<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Form 10-Q/A
(Amendment No. 1)
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
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 0-21681
TRANSCRYPT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0801192
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 N.W. 1st STREET
LINCOLN, NEBRASKA 68521
(402) 474-4800
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
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 __ __ NO ___X__
As of October 30, 1997, 12,946,624 shares of the Registrant's common
stock were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(As Restated, See Note 13)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- ------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,746,683 $ --
Accounts receivable, net 12,472,877 1,256,800
Cost in excess of billings on uncompleted contracts 1,419,222 --
Inventory 14,278,570 2,852,571
Income taxes recoverable -- 213,329
Prepaid expenses and other current assets 1,351,874 88,692
Deferred tax assets 3,848,158 1,773,140
------------ ------------
Total current assets 38,117,384 6,184,532
------------ ------------
Property, plant and equipment, at cost 13,878,647 6,100,051
Less: accumulated depreciation (2,521,837) (1,774,966)
------------ ------------
Net property, plant and equipment 11,356,810 4,325,085
------------ ------------
Deferred tax assets 5,177,336 438,983
Intangible assets, net 17,655,427 421,470
Deferred public offering costs 146,651 568,049
Other assets 555,847 --
------------ ------------
$ 73,009,455 $ 11,938,119
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ -- $ 385,694
Revolving line of credit and bank notes payable 10,176,403 1,022,000
Current portion of long-term debt 3,665,478 595,762
Accounts payable 13,943,598 1,174,364
Accrued expenses 10,633,442 1,162,011
Billings in excess of cost on uncompleted contracts 6,302,168 --
Deferred revenue 1,700,000 --
------------ ------------
Total current liabilities 46,421,089 4,339,831
------------ ------------
Long-term debt, net of current portion 4,487,182 1,839,942
Deferred revenue 1,099,593 --
Revolving line of credit -- 792,070
------------ ------------
52,007,864 6,971,843
------------ ------------
Stockholders' equity:
Common stock 101,156 67,831
Additional paid-in capital 36,679,342 9,002,962
Accumulated deficit (15,778,907) (4,104,517)
------------ ------------
21,001,591 4,966,276
------------ ------------
$ 73,009,455 $ 11,938,119
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 3
TRANSCRYPT INTERNATIONAL, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited And As Restated, See Note 13)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues $ 13,428,702 $ 2,617,023 $ 19,855,222 $ 7,636,088
Cost of sales 9,561,575 998,048 13,122,847 2,781,529
------------ ------------ ------------ ------------
Gross profit 3,867,127 1,618,975 6,732,375 4,854,559
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,298,286 601,679 2,614,075 1,686,297
In-process research and development costs 9,827,696 -- 9,827,696 --
Sales and marketing 2,361,321 680,807 4,034,214 1,553,850
General and administrative 1,646,703 694,968 2,870,397 1,935,619
Special compensation expense -- 5,568,250 -- 5,568,250
------------ ------------ ------------ ------------
Total operating expenses 15,134,006 7,545,704 19,346,382 10,744,016
------------ ------------ ------------ ------------
Loss from operations (11,266,879) (5,926,729) (12,614,007) (5,889,457)
Interest income 118,724 5,665 436,366 30,279
Interest expense (346,423) (34,765) (428,195) (109,874)
------------ ------------ ------------ ------------
Loss before income taxes (11,494,578) (5,955,829) (12,605,836) (5,969,052)
Benefit for income taxes (467,911) (2,051,238) (931,446) (2,055,784)
------------ ------------ ------------ ------------
Net loss $(11,026,667) $ (3,904,591) $(11,674,390) $ (3,913,268)
============ ============ ============ ============
Pro forma information:
Loss before pro forma income taxes $(11,494,578) $ (5,955,829) $(12,605,836) $ (5,969,052)
Pro forma benefit for income taxes (467,911) (2,051,238) (931,446) (2,055,784)
------------ ------------ ------------ ------------
Pro forma net loss $(11,026,667) $ (3,904,591) $(11,674,390) $ (3,913,268)
============ ============ ============ ============
Pro forma net loss per share
- Basic and Diluted $ (1.12) $ (0.58) $ (1.26) $ (0.58)
============ ============ ============ ============
Weighted average common shares
- Basic and Diluted 9,844,087 6,783,078 9,275,637 6,783,078
============ ============ ============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
<PAGE> 4
TRANSCRYPT INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited And As Restated, See Note 13)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net cash flow provided by (used in) operating activities $ (8,839,064) $ 1,239,563
------------ ------------
Cash flow from investing activities:
Purchase of fixed assets (1,640,364) (910,170)
Proceeds from sale of fixed assets 2,323 26,725
Purchase of intangible assets (114,780) (31,371)
Purchase of E.F. Johnson Company, net of cash acquired (290,668) --
Payment under noncompete agreement -- (340,000)
------------ ------------
Net cash used in investing activities (2,043,489) (1,254,816)
------------ ------------
Cash flow from financing activities:
Issuance of industrial development revenue bonds 2,850,000 --
Payment of industrial development revenue bonds (850,000) --
Debt issuance costs of industrial development revenue bonds (75,493) --
Borrowings on lines of credit (3,343,168) --
Payment on term loans, lines of credit and capitalized leases (275,487) (249,292)
Bank overdraft (385,694) 153,834
Partnership distributions -- (181,001)
Proceeds from IPO, net 17,709,078 --
------------ ------------
Net cash provided by (used in) financing activities 15,629,236 (276,459)
Net increase in cash 4,746,683 (291,712)
Cash and cash equivalent, beginning of period -- 291,712
------------ ------------
Cash and cash equivalent, end of period $ 4,746,683 $ --
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
<PAGE> 5
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(As Restated, See Note 13)
1. GENERAL
The condensed consolidated balance sheet of Transcrypt International,
Inc. ("Transcrypt" or the "Company") at December 31, 1996, has been taken from
restated audited financial statements at that date and condensed. The condensed
consolidated financial statements as of September 30, 1997, and for the three
months and nine months ended September 30, 1997 and 1996 are unaudited and
reflect all normal and recurring accruals and adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, operating results and cash flows for the interim periods presented in
this quarterly report. The condensed consolidated financial statements should be
read in conjunction with the restated consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K/A (Amendment No. 1) for the year ended December 31, 1996. The results
of operations and cash flows for the nine months ended September 30, 1997, are
not necessarily indicative of the results for the entire fiscal year ending
December 31, 1997.
