<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 APRIL 3, 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 APRIL 3, 1999, THERE WERE 6,519,301 SHARES OF THE REGISTRANT'S
COMMON STOCK OUTSTANDING.


<PAGE>



  AXIOHM TRANSACTION SOLUTIONS, INC.
           AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                        PAGE NO.

<S>                                                                   <C>
     ITEM 1 - FINANCIAL STATEMENTS

         CONDENSED CONSOLIDATED BALANCE SHEETS                          3
         APRIL 3, 1999 AND JANUARY 2, 1999

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
         THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 4, 1998             4

         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
         THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 4, 1998             5

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS           6

     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS                 16

     ITEM 3 - QUANTITATIVE AND
         QUALITATIVE DISCLOSURE ABOUT MARKET RISKS                     24

PART II.  OTHER INFORMATION

     ITEM 1 - LEGAL PROCEEDINGS                                        25

SIGNATURES                                                             26

EXHIBITS INDEX                                                         27

</TABLE>

                                       2
<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>

                                                                                   April 3,           January 2,
                                                                                    1999                1999
                                                                            -------------------   -----------------
                                                                                 (Unaudited)          (Audited)
                                                            ASSETS
<S>                                                                              <C>                 <C>
Current assets:
      Cash and cash equivalents                                                  $    --             $     902
      Accounts receivable, net                                                      35,257              33,361
      Inventories                                                                   33,356              33,210
      Prepaid expenses and other current assets                                     11,230              11,476
                                                                                 ---------           ---------
          Total current assets                                                      79,843              78,949
      Fixed assets, net of accumulated depreciation                                 19,455              20,556
      Intangible assets                                                             54,200              63,411
      Other assets                                                                   9,203               8,810
                                                                                 ---------           ---------
         Total assets                                                            $ 162,701           $ 171,726
                                                                                 ---------           ---------
                                                                                 ---------           ---------

                                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
      Accounts payable                                                           $  22,116           $  20,712
      Current portion of long-term debt                                              7,097               9,085
      Current portion of government grant obligations                                  757                 813
      Accrued payroll, payroll taxes and benefits                                    5,528               5,367
      Accrued expenses                                                               6,370               6,951
      Income taxes payable                                                             670                --
      Deferred revenue                                                               1,812               1,910
      Other current liabilities                                                       --                 3,015
                                                                                 ---------           ---------
         Total current liabilities                                                  44,350              47,853
Non-current liabilities:
      Long-term debt                                                               171,856             167,034
      Government grant obligations                                                   1,312               1,374
      Other long-term liabilities                                                    3,362               3,463
                                                                                 ---------           ---------
         Total liabilities                                                         220,880             219,724
                                                                                 ---------           ---------
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:
         6,519,301 shares in 1999 and  1998 respectively                            24,478              24,367
      Comprehensive income                                                          (1,125)               (153)
      Accumulated deficit                                                          (81,532)            (72,212)
                                                                                 ---------           ---------
         Total shareholders' equity (deficit)                                      (58,179)            (47,998)
                                                                                 ---------           ---------
         Total liabilities and shareholders' equity (deficit)                    $ 162,701           $ 171,726
                                                                                 ---------           ---------
                                                                                 ---------           ---------
</TABLE>


              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       3
<PAGE>


               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                     April 3,       April 4,
                                                       1999          1998
                                                    -----------------------
                                                          (Unaudited)

<S>                                                  <C>           <C>
Net sales                                            $ 60,477      $ 57,069
Cost of net sales                                      41,623        36,995
                                                     --------      --------
Gross margin                                           18,854        20,074

Operating expenses:
     Selling, general and administrative                9,766         8,804
     Research and development                           4,307         4,090
     Plant closing expenses                               934          --
     Acquisition related intangible amortization        9,082         8,462
                                                     --------      --------
Total operating expenses                               24,089        21,356
                                                     --------      --------

Loss from operations                                   (5,235)       (1,282)

Interest and other income                                 (62)           88
Interest and other expense                              4,197         4,367
                                                     --------      --------
Loss before income taxes (benefit)                     (9,494)       (5,561)
                                                     --------      --------
Income taxes (benefit)                                   (173)        1,175
                                                     --------      --------
Net loss                                             $ (9,321)     $ (6,736)
                                                     --------      --------
                                                     --------      --------
Basic:
     Net loss per share                              $  (1.43)     $  (1.03)
     Shares used in per share calculation               6,519         6,517

Diluted:
     Net loss per share                              $  (1.43)     $  (1.03)
     Shares used in per share calculation               6,519         6,517

Foreign currency translation adjustment                  (972)          245
                                                     --------      --------
Other comprehensive loss                             $(10,293)     $ (6,491)
                                                     --------      --------
                                                     --------      --------
</TABLE>
  The accompanying notes are an integral part of these
      condensed consolidated financial statements.



