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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 11, 2000
TRANSCRYPT INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-21681 47-0801192
(STATE OR OTHER (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
JURISDICTION IDENTIFICATION NUMBER)
OF INCORPORATION)
4800 NW FIRST STREET, LINCOLN, NEBRASKA 68521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (402) 474-4800
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Item 5. OTHER EVENTS.
On May 11, 2000, Transcrypt International, Inc. (the "Company") issued a
press release stating the Company's current status, market strategy and future
outlook. A copy of the Company's press release is attached as Exhibit 99.2.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
None.
(b) PRO FORMA FINANCIAL INFORMATION.
None.
(c) EXHIBITS.
The following are furnished as exhibits to this report:
99.2 News Release issued on May 11, 2000 by the Registrant.
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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: May 12, 2000 By: /s/ MASSOUD SAFAVI
Massoud Safavi
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
99.2 News Release issued on May 11, 2000 by the Registrant.
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EXHIBIT 99.2
LINCOLN, Neb., -- May 11 -- Transcrypt International, Inc. (OTC Bulletin
Board: TRII) issues the following letter to shareholders today. The letter
discusses the company's strategy for the future and its plans for 2000.
May 11, 2000
Dear Fellow Investor:
As I enter my second year with Transcrypt, I want to take this opportunity to
share with you the results of our recent, intensive strategic planning process.
I'd like to talk to you candidly about some of the conclusions we reached,
including our strengths and weaknesses, the market opportunity we see in the
wireless communications area, and what we need to do this year to seize those
opportunities.
I had told you in March 1999 when I joined the company that 1999 would be a
difficult year and a year of transition. Indeed it was, but I am also very
encouraged by the progress we made over the past year, specifically:
- - Generating increasing revenues on a quarterly basis
- - Dramatically improving our bottom-line performance, including the
achievement of net earnings for the first time in five quarters
- - Resolving the class action lawsuits that had stemmed from the restatement
of financial results associated with the 1996 to 1997 timeframe
- - Building a strong management team, and identifying new markets for our
current products and those in development
There is still a lot of work to be done, but I am confident that 1999 marked a
critical turning point in the company's history, and that 2000 will lay the
groundwork for the new opportunities that lie ahead.
Strengths and Weaknesses
I'd like to start by sharing with you an assessment of the company's weaknesses,
which surfaced during our strategic planning cycle. Our Transcrypt Secure
Technologies division, which develops encryption products in the information
security market, is a solid, profitable business, but it does not offer strong
growth potential. Our other division, EF Johnson, whose focus has been in
land-mobile radios, represents the lion's share of our total company sales, but
it is not profitable; moreover, it has been focused on legacy, "old-technology"
products. The company as a whole traditionally has not emphasized partnerships
or alliances to expand its product distribution channels.
From an investor's standpoint, in addition to these issues, we have others.
Although we have moved past our shareholders' suit, the SEC litigation remains
on our agenda. We believe this will be resolved sometime this year, without any
financial penalties, and with that resolution, we will apply for relisting on
the NASDAQ SmallCap Market.
Finally, we know that investors, and particularly the securities analysts who
research various stocks, do not generally react favorably to companies with
multiple businesses because of their complexity. Not only do we have two
distinct divisions, but the investment community views us as an encryption
business with a land-mobile radio component. Our name has its roots in the
encryption business, yet our EF Johnson division generates almost six times more
revenues than our Transcrypt Secure Technologies division. All of this has
created confusion in the marketplace.
On the positive side, the company began to stabilize its financials this year,
and in fact demonstrated that we could grow and be profitable. Our balance sheet
is strong, and at the end of 1999 we had $21.6 million in cash and debt of only
$6.1 million. We have strengthened our senior management team to reflect the
evolution of our strategy, and the software engineering expertise of EF Johnson
is extremely potent. And, very importantly, we have a business that sits right
at the cusp of the exploding wireless voice and data communications market, and
with a sharper focus and direction, we intend to emerge as a key niche player in
this market.
Market Opportunity
We have concluded that Transcrypt needs to reinvent itself, with EF Johnson as
our core strategic business. EF Johnson has become a more significant player in
its market, and with direction and investment, we'll be able to leverage its
very strong brand name and customer loyalty as we build its offerings and expand
its reach to new customers.
EF Johnson was formed in 1923 as a radio parts business, evolving to a
manufacturer of amateur and citizen's band radios, and then two-way radios to
support communication of public safety and commercial users. EF Johnson invented
Logic Trunked Radio, or LTR(R), which has long been considered the common
standard in analog trunked radio systems. Although the company has not fully
exploited the possibilities in digital technologies, it has several offerings in
development that offer great potential, and it possesses an
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existing strong customer base in the public safety sector, which is part of a
growing state and local market.
The decision to move in this direction has dictated several other steps: the
evaluation of a possible corporate name change, the development and investment
in products that will capitalize on the market opportunities, the cultivation of
new customer groups, namely federal government and high-end commercial users,
and the extension of our current strong base in the state and local arena. Our
ultimate objective is to build shareholder value, and we believe that this
strategy will deliver the results.
Our goal is to evolve from a corporation that is viewed as having two businesses
to a company with a single focus, and from a radio company to a provider of
wireless infrastructure and digital radio products and communication system
solutions. Within five years, we aim to build revenues to the $200 million level
through both organic growth and through acquisition. In addition, our goal is to
be profitable on an annual basis beginning in 2001.
