected to have a material impact on the net earnings of the Company. The
recognition of the interest rate swap agreements and corresponding debt
obligations at fair value could reduce the Company's availability under its
revolving credit facility. The reduction in availability could negatively affect
liquidity of the Company depending on market interest rates at the time of
implementation. Management has not yet determined the impact that the adoption
of this statement may have on consolidated results, financial condition or
liquidity of the Company.
The Company plans to adopt these statements in connection with the preparation
of the consolidated financial statements, as permitted by each of the
pronouncements. The adoption of these standards is not expected to have a
material impact on consolidated results, financial condition, or long-term
liquidity of the Company.
RESTRICTIONS ON DISTRIBUTIONS BY GUARANTORS TO THE COMPANY
There are no contractual restrictions, under the 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 equity-holder of all the Guarantor Subsidiaries.
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, computer
systems and/or software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements.
The Company's failure to resolve Year 2000 issues could result in systems
failure or miscalculations causing disruptions in operations, including a
temporary inability to process transactions, send invoices, or engage in normal
21
<PAGE>
business activities. Such failures could materially and adversely affect the
liquidity and financial performance of the company. Dependent on the readiness
of suppliers, delays in supplies could directly correlate to reduce shipments
and lost sales. In addition, a similar result may occur, in the event major
customers do not meet Year 2000 compliance.
YEAR 2000-STATE OF READINESS
The Company recognizes the need for addressing the "Year 2000" issue and has
developed an oversight committee to ensure compliance. Representatives from each
operating location, both domestic and international, have been identified and
assigned the task of evaluating the state of readiness of each respective
location. The Chief Information Officer has the responsibility to oversee the
Company's Year 2000 compliance issues. Information systems ("IT") which are
considered to be non-compliant are expected to be modified or replaced with
systems that are Year 2000 compliant.* Similar actions are being taken with
respect to non-IT systems, primarily those systems embedded in equipment and
systems used in manufacturing and other facilities.* In addition, the teams have
been given the responsibility of determining the state of readiness of customers
and vendors and other third parties that may have a material impact on the
Company, and develop contingency plans where necessary. The Company thus far has
primarily used, and expects to continue to primarily use, internal resources to
implement its readiness plan and to upgrade or replace systems affected by the
Year 2000 issue.*
As part of the Company's Year 2000 project, the Company has completed the
awareness phase of all IT and non-IT systems pertaining to the Year 2000 issue.
The Company has completed its initial evaluation of current computer systems
hardware, including software and embedded technologies. Evaluation of IT systems
is complete. The Company has begun its evaluation of the "state of readiness"
and expects to continue and complete this evaluation of the "state of readiness"
of both vendors and customers with a material relationship during 1999.* The
following table summarizes the current status of the Company's position in
addressing Year 2000 issues.
<TABLE>
<CAPTION>
------------------------- ---------------- --------------------------------
Phase % Completed Project Completion Date During
the Period Ending*
------------------------- ---------------- --------------------------------
<S> <C> <C>
Awareness 100% 12/31/98
------------------------- ---------------- --------------------------------
Evaluation 100% 6/30/99
------------------------- ---------------- --------------------------------
Renovation 100% 10/30/99
------------------------- ---------------- --------------------------------
Validation 75% 11/30/99
------------------------- ---------------- --------------------------------
Implementation 75% 12/15/99
------------------------- ---------------- --------------------------------
</TABLE>
Based on the evaluation process thus far, the Company has identified the
primarily non-compliant issue to reside within the company's accounting and
manufacturing software.
The Company has purchased the necessary hardware and software and is currently
in the process of implementing firm wide an Oracle based enterprise resource
planning system ("ERP"). To date, implementation of Version 10.7 is primarily
complete. Version 10.7 has been certified Y2K compliant by Oracle.
The Company has completed the Oracle conversion, or upgraded to Y2K compliant
software, for all significant divisions. The Company continues to evaluate
system efficiencies with respect to Oracle upgrades and other software programs.