                                       4
<PAGE>

               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                           Three Months Ended
                                                                                        April 3,      April 4,
                                                                                         1999          1998
                                                                                      -----------   -----------
                                                                                      (Unaudited)   (Unaudited)
<S>                                                                                  <C>           <C>
Cashflows from operating activities:
   Net loss                                                                            $ (9,321)     $ (6,736)
   Adjustments to reconcile net loss to net cash provided by (used in) operations:
     Depreciation and amortization                                                       10,672        10,209
     Other non-cash items                                                                   111        (1,961)
   Changes in assets and liabilities, net of effects of acquisition of business:
     Accounts receivable                                                                 (2,995)       (4,310)
     Inventories                                                                           (697)       (3,801)
     Other current assets                                                                   175           586
     Accounts payable and accrued expenses                                                2,259          (272)
     Other current liabilities                                                           (3,015)       (3,033)
                                                                                       --------      --------
Net cash provided (used in) by operating activities                                      (2,811)       (9,318)

Cashflows from investing activities:
   Payment for acquisition of business, net of cash acquired                                (62)       (3,207)
   Capital expenditures and other                                                          (730)         (890)
                                                                                       --------      --------
Net cash used in investing activities                                                      (792)       (4,097)

Cashflows from financing activities:
   Net borrowings under line of credit                                                    5,000        13,205
   Principal repayments under long term debt                                             (2,137)         (800)
   Exercise of Stock Options                                                               --              46
   Debt issuance costs                                                                     (328)         --
                                                                                       --------      --------
Net cash provided by financing activities                                                 2,535        12,451
Effect of exchange rate changes on cash                                                     166           245
                                                                                       --------      --------
Net decrease in cash and cash equivalents                                                  (902)         (719)
Cash and cash equivalents at beginning of period                                            902         3,877
                                                                                       --------      --------
Cash and cash equivalents at end of period                                             $   --        $  3,158
                                                                                       --------      --------
                                                                                       --------      --------
Supplemental Cashflow Disclosures:
Cash paid during the year for:
   Interest                                                                            $  7,221      $  7,252
   Income taxes                                                                        $   --        $  3,112

Other transactions:
   Payment of restricted cash to former officers                                           --          (8,594)
   Reduction of liability to former officers                                               --           8,594
                                                                                       --------      --------
   Cash paid, net of cash acquired                                                     $   --        $   --
</TABLE>


              The accompanying notes are an integral part of these
                   condensed consolidated financial statements


                                       5
<PAGE>

               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (APRIL 3, 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 April 3, 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 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 first quarter of 1999 and 1998 represents the
thirteen-week period ended on April 3, 1999, and April 4, 1998. The Company's
1999 fiscal year will end on January 1, 2000.

NOTE 2: 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 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,



                                       6
<PAGE>

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 2: INVENTORIES

<TABLE>
<CAPTION>
                                                        April 3, 1999            January 2, 1999
                                                        -------------            ---------------
<S>                                                     <C>                      <C>
Raw Materials                                             $26,185,000                $24,632,000
Work in Process                                             1,614,000                  2,027,000
Finished Goods                                              5,557,000                  6,551,000
                                                        -------------            ---------------
Totals                                                    $33,356,000                $33,210,000
</TABLE>

NOTE    4:     COMPREHENSIVE
INCOME

Comprehensive income for the three months ended April 3, 1999 and April 4, 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>
                                                        April 3, 1999              April 4, 1998
                                                        -------------              -------------
<S>                                                     <C>                        <C>
Net Loss                                                 $(9,321,000)               $(6,736,000)
Foreign Currency Translation Adjustment                     (972,000)                   245,000
                                                        -------------            ---------------
Comprehensive Loss                                      $(10,293,000)               $(6,491,000)
</TABLE>

NOTE 5: 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 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 financial
statements as of April 3, 1999 and January 2, 1999 and for the quarter ended
April 3, 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.



                                       7
<PAGE>




The condensed consolidating financial information also presents condensed
financial statements for the quarter ended April 4, 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.

         d)  elimination entries necessary to consolidate the Parent Company and
             its subsidiaries, and

         e)  the Company on a consolidated basis.



