<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, DC 20549-1004


                                    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 MARCH 31, 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 0-21681

                         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  [X]          NO [ ]


     As of April 30, 1999, 12,946,624 shares of the Registrant's Common Stock 
were outstanding.

<PAGE>


PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
(in thousands)

<TABLE>
<CAPTION>
                                                                                      MARCH 31,                DECEMBER 31,
                                  ASSETS                                                1999                      1998
                                                                                ---------------------     ----------------------
                                                                                    (unaudited)
<S>                                                                             <C>                       <C>
Current assets:
    Cash and cash equivalents                                                       $     18,675               $     20,262
    Accounts receivable, net of allowance for returns and doubtful
     accounts of $2,111 and $1,997 respectively                                            7,952                      9,287
    Receivables - other                                                                      236                        605
    Cost in excess of billings on uncompleted contracts                                    1,518                      1,216
    Inventory                                                                             12,377                     13,907
    Prepaid expenses                                                                         648                        552
    Deferred tax assets                                                                    5,157                      5,157
                                                                            ---------------------     ----------------------
                          Total current assets                                            46,563                     50,986
Property, plant and equipment, net                                                        11,291                     11,885
Deferred tax assets                                                                        7,219                      7,219
Intangible assets, net of accumulated amortization                                        16,315                     16,711
Other assets                                                                                 418                        411
                                                                             ---------------------     ----------------------
                                                                                    $     81,806               $     87,212
                                                                             =====================     ======================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Revolving line of credit                                                        $      7,329               $      7,426
    Current portion of long-term debt                                                      2,590                      2,732
    Accounts payable                                                                       2,552                      2,620
    Billings in excess of cost on uncompleted contracts                                    4,449                      4,541
    Deferred revenue                                                                         932                      1,140
    Accrued expenses                                                                       4,324                      5,101
    Provision for litigation settlement                                                   10,000                     10,000
                                                                            ---------------------     ----------------------
                          Total current liabilities                                       32,176                     33,560
Long-term debt, net of current portion                                                         2                          6
Deferred revenue                                                                             489                        550
                                                                             ---------------------     ----------------------
                                                                                          32,667                     34,116
                                                                             ---------------------     ----------------------

Commitments and contingencies
Stockholders' equity:
    Common stock                                                                             129                        129
    Additional paid-in capital                                                            90,315                     90,315
    Accumulated deficit                                                                  (41,305)                   (37,348)
                                                                            ---------------------     ----------------------
                                                                                          49,139                     53,096
                                                                            ---------------------     ----------------------
                                                                                    $     81,806               $     87,212
                                                                            =====================     ======================
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                                                        Page 2

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS  (CONTINUED)


TRANSCRYPT INTERNATIONAL, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and 1998
(Unaudited) (in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                      ------------------------------------
                                                           1999                1998
                                                      ---------------    -----------------
<S>                                                   <C>                <C>
Revenues                                                    $  9,709           $   21,988
Cost of sales                                                  7,735               12,910
                                                      ---------------    -----------------
      Gross profit                                             1,974                9,078
                                                      ---------------    -----------------
Operating expenses:
    Research and development                                   1,714                2,038
    Sales and marketing                                        1,726                3,210
    General and administrative                                 2,634                2,113
                                                      ---------------    -----------------
      Total operating expenses                                 6,074                7,361
                                                      ---------------    -----------------

      Income (loss) from operations                          (4,100)                1,717

Other income                                                     108                   16
Interest income                                                  203                  394
Interest expense                                               (168)                 (99)
                                                      ---------------    -----------------
      Income (loss) before income taxes                      (3,957)                2,028
Income tax provision                                               -                  712
                                                      ---------------    -----------------
           Net income (loss)                              $  (3,957)            $   1,316
                                                      ===============    =================

Net income (loss) per share - Basic                       $   (0.31)            $    0.10
                                                      ===============    =================
Net income (loss) per share - Diluted                     $   (0.31)            $    0.10
                                                      ===============    =================

Weighted average common shares - Basic                    12,946,624           12,946,624
                                                      ===============    =================
Weighted average common shares - Diluted                  12,946,624           13,621,149
                                                      ===============    =================
</TABLE>

      See accompanying notes to the consolidated financial statements.

                                                                        Page 3
<PAGE>


ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)


TRANSCRYPT INTERNATIONAL, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1999 and 1998
(Unaudited) (in thousands)

<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED MARCH 31,
                                                                           ---------------------------------------------------
                                                                                    1999                        1998
                                                                           ------------------------    -----------------------
<S>                                                                        <C>                         <C>
Net cash flow used in operating activities                                          $        (588)             $      (3,728)
                                                                           ------------------------    -----------------------
Cash flow from investing activities:
  Proceeds from sale of fixed assets                                                            72                          -
  Purchase of fixed assets                                                                   (135)                      (747)
  Increase in intangible assets                                                               (19)                          -
  Decrease in other assets                                                                     (8)                          -
  Payments on restructuring reserve                                                          (666)                      (278)
  Sale of investments                                                                            -                      1,750
                                                                           ------------------------    -----------------------
           Net cash provided by (used in) investing activities                               (756)                        725
                                                                           ------------------------    -----------------------

