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U.S. Securities and Exchange Commission

Before the

Release No. 43809 / January 4, 2001

Accounting and Auditing Enforcement
Release No. 1358 / January 4, 20001

Administrative Proceedings
File No. 3-10402

In the Matter of

Transcrypt International, Inc.





The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Transcrypt International, Inc. ("Transcrypt") violated Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 thereunder.


In anticipation of the institution of these proceedings, Transcrypt has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except that Transcrypt admits the jurisdiction of the Commission over it and over the subject matter of these proceedings, Transcrypt consents to the issuance of this Order Instituting Public Proceedings, Making Findings, and Imposing a Cease-and-Desist Order ("Order") and to the entry of findings and the imposition of the relief set forth below.


On the basis of this Order and Transcrypt's Offer, the Commission finds the following:

A. Transcrypt is a Delaware corporation based in Lincoln, Nebraska, whose stock has been registered under Section 12(g) of the Exchange Act from about January 1997 through the present.

B. Transcrypt manufactures information security products which prevent unauthorized access to sensitive voice communications. These products are generally referred to in the industry as "scramblers" and "encryptors." Through its wholly-owned subsidiary, E.F. Johnson, Inc., Transcrypt also designs, manufactures and sells mobile and portable radio systems. End-users of Transcrypt's products include police and other public safety departments and businesses such as taxi fleets and railroads. Transcrypt often sells products to end-users through distributors.

C. From the fourth quarter of 1996 though the fourth quarter of 1997, Transcrypt improperly recognized revenue on certain transactions. On some of these transactions the recognition of revenue was improper because Transcrypt had not yet earned the revenue. For example, Transcrypt sometimes allowed distributors to exchange products or return them for modification after the company had recorded revenue on these sales. Other revenue was improper because Transcrypt's collection of the sales price was not reasonably assured. Many of these transactions involved what were, in effect, consignment sales to distributors, or sales including a right to return the product in instances where Transcrypt could not reasonably estimate returns. Transcrypt also improperly recorded revenue on transactions with a government customer; this revenue was improper because the company did not have a contract with the customer at the time the revenue was recorded.

D. Due to this improper revenue recognition, Transcrypt's financial statements for the fourth quarter of 1996, the 1996 year-end, the second, third and fourth quarters of 1997, and the 1997 year-end were materially misstated. Transcrypt included some of these financial statements in the following filings with the Commission: quarterly reports on Form 10-Q for the second and third quarters of 1997; an annual report on Form 10-K for 1996; a current report on Form 8-K filed on September 23, 1997; and, a registration statement on Form S-1 filed on September 12, 1997, and amendments thereto. Transcrypt also disseminated false financial statements through press releases issued on February 20, 1997, July 15, 1997, October 13, 1997, October 29, 1997, and February 6, 1998.

E. Because Transcrypt improperly recorded revenue, its books, records and accounts did not, in reasonable detail, accurately and fairly reflect the relevant transactions. Moreover, Transcrypt's internal accounting controls failed to provide reasonable assurances that the company's financial statements were prepared in accordance with generally accepted accounting principles in that persons qualified to make revenue recognition decisions were not given complete and accurate information about the terms of transactions before they recorded revenue, and certain of Transcrypt's officers overrode revenue-recognition decisions made by the company's internal accountants.

F. Transcrypt, through certain of its officers, knew or was reckless in not knowing that it disseminated the false and misleading financial statements noted above, maintained false books and records, and had deficient internal controls. Accordingly, Transcrypt violated Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 thereunder.


Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Transcrypt cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13,and 13b2-1 thereunder.

By the Commission.

Jonathan G. Katz