                                       8
<PAGE>

               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                     Condensed Consolidating Balance Sheets
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                  April 3, 1999 (Unaudited)
                                                        ---------------------------------------------------------------------------
                                                                    Guarantor Subsidiaries
                                                                   ---------------------- Non-Guarantor
                                                          Parent    French        US       Subsidiaries   Eliminations  Consolidated
                                                        ---------  ---------   ---------   ------------   ------------   ---------
<S>                                                     <C>        <C>         <C>         <C>            <C>           <C>
ASSETS
Current assets:
     Accounts receivable, net                           $  11,117   $   4,151   $  16,134     $   3,855     $    --       $  35,257
     Inventories                                            6,674       6,303      17,410         4,363        (1,394)       33,356
     Prepaid expenses and other current assets              9,409         853         400           255           313        11,230
     Intercompany                                         (16,043)      2,202      14,377        (4,689)        4,153          --
                                                        ---------   ---------   ---------     ---------     ---------     ---------
        Total current assets                               11,157      13,509      48,321         3,784         3,072        79,843
     Fixed assets, net of accumulated depreciation          4,099       3,745      10,235         1,376          --          19,455
     Intangible assets                                     50,840         365       3,019           (24)         --          54,200
     Other assets                                           6,158         361       2,658            26          --           9,203
     Investment in Subsidiaries                            45,029       8,752        --            --         (53,781)         --
                                                        ---------   ---------   ---------     ---------     ---------     ---------
        Total assets                                    $ 117,283   $  26,732   $  64,233     $   5,162     $ (50,709)    $ 162,701
                                                        ---------   ---------   ---------     ---------     ---------     ---------
                                                        ---------   ---------   ---------     ---------     ---------     ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Accounts payable                                   $   4,850   $   6,823   $  10,600     $    (157)    $    --       $  22,116
     Current portion of long-term debt                      6,873         193          21            10          --           7,097
     Current portion of government grant obligations         --           705          34            18          --             757
     Accrued payroll, payroll taxes and benefits            1,410       2,036       1,736           346          --           5,528
     Accrued expenses                                       4,443         706         959           262          --           6,370
     Income taxes payable                                  (4,500)       (929)      6,106            60           (67)          670
     Deferred revenue                                          38       1,035         739          --            --           1,812
                                                        ---------   ---------   ---------     ---------     ---------     ---------
        Total current liabilities                          13,114      10,569      20,195           539           (67)       44,350
Non-current liabilities:
     Long-term debt                                       170,376       1,392          14            74          --         171,856

     Government grant obligations                               1         795         516          --            --           1,312
     Other long-term liabilities                                1       1,619       1,743          --            --           3,363
     Deferred tax liability                                (2,474)      2,158         315          --            --              (1)
                                                        ---------   ---------   ---------     ---------     ---------     ---------
        Total liabilities                                 181,018      16,533      22,783           613           (67)      220,880
                                                        ---------   ---------   ---------     ---------     ---------     ---------
Shareholders' equity (deficit):
     Preferred shares, no par value
        Authorized: 1,000,000 shares, none issued            --          --          --            --            --            --
     Common stock                                          17,678      11,009        --             505        (4,714)       24,478
     Other comprehensive income                               119        (386)       --            (339)         (519)       (1,125)
     Retained earnings (accumulated deficit)              (81,532)       (424)     41,450         4,383       (45,409)      (81,532)
                                                        ---------   ---------   ---------     ---------     ---------     ---------
     Total shareholders' equity (deficit)                 (63,735)     10,199      41,450         4,549       (50,642)      (58,179)
                                                        ---------   ---------   ---------     ---------     ---------     ---------
     Total liabilities and shareholders' equity         $ 117,283   $  26,732   $  64,233     $   5,162     $ (50,709)    $ 162,701
                                                        ---------   ---------   ---------     ---------     ---------     ---------
                                                        ---------   ---------   ---------     ---------     ---------     ---------
</TABLE>


                                       9
<PAGE>

               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                Condensed Consolidating Statements of Operations
                                 (In thousands)



<TABLE>
<CAPTION>

                                                                        Three Months Ended April 3, 1999 (Unaudited)
                                                        ---------------------------------------------------------------------------
                                                                   Guarantor Subsidiaries
                                                                   ---------------------- Non-Guarantor
                                                          Parent    French        US       Subsidiaries   Eliminations  Consolidated
                                                        ---------  ---------   ---------   ------------   ------------  ------------
<S>                                                     <C>        <C>         <C>        <C>             <C>           <C>

Net Sales                                                 $ 13,578     $ 11,215     $ 39,911     $  7,603     $(11,830)    $ 60,477
Cost of net sales                                            9,206        7,678       30,627        5,751      (11,639)      41,623
                                                          --------     --------     --------     --------     --------     --------
Gross margin                                                 4,372        3,537        9,284        1,852         (191)      18,854

Operating expenses:
    Selling, general & administrative
                                                             3,574        1,441        3,504        1,247         --          9,766
    Research and development
                                                             1,165          990        2,045          107         --          4,307
    Plant closing expenses
                                                               934         --           --           --           --            934
    Acquisition related amortization
                                                             9,082         --           --           --           --          9,082
                                                          --------     --------     --------     --------     --------     --------
Total operating expenses                                    14,755        2,431        5,549        1,354         --         24,089
                                                          --------     --------     --------     --------     --------     --------