Where appropriate, items within the condensed consolidated financial
statements have been reclassified from the previous periods to conform to the
current year's presentation.
2. ORGANIZATION AND CONSOLIDATION
Transcrypt International, Ltd. (the "Predecessor") was a limited
partnership formed in 1991 composed of the general partner, Transcrypt
International, Inc., a Nebraska corporation, and various limited partners.
Effective June 30, 1996, the assets and liabilities of the partnership were
merged tax-free into a Delaware corporation, Transcrypt International, Inc. Each
respective partnership unit was converted pro rata into common shares of the
Company.
The restated condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. On July 31, 1997, the
Company completed the acquisition of E.F. Johnson Company ("EFJ") (see Note 10).
All significant intercompany accounts and transactions have been eliminated in
the consolidation.
3. PRO FORMA PROVISION FOR INCOME TAXES
The pro forma provision for income taxes reflects the provision for
income taxes as if the Company had been taxed as a "C" corporation under the
Internal Revenue Code of 1986, as amended, for the nine months ended September
30, 1996.
4. PRO FORMA NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"). FAS 128 requires a basic calculation of
earnings per share ("EPS"), based upon the weighted average number of common
shares outstanding during the period. FAS 128 also requires a diluted EPS
calculation that reflects the potential dilution from common stock
<PAGE> 6
equivalents such as stock options. All current and prior years' EPS calculations
included herein have been restated under the provisions of FAS 128. As the three
months and nine months ended September 30, 1997 and 1996 have net losses, the
impact of the outstanding stock options on weighted average common shares is
anti-dilutive.
Pro forma net loss per share for 1996 is computed on the basis of
the weighted average number of partnership interest units outstanding during the
period converted into common shares on a one-to-one ratio, and adjusted for a
stock split discussed below.
STOCK SPLIT
On September 30, 1996, the Board of Directors and the stockholders
approved an increase in the Company's authorized common shares from 10 million
to 20 million. On November 18, 1996, the Company declared a 1.3106311-for-1
stock split in the form of a stock dividend. All shares and per share
information have been restated to reflect the split.
5. INITIAL PUBLIC OFFERING
On January 22, 1997, the Company completed an initial public offering
of 2,900,000 shares of common stock at a price of $8.00 per share. Of the
2,900,000 shares offered, 2,500,000 shares were sold by the Company and 400,000
were sold by certain of the Company's stockholders. The Company's net proceeds
from the offering, after underwriting commissions and expenses, were
approximately $17,710,000.
A portion of the Company's net proceeds from the offering was used to
retire certain term and installment notes payable and the revolving lines of
credit, as described in Notes 7 and 8. The remaining net proceeds were used for
general working capital purposes, to support the Company's growth and business
strategy, and for the subsequent acquisition of EFJ.
6. INVENTORY
The following is a summary of inventory at September 30, 1997, and
December 31, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 6,561,382 $ 1,373,415
Work in progress 1,477,911 715,032
Finished goods 6,239,277 764,124
----------- -----------
$14,278,570 $ 2,852,571
=========== ===========
</TABLE>
7. REVOLVING LINES OF CREDIT AND BANK NOTES PAYABLE
Prior to July 31, 1997, and the acquisition of EFJ, the Company had a
working capital revolving line of credit not to exceed $3,000,000, calculated
using a specified borrowing base of eligible inventory and accounts receivable.
In addition, the Company had a second revolving capital line of credit not to
exceed $1,000,000, calculated using a specified borrowing base of
<PAGE> 7
eligible fixed assets. At December 31, 1996, the Company had $1,022,000
outstanding on the working capital line of credit and $792,070 on the capital
equipment line of credit. On January 27, 1997, these revolving lines of credit
were repaid in full using a portion of the net proceeds from the initial public
offering.
Concurrent with the acquisition of EFJ, the Company assumed
responsibilities for EFJ's revolving credit facility. This included a working
capital revolving line of credit not to exceed $35,000,000, with maximum
borrowings calculated periodically against contractual percentages of accounts
receivable and inventory. This also included a term loan, which is secured by
machinery and equipment. On October 23, 1997, this bank debt was repaid in full
using a portion of the net proceeds from the Company's secondary offering as
described in Note 12.
On September 30, 1997, the Company had $8,526,403 outstanding in
aggregate on all lines of credit. As of October 31, 1997, the Company had
established an irrevocable standby letter of credit in the amount of $436,000,
payable to the creditors of EFJ and expiring July 22, 1998, and an irrevocable
standby letter of credit in the amount of $1,564,000 for performance bonds under
contracts entered into by EFJ expiring June 12, 1998. Both of such standby
letters of credit were automatically extended annually unless notified by the
Company. In conjunction with the repayment of the EFJ bank debt, the irrevocable
standby letter of credit in the amount of $436,000 was retired.
On September 23, 1997, the Company had borrowed $1,650,000 in the form
of a ninety-day term note from its primary lender.
8. LONG-TERM DEBT
On January 27, 1997, the two term notes payable (totaling $626,791 at
December 31, 1996) and an installment note payable (totaling $359,017 at
December 31, 1996) were repaid in full using a portion of the net proceeds from
the initial public offering.
On March 25, 1997, the industrial revenue bonds payable (totaling
$850,000 at December 31, 1996) and the construction note payable (totaling
$584,797 at December 31, 1996) were repaid through the issuance of new
industrial revenue bonds totaling $2,850,000. The new industrial revenue bonds
are due in annual principal payments of $140,000, plus interest at a variable
rate (4.06% at September 30, 1997), from March 1, 1998 through March 1, 2007,
increasing to annual principal payments of $145,000, plus interest at a variable
rate, due March 1, 2008 through March 1, 2016, with the remaining principal and
accrued interest due March 1, 2017. At September 30, 1997, the remaining net
proceeds of $487,767 (net of debt offering costs) were held in escrow for the
Company pending the purchase of certain fixed assets by the Company.