As I mentioned earlier, we plan to use newer-generation products to extend our
already strong position within the state and local market, which according to
our data, is about a $650 million market with three key players: Motorola,
Com-Net Ericsson and EF Johnson. We also intend to expand into newer markets for
EF Johnson: the federal government, a $500 million market, which is a key
opportunity for our APCO 25 product family, and the $740 million commercial
market. In order to give you a deeper perspective on the products in
development, I've included a one-page attachment, entitled "The EF Johnson
Product Family."
This Year's Outlook
This year, we expect revenues to be 15-20% higher than in 1999. We believe that
the company will record net profitability by the end of this year, and we expect
that the company's net loss for fiscal 2000 will represent an improvement over
the 1999 net loss.
I believe that if we took a short-term focus, we could be profitable sooner,
given that we had produced profits in the last two quarters of fiscal 1999.
Because most of our product lines are older and more expensive to produce, our
costs have been higher and margins lower--a trend that will continue during
2000. As we evolve to a line of newer products, we will be able to use a larger
base of suppliers and our manufacturing costs should be significantly lower. We
believe that investments to support product development, distribution and sales
are essential to building a platform for future, sustainable growth on both the
top and bottom line. Although this will delay our return to annual profitability
until 2001, we must make the transition from old to new products.
The rewards should begin to be evident in early 2001.
Some of the other priorities on our agenda for this year include the settlement
of SEC litigation and reapplication to the NASDAQ SmallCap Market. We also would
like to strengthen our board of directors, adding several outside members with
public company experience.
When I joined Transcrypt, it was a distressed company. During 1999, we took the
steps necessary to stop the bleeding. This year, we're investing in the company.
It will take a year to make EF Johnson profitable. I believe that with the plans
we have in place, the energy of the people here at Transcrypt, and a compelling
strategy that aligns us with the momentum of the wireless communications market,
we will build shareholder value and a growing shareholder base.
Sincerely,
Michael E. Jalbert
Chairman and Chief Executive Officer
Certain matters discussed in this letter constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward looking statements relate to the Company's profitability, revenue,
financial performance, market potential and size and product development. These
forward looking statements are subject to certain risks and uncertainties that
could cause the actual results, performance or achievements to differ materially
from those expressed, suggested or implied by the forward looking statements due
to the number of risk factors including, but not limited to, the Company's
efforts to improve its financial performance, product development and its
overall market strategy and other risks detailed in the Company's reports filed
with the Securities & Exchange Commission, including its Annual Report on Form
10-K for the year ended December 31, 1999.
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ATTACHMENT
The EF Johnson Product Family
EF Johnson's roots are in its line of conventional land-mobile radio products.
Conventional products provide basic, localized communication and are not
computer controlled. We also developed LTR products, or logic-trunked radio
systems, which are microcontroller-based and allow for additional signaling
capabilities in radio communications. Although we invented this technology and
it has become the de-facto standard, it is more than 20 years old. The following
outlines the company's newer-generation products and potential.
LTR-Net(TM)
This is the networked version of the LTR, first delivered as a complete system
in March 1999. Operators of two-way radio businesses have seen the growing
emergence and benefits of a two-way service that supports a wide area. Customers
increasingly need seamless communication as they travel from city to city or
state to state, and typically "roaming" (a standard feature of most cellular
telephones that is associated with high per-minute costs) was found only in
large, expensive trunked radio systems used by large organizations, such as
county or city public safety departments. The LTR-Net allows individual radio
sites to be networked, providing that seamless communication that customers
desire for a fraction of the cost of other trunked radio systems. We believe
that this product will gain much wider acceptance in 2000, particularly as we
license this technology to additional manufacturers.
Multi-Net
The Multi-Net system is designed to replace customers' old, conventional systems
with a wide-area, trunked radio system. This is a much more robust offering for
public safety users, and we consider it our "workhorse" analog public safety
system. A typical user might be a city or state government entity, such as a
police or fire department. Multi-Net provides a very cost-effective solution for
customers desiring the additional features and coverage of a
computer-controlled, networked trunked radio system.
Smart Net/Smartzone
Smart Net/Smartzone are Motorola registered trademarks for proprietary
technology of Motorola, which incorporate both analog and digital technology.
Motorola licensed this technology to us, and in fact we are the only company
licensed to use their Smart Net/Smartzone trunking protocol in our products. We
have developed four products--two hand-held and two mobile--that interoperate
with Motorola's system. We are excited about this because it offers customers an
alternative to Motorola's products. Users of these products could include any of
the hundreds of Smart Net/Smartzone system owners (primarily public safety
users) currently procuring all their products from Motorola. These products are
in beta test now, and we anticipate full production starting by June 2000, which
could yield significant sales volume this year and particularly into the
following years.
APCO Project 25
These trunked digital radios, now in development, will communicate over a
packet-switched network, allowing open interfaces and using standard Internet
protocols. The federal government has adopted the Project 25 standard as the
digital wireless protocol for land mobile applications, and we are one of four
companies that offer APCO 25 products. We expect to generate increasing revenues
in this area as customers make the transition from analog to digital wireless
communications systems over the next five years. We currently are delivering the
non-trunked versions of Product 25 products, and our trunked products should be
available sometime in 2001. We believe that Motorola's focus will be to the
larger users, while our priority will be to nurture sales to small- to mid-size
public safety customers. This is a large market, and the move to replace analog
equipment with digital is just beginning.
Internet-Based Networked Project 25
This is probably the most exciting of all our products in development, in that
it is based on the technology of the Internet to provide a private network for
customers. This will allow the seamless integration of voice and data via
standard Internet infrastructure equipment, such as Cisco routers and switches.
We believe this will be an appealing solution to our public safety, federal and
commercial customers, and we plan to introduce this product at the major
industry trade show in August 2000, with shipments planned for mid-2001.
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