Income (loss) from operations                              (10,383)       1,106        3,735          498         (191)      (5,235)
Interest and other income                                    1,718           19         --            (55)      (1,744)         (62)
Interest and other expense                                   4,156          992          801           (9)      (1,743)       4,197
Equity earnings in subsidiaries                              1,411         --           --           --         (1,411)        --
                                                          --------     --------     --------     --------     --------     --------
Income (loss) before income taxes (benefit)                (11,410)         133        2,934          452       (1,603)      (9,494)
Income taxes (benefit)                                      (2,089)         457        1,494          157         (192)        (173)
                                                          --------     --------     --------     --------     --------     --------
Net income (loss)                                         $ (9,321)    $   (324)    $  1,440     $    295     $ (1,411)    $ (9,321)
                                                          --------     --------     --------     --------     --------     --------
                                                          --------     --------     --------     --------     --------     --------
</TABLE>



                                       10
<PAGE>

                    AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
    Condensed Consolidating Statements of Cash Flows
                     (In thousands)



<TABLE>
<CAPTION>

                                                                        Three Months Ended April 3, 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   $(7,571)   $  (494)   $ 4,120       $   851       $   283       $(2,811)

Cashflows from investing activities:
     Payment for acquisition of business and other
          intangibles                                          (62)      --         --            --            --             (62)
     Capital expenditures and other                           --         (254)      (481)            5          --            (730)
                                                           -------    -------    -------       -------       -------       -------
     Net cash provided by (used in) investing activities       (62)      (254)      (481)            5          --            (792)

Cashflows from financing activities:
     Net borrowings under line of credit                     5,000       --         --            --            --           5,000
     Principal repayments under long term debt              (2,000)      (119)        (4)          (14)         --          (2,137)
     Debt issuance costs                                      (328)      --         --            --            --            (328)
                                                           -------    -------    -------       -------       -------       -------
     Net cash provided by (used in) financing activities     2,672       (119)        (4)          (14)         --           2,535

Effect of exchange rate changes on cash                       --          372       --              77          (283)          166
                                                           -------    -------    -------       -------       -------       -------

Net increase (decrease) in cash and cash equivalents        (4,961)      (495)     3,635           919          --            (902)

Cash and cash equivalents at beginning of period             4,055       (831)    (3,317)          995          --             902
                                                           -------    -------    -------       -------       -------       -------
Cash and cash equivalents at end of period                 $  (906)   $(1,326)   $   318       $ 1,914       $  --         $  --
                                                           -------    -------    -------       -------       -------       -------
                                                           -------    -------    -------       -------       -------       -------
</TABLE>



                                       11
<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
     Restricted cash                                         --         --           --             --           --           --
     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
     Rabbi Trust                                            --           --          --            --            --          --
     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        $ 127,160   $  28,103   $  59,037      $   6,373     $ (48,947)  $ 171,726
                                                       ---------   ---------   ---------      ---------     ---------   ---------
                                                       ---------   ---------   ---------      ---------     ---------   ---------
</TABLE>

                                       12

<PAGE>

               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                      Condensed Consolidating Balance Sheet
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                     April 4, 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                             $  15,506   $     333   $ (13,627)  $     946   $    --     $   3,158
     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                                            (16,532)        827      11,790      (3,240)      7,155        --
                                                           ---------   ---------   ---------   ---------   ---------   ---------
        Total current assets                                  22,161      14,116      34,428       5,359       6,252      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                                       $ 159,764   $  26,995   $  49,807   $   7,103   $ (47,518)  $ 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
     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
     Deferred tax liability                                     --          --          --          --          --          --
                                                           ---------   ---------   ---------   ---------   ---------   ---------
        Total liabilities                                    183,812      21,952      13,347       1,852        (286)    220,677
                                                           ---------   ---------   ---------   ---------   ---------   ---------
Shareholders' equity (deficit):
     Common stock                                             23,898       4,167        --           360      (4,527)     23,898
     Other comprehensive income                                   65        (494)       --           129        (113)       (413)
     Retained earnings (accumulated deficit)                 (48,011)      1,370      36,460       4,762     (42,592)    (48,011)
                                                           ---------   ---------   ---------   ---------   ---------   ---------
     Total shareholders' equity (deficit)                    (24,048)      5,043      36,460       5,251     (47,232)    (24,526)
                                                           ---------   ---------   ---------   ---------   ---------   ---------
     Total liabilities and shareholders' equity (deficit)  $ 159,764   $  26,995   $  49,807   $   7,103   $ (47,518)  $ 196,151
                                                           ---------   ---------   ---------   ---------   ---------   ---------
                                                           ---------   ---------   ---------   ---------   ---------   ---------
</TABLE>