Concurrent with the acquisition of EFJ, the Company assumed
responsibility for EFJ's capital lease obligation on the Waseca, Minnesota
manufacturing facility. This capital lease required the Company to make monthly
principal and interest payments of $52,000 through July 31, 2002. As of
September 30, 1997, the unpaid principal amount was $2,454,473. In assuming this
obligation, the Company also obtained an option to purchase the manufacturing
facility for $2,400,000.
<PAGE> 8
9. COMMITMENTS AND CONTINGENCIES
For discussion of Commitments and Contingencies see Note 13 of the
Notes to the Company's Consolidated Financial Statements contained in the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on July 15, 1998.
10. ACQUISITION
On July 31, 1997, the Company completed the acquisition of EFJ in
exchange for cash consideration of $436,000 and the issuance of 832,465 shares
of the Company's common stock with an approximate value of $10,000,000. The
consolidated financial statements of Transcrypt reflect the operations of EFJ
beginning on such date. The acquisition is accounted for under the purchase
method of accounting. The allocation of the purchase price resulted in an
increase in intangible assets of approximately $18.0 million, which is being
amortized over a 5 to 15-year period. As a result of the acquisition, the
Company incurred a $9.8 million charge for the write-off of in-process research
and development.
11. RESTRUCTURING RESERVE
A portion of the purchase price allocation of EFJ was used to establish
a $5.0 million restructuring reserve to cover the attendant expenses of the
acquisition relating to severance, relocation, and other restructuring plans. As
of September 30, 1997, approximately $1.5 million of this restructuring reserve
had been expended.
12. SUBSEQUENT EVENTS
On October 20, 1997, the Company completed a secondary offering of
5,175,000 shares of common stock at a price of $21.00 per share. Of the
5,175,000 shares offered, 2,684,481 shares were sold by the Company and
2,490,519 were sold by certain of the Company's stockholders. The Company's net
proceeds from the offering, after underwriting commissions and expenses, were
approximately $52,939,000.
A portion of the Company's net proceeds from the offering was used to
retire revolving lines of credit as described in Note 7. The remaining net
proceeds, as of October 31, 1997, were being used for working capital, to
purchase the Waseca, Minnesota manufacturing facility described in Note 8,
facilities improvement, potential acquisitions, and general corporate purposes.
On March 27, 1998, the Company issued a press release announcing that
it would not file its 1997 Annual Report on Form 10-K with the SEC on March 31,
1998 because the audit of its 1997 financial statements was not yet completed.
The Company also announced that (i) certain accounting principles relating
primarily to revenue recognition were not yet resolved by the Company's
independent accountants, (ii) the accountants and Company management were
undertaking a review of the Company's accounting policies and (iii) adjustments
would be made to the Company's previously announced financial results.
<PAGE> 9
On April 13, 1998, the Company announced that it would not file its
1997 Form 10-K on or before the extension date of April 15, 1998 due to ongoing
work being performed by the Company and its independent accountants. The Company
also announced that the Audit Committee of the Board of Directors had retained
independent counsel to conduct an investigation.
In April 1998, the SEC issued a formal order of investigation to
determine whether violations of certain aspects of the Federal securities laws
had occurred in connection with the Company.
On April 24, 1998, Coopers & Lybrand, L.L.P. resigned as the Company's
independent accountants. In conjunction with its resignation, Coopers & Lybrand
advised the Company that their reports with respect to the consolidated
financial statements of the Company and its subsidiaries as of and for the years
ended December 31, 1995 and 1996 were withdrawn as of the date of their
resignation.
On April 27, 1998, the Nasdaq National Market ("Nasdaq") effected a
temporary qualification trading halt in the Company's common stock. On May 11,
1998, the common stock was delisted from the Nasdaq National Market.
The Company has appealed the Nasdaq delisting.
On May 6, 1998, the Company announced that it had engaged KPMG Peat
Marwick LLP as its independent auditors for the fiscal years ended December 31,
1997, 1996 and 1995.
On May 18, 1998, the Company disclosed in a filing with the SEC that
its Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1998 will not
be filed within the period prescribed for such report.
Effective May 31, 1998, Jeffery L. Fuller resigned as President, Chief
Executive Officer ("CEO") and Director of the Company. On June 8, 1998, the
Company announced that the Board of Directors had appointed a committee to
identify a CEO of the Company and that John T. Connor, who serves as Chairman of
the Board, had been appointed as interim CEO. Mr. Connor accepted such
appointment until the earlier of September 8, 1998 or the hiring of a permanent
CEO. Mr. Connor has indicated that if a permanent CEO is not hired by such date,
he will discuss with the Board of Directors the possibility of staying on for a
longer time.
On July 8, 1998, the Company's primary bank lender, U.S. Bank National
Association ("U.S. Bank"), agreed to waive the Company's violations of its bank
credit facility arising out of the Company's failure to timely provide financial
statements, meet certain financial covenants and provide monthly borrowing base
certificates to U.S. Bank. U.S. Bank also agreed to amend the credit facility by
reducing the Company's required tangible net worth amount to $55 million from
$70 million.
The Company has been named as a defendant in several class action and
other lawsuits that were filed subsequent to the Company's announcement on March
27, 1998 that the filing of its Annual Report on Form 10-K for year ended
December 31, 1997 would be delayed and that adjustments would be made to the
Company's previously announced financial results. Between March 31, 1998 and May
27, 1998, twelve purported class action lawsuits were filed against the
<PAGE> 10
Company in the United States District Court for the District of Nebraska, and
one complaint was filed in the District Court of Scotts Bluff County, Nebraska.
Certain of the complaints also name one or more officers of the Company as
additional defendants. The longest class period alleged in any of the class
complaints is the period from January 22, 1997 through April 24, 1998.
The complaints generally allege claims under Sections 10 and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and
relate primarily to allegations of false and misleading financial statements and
representations and material omissions by the Company. The Nebraska action
alleges violations of Nebraska securities laws. The complaints seek unspecified
compensatory damages, punitive damages, attorneys' fees and costs. The federal
actions have recently been consolidated. The Company is not required to answer
or otherwise respond to the federal complaints until a consolidated complaint is
filed.