Cash flow from financing activities:
  Borrowings (payments) on revolving lines of credit, net                                     (98)                      5,759
  Payment of industrial development revenue bonds                                            (140)                          -
  Payment on term loans, lines of credit and capitalized leases                                (5)                    (2,546)
                                                                           ------------------------    -----------------------
           Net cash provided by (used in) financing activities                               (243)                      3,213
Net increase (decrease) in cash                                                            (1,587)                        210
Cash and cash equivalents at beginning of period                                            20,262                     15,384
                                                                           ------------------------    -----------------------
Cash and cash equivalents at end of period                                           $      18,675              $      15,594
                                                                           ========================    =======================
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                                                        Page 4

<PAGE>

                 TRANSCRYPT INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                 (in thousands, except share and per share data)

1. GENERAL

           The condensed consolidated balance sheet of Transcrypt 
International, Inc. ("Transcrypt" or the "Company") at December 31, 1998 has 
been taken from audited consolidated financial statements at that date and 
condensed. The condensed consolidated financial statements for the three 
months ended March 31, 1999 and for the three months ended March 31, 1998 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 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 for the year ended December 31, 1998. 
The results of operations and cash flows for the three months ended March 31, 
1999 are not necessarily indicative of the results for the entire fiscal year 
ending December 31, 1999. Where appropriate, items within the condensed 
consolidated financial statements have been reclassified from the previous 
periods' presentation.

2. ORGANIZATION AND CONSOLIDATION

           The Company is a manufacturer of information security products and 
wireless communications products and systems. The Company designs and 
manufactures information security products, which prevent unauthorized access 
to sensitive voice communications. These products are based on a wide range 
of analog scrambling and digital encryption technologies and are sold mainly 
to the land mobile radio ("LMR") and telephony security markets. Through its 
E.F. Johnson subsidiary, the Company designs, develops, manufactures and 
markets (1) trunked and conventional radio systems, (2) stationary land 
mobile radio transmitters/receivers and (3) mobile and portable radios. The 
Company sells its LMR products and systems mainly to two broad markets: (1) 
business and industrial ("B&I") users and (2) public safety and other 
governmental users.

           The condensed consolidated financial statements include the 
accounts of the Company and its wholly owned subsidiaries. All significant 
inter-company accounts and transactions have been eliminated in the 
consolidation.

3. LOSS PER SHARE

           Basic earnings per share (EPS) is calculated based upon the 
weighted average number of common shares outstanding during the period. The 
diluted EPS calculation reflects the potential dilution from common stock 
equivalents such as stock options. For the three months ended March 31, 1999 
a net loss was incurred and the impact of outstanding stock options on 
diluted EPS is anti-dilutive. For the three months ended March 31, 1998, net 
income per share - diluted includes incremental shares for outstanding stock 
options of 674,525 shares.



                                                                        Page 5

<PAGE>
4. INVENTORY

           The following is a summary of inventory at March 31, 1999 and 
December 31, 1998:

<TABLE>
<CAPTION>
                                          March 31, 1999        December 31, 1998
                                          --------------        -----------------
<S>                                       <C>                   <C>
Raw materials and supplies                  $     5,997           $     6,267
Work in progress                                  1,263                 1,337
Finished goods                                    5,117                 6,303
                                                 ------                ------
                                            $    12,377           $    13,907
                                                 ------                ------
                                                 ------                ------

</TABLE>



                                                                        Page 6


<PAGE>

5. REVOLVING LINES OF CREDIT

           The Company has a line of credit with a regional bank. It is a 
secured line of credit not to exceed $10,000. The variable interest rate is 
1.25% over the interest rate earned on the $10,000 cash collateral used as 
security on the bank line of credit. This line of credit is due on August 31, 
1999. The working capital line is collateralized by substantially all the 
Company's assets including $10,000 in certificate of deposits with the bank.

           At March 31, 1999, the Company had $7,329, outstanding on the 
revolving line of credit. At December 31, 1998, the Company had $7,426, 
outstanding on the line of credit. The Company had an additional fixed line 
of credit with the same regional bank. It had a secured line of credit for 
$196. This line of credit and applicable accrued interest was paid off on 
February 10, 1999.

6. COMMITMENTS AND CONTINGENCIES

           The Company has been named as a defendant in class action 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 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, as amended, also name one or more officers of the 
Company and PriceWaterhouseCoopers, LLP 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 federal class actions generally allege claims under Sections 
11 and 15 of the Securities Act of 1933 and 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 class action 
complaints seek unspecified compensatory damages, attorneys' fees and costs. 
The federal class actions have been consolidated and lead plaintiff 
appointed. The amended federal class action complaint was filed on March 4, 
1999 and the Company is required to answer or otherwise respond to the 
complaint by May 19, 1999.