                                       13

<PAGE>

               AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                Condensed Consolidating Statements of Operations
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                  Three Months Ended April 4, 1998 (Unaudited)
                                                ----------------------------------------------------------------------------
                                                             Guarantor Subsidiaries
                                                              -------------------- Non-Guarantor
                                                 Parent       French          US    Subsidiaries  Eliminations  Consolidated
                                                --------      -------      -------  ------------  ------------  ------------
<S>                                             <C>           <C>          <C>     <C>            <C>           <C>
Net Sales                                       $ 15,812      $ 9,677      $34,003     $ 4,992      $(7,415)     $ 57,069
Cost of net sales                                 10,280        6,222       24,909       3,794       (8,210)       36,995
                                                --------      -------      -------     -------      -------      --------
Gross margin                                       5,532        3,455        9,094       1,198          795        20,074


Operating expenses:
    Selling, general & administrative              2,640          915        4,159       1,090         --           8,804
    Research and development                       1,183          921        1,829         157         --           4,090
    In-process technology                          8,462         --           --          --           --           8,462
                                                --------      -------      -------     -------      -------      --------
Total operating expenses                          12,285        1,836        5,988       1,247         --          21,356
                                                --------      -------      -------     -------      -------      --------

Income (loss) from operations                     (6,753)       1,619        3,106         (49)         795        (1,282)

Interest and other income                          1,262           34           15          20       (1,243)           88
Interest and other expense                         4,312        1,294            3           1       (1,243)        4,367
Equity earnings in subsidiaries                    1,998         --           --          --         (1,998)         --
                                                --------      -------      -------     -------      -------      --------

Income (loss) before income taxes (benefit)       (7,805)         359        3,118         (30)      (1,203)       (5,561)


Income taxes (benefit)                            (1,069)         669        1,254         (12)         333         1,175
                                                --------      -------      -------     -------      -------      --------

Net income (loss)                               $ (6,736)     $  (310)     $ 1,864     $   (18)     $(1,536)     $ (6,736)
                                                --------      -------      -------     -------      -------      --------
                                                --------      -------      -------     -------      -------      --------
</TABLE>

                                       14

<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 April 4, 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         $ (7,761)   $ 9,479    $ (1,553)   $(1,021)     $(8,462)    $ (9,318)

Cashflows from investing activities:
  Payment for acquisition of business and other intangibles     (3,207)      --          --         --           --         (3,207)
  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)
  Exercise of stock options                                         46       --          --         --           --             46
                                                              --------    -------    --------    -------      -------     --------
  Net cash provided by (used in) financing activities           13,138       (724)        (10)        47         --         12,451

Effect of exchange rate changes on cash                             25         63        --          127           30          245
                                                              --------    -------    --------    -------      -------     --------

Net increase in cash and cash equivalents                        1,646        195      (1,961)      (599)        --           (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    $(13,627)   $   946      $  --       $  3,158
                                                              --------    -------    --------    -------      -------     --------
                                                              --------    -------    --------    -------      -------     --------
</TABLE>


                                       15
<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.

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 EUR, 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 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").

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. As part of this
program, the Company will consolidate its Paso Robles, California and Riverton,
Wyoming manufacturing operations principally into its Ithaca, New York
manufacturing operation. The Company expects that these actions will result in
the reduction of approximately 200 jobs in the closing locations and the
addition of approximately 100 jobs in Ithaca, New York. This final program is a
result of an assessment that began at the time of the acquisition of DH
Technology.

The Company expects that when the consolidation moves are completed by late
1999, pre-tax operating costs will be reduced by approximately $3.5 million a
year. The Company expects to incur approximately $6 million of costs to fully
implement the plan by the end of 1999, of which approximately $3 million was
recorded in the second quarter of 1998 as an adjustment of the purchase price of
DH Technology, Inc. thereby increasing goodwill and other intangibles from
$102.1 million to $105 million.

The company was reorganized into two divisions during the third quarter of 1998:
transaction products, based in Blue Bell, Pennsylvania and identification
products, based in Denver, Colorado. Transaction products account for
approximately 85-90% of the revenue of the business and identification products
represent the balance of the revenue of the business. This reorganization was
undertaken to better serve customer needs.

RESULTS OF OPERATIONS

THREE MONTHS ENDED APRIL 3, 1999 COMPARED TO THREE MONTHS ENDED APRIL 4, 1998

NET SALES

Net Sales of $60.5 million for the 1st quarter of 1999 increased $3.4 million or
6.0% from revenues of $57.1 million during the same period in 1998. The increase
in sales is due generally to increased volume in transaction and bar


                                       16
<PAGE>

code products both internationally and domestically as a result of larger than
expected orders from several customers. The increase in volume was offset
slightly by decreases in average selling prices and decreased sales of card
readers from the first quarter 1998 because of lower sales to customers in
emerging markets.