The Company may in the future be the subject of additional lawsuits or
claims in connection with the events or facts surrounding its restatement of
previously announced financial results. The Company is unable to predict when or
whether such additional lawsuits or claims may be initiated or the likelihood of
the outcome or range or amount of potential liability that may arise therefrom.
Although the complaints described above do not allege the amount of
damages and other relief that the plaintiffs are seeking, the Company believes
the amount of damages ultimately sought by the plaintiffs will be significant.
In light of the Company's restatement of financial information contained in its
various registration statements and prospectuses, the Company believes that
there may be an unfavorable outcome for at least some of the claims asserted in
the lawsuits or which may be asserted in the future against the Company. The
Company believes that the stockholder class actions are more likely to settle
than proceed to trial, judgment and appeal. Given the circumstances of these
cases, the terms of a settlement would be structured in a manner to avoid
causing the Company to seek protection under the federal bankruptcy
reorganization laws. In any circumstances where the Company could not structure
a settlement of all claims within its financial resources, it would vigorously
defend any attempt to establish the amount of liability or to require payment
beyond its resources. Many factors will ultimately affect and determine the
results of the litigation however, and the Company can provide no assurances
that the outcome will not have a significant adverse effect on the Company's
business, financial condition, results of operations and cash flows.
13. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
On February 6, 1998, the Company issued a press release announcing its
consolidated financial results for 1997. Subsequently, it was determined to be
necessary to restate its previously released results for the three months and
year ended December 31, 1997, the Company's financial statements as of and for
the year ended December 31, 1996 and the financial statements as of and for each
of the quarterly periods ended March 31, June 30, September 30 and December 31
during 1997 and 1996.
The restatements relate primarily to: (i) revenue recognition for
certain sales for which collection was determined to not be reasonably assured
or was contingent on a future event; (ii) revenue recognition for certain sales
where a formal written agreement was not received; (iii) revenue recognized on
sales of certain products which were subsequently returned to the Company; (iv)
application of the percentage of completion method on system contract sales at
<PAGE> 11
EFJ, and (v) the allocation of the purchase price of the EFJ acquisition at July
31, 1997. As a result, the financial statements of the Company have been
restated from amounts previously reported.
The summary of the significant restatements as of September 30, 1997
and December 31, 1996 and for the three months and nine months ended September
30, 1997 and 1996 is as follows:
<PAGE> 12
TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
As of September 30, 1997 As of December 31, 1996
----------------------------- -----------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
ASSETS (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,746,683 $ 4,746,683 $ -- $ --
Accounts receivable, net 21,387,915 12,472,877 4,215,403 1,256,800
Cost in excess of billings on uncompleted contracts 2,083,565 1,419,222 -- --
Inventory 13,574,861 14,278,570 2,261,381 2,852,571
Income taxes recoverable -- -- -- 213,329
Prepaid expenses and other current assets 1,364,135 1,351,874 71,196 88,692
Deferred tax assets 4,595,954 3,848,158 196,234 1,773,140
------------ ------------ ------------ ------------
Total current assets 47,753,113 38,117,384 6,744,214 6,184,532
------------ ------------ ------------ ------------
Property, plant and equipment, at cost 13,652,914 13,878,647 6,672,832 6,100,051
Less: accumulated depreciation (2,418,469) (2,521,837) (1,765,394) (1,774,966)
------------ ------------ ------------ ------------
Net property, plant and equipment 11,234,445 11,356,810 4,907,438 4,325,085
------------ ------------ ------------ ------------
Deferred tax assets 6,374,942 5,177,336 1,723,190 438,983
Intangible assets, net 7,469,239 17,655,427 38,137 421,470
Deferred public offering costs 146,651 146,651 568,049 568,049
Other assets 555,847 555,847 -- --
------------ ------------ ------------ ------------
$ 73,534,237 $ 73,009,455 $ 13,981,028 $ 11,938,119
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ -- $ -- $ 385,694 $ 385,694
Revolving line of credit and bank notes payable 10,176,403 10,176,403 1,022,000 1,022,000
Current portion of long-term debt 3,058,478 3,665,478 595,762 595,762
Accounts payable 13,943,598 13,943,598 1,174,364 1,174,364
Accrued expenses 9,308,404 10,633,442 946,406 1,162,011
Billings in excess of cost on uncompleted contracts 3,203,837 6,302,168 -- --
Income taxes payable -- -- 151,894 --
Deferred revenue -- 1,700,000 -- --
------------ ------------ ------------ ------------
Total current liabilities 39,690,720 46,421,089 4,276,120 4,339,831
------------ ------------ ------------ ------------
Long-term debt, net of current portion 4,487,182 4,487,182 1,839,942 1,839,942
Deferred warranty revenue 1,179,113 1,099,593 -- --
Revolving line of credit -- -- 792,070 792,070
------------ ------------ ------------ ------------
45,357,015 52,007,864 6,908,132 6,971,843
------------ ------------ ------------ ------------
Stockholders' equity:
Common stock 101,156 101,156 67,831 67,831
Additional paid-in capital 37,359,859 36,679,342 9,683,381 9,002,962
Retained deficit (9,283,793) (15,778,907) (2,678,316) (4,104,517)
------------ ------------ ------------ ------------
28,177,222 21,001,591 7,072,896 4,966,276
------------ ------------ ------------ ------------
$ 73,534,237 $ 73,009,455 $ 13,981,028 $ 11,938,119
============ ============ ============ ============
</TABLE>
<PAGE> 13
TRANSCRYPT INTERNATIONAL, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 17,555,049 $ 13,428,702 $ 3,547,339 $ 2,617,023
Cost of sales 9,622,625 9,561,575 1,036,041 998,048
------------ ------------ ------------ ------------
Gross profit 7,932,424 3,867,127 2,511,298 1,618,975
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,298,286 1,298,286 601,679 601,679
In-process research and development costs 9,827,696 9,827,696 -- --
Sales and marketing 2,720,647 2,361,321 670,817 680,807