           Although the class action complaints 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 
material. 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 is attempting to settle the class action lawsuits with 
a combination of Company stock and cash up to the limits of its directors' 
and officers' liability insurance. In the quarter ended December 31, 1998, 
the Company booked a special provision of $10.0 million relating to the 
federal and state class action lawsuits pending in Nebraska against the 
Company and certain of its current and former officers. As previously 
disclosed, the Company is in ongoing settlement discussions regarding these 
lawsuits. While no settlement agreement has been reached, the $10.0 million 
special provision is the Company's best estimate of the amount that would be 
necessary for the Company to contribute to settle the class actions. The 
Company would anticipate satisfying any settlement by issuing shares of 
common stock to the class members rather than using its cash reserves. 
Despite the taking of the special provision, the Company can give no 
assurances whether any settlement can be reached, what the terms of any 
settlement would be or whether the Company would be required to contribute 
more than $10.0 million.

           On November 4, 1998, Physician's Mutual Insurance Company filed an 
action in the District Court of Douglas County, Nebraska against the Company, 
PriceWaterhouseCoopers, LLP and two former officers of the Company. The 
complaint contains common law causes of action for fraudulent 
misrepresentation, fraudulent concealment and negligent misrepresentation 
against the defendants arising from the same facts and circumstances 
underlying the class actions. The complaint seeks damages in an amount to be 
proved at trial, but which is currently alleged to be approximately $850,000. 
The Company is unable to predict the likelihood of the outcome or range or 
amount of potential liability that may arise therefrom.

                                                                        Page 7

<PAGE>

                                                                        Page 8

<PAGE>

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

           Many factors will ultimately affect and determine the results of 
the litigation however, and the Company can provide no assurances that the 
outcomes will not have a material adverse effect on the Company's business, 
financial condition, results of operations and cash flows.

           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.

           In April 1998, the Securities and Exchange Commission ("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. At the present time, the Company is unable to predict 
whether the SEC is likely to initiate enforcement action against the Company 
or its affiliated parties relating to these events.

           The Company is involved in certain other legal proceedings 
incidental to the normal conduct of its business. The Company does not 
believe that any liabilities relating to such other legal proceedings are 
likely to be, individually or in the aggregate, material to the Company's 
business, financial condition, results of operations or cash flows.

7. SEGMENT AND RELATED INFORMATION

      The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN 
ENTERPRISE AND RELATED INFORMATION, in 1998.

      The Company's reporting segments are strategic business units that 
offer different products and services. Management considers its operations to 
comprise two industry segments. One segment consists of business conducted in 
the information security industry, which comprises the design, manufacture 
and sale of devices that prevent the unauthorized interception on sensitive 
voice and data communication. The second business segment competes in the 
wireless communication industry where the Company designs, develops, 
manufactures and markets stationary land mobile radio transmitters/receivers, 
mobile and portable radios and trunked and conventional radio communication 
systems.

      The following table is a summary of unaudited quarterly results for the 
three months ended March 31, 1999 and 1998.

<TABLE>
<CAPTION>
                                                QUARTER ENDED
            ----------------------------------------------------------------------
                                                   MARCH 31,            MARCH 31,
            ----------------------------------------------------------------------
            IN THOUSANDS                             1999                 1998
            ----------------------------------------------------------------------
            <S>                                 <C>                  <C>
            SALES
            Information Security                    $  1,956             $  3,790
            Wireless Communication                     7,753               18,198
                                                -------------        -------------
            TOTAL SALES                                9,709               21,988
                                                -------------        -------------
            COST OF GOODS SOLD
            Information Security                       1,075                  877
            Wireless Communication                     6,659               12,033
                                                -------------        -------------
            TOTAL COST OF GOODS SOLD                   7,735               12,910
                                                -------------        -------------
            GROSS MARGIN
            Information Security                         881                2,913
            Wireless Communication                     1,094                6,164
                                                -------------        -------------
            TOTAL GROSS MARGIN                       $ 1,974             $  9,078
            ======================================================================

            ----------------------------------------------------------------------
            GROSS MARGIN PERCENTAGE
            Information Security                       45.0%                76.9%

                                                                        Page 9
<PAGE>

            Wireless Communication                     14.1%                33.9%
            TOTAL GM PERCENTAGE                        20.3%                41.3%
            ----------------------------------------------------------------------
</TABLE>




                                                                        Page 10
<PAGE>


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

           The following table sets forth certain Consolidated Statements of 
Operations (in thousands) information as a percentage of revenues during the 
periods indicated:

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED MARCH 31,
                                                ------------------------------------------------------------
                                                        1999                           1998
                                                ------------------------------------------------------------
     <S>                                        <C>               <C>           <C>              <C>
     Revenues                                        $ 9,709          100.0%        $21,988          100.0%
     Cost of sales                                     7,735           79.7%         12,910           58.7%
                                                -------------     -----------   ------------     -----------
     Gross profit                                      1,974           20.3%          9,078           41.3%
     Operating expenses:
          Research and development                     1,714           17.7%          2,038            9.3%
          Sales and marketing                          1,726           17.8%          3,210           14.6%
          General and administrative                   2,634           27.1%          2,113            9.6%
                                                -------------     -----------   ------------     -----------
               Total operating expenses                6,074           62.6%          7,361           33.5%
                                                -------------     -----------   ------------     -----------
     Income (loss) from operations                   (4,100)         (42.3)%          1,717            7.8%
     Other income                                        108            1.1%             16            0.1%
     Interest income                                     203            2.1%            394            1.8%
     Interest expense                                  (168)          (1.7)%           (99)          (0.5)%
                                                -------------     -----------   ------------     -----------
     Income (loss) before income taxes               (3,957)         (40.8)%          2,028            9.2%
     Provision for income taxes                            -            0.0%            712            3.2%
                                                -------------     -----------   ------------     -----------
               Net income (loss)                   $ (3,957)         (40.8)%        $ 1,316            6.0%
                                                =============     ===========   ============     ===========
</TABLE>

           Discussions of certain matters contained in this Quarterly Report 
on Form 10-Q may constitute forward-looking statements under Section 27A of 
the Securities Act of 1933, as amended (the "Securities Act"), and Section 
21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). 
These statements may involve risks and uncertainties. These forward-looking 
statements relate to, among other things, the outcome of pending class action 
litigation involving the Company, the outcome of the pending investigation by 
the SEC, the effects of the Company's restatement of its financial statements 
on the Company's product development efforts, future sales levels and 
customer confidence, the Company's future financial condition, liquidity and 
business prospects generally, perceived opportunities in the marketplace for 
the Company's products and its products under development, expectations 
regarding the Company's efforts to resolve Year 2000 issues and the effects 
of a failure to resolve such issues and the Company's other business plans 
for the future. The actual outcomes of these matters may differ significantly 
from the outcomes expressed or implied in these forward-looking statements 
and other risks detailed in "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, 1998.

           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 Consolidated 
Financial Statements and Notes thereto.

Restatement and Recent Developments

           In 1998, the Company restated its previously released results for 
the year ended December 31, 1997, the Company's financial statements 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

                                                                       Page 11

<PAGE>

restatement of the Company's financial statements and other events relating 
to the restatement, including the class action lawsuits and the SEC 
investigation which occurred subsequent to March 31, 1998, have had an adverse





                                                                       Page 12

<PAGE>

Restatement and Recent Events (Continued)

impact on the Company's business, financial condition, results of operations, 
liquidity and cash flows. These events have had, to varying degrees, an 
adverse impact on the Company's relationships with its customers and vendors. 
Because of these events, the Company is also evaluating all of its product 
lines, and has implemented and is continuing to look at various initiatives 
to reduce operating expenses in order to keep them in line with revenues. 
Implementation of any plan resulting from these initiatives in the future may 
result in substantial up front costs and cash expenditures. The Company can 
provide no assurance that the restatement of the financial statements and the 
ongoing class action and securities lawsuits and SEC investigation, 
regardless of their outcomes, will not continue to have a material adverse 
effect on the Company's business, financial condition, results of operations, 
liquidity and cash flows.

           In connection with the bidding requirements on domestic systems 
contracts with governmental agencies, the bidding procedures often require 
suppliers of systems to supply a bond from an approved surety company at the 
time the contract is awarded. A number of factors can limit the availability 
of such bonds. These include the applicant's financial condition and 
operating results, the applicant's record for completing similar systems 
contracts and the extent to which the applicant has bonds in place for other 
projects.

           As a result of its review of the Company's recent operating 
results, the current issuer of the Company's bonds recently advised the 
Company that it will only issue additional bonds up to a maximum of $2.0 to 
$3.0 million through June 15, 1999 on behalf of the Company and these bonds 
would have to be collateralized up to 50% of the amount of the bond.

           The Company has identified another surety company to issue bonds 
for the Company on a case by case basis subject to terms and conditions 
negotiated for each such bond. The new surety company has advised the Company 
that it will require some amount of collateral on any bonds it may issue.

           To the extent that the Company is a successful bidder on any 
domestic systems contracts and depending on the Company's overall need for 
bonds, the requirement that any additional bonds be collateralized could 
adversely affect the Company's ability to bid on or be awarded new domestic 
systems contracts. This, in turn, could have a material adverse affect on the 
Company's business, financial condition, results of operations and liquidity.

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 
negotiated as part of the sale agreement of the division by EFJ. The advanced 
payment is recognized as revenue is earned.

           Revenues decreased 55.8% to $9.7 million in the first quarter of 
1999, compared to $22.0 million during the same period of 1998. Of total 
revenues in the first quarter, the information security segment comprised 
20.1% and the wireless communication segment comprised 79.9%. The decline was 
primarily attributable to declines in sales of LMR systems to government 
agencies, lower revenues from business and industrial users and international 
sales in the wireless communication segment.