COST OF NET SALES
Cost of net sales for the 1st quarter of 1999 were $41.6 million or 68.7% of net
sales, increasing from $37.0 million or 64.8% of net sales during the 1st
quarter of 1998. Increase in absolute cost of sale dollars is a direct
correlation to the increase in net sales. Increase in cost of net sales as a
percentage of net sales is due predominately to product mix. The continued
operation of the Company's Paso Robles facility also increased costs during the
first quarter of 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (S,G&A) 
S,G&A expenses for the 1st quarter 1999 totaled $9.8 million increasing to 
16.1% of net sales from $8.8 million or 15.4% of net sales during the same 
period a year ago. The increase over the 1st quarter 1998 is due generally to 
higher staffing levels to support increased sales growth. SG&A expenses 
during the 1st quarter of 1999 have decreased as a percentage of sales 
compared to the 16.8% of net sales in the 4th quarter of 1998.

RESEARCH AND DEVELOPMENT EXPENSES (R&D) 
R&D expenses for the 1st quarter 1999 totaled $4.3 million or 7.1% of net 
sales, remaining unchanged as a percentage of sales to the same period a year 
ago.

PLANT CLOSING EXPENSES
The Company recorded $0.9 million in expenses in the first quarter of 1999,
relating to the relocation of operations from Paso Robles, California and
Riverton, Wyoming facilities to the company's Ithaca, New York and Golden,
Colorado facilities, primarily for the payment of "staying" bonuses.

ACQUISITION RELATED INTANGIBLE AMORTIZATION The Company anticipates 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 first quarter of 1999 was $5.2 million compared to
a loss of $1.3 million for the same period a year ago. The loss is principally
due to the above mentioned non-cash acquisition related amortization charge of
$9.0 million, coupled with the plant closing expenses of $0.9 million, and
decreases in gross margin due to changing product mix.

INTEREST AND OTHER INCOME 
The Company did not generate significant interest income and other income 
during the first three months of 1999, as the Company's cash was used to 
complete the acquisition of DH as well as repay any outstanding debt.

INTEREST AND OTHER EXPENSE Interest expense for the 1st quarter remained
relatively stable at $4.2 million in the first quarter of 1999 compared to $4.4
million in the first quarter of 1998.

INCOME TAXES
The Company record a tax benefit of $173 thousand for the first quarter 1999
compared to a tax provision of $1.2 million in the first quarter 1998. Although
the Company reported a net loss before income taxes in both periods, goodwill
amortization is not deductible for income tax purposes. Additionally, the
Company recognizes and pays income taxes in foreign countries, principally
France. The increase in one time restructuring charges within operating expenses
has resulted in a tax benefit for the 1st quarter 1999. Income tax as a
percentage of income before taxes, excluding the effect of acquisition related
charges, was approximately 42% in 1999 compared to 45% in 1998.


                                       17
<PAGE>


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 3, 1999, the Company's total 
debt (net of cash) was $181.0 million. Total debt excluding government grant 
was $178.9 million and shareholders' deficit was $81.5 million. Required 
principal payments under the New Credit Facility and Notes (excluding the 
Revolver) are as follows: $7.1 million remaining in 1999; $8.5 million in 
2000; $14.6 million in 2001; $27.5 million in 2002; $121.2 million 
thereafter. Through 1999, it is anticipated that capital expenditures will 
not exceed the limit of $11.5 million permitted under the Credit Facility. 
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 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 
indebtedness. The restrictions on the Company's ability to incur additional 
indebtedness under the 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 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.

At April 3, 1999, the Company's total debt excluding government grants was 
$178.9 million. The Company also had borrowing availability under the Credit 
Facility of an additional $9.6 million for working capital and capital 
expenditure requirements, subject to the borrowing conditions contained 
therein. Debt levels have increased during the first quarter of 1999 from the 
debt levels at January 2, 1999 due to the payment of $5.9 million of 
subordinated interest on April 1, 1999. Effective April 2, 1999 the Company 
renegotiated the conditions of its bank agreement. Modifications, among other 
items, affected the covenant levels, the reduction of the revolving line of 
credit from $35 million to $25 million, as well as, rescheduling of principal 
payments under its term loan agreements. (See Fifth Amendment to the Credit 
Agreement exhibit filed with this document) At April 3, 1999 the Company was 
in compliance with the debt covenants.

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.

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

                                       18


<PAGE>

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.

DEPENDENCE ON PRINCIPAL CUSTOMER.

Sales to NCR Corporation ("NCR"), the Company's largest customer, for the three
months ended April 3, 1999 was 23.4% 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.