General and administrative 1,228,758 1,646,703 630,110 694,968
Special compensation expense -- -- 5,568,250 5,568,250
------------ ------------ ------------ ------------
Total operating expenses 15,075,387 15,134,006 7,470,856 7,545,704
------------ ------------ ------------ ------------
Loss from operations (7,142,963) (11,266,879) (4,959,558) (5,926,729)
Interest income 118,724 118,724 5,665 5,665
Interest expense (346,423) (346,423) (34,765) (34,765)
------------ ------------ ------------ ------------
Loss before income taxes (7,370,662) (11,494,578) (4,988,658) (5,955,829)
Provision (benefit) for income taxes 892,981 (467,911) (1,758,539) (2,051,238)
------------ ------------ ------------ ------------
Net loss $ (8,263,643) $(11,026,667) $ (3,230,119) $ (3,904,591)
============ ============ ============ ============
Pro forma information:
Loss before pro forma income taxes $ (7,370,662) $(11,494,578) $ (4,988,658) $ (5,955,829)
Pro forma benefit for income taxes 892,981 (467,911) (1,758,539) (2,051,238)
------------ ------------ ------------ ------------
Pro forma net loss $ (8,263,643) $(11,026,667) $ (3,230,119) $ (3,904,591)
============ ============ ============ ============
Pro Forma Net Loss Per Share - Basic and Diluted $ (0.84) $ (1.12) $ (0.46) $ (0.58)
============ ============ ============ ============
Weighted Average Common Shares - Basic and Diluted 9,844,087 9,844,087 6,968,712 6,783,078
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
As Previously As Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 27,833,042 $ 19,855,222 $ 9,275,168 $ 7,636,088
Cost of sales 13,487,514 13,122,847 2,885,788 2,781,529
------------ ------------ ------------ ------------
Gross profit 14,345,528 6,732,375 6,389,380 4,854,559
------------ ------------ ------------ ------------
Operating expenses:
Research and development 2,614,075 2,614,075 1,686,297 1,686,297
In-process research and development costs 9,827,696 9,827,696 -- --
Sales and marketing 4,685,859 4,034,214 1,505,939 1,553,850
General and administrative 2,266,268 2,870,397 1,870,761 1,935,619
Special compensation expense -- -- 5,568,250 5,568,250
------------ ------------ ------------ ------------
Total operating expenses 19,393,898 19,346,382 10,631,247 10,744,016
------------ ------------ ------------ ------------
Loss from operations (5,048,370) (12,614,007) (4,241,867) (5,889,457)
Interest income 436,366 436,366 30,279 30,279
Interest expense (428,145) (428,195) (109,874) (109,874)
------------ ------------ ------------ ------------
Loss before income taxes (5,040,149) (12,605,836) (4,321,462) (5,969,052)
Provision (benefit) for income taxes 1,565,230 (931,446) (1,758,539) (2,051,238)
------------ ------------ ------------ ------------
Net loss $ (6,605,379) $(11,674,390) $ (2,562,923) $ (3,917,814)
============ ============ ============ ============
Pro forma information:
Loss before pro forma income taxes $ (5,040,149) $(12,605,836) $ (4,321,462) $ (5,969,052)
Pro forma provision (benefit) for income taxes 1,565,230 (931,446) (1,623,260) (2,055,784)
------------ ------------ ------------ ------------
Pro forma net loss $ (6,605,379) $(11,674,390) $ (2,698,202) $ (3,913,268)
============ ============ ============ ============
Pro Forma Net Loss Per Share - Basic and Diluted $ (0.71) $ (1.26) $ (0.38) $ (0.58)
============ ============ ============ ============
Weighted Average Common Shares - Basic and Diluted 9,294,108 9,275,637 7,012,751 6,783,078
============ ============ ============ ============
</TABLE>
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following tables set forth certain restated Consolidated Statements
of Income information and such information as a percentage of revenues during
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------
1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 13,428,702 100.0% $ 2,617,023 100.0%
Cost of sales 9,561,575 71.2% 998,048 38.1%
------------ ------ ------------ ------
Gross profit 3,867,127 28.8% 1,618,975 61.9%
Operating expenses
Research and development 1,298,286 9.7% 601,679 23.0%
In-process research and development costs 9,827,696 73.2% -- 0.0%
Sales and marketing 2,361,321 17.6% 680,807 26.0%
General and administrative 1,646,703 12.3% 694,968 26.6%
Special compensation expense -- 0.0% 5,568,250 212.8%
------------ ------ ------------ ------
Total operating expenses 15,134,006 112.7% 7,545,704 288.3%
------------ ------ ------------ ------
Loss from operations (11,266,879) (83.9)% (5,926,729) (226.5)%
Interest income 118,724 0.9% 5,665 0.2%
Interest expense (346,423) (2.6)% (34,765) (1.3)%
------------ ------ ------------ ------
Loss before income taxes (11,494,578) (85.6)% (5,955,829) (227.6)%
Benefit for income taxes (467,911) (3.5)% (2,051,238) (78.4)%
------------ ------ ------------ ------
Net loss $(11,026,667) (82.1)% $ (3,904,591) (149.2)%
============ ====== ============ ======
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1996
----------------------------------------------------
Revenues $ 19,855,222 100.0% $ 7,636,088 100.0%
Cost of sales 13,122,847 66.1% 2,781,529 36.4%
------------ ------ ------------ ------
Gross profit 6,732,375 33.9% 4,854,559 63.6%
Operating expenses
Research and development 2,614,075 13.2% 1,686,297 22.1%
In-process research and development costs 9,827,696 49.5% -- 0.0%
Sales and marketing 4,034,214 20.3% 1,553,850 20.3%
General and administrative 2,870,397 14.5% 1,935,619 25.3%
Special compensation expense -- 0.0% 5,568,250 72.9%
------------ ------ ------------ ------
Total operating expenses 19,346,382 97.4% 10,744,016 140.7%
------------ ------ ------------ ------
Loss from operations (12,614,007) (63.5)% (5,889,457) (77.1)%
Interest income 436,366 2.2% 30,279 0.4%
Interest expense (428,195) (2.2)% (109,874) (1.4)%
------------ ------ ------------ ------
Loss before income taxes (12,605,836) (63.5)% (5,969,052) (78.2)%
Benefit for income taxes (931,446) (4.7)% (2,051,238) (26.9)%
------------ ------ ------------ ------
Net loss $(11,674,390) (58.8)% $ (3,917,814) (51.3)%
============ ====== ============ ======
Loss before pro forma income taxes (12,605,836) (63.5)% (5,969,052) (78.2)%
Pro forma benefit for income taxes (931,446) (4.7)% (2,055,784) (26.9)%
------------ ------ ------------ ------
Pro forma net loss $(11,674,390) (58.8)% $ (3,913,268) (51.2)%
============ ====== ============ ======
</TABLE>
<PAGE> 15
Discussions of certain matters contained in this Quarterly Report on
Form 10-Q/A may constitute forward-looking statements under Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements may involve risks and uncertainties.