           The decrease in revenues was partially attributable to the 
uncertainty raised by the restatement discussed above, which has adversely 
impacted sales of LMR systems to governmental agencies. The Company was not 
awarded any domestic system contracts in 1998. During the first quarter of 
1999, the Company was awarded two contracts in the domestic public safety 
market for approximately $6.0 million, any revenue on these contracts will be 
recognized as revenue over the next 12 months. The recent action taken by the 
Company's surety company described above under "Restatement and Recent 
Developments" could adversely effect, among other things, the Company's 
ability to bid on LMR systems to government agencies in the future.

           The Company also experienced reduced demand and downward pricing 
pressure for its wireless communication analog products sold to business and 
industrial users. Management believes that this is due to several factors. 
These include the fact that (1) no new 800 MHz SMR frequencies are being made 
available and existing channels are filling up; (2) SMR operator's with 
licenses for 900 MHz channels have been slow to develop their build outs; (3) 
there has been consolidation in both of these SMR marketplaces; and (4) a 
number of SMR systems have been converting from analog to digital which has 
resulted in the increasing availability of used analog radios and repeaters 
in the marketplace. In an effort to reverse the downward trend of its B&I 
sales, the Company has reduced prices on certain B&I products. While the 
price reduction may improve overall sales, it will have a negative impact on 
gross margins.

                                                                       Page 13
<PAGE>

           Revenues from international sales declined to $2.4 million for the 
three months ended March 31, 1999, compared to $8.0 million for the same 
period in 1998. The decrease is primarily due to a decline in sales in 
Central and Latin America. The Company's revenue in the first quarter of 1999 
for Central and Latin America decreased approximately 75% compared to the 
first quarter of 1998. The decline in revenues to Central and Latin America 
is attributable to economic uncertainty, which resulted in recent currency 
fluctuations in the region. Middle East and Asian revenues for the first 
three months of 1999 were down approximately 68% compared to the first three 
months of 1998 and this decrease was due to continued economic weakness in 
that region of the world. Revenues in Europe, while a small percentage of 
overall sales, decreased approximately 17.3% for the first three months of 
1999 compared to the same period in 1998. The Company's international sales 
may continue to be depressed for the rest of 1999 as compared to 1998 due to 
world economic conditions.

           In an effort to improve sales, the Company plans to introduce new 
products in 1999. Land mobile radio secure products to be introduced include 
new encryption modules for deployment in a wide range of mobile radios, 
including the latest Motorola models. In telephony, voice security modules 
are under development for Nokia and Qualcomm cellular phones. The Company's 
EFJohnson Division will introduce new models of our hand-held land mobile 
radios and a new line of digital mobile radios, which are APCO-25 compliant. 
The EFJohnson Division released on March 31, 1999 the Company's LTR-Net-TM- 
trunked radio system. With LTR-Net-TM-, EFJohnson is the only company that is 
currently delivering a complete system solution for enhanced LTR-Registered 
Trademark- networking. The timing of the Company's introduction of proposed 
new products and the acceptance of any new products introduced by the Company 
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.

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, royalty and warranty product costs. Gross profit was $2.0 million 
(20.3% gross margin) for the first quarter of 1999, compared to $9.1 million 
(41.3% gross margin) for the same period in 1998. Gross margin for the 
information security segment was 45.0% in the first quarter of 1999, and was 
76.9% for the same period in 1998. Gross margin for the wireless 
communications segment was 14.1% in the first quarter of 1999 and was 33.9% 
for the same period in 1998.

           The overall decline in gross margin percentage from 1999 to 1998 
was due to a number of factors. These include (1) the decline in sales of 
domestic system contracts to the public safety market which provides a higher 
margin than the business and industrial portion of E.F. Johnson's wireless 
segment; (2) product mix and the level of sales not being sufficient to fully 
absorb the Company's manufacturing overhead; and (3) a shift in the Company's 
information security product segment from primarily add-on products to more 
radios and cellular phones incorporating the Company's encryption products, 
which tends to have a lower gross margin. Gross margins are likely to vary in 
the future based primarily upon the mix of products and the amount of 
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 decreased to $1.7 million in the first quarter of 
1999 from $2.0 million in the first quarter of 1998. This decrease was 
primarily due to a reduced engineering staff. The Company's implementation of 
a new product development process in the third quarter of 1998 is intended to 
speed up the Company's ability to deliver products to market which should 
also aid in reducing research and development expenses and requires a reduced 
amount of resources. The Company is focusing its research and development 
processes in such a way as to not require the staffing levels employed in 
1998. The Company anticipates research and development expenses to remain at 
a level similar to the first quarter of 1999.

           The information security and wireless communications product 
markets in which the Company competes are rapidly evolving and can be 
expected to further evolve in the future as a result of changing technology, 
industry standards and customer requirements. The Company's ability to 
compete effectively will depend upon its ability to

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<PAGE>

anticipate and react to these changes in a timely manner. The Company may not 
have, either currently or in the future, adequate capital resources or funds 
to respond to these changes.