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/ RESTRUCTURING.

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. During the second quarter of 1998, as
part of the strategy to achieve purchasing, manufacturing and other synergies
begun with the acquisition of DH, the Company finalized its plan to consolidate
two of its manufacturing operations, Paso Robles, California and Riverton,
Wyoming, principally into its Ithaca, New York manufacturing operation as
discussed above. The Company expects to incur $6 million in costs through 1999
related to consolidation of these two facilities. The Company recorded
approximately $3 million in additional goodwill in the second quarter of 1998
related to the closure of the two former DH manufacturing operations. Through
April 3, 1999, the Company has incurred $620,000, in charges against the
reserve. The balance is expected to be incurred until the manufacturing
locations are closed. The Company also recorded $0.9 million in expenses during
the quarter ended April 3, 1999, and $2.5 million since the beginning of the 2nd
quarter 1998, relating to the relocation of operations from Paso Robles,
California and Riverton, Wyoming to Ithaca, New York, primarily for staying
bonuses to be paid to employees upon completion of integration duties. 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.

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


                                       19
<PAGE>

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.R.L. have incurred
a majority of Axiohm S.A.R.L.'s expenses in French francs, while a substantial
majority of Axiohm S.A.R.L.'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.

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 issuance of equity securities, the occurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets associated with the acquisitions of other


                                       20
<PAGE>

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 with the SEC an aggregate of 5,515,858
shares of Common Stock held by the former shareholders of Axiohm S.A.R.L. and
Dardel for sale by such shareholders from time to time in the open market or in
private transactions. Such sales, or the potential for such sales, could have a
material adverse effect on the market price for the Company's Common Stock.

On March 3, 1999, the Nasdaq Stock Market notified the Company that the 
Company would be de-listed unless the Company can demonstrate the ability to 
sustain compliance with all listing criteria. The Company has scheduled a 
hearing with Nasdaq to be held on May 27, 1999 to appeal the de-listing of 
the Company's stock from the Market. The de-listing has been delayed pending 
the outcome of the hearing. There is no assurance that the Company's stock 
will continue to listed and meet all of the listing criteria. Delisting of 
the Company's stock could adversely impact the liquidity of the Company's 
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, 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
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 approximately 75% complete and is expected to be 100% complete during the
second quarter of 1999. The Company has begun its evaluation of the "state of
readiness" and expects to complete this evaluation of the "state of readiness"
of both vendors and customers with a material relationship during the second
quarter 1999. The following table summarizes the current status of the Company's
position in addressing Year 2000 issues.


                                       21
<PAGE>




<TABLE>
<CAPTION>
         -------------------- -------------- --------------------------------
         Phase                % Completed    Project Completion Date During
                                             the Qtr. Ending
         -------------------- -------------- --------------------------------
         <S>                  <C>            <C>
         Awareness            100%
         -------------------- -------------- --------------------------------
         Evaluation           75%            6/30/99
         -------------------- -------------- --------------------------------
         Renovation           75%            6/30/99
         -------------------- -------------- --------------------------------
         Validation           50%            9/30/99
         -------------------- -------------- --------------------------------
         Implementation       50%            12/31/99
         -------------------- -------------- --------------------------------
</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, Version 10.6 has been implemented in several
locations. Although Version 10.6 does not fully address Year 2000 requirements,
the Company believes that Oracle ERP Version 10.7 does. Version 10.7 has already
been released by Oracle, and the Company has begun testing and implementation
with those divisions currently working with 10.6.

The Company anticipates 75% completion of the Oracle conversion by second
quarter 1999, and 100% completion to be achieved by the third quarter 1999.
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.

While the Company has not completed its evaluation of non-IT systems, it is
believed that such items which are not Year 2000 compliant can easily be
remedied through the purchase of "over the counter" products. 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
April 3, 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.

Year 2000-Contingency Plan

The Company has not, to date, implemented a contingency plan regarding Year 2000
non-compliance. The Company has developed a foundation for the contingency plan
and is expecting to complete the plan by the end of the second quarter 1999. The
Company believes that in-house problems can be addressed through the use of
alternative resources and manual processes. However, due to the uncertainty of
third party factors, the Company believes a detailed contingency plan is needed.

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.

EURO CURRENCY RISKS.

Eleven of fifteen member countries of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies") and one
common currency - the Euro. The Euro now trades on currency exchanges and may be
used in business transactions, eliminating currency exchange risk between the
member countries.

