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Litronic Outlines Plans to Win Part of the Multi Billion Dollar Internet Security Market

IRVINE, CA, July 8, 1999 -- Litronic Inc. (NASDAQ: LTNX), a world leader in professional Internet data security services and secure electronic commerce applications, today announced details of its strategic growth plans, which are designed to enable the Company to win an increased share of the fast growing Internet security market.

The Company also announced the completion of its acquisition of Pulsar Data Systems, a network integration solutions company.

Kris Shah, Litronic's Chairman and Chief Executive Officer, said, "Litronic has recognized the booming growth of e-commerce and that market's need for a security based infrastructure. For, in today's environment, Internet security is not an option, it's a necessity. To that end, we have positioned ourselves to lead the industry by offering comprehensive products and services that satisfy the need for security in this marketplace, and we have the vision and the expertise to capture this sizable opportunity."

The Company's PKI technology helps ensure the integrity and privacy of information being transmitted electronically and verifies the identity, authenticity and authority of the sender and the recipient of that information.

Target Markets

With the Pulsar acquisition and the infusion of $38 million in proceeds from the Company's recent IPO, Litronic is focused on bolstering its operations in order to capture synergies and broaden and accelerate its penetration of the Internet security market, which is estimated to reach $7 billion by 2001. The Internet security market is being driven by the tremendous growth in business-to-consumer and business-to-business e-commerce, that are projected to reach $200 billion by 2000 and $1.3 trillion by 2003.

Litronic's focus will center on developing large commercial and government accounts that can benefit from totally integrated network security solutions from a single provider. Further, with the Company's superior PKI technology, Litronic is positioned to become a significant player in the PKI market niche growing at 124% annually.

Thomas Seykora, Litronic's Chief Financial Officer, said, "Historically, a large portion of Litronic's revenues have been generated by government accounts. Now, with access to Pulsar's extensive government agency customer base and direct sales force, we expect to be able to aggressively accelerate revenue growth by increased penetration of this market while, at the same time, shifting to higher margin products and services throughout our governmental customer base. We are also implementing additional strategic initiatives with our commercial customers over the next year to produce similar higher margin commercial accounts."

Seykora also commented, "We expect to experience significant top-line growth while continuing to expand gross margins and maximize net income. Going forward, it will also be important for investors to value our financial performance on an annual basis, as opposed to quarter-to-quarter results. The strategic importance of solutions we provide to our customers means our sales and project cycles frequently extend beyond 12 months. While this time scale produces quarter-to-quarter fluctuations, it does provide the benefit of giving us visibility into our future revenue base, with the upside of providing insight into the future deployment needs of our customers."

Litronic's Technology

Litronic is able to satisfy the comprehensive requirements of its customers through the combination of its open-architecture, open-platform, open-token and algorithm-independent technologies and products, and networking solution services. The Company's expanded sales and marketing expertise, as well as the extended breadth of its product offerings, present a competitive edge over other PKI information technology solution providers. This enables Litronic to provide comprehensive information security solutions rather than addressing only selected aspects of customers' data security needs.

The Company provides a full range of security products, software and services including custom integration and maintenance. Litronic also offers open applications standards that allow the integration of products and services of other vendors into the Company's products to enhance its solutions capability.

Litronic's customer base includes a wide range of commercial enterprises and government agencies such as Bank of America, Deloitte & Touche, Disney, Federal Bureau of Investigation, Federal Communications Commission, Lockheed Martin, Microsoft, National Security Agency and Netscape, among others.

Litronic's Products

Litronic is currently working on the next generation PKI token that incorporates an ultra fast 32-bit microprocessor. This product is being developed jointly with Atmel and the National Security Agency.

The NetSign family of products that integrate smart cards and digital certificate technology provides security in software systems for e-commerce, e-mail, Internet access, file access and Web browsers. These products are bundled with a smart card reader/writer and smart cards. NetSign Pro offers additional security encryption capabilities.

ProFile manager is a comprehensive PKI life cycle solution for the management of token-based security systems.

Maestro enables interoperability across different security protocols simultaneously providing a forward path for legacy security systems and a platform independent infrastructure for new applications.