No significant disruption of operations is expected to occur, or any material
effect on earnings, as a result of in-house Y2K non-compliance.*
Non-IT systems (voice mail, security system, and Personal software, etc.) and
non-key IT systems have been evaluated. For each location, a list of top
suppliers has been evaluated. A material effect on the company's performance is
not expected.*
YEAR 2000-COSTS TO ADDRESS ISSUES
Incremental costs associated with Year 2000 compliance are expected to
approximate $3.0 million through December 31, 1999, of which the Oracle
conversion is expected to be the largest portion totaling $2.0 million.* Through
October 2, 1999, the company has spent approximately $1.6 million associated
with the Oracle conversion or 80% of the total.* This estimate assumes that the
Company will not incur significant costs associated with Year 2000 compliance on
behalf of vendors, customers, or other third parties.
22
<PAGE>
YEAR 2000-CONTINGENCY PLAN
As mentioned previously the Company has identified as a significant issue
regarding Y2K to be the Company's conversion to Oracle, or some other form of
ERP system. All significant divisions, which may have a material effect on
earnings, have converted to a Y2K certified version of Oracle.* The Company has
determined a contingency plan for all significant divisions and continues to
evaluate these plans continuously. The Company believes that in-house problems
can be addressed through the use of alternative resources and manual processes.*
The costs and timetables in which the Company plans to complete the Year 2000
readiness activities, as well as potential outcomes of non-compliance are based
on management's best estimates. These estimates were derived using numerous
assumptions of future events including continuing factors. Evaluation of Year
2000 issues is a continuous process. There can be no assurance that these
estimates will be achieved. Failure to achieve these estimates, or complete the
Company's Year 2000 readiness plan and activities, could have a material effect
on the company's financial condition and operating results.
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS
The market risk exposure inherent in the Company's international operations
creates potential for losses arising from adverse changes in foreign currency
exchange rates. The Company is exposed to such foreign exchange rate risks in
two main areas: (1) The company has operating facilities and corresponding
expense generation from multiple non-US locations such as: France, the United
Kingdom, and Australia. (2) Most of the Company's capital lease obligation is
expressed in the French franc. Conversions from foreign currencies to US dollars
can cause significant exchange gains or losses. In addition, gains and losses
arising from the conversion to U.S. dollars of assets and liabilities
denominated in foreign currencies may contribute to fluctuations in the
Company's operating results.
The Company manufactures and sells its products in a number of locations around
the world, resulting in a diversified revenue and cost base that is exposed to
fluctuations in European and Asian currencies. The diverse base of foreign
currency revenues and costs serves to create a hedge that limits the Company's
net exposure to fluctuations in these foreign currencies.
The Company uses financial instruments, primarily forward exchange contracts, to
hedge its exposure to foreign currency exchange rate fluctuations. In order to
mitigate the associated risk resulting from increases in the French franc
compared to the U.S. dollar, the Company identifies on a monthly basis its cash
requirements denominated in each currency for the next quarterly period. Based
on these requirements, currency forwards are entered into and designated as
hedges of specific cash commitments. These contracts must be designated at
inception as a hedge and measured for effectiveness at both inception and on an
ongoing basis. Realized and unrealized gains and losses arising from currency
forwards are recognized in income in the same period as gains and losses
resulting from the underlying hedged transactions. At November 8, 1999 the
Company's portfolio consisted of four foreign exchange contracts to sell $5
million at an average rate of $1 = FF 5.82.
The Company has undertaken a substantial amount of debt associated with the
Merger. In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into 3
interest rate swap agreements during the period from December 1997 through
October 2001. The swap agreements are with major financial institutions and
aggregate $35 million in notional principal amount at January 2, 1999. The first
swap agreement of $20 million notional principal amount requires fixed interest
payments at a fixed rate of 5.90% through November 1999. The second swap
agreement of $10 million notional principal amount requires fixed interest
payments at a fixed rate of 4.76% through October 2001. The third swap agreement
of $5 million in notional principal amount requires fixed interest payments at a
fixed interest rate of 4.365% through October 2001. A 100 (10% adverse change)
basis point move in interest rates would not have a material affect on the
Company's floating and fixed rate instruments, including short and long-term
debt and derivative instruments.*
The Company's hedging activities have not had a material impact on its
operations or cash flows. The Company does not use or hold financial instruments
for speculative trading purposes. The Company does not anticipate an adverse
impact on the interest rate protection agreements, as a result of interest rate
volatility.*
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 8, 1999 the Company and its U.s. Subsidiaries filed for protection
under Chapter 11 of Title 11 of the United States Bankruptcy Code along with a
plan of reorganization. See Note 2 - "Restructuring and Chapter 11 Proceedings,"
to the Notes to Condensed Consolidated Financial Statements, herein.