These forward-looking statements relate to, among other things, forecasts and
projections regarding the anticipated benefits of the Company's acquisition and
restructuring of EFJ and the future performance of the Company and its EFJ
subsidiary, expectations of the business environment in which the Company
operates, perceived opportunities in the market, and statements regarding the
Company's mission and vision. The Company's actual results, performance, and
achievements may differ materially from the results, performance, and
achievements expressed or implied in such forward-looking statements and from
historical results. Among the factors that could cause such a difference include
the following: the timing of the full implementation of the Company's
restructuring program for EFJ, the effects of the restructuring program on the
customers, vendors, and employees of the Company and EFJ, business conditions
generally, the state of the overall economy, development of the markets for the
Company's products, including the domestic digital land mobile radio market,
availability of third-party compatible products, other competitive factors, and
the risks and uncertainties discussed in the Company's filings and reports filed
with the Securities and Exchange Commission, including those discussed under the
caption "ITEM 1. BUSINESS -- Summary of Business Considerations and Certain
Factors That May Affect Future Results of Operations and/or Stock Price"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The following discussion is intended to provide a better understanding
of the significant changes in trends relating to the Company's financial
condition and results of operations. Management's Discussion and Analysis should
be read in conjunction with the accompanying Condensed Consolidated Financial
Statements and Notes thereto.
Revenues
Revenues are recognized when product is shipped, less an estimate for
an allowance for returns, if applicable, if collection is reasonably assured.
For shipments where collection is not reasonably assured, the Company recognizes
revenue as cash is received. If collection is contingent on a future event, such
as a reseller of product selling the product to the end user, the Company
recognizes revenue when the contingency lapses, generally upon cash collection.
System sales under long-term contracts are accounted for under the
percentage-of- completion method. Under this method, revenues are recognized as
work on a contract progresses. The recognized revenue is that percentage of
estimated total revenue that incurred costs to date bear to estimated total
costs to complete the contract. Revisions in cost and profit estimates are made
when conditions requiring such revisions become known. Anticipated losses on
contracts are recognized in operations as soon as such losses are determined to
be probable and reasonably estimable.
Deferred revenue includes unearned warranty fees on extended product
warranty contracts sold to customers. The Company recognizes the fees based on
the expected warranty repairs to be incurred over the life of the contract.
Deferred revenue also includes an advanced payment received for products to be
sold to a former division of EFJ. The advance payment was
<PAGE> 16
negotiated as part of the sale agreement of the division by EFJ. The advanced
payment is recognized as revenue is earned.
Revenues increased 413.1% to $13.4 million during the third quarter of
1997 and 160.0% to $19.9 million during the first nine months of 1997, compared
to $2.6 million and $ 7.6 million, respectively, during the same periods in
1996. These increases were attributable primarily to the addition of revenues of
EFJ for August and September 1997, as well as increased sales of the Company's
core security products. The Company acquired EFJ effective July 31, 1997.
International sales as a percentage of revenues for the three and nine
months ended September 30, 1997, were 20.7% and 33.4% respectively, compared to
79.2% and 60.0% for the same periods in 1996. Domestic sales as a percentage of
revenues increased in the third quarter of 1997 and as of October 31, 1997, was
expected to remain higher than historical levels in the future as a result of
the acquisition by the Company of the EFJ subsidiary in July 1997, due to EFJ's
historically greater emphasis on domestic sales.
Gross Profit
Cost of sales includes materials, labor, depreciation, and overhead
costs associated with the production of the Company's products, as well as
shipping and royalty costs. Gross profit increased to $3.9 million (28.8% gross
margin) for the third quarter of 1997 and $6.7 million (33.9% gross margin) for
the first nine months of 1997, compared to $1.6 million (61.9% gross margin) and
$4.9 million (63.6% gross margin), respectively, for the same periods in 1996.
The decrease is partially due to the changing product mix resulting from the
acquisition of EFJ. Additionally, in the third quarter of 1997 inventory
obsolescence was charged to cost of goods sold for products returned by a
customer which was not sellable to other customers which contributed to the
lower gross profit for the quarter. Future gross margins are likely to vary
based predominantly upon the mix of products comprising revenues for that
period.
Research and Development
Research and development expenses consist primarily of the costs
associated with research and development personnel, materials, and the
depreciation of research and development equipment and facilities. Research and
development expenses increased to $1.3 million for the third quarter of 1997 and
$2.6 million for the first nine months of 1997, compared to $602,000 and $1.7
million, respectively, for the same periods in 1996 due to the addition of new
members of the engineering staff and the acquisition of EFJ. However, research
and development expenses as a percentage of sales decreased to 9.7% for the
third quarter of 1997, compared to 23.0% for the third quarter of 1996, due to
greater sales in the 1997 period. As of October 31, 1997, the Company continued
to devote resources toward the development of APCO 25 digital land mobile radios
("LMRs") and telephony and data security products. As of October 31, 1997, the
Company anticipated that it would continue to devote increased overall resources
to research and development during 1997 relative to 1996. As a result of the
acquisition of E.F. Johnson, the Company incurred a non-recurring $9.8 million
charge in the third quarter of 1997 for the write-off of purchased in-process
research and development.