Competitive Advantages

The markets for Litronic's products and services are intensely competitive and are characterized by rapidly changing technology and industry standards, evolving user needs and the frequent introduction of new products. The Company offers the following advantages over its competitors:

* Provides product flexibility to enable customers to implement their chosen security strategy: Litronic offers superior flexibility for its customers in terms of product depth along all price points and capabilities. As a result, the Company can implement programs for its customers that are extremely responsive to their needs and budgets. Litronic is able to distinguish itself from its competitors on this point due to its strategic partnerships that allow it to offer the best technology at a competitive price.

* Litronic's experience and expertise: Litronic, a pioneer in computer security development, brings many years of management expertise in data security solutions to its customers. Further, the Company has a solid operating history with products that are mature and a management team with the experience to implement and maintain successful customer relationships.

* Superior Ease of Use: Litronic's products are designed to integrate seamlessly with existing desktop software so the user is working within a familiar environment. Furthermore, a comprehensive back-office system provides the infrastructure for the easy management of the security policy of the organization, together with the integration of other enterprise-wide applications.

William Holmes, Litronic's Vice President, Commercial Marketing and Sales, said, "We market our products and services primarily through the efforts of our direct sales force that currently consists of 30 people. We plan to grow our direct sales force in the U.S. and establish a network of distributors and value-added resellers internationally. Further, we are going to work tirelessly with strategic partners to optimize the overall Internet security opportunity."


Shah said, "Through our wealth of experience in Internet security, we are able to see what the market is going to demand two to three years ahead of their needs. As a consequence, we are ahead of the curve in terms of technology leadership as well as anticipating the things that need to happen to actually stimulate the wide acceptance of our Internet security solutions. In response, we are building a product strategy that is satisfying this competitive outlook. We are setting up an organization that will recognize the necessary solutions so that products and solutions will be ready for our customers when they realize they need them."

Shah continued, "An integral part in successfully executing our growth strategy is to strengthen our infrastructure with a planned doubling of both our sales force and R&D staff by the end of 2000. In doing so, we will be well-positioned to aggressively penetrate the fast growing Internet security market and continue to remain on the leading edge of our technology, which, when taken together, will enable the Company to rapidly emerge as a market leader."

Litronic's technology leadership and extensive product line are key assets expected to drive market penetration and revenue growth. Other contributing milestones to Litronic's growth include:

* Increasing Internet security market penetration.

* Maintaining technological leadership in Internet protocol-based network security.

* Pursuing strategic acquisitions of technologies, products and businesses that complement Litronic's products and extend its technology leadership.

* Increasing international sales efforts through distributor and reseller relationships.

* Leveraging Pulsar's extensive client base for additional cross-selling opportunities.

* Executing the shift from Phase I to Phase II deployment where Litronic can access its blue chip client base for upgrade and technology improvement initiatives.

* Driving incremental business through strategic relationships with such companies as VeriSign and Microsoft.

About Litronic

Litronic provides professional Internet data security services and develops and markets software and microprocessor-based products needed to secure electronic commerce business transactions and communications over the Internet and other communications networks based on Internet protocols. Litronic's primary data security products use an advanced form of computer security technology referred to as public key infrastructure (PKI). Litronic's Internet security products can be used with world-wide-web browsers, including Netscape Communicator and Microsoft Internet Explorer.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

With the exception of historical information, the matters discussed in this news release relating to the projected growth of e-commence and of the Internet security market; and to Litronic's ability to penetrate the Internet security market, to integrate the Pulsar acquisition and to transition to commercial markets are forward-looking statements that involve a number of risks and uncertainties, including competition from companies with greater financial and technical resources than Litronic, the difficulty in continuing technical innovation (particularly in light of the competitive market for technical personnel), the effect of differing corporate cultures on the integration of the Pulsar acquisition and the acceptance of Litronic's products in the commercial marketplace. Other risks inherent in Litronic's business are described in Securities and Exchange Commission filings, including the Company prospectus. Litronic undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.

CONTACT:  Thomas W. Seykora
          Eileen Morcos/Stacy Roughan
          Chief Financial Officer
          Financial Communications
          Litronic Inc.
          Hill and Knowlton