                                       22

<PAGE>

Beginning in January 2002, new Euro-denominated bills and coins will be issued,
and legacy currencies will be withdrawn from circulation. The Company has
recognized this situation and is currently in the process of developing a plan
to address issues raised by the Euro conversion. Possible issues include, but
are not limited to, the need to adapt computer and financial systems to
recognize Euro-denominated transactions, as well as the impact of one common
European currency on pricing.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of capital are cash flow from operations and
borrowings under the Credit Facility. For the quarter ended April 3, 1999, cash
used in operating activities was $2.8 million. Depreciation and amortization
represented $10.6 million of cash flows from operating activities. The
semi-annual interest payment on subordinated debt of $5.9 million was made on
April 1, 1999. Accounts Receivable increased by approximately $2.9 million as a
result of increased sales offset by accounts payable increases of approximately
$2.3 million. Inventory increased by $150,000 during the same period.

Cash used in investing activities was approximately $0.8 million in the first
quarter of 1999, is comprised primarily by the capital expenditures of $0.7
million. Capital expenditures relate primarily to increases in tooling used to
support new products.

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. Based upon current
levels of operations and anticipated growth in revenues and cost savings, the
Company believes that the Company's cash flow from operations and amounts
available under the Credit Facility will be adequate to meet its anticipated
future requirements for working capital, capital expenditures, and scheduled
payments of principal and interest on its indebtedness during the next twelve
months.

Required long term debt payments under the Credit Facility and Notes are as
follows: $7.1 million remaining in 1999; $8.5 million in 2000; $14.6 million in
2001; $27.5 million in 2002; $121.2 million thereafter. It is anticipated that
capital expenditures in 1999 will not exceed the maximum permitted under the New
Credit Facility of $11.5 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 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 3, 1999, the Company's total debt excluding government grants was
$181.0 million. Total debt excluding government grants totaled $178.9 million.
The Company also had borrowing availability under the Credit Facility of an
additional $9.6 million, subject to the borrowing conditions contained therein.
Debt levels have increased during the first quarter of 1999 from the debt levels
at January 2, 1999 due the payment of $5.9 million of subordinated interest on
April 1, 1999 and working capital requirements. Effective April 2, 1999 the
Company renegotiated the conditions of its bank agreement. Modifications
affected the covenant levels within the agreement. Additional modifications
include the reduction of the revolving line of credit from $35 million to $25
million, as well as, rescheduling of the principal payments under the Company's
two term loan agreements. (See Fifth Amendment to the Credit Agreement exhibit
filed within this document) At April 3, 1999 the Company is in compliance with
the debt covenants.

The Credit Facility and the Notes do, and other debt instruments of the Company
may, pose 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 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 Credit Facility subjects the Company to certain negative
covenants, including without limitation covenants that restrict, subject to
specified exceptions: the


                                       23
<PAGE>

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 redemption's;
prepayment or repurchase of other indebtedness and other provisions.

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 April 3, 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 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 payments for 1999 on April 1, 1999 totaling $5.9 million. 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". This statement standardizes the accounting
for derivative instruments, including derivative instruments embedded in
contracts, by requiring that the entity recognize those items as assets of
liabilities in the statement of financial position and measure them at fair
value. The statement is effective for fiscal year beginning after June 15, 1999.
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 SFAS No. 133 as permitted by this accounting
standard by January 1, 2000.

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.

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 correspondingly
expense generation from multiple non-US locations such as: France; the United
Kingdom; and Australia, operating expenses are expected to be denominated in
various foreign currencies and (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.

                                       24

<PAGE>

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 April 3, 1999 the
Company's portfolio consisted of eight foreign exchange contracts to sell $11
million at an average rate of $1 = FF 5.77.

The Company has undertaken a substantial amount of debt associated with the
Merger. (See item 1. Business - Substantial Debt Leverage and Service) 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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.

                                       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. 

    MAY 13,1999                         BY: /S/ WALTER S. SOBON
    -----------                             -----------------------------------
        DATE                                WALTER S. SOBON, CHIEF FINANCIAL
                                            OFFICER (CHIEF FINANCIAL OFFICER)



                                       26

<PAGE>




                       AXIOHM TRANSACTION SOLUTIONS, INC.
                    EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
                      FOR THE QUARTER ENDED OCTOBER 3, 1998


        EXHIBIT      DESCRIPTION
-------------------------------------------------------------------------------


          10.1      Fifth AMENDMENT, dated as of April 2, 1999 to the CREDIT
                    AGREEMENT, dated as of October 2, 1997, among the Company,
                    as Borrower, the several Lenders from time to time Parties
                    thereto, Lehman Brothers Inc. as Arranger, Lehman Commercial
                    Paper Inc, as Syndication Agent and Union Bank of
                    California, N.A. as Administrative Agent, as amended by the
                    Global Amendment and Assignment and Acceptance, dated as of
                    October 20, 1997.

          10.2      Change of Control Agreement dated March 22, 1999, between
                    the Registrant and Nicholas Dourassoff.

          27.1      Financial Data Schedule



                                       27