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 and trade show 
participation. Sales and marketing expenses decreased to $1.7 million in the 
first quarter of 1999 from $3.2 million in the first quarter of 1998. This 
was primarily due to a decrease in sales commissions and fewer sales 
personnel. Sales and marketing expenses increased as a percentage of sales to 
17.8% for the first three months of 1999 from 14.6% in the first three months 
of 1998 primarily due to a decrease in revenues. The Company anticipates that 
sales and marketing expenses will continue to decline in 1999 as compared to 
1998 due to the Company's efforts to reduce its overall operating expenses.

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 $2.6 million in the first 
quarter of 1999 from $2.1 million in the first quarter of 1998. The increase 
is due primarily to the addition of the Company's management team, which 
began in late first quarter of 1998, and the cost associated with recruiting 
and hiring the Company's current Chairman and CEO in the first quarter of 
1999. The Company anticipates general and administrative expenses to decline 
for the remainder of 1999 on a quarterly basis when compared to 1998.

Net Interest Income (Expense)

           Net interest income consists of interest income earned on cash and 
investable funds, net of interest expense related to amounts payable on the 
Company's term and installment loans and bank lines of credit. Net interest 
income was $35,000 in the first quarter of 1999, as compared to $295,000 in 
the first quarter of 1998. With the increase of bank debt during 1998 and a 
declining balance of investable cash and cash equivalents, interest income is 
expected to continue to decline while interest expense will increase on a 
quarterly basis, as it did in the first quarter of 1999, until the Company is 
able to become cash flow positive.

Other Income, net

           Other income, net for the first quarter of 1999 was primarily 
related to the sale of property.

Benefit for Income Taxes

           The Company did not record a tax benefit in the first quarter of 
1999, compared to a tax provision of $712,000 in the first quarter of 1998. 
The Company's decision not to record a benefit for income taxes in 1999 is 
based on its analysis of the need for a valuation allowance under Statement 
of Financial Accounting Standards No. 109 "Accounting for Income Taxes". 
Management considers the scheduled reversal of deferred tax liabilities, 
projected future taxable income, and tax planning strategies in making this 
assessment.

Liquidity and Capital Resources

           Since January 1, 1997, the Company has financed its operations and 
met its capital requirements primarily through short-term borrowings, 
long-term debt and stock offerings completed on January 22, 1997 and October 
15, 1997.

           The Company's operating activities used cash of $588,000 in the 
first three months of 1999 compared to $3.7 million in the first three months 
of 1998. Cash used in operating activities in the first three months of 1999 
consisted primarily of a net loss plus a decrease in accounts payable and a 
decrease in accrued expenses, offset in part by depreciation and 
amortization, a decrease in inventory, and a decrease in accounts receivable.

                                                                       Page 15

<PAGE>

           The deferred tax assets totaling $12.4 million were 15.1% and 
25.2% of total assets and stockholders' equity, respectively, at March 31, 
1999. As mentioned above, the Company did not book a provision for income 
taxes in 1999. 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.

           Cash used by investing activities was $756,000 for the first three 
months of 1999 as compared to cash provided by investing activities of 
$725,000 in the first three months of 1998. Capital expenditures of $135, 000 
for the first three months of 1999 consisted primarily of manufacturing 
equipment, computer equipment and software. Capital expenditures of $747,000 
for the first three months of 1998 consisted primarily of computer and 
networking equipment, office furniture and manufacturing equipment and phase 
III construction at the Company's Lincoln facility.

           Financing activities used cash of $243,000 in the first three 
months of 1999. Financing activities consisted of a decrease in borrowings on 
the Company's line of credit and a payment of $140,000 due on the Company's 
industrial development revenue bonds. Cash provided by investing activities 
for the first three months of 1998 consisted of $5.8 million in borrowings on 
the Company's revolving line of credit less a $2.6 million payment on 
long-term debt.

           As of March 31, 1999, the Company had $7.3 million in outstanding 
indebtedness under its line of credit with its bank. It is a secured line of 
credit not to exceed $10.0 million. Interest is at a variable rate of 1.25% 
over the interest rate earned on the $10.0 million on certificates of 
deposits pledged as security on the bank line of credit. This line of credit 
is due on August 31, 1999. The working capital line is collateralized by 
substantially all the Company's assets including $10.0 million in certificate 
of deposits with the bank. The Company also had an additional secured fixed 
line of credit of $196,000 with the same regional bank. This line of credit 
and applicable accrued interest was paid off on February 10, 1999.

           The Company had outstanding IDR Bonds totaling $2.6 million at 
March 31, 1999, which is classified as a current liability. The IDR is due in 
annual principal payments of $140,000 plus interest at a variable rate 
beginning 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 
on March 1, 2017. The Company has pledged cash collateral of $2.8 million as 
additional security on this indebtedness.

           The Company does not anticipate paying cash dividends in the 
foreseeable future.

