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.
           ---------------- ----------------------------------------------------
     ---------------- ----------------------------------------------------------

     ---------------- ----------------------------------------------------------