In September 1998, Andrew Newmark filed a complaint against the Company in the
United States District Court, Southern District of California, claiming rights
to a finders fee of up to $2,187,500 in connection with the 1997 acquisition of
the Company by Axiohm S.A. Also in September, the Company filed an action in the
United States District Court for the Southern District of New York against Mr.
Newmark, seeking a judgement that Mr. Newmark is not entitled to any fee. The
New York action has been stayed pending resolution of the California action, in
which discovery is presently being conducted. The Company strongly believes that
its position is meritorious, and that Mr. Newmark's claims are without merit.
However, there can be no assurance that the Company will ultimately prevail in
the suits with Mr. Newmark. This action is stayed by virtue of the bankruptcy
filings referred to in the preceding paragraph.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to the third paragraph of Note 1 of Notes to Condensed
Consolidated Financial Statements herein. As noted therein (i) the Company did
not make the scheduled September 30, 1999 principal payment of $2.0 million on
its Credit Facility, and (ii) the Company did not make an interest payment in
the amount of $5.9 million due on October 1, 1999 on its Subordinated Notes.
ITEM 5. OTHER INFORMATION
AP PRINT BANKRUPTCY FILING
During the 2nd quarter of 1998, the Company acquired AP Print; S.A. based in
Angers, France for approximately $1.5 million. The transaction resulted in the
recording of approximately $550 thousand in goodwill. AP Print is a developer
and manufacturer of plastic card printers used in applications such as drivers'
licenses, membership cards, access control badges and smart cards. On September
1, 1999 the Company filed for Bankruptcy in a French court of law pertaining to
the AP Print division. The status of the case is currently pending court
approval of a viable continuation plan. In the event a viable plan is not
approved, the court will then recommend liquidation of the division and its
assets.
On October 22, 1999, the Nasdaq Stock Market notified the Company that the
Company would be de-listed effective October 22, 1999 due to a failure to
satisfy listing requirements. The Company was required to evidence a closing bid
price for its common stock of at least $5.00 per share and a market value of
public float of $15.0 million for a period of no less than ten consecutive
trading days. The Company failed to meet both requirements and the Company's
common stock was de-listed at the close of business on that date. In addition,
as a consequence of the bankruptcy filings described in this report, the
Company's common stock is not eligible for trading on the OTC Bulletin Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this Form 10-Q Quarterly
Report pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) The registrant did not file any reports on Form 8-K during its fiscal
third quarter for which this Quarterly Report on Form 10-Q is filed.
24
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 1999
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------------------------------------------------------------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
25
<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.
NOVEMBER 22, 1999 BY: /s/Carmen J. Conicelli Jr.
----------------- -------------------------------------------
DATE CARMEN J. CONICELLI JR., CORPORATE OFFICER
(CHIEF ACCOUNTING OFFICER)
(CORPORATE CONTROLLER)
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> OCT-02-1999
<CASH> 4,378
<SECURITIES> 0
<RECEIVABLES> 29,099
<ALLOWANCES> (917)
<INVENTORY> 31,967
<CURRENT-ASSETS> 78,027
<PP&E> 40,947
<DEPRECIATION> (20,829)
<TOTAL-ASSETS> 139,636
<CURRENT-LIABILITIES> 102,330
<BONDS> 0
0
0
<COMMON> 24,699
<OTHER-SE> (111,389)
<TOTAL-LIABILITY-AND-EQUITY> 139,636
<SALES> 159,382
<TOTAL-REVENUES> 159,382
<CGS> 112,072
<TOTAL-COSTS> 182,963
<OTHER-EXPENSES> (210)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,282
<INCOME-PRETAX> (36,653)
<INCOME-TAX> 926
<INCOME-CONTINUING> (37,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,579)
<EPS-BASIC> (5.76)
<EPS-DILUTED> (5.76)
</TABLE>