<PAGE> 17
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and related
costs of sales personnel, including sales commissions and travel expenses, and
costs of advertising, public relations, bad debt provisions, and trade show
participation. Sales and marketing expenses increased to $2.4 million (17.6% of
sales) for the third quarter of 1997 and $4.0 million (20.3% of sales) for the
first nine months of 1997, compared to $681,000 (26.0% of sales) and $1.6
million (20.3% of sales) for the same periods in 1996. The increases in 1997
were due primarily to the addition of the sales and marketing staff of EFJ in
the third quarter of 1997, the addition of direct sales personnel and associated
expenses, advertising and tradeshows.
General and Administrative
General and administrative expenses consist primarily of salaries and
other expenses associated with the Company's management, accounting, finance,
and administrative functions, and amortization of intangible assets. General and
administrative expenses increased to $1.6 million and $2.9 million for the third
quarter and first nine months of 1997, respectively, compared to $695,000 and
$1.9 million for the same periods in 1996. These increases were attributable
primarily to the acquisition of EFJ. As of October 31, 1997, the Company
expected to continue to incur additional general and administrative expenses in
1997 due to upgrades to its management information systems. General and
administrative expenses as a percentage of revenues decreased to 12.3% for the
third quarter of 1997 and 14.5% for the first nine months of 1997, compared to
26.6% and 25.3% for the same periods in 1996.
Net Interest Income or Expense
Interest income consists of interest income earned on cash and
investable funds, and interest expense relates to amounts payable on the
Company's term and installment loans and bank lines of credit. These two items
are netted for each period resulting in either net interest income or net
interest expense. Net interest expense was $228,000 for the third quarter of
1997 and net interest income was $8,000 for the first nine months of 1997,
compared to $29,000 net interest expense for the third quarter of 1996 and net
interest expense of $80,000 for the first nine months of 1996. The increase in
net interest expense during the third quarter of 1997 is due to the effects of
the acquisition of EFJ. The increase in net interest income for the first nine
months of 1997 is attributable to the repayment of certain debt during 1997 and
an increase in interest income due to investment of a portion of the net
proceeds from the Company's initial public offering in interest bearing
instruments.
Provision for Income Taxes
Prior to June 1996, the Company was organized as a partnership, and
therefore was not subject to income taxation except to the extent that its
earnings were attributed to its partners. The Company converted from a
partnership to a "C" corporation effective June 30, 1996. Pro forma net loss and
pro forma net loss per share calculations reflect a pro forma provision for
income taxes as if the Company had been taxed as a "C" corporation for the first
nine months of 1996.
<PAGE> 18
The Company has benefited and continues to benefit from state tax
credits arising from a 1993 agreement with the State of Nebraska, which results
in annual state income tax credits through 1999. In addition, the Company
utilizes its foreign sales corporation subsidiary located in Guam to exempt from
income taxation a portion of the Company's foreign sales income.
Non-recurring Items
Third quarter 1997 and nine months ended September 30, 1997, included a
one-time $9.8 million charge for the write-off of in-process research and
development of EFJ following the acquisition.
Third quarter 1996 and nine months ended September 30, 1996 included a
non-cash compensation expense of $5.4 million resulting from the vesting in
September 1996 of 716,916 stock options for 10 executive officers and key
employees of the Company at a weighted average exercise price of $1.81 per
share, and a special compensation expense of $210,000 payable to the Company's
Chief Executive Officer, for services rendered related to the original purchase
of the Company in 1991.
Liquidity and Capital Resources
Through September 30, 1997, the Company had financed its operations and
met its capital requirements primarily through short-term borrowings, long-term
debt, an initial public offering completed on January 22, 1997, and cash flow
generated by operations for years prior to 1997. The Company's operating
activities used cash of $8.8 million for the first nine months of 1997 and
generated cash of $1.2 million in the same period of 1996. Cash used in
operating activities in the first nine months of 1997 consisted primarily of a
net loss plus an increase in accounts receivable and inventory accounts, offset
in part depreciation and amortization, write off of in-process research and
development costs, and an increase in accrued expenses. Cash provided by
operating activities in the first nine months of 1996 consisted primarily of a
special compensation expense, depreciation and amortization and a decrease in
accounts receivable, offset in part by a net loss plus decrease in accrued
expenses.
Cash used for investing activities, attributable primarily to capital
expenditures in the first nine months of 1997 and capital expenditures and
payments for non-compete agreements for the first nine months of 1996, totaled
$2.0 million and $1.3 million, respectively, during such periods. Capital
expenditures consisted primarily of computer and networking equipment, office
furniture, and manufacturing equipment for both nine month periods and expenses
related to the Phase 2 expansion of the Company's Lincoln facility during the
third quarter of 1997. In May 1997, the Company completed construction, begun in
August 1996, of the 21,000-square foot expansion of its existing Lincoln
facility, primarily to accommodate additional manufacturing capacity. As of
September 30, 1997, the Company had no additional firm commitments for capital
expenditures, although the Company expected to commence construction related to
the Phase 3 expansion of its facilities in the fourth quarter of 1997.
In connection with the Company's purchase of all the outstanding shares
of capital stock of EFJ effective July 31, 1997, the Company recorded $5.1
million of additional deferred tax assets. The deferred tax assets totaling $9.0
million were 12.3% and 43.0% of total assets and stockholders' equity,
respectively, at September 30, 1997. Management believes that it is more likely
than not that future taxable income will be sufficient to fully utilize all
deferred tax assets recorded, net of existing valuation allowances.
Financing activities, which have consisted primarily of borrowings
under and payments on an industrial development revenue bond issue ("IDR"), term
and installment notes payable, a construction loan and bank lines of credit, and
proceeds received from the Company's initial
<PAGE> 19
public offering completed on January 22, 1997, resulted in net cash inflows or
(outflows) of $15.6 million and ($276,000) during the first nine months of 1997
and 1996, respectively.