            As of March 31, 1999, the Company had approximately $18.7 million 
in cash and cash equivalents, which includes $10.0 million of certificates of 
deposit pledged as security on its bank line of credit and $2.8 million 
pledged as security on its IDR Bond. There was approximately $2.7 million 
available under its bank line of credit at March 31, 1999. The Company's bank 
line of credit expires on August 31, 1999 and the Company is currently 
seeking to refinance its bank line of credit. However, it has been difficult 
to refinance the debt or obtain new lines of credit primarily due to 
uncertainties resulting from the pending class action lawsuits and declining 
revenues and losses incurred since March 31, 1998. The Company can provide no 
assurance that it will be able to secure new financing or a renewal of its 
line of credit, and if successful, what would be the terms of such financing. 
The recent decision of the Company's surety company to require collateral on 
bonds issued in the future could put a further strain on the Company's 
liquidity and working capital. To improve its cash position, the Company is 
currently negotiating for the sale and leaseback of its facilities in Waseca 
and Lincoln. The Company believes that its cash, cash equivalents, and lines 
of credit will be sufficient to meet anticipated cash needs for working 
capital and for the Year 2000 capital expenditures through 1999. However, if 
sales do not increase and operating losses do not decline, or the Company is 
not able to furnish collateral for bonds on new domestic systems, or the 
Company incurs unanticipated substantial costs, the Company may be required 
to seek additional financing or funding sources, including possible sale of 
securities. No assurance can be given that the Company will be able to obtain 
such additional funding or financing, or a renewal of its line of credit or be 
able to obtain financing on satisfactory terms. Additionally, see "Note 6. 
COMMITMENTS AND CONTINGENCIES" above for a discussion regarding certain 
pending litigation, the resolution of which could materially adversely affect 
the Company's liquidity, operating results and financial condition.

                                                                       Page 16
<PAGE>

Recently Issued Accounting Standards

           In June 1997, FASB issued Statement of Financial Accounting 
Standards No. 131, Disclosures about Segments of an Enterprise and Related 
Information ("SFAS 131"). SFAS 131 requires publicly-held enterprises to 
report certain information about their operating segments, to report certain 
enterprise-wide information about their products and services, their 
activities in different geographic areas, and their reliance on major 
customers, and to also disclose certain segment information in their interim 
financial statements. The basis for determining an enterprise's operating 
segments is the manner in which management operates the business. The Company 
has adopted SFAS 131 effective December 31, 1998, and segment reporting can 
be found in "Note 7. SEGMENT AND RELATED INFORMATION."

Impact of the Year 2000 Issue

State of Readiness

           The Year 2000 issue is the result of computer programs being 
written using two digits rather than four to define the applicable year. Any 
of the Company's computer programs that have date-sensitive software may 
recognize a date using "00" as the year 1900 rather than the year 2000. This 
could result in a system failure or miscalculations causing disruptions of 
operations, including, among other things, a temporary inability to process 
transactions or engage in similar normal business activities.

           All products currently being shipped by the Company are Year 2000 
compliant. Should a customer use the Company's software with a personal 
computer that is not compliant with the year 2000, at that time, the customer 
may experience erroneous dates on usage reports, but should not experience 
any operational issues. Customers inquiring about previously shipped products 
are forwarded to the Year 2000 Compliance Manager in Engineering Product 
Development. The Year 2000 Compliance Manager researches the customer's 
product and responds in writing as to whether the product is compliant. One 
obsolete software product has been identified which will incorrectly report 
the date after December 31, 1999. A solution for this issue has been 
developed to correct this problem and has been offered to customers 
identified as having purchased systems, which include this application 
software. Written test instructions are also published for the customer to 
check their equipment.

           In February 1999, Transcrypt completed the first phase of 
identifying and thoroughly researching non-compliant hardware and software. 
In addition, the Company has completed the process of seeking quotes and 
delivery estimates for the equipment and software that must be replaced or 
upgraded to be Year 2000 compliant.

Transcrypt has identified and prioritized the following non-compliant items:

           -   The current version of our Enterprise Resource Planning ("ERP")
               software is non-compliant. Our ERP system consists of our
               manufacturing and accounting software systems. A software upgrade
               has been scheduled with the vendor. The manufacturing and
               accounting system software will be converted as is, with very few
               customizations. In addition to vendor support, three contractors
               have been engaged to support the conversion process. The Company
               has been advised that the software upgrade is Year 2000 compliant
               and is scheduled for completion in the third quarter 1999.

           -   Four wide area network file servers, which run our software
               applications and interconnects the Company's various locations,
               must be replaced with compliant servers. The servers are to be
               installed by the end of June 1999. The remaining servers have
               already been upgraded with Year 2000 compliant operating
               software.

           -   The payroll system also must be upgraded to be Year 2000
               compliant. The contract for this upgrade has been signed with the
               vendor, the equipment has been ordered. The upgrade should be
               completed by end of May 1999.

           -   Approximately 98 workstations used by various Company personnel
               must be replaced due to compliance issues. The ordering of these
               replacements have begun and is scheduled for completion by

                                                                       Page 17

<PAGE>

               the end of August 1999. Additional resources have been hired to
               assist with this compliance step.