The Company's two term notes were secured by substantially all of the
Company's assets, with interest payable at the bank's regional money market rate
plus 0.5%. The installment note was secured specifically by equipment with
interest at the bank's national prime rate plus 0.5%. The bank lines of credit
provided for working capital and capital advances not to exceed $4.0 million,
with specific advances calculated based upon a percentage of eligible
inventories, accounts receivable and fixed assets. Interest was payable monthly
at the bank's money market rate and were collateralized by substantially all of
the Company's assets. The Company paid off all of the outstanding balances on
the two term notes, the installment note and the bank lines of credit on January
27, 1997.
At September 30, 1997, the Company had outstanding $8,526,403 on its
working capital lines of credit. These lines included a working capital revolver
of $3,000,000 and a $35,000,000 working capital line of credit acquired in the
EFJ purchase. On October 23, 1997, these lines of credit were repaid in full
using a portion of the net proceeds from the Company's secondary offering as
described in Note 12.
On September 23, 1997, the Company borrowed $1,650,000 in the form of a
ninety-day term note from its primary lender.
The Company had outstanding on its IDR at December 31, 1996, a
principal amount of $850,000, which bore a fixed interest rate of 6.25%, was
non-amortizing and was scheduled to mature in January 2004. On March 25, 1997,
the $850,000 IDR and the Company's construction note payable of $870,000 were
repaid through the issuance of a new IDR totaling $2,850,000. The new IDR is due
in annual principal payments of $140,000 plus interest at a variable rate (4.06%
at September 30, 1997) from March 1, 1998 through March 1, 2007, increasing to
annual principal payments of $145,000, plus interest at a variable rate, from
March 1, 2008 through March 1, 2016, with the remaining principal and accrued
interest due on March 1, 2017. At September 30, 1997, the remaining net proceeds
of $487,767 (net of debt offering costs and the aforementioned repayments) were
held in escrow for the Company pending the completion of the Company's
construction project and related purchases of certain fixed assets.
As of October 31, 1997, the Company intended to retain earnings, if
any, to support its growth strategy and did not anticipate paying cash dividends
in the foreseeable future.
As of October 31, 1997, the Company believed that cash generated from
operations and the net proceeds from the Company's recently completed secondary
offering, together with the Company's cash, cash equivalents, and lines of
credit, would be sufficient to meet its anticipated cash needs for working
capital, capital expenditures, and business expansion plans through at least
1998.
In connection with the Company's acquisition of EFJ effective July 31,
1997, on June 12, 1997, the Company delivered an irrevocable letter of credit
with a face amount of $1.6 million to provide additional collateral under a
surety bond issued by one of EFJ's bonding companies, and on July 22, 1997, the
Company delivered an irrevocable standby letter of credit with a face amount of
$436,000 to one of EFJ's lenders to provide additional collateral under certain
<PAGE> 20
indebtedness incurred by EFJ. Both letters of credit were for a term of one year
but were automatically extended annually by the issuing bank unless otherwise
notified by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEMS 1 - 5.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON 8-K.
(a) Exhibits
The following exhibits are being filed herewith:
Exhibit No. Description
----------- -----------
11 Computation of pro forma net loss per share.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on August 14, 1997,
under Item 2. "Acquisition or Disposition of Assets" to report the
consummation of the acquisition of E.F. Johnson Company effective July
31, 1997. The Company filed amendments to such Form 8-K on August 21,
1997, and September 23, 1997, to include and update the financial
statements relating to the E.F. Johnson acquisition.
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRANSCRYPT INTERNATIONAL, INC.
Date: July 28, 1998 By: /s/ CRAIG J. HUFFAKER
---------------------------
Craig J. Huffaker
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE> 1
EXHIBIT 11
TRANSCRYPT INTERNATIONAL, INC.
COMPUTATION OF PRO FORMA NET LOSS PER SHARE
(Unaudited And As Restated, See Note 13)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Pro Forma Net Income (Loss) $(11,026,667) $ (3,904,591) $(11,674,390) $ (3,913,268)
============ ============ ============ ============
PRO FORMA NET LOSS PER SHARE - BASIC
Shares used in this computation:
Weighted average common shares 9,844,087 6,783,078 9,275,637 6,783,078
============ ============ ============ ============
Pro forma net loss per share - Basic $ (1.12) $ (0.58) $ (1.26) $ (0.58)
============ ============ ============ ============
PRO FORMA NET LOSS PER SHARE - DILUTED
Shares used in this computation:
Weighted average common shares - Basic 9,844,087 6,783,078 9,275,637 6,783,078
Dilutive effect of shares under employee stock plans* -- -- -- --
------------ ------------ ------------ ------------
Weighted average common shares - Diluted 9,844,087 6,783,078 9,275,637 6,783,078
============ ============ ============ ============
Pro forma net loss per share - Diluted $ (1.12) $ (0.58) $ (1.26) $ (0.58)
============ ============ ============ ============
</TABLE>
* Common stock equivalents were not included as their effect would be
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRANSCRYPT
INTERNATIONAL, INC.'S CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND
CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,747
<SECURITIES> 0
<RECEIVABLES> 12,473
<ALLOWANCES> 0
<INVENTORY> 14,279
<CURRENT-ASSETS> 38,117
<PP&E> 13,879
<DEPRECIATION> 2,522
<TOTAL-ASSETS> 73,009
<CURRENT-LIABILITIES> 46,421
<BONDS> 4,487
0
0
<COMMON> 101
<OTHER-SE> 20,900
<TOTAL-LIABILITY-AND-EQUITY> 73,009
<SALES> 19,855
<TOTAL-REVENUES> 19,855
<CGS> 13,123
<TOTAL-COSTS> 13,123
<OTHER-EXPENSES> 19,346<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8)<F2>
<INCOME-PRETAX> (12,606)
<INCOME-TAX> (931)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,674)
<EPS-PRIMARY> (1.26)
<EPS-DILUTED> (1.26)
<FN>
<F1>ITEM INCLUDES A ONE TIME CHARGE OF IN-PROCESS RESEARCH AND DEVELOPMENT COSTS
OF $9.8 MILLION.
<F2>INTEREST EXPENSE IS NET OF $436 OF INTEREST INCOME LESS $428 OF INTEREST
EXPENSE.
</FN>
</TABLE>