           -   The voicemail systems in Waseca and Lincoln are not Year 2000
               compliant and must be upgraded. The necessary software has been
               ordered to upgrade the Waseca system. The Lincoln voicemail
               system will be replaced in connection with the installation of a
               new telephone switch. Both location installations are to be
               completed by the end of the third quarter 1999.

     Management believes that all projects relating to Year 2000 compliance 
will be completed by the end of the third quarter of 1999.

           The upgrade to the Company's ERP software discussed above only 
addresses the information technology part of the Company's state of readiness 
with Year 2000 issues. There are other computerized systems involved in 
manufacturing and engineering systems of the Company that may contain 
embedded technology such as microcontrollers. A preliminary assessment was 
made as to what effect, if any, the Year 2000 issue will have on these 
systems and whether or not there will be a material effect on future 
financial results. As of April 30, 1999, no definitive conclusions have been 
drawn. Furthermore, the Company has not yet initiated formal communications 
with all of its significant suppliers to determine the extent to which the 
Company is vulnerable to those third parties' failure to remediate their own 
Year 2000 issues. The Company intends to perform steps to obtain reasonable 
verification and written assurances from these suppliers as to their Year 
2000 readiness by June 30, 1999.

           Certifications have been received from the security system, 
elevators, fire alarm systems, air conditioning and heating systems at the 
Lincoln facility. The same checks are being performed in Waseca, and remote 
offices.

Costs to Address the Year 2000 Issue.

           The Company has budgeted expenditures of approximately $550,000 to 
$750,000 to ensure that its systems are ready for processing information in 
the Year 2000. The majority of these expenditures relate to the cost of 
purchasing hardware and hardware installation. The Company estimates that it 
has incurred approximately $75,000 in Year 2000 expenditures through March 
31, 1999 with the balance of the budgeted expenditures to be incurred by the 
end of 1999. In addition, the Company has incurred, and will continue to 
incur, certain costs relating to the temporary reallocation of its internal 
resources to address Year 2000 issues. The Company does not separately 
account for the internal costs incurred for the Year 2000 issue. The Company 
anticipates funding year 2000 expenditures from current cash reserves and 
capital leases for certain portions of the project. All costs specifically 
allotted to Year 2000 remediation are expensed as incurred.

Risks Presented by the Year 2000 Issue

           If the other internal computerized systems are found not to be 
Year 2000 compliant and significant suppliers were to become unable to 
process shipments to the Company as a result of Year 2000 issues, the issues 
may have a material adverse effect on the Company's business, results of 
operations, and financial condition. There can be no guarantee that the 
systems of other companies on which the Company relies upon will be timely 
converted. Any adverse impact may include the requirement to pay significant 
overtime to manually process certain transactions as a result of a systems 
failure resulting in the inability to process transactions or engage in 
normal business activities. At this time, the Company is unable to predict 
with any certainty the estimated lost revenue it may experience as a result 
of such failure or disruption.

Contingency Plans

           The Company does not currently have any contingency plans to 
address the event of the Company or a major supplier not becoming Year 2000 
compliant. The contingency plan is in the process of being completed while at 
the same time we continue to research all available information on products 
and vendors. The project schedules will be closely monitored and additional 
resources will be added early in the project. All systems are scheduled for 
completion by the end of the third quarter. This allows the three months for 
final testing and adjustments if necessary. During the last week of December 
1999, all users will be instructed to backup critical information, or to 
print paper copies of critical data. Paper copy reports of production 
schedules, shipments, and

                                                                       Page 18

<PAGE>

forms will be printed in advance. A team of information systems staff, 
department representatives, and contractors will be scheduled for the weekend 
of January 1, 2000 to monitor the date change.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

           The Company does a significant amount of business in foreign 
countries. The Company sales in these foreign countries are denominated in 
United States dollars. Certain sales in foreign countries may be secured with 
irrevocable letters of credit. The Company also carries foreign credit 
insurance to cover receivables in a majority of the foreign countries where 
it does business.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

           For a description of pending litigation, see NOTE 6. COMMITMENTS 
AND CONTINGENCIES above.

ITEMS 2 - 5.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

           (a)       Exhibits

           The following exhibits are being filed herewith:

<TABLE>
<CAPTION>
             Exhibit No.               Description 
             -----------               -----------
             <S>              <C>
                 11           Computation of net income per share.
                 27           Financial Data Schedule
</TABLE>

           (b) Reports on Form 8-K

           The Company filed a report on Form 8-K on March 5, 1999, under Item
           5. "Other Events" to report a press release announcing the release of
           its audited consolidated financial statements for 1998 and to report
           a press release announcing Michael E. Jalbert as President and CEO of
           the Company effective March 1, 1999.


                                                                       Page 19

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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 17, 1999                By: /s/ Craig J. Huffaker
                                       ---------------------------------------

                                         Craig J. Huffaker
                                         Chief Financial Officer
                                         (Principal Financial and Accounting
                                         Officer)



                                                                       Page 20